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EX-31.2 - EX-31.2 - STAG Industrial, Inc.stag-20150630ex3120d3882.htm
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EX-32.1 - EX-32.1 - STAG Industrial, Inc.stag-20150630ex321412658.htm

 

 

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 June 30, 2015

 

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)

 


 

 

 

 

Maryland

 

27-3099608

(State or other jurisdiction
of incorporation or organization)

 

(IRS Employer
Identification No.)

 

 

 

One Federal Street, 23rd Floor
Boston, Massachusetts

 

02110

(Address of principal executive offices)

 

(Zip Code)

 

(617) 574-4777

(Registrant’s telephone number, including area code)

 

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).  Yes   No 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  Check one:

 

 

 

 

Large accelerated filer 

 

Accelerated filer 

 

 

 

Non-accelerated filer 

 

Smaller reporting company 

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No 

 

Indicate the number of shares outstanding of each of the issuer’s classes of common and preferred stock as of the latest practicable date.

 

 

 

 

 

Class

 

Outstanding at July 20, 2015

 

Common Stock ($0.01 par value)

 

68,077,685 

 

9.0 % Series A Cumulative Redeemable Preferred Stock ($0.01 par value)

 

2,760,000 

 

6.625 % Series B Cumulative Redeemable Preferred Stock ($0.01 par value)

 

2,800,000 

 

 

 

 

 

 

 


 

STAG INDUSTRIAL, INC.

Table of Contents

 

 

 

 

 

PART I. 

Financial Information

3

 

 

 

Item 1. 

Financial Statements (unaudited)

3

 

 

 

 

Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014

3

 

 

 

 

Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2015 and 2014

4

 

 

 

 

Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2015 and 2014

5

 

 

 

 

Consolidated Statements of Equity for the Six Months Ended June 30, 2015 and 2014

6

 

 

 

 

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2015 and 2014

7

 

 

 

 

Notes to Consolidated Financial Statements

8

 

 

 

Item 2. 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

29

 

 

 

Item 3. 

Quantitative and Qualitative Disclosures about Market Risk

57

 

 

 

Item 4. 

Controls and Procedures

57

 

 

 

PART II. 

Other Information

58

 

 

 

Item 1. 

Legal Proceedings

58

 

 

 

Item 1A. 

Risk Factors

58

 

 

 

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

58

 

 

 

Item 3. 

Defaults Upon Senior Securities

58

 

 

 

Item 4. 

Mine Safety Disclosures

58

 

 

 

Item 5. 

Other Information

58

 

 

 

Item 6. 

Exhibits

59

 

 

 

 

SIGNATURE

60

 

 

2


 

Part I. Financial Information

Item 1. Financial Statements

 

STAG Industrial, Inc.

Consolidated Balance Sheets

(unaudited, in thousands, except share data)

 

 

 

 

 

 

 

 

 

 

 

    

June 30,

    

December 31,

 

 

 

2015

 

2014

 

Assets

 

 

 

 

 

 

 

Rental Property:

 

 

 

 

 

 

 

Land

 

$

213,732

 

$

191,238

 

Buildings and improvements, net of accumulated depreciation of $129,332 and $105,789, respectively

 

 

1,213,895

 

 

1,118,938

 

Deferred leasing intangibles, net of accumulated amortization of $176,789 and $146,026, respectively

 

 

256,413

 

 

247,904

 

Total rental property, net

 

 

1,684,040

 

 

1,558,080

 

Cash and cash equivalents

 

 

11,530

 

 

23,878

 

Restricted cash

 

 

7,959

 

 

6,906

 

Tenant accounts receivable, net

 

 

19,407

 

 

16,833

 

Prepaid expenses and other assets

 

 

24,810

 

 

22,531

 

Interest rate swaps

 

 

1,897

 

 

959

 

Due from related parties

 

 

99

 

 

130

 

Total assets

 

$

1,749,742

 

$

1,629,317

 

Liabilities and Equity

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

Unsecured credit facility

 

$

87,000

 

$

131,000

 

Unsecured term loans

 

