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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
____________________________________________________________________________
 
FORM 10-Q 
____________________________________________________________________________
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Quarterly Period Ended September 30, 2020
 
OR
 
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from              to              .
 
Commission file number 1-34907
 
____________________________________________________________________________
 
STAG Industrial, Inc.
(Exact name of registrant as specified in its charter) 
____________________________________________________________________________
Maryland27-3099608
(State or other jurisdiction of(IRS Employer Identification No.)
incorporation or organization)
One Federal Street

23rd Floor
Boston,Massachusetts02110
(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 classTrading symbol(s)Name of each exchange on which registered
Common stock, $0.01 par value per shareSTAGNew York Stock Exchange
6.875% Series C Cumulative Redeemable Preferred Stock ($0.01 par value)STAG-PCNew York Stock Exchange

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.

Large accelerated filer      Accelerated filer       Non-accelerated filer      Smaller reporting company      Emerging growth company

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 November 4, 2020 was 149,230,244.



Table of Contents
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

Table of Contents
Part I. Financial Information
Item 1.  Financial Statements

STAG Industrial, Inc.
Consolidated Balance Sheets
(unaudited, in thousands, except share data)
 September 30, 2020December 31, 2019
Assets  
Rental Property:  
Land$447,356 $435,923 
Buildings and improvements, net of accumulated depreciation of $473,369 and $387,633, respectively
3,164,553 3,087,435 
Deferred leasing intangibles, net of accumulated amortization of $264,262 and $241,304, respectively
439,046 475,149 
Total rental property, net4,050,955 3,998,507 
Cash and cash equivalents70,137 9,041 
Restricted cash4,623 2,823 
Tenant accounts receivable66,761 57,592 
Prepaid expenses and other assets49,157 38,231 
Interest rate swaps 303 
Operating lease right-of-use assets24,124 15,129 
Assets held for sale, net 43,019 
Total assets$4,265,757 $4,164,645 
Liabilities and Equity  
Liabilities:  
Unsecured credit facility$ $146,000 
Unsecured term loans, net970,696 871,375 
Unsecured notes, net573,181 572,883 
Mortgage notes, net52,365 54,755 
Accounts payable, accrued expenses and other liabilities74,619 53,737 
Interest rate swaps45,812 18,819 
Tenant prepaid rent and security deposits23,413 21,993 
Dividends and distributions payable18,302 17,465 
Deferred leasing intangibles, net of accumulated amortization of $14,176 and $12,064, respectively
24,991 26,738 
Operating lease liabilities26,414 16,989 
Total liabilities1,809,793 1,800,754 
Commitments and contingencies (Note 11)
Equity:  
Preferred stock, par value $0.01 per share, 20,000,000 shares authorized at September 30, 2020 and December 31, 2019,
  
Series C, 3,000,000 shares (liquidation preference of $25.00 per share) issued and outstanding at September 30, 2020 and December 31, 2019
75,000 75,000 
Common stock, par value $0.01 per share, 300,000,000 shares authorized at September 30, 2020 and December 31, 2019, respectively, 149,227,013 and 142,815,593 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively
1,492 1,428 
Additional paid-in capital3,155,271 2,970,553 
Cumulative dividends in excess of earnings(782,037)(723,027)
Accumulated other comprehensive loss(45,055)(18,426)
Total stockholders’ equity2,404,671 2,305,528 
Noncontrolling interest51,293 58,363 
Total equity2,455,964 2,363,891 
Total liabilities and equity$4,265,757 $4,164,645 

