Continuing with its acquisition spree, STAG Industrial, Inc. (STAG) recently acquired two industrial properties in separate transactions for approximately $13.4 million. With these transactions, the company’s year-to-date acquisition volume has surged to $357 million.
Through this strategic initiative, the company expects to enhance the quality of its portfolio and expects it to be accretive to earnings going forward. At the same time, the company continues the diversification of its portfolio to maintain a mix of markets and tenants, which in turn, will limit its exposure to any single tenant, industry, or geographic location.
The first property is a 217,000 square feet warehouse and distribution facility located in Springfield in Massachusetts. The facility is 100% leased to a supermarket retailer - Big Y Foods, Inc. The second property is a light manufacturing and warehouse facility spanning 108,000 square feet situated in Sterling Heights in Michigan. The facility is fully occupied by an industrial firm, Sodecia North America Inc.
Since its inception, STAG Industrial has diligently acquired individual Class B, single-tenant industrial properties throughout the U.S. The company specifically focuses on the secondary markets with purchase prices as low as $5 million.
The company’s strategic investment objectives hinge upon the fact that single-tenant properties usually require less expenditure to lease and operate than the multi-tenant ones. In addition, Class B industrial properties tend towards higher current returns and lower volatility than their Class A counterparts. Furthermore, secondary markets also generally have less occupancy and rental rate volatility than primary markets.
Despite the challenging economic environment, STAG Industrial has been very active on the acquisition front. Last month, the company had acquired 13 fully leased industrial facilities totaling approximately 3.1 million square feet and a portfolio of 31 industrial buildings spanning approximately 4.3 million square feet. Currently, the company’s portfolio consists of 167 properties in 31 states with approximately 28.1 million rentable square feet.
STAG Industrial, which competes with the likes of Franklin Street Properties Corp. (FSP), is expected to release its third-quarter 2012 results on November 7. The Zacks Consensus Estimate for FFO (fund from operations) for the quarter is currently pegged at 27 cents per share.
We have a long-term Neutral recommendation on STAG Industrial. However, it holds a short-term Zacks #2 Rank (Buy).
Note: FFO, a widely accepted and reported measure of the performance of REITs is derived by adding depreciation, amortization and other non-cash expenses to net income.