 

150,000

 

 

150,000

 

Unsecured notes

 

 

300,000

 

 

180,000

 

Mortgage notes payable

 

 

227,904

 

 

225,347

 

Accounts payable, accrued expenses and other liabilities

 

 

23,778

 

 

21,558

 

Interest rate swaps

 

 

1,117

 

 

873

 

Tenant prepaid rent and security deposits

 

 

12,085

 

 

11,480

 

Dividends and distributions payable

 

 

8,032

 

 

7,355

 

Deferred leasing intangibles, net of accumulated amortization of $7,916 and $6,565, respectively

 

 

10,090

 

 

10,180

 

Total liabilities

 

 

820,006

 

 

737,793

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

Preferred stock, par value $0.01 per share, 10,000,000 shares authorized,

 

 

 

 

 

 

 

Series A, 2,760,000 shares (liquidation preference of $25.00 per share) issued and outstanding at June 30, 2015 and December 31, 2014

 

 

69,000

 

 

69,000

 

Series B, 2,800,000 shares (liquidation preference of $25.00 per share) issued and outstanding at June 30, 2015 and December 31, 2014

 

 

70,000

 

 

70,000

 

Common stock, par value $0.01 per share, 100,000,000 shares authorized, 67,925,438 and 64,434,825 shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively

 

 

679

 

 

644

 

Additional paid-in capital

 

 

1,010,379

 

 

928,242

 

Common stock dividends in excess of earnings

 

 

(258,897)

 

 

(203,241)

 

Accumulated other comprehensive income (loss)

 

 

97

 

 

(489)

 

Total stockholders’ equity

 

 

891,258

 

 

864,156

 

Noncontrolling interest

 

 

38,478

 

 

27,368

 

Total equity

 

 

929,736

 

 

891,524

 

Total liabilities and equity

 

$

1,749,742

 

$

1,629,317

 

 

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, 

 

 

 

2015

 

2014

 

2015

 

2014

 

Revenue

    

 

    

    

 

    

 

 

    

    

 

    

 

Rental income

 

$

45,220

 

$

35,203

 

$

88,470

 

$

69,321

 

Tenant recoveries

 

 

7,485

 

 

6,279

 

 

15,072

 

 

11,695

 

Other income

 

 

131

 

 

200

 

 

283

 

 

409

 

Total revenue

 

 

52,836

 

 

41,682

 

 

103,825

 

 

81,425

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

Property

 

 

10,071

 

 

8,606

 

 

20,316

 

 

16,591

 

General and administrative

 

 

7,495

 

 

8,283

 

 

15,024

 

 

13,758

 

Property acquisition costs

 

 

1,187

 

 

688

 

 

1,505

 

 

1,247

 

Depreciation and amortization

 

 

27,257

 

 

20,769

 

 

53,386

 

 

40,623

 

Loss on impairment

 

 

2,645

 

 

 —

 

 

2,645

 

 

 —

 

Other expenses

 

 

478

 

 

193

 

 

666

 

 

430

 

Total expenses

 

 

49,133

 

 

38,539

 

 

93,542

 

 

72,649

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

2

 

 

4

 

 

5

 

 

8

 

Interest expense

 

 

(8,933)

 

 

(5,813)

 

 

(16,943)

 

 

(11,479)

 

Gain on sale of rental property

 

 

 —

 

 

 —

 

 

 —

 

 

50

 

Total other income (expense)

 

 

(8,931)

 

 

(5,809)

 

 

(16,938)

 

 

(11,421)

 

Net loss from continuing operations

 

$

(5,228)

 

$

(2,666)

 

$

(6,655)

 

$

(2,645)

 

Net loss

 

$

(5,228)

 

$

(2,666)

 

$

(6,655)

 

$

(2,645)

 

Less: loss attributable to noncontrolling interest after preferred stock dividends

 

 

(397)

 

 

(310)

 

 

(592)

 

 

(766)

 

Net loss attributable to STAG Industrial, Inc.

