Attention, Loyalists, STAG Dropped Another 9% 

 

chart01.pngI’ve always struggled covering popular stocks because oftentimes investors form opinions based on emotions rather than facts. I’m not very keen on unanimity because it creates an aura around a company and management that makes people disregard weaknesses. For sure, it’s good for the company, but this benefit doesn’t necessarily translate to the investor.

Take STAG Industrial for instance. The company has demonstrated numerous flaws in its investment strategy and the way it handles its funding. But no matter what, there has been a legion of investors loyal to the company. The management used to tell investors they wanted to grow their assets aggressively, annually, and the ‘masses’ loved it. The management only skipped the part that a significant portion of growth would come on the shareholders’ expenses. Go figure!

STAG’s share price has now trended downwards. Even a Wall Street analyst downgraded the stock last year; I believe it takes a lot of guts for an analyst to downgrade a stock when everyone else is not. The price accumulated a 17% drop this year and 38% since December 31, 2014. It is now very cheap relative to its peers. Whenever the share price drops, people hopeful of a rebound buy more. By the way, loyalists, just a heads-up–the STAG share price dropped another 9% last week.

The same aura has been created around big ‘O’, the monthly dividend company. The company released its results last Wednesday and shares spiked by 8.2% last week. National Retail Properties (NNN), its closest peer, also released strong results on the following day and the market reaction was ‘nada’. In fact, I have already written articles showing that NNN’s performance is as good as big ‘O’. Also, in the same category of net leases, I have highlighted Agree Realty Corp as an opportunity.

The secret of the big ‘O’ is its track record and consistency. Every month when it distributes the same or increased dividends, it is holding itself accountable to its shareholders. That is, it sends the following message: ‘We have generated growing cash and here it is’. And since it’s been doing so for years and has increased the dividend for 73 quarters in a row, the stock seems to be immune to these volatile times. It has a beta of 0.12, as opposed to NNN’s 0.36.

The other side of the coin is that people quickly forget that the stock seems overpriced relative to its peers, edging an AFFO multiple of 22x. Also, dividend yield of 3.9% is below peer average. It is at the same magnitude of Public Storage, which reached 27x, but it has moved way above the entry point.

Maybe that’s something STAG could learn from O. Focus on track record and consistency, and the market will reward you. This way, STAG could detach from the market’s volatility (STAG’s beta of 1.05).

Check the reports for Dividend Yield by Sector and Weekly Returns.

Source: Public Storage(NYSE:PSA), Realty Income Corporation(NYSE:O), National Retail Properties, In(NYSE:NNN), STAG Industrial, Inc.(NYSE:STAG)

Disclaimer: This is not a recommendation to buy or sell stocks. The highest-yield stocks are not necessarily the best portfolio investment choice. The purpose of this report — which is essentially a snapshot of information available on February 12, 2016 — is to reduce your stock analysis by enabling you to compare stock and sector performance. Please do your own due diligence before making any investment decision.

As of January 31, 2016, the equity REITs are constituent companies of the FTSE NAREIT All REITs Index. Companies whose equity market capitalization is lower than $100 million have been disregarded.

This report 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. 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.

Simon Spoiled Taubman’s Mall Project

Last Friday, some investors in the financial markets were disappointed at the Q4-2015 results of Simon Property Group, a huge regional mall REIT ($58 billion market cap), but in the world of brick and mortar, that may not be the case. Simon looks to have beaten Taubman Centers’ ($4 billion market cap regional mall REIT) plan to open an enclosed shopping mall in downtown Miami. Taubman is instead settling for a high end retail street.

chart03.pngAlong with Miami Worldcenter Associates and Forbes Company, Taubman intended to construct a 765,000 square foot mall which was fully enclosed. While retail, dining and entertainment were to be key, over 40% of the mall was set to be dedicated to Bloomingdale’s and Macy’s. Included in the plan was a pedestrian-only street which featured multiple restaurants and shops on 7th street, which led directly to the American Airlines Arena. A press release on Jan 11 stated that the mall project had been discarded, and in its place would be a high end retail street, positioned south to north between 7th and 10th streets.

chart04.pngSimon planned to construct an open-air shopping center simultaneously in downtown Miami. The luxury mall is to be 500,000 square feet, and complete with high-end retailers along with plenty of dining and entertainment facilities in the Brickell neighborhood. Part of the project has already been finished and is to open this year. Local developers have been developing the project with Simon. Both projects are mixed-use and also include offices, hotels and residences.

chart05.pngTaubman’s decision strikes many as yet another signal that the idea of a mall no longer works in America. Cities have become increasingly urbanized and, along with the growth of online shopping and the boost to high street shopping, malls have become marginalized. But while Taubman is looking to expand overseas, and in particular to Asia, it’s unlikely that they will scrap future mall projects in the U.S. This scenario appears to be just a downtown Miami battle between two competitors.

chart02Due to recent selloffs, some regional malls REIT stocks have returned poorly, whereas others have been holding better. Simon has been the latter. Following the release of its results on Friday, Simon stocks dropped, but they quickly rebounded. Simon’s Q4-15 funds from operations have fallen in comparison with Q4-14. Also, occupancy dropped by 100 basis points. Despite this result, vacancy levels for malls in general have trended downwards.

