STAG Industrial, Inc 10-Q for FY2022 Q2
STAG Industrial, Inc. (STAG)
10-Q
2022-07-27
For: 2022-06-30
View Original
Added on
April 08, 2026
About this 10-Q
STAG Industrial, Inc filed this 10-Q on July 27, 2022, covering the quarter ended June 30, 2022 (FY2022 Q2).
Headline figures
Quarter ended June 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $161.5M
- up 16.7% from $138.43M a year earlier
- Net income
- $32.38M
- down 0.8% from net income of $32.65M a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________________________________
FORM 10-Q
____________________________________________________________________________
For the Quarterly Period Ended June 30, 2022
OR
For the transition period from to .
Commission file number 1-34907
____________________________________________________________________________
(Exact name of registrant as specified in its charter)
____________________________________________________________________________
| (State or other jurisdiction of | (IRS Employer Identification No.) | ||||||||||
| incorporation or organization) | |||||||||||
| (Address of principal executive offices) | (Zip code) | ||||||||||
(617 ) 574-4777
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares of common stock outstanding at July 26, 2022 was 179,215,896 .
STAG Industrial, Inc.
Table of Contents
PART I. | ||||||||
Item 1. | ||||||||
Item 2. | ||||||||
Item 3. | ||||||||
Item 4. | ||||||||
PART II. | ||||||||
Item 1. | ||||||||
Item 1A. | ||||||||
Item 2. | ||||||||
Item 3. | ||||||||
Item 4. | ||||||||
Item 5. | ||||||||
Item 6. | ||||||||
2
Part I. Financial Information
Item 1. Financial Statements
STAG Industrial, Inc.
Consolidated Balance Sheets
(unaudited, in thousands, except share data)
| June 30, 2022 | December 31, 2021 | ||||||||||
| Assets | |||||||||||
| Rental Property: | |||||||||||
| Land | $ | $ | |||||||||
Buildings and improvements, net of accumulated depreciation of $ | |||||||||||
Deferred leasing intangibles, net of accumulated amortization of $ | |||||||||||
| Total rental property, net | |||||||||||
| Cash and cash equivalents | |||||||||||
| Restricted cash | |||||||||||
| Tenant accounts receivable | |||||||||||
| Prepaid expenses and other assets | |||||||||||
| Interest rate swaps | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Assets held for sale, net | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and Equity | |||||||||||
| Liabilities: | |||||||||||
| Unsecured credit facility | $ | $ | |||||||||
| Unsecured term loans, net | |||||||||||
| Unsecured notes, net | |||||||||||
| Mortgage notes, net | |||||||||||
| Accounts payable, accrued expenses and other liabilities | |||||||||||
| Interest rate swaps | |||||||||||
| Tenant prepaid rent and security deposits | |||||||||||
| Dividends and distributions payable | |||||||||||
Deferred leasing intangibles, net of accumulated amortization of $ | |||||||||||
| Operating lease liabilities | |||||||||||
| Liabilities held for sale, net | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies (Note 11) | |||||||||||
| Equity: | |||||||||||
Preferred stock, par value $ | |||||||||||
Common stock, par value $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Cumulative dividends in excess of earnings | ( | ( | |||||||||
| Accumulated other comprehensive income (loss) | ( | ||||||||||
| Total stockholders’ equity | |||||||||||
| Noncontrolling interest | |||||||||||
| Total equity | |||||||||||
| Total liabilities and equity | $ | $ | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
3
STAG Industrial, Inc.
Consolidated Statements of Operations
(unaudited, in thousands, except per share data)
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Revenue | |||||||||||||||||||||||
| Rental income | $ | $ | $ | $ | |||||||||||||||||||
| Other income | |||||||||||||||||||||||
| Total revenue | |||||||||||||||||||||||
| Expenses | |||||||||||||||||||||||
| Property | |||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Other expenses | |||||||||||||||||||||||
| Total expenses | |||||||||||||||||||||||
| Other income (expense) | |||||||||||||||||||||||
| Interest and other income | |||||||||||||||||||||||
| Interest expense | ( | ( | ( | ( | |||||||||||||||||||
| Debt extinguishment and modification expenses | ( | ||||||||||||||||||||||
| Gain on the sales of rental property, net | |||||||||||||||||||||||
| Total other income (expense) | ( | ( | ( | ( | |||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Less: income attributable to noncontrolling interest after preferred stock dividends | |||||||||||||||||||||||
| Net income attributable to STAG Industrial, Inc. | $ | $ | $ | $ | |||||||||||||||||||
| Less: preferred stock dividends | |||||||||||||||||||||||
| Less: redemption of preferred stock | |||||||||||||||||||||||
| Less: amount allocated to participating securities | |||||||||||||||||||||||
| Net income attributable to common stockholders | $ | $ | $ | $ | |||||||||||||||||||
| Weighted average common shares outstanding — basic | |||||||||||||||||||||||
| Weighted average common shares outstanding — diluted | |||||||||||||||||||||||
| Net income per share — basic and diluted | |||||||||||||||||||||||
| Net income per share attributable to common stockholders — basic | $ | $ | $ | $ | |||||||||||||||||||
| Net income per share attributable to common stockholders — diluted | $ | $ | $ | $ | |||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
STAG Industrial, Inc.
Consolidated Statements of Comprehensive Income
(unaudited, in thousands)
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Other comprehensive income: | |||||||||||||||||||||||
| Income on interest rate swaps | |||||||||||||||||||||||
| Other comprehensive income | |||||||||||||||||||||||
| Comprehensive income | |||||||||||||||||||||||
| Income attributable to noncontrolling interest after preferred stock dividends | ( | ( | ( | ( | |||||||||||||||||||
| Other comprehensive income attributable to noncontrolling interest | ( | ( | ( | ( | |||||||||||||||||||
| Comprehensive income attributable to STAG Industrial, Inc. | $ | $ | $ | $ | |||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
STAG Industrial, Inc.
Consolidated Statements of Equity
(unaudited, in thousands, except share data)
| Preferred Stock | Common Stock | Additional Paid-in Capital | Cumulative Dividends in Excess of Earnings | Accumulated Other Comprehensive Income (Loss) | Total Stockholders’ Equity | Noncontrolling Interest - Unit Holders in Operating Partnership | Total Equity | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Three months ended June 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2022 | $ | $ | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Proceeds from sales of common stock, net | — | ( | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Dividends and distributions, net | — | — | — | — | ( | — | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Non-cash compensation activity, net | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Rebalancing of noncontrolling interest | — | — | — | — | — | ( | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Three months ended June 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2021 | $ | $ | $ | $ | ( | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
| Proceeds from sales of common stock, net | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends and distributions, net | — | — | — | — | ( | — | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Non-cash compensation activity, net | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Redemption of common units to common stock | — | — | — | ( | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| Rebalancing of noncontrolling interest | — | — | — | ( | — | — | ( | — | |||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2021 | $ | $ | $ | $ | ( | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
| Six months ended June 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | ( | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
| Proceeds from sales of common stock, net | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends and distributions, net | — | — | — | — | ( | — | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Non-cash compensation activity, net | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Redemption of common units to common stock | — | — | — | ( | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| Rebalancing of noncontrolling interest | — | — | — | ( | — | — | ( | — | |||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
| Six months ended June 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | $ | ( | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
| Proceeds from sales of common stock, net | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||
| Redemption of preferred stock | ( | — | — | ( | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Dividends and distributions, net | — | — | — | — | ( | — | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Non-cash compensation activity, net | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Redemption of common units to common stock | — | — | — | ( | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| Rebalancing of noncontrolling interest | — | — | — | ( | — | — | ( | — | |||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2021 | $ | $ | $ | $ | ( | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
6
STAG Industrial, Inc.
Consolidated Statements of Cash Flows
(unaudited, in thousands)
| Six months ended June 30, | |||||||||||||||||
| 2022 | 2021 | ||||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||
| Net income | $ | $ | |||||||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||||
| Depreciation and amortization | |||||||||||||||||
| Non-cash portion of interest expense | |||||||||||||||||
| Amortization of above and below market leases, net | ( | ||||||||||||||||
| Straight-line rent adjustments, net | ( | ( | |||||||||||||||
| Gain on the sales of rental property, net | ( | ( | |||||||||||||||
| Non-cash compensation expense | |||||||||||||||||
| Change in assets and liabilities: | |||||||||||||||||
| Tenant accounts receivable | |||||||||||||||||
| Prepaid expenses and other assets | ( | ( | |||||||||||||||
| Accounts payable, accrued expenses and other liabilities | |||||||||||||||||
| Tenant prepaid rent and security deposits | |||||||||||||||||
| Total adjustments | |||||||||||||||||
| Net cash provided by operating activities | |||||||||||||||||
| Cash flows from investing activities: | |||||||||||||||||
| Acquisitions of land and buildings and improvements | ( | ( | |||||||||||||||
| Additions of land and building and improvements | ( | ( | |||||||||||||||
| Acquisitions of other assets | ( | ||||||||||||||||
| Acquisitions of operating lease right-of-use assets | ( | ||||||||||||||||
| Proceeds from sales of rental property, net | |||||||||||||||||
| Acquisition deposits, net | ( | ||||||||||||||||
| Acquisitions of deferred leasing intangibles | ( | ( | |||||||||||||||
| Acquisitions of operating lease liabilities | |||||||||||||||||
| Net cash used in investing activities | ( | ( | |||||||||||||||
| Cash flows from financing activities: | |||||||||||||||||
| Proceeds from unsecured credit facility | |||||||||||||||||
| Repayment of unsecured credit facility | ( | ( | |||||||||||||||
| Proceeds from unsecured term loans | |||||||||||||||||
| Repayment of unsecured term loans | ( | ||||||||||||||||
| Proceeds from unsecured notes | |||||||||||||||||
| Repayment of mortgage notes | ( | ( | |||||||||||||||
| Payment of loan fees and costs | ( | ( | |||||||||||||||
| Proceeds from sales of common stock, net | |||||||||||||||||
| Redemption of preferred stock | ( | ||||||||||||||||
| Dividends and distributions | ( | ( | |||||||||||||||
| Repurchase and retirement of share-based compensation | ( | ( | |||||||||||||||
| Net cash provided by financing activities | |||||||||||||||||
| Decrease in cash and cash equivalents and restricted cash | ( | ( | |||||||||||||||
| Cash and cash equivalents and restricted cash—beginning of period | |||||||||||||||||
| Cash and cash equivalents and restricted cash—end of period | $ | $ | |||||||||||||||
| Supplemental disclosure: | |||||||||||||||||
| Cash paid for interest, net of capitalized interest | $ | $ | |||||||||||||||
| Supplemental schedule of non-cash investing and financing activities | |||||||||||||||||
| Additions to building and other capital improvements | $ | ( | $ | ||||||||||||||
| Transfer of other assets to building and other capital improvements | $ | $ | |||||||||||||||
| Acquisitions of land and buildings and improvements | $ | $ | ( | ||||||||||||||
| Acquisitions of deferred leasing intangibles | $ | $ | ( | ||||||||||||||
| Change in additions of land, building, and improvements included in accounts payable, accrued expenses, and other liabilities | $ | ( | $ | ||||||||||||||
| Additions to building and other capital improvements from non-cash compensation | $ | ( | $ | ||||||||||||||
| Assumption of mortgage notes | $ | $ | |||||||||||||||
| Fair market value adjustment to mortgage notes acquired | $ | $ | ( | ||||||||||||||
| Change in loan fees, costs, and offering costs included in accounts payable, accrued expenses, and other liabilities | $ | $ | |||||||||||||||
| Dividends and distributions accrued | $ | $ | |||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
7
STAG Industrial, Inc.
Notes to Consolidated Financial Statements
(unaudited)
1. Organization and Description of Business
STAG Industrial, Inc. (the “Company”) is an industrial real estate operating company focused on the acquisition and operation of single-tenant, industrial properties throughout the United States. The Company was formed as a Maryland corporation and has elected to be treated and intends to continue to qualify as a real estate investment trust (“REIT”) under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended. The Company is structured as an umbrella partnership REIT, commonly called an UPREIT, and owns substantially all of its assets and conducts substantially all of its business through its operating partnership, STAG Industrial Operating Partnership, L.P., a Delaware limited partnership (the “Operating Partnership”). As of June 30, 2022 and December 31, 2021, the Company owned a 97.9 % and 98.1 %, respectively, common equity interest in the Operating Partnership. The Company, through its wholly owned subsidiary, is the sole general partner of the Operating Partnership. As used herein, the “Company” refers to STAG Industrial, Inc. and its consolidated subsidiaries, including the Operating Partnership, except where context otherwise requires.
As of June 30, 2022, the Company owned 559 industrial buildings in 40 states with approximately 111.5 million rentable square feet.
COVID-19 Pandemic
The Company and the real estate industry generally continue to face risks and uncertainties related to the ongoing public health crisis of the novel coronavirus disease (“COVID-19”) pandemic.
The Company closely monitors the effect of the COVID-19 pandemic on all aspects of its business, including how the pandemic will affect its tenants and business partners. The Company did not
The Company remains unable to predict the ultimate impact that the pandemic will have on its financial condition, results of operations and cash flows due to numerous uncertainties. The extent to which the COVID-19 pandemic affects the Company’s operations and those of its tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others.
2. Summary of Significant Accounting Policies
Interim Financial Information
The accompanying interim financial statements have been presented in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and with the instructions to Form 10-Q and Regulation S-X for interim financial information. Accordingly, these statements do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, the accompanying interim financial statements include all adjustments, consisting of normal recurring items, necessary for their fair statement in conformity with GAAP. Interim results are not necessarily indicative of results for a full year. The year-end consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Basis of Presentation
The Company’s consolidated financial statements include the accounts of the Company, the Operating Partnership, and their consolidated subsidiaries. Interests in the Operating Partnership not owned by the Company are referred to as “Noncontrolling Common Units.” These Noncontrolling Common Units are held by other limited partners in the form of common units (“Other Common Units”) and long term incentive plan units (“LTIP units”) issued pursuant to the STAG Industrial, Inc. 2011 Equity Incentive Plan, as amended and restated (the “2011 Plan”). All significant intercompany balances and transactions have been
8
Restricted Cash
The following table presents a reconciliation of cash and cash equivalents and restricted cash reported on the accompanying Consolidated Balance Sheets to amounts reported on the accompanying Consolidated Statements of Cash Flows.
| Reconciliation of cash and cash equivalents and restricted cash (in thousands) | June 30, 2022 | December 31, 2021 | ||||||||||||||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||||||||||||||||
| Restricted cash | ||||||||||||||||||||||||||
| Total cash and cash equivalents and restricted cash | $ | $ | ||||||||||||||||||||||||
Taxes
Federal Income Taxes
The Company’s taxable REIT subsidiary recognized net income (loss) of approximately $0 , $0.1 million, $(4,000 ), and $(4,000 ) for the three and six months ended June 30, 2022 and 2021, respectively.
State and Local Income, Excise, and Franchise Tax
State and local income, excise, and franchise taxes in the amount of approximately $0.4 million, $0.9 million, $0.4 million, and $0.8 million have been recorded in other expenses on the accompanying Consolidated Statements of Operations for the three and six months ended June 30, 2022 and 2021, respectively.
Uncertain Tax Positions
As of June 30, 2022 and December 31, 2021, there were no
Concentrations of Credit Risk
3. Rental Property
The following table summarizes the components of rental property as of June 30, 2022 and December 31, 2021.
| Rental Property (in thousands) | June 30, 2022 | December 31, 2021 | ||||||||||||
| Land | $ | $ | ||||||||||||
Buildings, net of accumulated depreciation of $ | ||||||||||||||
Tenant improvements, net of accumulated depreciation of $ | ||||||||||||||
Building and land improvements, net of accumulated depreciation of $ | ||||||||||||||
| Construction in progress | ||||||||||||||
Deferred leasing intangibles, net of accumulated amortization of $ | ||||||||||||||
| Total rental property, net | $ | $ | ||||||||||||
9
Acquisitions
The following table summarizes the acquisitions of the Company during the three and six months ended June 30, 2022. The Company accounted for all of its acquisitions as asset acquisitions.
Market(1) | Date Acquired | Square Feet | Number of Buildings | Purchase Price (in thousands) | ||||||||||||||||||||||
| Kansas City, MO | January 6, 2022 | $ | ||||||||||||||||||||||||
| Chicago, IL | January 31, 2022 | |||||||||||||||||||||||||
| Columbus, OH | February 8, 2022 | |||||||||||||||||||||||||
| Cleveland, OH | February 8, 2022 | |||||||||||||||||||||||||
| Nashville, TN | March 10, 2022 | |||||||||||||||||||||||||
| Greenville/Spartanburg, SC | March 10, 2022 | |||||||||||||||||||||||||
| Memphis, TN | March 18, 2022 | |||||||||||||||||||||||||
| Greenville/Spartanburg, SC | March 18, 2022 | |||||||||||||||||||||||||
| Three months ended March 31, 2022 | $ | |||||||||||||||||||||||||
| Atlanta, GA | April 1, 2022 | |||||||||||||||||||||||||
| Minneapolis/St. Paul, MN | April 4, 2022 | |||||||||||||||||||||||||
| West Michigan, MI | April 14, 2022 | |||||||||||||||||||||||||
| Pittsburgh, PA | April 19, 2022 | |||||||||||||||||||||||||
Greenville/Spartanburg, SC(2) | April 22, 2022 | |||||||||||||||||||||||||
| Birmingham, AL | May 5, 2022 | |||||||||||||||||||||||||
| South Bay/San Jose, CA | June 7, 2022 | |||||||||||||||||||||||||
| Washington, DC | June 29, 2022 | |||||||||||||||||||||||||
| Hampton Roads, VA | June 29, 2022 | |||||||||||||||||||||||||
| Three months ended June 30, 2022 | $ | |||||||||||||||||||||||||
| Six months ended June 30, 2022 | $ | |||||||||||||||||||||||||
(1) As defined by CoStar Realty Information Inc (“CoStar”). If the building is located outside of a CoStar defined market, the city and state is reflected.