 

$

(4,831)

 

$

(2,356)

 

$

(6,063)

 

$

(1,879)

 

Less: preferred stock dividends

 

 

2,712

 

 

2,712

 

 

5,424

 

 

5,424

 

Less: amount allocated to unvested restricted stockholders

 

 

95

 

 

83

 

 

196

 

 

171

 

Net loss attributable to common stockholders

 

$

(7,638)

 

$

(5,151)

 

$

(11,683)

 

$

(7,474)

 

Weighted average common shares outstanding — basic and diluted

 

 

65,285,388

 

 

52,865,801

 

 

64,788,561

 

 

49,023,985

 

Loss per share — basic and diluted

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations attributable to common stockholders

 

$

(0.12)

 

$

(0.10)

 

$

(0.18)

 

$

(0.15)

 

Loss per share — basic and diluted

 

$

(0.12)

 

$

(0.10)

 

$

(0.18)

 

$

(0.15)

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

4


 

STAG Industrial, Inc.

Consolidated Statements of Comprehensive Loss

(unaudited, in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended June 30,

 

Six months ended June 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

    

$

(5,228)

    

$

(2,666)

 

$

(6,655)

    

$

(2,645)

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) on interest rate swaps

 

 

4,621

 

 

(2,177)

 

 

616

 

 

(3,260)

 

Other comprehensive income (loss):

 

 

4,621

 

 

(2,177)

 

 

616

 

 

(3,260)

 

Comprehensive loss

 

 

(607)

 

 

(4,843)

 

 

(6,039)

 

 

(5,905)

 

Net loss attributable to noncontrolling interest after preferred stock dividends

 

 

397

 

 

310

 

 

592

 

 

766

 

Other comprehensive (income) loss attributable to noncontrolling interest

 

 

(232)

 

 

125

 

 

(30)

 

 

309

 

Comprehensive loss attributable to STAG Industrial, Inc.

 

$

(442)

 

$

(4,408)

 

$

(5,477)

 

$

(4,830)

 

 

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)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noncontrolling

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

Accumulated

 

 

 

 

Interest — Unit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

Dividends

 

Other

 

Total

 

Holders in

 

 

 

 

 

 

Preferred

 

Common Stock

 

Paid-in

 

in Excess of

 

Comprehensive

 

Stockholders'

 

Operating

 

Total

 

 

 

Stock

 

Shares

 

Amount

 

Capital

 

Earnings

 

Income (Loss)

 

Equity

 

Partnership

 

Equity

 

Six months ended June 30, 2015

  

 

    

  

    

  

 

    

  

 

    

  

 

    

  

 

    

  

 

    

  

 

    

  

 

    

 

Balance, December 31, 2014

 

$

139,000

 

64,434,852

 

$

644

 

$

928,242

 

$

(203,241)

 

$

(489)

 

$

864,156

 

$

27,368

 

$

891,524

 

Proceeds from sale of common stock

 

 

 —

 

3,305,397

 

 

33

 

 

71,793

 

 

 —

 

 

 —

 

 

71,826

 

 

 —

 

 

71,826

 

Offering costs

 

 

 —

 

 —

 

 

 —

 

 

(1,154)

 

 

 —

 

 

 —

 

 

(1,154)

 

 

 —

 

 

(1,154)

 

Issuance of restricted stock, net

 

 

 —

 

87,336

 

 

1

 

 

(1)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Issuance of common stock

 

 

 —

 

7,029

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Dividends and distributions, net

 

 

(5,424)

 

 —

 

 

 —

 

 

 —

 

 

(44,169)

 

 

 —

 

 

(49,593)

 

 

(2,413)

 

 

(52,006)

 

Non-cash compensation

 

 

 —

 

 —

 

 

 —

 

 

1,417

 

 

 —

 

 

 —

 

 

1,417

 

 

2,330

 

 

3,747

 

Redemption of common units to common stock

 

 

 —

 

90,824

 

 

1

 

 

1,002

 

 

 —

 

 

 —

 

 

1,003

 

 

(1,003)

 

 

 —

 