The accompanying notes are an integral part of these consolidated financial statements.
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STAG Industrial, Inc.
Consolidated Statements of Operations
(unaudited, in thousands, except per share data)
 Three months ended September 30,Nine months ended September 30,
 2020201920202019
Revenue            
Rental income$117,247 $102,294 $353,057 $294,271 
Other income48 127 403 498 
Total revenue117,295 102,421 353,460 294,769 
Expenses   
Property20,817 18,157 63,156 54,623 
General and administrative9,537 8,924 29,316 26,723 
Depreciation and amortization53,921 46,908 160,215 133,844 
Loss on impairments3,172 4,413 3,172 9,757 
Other expenses436 458 1,500 1,284 
Total expenses87,883 78,860 257,359 226,231 
Other income (expense)   
Interest and other income 165 12 400 30 
Interest expense(15,928)(14,053)(46,125)(39,080)
Loss on extinguishment of debt  (834) 
Gain on involuntary conversion 1,500  2,157  
Gain on the sales of rental property, net9,060 1,670 56,864 3,261 
Total other income (expense)(5,203)(12,371)12,462 (35,789)
Net income$24,209 $11,190 $108,563 $32,749 
Less: income attributable to noncontrolling interest after preferred stock dividends466 290 2,471 912 
Net income attributable to STAG Industrial, Inc.$23,743 $10,900 $106,092 $31,837 
Less: preferred stock dividends1,289 1,289 3,867 3,867 
Less: amount allocated to participating securities68 78 204 236 
Net income attributable to common stockholders$22,386 $9,533 $102,021 $27,734 
Weighted average common shares outstanding — basic148,997 127,272 148,412 122,460 
Weighted average common shares outstanding — diluted149,905 127,469 148,865 122,720 
Net income per share — basic and diluted   
Net income per share attributable to common stockholders — basic$0.15 $0.07 $0.69 $0.23 
Net income per share attributable to common stockholders — diluted$0.15 $0.07 $0.69 $0.23 

The accompanying notes are an integral part of these consolidated financial statements.
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STAG Industrial, Inc.
Consolidated Statements of Comprehensive Income
(unaudited, in thousands)
 Three months ended September 30,Nine months ended September 30,
 2020201920202019
Net income$24,209 $11,190 $108,563 $32,749 
Other comprehensive income (loss):    
Income (loss) on interest rate swaps4,927 (6,435)(27,273)(29,441)
Other comprehensive income (loss)4,927 (6,435)(27,273)(29,441)
Comprehensive income29,136 4,755 81,290 3,308 
Income attributable to noncontrolling interest after preferred stock dividends(466)(290)(2,471)(912)
Other comprehensive (income) loss attributable to noncontrolling interest(145)176 644 930 
Comprehensive income attributable to STAG Industrial, Inc.$28,525 $4,641 $79,463 $3,326 

