STAG Industrial Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
April 30, 2025
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Operator

Greetings, and welcome to STAG Industrial Inc. First Quarter twenty twenty five 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. If anyone should require operator assistance during the conference, please press 0 on your telephone keypad.

Operator

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, mister Steve Scharhos, Investor Relations. Thank you, mister Scharhos. You may begin.

Steve Xiarhos
Steve Xiarhos
Vice President - Capital Markets & Investor Relations at STAG Industrial

Thank you. Welcome to STAG Industrial's conference call covering the first quarter twenty twenty five results. In addition to the press release distributed yesterday, we have posted an unaudited quarterly supplemental information presentation on the company's website at www.stagindustrial.com under the Investor Relations section. On today's call, the company's prepared remarks and answers to your questions will contain forward looking statements defined in the Private Securities Litigation Reform Act of 1995. Forward looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today.

Steve Xiarhos
Steve Xiarhos
Vice President - Capital Markets & Investor Relations at STAG Industrial

Examples of forward looking statements include forecasts of core FFO, same store NOI, G and A, acquisition and disposition volumes, retention rates and other guidance, leasing prospects, rent collections, industry and economic trends, and other matters. 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. As a reminder, forward looking statements represent management's estimates as of today. DAG Industrial assumes no obligation to update any forward looking statements. On today's call, you will hear from Bill Crocker, our Chief Executive Officer and Matts Pinard, our Chief Financial Officer.

Steve Xiarhos
Steve Xiarhos
Vice President - Capital Markets & Investor Relations at STAG Industrial

Also here with us today is Mike Chase, our chief investment officer Steve Kimbell, EVP of Real Estate Operations, who are available to answer questions specific to their areas of focus. I will now turn

Steve Xiarhos
Steve Xiarhos
Vice President - Capital Markets & Investor Relations at STAG Industrial

the call over to Bill.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

Thank you, Steve. Good morning, everybody, and welcome to the first quarter earnings call for STAG Industrial. We're pleased to have you join us and look forward to telling you about the first quarter twenty twenty five results. We had a very strong start to the year, resulting in core FFO per share of $0.61 in the first quarter, exceeding our initial expectations. I'm happy to report that we have already leased 78.5% of the operating portfolio square feet we currently expect to lease in 2025, achieving cash leasing spreads of 25.1.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

This level of leasing is at a similar pace to last year and consistent over the last few years. While tenant activity was healthy in Q1, the escalation of the global trade war continues to monopolize headlines. At this point, it is too early to quantify the potential impact of tariffs on our business. With the threat and implementation of tariffs, we have heard from some of our tenants that a key priority for them is diversification of their supply chains. We view this as a net positive to our portfolio, given our geographic diversity and focus on CBRE Tier one markets.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

Generally, we have witnessed some lengthening in lease gestation periods stemming from these macroeconomic events. We are still seeing plenty of tours for our vacant spaces, however, those tours are taking longer to convert to signed LOIs. With that being said, tenants are continuing to make leasing decisions in light of current uncertainty. Through today, we have signed 3,600,000 square feet of leases commencing in the second quarter, a million of which is new leasing. This is highlighted by a 500,000 square foot full building lease executed in the Savannah market.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

This lease was accomplished with zero downtime and produced a 25% cash leasing spread. The supply pipeline continues to contract with the national under construction pipeline decreasing more than 16% sequentially since the fourth quarter. In the longer term, weaker economic growth may negatively impact warehouse space demand, but this would be partially offset by increased near shoring and on shoring activity. STAG's portfolio would be a relative beneficiary compared to other industrial portfolios due to our geographic footprint. Moving to acquisitions, volume for the first quarter totaled $43,000,000 This consisted of three buildings with cash and straight line cap rates of 6.87% respectively.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

In January, STAG acquired a 162,000 square foot building located in Shakopee, Minnesota for $16,600,000 at a cash cap rate of 6.5. The building is 100% leased at rents approximately 40% below market to a single tenant with strong credit profile. This acquisition provided STAG the opportunity to acquire a stabilized deal at an attractive yield and strong projected same store NOI growth. In February, STAG closed on a two building portfolio totaling 232,000 square feet for $26,700,000 and a cash cap rate of 6.9%. The portfolio is located in Buffalo Grove, Illinois, an infill submarket of Chicago.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

The portfolio is 100 leased to two tenants with a weighted average lease term of three point three years. The transaction provided an attractive combination of high yield and durable cash flow given the entrenched tenancy. In terms of dispositions this quarter, we sold one building in Nashua, New Hampshire for gross proceeds of $67,000,000 representing a cash cap rate of 4.9%. This disposition was a result of our team successfully repositioning the asset and ultimately selling it to a user. On the development front, we have approximately 2,500,000 square feet of activity across 11 buildings in The U.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

S. Roughly 50% of that 2,500,000 square feet is under construction and 16% is pre leased. The remaining 50% has been delivered and is currently 51% leased. This includes a new lease totaling 102,000 square feet of warehouse and distribution space, which commenced at our building in Wellford, South Carolina on April 1. With that, I will turn it over to Mats, who will cover our remaining results and updates to guidance.