The following table summarizes the allocation of the total purchase price paid (on the closing dates) for the assets and liabilities acquired by the Company during the six months ended June 30, 2022 in connection with the acquisitions identified in the table above.
| Six months ended June 30, 2022 | ||||||||||||||||||||||||||
| Acquired Assets and Liabilities | Purchase Price (in thousands) | Weighted Average Amortization Period (years) of Intangibles at Acquisition | ||||||||||||||||||||||||
| Land | $ | N/A | ||||||||||||||||||||||||
| Buildings | N/A | |||||||||||||||||||||||||
| Tenant improvements | N/A | |||||||||||||||||||||||||
| Building and land improvements | N/A | |||||||||||||||||||||||||
| Other assets | N/A | |||||||||||||||||||||||||
| Operating lease right-of-use assets | N/A | |||||||||||||||||||||||||
| Deferred leasing intangibles - In-place leases | ||||||||||||||||||||||||||
| Deferred leasing intangibles - Tenant relationships | ||||||||||||||||||||||||||
| Deferred leasing intangibles - Above market leases | ||||||||||||||||||||||||||
| Deferred leasing intangibles - Below market leases | ( | |||||||||||||||||||||||||
| Operating lease liabilities | ( | N/A | ||||||||||||||||||||||||
| Total purchase price | $ | |||||||||||||||||||||||||
The following table summarizes the results of operations for the three and six months ended June 30, 2022 for the buildings acquired during the six months ended June 30, 2022, which are included in the Company’s Consolidated Statements of Operations from the date of acquisition.
| Results of Operations (in thousands) | Three months ended June 30, 2022 | Six months ended June 30, 2022 | ||||||||||||
| Total revenue | $ | $ | ||||||||||||
| Net income | $ | $ | ||||||||||||
10
Dispositions
During the six months ended June 30, 2022, the Company sold two buildings and one land parcel to third parties comprised of approximately 0.3 million rentable square feet with a net book value of approximately $14.1 million. These buildings contributed approximately $0 , $0.2 million, $0.4 million and $0.8 million to revenue for the three and six months ended June 30, 2022 and 2021, respectively. These buildings contributed approximately ($27,000 ), $0.1 million, $0.3 million, and $0.5 million to net income (loss) (exclusive of gain on the sales of rental property, net) for the three and six months ended June 30, 2022 and 2021, respectively. Net proceeds from the sales of rental property were approximately $38.4 million and the Company recognized the full gain on the sales of rental property, net, of approximately $24.3 million for the six months ended June 30, 2022.
Assets Held for Sale
As of June 30, 2022, the related land, building and improvements, net, deferred leasing intangibles assets, net and deferred leasing intangibles liabilities, net, of approximately $5.5 million, $42.6 million, $9.7 million, and $0.7 million, respectively, for three buildings were classified as assets and liabilities held for sale, net on the accompanying Consolidated Balance Sheets. These buildings contributed approximately $1.2 million, $2.5 million, $1.7 million and $3.5 million to revenue for the three and six months ended June 30, 2022 and 2021, respectively. These buildings contributed approximately $0.4 million, $0.7 million, $0.9 million and $1.8 million to net income for the three and six months ended June 30, 2022 and 2021, respectively.
Deferred Leasing Intangibles
The following table summarizes the deferred leasing intangibles on the accompanying Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021.
| June 30, 2022 | December 31, 2021 | |||||||||||||||||||||||||||||||||||||
| Deferred Leasing Intangibles (in thousands) | Gross | Accumulated Amortization | Net | Gross | Accumulated Amortization | Net | ||||||||||||||||||||||||||||||||
| Above market leases | $ | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||
| Other intangible lease assets | ( | ( | ||||||||||||||||||||||||||||||||||||
| Total deferred leasing intangible assets | $ | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||
| Below market leases | $ | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||
| Total deferred leasing intangible liabilities | $ | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||
The following table summarizes the amortization expense and the net increase (decrease) to rental income for the amortization of deferred leasing intangibles during the three and six months ended June 30, 2022 and 2021.
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||
| Deferred Leasing Intangibles Amortization (in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||
| Net increase (decrease) to rental income related to above and below market lease amortization | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||
| Amortization expense related to other intangible lease assets | $ | $ | $ | $ | ||||||||||||||||||||||
The following table summarizes the amortization of deferred leasing intangibles over the next five calendar years (including the remainder of 2022) as of June 30, 2022.
| Year | Amortization Expense Related to Other Intangible Lease Assets (in thousands) | Net Increase (Decrease) to Rental Income Related to Above and Below Market Lease Amortization (in thousands) | ||||||||||||
| Remainder of 2022 | $ | $ | ||||||||||||
| 2023 | $ | $ | ( | |||||||||||
| 2024 | $ | $ | ( | |||||||||||
| 2025 | $ | $ | ( | |||||||||||
| 2026 | $ | $ | ( | |||||||||||
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4. Debt
The following table summarizes the Company’s outstanding indebtedness, including borrowings under the Company’s unsecured credit facility, unsecured term loans, unsecured notes, and mortgage notes as of June 30, 2022 and December 31, 2021.
| Loan | Principal Outstanding as of June 30, 2022 (in thousands) | Principal Outstanding as of December 31, 2021 (in thousands) | Interest Rate(1)(2) | Maturity Date | Prepayment Terms(3) | |||||||||||||||||||||||||||
| Unsecured credit facility: | ||||||||||||||||||||||||||||||||
Unsecured Credit Facility(4)(5) | $ | $ | L + | i | ||||||||||||||||||||||||||||
| Total unsecured credit facility | ||||||||||||||||||||||||||||||||
| Unsecured term loans: | ||||||||||||||||||||||||||||||||
Unsecured Term Loan D(6) | % | i | ||||||||||||||||||||||||||||||
Unsecured Term Loan E(6) | % | i | ||||||||||||||||||||||||||||||
Unsecured Term Loan F | % | i | ||||||||||||||||||||||||||||||
Unsecured Term Loan G | % | i | ||||||||||||||||||||||||||||||
Unsecured Term Loan A | % | i | ||||||||||||||||||||||||||||||
| Total unsecured term loans | ||||||||||||||||||||||||||||||||
| Total unamortized deferred financing fees and debt issuance costs | ( | ( | ||||||||||||||||||||||||||||||
| Total carrying value unsecured term loans, net | ||||||||||||||||||||||||||||||||
| Unsecured notes: | ||||||||||||||||||||||||||||||||
| Series F Unsecured Notes | % | ii | ||||||||||||||||||||||||||||||
| Series A Unsecured Notes | % | ii | ||||||||||||||||||||||||||||||
| Series D Unsecured Notes | % | ii | ||||||||||||||||||||||||||||||
| Series G Unsecured Notes | % | ii | ||||||||||||||||||||||||||||||
| Series B Unsecured Notes | % | ii | ||||||||||||||||||||||||||||||
| Series C Unsecured Notes | % | ii | ||||||||||||||||||||||||||||||
| Series E Unsecured Notes | % | ii | ||||||||||||||||||||||||||||||
| Series H Unsecured Notes | % | ii | ||||||||||||||||||||||||||||||
| Series I Unsecured Notes | % | ii | ||||||||||||||||||||||||||||||
| Series K Unsecured Notes | % | ii | ||||||||||||||||||||||||||||||
| Series J Unsecured Notes | % | ii | ||||||||||||||||||||||||||||||
| Total unsecured notes | ||||||||||||||||||||||||||||||||
| Total unamortized deferred financing fees and debt issuance costs | ( | ( | ||||||||||||||||||||||||||||||
| Total carrying value unsecured notes, net | ||||||||||||||||||||||||||||||||
| Mortgage notes (secured debt): | ||||||||||||||||||||||||||||||||
| Wells Fargo Bank, National Association CMBS Loan | % | iii | ||||||||||||||||||||||||||||||
| Thrivent Financial for Lutherans | % | iv | ||||||||||||||||||||||||||||||
| United of Omaha Life Insurance Company | % | ii | ||||||||||||||||||||||||||||||
| Total mortgage notes | ||||||||||||||||||||||||||||||||
| Net unamortized fair market value discount | ( | ( | ||||||||||||||||||||||||||||||
| Total unamortized deferred financing fees and debt issuance costs | ( | ( | ||||||||||||||||||||||||||||||
| Total carrying value mortgage notes, net | ||||||||||||||||||||||||||||||||
Total / weighted average interest rate(7) | $ | $ | % | |||||||||||||||||||||||||||||
(1)Interest rate as of June 30, 2022. At June 30, 2022, the one-month LIBOR (“L”) was 1.78671 %. The current interest rate is not adjusted to include the amortization of deferred financing fees or debt issuance costs incurred in obtaining debt or any unamortized fair market value premiums. The spread over the applicable rate for the Company’s unsecured credit facility and unsecured term loans is based on the Company’s debt rating and leverage ratio, as defined in the respective loan agreements.
(2)The unsecured term loans have a stated interest rate of one-month LIBOR plus a spread of 0.85 %, with the exception of Unsecured Term Loan D which has a stated interest rate of one-month LIBOR plus a spread of 1.0 %. As of June 30, 2022, one-month LIBOR for the Unsecured Term Loans A, D, E, F, and G was swapped to a fixed rate of 1.30 %, 1.85 %, 2.92 %, 2.11 %, and 0.28 %, respectively. One-month LIBOR for the Unsecured Term Loan G will be swapped to a fixed rate of 0.94 % effective April 18, 2023.
(3)Prepayment terms consist of (i) pre-payable with no penalty; (ii) pre-payable with penalty; (iii) pre-payable without penalty three months prior to the maturity date, subject to defeasance; and (iv) pre-payable without penalty three months prior to the maturity date.
(4)The capacity of the unsecured credit facility is $750.0 million. Deferred financing fees and debt issuance costs, net of accumulated amortization related to the unsecured credit facility of approximately $4.6 million and $5.2 million are included in prepaid expenses and other assets on the accompanying Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021, respectively. The initial maturity date is October 24, 2025, or such later date
12
which may be extended pursuant to two six-month extension options exercisable by the Company in its discretion upon advance written notice. Exercise of each six-month option is subject to the following conditions: (i) absence of a default immediately before the extension and immediately after giving effect to the extension; (ii) accuracy of representations and warranties as of the extension date (both immediately before and after the extension), as if made on the extension date; and (iii) payment of a fee. Neither extension option is subject to lender consent, assuming proper notice and satisfaction of the conditions.
(5)Subsequent to June 30, 2022, on July 26, 2022, the Company entered into an amended and restated credit agreement for the unsecured credit facility. Refer to Note 12 for additional details.
(6)Subsequent to June 30, 2022, the Unsecured Term Loan D and the Unsecured Term Loan E were repaid in full in connection with the Company's new unsecured term loan agreements entered into on July 26, 2022. Refer to Note 12 for additional details.
(7)The weighted average interest rate was calculated using the fixed interest rate swapped on the notional amount of $975.0 million of debt, and is not adjusted to include the amortization of deferred financing fees or debt issuance costs incurred in obtaining debt or any unamortized fair market value premiums or discounts.
The aggregate undrawn nominal commitment on the unsecured credit facility as of June 30, 2022 was approximately $630.4 million, including issued letters of credit. The Company’s actual borrowing capacity at any given point in time may be less or restricted to a maximum amount based on the Company’s debt covenant compliance. Total accrued interest for the Company’s indebtedness was approximately $9.6 million and $8.6 million as of June 30, 2022 and December 31, 2021, respectively, and is included in accounts payable, accrued expenses and other liabilities on the accompanying Consolidated Balance Sheets.
The following table summarizes the costs included in interest expense related to the Company’s debt arrangements on the accompanying Consolidated Statement of Operations for the three and six months ended June 30, 2022 and 2021.
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||
| Costs Included in Interest Expense (in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||
| Amortization of deferred financing fees and debt issuance costs and fair market value premiums/discounts | $ | $ | $ | $ | ||||||||||||||||||||||
| Facility, unused, and other fees | $ | $ | $ | $ | ||||||||||||||||||||||
On April 28, 2022, the Company entered into a note purchase agreement (the “April 2022 NPA”) for the private placement by the Operating Partnership of $400.0 million senior unsecured notes (the “Series K Unsecured Notes”) maturing June 28, 2032, with a fixed annual interest rate of 4.12 %. The April 2022 NPA contains a number of financial covenants substantially similar to the financial covenants contained in the Company’s unsecured credit facility and other unsecured notes, plus a financial covenant that requires the Company to maintain a minimum interest coverage ratio of not less than 1.50 :1.00. The Operating Partnership issued the Series K Unsecured Notes on June 28, 2022. The Company and certain wholly owned subsidiaries of the Operating Partnership are guarantors of the Series K Unsecured Notes.
Financial Covenant Considerations
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Fair Value of Debt
The following table summarizes the aggregate principal amount outstanding under the Company’s debt arrangements and the corresponding estimate of fair value as of June 30, 2022 and December 31, 2021.
| June 30, 2022 | December 31, 2021 | |||||||||||||||||||||||||
| Indebtedness (in thousands) | Principal Outstanding | Fair Value | Principal Outstanding | Fair Value | ||||||||||||||||||||||
| Unsecured credit facility | $ | $ | $ | $ | ||||||||||||||||||||||
| Unsecured term loans | ||||||||||||||||||||||||||
| Unsecured notes | ||||||||||||||||||||||||||
| Mortgage notes | ||||||||||||||||||||||||||
| Total principal amount | $ | $ | ||||||||||||||||||||||||
| Net unamortized fair market value discount | ( | ( | ||||||||||||||||||||||||
| Total unamortized deferred financing fees and debt issuance costs | ( | ( | ||||||||||||||||||||||||
| Total carrying value | $ | $ | ||||||||||||||||||||||||
The applicable fair value guidance establishes a three tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. The fair value of the Company’s debt is based on Level 3 inputs.
5. Derivative Financial Instruments
Risk Management Objective of Using Derivatives
The Company’s use of derivative instruments is limited to the utilization of interest rate swaps to manage interest rate risk exposure on existing and future liabilities and not for speculative purposes. The principal objective of such arrangements is to minimize the risks and related costs associated with the Company’s operating and financial structure.
The following table summarizes the Company’s outstanding interest rate swaps as of June 30, 2022. All of the Company’s interest rate swaps are designated as qualifying cash flow hedges.
| Interest Rate Derivative Counterparty | Trade Date | Effective Date | Notional Amount (in thousands) | Fair Value (in thousands) | Pay Fixed Interest Rate | Receive Variable Interest Rate | Maturity Date | |||||||||||||||||||||||||||||||||||||
| The Toronto-Dominion Bank | Jul-20-2017 | Oct-30-2017 | $ | $ | % | One-month L | Jan-04-2023 | |||||||||||||||||||||||||||||||||||||
| Royal Bank of Canada | Jul-20-2017 | Oct-30-2017 | $ | $ | % | One-month L | Jan-04-2023 | |||||||||||||||||||||||||||||||||||||
| Wells Fargo Bank, N.A. | Jul-20-2017 | Oct-30-2017 | $ | $ | % | One-month L | Jan-04-2023 | |||||||||||||||||||||||||||||||||||||
| PNC Bank, N.A. | Jul-20-2017 | Oct-30-2017 | $ | $ | % | One-month L | Jan-04-2023 | |||||||||||||||||||||||||||||||||||||
| PNC Bank, N.A. | Jul-20-2017 | Oct-30-2017 | $ | $ | % | One-month L | Jan-04-2023 | |||||||||||||||||||||||||||||||||||||
| The Toronto-Dominion Bank | Apr-20-2020 | Sep-29-2020 | $ | $ | % | One-month L | Apr-18-2023 | |||||||||||||||||||||||||||||||||||||
| Wells Fargo Bank, N.A. | Apr-20-2020 | Sep-29-2020 | $ | $ | % | One-month L | Apr-18-2023 | |||||||||||||||||||||||||||||||||||||
| The Toronto-Dominion Bank | Apr-20-2020 | Mar-19-2021 | $ | $ | % | One-month L | Apr-18-2023 | |||||||||||||||||||||||||||||||||||||
| Wells Fargo Bank, N.A. | Apr-20-2020 | Mar-19-2021 | $ | $ | % | One-month L | Apr-18-2023 | |||||||||||||||||||||||||||||||||||||
| The Toronto-Dominion Bank | Jul-24-2018 | Jul-26-2019 | $ | $ | % | One-month L | Jan-12-2024 | |||||||||||||||||||||||||||||||||||||
| PNC Bank, N.A. | Jul-24-2018 | Jul-26-2019 | $ | $ | % | One-month L | Jan-12-2024 | |||||||||||||||||||||||||||||||||||||
| Bank of Montreal | Jul-24-2018 | Jul-26-2019 | $ | $ | % | One-month L | Jan-12-2024 | |||||||||||||||||||||||||||||||||||||
| U.S. Bank, N.A. | Jul-24-2018 | Jul-26-2019 | $ | $ | % | One-month L | Jan-12-2024 | |||||||||||||||||||||||||||||||||||||
| Wells Fargo Bank, N.A. | May-02-2019 | Jul-15-2020 | $ | $ | % | One-month L | Jan-15-2025 | |||||||||||||||||||||||||||||||||||||
| U.S. Bank, N.A. | May-02-2019 | Jul-15-2020 | $ | $ | % | One-month L | Jan-15-2025 | |||||||||||||||||||||||||||||||||||||
| Regions Bank | May-02-2019 | Jul-15-2020 | $ | $ | % | One-month L | Jan-15-2025 | |||||||||||||||||||||||||||||||||||||
| Bank of Montreal | Jul-16-2019 | Jul-15-2020 | $ | $ | % | One-month L | Jan-15-2025 | |||||||||||||||||||||||||||||||||||||
| U.S. Bank, N.A. | Feb-17-2021 | Apr-18-2023 | $ | $ | % | One-month L | Feb-5-2026 | |||||||||||||||||||||||||||||||||||||
| Wells Fargo Bank, N.A. | Feb-17-2021 | Apr-18-2023 | $ | $ | % | One-month L | Feb-5-2026 | |||||||||||||||||||||||||||||||||||||
| The Toronto-Dominion Bank | Feb-17-2021 | Apr-18-2023 | $ | $ | % | One-month L | Feb-5-2026 | |||||||||||||||||||||||||||||||||||||
| Regions Bank | Oct-26-2021 | Apr-01-2022 | $ | $ | % | One-month L | Mar-15-2027 | |||||||||||||||||||||||||||||||||||||
| Bank of Montreal | Oct-26-2021 | Apr-01-2022 | $ | $ | % | One-month L | Mar-15-2027 | |||||||||||||||||||||||||||||||||||||
| PNC Bank, N.A. | Oct-26-2021 | Apr-01-2022 | $ | $ | % | One-month L | Mar-15-2027 | |||||||||||||||||||||||||||||||||||||
14
The following table summarizes the fair value of the interest rate swaps outstanding as of June 30, 2022 and December 31, 2021.
| Balance Sheet Line Item (in thousands) | Notional Amount June 30, 2022 | Fair Value June 30, 2022 | Notional Amount December 31, 2021 | Fair Value December 31, 2021 | ||||||||||||||||||||||
| Interest rate swaps-Asset | $ | $ | $ | $ | ||||||||||||||||||||||
| Interest rate swaps-Liability | $ | $ | $ | $ | ( | |||||||||||||||||||||
Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate swaps are to add stability to interest expense and to manage its exposure to interest rate movements.
