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STAG Industrial, Inc.$26.40($.35)(1.31%)

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 STAG Industrial Announces Fourth Quarter And Full Year 2017 Results
   Thursday, February 15, 2018 4:01:00 PM ET

STAG Industrial, Inc. (the "Company") (STAG ), a real estate investment trust focused on the acquisition and operation of single-tenant, industrial properties throughout the United States, today announced its financial and operating results for the fourth quarter of 2017.

"The fourth quarter was another successful quarter for STAG and a great way to close 2017," said Ben Butcher, Chief Executive Officer of the Company. "Continued strength in the industrial sector, record acquisition volume, robust portfolio operating metrics, and a defensively positioned balance sheet sets STAG up well for another strong year ahead."

Fourth Quarter and Full Year 2017 Highlights

-- Reported $0.06 of net income per basic and diluted share for the fourth quarter of 2017, as compared to $0.38 of net income per basic and diluted share for the fourth quarter of 2016. Reported $6.1 million of net income attributable to common stockholders for the fourth quarter of 2017 compared to net income attributable to common stockholders of $28.6 million for the fourth quarter of 2016. For the year ended 2017, net income attributable to common stockholders was $21.1 million as compared to net income of $20.2 million in 2016.

-- Achieved $0.44 of Core FFO per diluted share for the fourth quarter of 2017, an increase of 4.8% compared to the fourth quarter of 2016 of $0.42. Generated Core FFO of $44.0 million compared to $33.1 million for the fourth quarter of 2016, an increase of 32.9%. For the year ended December 31, 2017, Core FFO increased 34.6% in the aggregate compared to the same period last year and Core FFO per diluted share increased 7.0% compared to the same period last year.

-- Generated Cash NOI of $64.0 million for the fourth quarter of 2017, an increase of 16.1% compared to the fourth quarter of 2016 of $55.1 million. For the year ended December 31, 2017, Cash NOI increased 17.0% in the aggregate compared to the same period last year.

-- Acquired 11 buildings in the fourth quarter of 2017, consisting of 1.9 million square feet, for $107.4 million with a weighted average Capitalization Rate of 7.3%.

-- Sold two buildings in the fourth quarter of 2017, consisting of 880,558 square feet for $22.1 million.

-- Achieved an Occupancy Rate of 95.3% on the total portfolio and 95.7% on the Operating Portfolio as of December 31, 2017.

-- Executed Operating Portfolio leases for 2.4 million square feet for the fourth quarter of 2017, resulting in a cash rent change and GAAP Rent Change of 2.3% and 12.2%, respectively.

-- Experienced 52.7% Retention, resulting in a cash rent change and GAAP Rent Change of (0.7)% and 7.6%, respectively. For the year ended December 31, 2017, experienced 59.1% Retention, resulting in a cash rent change and GAAP Rent Change of 4.4% and 11.1% respectively.

-- Raised gross proceeds of $87.9 million of equity through the Company’s at-the-market offering ("ATM") program for the fourth quarter of 2017.

Please refer to the Non-GAAP Financial Measures and Other Definitions section at the end of this release for definitions of capitalized terms used in this release.

The Company will host a conference call tomorrow, February 16, 2018 at 10:00 a.m. (Eastern Time), to discuss the quarter’s results and provide information about acquisitions, operations, capital markets and corporate activities. Details of the call can be found at the end of this release.

Key Financial Measures

FOURTH QUARTER 2017 KEY FINANCIAL MEASURES
                                                Three months ended            Year ended
                                                December 31,                  December 31,
Metrics                                         2017     2016       % Change  2017      2016      % Change
(in $000s, except per share data)
Net income attributable to common stockholders  $6,124   $28,608    (78.6)%   $21,131   $20,238   4.4%
Net income per share -- basic                   $0.06    $0.38      (84.2)%   $0.24     $0.29     (17.2)%
Net income per share -- diluted                 $0.06    $0.38      (84.2)%   $0.23     $0.29     (20.7)%
Cash NOI                                        $63,970  $55,107    16.1%     $240,440  $205,465  17.0%
Adjusted EBITDA                                 $57,659  $48,944    17.8%     $214,854  $181,468  18.4%
Core FFO                                        $44,049  $33,141    32.9%     $159,265  $118,344  34.6%
Core FFO per share / unit -- basic              $0.44    $0.42      4.8%      $1.70     $1.59     6.9%
Core FFO per share / unit -- diluted            $0.44    $0.42      4.8%      $1.69     $1.58     7.0%
AFFO                                            $42,540  $33,913    25.4%     $156,682  $121,709  28.7%

Definitions of the above mentioned non-GAAP financial measures, together with reconciliations to net income (loss) in accordance with GAAP, appear at the end of this release. Please also see the Company’s supplemental information package for additional disclosure.