Redemption of common units for cash

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(64)

 

 

(64)

 

Issuance of units

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

21,902

 

 

21,902

 

Rebalancing of noncontrolling interest

 

 

 —

 

 —

 

 

 —

 

 

9,080

 

 

 —

 

 

 —

 

 

9,080

 

 

(9,080)

 

 

 —

 

Other comprehensive income

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

586

 

 

586

 

 

30

 

 

616

 

Net income (loss)

 

 

5,424

 

 —

 

 

 —

 

 

 —

 

 

(11,487)

 

 

 —

 

 

(6,063)

 

 

(592)

 

 

(6,655)

 

Balance, June 30, 2015

 

$

139,000

 

67,925,438

 

$

679

 

$

1,010,379

 

$

(258,897)

 

$

97

 

$

891,258

 

$

38,478

 

$

929,736

 

Six months ended June 30, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2013

 

$

139,000

 

44,764,377

 

$

447

 

$

577,039

 

$

(116,877)

 

$

3,440

 

$

603,049

 

$

71,515

 

$

674,564

 

Proceeds from sales of common stock

 

 

 —

 

5,188,072

 

 

52

 

 

119,313

 

 

 —

 

 

 —

 

 

119,365

 

 

 —

 

 

119,365

 

Offering costs

 

 

 —

 

 —

 

 

 —

 

 

(1,944)

 

 

 —

 

 

 —

 

 

(1,944)

 

 

 —

 

 

(1,944)

 

Issuance of restricted stock, net

 

 

 —

 

101,934

 

 

1

 

 

(1)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Issuance of common stock

 

 

 —

 

6,015

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Dividends and distributions, net

 

 

(5,424)

 

 —

 

 

 —

 

 

 —

 

 

(31,731)

 

 

 —

 

 

(37,155)

 

 

(2,902)

 

 

(40,057)

 

Non-cash compensation

 

 

 —

 

 —

 

 

 —

 

 

1,098

 

 

 —

 

 

 —

 

 

1,098

 

 

3,116

 

 

4,214

 

Redemption of common units to common stock

 

 

 —

 

5,093,584

 

 

51

 

 

54,425

 

 

 —

 

 

 —

 

 

54,476

 

 

(54,476)

 

 

 —

 

Redemption of common units for cash

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(342)

 

 

(342)

 

Rebalancing of noncontrolling interest

 

 

 —

 

 —

 

 

 —

 

 

(5,682)

 

 

 —

 

 

 —

 

 

(5,682)

 

 

5,682

 

 

 —

 

Other comprehensive loss

 

 

 —

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(2,951)

 

 

(2,951)

 

 

(309)

 

 

(3,260)

 

Net income (loss)

 

 

5,424

 

 —

 

 

 —

 

 

 —

 

 

(7,303)

 

 

 —

 

 

(1,879)

 

 

(766)

 

 

(2,645)

 

Balance, June 30, 2014

 

$

139,000

 

55,153,982

 

$

551

 

$

744,248

 

$

(155,911)

 

$

489

 

$

728,377

 

$

21,518

 

$

749,895

 

 

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,

 

 

 

2015

 

2014

 

 

 

 

 

 

 

 

 

Cash flows from operating activities:

    

 

    

    

 

    

 

Net loss

 

$

(6,655)

 

$

(2,645)

 

Adjustment to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

53,386

 

 

40,623

 

Non-cash portion of interest expense

 

 

507

 

 

658

 

Intangible amortization in rental income, net

 

 

4,280

 

 

3,019

 

Straight-line rent adjustments, net

 

 

(2,708)

 

 

(1,622)

 

Dividends on forfeited equity compensation

 

 

11

 

 

128

 

Loss on impairment

 

 

2,645

 

 

 —

 

Gain on sale of rental property

 

 

 —

 

 

(50)

 

Non-cash compensation expense

 

 

3,747

 

 

4,245

 

Change in assets and liabilities:

 

 

 

 

 

 

 

Tenant accounts receivable, net

 

 

37

 

 