For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in accumulated other comprehensive income (loss) and subsequently reclassified to interest expense in the same periods during which the hedged transaction affects earnings.
Amounts reported in accumulated other comprehensive income (loss) related to derivatives designated as qualifying cash flow hedges will be reclassified to interest expense as interest payments are made on the Company’s variable rate debt. The Company estimates that approximately $13.7 million will be reclassified from accumulated other comprehensive income (loss) as a decrease to interest expense over the next 12 months.
The following table summarizes the effect of cash flow hedge accounting and the location of amounts related to Company’s derivatives in the consolidated financial statements for the three and six months ended June 30, 2022 and 2021.
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||
| Effect of Cash Flow Hedge Accounting (in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||
| Income (loss) recognized in accumulated other comprehensive income (loss) on interest rate swaps | $ | $ | ( | $ | $ | |||||||||||||||||||||
| Loss reclassified from accumulated other comprehensive income (loss) into income as interest expense | $ | $ | $ | $ | ||||||||||||||||||||||
| Total interest expense presented in the Consolidated Statements of Operations in which the effects of cash flow hedges are recorded | $ | $ | $ | $ | ||||||||||||||||||||||
Credit-risk-related Contingent Features
The Company has agreements with each of its derivative counterparties that contain a provision where the Company could be declared in default on its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to the Company’s default on the indebtedness.
As of June 30, 2022, the Company had not breached the provisions of these agreements and had not posted any collateral related to these agreements.
Fair Value of Interest Rate Swaps
The Company’s valuation of the interest rate swaps is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs including interest rate curves.
The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.
Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company or its counterparties. However, as of June 30, 2022 and December 31, 2021, the Company has assessed the significance of the impact of the credit valuation adjustments on the
15
overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.
The following table summarizes the Company’s financial instruments that were recorded at fair value on a recurring basis as of June 30, 2022 and December 31, 2021.
| Fair Value Measurements as of June 30, 2022 Using | ||||||||||||||||||||||||||
| Balance Sheet Line Item (in thousands) | Fair Value June 30, 2022 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||
| Interest rate swaps-Asset | $ | $ | $ | $ | ||||||||||||||||||||||
| Interest rate swaps-Liability | $ | $ | $ | $ | ||||||||||||||||||||||
| Fair Value Measurements as of December 31, 2021 Using | ||||||||||||||||||||||||||
| Balance Sheet Line Item (in thousands) | Fair Value December 31, 2021 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||
| Interest rate swaps-Asset | $ | $ | $ | $ | ||||||||||||||||||||||
| Interest rate swaps-Liability | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||
6. Equity
Preferred Stock
The Company is authorized to issue up to 20,000,000 shares of preferred stock, par value $0.01 per share. As of June 30, 2022 and December 31, 2021, there were no
The following table summarizes the dividends declared on the Company’s outstanding shares of preferred stock during the year ended December 31, 2021.
| Quarter Ended 2021 | Declaration Date | Series C Preferred Stock Per Share | Payment Date | |||||||||||||||||
| March 31 | $ | |||||||||||||||||||
| Total | $ | |||||||||||||||||||
Common Stock
The Company is authorized to issue up to 300,000,000 shares of common stock, par value $0.01 per share.
The following table summarizes the terms of the Company’s at-the market (“ATM”) common stock offering program as of June 30, 2022.
| ATM Common Stock Offering Program | Date | Maximum Aggregate Offering Price (in thousands) | Aggregate Available as of June 30, 2022 (in thousands) | |||||||||||||||||
| 2022 $750 million ATM | February 17, 2022 | $ | $ | |||||||||||||||||
16
The following tables summarize the activity under the ATM common stock offering program during the six months ended June 30, 2022 and year ended December 31, 2021.
| Six months ended June 30, 2022 | ||||||||||||||||||||||||||||||||
| ATM Common Stock Offering Program | Shares Sold | Weighted Average Price Per Share | Net Proceeds (in thousands) | |||||||||||||||||||||||||||||
2019 $600 million ATM(1) | $ | $ | ||||||||||||||||||||||||||||||
| Total/weighted average | $ | $ | ||||||||||||||||||||||||||||||
(1)This program ended before March 31, 2022.
| Year ended December 31, 2021 | ||||||||||||||||||||
ATM Common Stock Offering Program(1) | Shares Sold | Weighted Average Price Per Share | Net Proceeds (in thousands) | |||||||||||||||||
2019 $600 million ATM(2) | $ | $ | ||||||||||||||||||
| Total/weighted average | $ | $ | ||||||||||||||||||
(1)Excludes shares of common stock sold under the ATM common stock offering program on a forward basis or issued upon physical settlement of the related forward sale agreements during the period.
(2)This program ended before March 31, 2022.
In connection with the Company’s underwritten public offering that closed in November 2021, on December 3, 2021, the Company executed a forward sale agreement for the sale of an additional 1,200,000 shares of common stock on a forward basis at a price of $41.87 per share. The Company did not initially receive any proceeds from the sale of shares on a forward basis. On March 29, 2022, the Company physically settled in full the forward sales agreement by issuing 1,200,000 shares of common stock for net proceeds of approximately $49.7 million, or $41.39 per share.
The following tables summarize the dividends declared on the Company’s outstanding shares of common stock during the six months ended June 30, 2022 and the year ended December 31, 2021.
| Month Ended 2022 | Declaration Date | Record Date | Per Share | Payment Date | ||||||||||||||||||||||
| June 30 | June 30, 2022 | $ | ||||||||||||||||||||||||
| May 31 | May 31, 2022 | |||||||||||||||||||||||||
| April 30 | April 29, 2022 | |||||||||||||||||||||||||
| March 31 | March 31, 2022 | |||||||||||||||||||||||||
| February 28 | February 28, 2022 | |||||||||||||||||||||||||
| January 31 | January 31, 2022 | |||||||||||||||||||||||||
| Total | $ | |||||||||||||||||||||||||
| Month Ended 2021 | Declaration Date | Record Date | Per Share | Payment Date | ||||||||||||||||||||||
| December 31 | December 31, 2021 | $ | ||||||||||||||||||||||||
| November 30 | November 30, 2021 | |||||||||||||||||||||||||
| October 31 | October 29, 2021 | |||||||||||||||||||||||||
| September 30 | September 30, 2021 | |||||||||||||||||||||||||
| August 31 | August 31, 2021 | |||||||||||||||||||||||||
| July 31 | July 30, 2021 | |||||||||||||||||||||||||
| June 30 | June 30, 2021 | |||||||||||||||||||||||||
| May 31 | May 28, 2021 | |||||||||||||||||||||||||
| April 30 | April 30, 2021 | |||||||||||||||||||||||||
| March 31 | March 31, 2021 | |||||||||||||||||||||||||
| February 28 | February 26, 2021 | |||||||||||||||||||||||||
| January 31 | January 29, 2021 | |||||||||||||||||||||||||
| Total | $ | |||||||||||||||||||||||||
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Restricted Shares of Common Stock
The Company granted restricted shares of common stock under the 2011 Plan on January 10, 2022 to certain employees of the Company, which will vest in equal installments on an annual basis over four years (beginning on January 1, 2023), subject to the recipient’s continued employment. The following table summarizes activity related to the Company’s unvested restricted shares of common stock during the six months ended June 30, 2022 and the year ended December 31, 2021.
| Unvested Restricted Shares of Common Stock | Shares | Weighted Average Grant Date Fair Value per Share | ||||||||||||
| Balance at December 31, 2020 | $ | |||||||||||||
| Granted | $ | |||||||||||||
| Vested | ( | (1) | $ | |||||||||||
| Forfeited | ( | $ | ||||||||||||
| Balance at December 31, 2021 | $ | |||||||||||||
| Granted | $ | |||||||||||||
| Vested | ( | (1) | $ | |||||||||||
| Forfeited | ( | $ | ||||||||||||
| Balance at June 30, 2022 | $ | |||||||||||||
(1)The Company repurchased and retired 25,836 and 27,706 restricted shares of common stock that vested during the six months ended June 30, 2022 and the year ended December 31, 2021, respectively.
The unrecognized compensation expense associated with the Company’s restricted shares of common stock at June 30, 2022 was approximately $4.2 million and is expected to be recognized over a weighted average period of approximately 2.7 years.
The following table summarizes the fair value at vesting for the restricted shares of common stock that vested during the three and six months ended June 30, 2022 and 2021.
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||||||||
| Vested Restricted Shares of Common Stock | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||
| Vested restricted shares of common stock | ||||||||||||||||||||||||||||||||
| Fair value of vested restricted shares of common stock (in thousands) | $ | $ | $ | $ | ||||||||||||||||||||||||||||
7. Noncontrolling Interest
The following table summarizes the activity for noncontrolling interest in the Company during the six months ended June 30, 2022 and the year ended December 31, 2021.
| Noncontrolling Interest | LTIP Units | Other Common Units | Total Noncontrolling Common Units | Noncontrolling Interest | ||||||||||||||||||||||
| Balance at December 31, 2020 | % | |||||||||||||||||||||||||
| Granted/Issued | N/A | |||||||||||||||||||||||||
| Forfeited | N/A | |||||||||||||||||||||||||
| Conversions from LTIP units to Other Common Units | ( | N/A | ||||||||||||||||||||||||
| Redemptions from Other Common Units to common stock | ( | ( | N/A | |||||||||||||||||||||||
| Balance at December 31, 2021 | % | |||||||||||||||||||||||||
| Granted/Issued | N/A | |||||||||||||||||||||||||
| Forfeited | N/A | |||||||||||||||||||||||||
| Conversions from LTIP units to Other Common Units | ( | N/A | ||||||||||||||||||||||||
| Redemptions from Other Common Units to common stock | ( | ( | N/A | |||||||||||||||||||||||
| Balance at June 30, 2022 | % | |||||||||||||||||||||||||
LTIP Units
The Company granted LTIP units under the 2011 Plan on January 10, 2022 to non-employee, independent directors, which will vest on January 1, 2023, subject to the recipient’s continued service. The Company granted LTIP units under the 2011 Plan on January 10, 2022 to certain executive officers and senior employees of the Company, which will vest in equal installments on a
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quarterly basis over four years (beginning on March 31, 2022), subject to the recipient’s continued employment. Refer to Note 8 for a discussion of the LTIP units granted on January 10, 2022 pursuant to the 2019 performance units.
The fair value of the LTIP units as of the grant date was determined by a lattice-binomial option-pricing model based on a Monte Carlo simulation. The fair value of the LTIP units are based on Level 3 inputs and non-recurring fair value measurements. The following table summarizes the assumptions used in valuing the LTIP units granted during the six months ended June 30, 2022 (excluding the LTIP units granted pursuant to the 2019 performance units discussed in Note 8 below).
| LTIP Units | Assumptions | |||||||
| Grant date | January 10, 2022 | |||||||
| Expected term (years) | ||||||||
| Expected stock price volatility | % | |||||||
| Expected dividend yield | % | |||||||
| Risk-free interest rate | % | |||||||
| Fair value of LTIP units at issuance (in thousands) | $ | |||||||
| LTIP units at issuance | ||||||||
| Fair value unit price per LTIP unit at issuance | $ | |||||||
The expected stock price volatility is based on a mix of the historical and implied volatilities of the Company and certain peer group companies. The expected dividend yield is based on the Company’s average historical dividend yield and the dividend yield as of the valuation date for each award. The risk-free interest rate is based on U.S. Treasury note yields matching a three-year time period.
The following table summarizes activity related to the Company’s unvested LTIP units during the six months ended June 30, 2022 and the year ended December 31, 2021.
| Unvested LTIP Units | LTIP Units | Weighted Average Grant Date Fair Value per Unit | ||||||||||||
| Balance at December 31, 2020 | $ | |||||||||||||
| Granted | $ | |||||||||||||
| Vested | ( | $ | ||||||||||||
| Forfeited | $ | |||||||||||||
| Balance at December 31, 2021 | $ | |||||||||||||
| Granted | $ | |||||||||||||
| Vested | ( | $ | ||||||||||||
| Forfeited | $ | |||||||||||||
| Balance at June 30, 2022 | $ | |||||||||||||
The unrecognized compensation expense associated with the Company’s LTIP units at June 30, 2022 was approximately $4.2 million and is expected to be recognized over a weighted average period of approximately 2.5 years.
The following table summarizes the fair value at vesting for the LTIP units that vested during the three and six months ended June 30, 2022 and 2021.
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||
| Vested LTIP units | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||
| Vested LTIP units | ||||||||||||||||||||||||||
| Fair value of vested LTIP units (in thousands) | $ | $ | $ | $ | ||||||||||||||||||||||
8. Equity Incentive Plan
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The fair value of the performance units as of the grant date was determined by a lattice-binomial option-pricing model based on a Monte Carlo simulation. The fair value of the performance units is based on Level 3 inputs and non-recurring fair value measurements. The performance unit equity compensation expense is recognized ratably from the grant date into earnings over the vesting period. The following table summarizes the assumptions used in valuing the performance units granted during the six months ended June 30, 2022.
| Performance Units | Assumptions | |||||||
| Grant date | January 10, 2022 | |||||||
| Expected stock price volatility | % | |||||||
| Expected dividend yield | % | |||||||
| Risk-free interest rate | % | |||||||
| Fair value of performance units grant (in thousands) | $ | |||||||
The expected stock price volatility is based on a mix of the historical and implied volatilities of the Company and certain peer group companies. The expected dividend yield is based on the Company’s average historical dividend yield and the dividend yield as of the valuation date for each award. The risk-free interest rate is based on U.S. Treasury note yields matching the three-year time period of the performance period.
On December 31, 2021, the measuring period for the 2019 performance units concluded. The compensation committee of the board of directors determined that the Company’s total stockholder return exceeded the threshold percentage and return hurdle and approved the issuance of an aggregate of 365,996 vested LTIP units and 27,934 vested shares of common stock to the participants (of which 8,257 shares of common stock were repurchased and retired), which were issued on January 10, 2022.
The unrecognized compensation expense associated with the Company’s performance units at June 30, 2022 was approximately $8.7 million and is expected to be recognized over a weighted average period of approximately 2.0 years.
Non-cash Compensation Expense
The following table summarizes the amount recorded in general and administrative expenses in the accompanying Consolidated Statements of Operations for the amortization of restricted shares of common stock, LTIP units, performance units, and the Company’s director compensation for the three and six months ended June 30, 2022 and 2021.
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||
| Non-Cash Compensation Expense (in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||
| Restricted shares of common stock | $ | $ | $ | $ | ||||||||||||||||||||||
| LTIP units | ||||||||||||||||||||||||||
| Performance units | ||||||||||||||||||||||||||
Director compensation(1) | ||||||||||||||||||||||||||
| Total non-cash compensation expense | $ | $ | $ | $ | ||||||||||||||||||||||
(1)All of the Company’s independent directors elected to receive shares of common stock in lieu of cash for their service during the three and six months ended June 30, 2022 and 2021. The number of shares of common stock granted was calculated based on the trailing ten day
9. Leases
Lessor Leases
The Company has operating leases in which it is the lessor for its rental property. Certain leases contain variable lease payments based upon changes in the Consumer Price Index (“CPI”). Billings for real estate taxes and other expenses are also considered to be variable lease payments. Certain leases contain options to renew or terminate the lease, and options for the lessee to purchase the rental property, all of which are predominately at the sole discretion of the lessee.
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The following table summarizes the components of rental income included in the accompanying Consolidated Statements of Operations for the three and six months ended June 30, 2022 and 2021.
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||
| Rental Income (in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||
| Fixed lease payments | $ | $ | $ | $ | ||||||||||||||||||||||
| Variable lease payments | ||||||||||||||||||||||||||
| Straight-line rental income | ||||||||||||||||||||||||||
| Net increase (decrease) to rental income related to above and below market lease amortization | ( | ( | ||||||||||||||||||||||||
| Total rental income | $ | $ | $ | $ | ||||||||||||||||||||||
The Company evaluates its operating leases to determine if it is probable it will collect substantially all of the lessee’s remaining lease payments under the lease term. For those that are not probable of collection, the Company converts to the cash basis of accounting. If the Company subsequently determines that it is probable it will collect substantially all of the lessee’s remaining lease payments under the lease term, the Company will reinstate the accrued rent balance adjusting for the amount related to the period when the lease was accounted for on a cash basis.