The accompanying notes are an integral part of these consolidated financial statements.
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STAG Industrial, Inc.
Consolidated Statements of Equity
(unaudited, in thousands, except share data)
 Preferred StockCommon StockAdditional Paid-in CapitalCumulative Dividends in Excess of EarningsAccumulated Other Comprehensive LossTotal Stockholders’ EquityNoncontrolling Interest - Unit Holders in Operating PartnershipTotal Equity
 SharesAmount
Three months ended September 30, 2020
Balance, June 30, 2020$75,000 148,941,121 $1,489 $3,148,163 $(750,770)$(49,837)$2,424,045 $56,272 $2,480,317 
Proceeds from sales of common stock, net—   (21)— — (21)— (21)
Dividends and distributions, net— — — — (55,010)— (55,010)(1,411)(56,421)
Non-cash compensation activity, net— 3,518  1,972  — 1,972 981 2,953 
Redemption of common units to common stock— 282,374 3 4,453 — — 4,456 (4,456)— 
Rebalancing of noncontrolling interest— — — 704 — — 704 (704)— 
Other comprehensive income— — — — — 4,782 4,782 145 4,927 
Net income— — — — 23,743 — 23,743 466 24,209 
Balance, September 30, 2020$75,000 149,227,013 $1,492 $3,155,271 $(782,037)$(45,055)$2,404,671 $51,293 $2,455,964 
Three months ended September 30, 2019
Balance, June 30, 2019$75,000 126,372,945 $1,264 $2,501,013 $(653,759)$(17,771)$1,905,747 $57,505 $1,963,252 
Proceeds from sales of common stock, net— 6,375,129 64 183,148 — — 183,212 — 183,212 
Dividends and distributions, net— — — — (47,465)— (47,465)(1,375)(48,840)
Non-cash compensation activity, net— 3,162  1,675  — 1,675 901 2,576 
Redemption of common units to common stock— 207,152 2 3,001 — — 3,003 (3,003)— 
Rebalancing of noncontrolling interest— — — (1,719)— — (1,719)1,719 — 
Other comprehensive loss— — — — — (6,259)(6,259)(176)(6,435)
Net income— — — — 10,900 — 10,900 290 11,190 
Balance, September 30, 2019$75,000 132,958,388 $1,330 $2,687,118 $(690,324)$(24,030)$2,049,094 $55,861 $2,104,955 
Nine months ended September 30, 2020
Balance, December 31, 2019$75,000 142,815,593 $1,428 $2,970,553 $(723,027)$(18,426)$2,305,528 $58,363 $2,363,891 
Proceeds from sales of common stock, net— 5,600,000 56 172,579 — — 172,635 — 172,635 
Dividends and distributions, net— — — — (164,712)— (164,712)(4,412)(169,124)
Non-cash compensation activity, net— 81,316 1 3,084 (390)— 2,695 4,577 7,272 
Redemption of common units to common stock— 730,104 7 11,535 — — 11,542 (11,542)— 
Rebalancing of noncontrolling interest— — — (2,480)— — (2,480)2,480 — 
Other comprehensive loss— — — — — (26,629)(26,629)(644)(27,273)
Net income— — — — 106,092 — 106,092 2,471 108,563 
Balance, September 30, 2020$75,000 149,227,013 $1,492 $3,155,271 $(782,037)$(45,055)$2,404,671 $51,293 $2,455,964 
Nine months ended September 30, 2019
Balance, December 31, 2018$75,000 112,165,786 $1,122 $2,118,179 $(584,979)$4,481 $1,613,803 $55,829 $1,669,632 
Leases cumulative effect adjustment— — — — (214)— (214)— (214)
Proceeds from sales of common stock, net— 19,997,332 201 567,876 — — 568,077 — 568,077 
Dividends and distributions, net— — — — (136,595)— (136,595)(5,247)(141,842)
Non-cash compensation activity, net— 134,188 1 2,198 (373)— 1,826 4,168 5,994 
Redemption of common units to common stock— 661,082 6 9,232 — — 9,238 (9,238)— 
Rebalancing of noncontrolling interest— — — (10,367)— — (10,367)10,367 — 
Other comprehensive loss— — — — — (28,511)(28,511)(930)(29,441)
Net income— — — — 31,837 — 31,837 912 32,749 
Balance, September 30, 2019$75,000 132,958,388 $1,330 $2,687,118 $(690,324)$(24,030)$2,049,094 $55,861 $2,104,955 
The accompanying notes are an integral part of these consolidated financial statements.
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STAG Industrial, Inc.
Consolidated Statements of Cash Flows
(unaudited, in thousands)
 Nine months ended September 30,
 20202019
Cash flows from operating activities:        
Net income$108,563 $32,749 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation and amortization160,215 133,844 
Loss on impairments3,172 9,757 
Gain on involuntary conversion (2,157) 
Non-cash portion of interest expense2,172 1,909 
Amortization of above and below market leases, net3,629 3,344 
Straight-line rent adjustments, net(8,170)(8,586)
Dividends on forfeited equity compensation 7 
Loss on extinguishment of debt834  
Gain on the sales of rental property, net(56,864)(3,261)
Non-cash compensation expense8,736 7,371 
Change in assets and liabilities:  
Tenant accounts receivable1,181 509 
Prepaid expenses and other assets(13,638)(10,525)
Accounts payable, accrued expenses and other liabilities15,038 8,834 
Tenant prepaid rent and security deposits1,420 (1,022)
Total adjustments115,568 142,181 
Net cash provided by operating activities224,131 174,930 
Cash flows from investing activities:  
Acquisitions of land and buildings and improvements(162,086)(616,647)
Additions of land and building and improvements(39,687)(40,193)
Acquisitions of other assets(450)(2,513)
Acquisitions of operating lease right-of-use assets(2,321) 
Proceeds from sales of rental property, net121,339 23,700 
Proceeds from involuntary conversion782  
Acquisition deposits, net(1,124)(1,190)
Acquisitions of deferred leasing intangibles(32,815)(128,832)
Acquisitions of operating lease liabilities 2,321  
Net cash used in investing activities(114,041)(765,675)
Cash flows from financing activities:  
Proceeds from unsecured credit facility387,000 768,000 
Repayment of unsecured credit facility(533,000)(790,500)
Proceeds from unsecured term loans400,000 175,000 
Repayment of unsecured term loans(300,000) 
Repayment of mortgage notes (2,485)(1,441)
Payment of loan fees and costs(1,129)(1,226)
Payment of defeasance fees and other costs (425) 
Proceeds from sales of common stock, net172,605 568,390 
Dividends and distributions(168,288)(139,303)
Repurchase and retirement of share-based compensation(1,472)(1,444)
Net cash provided by (used in) financing activities(47,194)577,476 
Increase (decrease) in cash and cash equivalents and restricted cash62,896 (13,269)
Cash and cash equivalents and restricted cash—beginning of period11,864 22,542 
Cash and cash equivalents and restricted cash—end of period$74,760 $9,273 
Supplemental disclosure:  
Cash paid for interest, net of capitalized interest$41,797 $35,372 
Supplemental schedule of non-cash investing and financing activities  
Acquisitions of land and buildings and improvements$(482)$(72)
Acquisitions of deferred leasing intangibles$(106)$(24)
Change in additions of land, building, and improvements included in accounts payable, accrued expenses, and other liabilities$(3,970)$(10,824)
Additions to building and other capital improvements from non-cash compensation$(24)$(59)
Change in loan fees, costs, and offering costs included in accounts payable, accrued expenses, and other liabilities$(1,020)$(314)
Leases cumulative effect adjustment$ $(214)
Dividends and distributions accrued$18,302 $16,293 
The accompanying notes are an integral part of these consolidated financial statements.
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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 September 30, 2020 and December 31, 2019, the Company owned a 97.8% and 97.5%, 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 and partnerships, including the Operating Partnership, except where context otherwise requires.