Matts Pinard
Matts Pinard
Executive VP, CFO & Treasurer at STAG Industrial

Thank you, Bill, and good morning, everyone. Core FFO per share was $0.61 for the quarter, an increase of 3.4% as compared to last year. Cash available for distribution totaled $106,500,000 an increase of 8.5% as compared to the prior period. Leverage remains low with net debt to annualized run rate adjusted EBITDA equal to 5.2 times. Liquidity stood at $1,000,000,000 at quarter end when incorporating committed private placement debt proceeds.

Matts Pinard
Matts Pinard
Executive VP, CFO & Treasurer at STAG Industrial

During the quarter, we commenced 36 leases totaling 5,000,000 square feet, which generate cash and straight line leasing spreads of 27.342.1% respectively. Retention for the quarter was 85.3%. As mentioned by Bill, we have accomplished 78.5% of the operating portfolio square feet we currently expect to lease in 2025, achieving 25.1% cash leasing spreads. This demonstrates the strength of our portfolio. CAG has started the second quarter of leasing with strong momentum.

Matts Pinard
Matts Pinard
Executive VP, CFO & Treasurer at STAG Industrial

This is highlighted by the execution of 1,000,000 square feet of new leasing commencing in second quarter thus far. We will release a second quarter business update at the end of the week, similar to previous updates in advance of a large industry conference we'll be attending next week. We achieved same store cash NOI growth of 3.4% for the quarter. Primary drivers of our same store growth in the first quarter include the leasing spreads of 27.3% and annual escalators of 2.8%, partially offset by previously forecasted and now realized occupancy loss of 80 basis points. Moving to capital market activity, we repaid the $100,000,000 private placement note fee, which matured on February 20.

Matts Pinard
Matts Pinard
Executive VP, CFO & Treasurer at STAG Industrial

There are minimal debt maturities remaining in 2025. Subsequent to quarter end, on April 15, the company entered into a note purchase agreement to issue $550,000,000 of fixed rate senior unsecured notes in a private placement offering. The notes consisted of five, eight and ten year tenors with a weighted average fixed interest rate of 5.65% and a weighted average tenor of six point five years. The notes will be funded on June 25 and the proceeds will be used to pay down the revolver, which will restore liquidity to approximately $1,000,000,000 We experienced minimal credit loss in the first quarter. There is no update for discussions with American Tire Distributors at this time.

Matts Pinard
Matts Pinard
Executive VP, CFO & Treasurer at STAG Industrial

American Tire Distributors are current on their 2025 rents through today. At this point, we are maintaining our 2025 credit loss guidance of 75 basis points and we're maintaining all other guidance as well. I will now turn it back over to Bill.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

Thank you, Mats. I want to thank our team for their continued hard work and achievement towards our 2025 goals. Our team continues to drive value in all macro environments. STAG has set the foundation of sustainable growth in 2025 and will continue to benefit from a strong balance sheet, ample liquidity and broad market diversification. We'll now turn it back to the operator for questions.

Operator

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your questions from the queue.

Operator

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. As a reminder, please restrict yourself to one question and one follow-up. One moment please while you poll for questions. The first question comes from the line of Craig Mailman with Citi. Please go ahead.

Craig Mailman
Managing Director & Equity Research Analyst at Citigroup Global Markets Inc.

Hey. Good morning. Matt, I hear you right that you guys have signed a million square feet of new leasing quarter to date, so just in the month of April?

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

Yeah, Craig. It's Bill. Yeah, in q two, we've signed 3,600,000.0. We have 3,600,000.0 leases commencing, a million of which is new leasing. And one success we had was we had a space, a 500,000 square foot space that we were notified a couple months ago they were going to vacate in Q2 and we backfilled that space with no downtime, seven year lease, no downtime, a 25% rollover leasing spread.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

So really happy with the execution there.

Craig Mailman
Managing Director & Equity Research Analyst at Citigroup Global Markets Inc.

And so apologies. So the you keep saying commence, was the million square feet of new leases executed quarter to date or some of those were done before and they'll just commence in the quarter?

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

It's a mix with the new leasing generally they're signed and commencing in a shorter window versus some of the renewals may have been executed earlier. But for example, the million square feet that's commencing in effectively April was all signed in the last thirty to sixty days.

Craig Mailman
Managing Director & Equity Research Analyst at Citigroup Global Markets Inc.

Okay. And then just for the follow-up, can you just talk about kind of the demand that you're seeing across different submarkets, right? You guys have had good activity in Greenville, which is maybe auto related. Could you talk about what you're seeing in more of your manufacturing type markets versus distribution? Are there any differences you're seeing across demand and tenant conversations?

