Earnings Call Transcript - STAG Q1 2026

Operator, Operator

Greetings. Welcome to the STAG Industrial, Inc. First Quarter 2026 Earnings Conference Call. Operator instructions were provided to participants. Please note, this conference is being recorded. I will now turn the conference over to Steve Xiarhos, Vice President, Investor Relations. Please proceed, sir.

Steve Xiarhos, Vice President, Investor Relations

Thank you. Welcome to STAG Industrial's conference call covering the first quarter 2026 results. In addition to the press release distributed yesterday, we have posted an unaudited quarterly supplemental information presentation on the company's website at www.stagindustrial.com, under the Investor Relations section. On today's call, the company's prepared remarks and answers to your questions will contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters that are subject to risks and uncertainties and may cause actual results to differ from those discussed today. Examples of forward-looking statements include forecast of core FFO, same-store NOI, G&A, acquisition and disposition volumes, retention rates and other guidance, leasing prospects, rent collections, industry and economic trends and other matters. We encourage all listeners to review the more detailed discussion related to these forward-looking statements contained in the company's filings with the SEC and the definitions and reconciliations of non-GAAP measures contained in the supplemental information package available on the company's website. As a reminder, forward-looking statements represent management's estimates as of today. STAG Industrial assumes no obligation to update any forward-looking statements. On today's call, you will hear from Bill Crooker, our Chief Executive Officer; and Matts Pinard, our Chief Financial Officer. Also here with us today are Mike Chase, our Chief Investment Officer; and Steve Kimball, our Chief Operating Officer, who are available to answer questions specific to their areas of focus. I'll now turn it over to Bill.

William Crooker, Chief Executive Officer

Thank you, Steve. Good morning, everybody, and welcome to the first quarter earnings call for STAG Industrial. We are pleased to have you join us and look forward to discussing the first quarter 2026 results. Q1 industrial leasing velocity and volume were healthy, both market-wide and within STAG's portfolio. Year-over-year absorption continues to improve. Notably, the multiyear weakness in demand for big box product has reversed with vacancy in larger spaces decreasing in many markets. This has not been limited to larger spaces, however, with strong activity in the 150,000 to 250,000 square foot segment of the sector where STAG's portfolio predominantly sits. The market is benefiting from a more recent demand driver tied to the rapid acceleration of data center construction. 3PLs supporting these data center developments have resulted in a new segment of leasing demand for traditional warehouse facilities. Since the beginning of 2025, we have signed 8 leases totaling 1.6 million square feet to data center-related tenants. New supply also remains subdued with approximately 40% of new supply constructed for build-to-suit projects, above historical averages. We continue to expect national vacancy rates to peak in the coming months with an inflection point in the back half of 2026. Capital markets have remained stable to start the year and industrial product remains one of the most liquid asset classes. We see momentum in the transaction market with the pipeline growing and transaction volume increasing. Our internal pipeline has increased to $3.9 billion. In February, we acquired a 750,000 square foot building located in Platte City, Missouri for $80.7 million at a reported cap rate of 6.1%. The newly constructed Class A building features 36-foot clear height, ESFR, ample trailer parking and heavy power. Strategically located within a northwest submarket of Kansas City, the building benefits from close access to highways and the Kansas City International Airport. The building is 100% leased for 12 years with 3.2% annual rental escalators. In terms of our development platform, we have 7 buildings or 1.8 million square feet of development activity that is not in service as of the end of Q1. These buildings are in various stages of development and have an expected stabilized yield of 7.1%. Subsequent to quarter end, we have signed two new development leases. We agreed to a 73,000 square-foot lease at our casual drive development in Greenville. That building is now 100% leased. We also executed a lease totaling 45,000 square feet at one of our Charlotte development projects. That building is now 90% leased. With that, I will turn it over to Matts who will cover our remaining results and guidance for 2026.