Acquisition and Disposition Activity

For the three months ended December 31, 2017, the Company acquired 11 buildings for $107.4 million with an Occupancy Rate of 92% upon acquisition. The chart below details the acquisition activity for the quarter:

FOURTH QUARTER 2017 ACQUISITION ACTIVITY
Location (CBSA)                      Date       Square Feet Buildings Purchase      W.A. Lease   Capitalization
                                     Acquired                         Price ($000s) Term (Years) Rate
Omaha-Council Bluffs, NE-IA          10/23/2017 90,000      1         $6,600        10.0
Columbus, OH                         11/2/2017  237,500     1         8,717         9.5
Greenville-Anderson-Mauldin, SC      11/22/2017 264,385     1         18,200        9.6
Columbia, SC                         11/29/2017 200,000     1         10,000        6.3
Phoenix-Mesa-Scottsdale, AZ          12/11/2017 186,643     1         16,500        12.0
El Paso, TX                          12/18/2017 498,382     2         16,850        3.3
Houston-The Woodlands-Sugar Land, TX 12/18/2017 68,300      1         8,100         9.5
Providence-Warwick, RI-MA            12/27/2017 86,000      1         8,125         9.9
Madison, WI                          12/28/2017 283,000     2         14,300        5.2
Total / weighted average                        1,914,210   11        $107,392      7.3          7.3%

The chart below details the 2017 acquisition activity and Pipeline through February 15, 2018:

2017 ACQUISITION ACTIVITY AND PIPELINE DETAIL
                                       Square       Buildings Purchase      W.A. Lease   Capitalization
                                       Feet                   Price ($000s) Term (Years) Rate
Q1                                     2,334,622    11        $99,786       6.2          8.2%
Q2                                     4,573,794    21        285,607       9.1          7.2%
Q3                                     2,295,030    10        119,726       5.9          7.5%
Q4                                     1,914,210    11        107,392       7.3          7.3%
2017 closed acquisitions               11,117,656   53        $612,511      7.5          7.4%
As of February 15, 2018
Subsequent to quarter-end acquisitions 599,334      3         $42,219
Pipeline                               32.4 million 144       $1.9 billion

The chart below details the disposition activity for the twelve months ended December 31, 2017:

2017 DISPOSITION ACTIVITY
       Square Feet Buildings Sale Price ($000s)
Q1     113,379     1         $4,100
Q2     134,900     3         6,500
Q3     791,064     5         34,742
Q4     880,558     2         22,055
Total  1,919,901   11        $67,397

Subsequent to quarter end and through February 15, 2018, the Company sold one building consisting of 491,025 square feet for $31.9 million.

Operating Portfolio Leasing Activity

The chart below details the leasing activity for leases signed during the quarter:

FOURTH QUARTER 2017 LEASING ACTIVITY
Lease Type               Square    W.A.    Cash      GAAP      Lease       Tenant       Total      Cash   GAAP
                         Feet      Lease   Base Rent Base Rent Commissions Improvements Costs $/SF Rent   Rent
                                   Term    $/SF      $/SF      $/SF        $/SF                    Change Change
                                   (Years)
New leases               1,265,025 4.8     $3.90     $4.24     $0.86       $0.28        $1.14      4.7%   13.4%
Renewal Leases           1,101,882 5.2     4.10      4.31      0.36        0.46         0.82       0.7%   11.3%
Total / weighted average 2,366,907 5.0     $3.99     $4.27     $0.62       $0.37        $0.99      2.3%   12.2%

The chart below details the leasing activity for leases signed during the twelve months ended December 31, 2017:

2017 LEASING ACTIVITY
Lease Type               Square     W.A.    Cash      GAAP      Lease       Tenant       Total      Cash   GAAP
                         Feet       Lease   Base Rent Base Rent Commissions Improvements Costs $/SF Rent   Rent
                                    Term    $/SF      $/SF      $/SF        $/SF                    Change Change
                                    (Years)
New leases               2,554,246  4.5     $4.04     $4.29     $1.00       $0.46        $1.46      4.5%   10.6%
Renewal Leases           8,644,161  5.3     3.89      4.04      0.37        0.29         0.66       2.5%   10.9%
Total / weighted average 11,198,407 5.2     $3.92     $4.10     $0.51       $0.33        $0.84      2.9%   10.8%

The chart below details the Retention activity for the twelve months ended December 31, 2017:

2017 RETENTION
                         Expiring Square Retained Square W.A. Lease   Retention Cash Rent GAAP  Rent
                         Footage         Footage         Term (Years)           Change    Change
Q1                       1,185,453       607,608         3.4          51.3%     13.4%     23.6%
Q2                       1,804,836       1,085,796       6.0          60.2%     (1.3)%    2.2%
Q3                       1,263,911       896,695         4.0          70.9%     8.5%      15.3%
Q4                       1,228,294       647,724         5.0          52.7%     (0.7)%    7.6%
Total / weighted average 5,482,494       3,237,823       4.8          59.1%     4.4%      11.1%

Liquidity and Capital Market Activity

As of December 31, 2017, the Company had Liquidity of $348 million and net debt to annualized Adjusted Run Rate EBITDA was 4.9x.

The chart below details the ATM program activity for the twelve months ended December 31, 2017:

2017 ATM ACTIVITY
                         Shares     Price per Share Gross    Net
                         Issued     (W.A.)          Proceeds Proceeds
                                                    ($000s)  ($000s)
Q1                       2,843,907  $24.10          $68,543  $67,602
Q2                       7,912,636  $26.01          205,842  203,327
Q3                       2,409,453  $27.08          65,239   64,424
Q4                       3,096,379  $28.39          87,918   86,819
Total / weighted average 16,262,375 $26.29          $427,542 $422,172

Subsequent to quarter end, on February 14, 2018, the Company’s Board of Directors declared the following first quarter preferred stock dividends:

FIRST QUARTER 2018 PREFERRED DIVIDENDS DECLARED
Series                                                                    Record Date    Payment Date  Quarterly
                                                                                                       Dividend
Series B - 6.625% Cumulative Redeemable Preferred Stock (STAG PR B ) March 15, 2018 April 2, 2018 $0.4140625
Series C - 6.875% Cumulative Redeemable Preferred Stock (STAG PR C ) March 15, 2018 April 2, 2018 $0.4296875

The Company’s dividend policy is set by the Board of Directors, which considers, among other factors, REIT distribution requirements and recurring, distributable, cash income.

Conference Call

The Company will host a conference call tomorrow, Friday, February 16, at 10:00 a.m. (Eastern Time) to discuss the quarter’s results. The call can be accessed live over the phone toll-free by dialing (877) 407-4018, or for international callers, (201) 689-8471. A replay will be available shortly after the call and can be accessed by dialing (844) 512-2921, or for international callers, (412) 317-6671. The passcode for the replay is 13675090.

Interested parties may also listen to a simultaneous webcast of the conference call by visiting the Investor Relations section of the Company’s website at www.stagindustrial.com, or by clicking on the following link:

http://ir.stagindustrial.com/QuarterlyResults

Supplemental Schedule

The Company has provided a supplemental information package to provide additional disclosure and financial information on its website (www.stagindustrial.com) under the "Quarterly Results" tab in the Investor Relations section.

Additional information is also available on the Company’s website at www.stagindustrial.com.