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

I mean, the tenant conversations that we've had is, you know, the tariffs, everything that we're seeing in the macro environment is just causing a little bit more uncertainty. And with that uncertainty creates a little bit longer timeframe between lease negotiations and signing an LOI in the lease. With respect to markets, I mean, kind of similar to last quarter where some of those Midwest markets are operating really well, Milwaukee, Chicago, Minneapolis is doing really well. We're still seeing good demand in Detroit. And then Sunbelt is strong, Nashville is really strong.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

And in markets that, one of which you noted that's improving, Greenville is improving, Columbus is improving. And then I'm sure if you had another follow-up question is what's the weaker markets? We're seeing some, a little bit of weakness in Atlanta, certainly some weakness, we own an asset in San Diego, a lot of weakness there. And then, Indianapolis is still a little slow. But overall, tenants are still executing leasing, leases, it's just taking, a little bit longer.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

And just one other, I guess, point I'd like to make is we're seeing some good demand from tenants wanting to renew leases early. So leases that are rolling in twenty six, even twelve months out, we're in conversations with large tenants to renew those leases. So I think there's a lot of demand in the system, but with the events in the past thirty days, it just creates a little bit more uncertainty and some of those discussions taking a little bit longer than what they normally take.

Craig Mailman
Managing Director & Equity Research Analyst at Citigroup Global Markets Inc.

Great. Thank you.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

Thanks, Greg.

Operator

Thank you. Next question comes from the line of Jonathan Hughes with Raymond James. Please go ahead.

Jonathan Hughes
Jonathan Hughes
Managing Director at Raymond James Financial

Hey, good morning. Thanks for the prepared remarks. Just kind of sticking with leasing activity there. These tenants that are coming to you, are they just trying to renew early to get ahead of the expected supply inflection in hopes of achieving better rates? Was there an increased push to lease space ahead of tariffs so they could fill space with imported goods?

Jonathan Hughes
Jonathan Hughes
Managing Director at Raymond James Financial

They're just really trying to better understand that strong leasing volume because you're at kind of 11,000,000 square feet year to date, that's not far off last year's total and you only had 7,000,000 expiring at the start of

Jonathan Hughes
Jonathan Hughes
Managing Director at Raymond James Financial

the year. So any

Jonathan Hughes
Jonathan Hughes
Managing Director at Raymond James Financial

common theme as to why the early renewals? Thanks.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

Yeah, mean, we just sat with the regional managers yesterday and talked about that exact point is, I think there's a combination, right? I mean, there's still demand in the system, especially for these early renewals. I think tenants are seeing a little bit of an opportunity, right, with some of the noise out there to say, hey, maybe we can get a little bit better rate instead of waiting twelve months when we're post that inflection point, whenever that may be. And then rates start to increase at a faster pace. And tenants need the space, right?

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

There's still demand. I still think there's pent up demand from last year. Tenants took a lot of time leasing space last year in front of the election. And then we saw a lot of activity to start the year. And then we have, you know, a little bit of, you know, call it a little bit of a slowdown or, you know, taking a step back, evaluating everything that's going on from a macro level in the past month, but tenants still need space.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

I'm really optimistic with the new leasing that we've signed in Q2, a million square feet one month into the second quarter of new leasing. That's a big number for us. So I'm really happy with that. And it was a big number on executing with some pretty strong leasing spreads. So overall, the demand feels really good.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

I think tenants are just taking a little bit more time making those decisions and the tenants that are in those spaces, to your point, I think are trying to get ahead of some of what we see as potential inflection point at the end of this year.

Operator

All right, thanks for that. I'll cede the floor. Thanks.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

Thank you.

Operator

Thank you. Next question comes from the line of Vince Tibone with Green Street. Please go ahead.

Vince Tibone
Managing Director and Head of US Industrial & Mall Research at Green Street Advisors, LLC

Hi, good morning. Could you discuss trends in the private transactions market since April 2? And more specifically, are you seeing any retrading activity just given the uncertainty or potential sellers pulling deals that have already begun some form of formal marketing process? Just curious kind of how the transaction market has kind of evolved in the last few weeks.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

Yeah, I'll start off and then I'll pass it off to Mike, Vince. What we saw at the beginning of the year was the private market continued to be really strong, public bids on properties, maybe a little bit wider than the private marks. We saw some big portfolios come out either portfolio sale or recap, come out to the market at some pretty attractive pricing that was comparable to our portfolio. And to date, we haven't seen those trade. Broker feedback has been, the buyers are still involved.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

There's still a lot of bids for these properties, but nothing has traded. And I think I may be wrong here, but I think one in or two smaller portfolios have been pulled just due to some dislocation pricing. But Mike, I'll let you elaborate on that a little bit.