Matts Pinard, Chief Financial Officer

Thank you, Bill, and good morning, everyone. Core FFO per share was $0.65 for the quarter, an increase of 6.6% as compared to last year. Leverage remains low, with net debt to annualized run rate adjusted EBITDA equal to 5. Liquidity stood at $806 million at quarter end. During the quarter, we commenced 37 leases across 6 million square feet, generating cash and straight-line leasing spreads of 20.9% and 39.6%, respectively. This is a quarterly record in terms of total operating portfolio square feet leased. Tenant demand is strong and in many industries, including air freight and logistics, retail and containers and packaging. Retention for the quarter was 69.5%, and we are maintaining our retention guidance of 70% to 80% for the year. As of today, 79% of our forecasted leasing for 2026 has been addressed at levels consistent with our initial guidance and at levels equal to our previous years at this point. We still expect cash leasing spreads of 18% to 20% this year. Same-store cash NOI grew 4.1% for the quarter. Credit loss was minimal for the first quarter as well. At this point, we are maintaining all guidance for the year. 2026 guidance can be found on Page 21 of our supplemental package, which is available within the Investor Relations section of the website. I will now turn it back over to Bill.

William Crooker, Chief Executive Officer

Thank you, Matts. I want to thank our team for the great start to 2026. STAG has set the foundation of sustainable growth in 2026 and will continue to benefit from a strong balance sheet, ample liquidity and broad market diversification. We will now turn it back to the operator for questions.

Operator, Operator

Operator instructions were provided to the participants. Our first question comes from Craig Mailman with Citigroup.

Craig Mailman, Analyst, Citigroup

Bill, you noted similar to peers that the leasing market is healthier here today. I'm just kind of curious, you guys did maintain retention guidance and quicker backfills on spaces that have come back to you or anything encouraging on that front because I know you guys were a little bit worried about that as a source of occupancy.

William Crooker, Chief Executive Officer

Yes. Thanks, Craig. Yes, it's certainly a higher lease expiration year. And that's driving our occupancy guidance for the year. With respect to what we're budgeting, it's still 9 to 12 months of lease-up time for assets when they go vacant. I will say we had good activity in Q4. That has continued in Q1. We had a large amount of square footage leased in Q1; it was 6 million square feet. So activity is really strong. We're seeing it from multiple industries. We're getting a lot of RFPs. It feels really good. But with all that being said, we have not changed our lease-up assumptions at this time. But the momentum from Q4 has continued into Q1 and into Q2.

Craig Mailman, Analyst, Citigroup

And then just a follow-up here. You mentioned, I think, 8 leases, 1.6 million square feet to data center supply tenants. What markets are you seeing that in predominantly? And do you think that this is concentrated in your portfolio or it grows a little bit as just the proliferation of data centers takes hold?

William Crooker, Chief Executive Officer

Yes, it certainly feels like it's going to continue to grow. I mean South Carolina, we're seeing a lot of it. We had three leases in South Carolina, two in the Greenville-Spartanburg market. Nashville—one of the leases we signed in Nashville was a data center-related tenant. And then we saw some in the Midwest: one lease in Wisconsin, we had a lease we signed in Ohio and also in Charlotte. So it's really the Southeast and Midwest markets where we're primarily seeing that demand. And that's where a lot of our portfolio is concentrated. So we anticipate further demand from data center-related tenants.

Craig Mailman, Analyst, Citigroup

Not to ask a third one, but like what types are they—3PLs? Or are they equipment manufacturers or servicers, who are you leasing to?

William Crooker, Chief Executive Officer

Yes. So one was a 3PL, one of the largest 3PLs in the world serving a major data center contract. We have some tenants that are distributing generators to data centers. We have some light assembly of racking and power conversion systems in one of them; one is manufacturing battery components. So it's a variety of things supporting data center developments and operations. These are long-term leases—the weighted average lease term is a little over eight years—and the leasing spreads we achieved on that 1.6 million square feet were about 35%. So good economics, long-term leases, strong credits backing these leases as well.

Operator, Operator

The next question comes from Michael Griffin with Evercore.