CONSOLIDATED BALANCE SHEETS
STAG Industrial, Inc.
(unaudited, in thousands, except share data)
                                                                                        December 31, 2017 December 31, 2016
Assets
Rental Property:
Land                                                                                    $     321,560     $     272,162
Buildings and improvements, net of accumulated depreciation of $249,057 and $187,413,   1,932,764         1,550,141
respectively
Deferred leasing intangibles, net of accumulated amortization of $280,642 and $237,456, 313,253           294,533
respectively
Total rental property, net                                                              2,567,577         2,116,836
Cash and cash equivalents                                                               24,562            12,192
Restricted cash                                                                         3,567             9,613
Tenant accounts receivable, net                                                         33,602            25,223
Prepaid expenses and other assets                                                       25,364            20,821
Interest rate swaps                                                                     6,079             1,471
Assets held for sale, net                                                               19,916            --
Total assets                                                                            $     2,680,667   $     2,186,156
Liabilities and Equity
Liabilities:
Unsecured credit facility                                                               $     271,000     $     28,000
Unsecured term loans, net                                                               446,265           446,608
Unsecured notes, net                                                                    398,234           397,966
Mortgage notes, net                                                                     58,282            163,565
Accounts payable, accrued expenses and other liabilities                                43,216            35,389
Interest rate swaps                                                                     1,217             2,438
Tenant prepaid rent and security deposits                                               19,045            15,195
Dividends and distributions payable                                                     11,880            9,728
Deferred leasing intangibles, net of accumulated amortization of $13,555 and $10,450,   21,221            20,341
respectively
Total liabilities                                                                       1,270,360         1,119,230
Equity:
Preferred stock, par value $0.01 per share, 15,000,000 shares authorized,
Series B, 2,800,000 shares (liquidation preference of $25.00 per share) issued and      70,000            70,000
outstanding at December 31, 2017 and December 31, 2016
Series C, 3,000,000 shares (liquidation preference of $25.00 per share) issued and      75,000            75,000
outstanding at December 31, 2017 and December 31, 2016
Common stock, par value $0.01 per share, 150,000,000 shares authorized, 97,012,543 and  970               804
80,352,304 shares issued and outstanding at December 31, 2017 and December 31, 2016,
respectively
Additional paid-in capital                                                              1,725,825         1,293,706
Common stock dividends in excess of earnings                                            (516,691)         (410,978)
Accumulated other comprehensive income (loss)                                           3,936             (1,496)
Total stockholders’ equity                                                              1,359,040         1,027,036
Noncontrolling interest                                                                 51,267            39,890
Total equity                                                                            1,410,307         1,066,926
Total liabilities and equity                                                            $     2,680,667   $     2,186,156
CONSOLIDATED STATEMENTS OF OPERATIONS
STAG Industrial, Inc.
(unaudited, in thousands, except share data)
                                                                     Three months ended December 31,     Year ended December 31,
                                                                     2017              2016              2017              2016
Revenue
Rental income                                                        $    69,210       $    56,166       $    255,831      $    212,741
Tenant recoveries                                                    12,053            10,300            45,005            37,107
Other income                                                         7                 68                251               395
Total revenue                                                        81,270            66,534            301,087           250,243
Expenses
Property                                                             15,389            13,232            57,701            48,904
General and administrative                                           8,259             7,022             33,349            33,395
Property acquisition costs                                           702               1,454             5,386             4,567
Depreciation and amortization                                        40,595            33,719            150,881           125,444
Loss on impairments                                                  1,879             5,614             1,879             16,845
Gain on involuntary conversion                                       (655)             --                (325)             --
Other expenses                                                       284               292               1,786             1,149
Total expenses                                                       66,453            61,333            250,657           230,304
Other income (expense)
Interest income                                                      2                 2                 12                10
Interest expense                                                     (10,912)          (11,082)          (42,469)          (42,923)
Loss on extinguishment of debt                                       --                (1,288)           (15)              (3,261)
Gain on the sales of rental property, net                            5,017             40,234            24,242            61,823
Total other income (expense)                                         (5,893)           27,866            (18,230)          15,649
Net income                                                           $    8,924        $    33,067       $    32,200       $    35,588
