STAG is waiting for you to buy their stock so that they can issue more (Part 2/2)

Click here if you have not read part 1.

Over the past three years, STAG Industrial has more than doubled its square footage. Despite the growth rates that have occurred at the same time, Core FFO per share has not headed the size increase proportionally because of share dilution. Core FFO per share increased from $0.29 to $0.39, an increase of 34%; during the same period, dividends have grown 28%.

In 2015, STAG acquired $428 million in properties, equivalent to almost 9 million square feet added to its total of 55 million square feet.

chart05Forming partnerships is a clever alternative, but, at the same time, it is not an easy thing to accomplish. It is hard when you are looking for a partner for a startup and in most cases, you might think it is even harder for a billion-dollar company.

Access to equity is key to growth. STAG’s CEO must be thinking of some ways to go around equity issuance, but once the prices shoot up again, he will likely return to equity issuance again.

There are some reasons that the market should use to limit valuation level, though.

  1. Declining same-store net operating income.

The company buys most of their acquisition 100% occupied and with time they become vacant, and the company argues that that drop is always incorporated into the acquisition price.

chart06

  1. A secondary market will always mean a higher risk.

If you want to find a tenant and or to dispose of a property, you are likely to consume more time and effort in the long run. It is wise then to incorporate that price in the share price.

  1. Short public history and small capitalization.

Their track record goes back to 2003, but they have been publicly traded since April 2011. They are also a small cap, with a $1.3 billion market cap.

Source: STAG Industrial (NYSE:STAG)

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.

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