Michael Griffin, Analyst, Evercore

I appreciate the commentary on the leasing front. It seems like it's been a good start to the year. I realize you haven't— you've maintained your guide across the board. But maybe, Bill, if you can give us a sense of updated thoughts on market rent growth expectations. I think at the beginning of the year, it seemed like you were flat to up 2%. Does it feel like we're above the midpoint on that? I realize things can fluctuate around, but any commentary there would be helpful.

William Crooker, Chief Executive Officer

Yes. I mean, I think this is part of the theme of Q1 calls, especially with us, where we just put out our annual guidance a couple of months ago; we had pretty good insight into where things were trending to start the year. Activity is probably a little bit stronger than what we initially thought. But with all that being said, we maintain our guidance across all components. With respect to market rent growth, our guide was 0% to 2%. We're going to maintain that guidance at this time. That will likely trend higher on a quarterly basis as we move through the year as we see the market vacancy rate peak in the coming months. So everything is panning out as we thought a couple of months ago, maybe a little bit more optimism in the portfolio just given the activity we're seeing and the leases we're signing and the discussions we're having with tenants. But it's still early in the year—we're only a couple of months past our original guidance we put out.

Michael Griffin, Analyst, Evercore

Great. That's helpful. And then maybe for my follow-up, you're at about 80% of your 2026 leasing goal seems pretty good so far. I don't want to put the cart before the horse, obviously. But as you look to maybe 2027, are you starting to have those conversations? I mean does it feel like as you look even at the year ahead, you're running maybe ahead of where you were relative to expectations? Or anything you can glean on maybe those '27 conversations would be helpful.

William Crooker, Chief Executive Officer

Yes. It's a little early for 2027, but we do—especially for renewals—we start those conversations typically 12 months in advance. So when you look at the leasing plan, we're about 25% through that at this point, and that's pretty comparable to the last few years.

Operator, Operator

The next question comes from Nick Thillman with Baird.

Nicholas Thillman, Analyst, Baird

Maybe I wanted to touch a little bit on what you're seeing on the acquisition front. Is there any sort of change in the pool of assets you're looking at? Are you willing to take on increased development or value-add? Or is it a bucketed view—development, value-add versus core acquisitions and what you're underwriting today and how that sort of trended over the last 90 days or so?

William Crooker, Chief Executive Officer

Yes. I'll let Mike jump in in terms of what we're seeing broad-based. But with respect to identifying a certain profile of asset and focusing on that, we're fortunate enough that we've got the people, the processes and the systems in place to underwrite a large number of transactions. So we'll look at everything and depending on what meets our criteria and if we can meet the price, then we'll buy it. So it's not like we're going to shift materially into value-add or materially into long-term stabilized leases. We'll acquire what meets our investment criteria at that time, but we'll look at everything. Just one thing on the sourcing side: we did yesterday acquire a piece of land adjacent to one of our buildings in Dallas, Texas. The land is large enough to fit about a 340,000 square foot facility. We're going to start development of that facility shortly. That transaction is going to be about $38 million at a 7.4% yield on cost. So excited to get that going. And that's just an example. We're looking at a number of development opportunities. We're looking at a number of value-add opportunities, stabilized opportunities, some small portfolios. So it really depends on what meets the investment criteria. That PSA land is in Dallas, Texas. With that, I'll pass to Mike to share any more commentary on the market.

Michael Chase, Chief Investment Officer

Sure. And I think another thing just to mention on that piece of land is that's a committed build-to-suit where we already have the tenant committed for that building on the land that we just bought yesterday. Looking nationally, it was a strong end of 2025. Q4 came in from an investment sales perspective pretty strong. That's carried over into Q1 of 2026. So that stability and momentum in the capital markets has resulted in an increase in confidence from both buyers and sellers in the market. That has resulted in an uptick of deal flow, with more buyers coming off the sidelines and into the market. So there's been good deal flow that we've seen in Q1 and that's continuing into Q2.

William Crooker, Chief Executive Officer

Yes. You see that in our pipeline—our pipeline is $3.9 billion, about 70% of that is single transactions, 30% portfolios. And just on the seller side, those bid-ask spreads are pretty tight now. So we expect the overall industrial transaction market to pick up here as we move through Q2.