Less: income attributable to noncontrolling interest after preferred 267               1,376             941               1,069
stock dividends
Net income attributable to STAG Industrial, Inc.                     $    8,657        $    31,691       $    31,259       $    34,519
Less: preferred stock dividends                                      2,449             2,983             9,794             13,897
Less: amount allocated to participating securities                   84                100               334               384
Net income attributable to common stockholders                       $    6,124        $    28,608       $    21,131       $    20,238
Weighted average common shares outstanding -- basic                       95,192,218        75,558,806        89,537,714        70,637,185
Weighted average common shares outstanding -- diluted                     95,764,261        75,865,780        90,003,559        70,852,548
Net income per share -- basic and diluted
Net income per share attributable to common stockholders --          $    0.06         $    0.38         $    0.24         $    0.29
basic
Net income per share attributable to common stockholders --          $    0.06         $    0.38         $    0.23         $    0.29
diluted
RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES
STAG Industrial, Inc.
(unaudited, in thousands)
                                                            Three months ended December 31,  Year ended December 31,
                                                            2017          2016               2017           2016
NET OPERATING INCOME RECONCILIATION
Net income                                                  $    8,924    $    33,067        $    32,200    $    35,588
Asset management fee income                                 --            (44)               (52)           (210)
General and administrative                                  8,259         7,022              33,349         33,395
Property acquisition costs                                  702           1,454              5,386          4,567
Depreciation and amortization                               40,595        33,719             150,881        125,444
Interest income                                             (2)           (2)                (12)           (10)
Interest expense                                            10,912        11,082             42,469         42,923
Loss on impairments                                         1,879         5,614              1,879          16,845
Gain on involuntary conversion                              (655)         --                 (325)          --
Loss on extinguishment of debt                              --            1,288              15             3,261
Other expenses                                              284           292                1,097          1,149
Loss on incentive fee                                       --            --                 689            --
Gain on the sales of rental property, net                   (5,017)       (40,234)           (24,242)       (61,823)
Net operating income                                        $    65,881   $    53,258        $    243,334   $    201,129
Net operating income                                        $    65,881   $    53,258        $    243,334   $    201,129
Straight-line rent adjustments, net                         (2,313)       (470)              (6,691)        (2,555)
Straight-line termination income adjustments, net           (308)         857                (786)          678
Intangible amortization in rental income, net               710           1,462              4,583          6,213
Cash net operating income                                   $    63,970   $    55,107        $    240,440   $    205,465
Cash net operating income                                   $    63,970
Cash NOI from acquisitions’ and dispositions’ timing        829
Cash termination income                                     (157)
Run Rate Cash NOI                                           $    64,642
ADJUSTED EBITDA RECONCILIATION
Net income                                                  $    8,924    $    33,067        $    32,200    $    35,588
Intangible amortization in rental income, net               710           1,462              4,583          6,213
Straight-line rent adjustments, net                         (2,312)       (470)              (6,689)        (2,496)
Non-cash compensation expense                               2,388         2,036              9,547          8,164
Termination income                                          (465)         (72)               (1,527)        (271)
Property acquisition costs                                  702           1,454              5,386          4,567
Depreciation and amortization                               40,595        33,719             150,881        125,444
Interest income                                             (2)           (2)                (12)           (10)
Interest expense                                            10,912        11,082             42,469         42,923
Severance costs                                             --            --                 --             3,063
Loss on impairments                                         1,879         5,614              1,879          16,845
Gain on involuntary conversion                              (655)         --                 (325)          --
Loss on extinguishment of debt                              --            1,288              15             3,261
Loss on incentive fee                                       --            --                 689            --
Gain on the sales of rental property, net                   (5,017)       (40,234)           (24,242)       (61,823)
Adjusted EBITDA                                             $    57,659   $    48,944        $    214,854   $    181,468
Adjusted EBITDA                                             $    57,659
Adjusted EBITDA from acquisitions’ and dispositions’ timing 829
Run Rate Adjusted EBITDA                                    $    58,488
RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES
STAG Industrial, Inc.
(unaudited, in thousands, except share data)
                                                           Three months ended December 31,                                                 Year ended December 31,
                                                           2017                                    2016                                    2017                                    2016
CORE FUNDS FROM OPERATIONS RECONCILIATION
Net income                                                 $                  8,924                $                  33,067               $                  32,200               $                  35,588