As of June 30, 2022 and December 31, 2021, the Company had accrued rental income of approximately $84.0 million and $75.8 million, respectively, included in tenant accounts receivable on the accompanying Consolidated Balance Sheets.
As of June 30, 2022 and December 31, 2021, the Company had approximately $30.7 million and $32.9 million, respectively, of total lease security deposits available in the form of existing letters of credit, which are not reflected on the accompanying Consolidated Balance Sheets. As of June 30, 2022 and December 31, 2021, the Company had approximately $0.7 million and $0.7 million, respectively, of lease security deposits available in cash, which are included in restricted cash on the accompanying Consolidated Balance Sheets. The Company’s remaining lease security deposits are commingled in cash and cash equivalents. These funds may be used to settle tenant accounts receivables in the event of a default under the related lease. As of June 30, 2022 and December 31, 2021, the Company’s total liability associated with these lease security deposits was approximately $17.1 million and $15.2 million, respectively, which is included in tenant prepaid rent and security deposits on the accompanying Consolidated Balance Sheets.
The Company estimates that billings for real estate taxes, which are the responsibility of certain tenants under the terms of their leases and are not reflected on the Company’s consolidated financial statements, was approximately $5.6 million, $11.0 million $5.3 million and $10.4 million for the three and six months ended June 30, 2022 and 2021, respectively. These amounts would have been the maximum real estate tax expense of the Company, excluding any penalties or interest, had the tenants not met their contractual obligations for these periods.
The following table summarizes the maturity of fixed lease payments under the Company’s leases as of June 30, 2022.
| Year | Maturity of Fixed Lease Payments (in thousands) | |||||||
| Remainder of 2022 | $ | |||||||
| 2023 | $ | |||||||
| 2024 | $ | |||||||
| 2025 | $ | |||||||
| 2026 | $ | |||||||
| Thereafter | $ | |||||||
Lessee Leases
The Company has operating leases in which it is the lessee for its ground leases and corporate office leases. These leases have remaining lease terms of approximately 0.9 years to 48.2 years. Certain ground leases contain options to extend the leases for ten years to 20 years, all of which are reasonably certain to be exercised, and are included in the computation of the Company’s right-of-use assets and operating lease liabilities.
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The following table summarizes supplemental information related to operating lease right-of-use assets and operating lease liabilities recognized in the Company’s Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021.
| Operating Lease Term and Discount Rate | June 30, 2022 | December 31, 2021 | ||||||||||||
| Weighted average remaining lease term (years) | ||||||||||||||
| Weighted average discount rate | % | % | ||||||||||||
The following table summarizes the operating lease cost included in the Company’s Consolidated Statements of Operations for the three and six months ended June 30, 2022 and 2021.
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||
| Operating Lease Cost (in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||
| Operating lease cost included in property expense attributable to ground leases | $ | $ | $ | $ | ||||||||||||||||||||||
| Operating lease cost included in general and administrative expense attributable to corporate office leases | ||||||||||||||||||||||||||
| Total operating lease cost | $ | $ | $ | $ | ||||||||||||||||||||||
The following table summarizes supplemental cash flow information related to operating leases in the Company’s Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021.
| Six months ended June 30, | ||||||||||||||
| Operating Leases (in thousands) | 2022 | 2021 | ||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities (operating cash flows) | $ | $ | ||||||||||||
The following table summarizes the maturity of operating lease liabilities under the Company’s ground leases and corporate office leases as of June 30, 2022.
| Year | Maturity of Operating Lease Liabilities(1) (in thousands) | |||||||
| Remainder of 2022 | $ | |||||||
| 2023 | ||||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| Thereafter | ||||||||
| Total lease payments | ||||||||
| Less: Imputed interest | ( | |||||||
| Present value of operating lease liabilities | $ | |||||||
(1)Operating lease liabilities do not include estimates of CPI rent changes required by certain ground lease agreements. Therefore, actual payments may differ from those presented.
10. Earnings Per Share
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The following table reconciles the numerators and denominators in the computation of basic and diluted earnings per share of common stock for the three and six months ended June 30, 2022 and 2021.
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||
| Earnings Per Share (in thousands, except per share data) | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||
| Numerator | ||||||||||||||||||||||||||
| Net income attributable to common stockholders | $ | $ | $ | $ | ||||||||||||||||||||||
| Denominator | ||||||||||||||||||||||||||
| Weighted average common shares outstanding — basic | ||||||||||||||||||||||||||
Effect of dilutive securities(1) | ||||||||||||||||||||||||||
| Share-based compensation | ||||||||||||||||||||||||||
| Shares issuable under forward sales agreements | ||||||||||||||||||||||||||
| Weighted average common shares outstanding — diluted | ||||||||||||||||||||||||||
| Net income per share — basic and diluted | ||||||||||||||||||||||||||
| Net income per share attributable to common stockholders — basic | $ | $ | $ | $ | ||||||||||||||||||||||
| Net income per share attributable to common stockholders — diluted | $ | $ | $ | $ | ||||||||||||||||||||||
11. Commitments and Contingencies
12. Subsequent Events
The following non-recognized subsequent events were noted.
On July 26, 2022, the Company entered into an amended and restated credit agreement for the unsecured credit facility (the “July 2022 Credit Agreement”), which provided for an increase in the aggregate commitments available for borrowing under the unsecured credit facility from $750.0 million to up to $1.0 billion. The July 2022 Credit Agreement also provided for the replacement of one-month LIBOR for one-month Secured Overnight Financing Rate (“SOFR”), plus a 0.10 % adjustment. Other than the increase in the borrowing commitments and the interest rate provisions described above, the material terms of the unsecured credit facility remain unchanged.
On July 26, 2022, the Company entered into separate loan agreements for (i) a new $187.5 million unsecured term loan with Bank of America, N.A. and the other lenders party thereto (“Unsecured Term Loan H”), and (i) a new $187.5 million unsecured term loan with Wells Fargo Bank, National Association, and the other lenders party thereto (“Unsecured Term Loan I”). In connection with the new unsecured term loans, the $150.0 million Unsecured Term Loan D and the $175.0 million Unsecured Term Loan E were repaid in full. Each of the Unsecured Term Loan H and the Unsecured Term Loan I bears a current annual interest rate of one-month SOFR, plus a 0.10 0.85 seven interest rate swaps with a total notional amount of $375.0 million that fix SOFR at 2.579 % on the new unsecured term loans. The new interest rate swap with a notional amount of $50.0 million is effective on July 27, 2022 and matures on January 25, 2028. The remaining interest rate swaps become effective on January 4, 2023 and January 12, 2024 upon the maturity of the interest rate swaps previously designated to the Unsecured Term Loan D and Unsecured Term Loan E, respectively, and mature on January 25, 2028.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion with the financial statements and related notes included elsewhere in Item 1 of this report and the audited financial statements and related notes thereto included in our most recent Annual Report on Form 10-K.
As used herein, except where the context otherwise requires, “Company,” “we,” “our” and “us,” refer to STAG Industrial, Inc. and our consolidated subsidiaries and partnerships, including our operating partnership, STAG Industrial Operating Partnership, L.P. (the “Operating Partnership”).
Forward-Looking Statements
This report contains “forward-looking statements” within the meaning of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). You can identify forward-looking statements by the use of words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “seeks,” “should,” “will,” and variations of such words or similar expressions. Forward-looking statements in this report include, among others, statements about our future financial condition, results of operations, capitalization rates on future acquisitions, our business strategy and objectives, including our acquisition strategy, occupancy and leasing rates and trends, and expected liquidity needs and sources (including capital expenditures and the ability to obtain financing or raise capital). Our forward-looking statements reflect our current views about our plans, intentions, expectations, strategies and prospects, which are based on the information currently available to us and on assumptions we have made. Although we believe that our plans, intentions, expectations, strategies and prospects as reflected in or suggested by our forward-looking statements are reasonable, we can give no assurance that our plans, intentions, expectations, strategies or prospects will be attained or achieved and you should not place undue reliance on these forward-looking statements. Furthermore, actual results may differ materially from those described in the forward-looking statements and may be affected by a variety of risks and factors including, without limitation:
•the factors included in our Annual Report on Form 10-K for the year ended December 31, 2021, as updated elsewhere is this report, including those set forth under the headings “Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations;”
•the ongoing adverse effects of the public health crisis of the novel coronavirus disease (“COVID-19”) pandemic, or any future pandemic, epidemic or outbreak of infectious disease, on the financial condition, results of operations, cash flows and performance of the Company and its tenants, the real estate market and the global economy and financial markets;
•our ability to raise equity capital on attractive terms;
•the competitive environment in which we operate;
•real estate risks, including fluctuations in real estate values, the general economic climate in local markets and competition for tenants in such markets, and the repurposing or redevelopment of retail properties into industrial properties (in part or whole);
•decreased rental rates or increased vacancy rates;
•potential defaults (including bankruptcies or insolvency) on or non-renewal of leases by tenants;
•acquisition risks, including our ability to identify and complete accretive acquisitions and/or failure of such acquisitions to perform in accordance with projections;
•the timing of acquisitions and dispositions;
•technological developments, particularly those affecting supply chains and logistics;
•potential natural disasters, epidemics, pandemics, and other potentially catastrophic events such as acts of war and/or terrorism (including the conflict between Russia and Ukraine and the related impact on macroeconomic conditions as a result of such conflict);
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•international, national, regional and local economic conditions;
•the general level of interest rates and currencies;
•potential changes in the law or governmental regulations and interpretations of those laws and regulations, including changes in real estate and zoning laws or real estate investment trust (“REIT”) or corporate income tax laws, and potential increases in real property tax rates;
•financing risks, including the risks that our cash flows from operations may be insufficient to meet required payments of principal and interest and we may be unable to refinance our existing debt upon maturity or obtain new financing on attractive terms or at all;
•credit risk in the event of non-performance by the counterparties to the interest rate swaps and revolving and unfunded debt;
•how and when pending forward equity sales may settle;
•lack of or insufficient amounts of insurance;
•our ability to maintain our qualification as a REIT;
•our ability to retain key personnel;
•litigation, including costs associated with prosecuting or defending claims and any adverse outcomes; and
•possible environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of properties presently owned or previously owned by us.
Any forward-looking statement speaks only as of the date on which it is made. New risks and uncertainties arise over time, and it is not possible for us to predict those events or how they may affect us. Moreover, you should interpret many of the risks identified in this report, as well as the risks set forth above, as being heightened as a result of the ongoing and numerous adverse impacts of the COVID-19 pandemic. Except as required by law, we are not obligated to, and do not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Certain Definitions
In this report:
“GAAP” means generally accepted accounting principles in the United States.
“Total annualized base rental revenue” means the contractual monthly base rent as of June 30, 2022 (which differs from rent calculated in accordance with GAAP) multiplied by 12. If a tenant is in a free rent period as of June 30, 2022, the total annualized base rental revenue is calculated based on the first contractual monthly base rent amount multiplied by 12.
“Occupancy rate” means 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.
“Value Add Portfolio” means our properties that meet any of the following criteria: (i) less than 75% occupied as of the acquisition date (ii) will be less than 75% occupied due to known move-outs within two years of the acquisition date; (iii) out of service with significant physical renovation of the asset; or (iv) development.
“Stabilization” for properties under development or being redeveloped means, the earlier of achieving 90% occupancy or 12 months after completion. With respect to properties acquired and immediately added to the Value Add Portfolio, (i) if acquired with less than 75% occupancy as of the acquisition date, Stabilization will occur upon the earlier of achieving 90% occupancy or 12 months from the acquisition date; or (ii) if acquired and will be less than 75% occupied due to known move-outs within two years of the acquisition date, Stabilization will occur upon the earlier of achieving 90% occupancy after the known move-outs have occurred or 12 months after the known move-outs have occurred.
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“Operating Portfolio” means all warehouse and light manufacturing assets that were acquired stabilized or have achieved Stabilization. The Operating Portfolio excludes non-core flex/office assets, assets contained in the Value Add Portfolio, and assets classified as held for sale.
“Comparable Lease” means a lease in the same space 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.
“SL Rent Change” means the percentage change in the average monthly base rent over the term of the lease that commenced during the period compared to the Comparable Lease for assets included in the Operating Portfolio. Rent under gross or similar type leases are converted to a net rent based on an estimate of the applicable recoverable expenses, and this calculation excludes the impact of any holdover rent.
“Cash Rent Change” means the percentage change in the base rent of the lease commenced during the period compared to the base rent of the Comparable Lease for assets included in the Operating Portfolio. The calculation compares the first base rent payment due after the lease commencement date compared to the base rent of the last monthly payment due prior to the termination of the lease, excluding holdover rent. Rent under gross or similar type leases are converted to a net rent based on an estimate of the applicable recoverable expenses.
“New Lease” means a lease that is signed for an initial term equal to or greater than 12 months for any vacant space, including a lease signed by a new tenant or an existing tenant that is expanding into new (additional) space.
“Renewal Lease” means a lease signed by an existing tenant to extend the term for 12 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, or (iii) an early renewal or workout, which ultimately does extend the original term for 12 months or more.
Overview
We are a real estate operating company focused on the acquisition, ownership, and operation of industrial properties throughout the United States. We are a Maryland corporation and our common stock is publicly traded on the New York Stock Exchange under the symbol “STAG.”
We are organized and conduct our operations to maintain our qualification as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, and generally are not subject to federal income tax to the extent we currently distribute our income to our stockholders and maintain our qualification as a REIT. We remain subject to state and local taxes on our income and property and to U.S. federal income and excise taxes on our undistributed income.
We recently effected a previously announced management succession. On July 1, 2022, William R. Crooker became our Chief Executive Officer, in addition to his role as President, and was appointed to our board of directors. In connection with Mr. Crooker’s promotion, Benjamin S. Butcher resigned from the role of Chief Executive Officer and became Executive Chair of the board of directors. As Chief Executive Officer, Mr. Crooker leads and manages our business, executes the strategies developed by management and the board and serves as the chief spokesperson to our employees, stockholders and business counterparties. As Executive Chair, Mr. Butcher manages the business of the board, regularly consults with Mr. Crooker on key corporate matters and serves as a liaison between the Board and the management team.
Factors That May Influence Future Results of Operations
Our ability to increase revenues or cash flow will depend in part on our (i) external growth, specifically our acquisition activity, and (ii) internal growth, specifically our portfolio occupancy and rental rates. A variety of other factors, including those noted below, also may affect our future results of operations.
COVID-19 Pandemic
Since March 2020, the COVID-19 pandemic has severely harmed global economic activity, caused significant volatility and negative pressure in financial markets, and negatively impacted almost every industry, including the real estate industry and the industries of our tenants, directly or indirectly.
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We did not incur significant disruptions or enter into any rent deferral agreements from the COVID-19 pandemic during the three and six months ended June 30, 2022. We will continue to evaluate tenant rent relief requests on an individual basis, considering a number of factors. Not all tenant requests will ultimately result in modified agreements, nor are we foregoing our contractual rights under our lease agreements.
The COVID-19 pandemic or a future pandemic, epidemic or outbreak of infectious disease affecting states or regions in which we or our tenants operate could have material and adverse effects on our business, financial condition, results of operations and cash flows due to, among other factors: health or other government authorities requiring the closure of offices or other businesses or instituting quarantines of personnel as the result of, or in order to avoid, exposure to a contagious disease; disruption in supply and delivery chains; a general decline in business activity and demand for real estate; reduced economic activity, general economic decline or recession, which may impact our tenants’ businesses, financial condition and liquidity and may cause one or more of our tenants to be unable to make rent payments to us timely, or at all, or to otherwise seek modifications of lease obligations; difficulty accessing debt and equity capital on attractive terms, or at all, and a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions, which may affect our access to capital necessary to fund business operations or address maturing liabilities on a timely basis; and the potential negative impact on the health of our personnel, particularly if a significant number of our employees are impacted, which would result in a deterioration in our ability to ensure business continuity during a disruption.
The extent to which the COVID-19 pandemic or any other pandemic, epidemic or disease impacts our operations and those of our tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including among others, the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures. Nevertheless, the COVID-19 pandemic (or a future pandemic, epidemic or disease) presents material uncertainty and risk with respect to our business, financial condition, results of operations and cash flows.
Outlook
Our business is affected by the uncertainty regarding the current high inflationary, rising interest rate environment, COVID-19 pandemic, and geopolitical tensions in Europe. These factors are key drivers of recent financial market volatility, continued supply chain bottlenecks, and slower economic growth. In the first quarter of 2022, U.S. GDP declined by 1.6%, while labor conditions remained strong with an unemployment rate at 3.6%. During the second quarter, the general consensus among economists suggests that we should expect a higher recession risk to continue over the next year. While the macro-economic conditions continue to evolve and impact our tenants, we believe we will continue to benefit from having a well-diversified portfolio across various markets, tenant industries, and lease terms. Additionally, we believe that the COVID-19 pandemic and geopolitical tensions are accelerating a number of trends that positively impact U.S. industrial demand.
Over the course of the COVID-19 pandemic, the U.S. federal and state governments, as well as the Federal Reserve, responded to the profoundly uncertain outlook with a series of fiscal and monetary policies to ease the economic burden of COVID-19 closures on businesses and individuals. During the first six months of 2022, given the historically high inflation levels and strong employment reports, the Federal Reserve shifted away from an expansionary monetary policy. In accordance with that shift in policy, the Federal Reserve has raised interest rates several times in 2022, including by 25 basis points in March, 50 basis points in May and 75 basis points in June, resulting in a range between 1.5% to 1.75% as of June 30, 2022. The Federal Reserve indicates monetary policy will continue to tighten with higher interest rates and a shrinking of Federal Reserve balance sheet until inflation measures approach its long-term targets.
We believe that the current economic environment, while volatile, will provide us with an opportunity to demonstrate the diversification of our portfolio. Specifically, we believe our existing portfolio should benefit from competitive rental rates and strong occupancy. In addition to our diversified portfolio, we believe that certain characteristics of our business and capital structure should position us well in an uncertain environment, including, among others, our minimal amount of floating rate debt (taking into account our hedging activities) and ample liquidity.