1,267

 

Restricted cash

 

 

(508)

 

 

(500)

 

Prepaid expenses and other assets

 

 

(3,183)

 

 

(2,438)

 

Accounts payable, accrued expenses and other liabilities

 

 

1,753

 

 

(2,968)

 

Tenant prepaid rent and security deposits

 

 

605

 

 

1,068

 

Due from related parties

 

 

31

 

 

29

 

Total adjustments

 

 

60,603

 

 

43,459

 

Net cash provided by operating activities

 

 

53,948

 

 

40,814

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Acquisitions of land and buildings and improvements

 

 

(108,893)

 

 

(92,402)

 

Additions to building and other capital improvements

 

 

(4,594)

 

 

(3,811)

 

Additions to other assets

 

 

(565)

 

 

 —

 

Proceeds from sale of rental property, net

 

 

 —

 

 

473

 

Restricted cash

 

 

(545)

 

 

781

 

Acquisition deposits, net

 

 

1,095

 

 

(178)

 

Acquisitions of deferred leasing intangibles

 

 

(32,907)

 

 

(25,472)

 

Net cash used in investing activities

 

 

(146,409)

 

 

(120,609)

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Redemption of common units for cash

 

 

(64)

 

 

(342)

 

Proceeds from unsecured credit facility

 

 

100,000

 

 

51,500

 

Repayment of unsecured credit facility

 

 

(144,000)

 

 

(96,500)

 

Proceeds from unsecured term loans

 

 

 —

 

 

50,000

 

Proceeds from unsecured notes

 

 

120,000

 

 

 —

 

Repayment of mortgage notes payable

 

 

(14,124)

 

 

(2,208)

 

Payment of loan fees and costs

 

 

(1,038)

 

 

(1,386)

 

Dividends and distributions

 

 

(51,339)

 

 

(39,349)

 

Proceeds from sales of common stock

 

 

71,827

 

 

119,365

 

Offering costs

 

 

(1,149)

 

 

(1,944)

 

Net cash provided by financing activities

 

 

80,113

 

 

79,136

 

Decrease in cash and cash equivalents

 

 

(12,348)

 

 

(659)

 

Cash and cash equivalents—beginning of period

 

 

23,878

 

 

6,690

 

Cash and cash equivalents—end of period

 

$

11,530

 

$

6,031

 

Supplemental disclosure:

 

 

 

 

 

 

 

Cash paid for interest

 

$

14,412

 

$

10,858

 

Supplemental schedule of non-cash investing and financing activities

 

 

 

 

 

 

 

Issuance of units for acquisitions of land and buildings and improvements

 

$

16,873

 

$

 —

 

Issuance of units for acquisitions of deferred leasing intangibles

 

$

5,029

 

$

 —

 

Acquisitions of land and buildings and improvements

 

$

(29,731)

 

$

 —

 

Acquisitions of deferred leasing intangibles

 

$

(8,940)

 

$

 —

 

Change in additions of land and building and improvements included in accounts payable, accrued expenses, and other liabilities

 

$

(646)

 

$

(1,405)

 

Assumption of mortgage notes payable

 

$

16,624

 

$

 —

 

Fair market value adjustment to mortgage notes payable acquired

 

$

145

 

 

 —

 

Change in loan fees and costs and offering costs included in accounts payable, accrued expenses, and other liabilities

 

$

(82)

 

$

(102)

 

Dividends and distributions declared but not paid

 

$

8,032

 

$

6,003

 

 

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 management 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 “Code”).  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, 2015 and December 31, 2014, the Company owned a 95.13% and 96.36%, 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 June 30, 2015, the Company owned 265 buildings in 37 states with approximately 50.0 million square feet, consisting of 194 warehouse/distribution buildings, 51 light manufacturing buildings and 20 flex/office buildings.  The Company also owned four vacant land parcels adjacent to four of the Company’s buildings. Subject to receipt of any required governmental permits, these vacant parcels may be used for building expansion or otherwise sold as developable parcels. The Company’s buildings were approximately 95.0% leased to 242 tenants as of June 30, 2015.

