Yahoo Finance What to Expect From STAG Industrial (STAG) in Q1 Earnings?
STAG Industrial STAG, a leading real estate investment trust (REIT) focused on single-tenant industrial properties, is set to release its first-quarter 2023 earnings on Apr 26 after market close.
In the last reported quarter, this REIT’s core FFO per share missed the Zacks Consensus Estimate by 1.79%. Over the trailing four quarters, STAG Industrial beat estimates on three occasions and missed the same on the other, the average beat being 2.84%.
The graph below depicts the surprise history of the company:
Stag Industrial, Inc. Price and EPS Surprise
Stag Industrial, Inc. price-eps-surprise | Stag Industrial, Inc. Quote
The first quarter of 2023 was marked by high inflation, high-interest rates, slowing consumer demand and uncertainty in the economy. For the U.S. industrial real estate market, this resulted in a decline in U.S. leasing totals. However, STAG has a strong track record of growth and stability, with a focus on single-tenant industrial properties. In this article, we will examine how the company is likely to have performed in the first quarter of 2023, considering the current economic environment.
Industrial Real Estate Market Fundamentals in Q1
Per a Cushman & Wakefield CWK report, in the first quarter, U.S. leasing totals witnessed a 9.4% decline from the prior quarter. There has been an uptick in the overall U.S. industrial vacancy rate, which moved higher by 40 basis points (bps) in the first quarter to 3.6%.
However, the vacancy is still lower than the 10-year historical average of 5.3%. Also, there has been a flight to quality by logistic tenants, with tenants executing 59.1 msf of deals in industrial facilities built since 2020 during the quarter, marking 46.4% of the total. Asking rental rate growth remained high during the quarter. The same increased 3.5% sequentially, reaching another new high of $9.19 per square foot (psf) and surpassing the $9.00-psf mark for the first time.
Construction starts have started slowing. The under-construction pipeline ended the first quarter with 663.3 msf of space under construction, declining in each of the last two quarters and marking the lowest total since the first quarter of 2022.
STAG Industrial's Portfolio, Strategy & Q1 Performance Through February
Despite these headwinds, STAG's strong leasing pipeline and focus on single-tenant industrial properties provide a stable source of income for the company, with tenants typically signing long-term leases. While the majority of its portfolio consists of single-tenant properties, STAG Industrial also owns multi-tenant properties. This should help the company maintain high occupancy rates and provide a steady stream of rental income.
Particularly, STAG is anticipated to have witnessed healthy demand for the fast adoption of e-commerce, with leasing activity getting support in the to-be-reported quarter. Moreover, with supply chains transforming for faster fulfillment and resilience, the company is likely to have captured favorable fundamentals. These are likely to have supported STAG’s occupancy and rental rates in the first quarter.
In its March presentation, STAG noted that as of Feb 13, 2023, 61.5% of expected 2023 new and renewal leasing has been addressed, comprising 8.4 million square feet. The company achieved a cash rent change of 31.6%.
As of Feb 23, 2023, STAG Industrial already leased 4.5 million square feet of space and experienced a cash rent change of 26.9%. The weighted average lease term is 4.4 years. STAG’s retention adjusted for immediate backfills was 79%. Additional leases are expected to have been executed and commenced in the rest of the first quarter.
However, the industrial real estate market remains highly competitive, with many players vying for the same properties. This competition can lead to higher prices for properties, which can impact STAG's profitability.
Finally, interest rates remain a key factor for REITs like STAG Industrial. Rising interest rates can make it more expensive for the company to borrow money, which can impact its ability to acquire new properties.
Projections for Q1 2023
The Zacks Consensus Estimate for first-quarter revenues is currently pegged at $170.2 million. This suggests a 6.92% year-over-year rise.
Before the first-quarter earnings release, STAG Industrial’s activities were not adequate to gain analysts’ confidence. The Zacks Consensus Estimate for the quarterly core FFO per share has moved a cent south to 55 cents in the past month. However, this suggests year-over-year growth of 3.8%.
Here Is What Our Quantitative Model Predicts:
Our proven model does not conclusively predict a surprise in terms of FFO per share for STAG Industrial this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an FFO beat, which is not the case here.
STAG Industrial currently carries a Zacks Rank of 3 and has an Earnings ESP of -0.45%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
However, our model shows that VICI Properties Inc. VICI and Americold Realty Trust, Inc. COLD have the right combination of elements to report a surprise this quarter.
VICI Properties is slated to report quarterly numbers on May 1. VICI has an Earnings ESP of +10.38% and carries a Zacks Rank of 3 presently.
Americold Realty Trust, scheduled to report quarterly numbers on May 4, has an Earnings ESP of +17.72% and carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.
Conclusion
In conclusion, while the economic headwinds in the first quarter of 2023 may have impacted the U.S. industrial real estate market, STAG Industrial is well-positioned to weather these challenges. The company's strong track record of growth and stability, coupled with its focus on single-tenant industrial properties, should help it maintain its momentum. Investors should keep an eye on STAG's valuation and ability to acquire properties at attractive prices.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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Stag Industrial, Inc. (STAG) : Free Stock Analysis Report
Americold Realty Trust Inc. (COLD) : Free Stock Analysis Report
VICI Properties Inc. (VICI) : Free Stock Analysis Report
Cushman & Wakefield PLC (CWK) : Free Stock Analysis Report