Due to the ongoing COVID-19 pandemic, we expect acceleration in a number of industrial specific trends will continue to support long-term demand for industrial properties, including:
•the rise of e-commerce (as compared to the traditional retail store distribution model) and the concomitant demand by e-commerce industry participants for well-located, functional distribution space;
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•the increasing attractiveness of the United States as a manufacturing and distribution location because of the size of the U.S. consumer market, an increase in overseas labor costs, a desire for greater supply chain resilience and redundancy and the overall cost of supplying and shipping goods (i.e. the shortening and fattening of the supply chain); and
•the overall quality of the transportation infrastructure in the United States.
Our portfolio continues to benefit from historically low availability throughout the national industrial market. While the COVID-19 pandemic has caused both positive and negative impacts at varying levels across different industries and geographies, the rise of e-commerce, actions taken by federal and state governments and the Federal Reserve, and the recent economic recovery have resulted in strong demand for industrial space. We believe that the diversification of our portfolio by market, tenant industry, and tenant credit will prove to be a strength in this environment. Industrial development continues to be concentrated in the larger primary markets and, after a brief deceleration, it has returned to and exceeded pre-COVID-19 pandemic levels. We will continue to monitor the supply and demand fundamentals for industrial real estate and assess its impact on our business.
Conditions in Our Markets
The buildings in our portfolio are located in markets throughout the United States. Positive or negative changes in economic or other conditions, new supply, adverse weather conditions, natural disasters, epidemics, and other factors in these markets may affect our overall performance.
Rental Income
We receive income primarily in the form of rental income from the tenants who occupy our buildings. The amount of rental income generated by the buildings in our portfolio depends principally on occupancy and rental rates. During the three and six months ended June 30, 2022, the SL Rent Change on New Leases and Renewal Leases in the Operating Portfolio together grew approximately 21.9% and 23.6%, respectively. During the three and six months ended June 30, 2022, the Cash Rent Change on New Leases and Renewal Leases in the Operating Portfolio together grew approximately 14.1% and 14.6%, respectively.
Future economic downturns or regional downturns affecting our submarkets that impair our ability to renew or re-lease space and the ability of our tenants to fulfill their lease commitments, as in the case of tenant bankruptcies, including those brought on by the COVID-19 pandemic, could adversely affect our ability to maintain or increase rental rates at our buildings. Our ability to lease our properties and the attendant rental rate is dependent upon, among other things, (i) the overall economy, (ii) the supply/demand dynamic in our markets, (iii) the quality of our properties, including age, clear height, and configuration, and (iv) our tenants’ ability to meet their contractual obligations to us.
The following table summarizes the Operating Portfolio leases that commenced during the three and six months ended June 30, 2022. Any rental concessions in such leases are accounted for on a straight-line basis over the term of the lease.
| Operating Portfolio | Square Feet | Cash Basis Rent Per Square Foot | SL Rent Per Square Foot | Total Costs Per Square Foot(1) | Cash Rent Change | SL Rent Change | Weighted Average Lease Term(2) (years) | Rental Concessions per Square Foot(3) | ||||||||||||||||||||||||||||||||||||||||||
| Three months ended June 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| New Leases | 1,312,102 | $ | 4.51 | $ | 4.65 | $ | 1.64 | 14.8 | % | 22.0 | % | 4.4 | $ | 0.11 | ||||||||||||||||||||||||||||||||||||
| Renewal Leases | 1,915,146 | $ | 4.94 | $ | 5.17 | $ | 0.81 | 13.7 | % | 21.9 | % | 4.1 | $ | 0.20 | ||||||||||||||||||||||||||||||||||||
| Total/weighted average | 3,227,248 | $ | 4.76 | $ | 4.96 | $ | 1.15 | 14.1 | % | 21.9 | % | 4.3 | $ | 0.17 | ||||||||||||||||||||||||||||||||||||
| Six months ended June 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| New Leases | 2,491,326 | $ | 5.24 | $ | 5.50 | $ | 2.58 | 20.2 | % | 29.6 | % | 5.7 | $ | 0.66 | ||||||||||||||||||||||||||||||||||||
| Renewal Leases | 3,875,818 | $ | 4.96 | $ | 5.25 | $ | 0.88 | 11.2 | % | 19.8 | % | 5.0 | $ | 0.15 | ||||||||||||||||||||||||||||||||||||
| Total/weighted average | 6,367,144 | $ | 5.07 | $ | 5.35 | $ | 1.54 | 14.6 | % | 23.6 | % | 5.3 | $ | 0.35 | ||||||||||||||||||||||||||||||||||||
(1)"Total Costs" means the costs for improvements of vacant and renewal spaces, as well as the contingent-based legal fees and commissions for leasing transactions. Total Costs per square foot represent the total costs expected to be incurred on the leases that commenced during the period and do not reflect actual expenditures for the period.
(2)"Weighted average lease term" means the contractual lease term in years, assuming that tenants do not exercise any renewal options, purchase options, or early termination rights, weighted by square footage.
(3)Represents the total rental concessions for the entire lease term.
Additionally, for the three and six months ended June 30, 2022, leases related to the Value Add Portfolio and first generation leasing, with a total of 237,123 and 748,359 square feet, are excluded from the Operating Portfolio statistics above.
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Property Operating Expenses
Our property operating expenses generally consist of utilities, real estate taxes, management fees, insurance, and site repair and maintenance costs. For the majority of our tenants, our property operating expenses are controlled, in part, by the triple net provisions in tenant leases. In our triple net leases, the tenant is responsible for all aspects of and costs related to the building and its operation during the lease term, including utilities, taxes, insurance, and maintenance costs, but typically excluding roof and building structure. However, we also have modified gross leases and gross leases in our building portfolio, which may require us to absorb certain building related expenses of our tenants. In our modified gross leases, we are responsible for certain building related expenses during the lease term, but most of the expenses are passed through to the tenant for reimbursement to us. In our gross leases, we are responsible for all expenses related to the building and its operation during the lease term. Our overall performance will be affected by the extent to which we are able to pass-through property operating expenses to our tenants.
Scheduled Lease Expirations
Our ability to re-lease space subject to expiring leases impacts our results of operations and will be affected by economic and competitive conditions in our markets and by the desirability of our individual buildings. Leases that comprise approximately 7.2% of our annualized base rental revenue will expire during the period from July 1, 2022 to June 30, 2023, excluding month-to-month leases. We assume, based upon internal renewal probability estimates that some of our tenants will renew and others will vacate and the associated space will be re-let subject to downtime assumptions. Using the aforementioned assumptions, we expect that the rental rates on the respective new leases will be greater than the rates under existing leases expiring during the period July 1, 2022 to June 30, 2023, thereby resulting in an increase in revenue from the same space.
The following table summarizes lease expirations for leases in place as of June 30, 2022, plus available space, for each of the ten calendar years beginning with 2022 and thereafter in our portfolio. The information in the table assumes that tenants do not exercise renewal options or early termination rights.
| Lease Expiration Year | Number of Leases Expiring | Total Rentable Square Feet | % of Total Occupied Square Feet | Total Annualized Base Rental Revenue (in thousands) | % of Total Annualized Base Rental Revenue | |||||||||||||||||||||||||||||||||
| Available | — | 2,071,543 | — | — | — | |||||||||||||||||||||||||||||||||
| Month-to-month leases | 5 | 499,933 | 0.5 | % | $ | 2,199 | 0.4 | % | ||||||||||||||||||||||||||||||
| Remainder of 2022 | 24 | 2,399,250 | 2.2 | % | 11,419 | 2.2 | % | |||||||||||||||||||||||||||||||
| 2023 | 86 | 11,027,366 | 10.1 | % | 49,215 | 9.5 | % | |||||||||||||||||||||||||||||||
| 2024 | 102 | 13,937,975 | 12.7 | % | 65,475 | 12.5 | % | |||||||||||||||||||||||||||||||
| 2025 | 93 | 13,525,906 | 12.4 | % | 61,151 | 11.6 | % | |||||||||||||||||||||||||||||||
| 2026 | 107 | 16,662,534 | 15.2 | % | 80,440 | 15.3 | % | |||||||||||||||||||||||||||||||
| 2027 | 82 | 13,086,216 | 12.0 | % | 62,628 | 11.9 | % | |||||||||||||||||||||||||||||||
| 2028 | 50 | 7,464,890 | 6.8 | % | 34,657 | 6.6 | % | |||||||||||||||||||||||||||||||
| 2029 | 43 | 7,210,849 | 6.5 | % | 34,903 | 6.6 | % | |||||||||||||||||||||||||||||||
| 2030 | 27 | 3,763,278 | 3.4 | % | 21,646 | 4.1 | % | |||||||||||||||||||||||||||||||
| 2031 | 40 | 7,292,855 | 6.7 | % | 34,795 | 6.6 | % | |||||||||||||||||||||||||||||||
| Thereafter | 52 | 12,559,435 | 11.5 | % | 66,811 | 12.7 | % | |||||||||||||||||||||||||||||||
| Total | 711 | 111,502,030 | 100.0 | % | $ | 525,339 | 100.0 | % | ||||||||||||||||||||||||||||||
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Portfolio Acquisitions
The following table summarizes our acquisitions during the three and six months ended June 30, 2022.
Market(1) | Date Acquired | Square Feet | Number of Buildings | Purchase Price (in thousands) | ||||||||||||||||||||||
| Kansas City, MO | January 6, 2022 | 702,000 | 1 | $ | 60,428 | |||||||||||||||||||||
| Chicago, IL | January 31, 2022 | 72,499 | 1 | 8,128 | ||||||||||||||||||||||
| Columbus, OH | February 8, 2022 | 138,213 | 1 | 11,492 | ||||||||||||||||||||||
| Cleveland, OH | February 8, 2022 | 136,800 | 1 | 13,001 | ||||||||||||||||||||||
| Nashville, TN | March 10, 2022 | 109,807 | 1 | 12,810 | ||||||||||||||||||||||
| Greenville/Spartanburg, SC | March 10, 2022 | 289,103 | 1 | 28,274 | ||||||||||||||||||||||
| Memphis, TN | March 18, 2022 | 195,622 | 1 | 15,828 | ||||||||||||||||||||||
| Greenville/Spartanburg, SC | March 18, 2022 | 155,717 | 1 | 16,390 | ||||||||||||||||||||||
| Three months ended March 31, 2022 | 1,799,761 | 8 | $ | 166,351 | ||||||||||||||||||||||
| Atlanta, GA | April 1, 2022 | 210,858 | 1 | 21,119 | ||||||||||||||||||||||
| Minneapolis/St. Paul, MN | April 4, 2022 | 160,000 | 1 | 13,472 | ||||||||||||||||||||||
| West Michigan, MI | April 14, 2022 | 211,125 | 2 | 12,274 | ||||||||||||||||||||||
| Pittsburgh, PA | April 19, 2022 | 400,000 | 1 | 50,178 | ||||||||||||||||||||||
Greenville/Spartanburg, SC(2) | April 22, 2022 | — | — | 5,559 | ||||||||||||||||||||||
| Birmingham, AL | May 5, 2022 | 67,168 | 1 | 7,871 | ||||||||||||||||||||||
| South Bay/San Jose, CA | June 7, 2022 | 175,325 | 1 | 29,630 | ||||||||||||||||||||||
| Washington, DC | June 29, 2022 | 140,555 | 1 | 20,257 | ||||||||||||||||||||||
| Hampton Roads, VA | June 29, 2022 | 102,512 | 1 | 10,561 | ||||||||||||||||||||||
| Three months ended June 30, 2022 | 1,467,543 | 9 | $ | 170,921 | ||||||||||||||||||||||
| Six months ended June 30, 2022 | 3,267,304 | 17 | $ | 337,272 | ||||||||||||||||||||||
(1) As defined by CoStar Realty Information Inc (“CoStar”). If the building is located outside of a CoStar defined market, the city and state is reflected.
(2) We acquired vacant land parcels.
Portfolio Dispositions
During the six months ended June 30, 2022, we sold two building and one land parcel comprised of approximately 0.3 million rentable square feet with a net book value of approximately $14.1 million to third parties. Net proceeds from the sales of rental property were approximately $38.4 million and we recognized the full gain on the sales of rental property, net, of approximately $24.3 million for the six months ended June 30, 2022.
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Top Markets
The following table summarizes information about the 20 largest markets in our portfolio based on total annualized base rental revenue as of June 30, 2022.
Top 20 Markets(1) | % of Total Annualized Base Rental Revenue | |||||||||||||||||||
| Chicago, IL | 7.5 | % | ||||||||||||||||||
| Philadelphia, PA | 7.3 | % | ||||||||||||||||||
| Greenville/Spartanburg, SC | 5.4 | % | ||||||||||||||||||
| Milwaukee/Madison, WI | 4.4 | % | ||||||||||||||||||
| Pittsburgh, PA | 4.2 | % | ||||||||||||||||||
| Detroit, MI | 4.0 | % | ||||||||||||||||||
| Columbus, OH | 4.0 | % | ||||||||||||||||||
| Minneapolis/St Paul, MN | 3.9 | % | ||||||||||||||||||
| Houston, TX | 2.9 | % | ||||||||||||||||||
| Charlotte, NC | 2.5 | % | ||||||||||||||||||
| West Michigan, MI | 2.5 | % | ||||||||||||||||||
| Indianapolis, IN | 2.2 | % | ||||||||||||||||||
| El Paso, TX | 2.2 | % | ||||||||||||||||||
| Cincinnati/Dayton, OH | 1.9 | % | ||||||||||||||||||
| Cleveland, OH | 1.9 | % | ||||||||||||||||||
| Boston, MA | 1.8 | % | ||||||||||||||||||
| Kansas City, MO | 1.8 | % | ||||||||||||||||||
| Washington, DC | 1.7 | % | ||||||||||||||||||
| Columbia, SC | 1.6 | % | ||||||||||||||||||
| Westchester/So Connecticut, CT/NY | 1.5 | % | ||||||||||||||||||
| Total | 65.2 | % | ||||||||||||||||||
(1) As defined by CoStar.
Top Industries
The following table summarizes information about the 20 largest tenant industries in our portfolio based on total annualized base rental revenue as of June 30, 2022.
Top 20 Tenant Industries(1) | % of Total Annualized Base Rental Revenue | |||||||||||||||||||
| Air Freight & Logistics | 11.3 | % | ||||||||||||||||||
| Containers & Packaging | 8.0 | % | ||||||||||||||||||
| Auto Components | 7.2 | % | ||||||||||||||||||
| Commercial Services & Supplies | 5.3 | % | ||||||||||||||||||
| Trading Companies & Distribution (Industrial Goods) | 5.2 | % | ||||||||||||||||||
| Machinery | 5.1 | % | ||||||||||||||||||
| Internet & Direct Market Retail | 4.8 | % | ||||||||||||||||||
| Distributors (Consumer Goods) | 4.5 | % | ||||||||||||||||||
| Household Durables | 4.4 | % | ||||||||||||||||||
| Food & Staples Retailing | 3.5 | % | ||||||||||||||||||
| Media | 3.3 | % | ||||||||||||||||||
| Building Products | 3.1 | % | ||||||||||||||||||
| Specialty Retail | 2.9 | % | ||||||||||||||||||
| Chemicals | 2.3 | % | ||||||||||||||||||
| Electronic Equip, Instruments | 2.2 | % | ||||||||||||||||||
| Road & Rail | 2.1 | % | ||||||||||||||||||
| Food Products | 2.0 | % | ||||||||||||||||||
| Beverages | 2.0 | % | ||||||||||||||||||
| Textiles, Apparel, Luxury Goods | 1.9 | % | ||||||||||||||||||
| Health Care Equipment & Supplies | 1.8 | % | ||||||||||||||||||
| Total | 82.9 | % | ||||||||||||||||||
(1) Industry classification based on Global Industry Classification Standard methodology.
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Top Tenants
The following table summarizes information about the 20 largest tenants in our portfolio based on total annualized base rental revenue as of June 30, 2022.
Top 20 Tenants(1) | Number of Leases | % of Total Annualized Base Rental Revenue | ||||||||||||||||||||||||
| Amazon | 7 | 3.1 | % | |||||||||||||||||||||||
| Eastern Metal Supply, Inc. | 5 | 1.0 | % | |||||||||||||||||||||||
| American Tire Distributors, Inc. | 7 | 0.9 | % | |||||||||||||||||||||||
| FedEx Corporation | 4 | 0.9 | % | |||||||||||||||||||||||
| Tempur Sealy International, Inc. | 2 | 0.9 | % | |||||||||||||||||||||||
| Lippert Component Manufacturing | 5 | 0.8 | % | |||||||||||||||||||||||
| Kenco Logistic Services, LLC | 3 | 0.8 | % | |||||||||||||||||||||||
| Penguin Random House, LLC | 1 | 0.7 | % | |||||||||||||||||||||||
| Westrock Company | 7 | 0.7 | % | |||||||||||||||||||||||
| DS Smith North America | 2 | 0.7 | % | |||||||||||||||||||||||
| GXO Logistics, Inc. | 2 | 0.7 | % | |||||||||||||||||||||||
| DHL Supply Chain | 4 | 0.7 | % | |||||||||||||||||||||||
| LKQ Corporation | 4 | 0.7 | % | |||||||||||||||||||||||
| Ford Motor Company | 1 | 0.7 | % | |||||||||||||||||||||||
| Iron Mountain Information Management | 5 | 0.7 | % | |||||||||||||||||||||||
| Carolina Beverage Group | 3 | 0.6 | % | |||||||||||||||||||||||
| Yanfeng US Automotive Interior | 2 | 0.6 | % | |||||||||||||||||||||||
| Hachette Book Group, Inc. | 1 | 0.6 | % | |||||||||||||||||||||||
| Packaging Corp of America | 5 | 0.6 | % | |||||||||||||||||||||||
| Schneider Electric USA, Inc. | 3 | 0.6 | % | |||||||||||||||||||||||
| Total | 73 | 17.0 | % | |||||||||||||||||||||||
(1) Includes tenants, guarantors, and/or non-guarantor parents.
