STAG Industrial Reports Solid Q1 2025 Results
Taking a Look at STAG Industrial's (STAG) Earnings Results.
STAG Industrial (STAG) had a relatively strong first quarter. The industrial REIT delivered improved earnings and cash flow, steady leasing gains, and maintained a solid balance sheet – all of which set a positive tone for the year. Below, I’ll look at the key highlights from STAG’s Q1 2025 results, examine trends in leasing and development, evaluate the balance sheet strength, and share my take on the company’s performance and valuation.
Key Highlights
Earnings Growth: Net income was $91.3M (or $0.49 per share) in Q1, a sharp increase from $36.6M ($0.20 per share) in the year-ago quarter. Core FFO (funds from operations) came in at $0.61 per share, up ~3% year-over-year, reflecting steady growth in recurring earnings.
Strong Cash Flows: Cash NOI (net operating income) grew 8.1% YoY to $157.2M, while same-store cash NOI rose 3.4%, indicating healthy organic growth from the existing portfolio. Cash available for distribution (CAD) was $106.5M, up 8.5% year-over-year – a healthy increase that comfortably supports STAG’s dividend.
High Occupancy & Retention: Portfolio occupancy stood at 95.9% (96.8% for the operating portfolio) as of March 31, 2025, indicating very high utilization of STAG’s properties. Tenant retention was 85.3% on 5.5M sq. ft. of leases expiring during the quarter, demonstrating strong tenant relationships and demand for renewals.
Robust Leasing Spreads: STAG commenced 5.0M sq. ft. of new and renewed leases in Q1, achieving impressive rent increases. Cash rent spreads on these lease commencements averaged +27.3% (with an even higher 42.1% increase on a straight-line basis), illustrating the company’s strong pricing power in the current industrial real estate market. Furthermore, as of late April, management had already addressed ~78.5% of its total expected leasing for full-year 2025 (11.3M sq. ft.) at an average cash rent increase of ~25%, positioning the portfolio for continued growth.
Active Capital Recycling: STAG acquired three industrial properties in Q1 for a total of $43.3M, at a cash cap rate around 6.8% – indicating attractive yields on new investments. The company also sold one property for $67M at a 4.9% cap rate, realizing a $49.9M gain. This sale at a premium valuation not only boosted net income for the quarter but exemplifies STAG’s ability to profitably recycle capital by pruning lower-yield assets and reinvesting in higher-yield opportunities.
Development Progress: In Q1, STAG signed a lease for 102,000 sq. ft. of warehouse space at its development project in Wellford, South Carolina. This effectively pre-leased the new facility, demonstrating successful execution in the company’s development pipeline. Signing a major tenant at this early stage helps de-risk the project and will generate incremental revenue once the development is completed.
Leasing Trends
Leasing momentum for STAG Industrial remained very strong in the first quarter. Occupancy held near record highs at roughly 96%, and the company is capturing robust rent uplifts as tenants roll over. Achieving cash rent spreads in the mid-20% range on 5 million square feet of leases is a clear sign that market rents have significantly grown and STAG’s properties are in demand. Such healthy leasing spreads contribute directly to growth in NOI and FFO as old leases expire and new ones commence at higher rates. The fact that STAG retained over 85% of expiring tenants in Q1 also underscores that tenants are finding value in STAG’s spaces and choosing to renew despite those rent increases – a testament to the quality and location of the portfolio.
Management has been proactive in addressing upcoming lease expirations. By April 28, 2025 (just a month after Q1), they had already locked in over three-quarters of all leases slated to expire or commence in 2025, at an average 25% cash rent increase. This early leasing activity not only reduces uncertainty for the remainder of the year but also solidifies the company’s income growth trajectory. In practice, it means STAG has less leasing to worry about for the rest of 2025, allowing management to turn its focus toward 2026 opportunities and new acquisitions.
