Executive Summary / Key Takeaways

• STAG Industrial is a specialized industrial REIT leveraging a proprietary risk assessment model and a focus on single-tenant properties to build a diversified portfolio across U.S. Tier 1 markets, positioning it for stable growth amidst evolving supply chain dynamics.
• The company delivered a strong start to 2025, exceeding initial FFO expectations in Q1, driven by robust operational performance including 3.4% same-store cash NOI growth and significant leasing spreads (27.3% cash spreads on Q1 commencements), with 78.5% of expected 2025 leasing already secured at healthy spreads.
• STAG maintains a strong balance sheet and ample liquidity, recently securing $550 million in long-term private placement debt at attractive rates, providing capital flexibility for acquisitions, development, and managing debt maturities in a volatile environment.
• While macroeconomic uncertainty, trade tensions, and moderating industrial demand present headwinds, STAG's geographic and tenant diversification, coupled with its data-driven acquisition strategy and minimal floating rate debt exposure (post-hedging), are expected to provide relative resilience compared to less diversified peers.
• Key factors to watch include the resolution of the American Tire Distributors (ATD) bankruptcy (impacting 1% of ABR), the pace of tenant decision-making amidst macro uncertainty, and the execution of the development pipeline, all of which are factored into the maintained 2025 guidance.

A Foundation Built on Data and Diversification

STAG Industrial, Inc. operates as a real estate investment trust singularly focused on the acquisition, ownership, development, and operation of industrial properties throughout the United States. Structured as an umbrella partnership REIT (UPREIT), STAG conducts its business primarily through its operating partnership, a model that has facilitated its growth and operational flexibility. The company's strategic blueprint is fundamentally centered on identifying properties that offer relative value across the diverse landscape of U.S. industrial markets, primarily targeting those classified as CBRE-EA Tier 1. This is not a scattershot approach; it is guided by the principled application of a proprietary risk assessment model, a core technological differentiator that underpins STAG's investment and operational strategy.

This data-driven model is designed to sift through opportunities, allowing STAG to target acquisitions that balance yield, growth potential, and risk. The tangible benefit of this technology is the ability to identify and execute targeted acquisitions with potentially higher yields and better risk profiles than a less analytical approach might allow. While specific quantitative metrics on the model's direct impact on yield or risk reduction compared to hypothetical alternatives are not detailed, the strategic intent is clear: to enhance acquisition efficiency and portfolio stability. This analytical capability contributes significantly to STAG's competitive moat, enabling it to capture value in markets that might be overlooked or mispriced by less sophisticated investors.

The company's portfolio has grown substantially, reaching 597 industrial buildings across 41 states with approximately 117.6 million rentable square feet as of March 31, 2025. This scale, while smaller than that of global giants like Prologis (PLD), provides significant geographic and tenant diversification, a key tenet of STAG's strategy. In the competitive landscape, STAG's national, single-tenant focused approach contrasts with PLD's vast global multi-tenant network, Rexford Industrial (REXR)'s regional concentration in high-barrier coastal markets, and EastGroup Properties (EGP)'s Sunbelt shallow-bay niche. While PLD and REXR often exhibit higher profitability margins driven by scale or premium market rents, STAG's data-driven model and single-tenant focus aim to provide a different kind of competitive edge: stability through diversification and targeted value capture in a broader set of markets. This positions STAG as a growth-oriented player that prioritizes risk-adjusted returns across a wide opportunity set, rather than concentrating risk in a few high-growth or high-cost markets.

The broader industrial real estate market provides a dynamic backdrop. Demand, while moderating from recent peaks, continues to be supported by secular trends like the ongoing growth of e-commerce and the increasing attractiveness of the U.S. as a manufacturing and distribution hub. Factors such as rising overseas labor costs, policies promoting domestic and regional manufacturing (onshoring and nearshoring), and the desire for greater supply chain resilience are driving higher inventory-to-sales ratios and increased domestic warehouse demand. The supply pipeline, while still robust, is contracting, particularly for smaller, more functional buildings, and construction starts are declining. These trends collectively suggest a market that, while facing some near-term headwinds, retains positive long-term drivers that align with STAG's investment focus.

Performance Reflecting Strategy and Market Dynamics

STAG's financial performance in the first quarter of 2025 demonstrated the operational strength derived from its diversified portfolio and strategic execution. Total revenue increased by 9.6% year-over-year to $205.6 million, with rental income forming the vast majority of this figure. Net income saw a significant increase, rising 149.3% to $91.4 million, primarily boosted by a substantial $49.9 million gain on the sale of a rental property and a $1.9 million gain on involuntary conversion related to prior tornado damage.

Operational metrics remained solid. Same-store cash NOI grew by 3.4% for the quarter, driven by healthy leasing spreads and annual rent escalators (averaging 2.8%), partially offset by a planned decrease in occupancy. Leasing activity was robust, with 5 million square feet of leases commencing in Q1 at impressive cash and straight-line spreads of 27.3% and 42.1%, respectively. Notably, new leases commenced at a 34% cash rent change, while renewals saw a 27% cash rent change. The company has already secured 78.5% of the operating portfolio square footage it expects to lease in 2025, achieving cash leasing spreads of 25.1%, a pace consistent with prior years and indicative of strong underlying demand for its space. Retention for the quarter stood at 85.3%.

STAG's balance sheet remains a source of strength, providing crucial flexibility in the current capital market environment. As of March 31, 2025, the company had total immediate liquidity of approximately $493.1 million, comprising cash and cash equivalents and availability on its unsecured credit facility.

The debt capital structure is characterized by minimal secured debt (0.1%) and a weighted average duration of 4.4 years. The company actively manages its interest rate exposure on variable rate debt through swaps, fixing the rate on approximately $1.03 billion of its $1.54 billion variable rate debt through initial maturity. Subsequent to the quarter end, STAG further bolstered its long-term capital position by entering into a note purchase agreement for a $550 million private placement of senior unsecured notes across 5, 8, and 10-year tenors with a weighted average fixed interest rate of 5.65%.

This transaction, which saw demand exceeding $3 billion, underscores the company's strong access to the debt capital markets and provides capital to manage upcoming maturities and fund growth initiatives. The company was in compliance with all debt covenants as of quarter-end.

The strategic recycling of capital also contributes to financial flexibility. The disposition of one building in Q1 2025, which generated a significant gain, exemplifies the company's approach to realizing value from repositioned or non-core assets and redeploying capital into potentially higher-yielding opportunities. Acquisitions in Q1 totaled $43.3 million across three buildings, strategically located in markets like Minneapolis and Chicago, offering attractive yields and growth potential, including one asset acquired at rents approximately 40% below market.

Outlook, Risks, and the Path Forward

STAG is maintaining its previously provided guidance for 2025, reflecting management's confidence in the company's operational execution and strategic positioning despite the prevailing macroeconomic uncertainty. The guidance for credit loss is held at 75 basis points, which explicitly includes a 25 basis point allocation for the American Tire Distributors situation, in addition to a standard 50 basis points for general cash credit loss. While ATD, representing 1% of ABR, filed for Chapter 11 and the purchaser of its assets has until May 20, 2025, to decide on lease assumptions, management notes that ATD remains current on rent obligations and the occupied buildings are functional and well-located. The company's diversified tenant base across numerous industries and its dedicated credit team focused on identifying risk factors beyond sector classification are key mitigants against broad credit issues.

The outlook for external growth remains weighted towards the back half of the year, acknowledging the volatility in the transaction market influenced by interest rates and the narrowing, but still present, bid-ask spread. STAG's ability to leverage its balance sheet strength and reputation for surety of close positions it to capitalize on acquisition opportunities as they arise. The development pipeline, currently standing at approximately 2.5 million square feet across 11 buildings, represents a source of future growth, with projects strategically located in strong markets like Nashville, Portland, and Reno. While macro uncertainty could potentially lead to slightly longer lease-up periods or minor yield adjustments on these developments, management remains optimistic about the activity seen thus far.

Key risks continue to include the impact of volatile global and U.S. macro-economic trends, such as trade policies and geopolitical tensions, which could potentially lead to moderated demand, increased credit loss, or higher vacancy. Management notes that these factors have contributed to a lengthening of tenant lease decision timelines, although tenants are still ultimately executing leases. The robust supply pipeline, particularly for larger warehouses, also remains a factor influencing market dynamics. However, STAG's diversified portfolio across markets, tenant industries, and lease terms, coupled with its minimal floating rate debt exposure (post-hedging) and strong liquidity, are viewed as significant strengths that position the company favorably relative to less diversified peers in navigating this environment. The expected acceleration in industrial trends like e-commerce growth and onshoring/nearshoring are anticipated to provide long-term tailwinds supporting demand for STAG's assets.

Conclusion

STAG Industrial's investment thesis is firmly rooted in its data-driven approach to building and operating a highly diversified portfolio of industrial properties across the U.S. The company's proprietary risk assessment model provides a distinct competitive advantage, enabling targeted value capture and portfolio stability. Despite facing macroeconomic headwinds, including volatile interest rates and trade tensions, STAG demonstrated strong operational performance in the first quarter of 2025, highlighted by healthy NOI growth and robust leasing activity at attractive spreads. The company's proactive capital management, evidenced by its strong liquidity and recent successful long-term debt issuance, further enhances its resilience. While risks such as tenant credit issues and potential market slowdowns warrant careful monitoring, STAG's strategic diversification across geographies and tenants, coupled with its solid balance sheet and operational execution, positions it to continue delivering stable growth and capture opportunities in the evolving industrial real estate landscape. The company's focus on functional buildings in Tier 1 markets, supported by its unique analytical capabilities, underpins its potential for value creation for investors.