Critical Accounting Policies
See “Critical Accounting Policies” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2021 for a discussion of our critical accounting policies and estimates.
Results of Operations
The following discussion of the results of our same store (as defined below) net operating income (“NOI”) should be read in conjunction with our consolidated financial statements included in this report. For a detailed discussion of NOI, including the reasons management believes NOI is useful to investors, see “Non-GAAP Financial Measures” below. Same store results are considered to be useful to investors in evaluating our performance because they provide information relating to changes in building-level operating performance without taking into account the effects of acquisitions or dispositions. We encourage the reader to not only look at our same store results, but also our total portfolio results, due to historic and future growth.
We define same store properties as properties that were in the Operating Portfolio for the entirety of the comparative periods presented. The results for same store properties exclude termination fees, solar income, and other income adjustments. Same store properties exclude Operating Portfolio properties with expansions placed into service after December 31, 2020. On June 30, 2022, we owned 459 industrial buildings consisting of approximately 93.2 million square feet and representing approximately 83.6% of our total portfolio, that are considered our same store portfolio in the analysis below. Same store occupancy increased approximately 1.1% to 98.7% as of June 30, 2022 compared to 97.6% as of June 30, 2021.
Comparison of the three months ended June 30, 2022 to the three months ended June 30, 2021
The following table summarizes selected operating information for our same store portfolio and our total portfolio for the three months ended June 30, 2022 and 2021 (dollars in thousands). This table includes a reconciliation from our same store portfolio to our total portfolio by also providing information for the three months ended June 30, 2022 and 2021 with respect to the buildings acquired and sold after December 31, 2020, Operating Portfolio buildings with expansions placed into service or transferred from the Value Add Portfolio to the Operating Portfolio after December 31, 2020, and our flex/office buildings, Value Add Portfolio, and buildings classified as held for sale.
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| Same Store Portfolio | Acquisitions/Dispositions | Other | Total Portfolio | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Three months ended June 30, | Change | Three months ended June 30, | Three months ended June 30, | Three months ended June 30, | Change | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | $ | % | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | $ | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating revenue | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Rental income | $ | 131,020 | $ | 129,436 | $ | 1,584 | 1.2 | % | $ | 23,675 | $ | 4,941 | $ | 6,362 | $ | 3,428 | $ | 161,057 | $ | 137,805 | $ | 23,252 | 16.9 | % | |||||||||||||||||||||||||||||||||||||||||||||||
| Other income | 57 | 172 | (115) | (66.9) | % | 1 | — | 385 | 450 | 443 | 622 | (179) | (28.8) | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total operating revenue | 131,077 | 129,608 | 1,469 | 1.1 | % | 23,676 | 4,941 | 6,747 | 3,878 | 161,500 | 138,427 | 23,073 | 16.7 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Expenses | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property | 23,229 | 23,617 | (388) | (1.6) | % | 4,218 | 1,255 | 1,427 | 484 | 28,874 | 25,356 | 3,518 | 13.9 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net operating income(1) | $ | 107,848 | $ | 105,991 | $ | 1,857 | 1.8 | % | $ | 19,458 | $ | 3,686 | $ | 5,320 | $ | 3,394 | 132,626 | 113,071 | 19,555 | 17.3 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other expenses | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| General and administrative | 12,234 | 12,578 | (344) | (2.7) | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 69,279 | 57,332 | 11,947 | 20.8 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other expenses | 532 | 511 | 21 | 4.1 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total other expenses | 82,045 | 70,421 | 11,624 | 16.5 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total expenses | 110,919 | 95,777 | 15,142 | 15.8 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other income (expense) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest and other income | 23 | 30 | (7) | (23.3) | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense | (17,896) | (15,273) | (2,623) | 17.2 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gain on the sales of rental property, net | 376 | 5,976 | (5,600) | (93.7) | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total other income (expense) | (17,497) | (9,267) | (8,230) | 88.8 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | $ | 33,084 | $ | 33,383 | $ | (299) | (0.9) | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(1)For a detailed discussion of NOI, including the reasons management believes NOI is useful to investors, see “Non-GAAP Financial Measures” below.
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Net Income
Net income for our total portfolio decreased by approximately $0.3 million, or 0.9%, to approximately $33.1 million for the three months ended June 30, 2022, compared to approximately $33.4 million for the three months ended June 30, 2021.
Same Store Total Operating Revenue
Same store total operating revenue consists primarily of rental income from (i) fixed lease payments, variable lease payments, straight-line rental income, and above and below market lease amortization from our properties (“lease income”), and (ii) other tenant billings for insurance, real estate taxes and certain other expenses (“other billings”).
For a detailed reconciliation of our same store total operating revenue to net income, see the table above.
Same store rental income, which includes lease income and other billings as discussed below, increased by approximately $1.6 million, or 1.2%, to approximately $131.0 million for the three months ended June 30, 2022 compared to approximately $129.4 million for the three months ended June 30, 2021.
Same store lease income increased by approximately $2.3 million, or 2.1%, to approximately $109.4 million for the three months ended June 30, 2022 compared to approximately $107.1 million for the three months ended June 30, 2021. The increase was primarily due to an increase in rental income of approximately $5.4 million from the execution of new leases and lease renewals with existing tenants and a net decrease in the amortization of net above market leases of approximately $0.3 million. These increases were partially offset by the reduction of base rent of approximately $3.4 million due to tenant vacancies.
Same store other billings decreased by approximately $0.7 million, or 3.1%, to approximately $21.6 million for the three months ended June 30, 2022 compared to approximately $22.3 million for the three months ended June 30, 2021. The decrease was primarily attributable to a decrease of approximately $1.0 million due to a decrease in real estate taxes levied by the taxing authority. This decrease was partially offset by an increase in other expense reimbursements from an increase in corresponding expenses.
Same Store Operating Expenses
Same store operating expenses consist primarily of property operating expenses and real estate taxes and insurance.
For a detailed reconciliation of our same store operating expenses to net income, see the table above.
Total same store property operating expenses decreased by approximately $0.4 million, or 1.6%, to approximately $23.2 million for the three months ended June 30, 2022 compared to approximately $23.6 million for the three months ended June 30, 2021. This decrease was primarily related to a decrease in real estate taxes levied by the taxing authority of approximately $0.6 million and other expenses of approximately $0.2 million. These decreases were partially offset by an increase in insurance and snow removal expense of approximately $0.2 million and $0.2 million, respectively.
Acquisitions and Dispositions Net Operating Income
For a detailed reconciliation of our acquisitions and dispositions NOI to net income, see the table above.
Subsequent to December 31, 2020, we acquired 83 buildings consisting of approximately 14.6 million square feet (excluding eight buildings that were included in the Value Add Portfolio at June 30, 2022 or transferred from the Value Add Portfolio to the Operating Portfolio after December 31, 2020), and sold 24 buildings consisting of approximately 3.0 million square feet and one land parcel. For the three months ended June 30, 2022 and 2021, the buildings acquired after December 31, 2020 contributed approximately $19.6 million and $2.0 million to NOI, respectively. For the three months ended June 30, 2022 and 2021, the buildings sold after December 31, 2020 contributed approximately $(0.1) million and $1.7 million to NOI, respectively. Refer to Note 3 in the accompanying Notes to Consolidated Financial Statements for additional discussion regarding buildings acquired or sold.
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Other Net Operating Income
Other assets include our flex/office buildings, Value Add Portfolio, buildings classified as held for sale, and Operating Portfolio buildings with expansions placed in service or transferred from the Value Add Portfolio to the Operating Portfolio after December 31, 2020. Other NOI also includes termination, solar, and other income adjustments from buildings in our same store portfolio.
For a detailed reconciliation of our other NOI to net income, see the table above.
These buildings contributed approximately $3.6 million and $2.7 million to NOI for the three months ended June 30, 2022 and 2021, respectively. Additionally, there was approximately $1.7 million and $0.7 million of termination, solar, and other income adjustments from certain buildings in our same store portfolio for the three months ended June 30, 2022 and 2021, respectively.
Total Other Expenses
Total other expenses consist of general and administrative expenses, depreciation and amortization, and other expenses.
Total other expenses increased approximately $11.6 million, or 16.5%, for the three months ended June 30, 2022 to approximately $82.0 million compared to approximately $70.4 million for the three months ended June 30, 2021. The increase was primarily a result of an increase in depreciation and amortization of approximately $11.9 million due to an increase in the depreciable asset base from net acquisitions. This increase was partially offset by a decrease in general and administrative expenses of approximately $0.3 million which was primarily due to the adoption of our retirement vesting program on January 7, 2021 and related acceleration of equity-based compensation expense for certain eligible employees that did not recur during the three months ended June 30, 2022.
Total Other Income (Expense)
Total other income (expense) consists of interest and other income, interest expense, and gain on the sales of rental property, net. Interest expense includes interest incurred during the period as well as adjustments related to amortization of financing fees and debt issuance costs, and amortization of fair market value adjustments associated with the assumption of debt.
Total other expense increased approximately $8.2 million, or 88.8%, for the three months ended June 30, 2022 to approximately $17.5 million compared approximately $9.3 million for the three months ended June 30, 2021. This increase was primarily a result of a decrease in the gain on the sales of rental property, net of approximately $5.6 million. This increase was also attributable to an increase in interest expense of approximately $2.6 million which is primarily attributable to the issuance of $325.0 million of unsecured notes on September 28, 2021.
Comparison of the six months ended June 30, 2022 to the six months ended June 30, 2021
The following table summarizes selected operating information for our same store portfolio and our total portfolio for the six months ended June 30, 2022 and 2021 (dollars in thousands). This table includes a reconciliation from our same store portfolio to our total portfolio by also providing information for the six months ended June 30, 2022 and 2021 with respect to the buildings acquired and disposed of and Operating Portfolio buildings with expansions placed into service or transferred from the Value Add Portfolio to the Operating Portfolio after December 31, 2020 and our flex/office buildings, Value Add Portfolio and buildings classified as held for sale.
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| Same Store Portfolio | Acquisitions/Dispositions | Other | Total Portfolio | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Six months ended June 30, | Change | Six months ended June 30, | Six months ended June 30, | Six months ended June 30, | Change | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | $ | % | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | $ | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating revenue | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Rental income | $ | 262,929 | $ | 256,638 | $ | 6,291 | 2.5 | % | $ | 44,720 | $ | 8,222 | $ | 12,009 | $ | 6,770 | $ | 319,658 | $ | 271,630 | $ | 48,028 | 17.7 | % | |||||||||||||||||||||||||||||||||||||||||||||||
| Other income | 336 | 274 | 62 | 22.6 | % | — | 68 | 715 | 450 | 1,051 | 792 | 259 | 32.7 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total operating revenue | 263,265 | 256,912 | 6,353 | 2.5 | % | 44,720 | 8,290 | 12,724 | 7,220 | 320,709 | 272,422 | 48,287 | 17.7 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Expenses | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property | 49,783 | 48,308 | 1,475 | 3.1 | % | 8,085 | 2,854 | 2,781 | 1,196 | 60,649 | 52,358 | 8,291 | 15.8 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net operating income(1) | $ | 213,482 | $ | 208,604 | $ | 4,878 | 2.3 | % | $ | 36,635 | $ | 5,436 | $ | 9,943 | $ | 6,024 | 260,060 | 220,064 | 39,996 | 18.2 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Other expenses | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| General and administrative | 24,547 | 25,368 | (821) | (3.2) | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 136,645 | 115,739 | 20,906 | 18.1 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other expenses | 1,029 | 1,363 | (334) | (24.5) | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total other expenses | 162,221 | 142,470 | 19,751 | 13.9 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total expenses | 222,870 | 194,828 | 28,042 | 14.4 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other income (expense) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest and other income | 57 | 62 | (5) | (8.1) | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest expense | (35,155) | (30,631) | (4,524) | 14.8 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt extinguishment and modification expenses | — | (679) | 679 | (100.0) | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gain on the sales of rental property, net | 24,331 | 12,385 | 11,946 | 96.5 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total other income (expense) | (10,767) | (18,863) | 8,096 | (42.9) | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | $ | 87,072 | $ | 58,731 | $ | 28,341 | 48.3 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(1)For a detailed discussion of NOI, including the reasons management believes NOI is useful to investors, see “Non-GAAP Financial Measures” below.
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Net Income
Net income for our total portfolio increased by $28.3 million, or 48.3%, to $87.1 million for the six months ended June 30, 2022 compared to $58.7 million for the six months ended June 30, 2021.
Same Store Total Operating Revenue
Same store total operating revenue consists primarily of rental income consisting of (i) fixed lease payments, variable lease payments, straight-line rental income, and above and below market lease amortization from our properties (“lease income”), and (ii) other tenant billings for insurance, real estate taxes and certain other expenses (“other billings”).
For a detailed reconciliation of our same store total operating revenue to net income, see the table above.
Same store rental income, which is comprised of lease income and other billings as discussed below, increased by approximately $6.3 million, or 2.5%, to approximately $262.9 million for the six months ended June 30, 2022 compared to approximately $256.6 million for the six months ended June 30, 2021.
Same store lease income increased by approximately $4.9 million, or 2.3%, to approximately $217.7 million for the six months ended June 30, 2022 compared to approximately $212.8 million for the six months ended June 30, 2021. Approximately $8.4 million of the increase was attributable to rental increases due to the execution of new leases and lease renewals with existing tenants and a net decrease in the amortization of net above market leases of approximately $0.5 million. These increases were also attributable to an increase in rental income of approximately $1.0 million at one property in which, during the six months ended June 30, 2021, we determined that the future collectability of rental payments was not reasonably assured, and accordingly, we converted to the cash basis of accounting and reversed any accounts receivable and accrued rent balances into rental income and did not recognize revenue for payments that were not received from the tenant. The lease was subsequently terminated and replaced with a new tenant in September 2021, and during the six months ended June 30, 2022, the former tenant repaid the rental amounts past due, both of which contributed to the increase in rental income during the six months ended June 30, 2022 compared to the six months ended June 30, 2021. These increases were partially offset by the reduction of base rent of approximately $5.0 million due to tenant vacancy.
Same store other billings increased by approximately $1.4 million, or 3.2%, to approximately $45.2 million for the six months ended June 30, 2022 compared to approximately $43.8 million for the six months ended June 30, 2021. The increase was attributable to an increase of approximately $2.0 million related to other expense reimbursements due to an increase in corresponding expenses and changes to lease terms where we began paying the operating expenses on behalf of tenants that had previously paid its operating expenses directly to respective vendors. This increase was partially offset by a decrease in real estate taxes levied by the taxing authority of approximately $0.6 million.
Same Store Operating Expenses
Same store operating expenses consist primarily of property operating expenses and real estate taxes and insurance.
For a detailed reconciliation of our same store operating expenses to net income, see the table above.
Total same store operating expenses increased by approximately $1.5 million or 3.1% to approximately $49.8 million for the six months ended June 30, 2022 compared to approximately $48.3 million for the six months ended June 30, 2021. This increase was due to increases in utility expense of approximately $0.7 million, insurance expense of approximately $0.3 million, repairs and maintenance expense of approximately $0.2 million, and snow removal expense of approximately $0.2 million.
Acquisitions and Dispositions Net Operating Income
For a detailed reconciliation of our acquisitions and dispositions NOI to net income, see the table above.
Subsequent to December 31, 2020, we acquired 83 buildings consisting of approximately 14.6 million square feet (excluding eight buildings that were included in the Value Add Portfolio at June 30, 2022 or transferred from the Value Add Portfolio to the Operating Portfolio after December 31, 2020), and sold 24 buildings consisting of approximately 3.0 million square feet and one land parcel. For the six months ended June 30, 2022 and June 30, 2021, the buildings acquired after December 31, 2020 contributed approximately $36.5 million and $2.7 million to NOI, respectively. For the six months ended June 30, 2022 and June 30, 2021, the buildings sold after December 31, 2020 contributed approximately $0.1 million and $2.7 million to NOI,
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respectively. Refer to Note 3 in the accompanying Notes to Consolidated Financial Statements for additional discussion regarding buildings acquired or sold.
Other Net Operating Income
Our other assets include our flex/office buildings, Value Add Portfolio, buildings classified as held for sale, and Operating Portfolio buildings with expansions placed in service or transferred from the Value Add Portfolio to the Operating Portfolio after December 31, 2020. Other NOI also includes termination, solar, and other income adjustments from buildings in our same store portfolio.
For a detailed reconciliation of our other NOI to net income, see the table above.
These buildings contributed approximately $7.2 million and $4.9 million to NOI for the six months ended June 30, 2022 and June 30, 2021, respectively. Additionally, there was approximately $2.7 million and $1.1 million of termination, solar, and other income adjustments from certain buildings in our same store portfolio for the six months ended June 30, 2022 and June 30, 2021, respectively.
Total Other Expenses
Total other expenses consist of general and administrative expenses, depreciation and amortization, and other expenses.
Total other expenses increased approximately $19.8 million, or 13.9%, to approximately $162.2 million for the six months ended June 30, 2022 compared to approximately $142.5 million for the six months ended June 30, 2021. This is primarily a result of an increase in depreciation and amortization of approximately $20.9 million as a result of net acquisitions that increased the depreciable asset base. This increase was partially offset by a decrease in general and administrative expenses of approximately $0.8 million which was primarily due to the adoption of our retirement vesting program on January 7, 2021 and related acceleration of equity-based compensation expense for certain eligible employees that did not recur during the six months ended June 30, 2022. Additionally, other expenses decreased approximately $0.3 million that was primarily due to the settlement of litigation related to a terminated acquisition contract during the COVID-19 pandemic that did not recur during the six months ended June 30, 2022.
Total Other Income (Expense)
Total other income (expense) consists of interest and other income, interest expense, debt extinguishment and modification expenses, and gain on the sales of rental property, net. Interest expense includes interest incurred during the period as well as adjustments related to amortization of financing fees and debt issuance costs, and amortization of fair market value adjustments associated with the assumption of debt.