Michael Chase
Michael Chase
Executive VP & Chief Investment Officer at STAG Industrial

Sure, yeah. Just recently, we have been getting some information on a few portfolios, both large and small, that have been pulled from the market just because of the volatility and concerns about pricing. We haven't heard a lot about retrading, maybe one or two, but, but it's mostly just, sellers, pulling, portfolios or deals from the market to see where the volatility settles out.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

Yeah. And Vince, just one more comment there. I don't think it's too dissimilar to what we've seen over the past four to five years really since COVID where you have these either spike in rates or macro uncertainty and volatility enters the market, bid ask spreads widen, it goes on, you know, call it a three month, four month pause and then next thing you know, the acquisition transaction market starts to improve. So that is, it's not uncommon for us to see this. I mean, us, we've got a really strong balance sheet, great liquidity, and when we see these type of situations where we're comfortable waiting it out and then pouncing on opportunities when they present themselves.

Vince Tibone
Managing Director and Head of US Industrial & Mall Research at Green Street Advisors, LLC

That's really helpful color. And how are you thinking about your cost of capital? I mean, just given recent share price changes. So you have provided the rate of stabilized cap rates. I mean, is it fair to assume you kind of want your implied cap rate to get closer to that range?

Vince Tibone
Managing Director and Head of US Industrial & Mall Research at Green Street Advisors, LLC

Or obviously, I imagine the hurdle is higher to buying things today than it was. So you just talk a little bit about, you didn't change acquisition guidance, but I'm imagining there's some change in underwriting or just given your cost of capital.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

Yeah, I'll talk about the acquisition guidance and then Matt's can jump in for cost of capital. But our initial acquisition guidance was the same as it is today. Everything has been affirmed, but that guidance was a wide range. And as we noted last call, and again, this call, it's very backend weighted. So it's very little impact to our core FFO from our acquisition guide.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

So we have the ability to acquire a lot of product if our cost of capital is supportive of where we can deploy it accretively. Generally, in these situations of volatility, and we've had this a couple of years, we do a wide range of acquisition and we assess that as we move through the year. It's a little too early in the year to change that, but just a reminder to everyone, it's back end weighted and very little impact to our core FFO guide. Matt, you can jump in for cost of capital.

Matts Pinard
Matts Pinard
Executive VP, CFO & Treasurer at STAG Industrial

Yeah, Vince, I think cost of debt's the easiest one here. You you heard in the prepared remarks in the press release, we just raised north of half a billion dollars of long term debt at 5.65%. Now, if that was all ten year money, it's probably closer to five point seven five. So that's the easy part. As Bill mentioned, once we fund this private placement, we're gonna have a billion dollars of liquidity.

Matts Pinard
Matts Pinard
Executive VP, CFO & Treasurer at STAG Industrial

I also wanna reiterate the point that we're retaining a lot of capital. We retained north of $35,000,000 of cash after dividends paid in the first quarter. That's great capital for us. The other point I want to make, Vince, and I think it's very, very much apparent in this quarter, but it is the way that we view our cost of capital, is that accretive recycling capital. Going back to that Nashua sale, we received $67,000,000 of proceeds at pricing sub five, it was a 4.9% cap rate.

Matts Pinard
Matts Pinard
Executive VP, CFO & Treasurer at STAG Industrial

We redeployed two thirds of that money into assets that Bill described in his prepared remarks that fit our portfolio perfectly in markets that we love at stabilized cap rates close to seven. So when we look at how we deploy capital in the sources, certainly in this environment, as you mentioned, with the volatility in the share price, you know, accretive recycling in capital coupled with the cash that we are able to retain gives us some flexibility to be opportunistic even in this market.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

Great, thank you. more point,

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

it's on that private placement transaction. I want to give Matt some team credit there, but that was a cover, I think 200,000,000 on the cover of that transaction, and we raised $550,000,000. We had over $3,000,000,000 of demand for that transaction. So there's a lot of liquidity in that market at very attractive pricing. So I'm really happy with the execution Matt's and team did there.

Operator

Mister Tibon, are you done with your question?

Vince Tibone
Managing Director and Head of US Industrial & Mall Research at Green Street Advisors, LLC

Yes. Thank you. Yes. Thanks.

Operator

Thank you. Next question comes from the line of Nick Tillman with Baird. Please go ahead.

Nick Thillman
Senior Research Analyst at Robert W. Baird & Co

Hey, good morning guys. Maybe you're digging a little bit more into the acquisitions and kind of what you're seeing there, understanding that you're probably return thresholds are a little bit higher, but just a little bit more curious on kind of the characteristics of the of the assets you're underwriting. Are you looking for more near term walls, longer term walls? And I know you guys have made a little bit more pivot into multi tenant assets versus single tenant, but how would you like describe the mix of that sort of pipeline?

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

Yeah, mean, the mix is a broad mix of assets that we evaluate. This quarter happened to be a two building portfolio and then an asset right outside of Minneapolis, both assets, markets, ability to mark those assets to market. I think the Minneapolis asset, I think it's 40% below market. So we're not focusing on one type of acquisition. We're not just saying we want to buy a, you know, a three and a half year, four and a half year lease or seven year lease or a ten year lease.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

We're evaluating the opportunities, our thresholds have effectively increased just based on the inputs that go into our underwriting model. But we're evaluating long term leases, short term leases, roll ups, even vacant assets, but depending on where assets are, we might extend the lease up period for some of those assets, just given some of the earlier commentary about some tenants taking a little bit longer to make leasing decisions. So it all factors into our underwriting, but we're looking at everything.