The regional malls REITS that have higher sales per square foot have been doing better. Macerich, Taubman, Simon and General Growth average an AFFO multiple of 24x. In contrast, Rouse Properties, Pennsylvania Real Estate, WP Glimcher and CBL & Associates are languishing badly with an AFFO multiple of just 11x.

chart01

As a result of the project change, Taubman’s share price fell for days after the announcement was made. Taubman trades at 27x yield at 3.2%, which is the highest AFFO multiple among its peers.

chart06Source: Taubman Centers, Inc.(NYSE:TCO), Simon Property Group Inc.(NYSE:SPG), General Growth Properties, Inc(NYSE:GGP), WP GLIMCHER Inc.(NYSE:WPG), Pennsylvania Real Estate Inves(NYSE:PEI),The Macerich Company(NYSE:MAC), CBL & Associates Properties In(NYSE:CBL), Rouse Properties, Inc.(NYSE:RSE), Yahoo!Finance, Fast Graphs, Brickell City Centre, Miami Worldcenter, Reis

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.

When will DuPont be leaving the bullpen?

sample.pngOver the past week, in anticipation of its Q4 results which are to be released this coming Thursday on February 4th, the rally for DuPont Fabros has been over 9 percent.

For a great part of 2015, DuPont was in the bullpen. CEO Christopher Eldredge was the one put in charge to contain losses after a top tenant declared bankruptcy. It is good news that the succeeding tenant seems to be doing quite a lot better and kept some of the storage space. Due to the issue, it is expected that the 2015 AFFO per share will go up by 6 percent in a sector in which competitors have increased by two digits.

Since the arrival of the new year, new forecasts have been put forth, and DuPont is expecting to experience a better year in 2016. Especially in the first years of his leadership, Eldredge does not wish to be left behind by its peers. Since the company might soon overcome last year’s issues, this could be the year that the company really thrives as things currently are looking rather favorable.

In comparison to its peers, DuPont has a great entry point, which is based on a 12x AFFO multiple along with a decent dividend of 5.7 percent. The dividend payout is set under 70 percent. Though it does not possess an investment grade rating as that of Digital Realty, the company’s ratio for debt to total capitalization is suitably under control.

Because of the fact of tenant concentrations, a risk premium should be added to the company’s valuation. The reason is that there is always the possibility of a corporate decision that will change the storage host or make a downgrade, even if they are not running out of money. More than half of the annual based rent is represented by Microsoft, Facebook, Rackspace, and Yahoo!.

The truth of the matter is that tenant concentration is a delicate issue, but I would not be surprised to see DuPont leave the bullpen sooner than most companies with the same issue.

What happened to make STAG Chief Financial Officer leave?

On Tuesday, STAG Industrial informed that CFO Geoffrey Jarvis left the company. I wonder if the unexpected exit has to do with the company’s challenging period. Because its share price dropped in 2015, the company has been unable to offer major issuance of equity. The management expects to grow assets by 25 percent annually. In 2016, the stock is currently down by 8.2 percent.

Check the reports for Dividend Yield by Sector and Weekly Returns.

Source: Digital Realty Trust Inc.(NYSE:DLR), DuPont Fabros Technology, Inc.(NYSE:DFT), STAG Industrial, Inc.(NYSE:STAG), Fast Graphs, Yahoo!Finance.

Disclaimer: This is not a recommendation to buy or sell stocks. The highest-yield stocks are not necessarily the best portfolio investment choice. The purpose of this report — which is essentially a snapshot of information available on January 29, 2016 — is to reduce your stock analysis by enabling you to compare stock and sector performance. Please do your own due diligence before making any investment decision.

As of December 31, 2015, the equity REITs are constituent companies of the FTSE NAREIT All REITs Index. Companies whose equity market capitalization is lower than $100 million have been disregarded.

This report 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. 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.

The REITs That May Be Your Key To Apartments

chart01Smaller companies might be your best chance at making it in the apartment sector. In 2015, since fundamentals have held up, Apartments was one of the best performing sectors in the REIT industry, and there are high chances that this moment will still prevail this year. The only issue at hand is the fact that most AFFO multiples have surpassed 20x apart from the smaller REITs. It goes without saying that there are uncertainties when you invest in companies on the low side of the small cap spectrum.