Rental property depreciation and amortization              40,522                                  33,645                                  150,591                                 125,182
Loss on impairments                                        1,879                                   5,614                                   1,879                                   16,845
Gain on the sales of rental property, net                  (5,017)                                 (40,234)                                (24,242)                                (61,823)
Funds from operations                                      $                  46,308               $                  32,092               $                  160,428              $                  115,792
Preferred stock dividends                                  (2,449)                                 (2,983)                                 (9,794)                                 (13,897)
Other expenses                                             --                                      (100)                                   --                                      (384)
Funds from operations attributable to common stockholders  $                  43,859               $                  29,009               $                  150,634              $                  101,511
and unit holders
Funds from operations attributable to common stockholders  $                  43,859               $                  29,009               $                  150,634              $                  101,511
and unit holders
Intangible amortization in rental income, net              710                                     1,462                                   4,583                                   6,213
Termination income                                         (465)                                   (72)                                    (1,527)                                 (271)
Property acquisition costs                                 702                                     1,454                                   5,386                                   4,567
Loss on extinguishment of debt                             --                                      1,288                                   15                                      3,261
Severance costs                                            --                                      --                                      --                                      3,063
Gain on involuntary conversion                             (655)                                   --                                      (325)                                   --
Loss on incentive fee                                      --                                      --                                      689                                     --
Gain on swap ineffectiveness                               (102)                                   --                                      (190)                                   --
Core funds from operations                                 $                  44,049               $                  33,141               $                  159,265              $                  118,344
Weighted average common shares, participating securities,
performance units and other units
Weighted average common shares outstanding                 95,192,218                              75,558,806                              89,537,714                              70,637,185
Weighted average participating securities outstanding      237,207                                 152,990                                 237,896                                 184,115
Weighted average units outstanding                         4,111,270                               3,633,881                               3,934,290                               3,675,144
Weighted average common shares, participating securities,  99,540,695                              79,345,677                              93,709,900                              74,496,444
and other units - basic
Weighted average performance units and outperformance plan 121,803                                 88,759                                  225,862                                 102,680
Dilutive common share equivalents                          572,043                                 306,974                                 465,845                                 215,363
Weighted average common shares, participating securities,                     100,234,541                             79,741,410                              94,401,607                              74,814,487
performance and other units - diluted
Core funds from operations per share / unit - basic        $                  0.44                 $                  0.42                 $                  1.70                 $                  1.59
Core funds from operations per share / unit - diluted      $                  0.44                 $                  0.42                 $                  1.69                 $                  1.58
ADJUSTED FUNDS FROM OPERATIONS RECONCILIATION
Core funds from operations                                 $                  44,049               $                  33,141               $                  159,265              $                  118,344
Non-rental property depreciation and amortization          73                                      74                                      290                                     262
Straight-line rent adjustments, net                        (2,312)                                 (470)                                   (6,689)                                 (2,496)
Recurring capital expenditures                             (1,735)                                 (1,117)                                 (3,264)                                 (2,176)
Renewal lease commissions and tenant improvements          (457)                                   (175)                                   (4,554)                                 (2,021)
Non-cash portion of interest expense                       534                                     424                                     2,087                                   1,632
Non-cash compensation expense                              2,388                                   2,036                                   9,547                                   8,164
Adjusted funds from operations (1)                         $                  42,540               $                  33,913               $                  156,682              $                  121,709
(1) Excludes Non-Recurring Capital Expenditures of approximately $3,512, $16,072, $6,141 and $13,361 and new leasing commissions and tenant improvements of approximately $1,333, $4,952, $890 and $1,975 for the three months and year ended December 31, 2017 and December 31, 2016, respectively.