Nick Thillman
Senior Research Analyst at Robert W. Baird & Co

That's helpful. Then Matt, maybe on credit loss, you mentioned minimal amount in first quarter, maybe put some more details or numbers around that. And then on the 75 basis points for the full year, how much of that is attributable to American Tire?

Matts Pinard
Matts Pinard
Executive VP, CFO & Treasurer at STAG Industrial

Thanks for the question, Nick. When I say minimal, I mean one basis point is roughly $50,000 of credit loss. An important note here is related to American Tires, they're current on rent through today. We have not incurred any credit loss related to that situation. With that being said, we're still in that process.

Matts Pinard
Matts Pinard
Executive VP, CFO & Treasurer at STAG Industrial

The expectation is by the May, we will have a firmer idea of the accept, reject, and potential restructure. So we have 75 basis points of credit loss baked into our guidance, which is the same as what we had in February when we initiated. We just said, you know, going back to Bill's original points, given this volatility, the last thing we wanted to do was get aggressive on our credit loss assumption. We'll continue to update the market if and when there's an ATD settlement related to our leases. In terms of the split, our guidance is 50 basis points of cash credit loss, which is basically how we start every single year, and we added 25 specifically to the American Tire distributor situation.

Matts Pinard
Matts Pinard
Executive VP, CFO & Treasurer at STAG Industrial

And again, I want to reiterate the current on every single dollar owed through today.

Nick Thillman
Senior Research Analyst at Robert W. Baird & Co

Very helpful. Thank you.

Operator

Thank you. Next question comes from the line of Michael Carroll with RBC. Please go ahead.

Michael Carroll
Michael Carroll
Managing Director & Head of US Real Estate Research at RBC Capital Markets

Yes. Thanks. Bill, I wanted to circle back on your comments on the broader leasing activity that it appears to be holding in there, at least so far. Is that more focused on renewals? Did hear that correctly?

Michael Carroll
Michael Carroll
Managing Director & Head of US Real Estate Research at RBC Capital Markets

What about new leasing activity? Has tenants kind of pulled back on new leasing and most of the activity you're seeing right now is on renewals?

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

Well, certainly this quarter, we had a lot more renewal leasing than we did new leasing. But in the second quarter, April, we've commenced 3,600,000 square feet, of which a million is new leasing. So really four times the amount of new leasing that we did in the first quarter. And so I don't know if it's fair to say that new leasing is pulled back significantly. It's just taking some tenants a little bit longer to make decisions.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

But the example I said earlier, I mean, that tenant made a decision rather quickly because we just got noticed a couple months ago that the tenant that was in that space was not renewing and we backfilled that 500,000 square foot facility with zero downtime. So the tenants are leasing space, they are making decisions. The renewal market is really strong. Our renewals are very high to start the year and we're in discussions with a number of tenants for early renewals for leases expiring in '26. So the demand is healthy, but I do want to caution that too, which is, you know, it is taking a little bit longer on some spaces and there's some uncertainty in the macro environment.

Michael Carroll
Michael Carroll
Managing Director & Head of US Real Estate Research at RBC Capital Markets

Okay. And I know you've made really good progress achieving your 2025 leasing targets, right, what, 78%, seventy nine % done so far. That is tracking a little bit below what it was last year. I mean, can we read anything into that? Or is it just kind of in the normal realm of expectations, just given I think last year you're in the low 80s, so not much farther below.

Michael Carroll
Michael Carroll
Managing Director & Head of US Real Estate Research at RBC Capital Markets

Could we read anything into that at all?

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

Yeah, mean, we're a percent or two difference, we kind of view that as in line, so I wouldn't read anything into that.

Michael Carroll
Michael Carroll
Managing Director & Head of US Real Estate Research at RBC Capital Markets

Okay, thanks.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

Thanks.

Operator

Thank you. Next question comes from the line of Eric Boden, BMO Capital Markets. Please go ahead.

Eric Borden
Eric Borden
Vice President at BMO Capital Markets

Hey, good morning everyone.