The companies that are part of this ‘club’ include BlueRock Residential Growth, NexPoint Residential, Independence Trust and Preferred Apartment Communities. They are still rookies in the publicly traded arena and their market capitalization is in the range of $200-300 million. Not only is their leverage on the higher side, they also have the highest dividend yields and the lowest AFFO multiples.

These are the profiles of two companies:

chart02

NexPoint Residential had spun off from NexPoint Credit Strategies Fund before the REIT began trading first half of 2015. The company targets the middle income residents in the US Southeastern and Southwestern. The insider ownership of the company is high at 16% despite the fact that it is externally managed by an affiliate of Highland Capital Management. They believe their NAV is between $15-20 and have traded around $13.

chart03

Independent Trust has recently acquired Trade Street with its shareholders holding 68%. When we looked at the two companies separately right before the merger, Trade Street was one of the fastest growing FFO per share and Independence Trust was one of the slowest. The performance of the combined company is yet to be seen. Trade Street leadership joined the board and the Independent Trust management team has been maintained. The new company has a portfolio $ 1.4 billion, mainly financed through debt, 73%, the highest among these four companies.

Source: NexPoint Residential Trust (NYSE:NXRT), Independence Realty Trust (AMEX:IRT), Bluerock Residential Growth (AMEX:BRG), Preferred Apartment Communities (NYSE:APTS), Fast Graphs

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.

 

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.

STAG is waiting for you to buy their stock so that they can issue more (Part 1/2)

logoWhen you hear that a company has set a goal to grow at 25% a year, you will go closer and listen to them. Why is it that you will react differently when you find out that a REIT like STAG Industrial has set a goal of growing assets at 25% for the next years?

What you are supposed to know is that REITs distribute most profits that they make. Now, the fundamental question that you should ask is that, how are they going to fund that growth? What will likely steer STAG into achieving that goal is their capitalization structure that is composed of  equity 63% and  debt 37%.

chart02In the REIT space, raising equity has always been a recurrent option and despite the powerful practical grounds that exist, REIT stocks have not been lately a fertile ground where new equity could be readily issued. The selloff of REIT stocks (including STAG) this August has significantly impacted on the secondary market decreasing issuances of common shares. Not surprisingly, STAG preached equity discipline on the third quarter call and said that they are going to look for capital raising alternatives such as joint ventures. But not even this strategy will eliminate equity issuance completely.

chart01STAG is the cheapest stock among Industrial REITs, and this is what is holding them back. They have an AFFO multiple that is about to 12×. When we compare this with the peer median of 23×, we will find that their multiple is way lower. Another indication they are devalued is that dividend yield is higher than its peers’. They are trading close to 8%.

chart03

An alternative way to help STAG out of this problem is to increase the leverage level. Which I believe STAG will not do. The investment grade status the company enjoys provides access to cheaper financing in the industry. Fitch Ratings has assigned a ‘BBB’ rating to STAG’s rating of $100 million unsecured notes (fixed rate of 3.98%) through a private placement in the middle of December. The warranting of lower interest rates in a rising interest rate environment is of prime importance.

chart04

We’ll post 2nd part tomorrow.

Source: STAG Industrial (NYSE:STAG), REIT.com, Fast Graphs

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.

Not Sure About STAG Industrial’s Q3 Results

chart stag

Last week, STAG Industrial’s (NYSE:STAG) third quarter results were announced, and from a dividend generation ranking standpoint the figures were slightly better than their second quarter results. The best news is that the company’s FFO per share increased by a whopping 8.3 percent year over year. In addition, STAG’s core funds from operations increased by more than thirty percent. The company has also issued a large amount of equity over the past twelve months.

That being said, STAG Industrial does not demonstrate certain things that we see in other industrial stocks. A factor that we look for is a relatively strong same store NOI, a large factor in measuring internal growth strength. For example, the median sector figure, in Q2, was more than 5 percent. This is a big reason why industrial stocks have been our top fifth sector.

In comparison, STAG has shown a weaker same store NOI. The company has concentrated on acquiring business that are one hundred percent occupied. It is a natural factor that occupancy will decrease over time, which in turn weakens internal growth. In order to put this into perspective, amongst the eight industrial stocks we follow the second lowest same store NOI came in Q2 at approximately five percent. STAG Industrial’s same store NOI was one percent. (-0.4 percent in Q3).

STAG has enjoyed another piece of good news. The company’s retention rate rose to ninety percent after having dropped to twenty nine percent in the second quarter. The amount of expiring square footage has been more significant in Q3 than in Q2 resulting in a more robust Q3 retention figure. Also, STAG’s acquisition pacing continues strong, and their management team has lined up a pipeline that is greater than their market capitalization.

