STAG Industrial (STAG) Q1 FY26 earnings call: guidance and Q&A

Given the healthier leasing market, are you seeing quicker backfills or any encouraging signs that might lead to a change in retention guidance?

Management maintained retention guidance of 70-80% and lease-up assumptions of 9-12 months, despite strong Q1 activity (6 million sq ft leased) and continued momentum from Q4 into Q1 and Q2. They noted it's a higher lease expiration year.

“Yes, I mean, it's certainly a higher lease expiration year. And that's driving our guidance -- our occupancy guidance for the year. With respect to what we're budgeting, it's still 9 to 12 months of lease-up time for assets when they go vacant.”

asked by Craig Mailman · answered by William Crooker

In which markets are you predominantly seeing data center supply tenants, and do you expect this trend to grow?

Data center-related demand is primarily seen in Southeast (South Carolina, Charlotte, Nashville) and Midwest (Wisconsin, Ohio) markets. Management anticipates further growth given STAG's portfolio concentration in these regions.

“So it's really that Southeast Midwest markets is where we're primarily seeing that demand. And that's where a lot of our portfolio is concentrated. So we anticipate further demand from data center-related tenants.”

asked by Craig Mailman · answered by William Crooker

What types of tenants are you leasing to in the data center space, e.g., 3PLs, equipment manufacturers, servicers?

The tenants are varied, including a 3PL serving a Meta data center contract, distributors of generators, light assembly of power conversion systems, and battery component manufacturers. These are long-term leases (over 8 years WALT) with strong economics (35% leasing spreads).

“So one was a 3PL to one of the largest 3PLs in the world serving a meta data center contract. We have some tenants that are distributing generators to data centers. We have some light assembly of racking of power conversion systems in one of them, one is manufacturing battery components.”

asked by Craig Mailman · answered by William Crooker

Can you provide updated thoughts on market rent growth expectations, given the initial guidance of 0-2%?

Management maintained the 0-2% market rent growth guidance for the year but expects it to trend higher on a quarterly basis as the market vacancy rate peaks in the coming months. They noted activity is probably a little stronger than initially thought.

“With respect to market rent growth, our guide was 0% to 2%. That will -- that we're going to maintain that guidance as well at this time. That will likely trend higher on a quarterly basis as we move through the year as we see that vacancy rate -- market vacancy rate peak in the coming months.”

asked by Michael Griffin · answered by William Crooker

Is there any change in the pool of assets you're looking at for acquisitions, such as increased focus on value-add or development opportunities?

STAG will look at all asset profiles (value-add, stabilized, development) that meet their investment criteria. They highlighted a recent land acquisition in Dallas for a 340,000 sq ft build-to-suit development with a committed tenant, projecting a 7.4% yield on cost, as an example of their development focus.

“So it's not like we're going to shift materially into value-add or materially into long-term stabilized leases. We'll acquire what meets our investment criteria at that time, but we'll look at everything.”

asked by Nicholas Thillman · answered by William Crooker

Q1 same-store NOI was 4.1%, but guidance is unchanged at 3%. How should we think about the cadence for the rest of the year?

The 4.1% Q1 same-store NOI was anticipated. The full impact of occupancy decline from known move-outs late in Q1 will be reflected in Q2. Management expects trough occupancy in Q2, with increases in H2, maintaining the 3% midpoint guidance for the full year.

“So the 4.1% does not account for the fact that this space is vacant for the entire quarter. But the first quarter cash same-store was fully anticipated. It was included in our guidance. As you said, we continue to expect cash sales or growth of 3% at the midpoint.”

asked by Jason Belcher · answered by Matts Pinard

For data center construction tenants, are they servicing multiple data centers or operations post-construction, and what is the sustainability of this new tailwind?

Some tenants service completed data centers for ongoing operations, others development, and some service multiple data centers. Management emphasized that these are functional buildings in markets with diverse demand drivers, making data centers an incremental, sustainable demand driver.

“So these are functional buildings that can meet many of the demand drivers is just this incremental demand driver of data centers.”

asked by Jessica Zheng · answered by William Crooker

Can you highlight your markets with relative strengths and weaknesses right now?

Weaker markets include San Diego, Memphis, and Pittsburgh. Markets showing improvement are Greenville/Spartanburg and Charlotte. The best performing markets are Houston, Nashville, and Midwest big-box distribution markets like Columbus, Louisville, and Indianapolis, which have very low vacancy rates.

“I mean if you look at kind of markets that are a little weaker, it's -- we have one asset in San Diego that's proving to be a little challenging now Memphis is a little slower, Pittsburgh a little slower. Let's say, our markets that have probably been improving the most, the Greenville Spartanburg and Charlotte. And then if you want to move a little further to our best markets, Houston has been a great market. Nashville -- and the Midwest big-box distribution markets have really started to perform extremely well.”

asked by Jessica Zheng · answered by William Crooker