Total other expense decreased approximately $8.1 million, or 42.9%, to approximately $10.8 million for the six months ended June 30, 2022 compared to approximately $18.9 million for the six months ended June 30, 2021. This decrease is primarily the result of an increase in gain on the sales of rental property, net of approximately $11.9 million. This was partially offset by an increase in interest expense of approximately $4.5 million which is primarily attributable to the issuance of $325.0 million of unsecured notes on September 28, 2021.
Non-GAAP Financial Measures
In this report, we disclose funds from operations (“FFO”) and NOI, which meet the definition of “non-GAAP financial measures” as set forth in Item 10(e) of Regulation S-K promulgated by the Securities and Exchange Commission (“SEC”). As a result, we are required to include in this report a statement of why management believes that presentation of these measures provides useful information to investors.
Funds From Operations
FFO 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, FFO should be compared with our reported net income (loss) in accordance with GAAP, as presented in our consolidated financial statements included in this report.
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We calculate FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts (“Nareit”). FFO represents GAAP net income (loss), excluding gains (or losses) from sales of depreciable operating buildings, land sales, 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.
Management uses 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.
However, because FFO excludes depreciation and amortization and captures 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 FFO as a measure of our performance is limited. In addition, other REITs may not calculate FFO in accordance with the Nareit definition, and, accordingly, our FFO may not be comparable to such other REITs’ FFO. FFO should not be used as a measure of our liquidity, and is not indicative of funds available for our cash needs, including our ability to pay dividends.
The following table sets forth a reconciliation of our FFO attributable to common stockholders and unit holders for the periods presented to net income, the nearest GAAP equivalent.
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||
| Reconciliation of Net Income to FFO (in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||
| Net income | $ | 33,084 | $ | 33,383 | $ | 87,072 | $ | 58,731 | ||||||||||||||||||
| Rental property depreciation and amortization | 69,225 | 57,291 | 136,538 | 115,630 | ||||||||||||||||||||||
| Gain on the sales of rental property, net | (376) | (5,976) | (24,331) | (12,385) | ||||||||||||||||||||||
| FFO | 101,933 | 84,698 | 199,279 | 161,976 | ||||||||||||||||||||||
| Preferred stock dividends | — | — | — | (1,289) | ||||||||||||||||||||||
| Redemption of preferred stock | — | — | — | (2,582) | ||||||||||||||||||||||
| Amount allocated to restricted shares of common stock and unvested units | (145) | (224) | (302) | (461) | ||||||||||||||||||||||
| FFO attributable to common stockholders and unit holders | $ | 101,788 | $ | 84,474 | $ | 198,977 | $ | 157,644 | ||||||||||||||||||
Net Operating Income
We consider NOI to be an appropriate supplemental performance measure to net income (loss) because we believe it helps investors and management understand the core operations of our buildings. NOI is defined as rental income, which includes billings for common area maintenance, real estate taxes and insurance, less property expenses and real estate taxes and insurance. NOI should not be viewed as an alternative measure of our financial performance since it excludes expenses which could materially impact our results of operations. Further, our NOI may not be comparable to that of other real estate companies, as they may use different methodologies for calculating NOI.
The following table sets forth a reconciliation of our NOI for the periods presented to net income, the nearest GAAP equivalent.
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||
| Reconciliation of Net Income to NOI (in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||
| Net income | $ | 33,084 | $ | 33,383 | $ | 87,072 | $ | 58,731 | ||||||||||||||||||
| General and administrative | 12,234 | 12,578 | 24,547 | 25,368 | ||||||||||||||||||||||
| Depreciation and amortization | 69,279 | 57,332 | 136,645 | 115,739 | ||||||||||||||||||||||
| Interest and other income | (23) | (30) | (57) | (62) | ||||||||||||||||||||||
| Interest expense | 17,896 | 15,273 | 35,155 | 30,631 | ||||||||||||||||||||||
| Debt extinguishment and modification expenses | — | — | — | 679 | ||||||||||||||||||||||
| Other expenses | 532 | 511 | 1,029 | 1,363 | ||||||||||||||||||||||
| Gain on the sales of rental property, net | (376) | (5,976) | (24,331) | (12,385) | ||||||||||||||||||||||
| Net operating income | $ | 132,626 | $ | 113,071 | $ | 260,060 | $ | 220,064 | ||||||||||||||||||
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Cash Flows
Comparison of the six months ended June 30, 2022 to the six months ended June 30, 2021
The following table summarizes our cash flows for the six months ended June 30, 2022 compared to the six months ended June 30, 2021.
| Six months ended June 30, | Change | |||||||||||||||||||||||||
| Cash Flows (dollars in thousands) | 2022 | 2021 | $ | % | ||||||||||||||||||||||
| Net cash provided by operating activities | $ | 191,188 | $ | 162,373 | $ | 28,815 | 17.7 | % | ||||||||||||||||||
| Net cash used in investing activities | $ | 334,909 | $ | 202,017 | $ | 132,892 | 65.8 | % | ||||||||||||||||||
| Net cash provided by financing activities | $ | 136,372 | $ | 37,820 | $ | 98,552 | 260.6 | % | ||||||||||||||||||
Net cash provided by operating activities increased approximately $28.8 million to approximately $191.2 million for the six months ended June 30, 2022 compared to approximately $162.4 million for the six months ended June 30, 2021. The increase was primarily attributable to incremental operating cash flows from property acquisitions completed after June 30, 2021, and operating performance at existing properties. These increases were partially offset by the loss of cash flows from property dispositions completed after June 30, 2021 and fluctuations in working capital due to the timing of payments and rental receipts.
Net cash used in investing activities increased approximately $132.9 million to approximately $334.9 million for the six months ended June 30, 2022 compared to approximately $202.0 million for the six months ended June 30, 2021. The increase was primarily attributable to the acquisition of 17 buildings and land parcels for a total cash consideration of approximately $337.3 million for the six months ended June 30, 2022 compared to the acquisition of 15 buildings for a total cash consideration of approximately $221.8 million for the six months ended June 30, 2021.
Net cash provided by financing activities increased approximately $98.6 million to approximately $136.4 million for the six months ended June 30, 2022 compared to approximately $37.8 million for the six months ended June 30, 2021. The increase is primarily attributable to the funding of the $400.0 million unsecured note on June 28, 2022 that did not occur during the six months ended June 30, 2021. The increase is also attributable to the redemption of preferred stock with an aggregate liquidation value of $75.0 million during the six months ended June 30, 2021 that did not recur. These increases were partially offset by a net cash outflow of approximately $357.0 million from our unsecured credit facility and an increase of approximately $11.3 million in dividends paid during the six months ended June 30, 2022 compared to the six months ended June 30, 2021, as well as decrease in net proceeds received from the sale of common stock of approximately $8.5 million during the six months ended June 30, 2022 compared to the six months ended June 30, 2021.
Liquidity and Capital Resources
We believe that our liquidity needs will be satisfied through cash flows generated by operations, disposition proceeds, and financing activities. Operating cash flow from rental income, expense recoveries from tenants, and other income from operations is our principal source of funds to pay operating expenses, debt service, recurring capital expenditures, and the distributions required to maintain our REIT qualification. We primarily rely on the capital markets (common and preferred equity and debt securities) to fund our acquisition activity. We seek to increase cash flows from our properties by maintaining quality building standards that promote high occupancy rates and permit increases in rental rates, while reducing tenant turnover and controlling operating expenses. We believe that our revenue, together with proceeds from building sales and equity and debt financings, will continue to provide funds for our short-term and medium-term liquidity needs.
Our short-term liquidity requirements consist primarily of funds necessary to pay for operating expenses and other expenditures directly associated with our buildings, including interest expense, interest rate swap payments, scheduled principal payments on outstanding indebtedness, property acquisitions under contract, general and administrative expenses, and capital expenditures including tenant improvements and leasing commissions.
Our long-term liquidity needs, in addition to recurring short-term liquidity needs as discussed above, consist primarily of funds necessary to pay for property acquisitions and scheduled debt maturities. We intend to satisfy our long-term liquidity needs through cash flow from operations, the issuance of equity or debt securities, other borrowings, property dispositions, or, in connection with acquisitions of certain additional buildings, the issuance of common units in the Operating Partnership.
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As of June 30, 2022, we had total immediate liquidity of approximately $643.0 million, comprised of $12.6 million of cash and cash equivalents and $630.4 million of immediate availability on our unsecured credit facility.
After quarter end, on July 26, 2022, we amended and restated our unsecured credit facility to increase the aggregate commitments available for borrowing thereunder from $750.0 million to up to $1.0 billion. Also on July 26, 2022, we entered into two loan agreements maturing in 2028 and totaling $375.0 million in principal and repaid two term loans maturing in 2023 and 2024 and totaling $325.0 million in principal.
In addition, we require funds to pay dividends to holders of our common stock and common units in the Operating Partnership. Any future dividends on our common stock are voluntary and declared in the sole discretion of our board of directors, subject to the distribution requirements to maintain our REIT status for federal income tax purposes, and may be reduced or stopped for any reason, including to use funds for other liquidity requirements. The following table summarizes the dividends declared on our outstanding common stock during the six months ended June 30, 2022.
| Month Ended 2022 | Declaration Date | Record Date | Per Share | Payment Date | ||||||||||||||||||||||
| June 30 | April 14, 2022 | June 30, 2022 | $ | 0.121667 | July 15, 2022 | |||||||||||||||||||||
| May 31 | April 14, 2022 | May 31, 2022 | 0.121667 | June 15, 2022 | ||||||||||||||||||||||
| April 30 | April 14, 2022 | April 29, 2022 | 0.121667 | May 16, 2022 | ||||||||||||||||||||||
| March 31 | January 10, 2022 | March 31, 2022 | 0.121667 | April 18, 2022 | ||||||||||||||||||||||
| February 28 | January 10, 2022 | February 28, 2022 | 0.121667 | March 15, 2022 | ||||||||||||||||||||||
| January 31 | January 10, 2022 | January 31, 2022 | 0.121667 | February 15, 2022 | ||||||||||||||||||||||
| Total | $ | 0.730002 | ||||||||||||||||||||||||
On July 12, 2022, our board of directors declared dividends on our common stock for the months ending July 31, 2022, August 31, 2022, and September 30, 2022 at a monthly rate of $0.121667 per share.
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Indebtedness Outstanding
The following table summarizes certain information with respect to our indebtedness outstanding as of June 30, 2022.
| Loan | Principal Outstanding as of June 30, 2022 (in thousands) | Interest Rate(1)(2) | Maturity Date | Prepayment Terms(3) | ||||||||||||||||||||||
| Unsecured credit facility: | ||||||||||||||||||||||||||
Unsecured Credit Facility(4)(5) | $ | 116,000 | L + 0.775% | October 23, 2026 | i | |||||||||||||||||||||
| Total unsecured credit facility | 116,000 | |||||||||||||||||||||||||
| Unsecured term loans: | ||||||||||||||||||||||||||
Unsecured Term Loan D(6) | 150,000 | 2.85 | % | January 4, 2023 | i | |||||||||||||||||||||
Unsecured Term Loan E(6) | 175,000 | 3.77 | % | January 15, 2024 | i | |||||||||||||||||||||
Unsecured Term Loan F | 200,000 | 2.96 | % | January 12, 2025 | i | |||||||||||||||||||||
Unsecured Term Loan G | 300,000 | 1.13 | % | February 5, 2026 | i | |||||||||||||||||||||
Unsecured Term Loan A | 150,000 | 2.15 | % | March 15, 2027 | i | |||||||||||||||||||||
| Total unsecured term loans | 975,000 | |||||||||||||||||||||||||
| Total unamortized deferred financing fees and debt issuance costs | (3,728) | |||||||||||||||||||||||||
| Total carrying value unsecured term loans, net | 971,272 | |||||||||||||||||||||||||
| Unsecured notes: | ||||||||||||||||||||||||||
| Series F Unsecured Notes | 100,000 | 3.98 | % | January 5, 2023 | ii | |||||||||||||||||||||
| Series A Unsecured Notes | 50,000 | 4.98 | % | October 1, 2024 | ii | |||||||||||||||||||||
| Series D Unsecured Notes | 100,000 | 4.32 | % | February 20, 2025 | ii | |||||||||||||||||||||
| Series G Unsecured Notes | 75,000 | 4.10 | % | June 13, 2025 | ii | |||||||||||||||||||||
| Series B Unsecured Notes | 50,000 | 4.98 | % | July 1, 2026 | ii | |||||||||||||||||||||
| Series C Unsecured Notes | 80,000 | 4.42 | % | December 30, 2026 | ii | |||||||||||||||||||||
| Series E Unsecured Notes | 20,000 | 4.42 | % | February 20, 2027 | ii | |||||||||||||||||||||
| Series H Unsecured Notes | 100,000 | 4.27 | % | June 13, 2028 | ii | |||||||||||||||||||||
| Series I Unsecured Notes | 275,000 | 2.80 | % | September 29, 2031 | ii | |||||||||||||||||||||
| Series K Unsecured Notes | 400,000 | 4.12 | % | June 28, 2032 | ii | |||||||||||||||||||||
| Series J Unsecured Notes | 50,000 | 2.95 | % | September 28, 2033 | ii | |||||||||||||||||||||
| Total unsecured notes | 1,300,000 | |||||||||||||||||||||||||
| Total unamortized deferred financing fees and debt issuance costs | (4,936) | |||||||||||||||||||||||||
| Total carrying value unsecured notes, net | 1,295,064 | |||||||||||||||||||||||||
| Mortgage notes (secured debt): | ||||||||||||||||||||||||||
| Wells Fargo Bank, National Association CMBS Loan | 45,603 | 4.31 | % | December 1, 2022 | iii | |||||||||||||||||||||
| Thrivent Financial for Lutherans | 3,363 | 4.78 | % | December 15, 2023 | iv | |||||||||||||||||||||
| United of Omaha Life Insurance Company | 4,844 | 3.71 | % | October 1, 2039 | ii | |||||||||||||||||||||
| Total mortgage notes | 53,810 | |||||||||||||||||||||||||
| Less: Net unamortized fair market value discount | (136) | |||||||||||||||||||||||||
| Total unamortized deferred financing fees and debt issuance costs | (39) | |||||||||||||||||||||||||
| Total carrying value mortgage notes, net | 53,635 | |||||||||||||||||||||||||
Total / weighted average interest rate(7) | $ | 2,435,971 | 3.25 | % | ||||||||||||||||||||||
(1)Interest rate as of June 30, 2022. At June 30, 2022, the one-month LIBOR (“L”) was 1.78671%. The current interest rate is not adjusted to include the amortization of deferred financing fees or debt issuance costs incurred in obtaining debt or any unamortized fair market value premiums. The spread over the applicable rate for our unsecured credit facility and unsecured term loans is based on the our debt rating and leverage ratio, as defined in the respective loan agreements.
(2)The unsecured term loans have a stated interest rate of one-month LIBOR plus a spread of 0.85%, with the exception of Unsecured Term Loan D which has a stated interest rate of one-month LIBOR plus a spread of 1.0%. As of June 30, 2022, one-month LIBOR for the Unsecured Term Loans A, D, E, F, and G was swapped to a fixed rate of 1.30%, 1.85%, 2.92%, 2.11%, and 0.28%, respectively. One-month LIBOR for the Unsecured Term Loan G will be swapped to a fixed rate of 0.94% effective April 18, 2023.
(3)Prepayment terms consist of (i) pre-payable with no penalty; (ii) pre-payable with penalty; (iii) pre-payable without penalty three months prior to the maturity date, subject to defeasance; and (iv) pre-payable without penalty three months prior to the maturity date.
(4)The capacity of our unsecured credit facility is $750.0 million. The initial maturity date is October 24, 2025, or such later date which may be extended pursuant to two six-month extension options exercisable by us in our discretion upon advance written notice. Exercise of each six-month option is subject to the following conditions: (i) absence of a default immediately before the extension and immediately after giving effect to the extension, (ii) accuracy of representations and warranties as of the extension date (both immediately before and after the extension), as if made on the extension date, and (iii) payment of a fee. Neither extension option is subject to lender consent, assuming proper notice and satisfaction of the conditions.
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(5)Subsequent to June 30, 2022, on July 26, 2022, we entered into an amended and restated loan agreement for the unsecured credit facility. See below for additional details.
(6)Subsequent to June 30, 2022, the Unsecured Term Loan D and Unsecured Term Loan E were repaid in full in connection with our new unsecured term loan agreements entered into on July 26, 2022. See below for additional details.
(7)The weighted average interest rate was calculated using the fixed interest rate swapped on the notional amount of $975.0 million of debt, and is not adjusted to include the amortization of deferred financing fees or debt issuance costs incurred in obtaining debt or any unamortized fair market value premiums or discounts.
The aggregate undrawn nominal commitments on our unsecured credit facility and unsecured term loans as of June 30, 2022 was approximately $630.4 million, including issued letters of credit. Our actual borrowing capacity at any given point in time may be less and is restricted to a maximum amount based on our debt covenant compliance.
Our unsecured credit facility, unsecured term loans, unsecured notes, and mortgage notes are subject to ongoing compliance with a number of financial and other covenants. As of June 30, 2022, we were in compliance with the applicable financial covenants.
On July 26, 2022, we entered into an amended and restated credit agreement for our unsecured credit facility (the “July 2022 Credit Agreement”), which provided for an increase in the aggregate commitments available for borrowing under our unsecured credit facility from $750.0 million to up to $1.0 billion. The July 2022 Credit Agreement also provided for the replacement of one-month LIBOR for one-month Secured Overnight Financing Rate (“SOFR”), plus a 0.10% adjustment. Other than the increase in the borrowing commitments and the interest rate provisions described above, the material terms of our unsecured credit facility remain unchanged.
