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Stag Industrial, Inc. (STAG)

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STAG Industrial, Inc. (STAG)

Q3 2018 Earnings Conference Call

November 2, 2018 10:00 AM ET

Executives

Matts Pinard - VP, IR

Ben Butcher - CEO

Bill Crooker - CFO

Analysts

Sheila McGrath - Evercore ISI

Brendan Finn - Wells Fargo

Jamie Feldman - Bank of America Merrill Lynch

David Rodgers - Robert W. Baird

Mitch Germain - JMP Securities

Brandon Travis - Ladenburg Thalmann

Presentation

Operator

Greetings, and welcome to the STAG Industrial Third Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to Matts Pinard.

Matts Pinard

Thank you. Welcome to STAG Industrial's conference call covering the third quarter 2018 results. In addition to the press release distributed yesterday, we posted an unaudited quarterly supplemental information presentation on the company's Web site at 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 as 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. Examples of forward-looking statements include statements related to earnings trends, G&A amounts, acquisition and disposition volumes, retention rates, debt capacity, dividend rates, industry and economic trends, and other matters.

We encourage all of our listeners to review the more detailed discussions 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 informational package available on the company's Web site. As a reminder, forward-looking statements represent management's estimates as of today; STAG Industrial assumes no obligation to update any forward-looking statements.

On today's call, you will hear from Ben Butcher, our Chief Executive Officer; and Bill Crooker, our Chief Financial Officer.

I will now turn the call over to Ben.

Ben Butcher

Thank you, Matts. Good morning everybody, and welcome to the third quarter earnings call for STAG Industrial. We're pleased to have you join us and look forward to telling you about our third quarter results.

Presenting today, in addition to myself, will be Bill Crooker, our Chief Financial Officer, who will discuss the bulk of the financial and operational data. Also with me today are Steve Mecke, our Chief Operating Officer; and Dave King, our Director of Real Estate Operations. They'll be available to answer questions specific to their areas of focus.

The overall health of the industrial sector and the underlying strength of the STAG portfolio combined with a continuation of the impressive country-wide execution translated to another quarter of solid core FFO growth. It has been a very successful year for acquisitions with volume approaching $500 million acquired year-to-date with two months of our historically busy fourth quarter to go. We are very confident we'll meet our current guidance of $600 million to $700 million for the year with a weighted average cap rate near the midpoint of our guidance, approximately 7%. Our pipeline of assets potentially worth acquiring currently stands at $2.2 billion, and contains assets similar to what we've acquired to date in 2018.

We've recently completed our second annual comprehensive tenant survey. We conducted survey to enhance our understanding of how tenants view our buildings, their business, and the world in general. We asked questions related to the opportunities and challenges of their business, how they evaluate the locational drivers of their operations, and questions focusing on broad trends in e-commerce and labor availability. We also strive to understand how their real estate needs are being met and how good they can be improved. By conducting the survey annually, we can benchmark responses and examine trends in our tenant basis use of the buildings they occupy and logistical patterns in general.

This year's survey indicates increased business activity and confidence. Hiring has increased. More shifts are being run, and additional lines are being added. Labor availability remains a widespread concern across both geographies and industries. E-commerce continues to be an important incremental demand driver; 36% of our portfolios buildings are currently handling the e-commerce activity, and 47% of those respondents indicate that e-commerce activity has increased in their facility over the past year. Not to be forgotten, the traditional demand drivers for industrial real estate such as GDP growth and improved business confidence continue to provide baseline support to industrial fundamentals.

We are frequently asked about the impact of the ongoing political rhetoric and trade restriction on our tenant base and future operations. We continue to believe it is too early to tell what these impacts will be, but note that the results from the tenant survey indicate continued expansion. Our geographic and industry diversification should provide a level of protection, should negative trade impacts start to be evidenced.

One of the more interesting themes seen in the responses to the tenant's survey was the reported pace of change in business activity; 29% of the respondents indicated that an increase in business activity has occurred very quickly, which compares to 22% last year. This is reflected in our tenants continuing to sign long-term leases and invest in their business. Our conversations with our tenants indicate that this is expected to continue.

The strength indicated in our survey is reflected in the strong quarter and year-to-date operating metrics including high retention and leasing spreads. These operating metrics are driving a continued improvement in our same-store NOI growth. Tenant confidence also reflected in the retention level greater than our initial expectations. This leads us to revise our annual retention expectation to 80%.

Read the rest of this transcript on seekingalpha.com