Michael Griffin, Analyst, Evercore

That's helpful. And then, Bill, I know you've mentioned some of these partnerships you've had with regional developers and it sounds like Dallas might be an opportunity that you just locked in as well. But longer term, are you thinking about getting a little bit more concentrated now that you're building these relationships with these developers? Are you being a little bit more submarket focused and looking for a bit more growth in certain end markets and underwriting that? Any commentary there would be helpful.

William Crooker, Chief Executive Officer

So backing up on the piece of land we bought, that was sourced by us. We had a tenant in our portfolio that's on an adjacent site that wanted to do a build-to-suit. So we were able to source the land and go through the approval process. That was done on balance sheet; it's not being partnered with anybody. With all of our developments, we look at the submarkets and make sure that those buildings fit the demand in those markets. These buildings meet the needs of the demand in these markets. We appreciate the partnerships we have with our development partners and we want to grow those. We're trying to grow those and, in some respects, we are growing those. There are also opportunities to expand partnerships with new partners. So all that's on the table. If you were to ask what's our best use of capital today, it's probably on the development side. Just as one example, in Dallas it's a 7.4% yield. So that's our best use of capital; it's harder to acquire land and it takes longer to develop. But we like the opportunity, and we'll do it either on balance sheet or with existing partners or with new partners.

Operator, Operator

Next question comes from Jason Belcher with Wells Fargo.

Jason Belcher, Analyst, Wells Fargo

I guess, first, Q1 same-store was pretty solid at 4.1%. The guidance was unchanged at 3%, suggesting somewhat of a possible slowdown. Can you talk about how you expect that to take shape or how we should be thinking about the cadence of that metric for the rest of the year?

Matts Pinard, Chief Financial Officer

Yes. So cash same-store of 4.1% in the first quarter is very healthy. What we know relates to the economic impact of occupancy decline. In the first quarter, occupancy decline was only partially reflected in the same-store number, meaning a good portion of the nonrenewals occurred near the end of the quarter. So the second quarter is going to reflect the full impact of that vacancy. Put differently, the 4.1% includes the impact of 60 basis points of average occupancy loss, not the 120 basis points of actual occupancy loss at period end. So that was related to the first quarter. The 4.1% does not account for the fact that this space was vacant for the entire subsequent quarter. The first quarter cash same-store was fully anticipated and was included in our guidance. As you said, we continue to expect cash same-store growth of 3% at the midpoint. So no change in the guidance. This was expected; it really comes down to the impact of occupancy over a full period.

Jason Belcher, Analyst, Wells Fargo

Great. And then secondly, could you just give us an update on where your embedded rent increases are trending for newly signed leases and also remind us what the average escalator is across the portfolio at this point?

Matts Pinard, Chief Financial Officer

Yes, absolutely. The weighted average escalator across the portfolio is 2.9%, almost 3%, and that's going to increase every quarter because every lease that we're signing starts anywhere in the 3% to 3.5% range—call it 3.25% on average for the leases that we are signing. So mathematically, that 2.9% will continue to increase.

Operator, Operator

The next question comes from Eric Borden with BMO.

Eric Borden, Analyst, BMO Capital Markets

Matts, you just touched on this a little bit about the same-store, but just on the occupancy front: you started off the year with positive leasing, but had a few known move-outs in the back end of the quarter. How should we be thinking about the quarterly occupancy cadence just for the balance of 2026, and as we look to the rest of the year, should we expect any additional known move-outs?

Matts Pinard, Chief Financial Officer

Yes. With the known move-outs, we didn't change our guidance. We're at 75% at the midpoint for retention, which is basically spot on what we've averaged as a public company and what you can see from other institutional-quality industrial portfolios. The same-store pool experienced 60 basis points of average occupancy loss and 120 basis points of period-end occupancy loss, resulting in 96.6% occupancy in the same-store pool, which is a healthy level. As Bill mentioned, our budgets assume 9 to 12 months of lease-up, so space that rolls vacant in our budget typically leases up next year, not this year. If we think about the cadence, we expect the trough in occupancy to occur in the second quarter with occupancy increasing during the second half of the year. That squares with our view that by the end of this year we'll start to see equilibrium and market rent growth acceleration. Again, the change in occupancy was fully anticipated; it's included in our initial guidance. We continue to expect average occupancy in the same-store pool to be 96.5% with no change to our guidance.