We are not sure if this will improve STAG Industrial’s position in our third quarter rankings. When compared to its industrial peers, the company’s metrics associated with both profitability and dividend distributions have been limited. If STAG had had this same performance in the second quarter, it would not have changed their bottom position at all.

Stay tuned! Our US equity REIT ranking is finally close to release.

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.

STAG Industrial: Company Growth Does Not Equate To Growth In Distributions To Investors

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Fundamentals

STAG Industrial (NYSE: STAG), a company in the industrial REIT sector with a market capitalization of $1.4 billion (categorized as a small capitalization stock), has benefited from a rebounding US economy. This is evidenced by:

  • The US has become an increasingly attractive country for manufacturing and distribution due to the size and buying power of the consumer market.
  • Overseas labor costs have been steadily rising.
  • Since 2004, industrial production and inventory levels are at all time highs.
  • Industrial demand continues to outpace supply.
  • The continued increase in E-commerce volume, as opposed to brick and mortar retailers, requires efficient warehouse solutions that can quickly fulfill and ship orders.

STAG Industrial has 253 buildings in 36 states with the majority of those being warehouse facilities. The company focuses on single-tenant industrial properties, a market estimated to be worth $250 billion. The industrial market is fragmented with no single dominant player. STAG’s market share is less than 1% in its niche and approximately 65% of their annualized base rent comes from the secondary market.

The primary market typically experiences an increase in occupancy and rental performance at least 6 months sooner than the secondary market. This should provide a favorable scenario for STAG due to their strong position and high concentration in the secondary market.

Acquisitions

Since their IPO in April 2011, STAG’s growth strategy has primarily been through aggressively seeking acquisitions. Fueled by debt and its ATM program, STAG has tripled in size from 18.3 to 48.5 million square feet in the last three years.

However, the results for investors in STAG have been less than stellar. Over the past three years, AFFO and dividend growth were 23 and 30 percent respectively, significantly lagging the increase in square footage. Same store revenue and cash net operating income has experience meager growth with the vast majority of additional revenue coming from the addition of new properties.

Financials

The positive aspect of STAG’s performance is they have maintained and, in some cases, improved their financial metrics including total debt to enterprise value and net debt to adjusted EBITDA. The average debt maturity has increased from 4 to 7.4 years and STAG has no major payments due in the coming 12 months. In addition, Fitch Ratings has upgraded the company’s credit rating from BBB- to BBB.

The Price-to-FFO multiple has remained below its historical average and STAG has been paying 90 percent of AFFO at a solid dividend yield of 6.5%.

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Summary

STAG has been issuing debt and equity to drive its aggressive growth strategy while maintaining a prudent eye on the debt metrics. Same store metrics have shown little growth. As a result of STAG’s equity dilution, growth in AFFO and dividend share has lagged the increases in square footage and revenue. Given the current share price, dividend yield has been attractive making STAG a potentially good option for an income oriented portfolio.

 Metrics 2012 2013 2014 2015
Square feet – Q1 18,272,568 31,160,765 39,046,566 48,533,893
Revenues – Q1, $000s 17,539 29,988 39,743 50,989
Revenues – Q1, in percent 71.0 32.5 28.3
Cash NOI – Q1, ‘000s 14,975 25,343 31,908 41,349
Cash NOI – Q1, in percent 69.2 25.9 29.6
Dividend per share, Q1, $ 0.2600 0.3000 0.3150 0.3375
Dividend payout ratio – Q1, in percent 87 91 88 91
Dividend yield – Q1, in percent 7.4 5.6 5.2 5.7
Alternate FFO per share – Q1, $ 0.30 0.33 0.36 0.35
AFFO per share – Q1, $ 0.30 0.33 0.36 0.37
Net Debt to adjusted EBITDA – Q1 6.2 4.7 4.7 5.3
Total debt to total enterprise value – Q1, in percent 46 27.8 27.0 29.9
Weighted average interest rate – Q1, in percent 4.55 4.01 3.82 4.47
Weighted average debt maturity – Q1, years 4.0 5.5 4.8 7.4
Revenue – Same Store – Q1, in percent (0.8) 4.6 (1.4) 1.6
Cash NOI – Same Store – Q1, in percent 3.8 2.3 (4.9) 1.5
Occupancy – Net leased – Q1, in percent 94.2 95.4 95.3 94.4
Average Lease Term – Q1, years 5.5 5.0 4.7 4.2
Share Price on 31 March, $ 13.96 21.27 24.1 23.52
P/FFO on 31 March 11.6 16.1 16.7 16.8

Written by Heli Brecailo

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.​