Eric Borden
Eric Borden
Vice President at BMO Capital Markets

So it sounds like new leasing is off to a solid start post quarter end driven by one tenant, but I was hoping that you could provide an update on demand for your development pipeline. How are KPIs tracking interest and tours? And if you think there's a potential, the lease up could take longer than your initial underwriting, just given the current macro uncertainty.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

Yeah, I mean, we're still, we have a lot of activity at our available Greenville asset, that's the 240,000 square foot facility. I think, in general, new leasing for new developments is a little slower and that's more of a macro comment. But we're seeing a lot of good activity at that facility. And with respect to the Tampa facilities, some really strong leasing activity at the first one, the June. And the 6508 Powell Road is also getting a lot of activity.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

Hopefully there's the something to report soon on at least one of those. And the Casual Drive facility, as I mentioned, we leased 100,000 square feet there, so that's 69. So some good activity and those are, I just covered all the ones that are delivered. The developments that have not delivered, the Nashville is delivering this quarter, still probably arguably the strongest industrial market in The US right now. Portland's a build to suit.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

The Reno's some really good activity and the Charlotte's really just kind of got started. So overall, some really good activity. If anything, might see a little bit of a slippage maybe with some of the lease up periods and maybe depending on where deals get struck, maybe a little slippage on ongoing yields, but overall really happy with the activity.

Eric Borden
Eric Borden
Vice President at BMO Capital Markets

Okay. And then Matt, I think last quarter you guys, you said you expected about a hundred basis basis points of occupancy loss. I was just wondering if you could provide an update there. And how much of the 100 basis points is currently allocated to tenants, if any? And then what sort of buffer do you have built into the assumption there?

Matts Pinard
Matts Pinard
Executive VP, CFO & Treasurer at STAG Industrial

Yeah, I think that there's a little bit to unpack there. Just to answer the direct question first, we have not changed any piece of our guidance, and that includes the 100 basis points of occupancy loss that we expect. In terms of what I think the question is, did we stress test our projections? What's their downside? We absolutely did.

Matts Pinard
Matts Pinard
Executive VP, CFO & Treasurer at STAG Industrial

Again, we're incredibly comfortable with all of our guidance measures. As Bill mentioned, we're even a little bit ahead this quarter, but we're being cautious given the market uncertainty that we're all living in right now. Remember, we've accomplished 80% of our leasing, so 80% of what we expect to happen this year has already been booked. So when you stress, it's really the remaining 20%. But the variables that we sensitize are pretty straightforward.

Matts Pinard
Matts Pinard
Executive VP, CFO & Treasurer at STAG Industrial

What does it look like if we don't acquire an additional deal this year? What does it look like if we don't lease any of our developments this year? What does it look like if we moderate the projected leasing related to that remaining 20%? It all ends up within our range we're incredibly comfortable. So 100 basis points of average occupancy loss continues to be the expectation for this year.

Eric Borden
Eric Borden
Vice President at BMO Capital Markets

Okay, well, thank you very much.

Operator

Thank you. Next question comes from the line of Jason Belcher with Wells Fargo. Please go ahead.

Jason Belcher
Jason Belcher
VP & Equity Research Associate Analyst at Wells Fargo

Yes. Hi. Good morning. Just following up on the bad debt front. Wondering if you could talk about any tenant categories that might be giving you a little more concern than others in the current environment and also how your tenant watch list has trended over the past couple of quarters?

Matts Pinard
Matts Pinard
Executive VP, CFO & Treasurer at STAG Industrial

Yeah, absolutely. Thanks for the question, Jason. So we look at this often. We a three person fully dedicated credit team. This is their job.

Matts Pinard
Matts Pinard
Executive VP, CFO & Treasurer at STAG Industrial

We have financial disclosure, transparency clauses, and 90% plus of our leases. We looked hard at every sector, and it's really not sector is what we're seeing. It's not food and beverage, it's not housing, it's not consumer. It really is taking a look at the tenants that have low margin businesses with highly levered balance sheets. And good examples are the bankruptcy seen by Conn's, Vitamin Chops, and, you know, we've talked about American Tire a few times here.

Matts Pinard
Matts Pinard
Executive VP, CFO & Treasurer at STAG Industrial

So from a sector by sector, we really couldn't find anything there. It really was digging into the balance sheet and, what are they selling and what margins. The watch list is dynamic, but it has not expanded materially at all, it really is kind of the same few names, and really it's kind of dominated by that American Tire discussion that we had previously.

Jason Belcher
Jason Belcher
VP & Equity Research Associate Analyst at Wells Fargo

That's helpful. Thank you. And then back on the leasing front, I know you said you've completed close to, I think, 80% of expected '25 leasing, and you've already begun to tackle some of the '26 expirations. Just wondering if you could share what kind of rent spreads you're seeing on those '26 expirations and how that compares to the spreads done for '25, and then what percent of '26 expirations have been addressed so far?

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

Yeah, it's a little too early for us to discuss '26 spreads. Mean, right now we've executed, given 15% plus of our '26 leasing. So in line with what we've done in past years at this time, but still a little early to talk about economics next year.

Jason Belcher
Jason Belcher
VP & Equity Research Associate Analyst at Wells Fargo

Understood. Thanks guys.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

Thanks.

Operator

Thank you. Next question comes from the line of Mike Mueller with JPMorgan. Please go ahead.

Michael Mueller
Michael Mueller
Analyst at JPMorgan Chase

Yeah.

