STAG Industrial, Inc. Third Quarter 2026 Earnings Conference Call - STAG INDUSTRIAL INC

Financial Performance:

• Q3 2026 Core FFO per share was $0.66, representing a 1.5% year-over-year increase.
• Same-store cash NOI growth accelerated to 3.5% for the quarter and 3.9% year-to-date; YTD growth includes a one-time benefit of ~30 bps from a tenant whose arrears from Q3 2025 were collected in Q4 2025.
• Portfolio occupancy was 90.3% with 30 new leases executed covering 3.6 million square feet, generating cash and straight-line leasing spreads of 23.8% and 35.7% respectively.
• Net debt to annualized adjusted EBITDA stood at 5.1x, with liquidity remaining robust at $546 million.
• Capital markets activity included the repayment of a $50 million note and the refinancing of term loans A and F into a single $350 million loan maturing in January 2032, yielding a blended fixed rate of 3.53% until March 2027 and 4.79% thereafter; a revolver and term loan repricing saved 5 bps.
• G&A guidance was increased to $56–$57 million, reflecting internal adjustments, new hires, and standard fee increases.

Guidance and Future Outlook:

• Full-year 2026 Core FFO guidance raised to $2.64–$2.66 per share (midpoint up $0.02).
• Same-store occupancy guidance revised upward to 96.75%–97.25% (midpoint +25 bps).
• Same-store cash NOI growth guidance maintained at 3.0%–3.5% for the year.
• Acquisition volume guidance narrowed to $530 million–$600 million; stabilized cap rate guidance set at 6.3%–6.4%.
• Market rent growth forecast for 2027 is 2%–4%, an acceleration from the 1.6% projected for 2026.
• Leasing spreads for 2027 are expected to average 15%, with normalized expectations in the mid-teens for 2028–2029.
• Management anticipates finishing the year ahead of initial budget projections and entering 2027 in a strong position.

Business Segments and Product Lines:

• Acquisitions: Q3 volume reached $107.9 million across two buildings with cap rates of 6.9% and 7.2%; post-quarter acquisition of one building for $55 million at 6.0%–6.7%.
• Development: Seven active projects totaling 1.8 million square feet with an expected stabilized yield of 7%; 1.8 million square feet under construction and 16 projects valued at over $500 million in the pipeline.
• Key Development Milestones: Reno (Resource Drive) reached 62% leased; Charlotte (Piedmont Commerce) achieved 100% leasing on one building; 1.8M sq ft of active projects shows 48% leased.
• Tenant Mix: Strong demand from 3PLs, advanced manufacturing, and data center-related tenants; data center leasing accounted for 26% of new operating portfolio leasing since early 2025 (2.5 million sq ft leased).
• Investment Grade Rating: Stagg Industrial achieved investment-grade ratings from S&P (BBB, Stable), Fitch (BBB, Stable), and Moody's (BAA2, Stable).

Market and Competitive Landscape:

• National industrial vacancy rates declined, with net absorption totaling 75 million square feet in Q3 2026 (highest since early 2023) and 186 million sq ft YTD.
• 80% of YTD absorption occurred in non-coastal markets, driving strength in regions where Stagg is concentrated.
• Supply discipline remains high; product under construction is less than 2% of existing inventory, with significant pre-leasing.
• Data center-related demand is a significant incremental driver, particularly in the Midwest, Southeast, and Texas, with weighted average lease terms of 6–7 years.
• Supply chain diversification (onshoring, nearshoring) and pent-up demand from the previous low-demand period are primary drivers of current tenant confidence.
• Capital market volatility has resulted in modest deal repricing (25–35 bps higher cap rates), though the firm expects stabilization.

Risks and Challenges:

• Credit Risk: Tenant credit losses have improved; only 12 bps incurred YTD vs. 50 bps initially expected, though small, high-leverage, low-margin tenants (e.g., furniture sector) remain a concern.
• Market Specifics: Some leasing challenges identified in the Reno North Valleys sub-market due to competition for traditional fulfillment logistics users; El Paso market facing short-term struggles despite long-term thesis.
• Development Risk: The Reno Mount Anderson project carries the highest leasing risk in the portfolio due to slower sub-market trends, though vacancy is trending down.
• Macro Volatility: Uncertainty in capital markets and interest rates continues to impact deal execution timelines and seller expectations.

Management Commentary and Tone:

• Management tone is confident and optimistic regarding industrial fundamentals, citing a shift in leverage back to landlords and broad-based demand.
• CEO Bill Crooker emphasized that the company is positioned to finish ahead of budget and is well-positioned for 2027.
• CFO Matt Spenard highlighted that the credit loss improvement and occupancy gains are key drivers of the upward guidance revision.
• Management noted that while they have a $70 million unfunded equity line and $500 million revolver, they do not currently require additional capital deployment given strong liquidity and retained earnings.

Analyst Questions and Answers:

• Rent Spreads: Management clarified that while 40% of 2027 leasing is complete (12% cash spreads), fixed renewal options skew the data; excluding fixed renewals, spreads were 17.5%, with an expected 15% for the full year.
• Capital Deployment: The buyback is now a tool in the toolkit; however, developments (yielding >7%) and stabilized acquisitions (approx. 6.9% cap rates) are currently viewed as the best opportunities.
• Q4 Sequential Earnings: The Q4 step-up in core FFO is driven by a full quarter of economics on Q3 acquisitions and continued outperformance on credit loss estimates.
• Public Debt: With investment-grade ratings, the firm could price a 5-year public bond below 6% or a 10-year near 6.25%–6.4%, though no immediate issuance is planned.
• El Paso Acquisition: Viewed as a long-term hold near the border bridge; short-term market noise is outweighed by a 5-year lease to a good credit at a strong cap rate.
• Data Center Trends: While significant, data center demand is primarily filling existing assets in key markets rather than driving new construction, serving as an incremental demand source.

Other Key Points:

• Development leasing is a core business pillar with annual starts exceeding $100 million and expected to trend upward.
• The company has successfully underwritten a 12-month lease-up period for speculative construction, with several completed projects achieving 100% occupancy quickly (e.g., Charlotte).
• Free rent and timing of commencing rents are not significant drivers for same-store growth going forward; the primary drivers remain contractual escalators (~3%) and leasing spreads.
• Fixed renewal options comprise only 2%–5% of the portfolio and are not part of new form leases, impacting future rollover rents only when existing leases naturally mature.