As of September 30, 2020, the Company owned 462 buildings in 38 states with approximately 92.3 million rentable square feet, consisting of 384 warehouse/distribution buildings, 70 light manufacturing buildings, and eight flex/office buildings.

COVID-19 Pandemic

Currently, one of the most significant risks and uncertainties facing the Company and the real estate industry generally is the potential adverse effect of 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. While the Company did not incur significant disruptions from the COVID-19 pandemic during the nine months ended September 30, 2020, a number of the Company’s tenants requested rent deferral or rent abatement as a result of the pandemic and other tenants may make requests in the future. The Company entered into a limited number of rent deferral agreements during the three and nine months ended September 30, 2020, which resulted in the recognition of approximately $0.4 million and $1.9 million of rent deferrals during the three and nine months ended September 30, 2020, respectively. The Company evaluates tenant rent relief requests on an individual basis, considering a number of factors. Not all tenant requests will ultimately result in modified agreements, nor is the Company foregoing its contractual rights under its lease agreements.

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, 2019.

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Basis of Presentation

The Company’s consolidated financial statements include the accounts of the Company, the Operating Partnership, and their 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 eliminated in the consolidation of entities. The financial statements of the Company are presented on a consolidated basis for all periods presented.

New Accounting Standards

In March 2020, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. During the quarter ended March 31, 2020, the Company elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur. We have not modified any contracts to date, however, we will evaluate any debt, derivative and lease contracts that are modified in the future to ensure they are eligible for modification relief and apply the practical expedients as needed.

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)September 30, 2020December 31, 2019
Cash and cash equivalents$70,137 $9,041 
Restricted cash4,623 2,823 
Total cash and cash equivalents and restricted cash$74,760 $11,864 

Taxes

Federal Income Taxes

The Company’s taxable REIT subsidiary recognized net income of approximately $0, $0, $0 and $0.3 million for the three and nine months ended September 30, 2020 and 2019, respectively, which has been included on the accompanying Consolidated Statements of Operations.

State and Local Income, Excise, and Franchise Tax

State and local income, excise, and franchise taxes in the amount of $0.4 million, $1.3 million, $0.3 million and $0.9 million have been recorded in other expenses on the accompanying Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019, respectively.

Uncertain Tax Positions

As of September 30, 2020 and December 31, 2019, there were no liabilities for uncertain tax positions.

Concentrations of Credit Risk

Management believes the current credit risk of the Company’s portfolio is reasonably well diversified and does not contain any unusual concentration of credit risk.

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3. Rental Property

The following table summarizes the components of rental property as of September 30, 2020 and December 31, 2019.

Rental Property (in thousands)September 30, 2020December 31, 2019
Land$447,356 $435,923 
Buildings, net of accumulated depreciation of $311,326 and $254,458, respectively
2,862,026 2,787,234 
Tenant improvements, net of accumulated depreciation of $23,641 and $21,487, respectively
39,495 38,339 
Building and land improvements, net of accumulated depreciation of $138,402 and $111,688, respectively
243,807 232,456 
Construction in progress19,225 29,406 
Deferred leasing intangibles, net of accumulated amortization of $264,262 and $241,304, respectively
439,046 475,149 
Total rental property, net$4,050,955 $3,998,507 

Acquisitions

The following table summarizes the acquisitions of the Company during the three and nine months ended September 30, 2020.

Market (1)
Date AcquiredSquare FeetNumber of BuildingsPurchase Price
(in thousands)
Detroit, MI