It’s worth noting the broader market context as well. Industrial real estate demand remains solid, driven by trends like e-commerce and supply chain reconfiguration. STAG’s management did acknowledge that macroeconomic uncertainties – for example, inflation or global trade frictions – can cause some tenants to take a bit longer in making real estate decisions. However, they also highlighted that many tenants are prioritizing supply chain diversification (including near-shoring or regionalizing their distribution) to mitigate those macro risks. STAG’s geographically diverse portfolio appears to be benefiting from this trend, as companies seek distribution space across various markets. In short, while the industrial sector isn’t completely immune to economic headwinds, the company is still seeing plentiful tenant demand and tour activity for its vacancies, even if deal timelines have lengthened slightly. The 500,000 sq. ft. lease the company executed in Savannah with zero downtime (immediately re-leasing a full building upon expiration) is a prime example of how resilient the demand is for their properties. These leasing trends give confidence that they can continue to push rents and maintain high occupancy in the coming quarters.
Development
Unlike some larger industrial REITs, STAG has historically focused more on acquisitions than ground-up development. However, the company is selectively pursuing development projects to complement growth, and Q1 brought a notable success on this front. The development in Wellford, SC (452 Casual Drive) reached a major milestone with the signing of a 102,000 sq. ft. lease for that upcoming warehouse/distribution facility. This is a significant portion of the project’s space (likely the entire building or a large part of it), effectively securing an income stream well in advance of the project’s completion.
This early lease signing is important for a couple of reasons. First, it de-risks the development – one of the biggest concerns with any speculative construction is finding tenants, and STAG has already accomplished that, mitigating the risk of having an empty new building. Second, it validates STAG’s foray into development by proving there is tenant demand for the product they’re delivering. The Wellford project is in South Carolina, a market benefiting from growth in manufacturing and logistics (the Southeast has seen many companies expand their distribution networks). Landing a tenant there before the paint is dry shows that STAG can successfully execute developments in addition to buying properties.
Overall, STAG’s development pipeline remains modest relative to its total portfolio – they are not taking outsized development risk, but rather using it as a strategic supplement to acquisitions. With the South Carolina project now substantially pre-leased, STAG can approach future development opportunities with greater confidence. It’s a positive sign that management is willing to pursue development when it makes sense, and thus far they’re doing so in a disciplined way that aligns with tenant demand.
Balance Sheet
Also, their balance sheet continues to be a source of strength and stability. The company ended Q1 with net debt at approximately 5.2× Annualized EBITDAre, which equates to a moderate leverage level (roughly in the low 30% range relative to asset values). This is comfortably within management’s targeted leverage and well under the covenants on its unsecured debt (for instance, STAG’s consolidated debt ratio was about 29% vs. an allowed ceiling of 60%). In practical terms, STAG is not over-leveraged; it has ample equity cushion and the flexibility to borrow more if needed for growth.
Liquidity stood at about $493M as of March 31, 2025, comprising cash on hand plus undrawn capacity on the credit facility. This provides plenty of dry powder for future acquisitions, development costs, or other corporate needs. In fact, STAG demonstrated its financial flexibility by handling debt maturities and issuances with ease. During Q1, the company repaid a $100M senior unsecured note at maturity (using available cash or credit lines). Then, shortly after the quarter (in April), STAG capitalized on favorable debt markets to raise $550M in new senior unsecured notes through a private placement. These new notes have a weighted average fixed interest rate of roughly 5.65% and staggered maturities of 5, 8, and 10 years, extending STAG’s debt duration at reasonable financing costs. By refinancing and adding capital in this manner, STAG has locked in long-term debt funding to support its growth while interest rates are still relatively attractive for investment-grade borrowers.
Another point to highlight is STAG’s entirely unsecured debt structure (virtually no mortgages on individual properties). With essentially all its debt being corporate-level unsecured bonds or bank debt, STAG has maximum flexibility with its portfolio and avoids encumbering assets. The balance sheet is further bolstered by a lack of near-term large maturities, especially after the recent note issuance which pushed out debt obligations. Overall, STAG’s financial position is rock-solid: leverage is moderate, liquidity is ample, and the company retains excellent access to capital. This conservative balance sheet management is a key advantage, especially in a rising interest rate environment – STAG can fund growth and navigate economic cycles without straining its finances.