Non-GAAP Financial Measures and Other Definitions

Acquisition Capital Expenditures: We define Acquisition Capital Expenditures as Recurring and Non-Recurring Capital Expenditures identified at the time of acquisition and underwritten to occur in the first 12 months. Acquisition Capital Expenditures also include new lease commissions and tenant improvements for space that was not occupied under the Company’s ownership.

Adjusted Earnings before Interest, Taxes, Depreciation, and Amortization (Adjusted EBITDA), and Run Rate Adjusted EBITDA: We define Adjusted EBITDA as net income (loss) (computed in accordance with GAAP) before interest, tax, depreciation and amortization, property acquisition costs, gain on the sales of rental property, termination income, straight-line rent adjustments, non-cash compensation, intangible amortization in rental income, loss on impairments, gain on involuntary conversion, loss on extinguishment of debt, loss on incentive fee, and other non-recurring items.

We define Run Rate Adjusted EBITDA as Adjusted EBITDA plus incremental Adjusted EBITDA adjusted for a full period of acquisitions and dispositions. Run Rate Adjusted EBITDA does not reflect the Company’s historical results and does not predict future results, which may be substantially different.

Adjusted EBITDA and Run Rate Adjusted EBITDA should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of our performance, and we believe that to understand our performance further, Adjusted EBITDA and Run Rate Adjusted EBITDA should be compared with our reported net income or net loss in accordance with GAAP, as presented in our consolidated financial statements. We believe that Adjusted EBITDA and Run Rate Adjusted EBITDA are helpful to investors as supplemental measures of the operating performance of a real estate company because they are direct measures of the actual operating results of our properties. We also use these measures in ratios to compare our performance to that of our industry peers.

Capitalization Rate: We define Capitalization Rate as the estimated weighted average cash Capitalization Rate, calculated by dividing (i) the Company’s estimate of year one Cash NOI from the applicable property’s operations stabilized for occupancy (post-lease-up for vacant properties), which does not include termination income, miscellaneous other income, capital expenditures, general and administrative costs, reserves, tenant improvements and leasing commissions, credit loss, or vacancy loss, by (ii) the purchase price plus estimated Acquisition Capital Expenditures. These Capitalization Rate estimates are subject to risks, uncertainties, and assumptions and are not guarantees of future performance, which may be affected by known and unknown risks, trends, uncertainties, and factors that are beyond our control, including those risk factors contained in our Annual Report on Form 10-K for the year ended December 31, 2017.

Comparable Lease: We define a Comparable Lease as a lease with a similar lease structure as compared to the previous in-place lease, excluding new leases for space that was not occupied under our ownership, leases on space with downtime in excess of two years, leases with materially different lease structures, leases associated with known vacates at the time of acquisition, and leases with credit-related modifications.

Core Based Statistical Area (CBSA): We define Core Based Statistical Area ("CBSA") as a U.S. geographic area defined by the Office of Management and Budget that consists of one or more counties (or equivalents) anchored by an urban center of at least 10,000 people plus adjacent counties that are socioeconomically tied to the urban center by commuting.

Funds from Operations (FFO), Core FFO, and Adjusted FFO (AFFO): We define FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts ("NAREIT"). FFO represents net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from sales of depreciable operating property, impairment write-downs of depreciable real estate, real estate related depreciation and amortization (excluding amortization of deferred financing costs and fair market value of debt adjustment) and after adjustments for unconsolidated partnerships and joint ventures. Core FFO and AFFO exclude property acquisition costs, lease termination income, intangible amortization in rental income, loss on extinguishment of debt, gain on involuntary conversion, gain (loss) on swap ineffectiveness, loss on incentive fee, and non-recurring other expenses. AFFO also excludes non-rental property depreciation and amortization, straight-line rent adjustments, non-cash portion of interest expense, non-cash compensation expense and deducts Recurring Capital Expenditures and lease renewal commissions and tenant improvements.

None of FFO, Core FFO or AFFO should be considered as an alternative to net income (determined in accordance with GAAP) as an indication of our performance, and we believe that to understand our performance further, these measurements should be compared with our reported net income or net loss in accordance with GAAP, as presented in our consolidated financial statements. We use FFO as a supplemental performance measure because it is a widely recognized measure of the performance of REITs. FFO may be used by investors as a basis to compare our operating performance with that of other REITs. We and investors may use Core FFO and AFFO similarly as FFO.

However, because FFO, Core FFO and AFFO exclude, among other items, depreciation and amortization and capture neither the changes in the value of our buildings that result from use or market conditions nor the level of capital expenditures and leasing commissions necessary to maintain the operating performance of our buildings, all of which have real economic effects and could materially impact our results from operations, the utility of these measures as measures of our performance is limited. In addition, other REITs may not calculate FFO in accordance with the NAREIT definition as we do, and, accordingly, our FFO may not be comparable to such other REITs’ FFO. Similarly, our calculations of Core FFO and AFFO may not be comparable to similarly titled measures disclosed by other REITs.