Eric Borden, Analyst, BMO Capital Markets

Great. And then just going back to the increasing data center demand, how are you guys thinking about underwriting that tenant base in terms of power availability, building specs, CapEx needs and credit duration versus your traditional warehouse timing?

William Crooker, Chief Executive Officer

One of the themes we're seeing across a lot of tenants is they want more power, whether that's now or in five years during their lease term—perhaps because they plan to automate their facility more. Power is certainly something tenants are looking for. With respect to the spaces that we lease to data center-related tenants, some of them had excess power and some did not. These are traditional warehouse shells being used for different uses. It's similar to examples we've seen before where a warehouse serves as regional distribution, then a light assembly tenant, and then warehousing again. These buildings can be used for multiple uses. We're just seeing an incremental demand driver from data center activity. Underwriting takes into account the power needs, any CapEx required, and the credit strength of the tenants, and generally these leases have been long term with solid credit profiles.

Operator, Operator

The next question comes from Jessica Zheng with Green Street.

Jessica Zheng, Analyst, Green Street

Just following up on the data center piece. For the construction tenants that service data centers on a longer-term basis, do you know if they're servicing multiple data centers in the area? And if not, do you know if they will be servicing data center operations after the construction completes? I'm curious about the sustainability of this new tailwind.

William Crooker, Chief Executive Officer

Yes. Some of them are servicing data centers that are already complete and are supporting ongoing operations. Some are servicing development activity. Some service multiple data centers and others service just one data center. But where these warehouses are located, there are multiple demand drivers within those markets. For example, we have at least two of these data center leases in the Greenville-Spartanburg market, which is one of our top markets—there's consumption in that market for warehousing and local distribution, regional distribution related to the inland port, data center demand, and the BMW plant that creates a lot of demand. So these are functional buildings that meet many demand drivers; the data center requirement is an incremental demand source.

Jessica Zheng, Analyst, Green Street

Okay. And then additionally, I was wondering if you could walk through your other markets and highlight the ones with relative strengths and weaknesses right now?

William Crooker, Chief Executive Officer

If you look at markets that are a little weaker, we have one asset in San Diego that's proving to be a little challenging now; Memphis is a little slower; Pittsburgh a little slower. Markets that have been improving the most include Greenville-Spartanburg and Charlotte. Some of our best markets recently have been Houston and Nashville, and the Midwest big-box distribution markets have really started to perform extremely well. Big-box leasing has been strong in markets like Columbus, Louisville and Indianapolis, where vacancy rates for big-box distribution are very low.

Operator, Operator

Next question comes from Henry Newell with RBC Capital Markets.

Henry Newell, Analyst, RBC Capital Markets

Just wondering about where you're seeing underlying private market valuation trends in your specific markets and if you're seeing them being impacted by broader macroeconomic or geopolitical factors at the moment?

William Crooker, Chief Executive Officer

If you're referring to cap rates, individual transactions are transacting at around where we're buying assets—sometimes 25 or 50 basis points inside of that, and that's why we don't win the deal. So they sometimes trade a little lower than what we're willing to pay. For portfolios, because there's still a lot of capital chasing this asset class, we're seeing a slight premium for portfolios—anywhere from a 25 to 50 basis point premium on private portfolio transactions.

Operator, Operator

At this time, I would like to turn the floor back to Mr. Crooker for closing comments.

William Crooker, Chief Executive Officer

Thanks, everybody, for participating in the call. We appreciate the questions and look forward to seeing you all soon. Thank you.

Operator, Operator

You may disconnect your lines at this time. Thank you for your participation, and have a great day.