On July 26, 2022, we entered into separate loan agreements for (i) a new $187.5 million unsecured term loan with Bank of America, N.A. and the other lenders party thereto (“Unsecured Term Loan H”), and (i) a new $187.5 million unsecured term loan with Wells Fargo Bank, National Association, and the other lenders party thereto (“Unsecured Term Loan I”). In connection with the new unsecured term loans, the $150.0 million Unsecured Term Loan D and the $175.0 million Unsecured Term Loan E were repaid in full. Each of the Unsecured Term Loan H and the Unsecured Term Loan I bears a current annual interest rate of one-month SOFR, plus a 0.10% adjustment and a spread of 0.85% based on our debt rating and leverage ratio (as defined in the applicable loan agreement), and matures on January 25, 2028. On July 27, 2022, we entered into seven interest rate swaps with a total notional amount of $375.0 million that fix SOFR at 2.579% on the new unsecured term loans. The new interest rate swap with a notional amount of $50.0 million is effective on July 27, 2022 and matures on January 25, 2028. The remaining interest rate swaps become effective on January 4, 2023 and January 12, 2024 upon the maturity of the interest rate swaps previously designated to the Unsecured Term Loan D and Unsecured Term Loan E, respectively, and mature on January 25, 2028.
On April 28, 2022, we entered into a note purchase agreement (the “April 2022 NPA”) for the private placement by our Operating Partnership of $400.0 million senior unsecured notes (the “Series K Unsecured Notes”) maturing June 28, 2032, with a fixed annual interest rate of 4.12%. The April 2022 NPA contains a number of financial covenants substantially similar to the financial covenants contained in our unsecured credit facility and other unsecured notes, plus a financial covenant that requires us to maintain a minimum interest coverage ratio of not less than 1.50:1.00. Our Operating Partnership issued the Series K Unsecured Notes on June 28, 2022. The Company and certain wholly owned subsidiaries of our Operating Partnership are guarantors of the Series K Unsecured Notes.
The following table summarizes our debt capital structure as of June 30, 2022.
| Debt Capital Structure | June 30, 2022 | |||||||
| Total principal outstanding (in thousands) | $ | 2,444,810 | ||||||
| Weighted average duration (years) | 5.0 | |||||||
| % Secured debt | 2.2 | % | ||||||
| % Debt maturing next 12 months | 12.1 | % | ||||||
Net Debt to Real Estate Cost Basis(1) | 35.8 | % | ||||||
(1)“Net Debt” means amounts outstanding under our unsecured credit facility, unsecured term loans, unsecured notes, and mortgage notes, less cash and cash equivalents. “Real Estate Cost Basis” means the book value of rental property and deferred leasing intangibles, exclusive of the related accumulated depreciation and amortization.
We regularly pursue new financing opportunities to ensure an appropriate balance sheet position. As a result of these dedicated efforts, we are confident in our ability to meet future debt maturities and fund acquisitions. We believe that our current balance sheet is in an adequate position at the date of this filing, despite possible volatility in the credit markets.
Our interest rate exposure on our floating rate debt is managed through the use of interest rate swaps, which fix the rate of our long term floating rate debt. For a detailed discussion on our use of interest rate swaps, see “Interest Rate Risk” below.
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Equity
Preferred Stock
We are authorized to issue up to 20,000,000 shares of preferred stock, par value $0.01 per share. As of June 30, 2022 and December 31, 2021, there were no shares of preferred stock issued or outstanding.
Common Stock
We are authorized to issue up to 300,000,000 shares of common stock, par value $0.01 per share.
The following table summarizes our at-the-market (“ATM”) common stock offering program as of June 30, 2022. Pursuant to the equity distribution agreements for our ATM common stock offering program, we may from time to time sell common stock through sales agents and their affiliates, including shares sold on a forward basis under forward sale agreements. There was no activity under the ATM common stock offering program during the three months ended June 30, 2022.
| ATM Common Stock Offering Program | Date | Maximum Aggregate Offering Price (in thousands) | Aggregate Available as of June 30, 2022 (in thousands) | |||||||||||||||||
| 2022 $750 million ATM | February 17, 2022 | $ | 750,000 | $ | 750,000 | |||||||||||||||
In connection with our underwritten public offering that closed in November 2021, on December 3, 2021, we executed a forward sale agreement for the sale of an additional 1,200,000 shares of common stock on a forward basis at a price of $41.87 per share. We did not initially receive any proceeds from the sale of shares on a forward basis. On March 29, 2022, we physically settled in full the forward sales agreement by issuing 1,200,000 shares of common stock for net proceeds of approximately $49.7 million, or $41.39 per share.
Noncontrolling Interest
We own our interests in all of our properties and conduct substantially all of our business through the Operating Partnership. We are the sole member of the sole general partner of the Operating Partnership. As of June 30, 2022, we owned approximately 97.9% of the common units in the Operating Partnership, and our current and former executive officers, directors, senior employees and their affiliates, and third parties that contributed properties to us in exchange for common units in the Operating Partnership owned the remaining 2.1%.
Interest Rate Risk
We use interest rate swaps to fix the rate of our variable rate debt. As of June 30, 2022, all of our outstanding variable rate debt, with the exception of our unsecured credit facility, was fixed with interest rate swaps through maturity.
We recognize all derivatives on the balance sheet at fair value. If the derivative is designated as a hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income (loss), which is a component of equity. Derivatives that are not designated as hedges must be adjusted to fair value and the changes in fair value must be reflected as income or expense.
We have established criteria for suitable counterparties in relation to various specific types of risk. We only use counterparties that have a credit rating of no lower than investment grade at swap inception from Moody’s Investor Services, Standard & Poor’s, or Fitch Ratings or other nationally recognized rating agencies.
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The following table details our outstanding interest rate swaps as of June 30, 2022.
| Interest Rate Derivative Counterparty | Trade Date | Effective Date | Notional Amount (in thousands) | Fair Value (in thousands) | Pay Fixed Interest Rate | Receive Variable Interest Rate | Maturity Date | |||||||||||||||||||||||||||||||||||||
| The Toronto-Dominion Bank | Jul-20-2017 | Oct-30-2017 | $ | 25,000 | $ | 108 | 1.8485 | % | One-month L | Jan-04-2023 | ||||||||||||||||||||||||||||||||||
| Royal Bank of Canada | Jul-20-2017 | Oct-30-2017 | $ | 25,000 | $ | 107 | 1.8505 | % | One-month L | Jan-04-2023 | ||||||||||||||||||||||||||||||||||
| Wells Fargo Bank, N.A. | Jul-20-2017 | Oct-30-2017 | $ | 25,000 | $ | 107 | 1.8505 | % | One-month L | Jan-04-2023 | ||||||||||||||||||||||||||||||||||
| PNC Bank, N.A. | Jul-20-2017 | Oct-30-2017 | $ | 25,000 | $ | 108 | 1.8485 | % | One-month L | Jan-04-2023 | ||||||||||||||||||||||||||||||||||
| PNC Bank, N.A. | Jul-20-2017 | Oct-30-2017 | $ | 50,000 | $ | 216 | 1.8475 | % | One-month L | Jan-04-2023 | ||||||||||||||||||||||||||||||||||
| The Toronto-Dominion Bank | Apr-20-2020 | Sep-29-2020 | $ | 75,000 | $ | 1,633 | 0.2750 | % | One-month L | Apr-18-2023 | ||||||||||||||||||||||||||||||||||
| Wells Fargo Bank, N.A. | Apr-20-2020 | Sep-29-2020 | $ | 75,000 | $ | 1,627 | 0.2790 | % | One-month L | Apr-18-2023 | ||||||||||||||||||||||||||||||||||
| The Toronto-Dominion Bank | Apr-20-2020 | Mar-19-2021 | $ | 75,000 | $ | 1,633 | 0.2750 | % | One-month L | Apr-18-2023 | ||||||||||||||||||||||||||||||||||
| Wells Fargo Bank, N.A. | Apr-20-2020 | Mar-19-2021 | $ | 75,000 | $ | 1,626 | 0.2800 | % | One-month L | Apr-18-2023 | ||||||||||||||||||||||||||||||||||
| The Toronto-Dominion Bank | Jul-24-2018 | Jul-26-2019 | $ | 50,000 | $ | 171 | 2.9180 | % | One-month L | Jan-12-2024 | ||||||||||||||||||||||||||||||||||
| PNC Bank, N.A. | Jul-24-2018 | Jul-26-2019 | $ | 50,000 | $ | 170 | 2.9190 | % | One-month L | Jan-12-2024 | ||||||||||||||||||||||||||||||||||
| Bank of Montreal | Jul-24-2018 | Jul-26-2019 | $ | 50,000 | $ | 170 | 2.9190 | % | One-month L | Jan-12-2024 | ||||||||||||||||||||||||||||||||||
| U.S. Bank, N.A. | Jul-24-2018 | Jul-26-2019 | $ | 25,000 | $ | 85 | 2.9190 | % | One-month L | Jan-12-2024 | ||||||||||||||||||||||||||||||||||
| Wells Fargo Bank, N.A. | May-02-2019 | Jul-15-2020 | $ | 50,000 | $ | 930 | 2.2460 | % | One-month L | Jan-15-2025 | ||||||||||||||||||||||||||||||||||
| U.S. Bank, N.A. | May-02-2019 | Jul-15-2020 | $ | 50,000 | $ | 936 | 2.2459 | % | One-month L | Jan-15-2025 | ||||||||||||||||||||||||||||||||||
| Regions Bank | May-02-2019 | Jul-15-2020 | $ | 50,000 | $ | 933 | 2.2459 | % | One-month L | Jan-15-2025 | ||||||||||||||||||||||||||||||||||
| Bank of Montreal | Jul-16-2019 | Jul-15-2020 | $ | 50,000 | $ | 1,590 | 1.7165 | % | One-month L | Jan-15-2025 | ||||||||||||||||||||||||||||||||||
| U.S. Bank, N.A. | Feb-17-2021 | Apr-18-2023 | $ | 150,000 | $ | 7,690 | 0.9385 | % | One-month L | Feb-5-2026 | ||||||||||||||||||||||||||||||||||
| Wells Fargo Bank, N.A. | Feb-17-2021 | Apr-18-2023 | $ | 75,000 | $ | 3,818 | 0.9365 | % | One-month L | Feb-5-2026 | ||||||||||||||||||||||||||||||||||
| The Toronto-Dominion Bank | Feb-17-2021 | Apr-18-2023 | $ | 75,000 | $ | 3,861 | 0.9360 | % | One-month L | Feb-5-2026 | ||||||||||||||||||||||||||||||||||
| Regions Bank | Oct-26-2021 | Apr-01-2022 | $ | 50,000 | $ | 3,446 | 1.3045 | % | One-month L | Mar-15-2027 | ||||||||||||||||||||||||||||||||||
| Bank of Montreal | Oct-26-2021 | Apr-01-2022 | $ | 50,000 | $ | 3,472 | 1.3045 | % | One-month L | Mar-15-2027 | ||||||||||||||||||||||||||||||||||
| PNC Bank, N.A. | Oct-26-2021 | Apr-01-2022 | $ | 50,000 | $ | 3,462 | 1.3045 | % | One-month L | Mar-15-2027 | ||||||||||||||||||||||||||||||||||
The swaps outlined in the above table were all designated as cash flow hedges of interest rate risk, and all are valued as Level 2 financial instruments. Level 2 financial instruments are defined as significant other observable inputs. As of June 30, 2022, the fair value of all 23 of our interest rate swaps were in an asset position of approximately $37.9 million, including any adjustment for nonperformance risk related to these agreements.
As of June 30, 2022, we had approximately $1,091.0 million of variable rate debt. As of June 30, 2022, all of our outstanding variable rate debt, with the exception of our unsecured credit facility, was fixed with interest rate swaps through maturity. To the extent interest rates increase, interest costs on our floating rate debt not fixed with interest rate swaps will increase, which could adversely affect our cash flow and our ability to pay principal and interest on our debt and our ability to make distributions to our security holders. From time to time, we may enter into interest rate swap agreements and other interest rate hedging contracts, including swaps, caps and floors. In addition, an increase in interest rates could decrease the amounts third parties are willing to pay for our assets, thereby limiting our ability to change our portfolio promptly in response to changes in economic or other conditions.
Off-balance Sheet Arrangements
As of June 30, 2022, we had letters of credit related to development projects and certain other agreements of approximately $3.6 million. As of June 30, 2022, we had no other material off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Our future income, cash flows and fair values relevant to financial instruments are dependent upon prevailing market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. The primary market risk we are exposed to is interest rate risk. We have used derivative financial instruments to manage, or hedge, interest rate risks related to our borrowings, primarily through interest rate swaps.
As of June 30, 2022, we had $1,091.0 million of variable rate debt outstanding. As of June 30, 2022, all of our outstanding variable rate debt, with the exception of our unsecured credit facility which had a balance of $116.0 million, was fixed with interest rate swaps through maturity. To the extent we undertake additional variable rate indebtedness, if interest rates increase, then so will the interest costs on our unhedged variable rate debt, which could adversely affect our cash flow and our ability to pay principal and interest on our debt and our ability to make distributions to our security holders. Further, rising interest rates
45
could limit our ability to refinance existing debt when it matures or significantly increase our future interest expense. From time to time, we enter into interest rate swap agreements and other interest rate hedging contracts, including swaps, caps and floors. While these agreements are intended to lessen the impact of rising interest rates on us, they also expose us to the risk that the other parties to the agreements will not perform, we could incur significant costs associated with the settlement of the agreements, the agreements will be unenforceable and the underlying transactions will fail to qualify as highly-effective cash flow hedges under GAAP. In addition, an increase in interest rates could decrease the amounts third parties are willing to pay for our assets, thereby limiting our ability to change our portfolio promptly in response to changes in economic or other conditions. In addition, an increase in interest rates could decrease the amounts third parties are willing to pay for our assets, thereby limiting our ability to change our portfolio promptly in response to changes in economic or other conditions. If interest rates increased by 100 basis points and assuming we had an outstanding balance of $116.0 million on our unsecured credit facility for the six months ended June 30, 2022, our interest expense would have increased by approximately $0.6 million for the six months ended June 30, 2022.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As required by SEC Rule 13a-15(b), we have evaluated, under the supervision of and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, as of June 30, 2022. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures for the periods covered by this report were effective to provide reasonable assurance that information required to be disclosed by our Company in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Controls
There was no change to our internal control over financial reporting during the quarter ended June 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II. Other Information
Item 1. Legal Proceedings
From time to time, we are a party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of our business. We are not currently a party, as plaintiff or defendant, to any legal proceedings which, individually or in the aggregate, would be expected to have a material effect on our business, financial condition or results of operations if determined adversely to our company.
Item 1A. Risk Factors
Other than the following, there have been no material changes from the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 16, 2022, as updated by our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 filed with the SEC on May 3, 2022.
Recent macroeconomic trends, including inflation and rising interest rates, may adversely affect our business, financial condition and results of operations.
During the six months ended June 30, 2022, inflation in the United States has accelerated and is currently expected to continue at an elevated level in the near-term. Rising inflation could have an adverse impact on any variable rate debt, including our unsecured credit facility, and general and administrative expenses, as these costs could increase at a rate higher than our rental and other revenue. The Federal Reserve has recently started raising interest rates to combat inflation and restore price stability and it is expected that rates will continue to rise throughout the remainder of 2022. As a result, to the extent our exposure to increases in interest rates is not eliminated through interest rate swaps or other protection agreements, such increases may result in higher debt service costs, which will adversely affect our cash flows.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Recent Sales of Unregistered Equity Securities
All issuances of unregistered securities during the three months ended June 30, 2022, if any, have been previously disclosed in filings with the SEC.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
| Exhibit Number | Description of Document | |||||||
| 10.1 | ||||||||
| 10.2 | ||||||||
| 10.3 | ||||||||
| 10.4 | ||||||||
| 31.1 * | ||||||||
| 31.2 * | ||||||||
| 32.1 ** | ||||||||
| 101.INS * | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |||||||
| 101.SCH * | Inline XBRL Taxonomy Extension Schema Document | |||||||
| 101.CAL * | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |||||||
| 101.DEF * | Inline XBRL Taxonomy Extension Definition Linkbase Document | |||||||
| 101.LAB * | Inline XBRL Taxonomy Extension Label Linkbase Document | |||||||
| 101.PRE * | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |||||||
| 104 * | Cover Page Interactive Date File (formatted as Inline XBRL and contained in Exhibit 101) | |||||||
* Filed herewith.
** Furnished herewith.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| STAG INDUSTRIAL, INC. | ||||||||
| Date: July 27, 2022 | BY: | /s/ MATTS S. PINARD | ||||||
| Matts S. Pinard | ||||||||
| Chief Financial Officer, Executive Vice President and Treasurer (Principal Financial Officer) | ||||||||
| BY: | /s/ JACLYN M. PAUL | |||||||
| Jaclyn M. Paul | ||||||||
| Chief Accounting Officer (Principal Accounting Officer) | ||||||||
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Exhibit 31.1
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, William R. Crooker, certify that:
1.I have reviewed this quarterly report on Form 10-Q of STAG Industrial, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: July 27, 2022 | /s/ WILLIAM R. CROOKER | ||||
William R. Crooker President and Chief Executive Officer | |||||
Exhibit 31.2
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Matts S. Pinard, certify that:
1.I have reviewed this quarterly report on Form 10-Q of STAG Industrial, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: July 27, 2022 | /s/ MATTS S. PINARD | ||||
Matts S. Pinard Chief Financial Officer, Executive Vice President and Treasurer | |||||
Exhibit 32.1
Certification Pursuant To
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of The Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of STAG Industrial, Inc. on Form 10-Q for the period ended June 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned officers of STAG Industrial, Inc., certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)the Report, containing the financial statements, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of STAG Industrial, Inc.
| Date: July 27, 2022 | /s/ WILLIAM R. CROOKER | ||||
William R. Crooker President and Chief Executive Officer | |||||
| /s/ MATTS S. PINARD | |||||
Matts S. Pinard Chief Financial Officer, Executive Vice President and Treasurer | |||||