 

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 presentation 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, 2014.

 

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 and long term incentive plan units (“LTIP units”) issued pursuant to the STAG Industrial, Inc. 2011 Equity Incentive Plan, as amended (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.

 

8


 

Reclassifications and New Accounting Pronouncements

 

Certain prior year amounts have been reclassified to conform to the current year presentation.

 

In April of 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-03, Simplifying the Presentation of Debt Issuance Costs. ASU 2015-03 requires incremental debt issuance costs paid to third parties other than the lender to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability. Prior to this standard, debt issuance costs paid to third parties other than the lender were presented as an asset on the balance sheet. ASU 2015-03 is effective for the annual period ending December 31, 2016 and for annual periods and interim periods thereafter with early adoption permitted. Upon the adoption of ASU 2015-03, the Company will present debt issuance costs paid to third parties other than the lender as a direct deduction from the carrying value of the associated debt liability.

In August of 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. ASU 2014-15 requires management to evaluate whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern, and to provide certain disclosures when it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued. ASU 2014-15 is effective for the annual period ending December 31, 2016 and for annual periods and interim periods thereafter with early adoption permitted. The adoption of ASU 2014-15 is not expected to materially impact the Company’s consolidated financial statements.

In May of 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. Revenue from a lease contract with a tenant is not within the scope of this revenue standard. In adopting ASU 2014-09, companies may use either a full retrospective or a modified retrospective approach. Additionally, this guidance requires improved disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. ASU 2014-09 is effective for the first interim period within annual reporting periods beginning after December 15, 2017. Early adoption is permitted for the first interim period within annual reporting periods beginning after December 15, 2016. The Company is currently in the process of evaluating the impact the adoption of ASU 2014-09 will have on the Company’s financial position or results of operations.

Tenant Accounts Receivable, net

 

Tenant accounts receivable, net on the Consolidated Balance Sheets, includes both tenant accounts receivable, net and accrued rental income, net. The Company provides an allowance for doubtful accounts against the portion of tenant accounts receivable that is estimated to be uncollectible. As of June 30, 2015 and December 31, 2014, the Company had an allowance for doubtful accounts of $0.3 million and $0.1 million, respectively.

 

The Company accrues rental income earned, but not yet receivable, in accordance with GAAP. As of June 30, 2015 and December 31, 2014, the Company had accrued rental income of $15.4 million and $12.8 million, respectively. The Company maintains an allowance for estimated losses that may result from those revenues. If a tenant fails to make contractual payments beyond any allowance, the Company may recognize additional bad debt expense in future periods equal to the amount of unpaid rent and accrued rental income. As of June 30, 2015 and December 31, 2014, the Company had an allowance for estimated losses on accrued rental income of $0 and $0, respectively.

 

As of June 30, 2015 and December 31, 2014, the Company had a total of approximately $6.2 million and $6.7 million, respectively, of total lease security deposits available in the form of existing letters of credit, which are not reflected on the Company’s Consolidated Balance Sheets; and $3.9 million and $3.5 million, respectively, of lease security deposits available in cash, which are included in cash and cash equivalents and restricted cash on the accompanying Statements of Consolidated Balance Sheets. These funds may be used to settle tenant accounts receivables in the event of a default under the related lease.

 

9


 

Revenue Recognition

 

Tenant Recoveries

 

By the terms of their leases, certain tenants are obligated to pay directly the costs of their properties’ insurance, real estate taxes, ground lease payments, and certain other expenses, and these costs are not reflected on the Company’s consolidated financial statements. To the extent any tenant responsible for these costs under its respective lease defaults on its lease or it is deemed probable that the tenant will fail to pay for such costs, the Company would record a liability for such obligation. The Company estimates that real estate taxes, which are the responsibility of these certain tenants, were approximately $2.7 million, $5.2 million, $2.5 million and $5.0 million for the three and six months ended June 30, 2015 and June 30, 2014, respectively. These amounts would have been the maximum expense of the Company had the tenants not met their contractual obligations for these periods. The Company does not recognize recovery revenue related to leases where the tenant has assumed the cost for real estate taxes, insurance, ground lease payments and certain other expenses.