GAAP: U.S. generally accepted accounting principles.

GAAP Rent Change: We define GAAP Rent Change as the percentage change in the average base rent over the contractual lease term (excluding above/below market lease amortization) of the Comparable Lease.

Liquidity: We define Liquidity as the amount of aggregate undrawn nominal commitments the Company could immediately borrow under the Company’s unsecured debt instruments, consistent with the financial covenants, plus unrestricted cash balances.

Net operating income (NOI), Cash NOI, and Run Rate Cash NOI: We define NOI as rental income, including reimbursements, less property expenses and real estate taxes, which excludes depreciation, amortization, loss on impairments, general and administrative expenses, interest expense, interest income, corporate sub-lease rental income, asset management fee income, property acquisition costs, gain on involuntary conversion, loss on extinguishment of debt, gain on sales of rental property, loss on incentive fee, and other expenses.

We define Cash NOI as NOI less straight-line rent adjustments and less intangible amortization in rental income.

We define Run Rate Cash NOI as Cash NOI plus Cash NOI adjusted for a full period of acquisitions and dispositions, less cash termination income. Run Rate Cash NOI does not reflect the Company’s historical results and does not predict future results, which may be substantially different.

We consider NOI, Cash NOI and Run Rate Cash NOI to be appropriate supplemental performance measures to net income because we believe they help us and investors understand the core operations of our buildings. None of these measures should be considered as an alternative to net income (determined in accordance with GAAP) as an indication of our performance, and we believe that to understand our performance further, these measurements should be compared with our reported net income or net loss in accordance with GAAP, as presented in our consolidated financial statements. Further, our calculations of NOI, Cash NOI and Run Rate NOI may not be comparable to similarly titled measures disclosed by other REITs.

Non-Recurring Capital Expenditures: We define Non-Recurring Capital Expenditures as capital items for upgrades or items that previously did not exist at a building or capital items which have a longer useful life, such as roof replacements. Non-Recurring Capital Expenditures funded by parties other than the Company are excluded.

Occupancy Rate: We define Occupancy Rate as the percentage of total leasable square footage for which either revenue recognition has commenced in accordance with GAAP or the lease term has commenced as of the close of the reporting period, whichever occurs earlier.

Operating Portfolio: We define the Operating Portfolio as including all warehouse and light manufacturing assets and excluding non-core flex/office assets and assets under redevelopment or classified as held for sale. The Operating Portfolio also excludes billboard, parking lot and cellular tower leases.

Pipeline: We define Pipeline as a point in time measure that includes all of the transactions under consideration by the Company’s acquisitions group that have passed the initial screening process. The Pipeline also includes transactions under contract and transactions with non-binding LOIs.

Recurring Capital Expenditures: We define Recurring Capital Expenditures as capital items required to sustain existing systems and capital items which generally have a shorter useful life. Recurring Capital Expenditures funded by parties other than the Company are excluded.

Renewal Lease: We define a Renewal Lease as a lease signed by an existing tenant to extend the term for twelve months or more, including (i) a renewal of the same space as the current lease at lease expiration, (ii) a renewal of only a portion of the current space at lease expiration and (iii) an early renewal or workout, which ultimately does extend the original term for twelve months or more.

Retention: We define Retention as the percentage determined by taking Renewal Lease square footage commencing in the period divided by square footage of leases expiring in the period. Neither the Renewal Leases nor leases expiring include Temporary Leases or License Agreements. Retention excludes leases associated with known vacates at the time of acquisition, leases with credit-related modifications, early terminations or assets classified as held for sale.

Temporary Leases/License Agreements: We define a Temporary Lease or a License Agreement as any lease that is signed for an initial term of less than twelve months; this includes short-term new leases and short-term Renewal Leases.

Weighted Average Lease Term: We define Weighted Average Lease Term as the contractual lease term in years as of the lease start date weighted by square footage. Weighted Average Lease Term related to acquired assets reflects the remaining lease term in years as of the acquisition date weighted by square footage.

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SOURCE STAG Industrial, Inc.

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