Valuation
With the stock trading around ~$35 per share, the valuation appears reasonable and roughly in line with its fundamentals. By my estimates, the current price is very close to the company’s intrinsic value. Let’s break that down a bit:
FFO Multiple: At $35, STAG is valued at approximately 14.6× its annual FFO per share (using the 2024 Core FFO of about $2.40 as a baseline). This earnings multiple is just a hair below the broader industrial REIT sector average of roughly 15× FFO. It also represents a discount to blue-chip peer Prologis (which trades above 20×), although Prologis owns more high-end logistics facilities in primary markets. STAG’s slightly lower multiple is likely due to its focus on secondary markets and single-tenant properties, which investors historically value a bit lower. However, a 14-15× FFO multiple is not at all demanding – it’s a fair reflection of STAG’s steady mid-single-digit growth profile. If anything, there’s room for a little multiple expansion if STAG continues to deliver consistent results; even moving to 16× FFO would put the stock price in the upper-$30s.
Net Asset Value (NAV): Another way I gauge valuation is by looking at NAV, essentially the private-market value of STAG’s real estate minus its debt. Using a reasonable cap rate around 6.2% (in line with recent transaction yields for industrial properties), I estimate STAG’s NAV at roughly $36 per share. This means that the stock is trading right around its underlying real estate value. If cap rates were to compress a bit (say to 6.0%), the NAV would tick up toward the high-$30s; if they soften to 7%, NAV would dip to the low-$30s. So again, the current market price implies investors are neither drastically overpaying nor underpaying for STAG’s assets at present. It’s essentially fair value.
Considering both these perspectives, STAG’s stock seems fairly valued in the mid-$30s, with perhaps a moderate upside into the high-$30s over the next year or two if business trends remain favorable. The lack of a big discount means STAG isn’t a screaming bargain at this price – most of the good news is already reflected in the valuation. That said, paying a fair price for a quality company is not a bad thing. Investors buying STAG today are getting a solid ~4% dividend yield (the stock’s annual dividend is $1.49, paid monthly) and likely mid-single-digit FFO growth, which together can deliver a high-single-digit total return annually. There’s potential for a bit more if the market eventually assigns STAG a higher multiple or if growth comes in stronger than expected, but my base case assumes a fairly steady trajectory.
In summary, I view the current valuation as justified and balanced. It offers an attractive income stream and a chance for gradual appreciation, but it’s not deeply undervalued. For a long-term investor, owning STAG at around its NAV and a market-average FFO multiple is a reasonable proposition given the company’s consistency.
My Take
In my view, STAG Industrial delivered a very solid performance to start 2025. The results show a company firing on all cylinders. Core FFO per share rose modestly and is covering the dividend with room to spare, which is exactly what I want to see from a dividend-focused REIT. More impressive was the operational execution: leasing activity was outstanding, with big rent bumps and minimal downtime, indicating that STAG’s strategy of owning warehouses in diverse markets (often secondary markets) is paying off as tenants expand and compete for space. High retention and early renewal deals tell me management is staying ahead of potential vacancies – a proactive approach that smooths out performance and costs.
I’m particularly encouraged by STAG’s ability to capitalize on the strong industrial real estate market through both leasing and strategic asset recycling. Selling a property at a 4.9% cap rate (a rich valuation) and redeploying capital into acquisitions at closer to a 6.8% cap rate improves the portfolio’s income yield and growth prospects. It’s a classic “buy low, sell high” executed in real estate terms, and STAG has been doing this kind of trade for a while to create shareholder value. At the same time, the company isn’t stretching itself – the balance sheet remains very conservative after these moves, which speaks to a prudent management ethos.
That’s not to say everything is without risk. I’m mindful that the industrial sector, while resilient, could see some cooling if the economy slows meaningfully or if supply catches up in certain markets. Managements own commentary about a slightly longer leasing cycle due to macro uncertainties suggests they are aware of potential headwinds. Additionally, interest rates have risen over the past year, which means future acquisitions or debt refinancings come at a higher cost of capital than in the past. STAG’s new debt issuance at ~5.5-6% rates is higher than the sub-4% rates many REITs enjoyed a couple years ago, and eventually higher interest expense can temper FFO growth. However, I believe STAG is well-positioned to handle these challenges. The industrial real estate pie is still growing (thanks to trends like e-commerce, logistics reconfiguration, and near-shoring), and STAG’s diversified approach allows it to participate across many regions and tenant types. The company’s cautious financial management gives me confidence that even if we hit a bump in the economy, they can ride it out without cutting its dividend or going on the defensive.