 

Termination Income

 

On December 17, 2014, the Company entered into a first lease amendment with the tenant located at the Belfast, ME buildings. The terms of the amendment renewed 90,051 square feet of the premise and early terminated the remaining 228,928 square feet effective November 30, 2015. The tenant is required to pay a termination fee for the returned premise on or before October 31, 2015 in the amount of $2.1 million. On May 18, 2015, the Company entered into a second amendment with the tenant. The terms of the second lease amendment accelerated the termination of 35,295 square feet to April 30, 2015. The Company recognized the termination fee associated with the 35,295 square feet through the shortened lease life of April 30, 2015. The Company continues to recognize the remaining termination fee over the shortened lease life of the remaining 193,633 square feet through November 30, 2015. The termination fee of $0.7 million and $1.2 million for the three and six months ended June 30, 2015, respectively, is included in rental income on the accompanying Consolidated Statements of Operations.

 

Taxes

 

Federal Income Taxes

 

The Company elected to be taxed as a REIT under the Code commencing with its taxable year ended December 31, 2011 and intends to continue to qualify as a REIT. As a REIT, the Company is required to distribute at least 90% of its REIT taxable income to its stockholders and meet the various other requirements imposed by the Code relating to such matters as operating results, asset holdings, distribution levels and diversity of stock ownership. The Company is generally not subject to corporate level income tax on the earnings distributed currently to its stockholders that it derives from its REIT qualifying activities.

 

The Company will not be required to make distributions with respect to income derived from the activities conducted through subsidiaries that the Company elects to treat as taxable REIT subsidiaries (“TRS”) for federal income tax purposes. Certain activities that the Company undertakes must or should be conducted by a TRS, such as performing non-customary services for its tenants and holding assets that it cannot hold directly. A TRS is subject to federal and state income taxes.  The Company’s TRS had no activity during the three and six months ended June 30, 2015 and June 30, 2014.

 

State and Local Income, Excise, and Franchise Tax

 

The Company and certain of its subsidiaries are subject to certain state and local income, excise and franchise taxes.  Taxes in the amount of $0.4 million, $0.5 million, $0.1 million and $0.3 million have been recorded in other expenses in the accompanying Consolidated Statements of Operations for the three and six months ended June 30, 2015 and June 30, 2014, respectively.

 

10


 

Uncertain Tax Positions

 

Tax benefits of uncertain tax positions are recognized only if it is more likely than not that the tax position will be sustained based solely on its technical merits, with the taxing authority having full knowledge of all relevant information. The measurement of a tax benefit for an uncertain tax position that meets the “more likely than not” threshold is based on a cumulative probability model under which the largest amount of tax benefit recognized is the amount with a greater than 50% likelihood of being realized upon ultimate settlement with the taxing authority having full knowledge of all the relevant information.  As of June 30, 2015 and December 31, 2014, there were no liabilities for uncertain tax positions.

 

3. Rental Property

 

The following table summarizes the components of rental property as of June 30, 2015 and December 31, 2014 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

    

June 30, 2015

    

December 31, 2014

 

Land

 

$

213,732

 

$

191,238

 

Buildings, net of accumulated depreciation of $90,883 and $75,116, respectively

 

 

1,129,601

 

 

1,042,086

 

Tenant improvements, net of accumulated depreciation of $24,070 and $20,943, respectively

 

 

22,339

 

 

22,619

 

Building and land improvements, net of accumulated depreciation of $14,379 and $9,730, respectively

 

 

61,955

 

 

54,233

 

Deferred leasing intangibles, net of accumulated amortization of $176,789 and $146,026, respectively

 

 

256,413

 

 

247,904

 

Total rental property, net

 

$

1,684,040

 

$

1,558,080

 

 

Acquisitions

 

The following table summarizes the acquisitions of the Company during the six months ended June 30, 2015:

 

 

 