Michael Mueller
Michael Mueller
Analyst at JPMorgan Chase

Guess in the world where you have just lesser overall demand are there any segments where I don't know it seems to be less of a pause or just kind of continuing along at more of a overall normal clip or is everything kind of muted that you're seeing across the board regardless of the category?

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

Yeah, I mean, it's an interesting question. I mean, I think there's a big assumption there, right? That everything is muted. Would say, demand feels like it's still there. I mean, we've had some really good new leasing I noted a couple of times, it's taking a little bit longer to make decisions.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

We're still seeing some strong activity from 3PLs and when you look at the markets, I mentioned earlier, the strong markets, I mean, lot of those markets have some sort of manufacturing component to them with some distribution component. So, you know, overall, I mean, we feel pretty good about the demand side. It's just, in some situations it might take a little bit longer to lease up some spaces and that's just tenants taking longer to make decisions given the uncertainty. I mean, if you peel back before the last thirty days, I mean, leasing activity was significant. I mean, in terms of tours, RFPs, everybody was extremely busy on the team, brokers were really busy, and then things just started to slow down a little bit when folks were looking at the macro environment, what does that mean for their business and making a long term decision.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

With that being said, a lot of those folks still made that long term decision because they need to. And I do think there was some pent up demand from last year in the delayed decision making that made its way into this year and absent the last, call it thirty days, I think leasing on the whole for the industrial sector would have been up pretty significantly. So I still feel really good about the demand side, it just might take a little longer.

Michael Mueller
Michael Mueller
Analyst at JPMorgan Chase

Got it. And maybe one follow-up on that. Before you were talking about activity at Greenville and Tampa being pretty good. Can you just kind of like put some context around that? Like roughly how many tours are you seeing now?

Michael Mueller
Michael Mueller
Analyst at JPMorgan Chase

How frequent are they? And how did that compare to a month or two ago?

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

I would say as compared to a month or two ago, I would say probably flat, maybe slightly down. But the activity that we're seeing is called for lack of a better term, better activity. So more likely to get a deal done activity versus just a lot of folks kicking the tires. Got it.

Michael Mueller
Michael Mueller
Analyst at JPMorgan Chase

Okay. Thank you.

Operator

Thank you. Next question comes from the line of Rich Anderson with Wedbush Securities. Please go ahead.

Richard Anderson
Managing Director - Equity Research at Wedbush Securities

Thank you and good morning. So I wanted to talk about the 85% retention and if I could marry it with the, you know, the pace of early, leasing, you meant, you know, 79% of it already addressed. Is it fair to say that you kind of get a bigger retention number to start the year and that kind of marries with the activity that you've seen in terms of 2025 expirations because tenants in that case sort of have made a decision to stick around and so that the retention would maybe naturally trickle down as the year progresses. Is that the right way to think about it in terms of those two observations?

Matts Pinard
Matts Pinard
Executive VP, CFO & Treasurer at STAG Industrial

Yeah, Rich, I think you got it. Just to say in a different way, and I'm sorry for repeating myself, but we've done 80% of our leasing, and we didn't change any guidance. So our guidance range is 70% to 75%. If we've done 80% of our leasing all commence this year, we have a pretty good clear line of sight of what retention will be. The 85% in the first quarter is just mathematically high, as you see from almost 5,000,000 square feet of leasing, the majority of that was renewals.

Matts Pinard
Matts Pinard
Executive VP, CFO & Treasurer at STAG Industrial

Bill did mention the 500,000 square foot immediate backfill, but that's a negative retention event just for that metric in the second quarter. The way I would explain is we've done most of our book of business this year, and we feel very confident with our current guidance.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

Yeah, we guide to just an absolute retention number. We don't guide to retention adjusted for immediate backfills, which is basically filling the space with zero to one or two months of downtime. And so that 500,000 square foot is going to add to that retention adjusted for immediate backfill number. So as that number ticks up, it really drops to the bottom line. So it's a great outcome for us.

Richard Anderson
Managing Director - Equity Research at Wedbush Securities

Okay, great. And then, probably too early to observe this yet, but are you keeping an eye on where perhaps new tenants are coming from? You know, you would think that your area of the country would be, I know you think this beneficiary of onshoring nearshoring. What what about, like, I'm gonna use the term in migration into into your area. I mean, is that something that you're tracking to see where where perhaps new tenants are coming from to sort of take advantage of the manufacturing sort of, DNA of of your geography?

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

Yeah, I mean, it's a little early to talk too much about that and there's not a tremendous amount of data on that, but when you look at the demand for our buildings today, it's certainly distribution demand, it's consumption, call it, for population migration, that's still a theme, and then it's manufacturing. As I said in the initial prepared remarks, tenants have been talking for the last couple of years about diversifying their supply chains, right? And there's a lot of reasons why, right? You've got port strikes, you've got low water levels in the Panama Canal, you've got terrorist attacks, you've got tariffs. There are a number of reasons why large companies should diversify their supply chains.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

And there has been a lot of dialogue about that, and you've started to see it over the past couple of years, a few years, with some onshoring, with some nearshoring, and certainly some good activity on other ports in The US. I mean, hate to keep bringing it up, but that tenant we signed in Q2, I mean, a 3PL that distributes larger goods over £50 for goods that are coming into Savannah Port and they signed a seven year lease, right? That's a new demand for that market. That was clearly something that was driven on, you know, diversifying supply chain. So, we think that's a real theme.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

We think it's going to continue and we think we're going to be a net benefit from that.

Richard Anderson
Managing Director - Equity Research at Wedbush Securities

Okay. Great. Thanks very much.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

Thanks.

Operator

Thank you. Next question comes from the line of Michael Griffin with Evercore. Please go ahead.

Michael Griffin
Director at Evercore

Great. Thanks. Wondering if you can give us any insight into whether the concessionary environment has changed. It seems like tenants are still kind of kicking the tire, so to say, on making decisions. Have you offered maybe any more in the concessions in order to entice them to sign leases quicker, or are you really holding out to kind of get the best net effective rent?

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

I mean, we hold out to the best we can. I mean, some markets that have some higher vacancy rates and we think that it's a great transaction, so we may give another, you know, month or two of free rent. With respect to leasing commissions, I mean, that's kind of a market commission. Those can kind of change year to year. So I don't really view that as more of a concession when I think it concessions to tenants, it's really on the TIs and free rent side of it.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

So it all depends on the market. So I think broadly across the industrial sector, you're probably gonna see free rent increase a little bit. And TIs, I think it really, really varies. I mean, if you look at our small sample size of new leasing in Q1, it looks like there's an elevated TI really that was more of a building improvement. We enhanced the ability of the building.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

We had to put in a couple of drive in doors that really are gonna enhance our property for that market. We put it in the TI column because the tenant wanted it, but we think it's gonna increase leasing activity and we'll stay with the building after, so it's not really a concession there. So on the whole, I think you probably see a little bit of free rent, but generally, we're trying to hold that effect to rent as best we can.

Michael Griffin
Director at Evercore

Great, thanks. That's helpful. And then Matt, I appreciate the commentary on American Tire and kind of the bad debt assumptions, and realize they're current on rent through April and maybe this is a little hypothetical, but if they were to reject the leases, do you have a sense of what the demand would be like to backfill some of those properties or is it still kind of too early to speculate?

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

It really is market This is Bill. It's really market to market specific. There's seven leases. The good thing is the buildings are newer buildings in the 100 to 120,000 square foot range, so a decent clear height for those buildings, think anywhere like 28 to 32 or 36 foot. So good buildings in the market, but would have to go market by market and just, to take a step back, it is one of our top tenants, but it's still 1% of our ABR, right?

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

So, it's really not that material of a tenant. We spend a lot of time talking about it, but overall in the grand scheme of things, it's really not that big of a percentage of our ABR and we're in active negotiations with them.

Michael Griffin
Director at Evercore

Great. That's it for me. Thanks for the time.

Operator

Thank you. Thank you. Ladies and gentlemen, we have reached the end of question and answer session. I would now like to turn the floor over to Bill Krueger for closing comments.

William Crooker
William Crooker
CEO, President & Director at STAG Industrial

Thank you all for for joining the call this morning. As always, appreciate the thoughtful questions and look forward to seeing you all soon. Take care.

Operator

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Executives
    • Steve Xiarhos
      Steve Xiarhos
      Vice President - Capital Markets & Investor Relations
    • William Crooker
      William Crooker
      CEO, President & Director
    • Matts Pinard
      Matts Pinard
      Executive VP, CFO & Treasurer
    • Michael Chase
      Michael Chase
      Executive VP & Chief Investment Officer
Analysts
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Key Takeaways

  • STAG delivered Q1 core FFO per share of $0.61, exceeding expectations, and has already secured 78.5% of its 2025 leasing target with 25.1% cash leasing spreads.
  • Leasing momentum continued into Q2 with 3.6 million sq ft of agreements signed—1 million sq ft of new leases including a 500K sq ft full-building deal in Savannah at a 25% spread and zero downtime.
  • Q1 acquisitions totaled $43 million at average caps near 6.9% (including Shakopee, MN at 6.5% and Buffalo Grove, IL at 6.9%), while a Nashua, NH asset was sold for $67 million at a 4.9% cap rate.
  • The development pipeline stands at 2.5 million sq ft across 11 projects—50% under construction (16% pre-leased) and 50% delivered (51% leased)—highlighted by a 102K sq ft commitment in Wellford, SC.
  • Balance sheet metrics remain strong with net debt to EBITDA at 5.2x, approximately $1 billion of liquidity and a newly arranged $550 million of fixed-rate notes at a 5.65% average coupon, while maintaining 2025 guidance including a 75 bp credit-loss assumption.
A.I. generated. May contain errors.
Earnings Conference Call
STAG Industrial Q1 2025
00:00 / 00:00

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