 

 

 

 

 

 

 

 

Location of property

 

Square Feet

    

Buildings

 

 

Purchase Price (in thousands)

 

Burlington, NJ(1)

 

503,490

 

1

 

$

34,883

 

Greenville, SC

 

157,500

 

1

 

 

4,800

 

North Haven, CT

 

824,727

 

3

 

 

57,400

 

Three months ended March 31, 2015

 

1,485,717

 

5

 

$

97,083

 

Plymouth, MI

 

125,214

 

1

 

 

6,000

 

Oakwood Village, OH

 

75,000

 

1

 

 

4,398

 

Stoughton, MA

 

250,213

 

2

 

 

10,675

 

Oklahoma City, OK

 

223,340

 

1

 

 

12,135

 

Clinton, TN(1)

 

166,000

 

1

 

 

5,000

 

Knoxville, TN

 

108,400

 

1

 

 

4,750

 

Fairborn, OH

 

258,680

 

1

 

 

9,100

 

El Paso, TX

 

126,456

 

1

 

 

9,700

 

Phoenix, AZ

 

102,747

 

1

 

 

9,500

 

Charlotte, NC

 

123,333

 

1

 

 

7,500

 

Machesney Park, IL

 

80,000

 

1

 

 

5,050

 

Three months ended June 30, 2015

 

1,639,383

 

12

 

$

83,808

 

Six months ended June 30, 2015

 

3,125,100

 

17

 

$

180,891

 


(1)

The Company also acquired a vacant land parcel adjacent to the building. Subject to receipt of any required governmental permits, this vacant parcel may be used for building expansion or otherwise sold as a developable parcel.

 

11


 

The following table summarizes the allocation of the consideration paid at the date of acquisition during the six months ended June 30, 2015 for the acquired assets and liabilities in connection with the acquisitions of buildings identified in the table above.

 

 

 

 

 

 

 

 

 

 

    

 

 

    

Weighted Average

    

 

 

 

 

 

Amortization

 

 

 

 

Six Months Ended 

 

Period (years)

 

 

Acquired assets and liabilities (dollars in thousands)

 

June 30, 2015

 

Intangibles

 

 

Land

 

$

23,229

 

N/A

 

 

Buildings

 

 

104,906

 

N/A

 

 

Tenant improvements

 

 

2,860

 

N/A

 

 

Building and land improvements

 

 

7,629

 

N/A

 

 

Deferred leasing intangibles - In-place leases

 

 

25,177

 

5.9

 

 

Deferred leasing intangibles - Tenant relationships

 

 

13,365

 

8.5

 

 

Deferred leasing intangibles - Above market leases

 

 

4,566

 

7.7

 

 

Deferred leasing intangibles - Below market leases

 

 

(1,261)

 

6.5

 

 

Above market assumed debt adjustment

 

 

(145)

 

1.1

 

 

Other assets

 

 

565

 

N/A

 

 

Total purchase price

 

$

180,891

 

 

 

 

Less: Mortgage notes payable assumed

 

 

(16,624)

 

N/A

 

 

Net assets acquired

 

$

164,267

 

 

 

 

 

On January 22, 2015, the Company acquired a property located in Burlington, NJ for approximately $34.9 million. As partial consideration for the property acquired, the Company granted 812,676 Noncontrolling Common Units in the Operating Partnership with a fair value of approximately $21.9 million, and the remaining purchase price of approximately $13.0 million was paid by $1.2 million in cash and the assumption of an $11.8 million mortgage note. The mortgage note was immediately paid in full in conjunction with the acquisition. For a discussion of the method used to determine the fair value of the Noncontrolling Common Units issued, see Note 7.

On June 25, 2015, the Company assumed a mortgage note of approximately $4.9 million in connection with the acquisition of the property located in Charlotte, NC. For a discussion of the method used to determine the fair value of the mortgage note, see Note 4.

The table below sets forth the results of operations for the properties acquired during the six months ended June 30, 2015 included in the Company’s Consolidated Statements of Operations from the date of acquisition: