STAG INDUSTRIAL, INC. You should read the following discussion with the financial statements and related notes included elsewhere in Item 1 of this report and the audited financial statements and related notes thereto included in our most recent Annual Report on Form 10-K.
As used herein, except where the context otherwise requires, "Company," "we," "our" and "us," refer toSTAG Industrial, Inc. and our consolidated subsidiaries and partnerships, including our operating partnership,STAG Industrial Operating Partnership, L.P. (the "Operating Partnership").
Forward-Looking Statements
This report contains "forward-looking statements" within the meaning of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act")). You can identify forward-looking statements by the use of words such as "anticipates," "believes," "estimates," "expects," "intends," "may," "plans," "projects," "seeks," "should," "will," and variations of such words or similar expressions. Forward-looking statements in this report include, among others, statements about our future financial condition, results of operations, capitalization rates on future acquisitions, our business strategy and objectives, including our acquisition strategy, occupancy and leasing rates and trends, and expected liquidity needs and sources (including capital expenditures and the ability to obtain financing or raise capital). Our forward-looking statements reflect our current views about our plans, intentions, expectations, strategies and prospects, which are based on the information currently available to us and on assumptions we have made. Although we believe that our plans, intentions, expectations, strategies and prospects as reflected in or suggested by our forward-looking statements are reasonable, we can give no assurance that our plans, intentions, expectations, strategies or prospects will be attained or achieved and you should not place undue reliance on these forward-looking statements. Furthermore, actual results may differ materially from those described in the forward-looking statements and may be affected by a variety of risks and factors including, without limitation:
•the factors included in our Annual Report on Form 10-K for the year ended
•the ongoing adverse effects of the public health crisis of the novel
coronavirus disease ("COVID-19") pandemic, or any future pandemic, epidemic or
outbreak of infectious disease, on the financial condition, results of
operations, cash flows and performance of the Company and its tenants, the real
estate market and the global economy and financial markets;
•our ability to raise equity capital on attractive terms;
•the competitive environment in which we operate;
•real estate risks, including fluctuations in real estate values, the general economic climate in local markets and competition for tenants in such markets, and the repurposing or redevelopment of retail properties into industrial properties (in part or whole);
•decreased rental rates or increased vacancy rates;
•potential defaults (including bankruptcies or insolvency) on or non-renewal of leases by tenants;
•acquisition risks, including our ability to identify and complete accretive acquisitions and/or failure of such acquisitions to perform in accordance with projections;
•the timing of acquisitions and dispositions;
•technological developments, particularly those affecting supply chains and logistics;
•potential natural disasters, epidemics, pandemics, and other potentially catastrophic events such as acts of war and/or terrorism (including the conflict betweenRussia andUkraine and the related impact on macroeconomic conditions as a result of such conflict); 24
--------------------------------------------------------------------------------
Table of Contents
•international, national, regional and local economic conditions;
•the general level of interest rates and currencies;
•potential changes in the law or governmental regulations and interpretations of
those laws and regulations, including changes in real estate and zoning laws or
real estate investment trust ("REIT") or corporate income tax laws, and
potential increases in real property tax rates;
•financing risks, including the risks that our cash flows from operations may be
insufficient to meet required payments of principal and interest and we may be
unable to refinance our existing debt upon maturity or obtain new financing on
attractive terms or at all;
•credit risk in the event of non-performance by the counterparties to the interest rate swaps and revolving and unfunded debt;
•how and when pending forward equity sales may settle;
•lack of or insufficient amounts of insurance;
•our ability to maintain our qualification as a REIT;
•our ability to retain key personnel;
•litigation, including costs associated with prosecuting or defending claims and any adverse outcomes; and
•possible environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of properties presently owned or previously owned by us.
Any forward-looking statement speaks only as of the date on which it is made. New risks and uncertainties arise over time, and it is not possible for us to predict those events or how they may affect us. Moreover, you should interpret many of the risks identified in this report, as well as the risks set forth above, as being heightened as a result of the ongoing and numerous adverse impacts of the COVID-19 pandemic. Except as required by law, we are not obligated to, and do not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Certain Definitions In this report:
"GAAP" means generally accepted accounting principles in
"Total annualized base rental revenue" means the contractual monthly base rent as ofJune 30, 2022 (which differs from rent calculated in accordance with GAAP) multiplied by 12. If a tenant is in a free rent period as ofJune 30, 2022 , the total annualized base rental revenue is calculated based on the first contractual monthly base rent amount multiplied by 12. "Occupancy rate" means the percentage of total leasable square footage for which either revenue recognition has commenced in accordance with GAAP or the lease term has commenced as of the close of the reporting period, whichever occurs earlier. "Value Add Portfolio" means our properties that meet any of the following criteria: (i) less than 75% occupied as of the acquisition date (ii) will be less than 75% occupied due to known move-outs within two years of the acquisition date; (iii) out of service with significant physical renovation of the asset; or (iv) development. "Stabilization" for properties under development or being redeveloped means, the earlier of achieving 90% occupancy or 12 months after completion. With respect to properties acquired and immediately added to the Value Add Portfolio, (i) if acquired with less than 75% occupancy as of the acquisition date, Stabilization will occur upon the earlier of achieving 90% occupancy or 12 months from the acquisition date; or (ii) if acquired and will be less than 75% occupied due to known move-outs within two years of the acquisition date, Stabilization will occur upon the earlier of achieving 90% occupancy after the known move-outs have occurred or 12 months after the known move-outs have occurred. 25
--------------------------------------------------------------------------------
Table of Contents
"Operating Portfolio" means all warehouse and light manufacturing assets that were acquired stabilized or have achieved Stabilization. The Operating Portfolio excludes non-core flex/office assets, assets contained in the Value Add Portfolio, and assets classified as held for sale.
"Comparable Lease" means a lease in the same space with a similar lease structure as compared to the previous in-place lease, excluding new leases for space that was not occupied under our ownership.
"SL Rent Change" means the percentage change in the average monthly base rent over the term of the lease that commenced during the period compared to the Comparable Lease for assets included in the Operating Portfolio. Rent under gross or similar type leases are converted to a net rent based on an estimate of the applicable recoverable expenses, and this calculation excludes the impact of any holdover rent. "Cash Rent Change" means the percentage change in the base rent of the lease commenced during the period compared to the base rent of the Comparable Lease for assets included in the Operating Portfolio. The calculation compares the first base rent payment due after the lease commencement date compared to the base rent of the last monthly payment due prior to the termination of the lease, excluding holdover rent. Rent under gross or similar type leases are converted to a net rent based on an estimate of the applicable recoverable expenses. "New Lease" means a lease that is signed for an initial term equal to or greater than 12 months for any vacant space, including a lease signed by a new tenant or an existing tenant that is expanding into new (additional) space. "Renewal Lease" means a lease signed by an existing tenant to extend the term for 12 months or more, including (i) a renewal of the same space as the current lease at lease expiration, (ii) a renewal of only a portion of the current space at lease expiration, or (iii) an early renewal or workout, which ultimately does extend the original term for 12 months or more.
Overview
We are a real estate operating company focused on the acquisition, ownership, and operation of industrial properties throughoutthe United States . We are aMaryland corporation and our common stock is publicly traded on theNew York Stock Exchange under the symbol "STAG." We are organized and conduct our operations to maintain our qualification as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, and generally are not subject to federal income tax to the extent we currently distribute our income to our stockholders and maintain our qualification as a REIT. We remain subject to state and local taxes on our income and property and toU.S. federal income and excise taxes on our undistributed income. We recently effected a previously announced management succession. OnJuly 1, 2022 ,William R. Crooker became our Chief Executive Officer, in addition to his role as President, and was appointed to our board of directors. In connection withMr. Crooker's promotion,Benjamin S. Butcher resigned from the role of Chief Executive Officer and became Executive Chair of the board of directors. As Chief Executive Officer,Mr. Crooker leads and manages our business, executes the strategies developed by management and the board and serves as the chief spokesperson to our employees, stockholders and business counterparties. As Executive Chair,Mr. Butcher manages the business of the board, regularly consults withMr. Crooker on key corporate matters and serves as a liaison between the Board and the management team.
Factors That May Influence Future Results of Operations
Our ability to increase revenues or cash flow will depend in part on our (i) external growth, specifically our acquisition activity, and (ii) internal growth, specifically our portfolio occupancy and rental rates. A variety of other factors, including those noted below, also may affect our future results of operations. COVID-19 Pandemic
Since
26
--------------------------------------------------------------------------------
Table of Contents
We did not incur significant disruptions or enter into any rent deferral
agreements from the COVID-19 pandemic during the three and six months ended
June 30, 2022 . We will continue to evaluate tenant rent relief requests on an
individual basis, considering a number of factors. Not all tenant requests will
ultimately result in modified agreements, nor are we foregoing our contractual
rights under our lease agreements.
The COVID-19 pandemic or a future pandemic, epidemic or outbreak of infectious
disease affecting states or regions in which we or our tenants operate could
have material and adverse effects on our business, financial condition, results
of operations and cash flows due to, among other factors: health or other
government authorities requiring the closure of offices or other businesses or
instituting quarantines of personnel as the result of, or in order to avoid,
exposure to a contagious disease; disruption in supply and delivery chains; a
general decline in business activity and demand for real estate; reduced
economic activity, general economic decline or recession, which may impact our
tenants' businesses, financial condition and liquidity and may cause one or more
of our tenants to be unable to make rent payments to us timely, or at all, or to
otherwise seek modifications of lease obligations; difficulty accessing debt and
equity capital on attractive terms, or at all, and a severe disruption and
instability in the global financial markets or deteriorations in credit and
financing conditions, which may affect our access to capital necessary to fund
business operations or address maturing liabilities on a timely basis; and the
potential negative impact on the health of our personnel, particularly if a
significant number of our employees are impacted, which would result in a
deterioration in our ability to ensure business continuity during a disruption.
The extent to which the COVID-19 pandemic or any other pandemic, epidemic or
disease impacts our operations and those of our tenants will depend on future
developments, which are highly uncertain and cannot be predicted with
confidence, including among others, the scope, severity and duration of the
pandemic, the actions taken to contain the pandemic or mitigate its impact, and
the direct and indirect economic effects of the pandemic and containment
measures. Nevertheless, the COVID-19 pandemic (or a future pandemic, epidemic or
disease) presents material uncertainty and risk with respect to our business,
financial condition, results of operations and cash flows.
Outlook
Our business is affected by the uncertainty regarding the current high inflationary, rising interest rate environment, COVID-19 pandemic, and geopolitical tensions inEurope . These factors are key drivers of recent financial market volatility, continued supply chain bottlenecks, and slower economic growth. In the first quarter of 2022,U.S. GDP declined by 1.6%, while labor conditions remained strong with an unemployment rate at 3.6%. During the second quarter, the general consensus among economists suggests that we should expect a higher recession risk to continue over the next year. While the macro-economic conditions continue to evolve and impact our tenants, we believe we will continue to benefit from having a well-diversified portfolio across various markets, tenant industries, and lease terms. Additionally, we believe that the COVID-19 pandemic and geopolitical tensions are accelerating a number of trends that positively impactU.S. industrial demand. Over the course of the COVID-19 pandemic, theU.S. federal and state governments, as well as theFederal Reserve , responded to the profoundly uncertain outlook with a series of fiscal and monetary policies to ease the economic burden of COVID-19 closures on businesses and individuals. During the first six months of 2022, given the historically high inflation levels and strong employment reports, theFederal Reserve shifted away from an expansionary monetary policy. In accordance with that shift in policy, theFederal Reserve has raised interest rates several times in 2022, including by 25 basis points in March, 50 basis points in May and 75 basis points in June, resulting in a range between 1.5% to 1.75% as ofJune 30, 2022 . TheFederal Reserve indicates monetary policy will continue to tighten with higher interest rates and a shrinking ofFederal Reserve balance sheet until inflation measures approach its long-term targets. We believe that the current economic environment, while volatile, will provide us with an opportunity to demonstrate the diversification of our portfolio. Specifically, we believe our existing portfolio should benefit from competitive rental rates and strong occupancy. In addition to our diversified portfolio, we believe that certain characteristics of our business and capital structure should position us well in an uncertain environment, including, among others, our minimal amount of floating rate debt (taking into account our hedging activities) and ample liquidity.
Due to the ongoing COVID-19 pandemic, we expect acceleration in a number of industrial specific trends will continue to support long-term demand for industrial properties, including:
•the rise of e-commerce (as compared to the traditional retail store distribution model) and the concomitant demand by e-commerce industry participants for well-located, functional distribution space;
27
--------------------------------------------------------------------------------
Table of Contents
•the increasing attractiveness of the United States as a manufacturing and
distribution location because of the size of the U.S. consumer market, an
increase in overseas labor costs, a desire for greater supply chain resilience
and redundancy and the overall cost of supplying and shipping goods (i.e. the
shortening and fattening of the supply chain); and
•the overall quality of the transportation infrastructure in the United States .
Our portfolio continues to benefit from historically low availability throughout
the national industrial market. While the COVID-19 pandemic has caused both
positive and negative impacts at varying levels across different industries and
geographies, the rise of e-commerce, actions taken by federal and state
governments and the Federal Reserve , and the recent economic recovery have
resulted in strong demand for industrial space. We believe that the
diversification of our portfolio by market, tenant industry, and tenant credit
will prove to be a strength in this environment. Industrial development
continues to be concentrated in the larger primary markets and, after a brief
deceleration, it has returned to and exceeded pre-COVID-19 pandemic levels. We
will continue to monitor the supply and demand fundamentals for industrial real
estate and assess its impact on our business.
Conditions in Our Markets
The buildings in our portfolio are located in markets throughout
Rental Income
We receive income primarily in the form of rental income from the tenants who occupy our buildings. The amount of rental income generated by the buildings in our portfolio depends principally on occupancy and rental rates. During the three and six months endedJune 30, 2022 , the SL Rent Change on New Leases and Renewal Leases in the Operating Portfolio together grew approximately 21.9% and 23.6%, respectively. During the three and six months endedJune 30, 2022 , the Cash Rent Change on New Leases and Renewal Leases in the Operating Portfolio together grew approximately 14.1% and 14.6%, respectively. Future economic downturns or regional downturns affecting our submarkets that impair our ability to renew or re-lease space and the ability of our tenants to fulfill their lease commitments, as in the case of tenant bankruptcies, including those brought on by the COVID-19 pandemic, could adversely affect our ability to maintain or increase rental rates at our buildings. Our ability to lease our properties and the attendant rental rate is dependent upon, among other things, (i) the overall economy, (ii) the supply/demand dynamic in our markets, (iii) the quality of our properties, including age, clear height, and configuration, and (iv) our tenants' ability to meet their contractual obligations to us. The following table summarizes the Operating Portfolio leases that commenced during the three and six months endedJune 30, 2022 . Any rental concessions in such leases are accounted for on a straight-line basis over the term of the lease. Cash Total Costs Basis Rent Per Weighted Average Lease Per SLRent Per Square Cash SL Rent Term(2) Rental Concessions Operating Portfolio Square Feet Square Foot Square Foot Foot(1) Rent Change Change (years) per Square Foot(3) Three months ended June 30, 2022 New Leases 1,312,102$ 4.51 $ 4.65 $ 1.64 14.8 % 22.0 % 4.4 $ 0.11 Renewal Leases 1,915,146$ 4.94 $ 5.17 $ 0.81 13.7 % 21.9 % 4.1 $ 0.20 Total/weighted average 3,227,248$ 4.76 $ 4.96 $ 1.15 14.1 % 21.9 % 4.3 $ 0.17 Six months ended June 30, 2022 New Leases 2,491,326$ 5.24 $ 5.50 $ 2.58 20.2 % 29.6 % 5.7 $ 0.66 Renewal Leases 3,875,818$ 4.96 $ 5.25 $ 0.88 11.2 % 19.8 % 5.0 $ 0.15 Total/weighted average 6,367,144$ 5.07 $ 5.35 $ 1.54 14.6 % 23.6 % 5.3 $ 0.35 (1)"Total Costs" means the costs for improvements of vacant and renewal spaces, as well as the contingent-based legal fees and commissions for leasing transactions. Total Costs per square foot represent the total costs expected to be incurred on the leases that commenced during the period and do not reflect actual expenditures for the period. (2)"Weighted average lease term" means the contractual lease term in years, assuming that tenants do not exercise any renewal options, purchase options, or early termination rights, weighted by square footage. (3)Represents the total rental concessions for the entire lease term. Additionally, for the three and six months endedJune 30, 2022 , leases related to the Value Add Portfolio and first generation leasing, with a total of 237,123 and 748,359 square feet, are excluded from the Operating Portfolio statistics above. 28
--------------------------------------------------------------------------------
Table of Contents
Property Operating Expenses
Our property operating expenses generally consist of utilities, real estate taxes, management fees, insurance, and site repair and maintenance costs. For the majority of our tenants, our property operating expenses are controlled, in part, by the triple net provisions in tenant leases. In our triple net leases, the tenant is responsible for all aspects of and costs related to the building and its operation during the lease term, including utilities, taxes, insurance, and maintenance costs, but typically excluding roof and building structure. However, we also have modified gross leases and gross leases in our building portfolio, which may require us to absorb certain building related expenses of our tenants. In our modified gross leases, we are responsible for certain building related expenses during the lease term, but most of the expenses are passed through to the tenant for reimbursement to us. In our gross leases, we are responsible for all expenses related to the building and its operation during the lease term. Our overall performance will be affected by the extent to which we are able to pass-through property operating expenses to our tenants.
Scheduled Lease Expirations
Our ability to re-lease space subject to expiring leases impacts our results of operations and will be affected by economic and competitive conditions in our markets and by the desirability of our individual buildings. Leases that comprise approximately 7.2% of our annualized base rental revenue will expire during the period fromJuly 1, 2022 toJune 30, 2023 , excluding month-to-month leases. We assume, based upon internal renewal probability estimates that some of our tenants will renew and others will vacate and the associated space will be re-let subject to downtime assumptions. Using the aforementioned assumptions, we expect that the rental rates on the respective new leases will be greater than the rates under existing leases expiring during the periodJuly 1, 2022 toJune 30, 2023 , thereby resulting in an increase in revenue from the same space. The following table summarizes lease expirations for leases in place as ofJune 30, 2022 , plus available space, for each of the ten calendar years beginning with 2022 and thereafter in our portfolio. The information in the table assumes that tenants do not exercise renewal options or early termination rights. Total Annualized Number % of Base Rental % of Total of Total Revenue Annualized Leases Total Rentable Occupied (in Base Rental Lease Expiration Year Expiring Square Feet Square Feet thousands) Revenue Available - 2,071,543 - - - Month-to-month leases 5 499,933 0.5 %$ 2,199 0.4 % Remainder of 2022 24 2,399,250 2.2 % 11,419 2.2 % 2023 86 11,027,366 10.1 % 49,215 9.5 % 2024 102 13,937,975 12.7 % 65,475 12.5 % 2025 93 13,525,906 12.4 % 61,151 11.6 % 2026 107 16,662,534 15.2 % 80,440 15.3 % 2027 82 13,086,216 12.0 % 62,628 11.9 % 2028 50 7,464,890 6.8 % 34,657 6.6 % 2029 43 7,210,849 6.5 % 34,903 6.6 % 2030 27 3,763,278 3.4 % 21,646 4.1 % 2031 40 7,292,855 6.7 % 34,795 6.6 % Thereafter 52 12,559,435 11.5 % 66,811 12.7 % Total 711 111,502,030 100.0 %$ 525,339 100.0 % 29
--------------------------------------------------------------------------------
Table of Contents
Portfolio Acquisitions
The following table summarizes our acquisitions during the three and six months endedJune 30, 2022 . Purchase Price Market(1) Date Acquired Square Feet Number of Buildings (in thousands) Kansas City, MO January 6, 2022 702,000 1$ 60,428 Chicago, IL January 31, 2022 72,499 1 8,128 Columbus, OH February 8, 2022 138,213 1 11,492 Cleveland, OH February 8, 2022 136,800 1 13,001 Nashville, TN March 10, 2022 109,807 1 12,810 Greenville/Spartanburg, SC March 10, 2022 289,103 1 28,274 Memphis, TN March 18, 2022 195,622 1 15,828 Greenville/Spartanburg, SC March 18, 2022 155,717 1
16,390
Three months ended March 31, 2022 1,799,761 8$ 166,351 Atlanta, GA April 1, 2022 210,858 1 21,119 Minneapolis/St. Paul, MN April 4, 2022 160,000 1 13,472 West Michigan, MI April 14, 2022 211,125 2 12,274 Pittsburgh, PA April 19, 2022 400,000 1 50,178 Greenville/Spartanburg, SC(2) April 22, 2022 - - 5,559 Birmingham, AL May 5, 2022 67,168 1 7,871 South Bay/San Jose, CA June 7, 2022 175,325 1 29,630 Washington, DC June 29, 2022 140,555 1 20,257 Hampton Roads, VA June 29, 2022 102,512 1 10,561 Three months ended June 30, 2022 1,467,543 9 $
170,921
Six months ended June 30, 2022 3,267,304 17 $
337,272
(1) As defined byCoStar Realty Information Inc ("CoStar"). If the building is located outside of a CoStar defined market, the city and state is reflected. (2) We acquired vacant land parcels.
Portfolio Dispositions
During the six months endedJune 30, 2022 , we sold two building and one land parcel comprised of approximately 0.3 million rentable square feet with a net book value of approximately$14.1 million to third parties. Net proceeds from the sales of rental property were approximately$38.4 million and we recognized the full gain on the sales of rental property, net, of approximately$24.3 million for the six months endedJune 30, 2022 . 30 -------------------------------------------------------------------------------- Table of Contents Top Markets The following table summarizes information about the 20 largest markets in our portfolio based on total annualized base rental revenue as ofJune 30, 2022 . Top 20 Markets(1) % of Total Annualized Base Rental RevenueChicago, IL 7.5 %Philadelphia, PA 7.3 %Greenville /Spartanburg, SC 5.4 %Milwaukee /Madison, WI 4.4 %Pittsburgh, PA 4.2 %Detroit, MI 4.0 %Columbus, OH 4.0 %Minneapolis/St Paul, MN 3.9 %Houston, TX 2.9 %Charlotte, NC 2.5 %West Michigan , MI 2.5 %Indianapolis, IN 2.2 %El Paso, TX 2.2 %Cincinnati /Dayton, OH 1.9 %Cleveland, OH 1.9 %Boston, MA 1.8 %Kansas City, MO 1.8 %Washington, DC 1.7 %Columbia, SC 1.6 %Westchester /So Connecticut, CT/NY 1.5 % Total 65.2 % (1) As defined by CoStar.Top Industries
The following table summarizes information about the 20 largest tenant
industries in our portfolio based on total annualized base rental revenue as of
% of Total Annualized
Top 20 Tenant Industries (1) Base Rental Revenue
Air Freight & Logistics 11.3 %
Containers & Packaging 8.0 %
Auto Components 7.2 %
Commercial Services & Supplies 5.3 %
Trading Companies & Distribution (Industrial Goods) 5.2 %
Machinery 5.1 %
Internet & Direct Market Retail 4.8 %
Distributors (Consumer Goods) 4.5 %
Household Durables 4.4 %
Food & Staples Retailing 3.5 %
Media 3.3 %
Building Products 3.1 %
Specialty Retail 2.9 %
Chemicals 2.3 %
Electronic Equip, Instruments 2.2 %
Road & Rail 2.1 %
Food Products 2.0 %
Beverages 2.0 %
Textiles, Apparel, Luxury Goods 1.9 %
Health Care Equipment & Supplies 1.8 %
Total 82.9 %
(1) Industry classification based on Global Industry Classification Standard methodology.
31
--------------------------------------------------------------------------------
Table of Contents
Top Tenants
The following table summarizes information about the 20 largest tenants in our
portfolio based on total annualized base rental revenue as of June 30, 2022 .
% of Total Annualized
Top 20 Tenants(1) Number of Leases Base Rental Revenue
Amazon 7 3.1 %
Eastern Metal Supply, Inc. 5 1.0 %
American Tire Distributors, Inc. 7 0.9 %
FedEx Corporation 4 0.9 %
Tempur Sealy International, Inc. 2 0.9 %
Lippert Component Manufacturing 5 0.8 %
Kenco Logistic Services, LLC 3 0.8 %
Penguin Random House, LLC 1 0.7 %
Westrock Company 7 0.7 %
DS Smith North America 2 0.7 %
GXO Logistics, Inc. 2 0.7 %
DHL Supply Chain 4 0.7 %
LKQ Corporation 4 0.7 %
Ford Motor Company 1 0.7 %
Iron Mountain Information Management 5 0.7 %
Carolina Beverage Group 3 0.6 %
Yanfeng US Automotive Interior 2 0.6 %
Hachette Book Group, Inc. 1 0.6 %
Packaging Corp of America 5 0.6 %
Schneider Electric USA, Inc. 3 0.6 %
Total 73 17.0 %
(1) Includes tenants, guarantors, and/or non-guarantor parents.
Critical Accounting Policies
See "Critical Accounting Policies" in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year endedDecember 31, 2021 for a discussion of our critical accounting policies and estimates. Results of Operations The following discussion of the results of our same store (as defined below) net operating income ("NOI") should be read in conjunction with our consolidated financial statements included in this report. For a detailed discussion of NOI, including the reasons management believes NOI is useful to investors, see "Non-GAAP Financial Measures" below. Same store results are considered to be useful to investors in evaluating our performance because they provide information relating to changes in building-level operating performance without taking into account the effects of acquisitions or dispositions. We encourage the reader to not only look at our same store results, but also our total portfolio results, due to historic and future growth. We define same store properties as properties that were in the Operating Portfolio for the entirety of the comparative periods presented. The results for same store properties exclude termination fees, solar income, and other income adjustments. Same store properties exclude Operating Portfolio properties with expansions placed into service afterDecember 31, 2020 . OnJune 30, 2022 , we owned 459 industrial buildings consisting of approximately 93.2 million square feet and representing approximately 83.6% of our total portfolio, that are considered our same store portfolio in the analysis below. Same store occupancy increased approximately 1.1% to 98.7% as ofJune 30, 2022 compared to 97.6% as ofJune 30, 2021 .
Comparison of the three months ended
The following table summarizes selected operating information for our same store portfolio and our total portfolio for the three months endedJune 30, 2022 and 2021 (dollars in thousands). This table includes a reconciliation from our same store portfolio to our total portfolio by also providing information for the three months endedJune 30, 2022 and 2021 with respect to the buildings acquired and sold afterDecember 31, 2020 , Operating Portfolio buildings with expansions placed into service or transferred from the Value Add Portfolio to the Operating Portfolio afterDecember 31, 2020 , and our flex/office buildings, Value Add Portfolio, and buildings classified as held for sale. 32
--------------------------------------------------------------------------------
Table of Contents
Same Store Portfolio Acquisitions/Dispositions Other Total Portfolio
Three months ended June 30 , Change Three months ended June 30 , Three months ended June 30 , Three months ended June 30 , Change
2022 2021 $ % 2022 2021 2022 2021 2022 2021 $ %
Revenue
Operating revenue
Rental income $ 131,020 $ 129,436 $ 1,584 1.2 % $ 23,675 $ 4,941 $ 6,362 $ 3,428 $ 161,057 $ 137,805 $ 23,252 16.9 %
Other income 57 172 (115) (66.9) % 1 - 385 450 443 622 (179) (28.8) %
Total operating revenue 131,077 129,608 1,469 1.1 % 23,676 4,941 6,747 3,878 161,500 138,427 23,073 16.7 %
Expenses
Property 23,229 23,617 (388) (1.6) % 4,218 1,255 1,427 484 28,874 25,356 3,518 13.9 %
Net operating income(1) $ 107,848 $ 105,991 $ 1,857 1.8 % $ 19,458 $ 3,686 $ 5,320 $ 3,394 132,626 113,071 19,555 17.3 %
Other expenses
General and administrative 12,234 12,578 (344) (2.7) %
Depreciation and amortization 69,279 57,332 11,947 20.8 %
Other expenses 532 511 21 4.1 %
Total other expenses 82,045 70,421 11,624 16.5 %
Total expenses 110,919 95,777 15,142 15.8 %
Other income (expense)
Interest and other income 23 30 (7) (23.3) %
Interest expense (17,896) (15,273) (2,623) 17.2 %
Gain on the sales of rental property, net 376 5,976 (5,600) (93.7) %
Total other income (expense) (17,497) (9,267) (8,230) 88.8 %
Net income $ 33,084 $ 33,383 $ (299) (0.9) %
(1)For a detailed discussion of NOI, including the reasons management believes NOI is useful to investors, see "Non-GAAP Financial Measures" below.
33
--------------------------------------------------------------------------------
Table of Contents
Net Income
Net income for our total portfolio decreased by approximately $0.3 million , or
0.9%, to approximately $33.1 million for the three months ended June 30, 2022 ,
compared to approximately $33.4 million for the three months ended June 30,
2021 .
Same Store Total Operating Revenue
Same store total operating revenue consists primarily of rental income from (i)
fixed lease payments, variable lease payments, straight-line rental income, and
above and below market lease amortization from our properties ("lease income"),
and (ii) other tenant billings for insurance, real estate taxes and certain
other expenses ("other billings").
For a detailed reconciliation of our same store total operating revenue to net income, see the table above.
Same store rental income, which includes lease income and other billings as
discussed below, increased by approximately
Same store lease income increased by approximately$2.3 million , or 2.1%, to approximately$109.4 million for the three months endedJune 30, 2022 compared to approximately$107.1 million for the three months endedJune 30, 2021 . The increase was primarily due to an increase in rental income of approximately$5.4 million from the execution of new leases and lease renewals with existing tenants and a net decrease in the amortization of net above market leases of approximately$0.3 million . These increases were partially offset by the reduction of base rent of approximately$3.4 million due to tenant vacancies. Same store other billings decreased by approximately$0.7 million , or 3.1%, to approximately$21.6 million for the three months endedJune 30, 2022 compared to approximately$22.3 million for the three months endedJune 30, 2021 . The decrease was primarily attributable to a decrease of approximately$1.0 million due to a decrease in real estate taxes levied by the taxing authority. This decrease was partially offset by an increase in other expense reimbursements from an increase in corresponding expenses.
Same Store Operating Expenses
Same store operating expenses consist primarily of property operating expenses and real estate taxes and insurance.
For a detailed reconciliation of our same store operating expenses to net income, see the table above.
Total same store property operating expenses decreased by approximately$0.4 million , or 1.6%, to approximately$23.2 million for the three months endedJune 30, 2022 compared to approximately$23.6 million for the three months endedJune 30, 2021 . This decrease was primarily related to a decrease in real estate taxes levied by the taxing authority of approximately$0.6 million and other expenses of approximately$0.2 million . These decreases were partially offset by an increase in insurance and snow removal expense of approximately$0.2 million and$0.2 million , respectively.
Acquisitions and Dispositions Net Operating Income
For a detailed reconciliation of our acquisitions and dispositions NOI to net income, see the table above.
Subsequent toDecember 31, 2020 , we acquired 83 buildings consisting of approximately 14.6 million square feet (excluding eight buildings that were included in the Value Add Portfolio atJune 30, 2022 or transferred from the Value Add Portfolio to the Operating Portfolio afterDecember 31, 2020 ), and sold 24 buildings consisting of approximately 3.0 million square feet and one land parcel. For the three months endedJune 30, 2022 and 2021, the buildings acquired afterDecember 31, 2020 contributed approximately$19.6 million and$2.0 million to NOI, respectively. For the three months endedJune 30, 2022 and 2021, the buildings sold afterDecember 31, 2020 contributed approximately$(0.1) million and$1.7 million to NOI, respectively. Refer to Note 3 in the accompanying Notes to Consolidated Financial Statements for additional discussion regarding buildings acquired or sold. 34 -------------------------------------------------------------------------------- Table of Contents Other Net Operating Income Other assets include our flex/office buildings, Value Add Portfolio, buildings classified as held for sale, and Operating Portfolio buildings with expansions placed in service or transferred from the Value Add Portfolio to the Operating Portfolio afterDecember 31, 2020 . Other NOI also includes termination, solar, and other income adjustments from buildings in our same store portfolio.
For a detailed reconciliation of our other NOI to net income, see the table above.
These buildings contributed approximately$3.6 million and$2.7 million to NOI for the three months endedJune 30, 2022 and 2021, respectively. Additionally, there was approximately$1.7 million and$0.7 million of termination, solar, and other income adjustments from certain buildings in our same store portfolio for the three months endedJune 30, 2022 and 2021, respectively.
Total Other Expenses
Total other expenses consist of general and administrative expenses, depreciation and amortization, and other expenses.
Total other expenses increased approximately$11.6 million , or 16.5%, for the three months endedJune 30, 2022 to approximately$82.0 million compared to approximately$70.4 million for the three months endedJune 30, 2021 . The increase was primarily a result of an increase in depreciation and amortization of approximately$11.9 million due to an increase in the depreciable asset base from net acquisitions. This increase was partially offset by a decrease in general and administrative expenses of approximately$0.3 million which was primarily due to the adoption of our retirement vesting program onJanuary 7, 2021 and related acceleration of equity-based compensation expense for certain eligible employees that did not recur during the three months endedJune 30, 2022 . Total Other Income (Expense) Total other income (expense) consists of interest and other income, interest expense, and gain on the sales of rental property, net. Interest expense includes interest incurred during the period as well as adjustments related to amortization of financing fees and debt issuance costs, and amortization of fair market value adjustments associated with the assumption of debt. Total other expense increased approximately$8.2 million , or 88.8%, for the three months endedJune 30, 2022 to approximately$17.5 million compared approximately$9.3 million for the three months endedJune 30, 2021 . This increase was primarily a result of a decrease in the gain on the sales of rental property, net of approximately$5.6 million . This increase was also attributable to an increase in interest expense of approximately$2.6 million which is primarily attributable to the issuance of$325.0 million of unsecured notes onSeptember 28, 2021 .
Comparison of the six months ended
The following table summarizes selected operating information for our same store portfolio and our total portfolio for the six months endedJune 30, 2022 and 2021 (dollars in thousands). This table includes a reconciliation from our same store portfolio to our total portfolio by also providing information for the six months endedJune 30, 2022 and 2021 with respect to the buildings acquired and disposed of and Operating Portfolio buildings with expansions placed into service or transferred from the Value Add Portfolio to the Operating Portfolio afterDecember 31, 2020 and our flex/office buildings, Value Add Portfolio and buildings classified as held for sale. 35
--------------------------------------------------------------------------------
Table of Contents
Same Store Portfolio Acquisitions/Dispositions Other Total Portfolio
Six months ended June 30 , Change Six months ended June 30 , Six months ended June 30 , Six months ended June 30 , Change
2022 2021 $ % 2022 2021 2022 2021 2022 2021 $ %
Revenue
Operating revenue
Rental income $ 262,929 $ 256,638 $ 6,291 2.5 % $ 44,720 $ 8,222 $ 12,009 $ 6,770 $ 319,658 $ 271,630 $ 48,028 17.7 %
Other income 336 274 62 22.6 % - 68 715 450 1,051 792 259 32.7 %
Total operating revenue 263,265 256,912 6,353 2.5 % 44,720 8,290 12,724 7,220 320,709 272,422 48,287 17.7 %
Expenses
Property 49,783 48,308 1,475 3.1 % 8,085 2,854 2,781 1,196 60,649 52,358 8,291 15.8 %
Net operating income(1) $ 213,482 $ 208,604 $ 4,878 2.3 % $ 36,635 $ 5,436 $ 9,943 $ 6,024 260,060 220,064 39,996 18.2 %
Other expenses
General and administrative 24,547 25,368 (821) (3.2) %
Depreciation and amortization 136,645 115,739 20,906 18.1 %
Other expenses 1,029 1,363 (334) (24.5) %
Total other expenses 162,221 142,470 19,751 13.9 %
Total expenses 222,870 194,828 28,042 14.4 %
Other income (expense)
Interest and other income 57 62 (5) (8.1) %
Interest expense (35,155) (30,631) (4,524) 14.8 %
Debt extinguishment and modification expenses - (679) 679 (100.0) %
Gain on the sales of rental property, net 24,331 12,385 11,946 96.5 %
Total other income (expense) (10,767) (18,863) 8,096 (42.9) %
Net income $ 87,072 $ 58,731 $ 28,341 48.3 %
(1)For a detailed discussion of NOI, including the reasons management believes NOI is useful to investors, see "Non-GAAP Financial Measures" below.
36
--------------------------------------------------------------------------------
Table of Contents
Net Income
Net income for our total portfolio increased by
Same Store Total Operating Revenue
Same store total operating revenue consists primarily of rental income
consisting of (i) fixed lease payments, variable lease payments, straight-line
rental income, and above and below market lease amortization from our properties
("lease income"), and (ii) other tenant billings for insurance, real estate
taxes and certain other expenses ("other billings").
For a detailed reconciliation of our same store total operating revenue to net income, see the table above.
Same store rental income, which is comprised of lease income and other billings as discussed below, increased by approximately$6.3 million , or 2.5%, to approximately$262.9 million for the six months endedJune 30, 2022 compared to approximately$256.6 million for the six months endedJune 30, 2021 . Same store lease income increased by approximately$4.9 million , or 2.3%, to approximately$217.7 million for the six months endedJune 30, 2022 compared to approximately$212.8 million for the six months endedJune 30, 2021 . Approximately$8.4 million of the increase was attributable to rental increases due to the execution of new leases and lease renewals with existing tenants and a net decrease in the amortization of net above market leases of approximately$0.5 million . These increases were also attributable to an increase in rental income of approximately$1.0 million at one property in which, during the six months endedJune 30, 2021 , we determined that the future collectability of rental payments was not reasonably assured, and accordingly, we converted to the cash basis of accounting and reversed any accounts receivable and accrued rent balances into rental income and did not recognize revenue for payments that were not received from the tenant. The lease was subsequently terminated and replaced with a new tenant inSeptember 2021 , and during the six months endedJune 30, 2022 , the former tenant repaid the rental amounts past due, both of which contributed to the increase in rental income during the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 . These increases were partially offset by the reduction of base rent of approximately$5.0 million due to tenant vacancy. Same store other billings increased by approximately$1.4 million , or 3.2%, to approximately$45.2 million for the six months endedJune 30, 2022 compared to approximately$43.8 million for the six months endedJune 30, 2021 . The increase was attributable to an increase of approximately$2.0 million related to other expense reimbursements due to an increase in corresponding expenses and changes to lease terms where we began paying the operating expenses on behalf of tenants that had previously paid its operating expenses directly to respective vendors. This increase was partially offset by a decrease in real estate taxes levied by the taxing authority of approximately$0.6 million .
Same Store Operating Expenses
Same store operating expenses consist primarily of property operating expenses and real estate taxes and insurance.
For a detailed reconciliation of our same store operating expenses to net income, see the table above.
Total same store operating expenses increased by approximately$1.5 million or 3.1% to approximately$49.8 million for the six months endedJune 30, 2022 compared to approximately$48.3 million for the six months endedJune 30, 2021 . This increase was due to increases in utility expense of approximately$0.7 million , insurance expense of approximately$0.3 million , repairs and maintenance expense of approximately$0.2 million , and snow removal expense of approximately$0.2 million .
Acquisitions and Dispositions Net Operating Income
For a detailed reconciliation of our acquisitions and dispositions NOI to net income, see the table above.
Subsequent toDecember 31, 2020 , we acquired 83 buildings consisting of approximately 14.6 million square feet (excluding eight buildings that were included in the Value Add Portfolio atJune 30, 2022 or transferred from the Value Add Portfolio to the Operating Portfolio afterDecember 31, 2020 ), and sold 24 buildings consisting of approximately 3.0 million square feet and one land parcel. For the six months endedJune 30, 2022 andJune 30, 2021 , the buildings acquired afterDecember 31, 2020 contributed approximately$36.5 million and$2.7 million to NOI, respectively. For the six months endedJune 30, 2022 andJune 30, 2021 , the buildings sold afterDecember 31, 2020 contributed approximately$0.1 million and$2.7 million to NOI, 37 -------------------------------------------------------------------------------- Table of Contents respectively. Refer to Note 3 in the accompanying Notes to Consolidated Financial Statements for additional discussion regarding buildings acquired or sold. Other Net Operating Income Our other assets include our flex/office buildings, Value Add Portfolio, buildings classified as held for sale, and Operating Portfolio buildings with expansions placed in service or transferred from the Value Add Portfolio to the Operating Portfolio afterDecember 31, 2020 . Other NOI also includes termination, solar, and other income adjustments from buildings in our same store portfolio.
For a detailed reconciliation of our other NOI to net income, see the table above.
These buildings contributed approximately$7.2 million and$4.9 million to NOI for the six months endedJune 30, 2022 andJune 30, 2021 , respectively. Additionally, there was approximately$2.7 million and$1.1 million of termination, solar, and other income adjustments from certain buildings in our same store portfolio for the six months endedJune 30, 2022 andJune 30, 2021 , respectively. Total Other Expenses
Total other expenses consist of general and administrative expenses, depreciation and amortization, and other expenses.
Total other expenses increased approximately$19.8 million , or 13.9%, to approximately$162.2 million for the six months endedJune 30, 2022 compared to approximately$142.5 million for the six months endedJune 30, 2021 . This is primarily a result of an increase in depreciation and amortization of approximately$20.9 million as a result of net acquisitions that increased the depreciable asset base. This increase was partially offset by a decrease in general and administrative expenses of approximately$0.8 million which was primarily due to the adoption of our retirement vesting program onJanuary 7, 2021 and related acceleration of equity-based compensation expense for certain eligible employees that did not recur during the six months endedJune 30, 2022 . Additionally, other expenses decreased approximately$0.3 million that was primarily due to the settlement of litigation related to a terminated acquisition contract during the COVID-19 pandemic that did not recur during the six months endedJune 30, 2022 .
Total Other Income (Expense)
Total other income (expense) consists of interest and other income, interest expense, debt extinguishment and modification expenses, and gain on the sales of rental property, net. Interest expense includes interest incurred during the period as well as adjustments related to amortization of financing fees and debt issuance costs, and amortization of fair market value adjustments associated with the assumption of debt. Total other expense decreased approximately$8.1 million , or 42.9%, to approximately$10.8 million for the six months endedJune 30, 2022 compared to approximately$18.9 million for the six months endedJune 30, 2021 . This decrease is primarily the result of an increase in gain on the sales of rental property, net of approximately$11.9 million . This was partially offset by an increase in interest expense of approximately$4.5 million which is primarily attributable to the issuance of$325.0 million of unsecured notes onSeptember 28, 2021 . Non-GAAP Financial Measures In this report, we disclose funds from operations ("FFO") and NOI, which meet the definition of "non-GAAP financial measures" as set forth in Item 10(e) of Regulation S-K promulgated by theSecurities and Exchange Commission ("SEC"). As a result, we are required to include in this report a statement of why management believes that presentation of these measures provides useful information to investors.
Funds From Operations
FFO should not be considered as an alternative to net income (determined in
accordance with GAAP) as an indication of our performance, and we believe that
to understand our performance further, FFO should be compared with our reported
net income (loss) in accordance with GAAP, as presented in our consolidated
financial statements included in this report.
38
--------------------------------------------------------------------------------
Table of Contents
We calculate FFO in accordance with the standards established by the National
Association of Real Estate Investment Trusts ("Nareit"). FFO represents GAAP net
income (loss), excluding gains (or losses) from sales of depreciable operating
buildings, land sales, impairment write-downs of depreciable real estate, real
estate related depreciation and amortization (excluding amortization of deferred
financing costs and fair market value of debt adjustment) and after adjustments
for unconsolidated partnerships and joint ventures.
Management uses FFO as a supplemental performance measure because it is a widely
recognized measure of the performance of REITs. FFO may be used by investors as
a basis to compare our operating performance with that of other REITs.
However, because FFO excludes depreciation and amortization and captures neither
the changes in the value of our buildings that result from use or market
conditions nor the level of capital expenditures and leasing commissions
necessary to maintain the operating performance of our buildings, all of which
have real economic effects and could materially impact our results from
operations, the utility of FFO as a measure of our performance is limited. In
addition, other REITs may not calculate FFO in accordance with the Nareit
definition, and, accordingly, our FFO may not be comparable to such other REITs'
FFO. FFO should not be used as a measure of our liquidity, and is not indicative
of funds available for our cash needs, including our ability to pay dividends.
The following table sets forth a reconciliation of our FFO attributable to common stockholders and unit holders for the periods presented to net income, the nearest GAAP equivalent.
Three months ended June 30, Six months ended June 30,
Reconciliation of Net Income to FFO (in
thousands) 2022 2021 2022 2021
Net income $ 33,084
69,225 57,291 136,538 115,630
Gain on the sales of rental property, net (376) (5,976) (24,331) (12,385)
FFO 101,933 84,698 199,279 161,976
Preferred stock dividends - - - (1,289)
Redemption of preferred stock - - - (2,582)
Amount allocated to restricted shares of
common stock and unvested units (145) (224) (302) (461)
FFO attributable to common stockholders and
unit holders $ 101,788 $ 84,474 $ 198,977 $ 157,644
Net Operating Income
We consider NOI to be an appropriate supplemental performance measure to net
income (loss) because we believe it helps investors and management understand
the core operations of our buildings. NOI is defined as rental income, which
includes billings for common area maintenance, real estate taxes and insurance,
less property expenses and real estate taxes and insurance. NOI should not be
viewed as an alternative measure of our financial performance since it excludes
expenses which could materially impact our results of operations. Further, our
NOI may not be comparable to that of other real estate companies, as they may
use different methodologies for calculating NOI.
The following table sets forth a reconciliation of our NOI for the periods presented to net income, the nearest GAAP equivalent.
Three months ended June 30, Six months ended June 30,
Reconciliation of Net Income to NOI (in
thousands) 2022 2021 2022 2021
Net income $ 33,084
12,234 12,578 24,547 25,368
Depreciation and amortization 69,279 57,332 136,645 115,739
Interest and other income (23) (30) (57) (62)
Interest expense 17,896 15,273 35,155 30,631
Debt extinguishment and modification expenses - - - 679
Other expenses 532 511 1,029 1,363
Gain on the sales of rental property, net (376) (5,976) (24,331) (12,385)
Net operating income $ 132,626 $ 113,071 $ 260,060 $ 220,064
39-------------------------------------------------------------------------------- Table of Contents Cash Flows
Comparison of the six months ended
The following table summarizes our cash flows for the six months ended
Six months ended June 30, Change
Cash Flows (dollars in thousands) 2022 2021 $ %
Net cash provided by operating activities $ 191,188 $ 162,373 $ 28,815 17.7 %
Net cash used in investing activities $ 334,909 $ 202,017 $ 132,892 65.8 %
Net cash provided by financing activities $ 136,372 $ 37,820 $ 98,552 260.6 %
Net cash provided by operating activities increased approximately $28.8 million
to approximately $191.2 million for the six months ended June 30, 2022 compared
to approximately $162.4 million for the six months ended June 30, 2021 . The
increase was primarily attributable to incremental operating cash flows from
property acquisitions completed after June 30, 2021 , and operating performance
at existing properties. These increases were partially offset by the loss of
cash flows from property dispositions completed after June 30, 2021 and
fluctuations in working capital due to the timing of payments and rental
receipts.
Net cash used in investing activities increased approximately $132.9 million to
approximately $334.9 million for the six months ended June 30, 2022 compared to
approximately $202.0 million for the six months ended June 30, 2021 . The
increase was primarily attributable to the acquisition of 17 buildings and land
parcels for a total cash consideration of approximately $337.3 million for the
six months ended June 30, 2022 compared to the acquisition of 15 buildings for a
total cash consideration of approximately $221.8 million for the six months
ended June 30, 2021 .
Net cash provided by financing activities increased approximately $98.6 million
to approximately $136.4 million for the six months ended June 30, 2022 compared
to approximately $37.8 million for the six months ended June 30, 2021 . The
increase is primarily attributable to the funding of the $400.0 million
unsecured note on June 28, 2022 that did not occur during the six months ended
June 30, 2021 . The increase is also attributable to the redemption of preferred
stock with an aggregate liquidation value of $75.0 million during the six months
ended June 30, 2021 that did not recur. These increases were partially offset by
a net cash outflow of approximately $357.0 million from our unsecured credit
facility and an increase of approximately $11.3 million in dividends paid during
the six months ended June 30, 2022 compared to the six months ended June 30,
2021 , as well as decrease in net proceeds received from the sale of common stock
of approximately $8.5 million during the six months ended June 30, 2022 compared
to the six months ended June 30, 2021 .
Liquidity and Capital Resources
We believe that our liquidity needs will be satisfied through cash flows generated by operations, disposition proceeds, and financing activities. Operating cash flow from rental income, expense recoveries from tenants, and other income from operations is our principal source of funds to pay operating expenses, debt service, recurring capital expenditures, and the distributions required to maintain our REIT qualification. We primarily rely on the capital markets (common and preferred equity and debt securities) to fund our acquisition activity. We seek to increase cash flows from our properties by maintaining quality building standards that promote high occupancy rates and permit increases in rental rates, while reducing tenant turnover and controlling operating expenses. We believe that our revenue, together with proceeds from building sales and equity and debt financings, will continue to provide funds for our short-term and medium-term liquidity needs. Our short-term liquidity requirements consist primarily of funds necessary to pay for operating expenses and other expenditures directly associated with our buildings, including interest expense, interest rate swap payments, scheduled principal payments on outstanding indebtedness, property acquisitions under contract, general and administrative expenses, and capital expenditures including tenant improvements and leasing commissions. Our long-term liquidity needs, in addition to recurring short-term liquidity needs as discussed above, consist primarily of funds necessary to pay for property acquisitions and scheduled debt maturities. We intend to satisfy our long-term liquidity needs through cash flow from operations, the issuance of equity or debt securities, other borrowings, property dispositions, or, in connection with acquisitions of certain additional buildings, the issuance of common units in theOperating Partnership . 40 -------------------------------------------------------------------------------- Table of Contents As ofJune 30, 2022 , we had total immediate liquidity of approximately$643.0 million , comprised of$12.6 million of cash and cash equivalents and$630.4 million of immediate availability on our unsecured credit facility. After quarter end, onJuly 26, 2022 , we amended and restated our unsecured credit facility to increase the aggregate commitments available for borrowing thereunder from$750.0 million to up to$1.0 billion . Also onJuly 26, 2022 , we entered into two loan agreements maturing in 2028 and totaling$375.0 million in principal and repaid two term loans maturing in 2023 and 2024 and totaling$325.0 million in principal. In addition, we require funds to pay dividends to holders of our common stock and common units in theOperating Partnership . Any future dividends on our common stock are voluntary and declared in the sole discretion of our board of directors, subject to the distribution requirements to maintain our REIT status for federal income tax purposes, and may be reduced or stopped for any reason, including to use funds for other liquidity requirements. The following table summarizes the dividends declared on our outstanding common stock during the six months endedJune 30, 2022 . Month Ended 2022 Declaration Date Record Date Per Share Payment Date June 30 April 14, 2022 June 30, 2022$ 0.121667 July 15, 2022 May 31 April 14, 2022 May 31, 2022 0.121667 June 15, 2022 April 30 April 14, 2022 April 29, 2022 0.121667 May 16, 2022 March 31 January 10, 2022 March 31, 2022 0.121667 April 18, 2022 February 28 January 10, 2022 February 28, 2022 0.121667 March 15, 2022 January 31 January 10, 2022 January 31, 2022 0.121667 February 15, 2022 Total$ 0.730002 OnJuly 12, 2022 , our board of directors declared dividends on our common stock for the months endingJuly 31, 2022 ,August 31, 2022 , andSeptember 30, 2022 at a monthly rate of$0.121667 per share. 41
--------------------------------------------------------------------------------
Table of Contents
Indebtedness Outstanding
The following table summarizes certain information with respect to our
indebtedness outstanding as of
Principal
Outstanding as of
June 30, 2022 (in Interest
Loan thousands) Rate(1)(2) Maturity Date Prepayment Terms(3)
Unsecured credit facility:
Unsecured Credit Facility(4)(5) $ 116,000 L + 0.775% October 23, 2026 i
Total unsecured credit facility 116,000
Unsecured term loans:
Unsecured Term Loan D(6) 150,000 2.85 % January 4, 2023 i
Unsecured Term Loan E(6) 175,000 3.77 % January 15, 2024 i
Unsecured Term Loan F 200,000 2.96 % January 12, 2025 i
Unsecured Term Loan G 300,000 1.13 % February 5, 2026 i
Unsecured Term Loan A 150,000 2.15 % March 15, 2027 i
Total unsecured term loans 975,000
Total unamortized deferred financing fees
and debt issuance costs (3,728)
Total carrying value unsecured term loans, 971,272
net
Unsecured notes: Series F Unsecured Notes 100,000 3.98 % January 5, 2023 ii Series A Unsecured Notes 50,000 4.98 % October 1, 2024 ii Series D Unsecured Notes 100,000 4.32 % February 20, 2025 ii Series G Unsecured Notes 75,000 4.10 % June 13, 2025 ii Series B Unsecured Notes 50,000 4.98 % July 1, 2026 ii Series C Unsecured Notes 80,000 4.42 % December 30, 2026 ii Series E Unsecured Notes 20,000 4.42 % February 20, 2027 ii Series H Unsecured Notes 100,000 4.27 % June 13, 2028 ii Series I Unsecured Notes 275,000 2.80 % September 29, 2031 ii Series K Unsecured Notes 400,000 4.12 % June 28, 2032 ii Series J Unsecured Notes 50,000 2.95 % September 28, 2033 ii Total unsecured notes 1,300,000 Total unamortized deferred financing fees and debt issuance costs (4,936) Total carrying value unsecured notes, net 1,295,064 Mortgage notes (secured debt):Wells Fargo Bank , National Association CMBS 45,603 4.31 % December 1, 2022 iii
Loan
Thrivent Financial for Lutherans 3,363 4.78 % December 15, 2023 iv United of Omaha Life Insurance Company 4,844 3.71 % October 1, 2039 ii Total mortgage notes 53,810 Less: Net unamortized fair market value (136)
discount
Total unamortized deferred financing fees and debt issuance costs (39) Total carrying value mortgage notes, net 53,635
Total / weighted average interest rate(7)
3.25 % (1)Interest rate as ofJune 30, 2022 . AtJune 30, 2022 , the one-month LIBOR ("L") was 1.78671%. The current interest rate is not adjusted to include the amortization of deferred financing fees or debt issuance costs incurred in obtaining debt or any unamortized fair market value premiums. The spread over the applicable rate for our unsecured credit facility and unsecured term loans is based on the our debt rating and leverage ratio, as defined in the respective loan agreements. (2)The unsecured term loans have a stated interest rate of one-month LIBOR plus a spread of 0.85%, with the exception of Unsecured Term Loan D which has a stated interest rate of one-month LIBOR plus a spread of 1.0%. As ofJune 30, 2022 , one-month LIBOR for the Unsecured Term Loans A, D, E, F, and G was swapped to a fixed rate of 1.30%, 1.85%, 2.92%, 2.11%, and 0.28%, respectively. One-month LIBOR for the Unsecured Term Loan G will be swapped to a fixed rate of 0.94% effectiveApril 18, 2023 . (3)Prepayment terms consist of (i) pre-payable with no penalty; (ii) pre-payable with penalty; (iii) pre-payable without penalty three months prior to the maturity date, subject to defeasance; and (iv) pre-payable without penalty three months prior to the maturity date. (4)The capacity of our unsecured credit facility is$750.0 million . The initial maturity date isOctober 24, 2025 , or such later date which may be extended pursuant to two six-month extension options exercisable by us in our discretion upon advance written notice. Exercise of each six-month option is subject to the following conditions: (i) absence of a default immediately before the extension and immediately after giving effect to the extension, (ii) accuracy of representations and warranties as of the extension date (both immediately before and after the extension), as if made on the extension date, and (iii) payment of a fee. Neither extension option is subject to lender consent, assuming proper notice and satisfaction of the conditions. 42 -------------------------------------------------------------------------------- Table of Contents (5)Subsequent toJune 30, 2022 , onJuly 26, 2022 , we entered into an amended and restated loan agreement for the unsecured credit facility. See below for additional details. (6)Subsequent toJune 30, 2022 , the Unsecured Term Loan D and Unsecured Term Loan E were repaid in full in connection with our new unsecured term loan agreements entered into onJuly 26, 2022 . See below for additional details. (7)The weighted average interest rate was calculated using the fixed interest rate swapped on the notional amount of$975.0 million of debt, and is not adjusted to include the amortization of deferred financing fees or debt issuance costs incurred in obtaining debt or any unamortized fair market value premiums or discounts. The aggregate undrawn nominal commitments on our unsecured credit facility and unsecured term loans as ofJune 30, 2022 was approximately$630.4 million , including issued letters of credit. Our actual borrowing capacity at any given point in time may be less and is restricted to a maximum amount based on our debt covenant compliance. Our unsecured credit facility, unsecured term loans, unsecured notes, and mortgage notes are subject to ongoing compliance with a number of financial and other covenants. As ofJune 30, 2022 , we were in compliance with the applicable financial covenants. OnJuly 26, 2022 , we entered into an amended and restated credit agreement for our unsecured credit facility (the "July 2022 Credit Agreement"), which provided for an increase in the aggregate commitments available for borrowing under our unsecured credit facility from$750.0 million to up to$1.0 billion . TheJuly 2022 Credit Agreement also provided for the replacement of one-month LIBOR for one-month Secured Overnight Financing Rate ("SOFR"), plus a 0.10% adjustment. Other than the increase in the borrowing commitments and the interest rate provisions described above, the material terms of our unsecured credit facility remain unchanged. OnJuly 26, 2022 , we entered into separate loan agreements for (i) a new$187.5 million unsecured term loan withBank of America, N.A . and the other lenders party thereto ("Unsecured Term Loan H"), and (i) a new$187.5 million unsecured term loan withWells Fargo Bank, National Association , and the other lenders party thereto ("Unsecured Term Loan I"). In connection with the new unsecured term loans, the$150.0 million Unsecured Term Loan D and the$175.0 million Unsecured Term Loan E were repaid in full. Each of the Unsecured Term Loan H and the Unsecured Term Loan I bears a current annual interest rate of one-month SOFR, plus a 0.10% adjustment and a spread of 0.85% based on our debt rating and leverage ratio (as defined in the applicable loan agreement), and matures onJanuary 25, 2028 . OnJuly 27, 2022 , we entered into seven interest rate swaps with a total notional amount of$375.0 million that fix SOFR at 2.579% on the new unsecured term loans. The new interest rate swap with a notional amount of$50.0 million is effective onJuly 27, 2022 and matures onJanuary 25, 2028 . The remaining interest rate swaps become effective onJanuary 4, 2023 andJanuary 12, 2024 upon the maturity of the interest rate swaps previously designated to the Unsecured Term Loan D and Unsecured Term Loan E, respectively, and mature onJanuary 25, 2028 . OnApril 28, 2022 , we entered into a note purchase agreement (the "April 2022 NPA") for the private placement by ourOperating Partnership of$400.0 million senior unsecured notes (the "Series K Unsecured Notes") maturingJune 28, 2032 , with a fixed annual interest rate of 4.12%. TheApril 2022 NPA contains a number of financial covenants substantially similar to the financial covenants contained in our unsecured credit facility and other unsecured notes, plus a financial covenant that requires us to maintain a minimum interest coverage ratio of not less than 1.50:1.00. OurOperating Partnership issued the Series K Unsecured Notes onJune 28, 2022 . The Company and certain wholly owned subsidiaries of ourOperating Partnership are guarantors of the Series K Unsecured Notes.
The following table summarizes our debt capital structure as of
Debt Capital StructureJune 30, 2022
Total principal outstanding (in thousands)
5.0
% Secured debt 2.2 %
% Debt maturing next 12 months 12.1 %
Net Debt to Real Estate Cost Basis(1) 35.8 %
(1)"Net Debt" means amounts outstanding under our unsecured credit facility,
unsecured term loans, unsecured notes, and mortgage notes, less cash and cash
equivalents. "Real Estate Cost Basis" means the book value of rental property
and deferred leasing intangibles, exclusive of the related accumulated
depreciation and amortization.
We regularly pursue new financing opportunities to ensure an appropriate balance
sheet position. As a result of these dedicated efforts, we are confident in our
ability to meet future debt maturities and fund acquisitions. We believe that
our current balance sheet is in an adequate position at the date of this filing,
despite possible volatility in the credit markets.
Our interest rate exposure on our floating rate debt is managed through the use
of interest rate swaps, which fix the rate of our long term floating rate debt.
For a detailed discussion on our use of interest rate swaps, see "Interest Rate
Risk" below.
43--------------------------------------------------------------------------------
Table of Contents Equity Preferred Stock We are authorized to issue up to 20,000,000 shares of preferred stock, par value$0.01 per share. As ofJune 30, 2022 andDecember 31, 2021 , there were no shares of preferred stock issued or outstanding.
Common Stock
We are authorized to issue up to 300,000,000 shares of common stock, par value
The following table summarizes our at-the-market ("ATM") common stock offering
program as of June 30, 2022 . Pursuant to the equity distribution agreements for
our ATM common stock offering program, we may from time to time sell common
stock through sales agents and their affiliates, including shares sold on a
forward basis under forward sale agreements. There was no activity under the ATM
common stock offering program during the three months ended June 30, 2022 .
Aggregate Available as
Maximum Aggregate Offering of June 30, 2022 (in
ATM Common Stock Offering Program Date Price (in thousands) thousands)
2022 $750 million ATM February 17, 2022 $ 750,000 $ 750,000
In connection with our underwritten public offering that closed in November
2021 , on December 3, 2021 , we executed a forward sale agreement for the sale of
an additional 1,200,000 shares of common stock on a forward basis at a price of
$41.87 per share. We did not initially receive any proceeds from the sale of
shares on a forward basis. On March 29, 2022 , we physically settled in full the
forward sales agreement by issuing 1,200,000 shares of common stock for net
proceeds of approximately $49.7 million , or $41.39 per share.
Noncontrolling Interest
We own our interests in all of our properties and conduct substantially all of our business through theOperating Partnership . We are the sole member of the sole general partner of theOperating Partnership . As ofJune 30, 2022 , we owned approximately 97.9% of the common units in theOperating Partnership , and our current and former executive officers, directors, senior employees and their affiliates, and third parties that contributed properties to us in exchange for common units in theOperating Partnership owned the remaining 2.1%.
Interest Rate Risk
We use interest rate swaps to fix the rate of our variable rate debt. As of
We recognize all derivatives on the balance sheet at fair value. If the derivative is designated as a hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income (loss), which is a component of equity. Derivatives that are not designated as hedges must be adjusted to fair value and the changes in fair value must be reflected as income or expense. We have established criteria for suitable counterparties in relation to various specific types of risk. We only use counterparties that have a credit rating of no lower than investment grade at swap inception fromMoody's Investor Services ,Standard & Poor's , or Fitch Ratings or other nationally recognized rating agencies. 44 -------------------------------------------------------------------------------- Table of Contents The following table details our outstanding interest rate swaps as ofJune 30, 2022 . Notional Amount (in Fair Value Pay Fixed Receive Variable Interest Rate Derivative Counterparty Trade Date Effective Date thousands) (in thousands) Interest Rate Interest Rate Maturity Date The Toronto-Dominion Bank Jul-20-2017 Oct-30-2017$ 25,000 $ 108 1.8485 % One-month L Jan-04-2023 Royal Bank of Canada Jul-20-2017 Oct-30-2017$ 25,000 $ 107 1.8505 % One-month L Jan-04-2023Wells Fargo Bank, N.A. Jul-20-2017 Oct-30-2017$ 25,000 $ 107 1.8505 % One-month L Jan-04-2023PNC Bank, N.A. Jul-20-2017 Oct-30-2017$ 25,000 $ 108 1.8485 % One-month L Jan-04-2023PNC Bank, N.A. Jul-20-2017 Oct-30-2017$ 50,000 $ 216 1.8475 % One-month L Jan-04-2023 The Toronto-Dominion Bank Apr-20-2020 Sep-29-2020$ 75,000 $ 1,633 0.2750 % One-month L Apr-18-2023Wells Fargo Bank, N.A. Apr-20-2020 Sep-29-2020$ 75,000 $ 1,627 0.2790 % One-month L Apr-18-2023 The Toronto-Dominion Bank Apr-20-2020 Mar-19-2021$ 75,000 $ 1,633 0.2750 % One-month L Apr-18-2023Wells Fargo Bank, N.A. Apr-20-2020 Mar-19-2021$ 75,000 $ 1,626 0.2800 % One-month L Apr-18-2023 The Toronto-Dominion Bank Jul-24-2018 Jul-26-2019$ 50,000 $ 171 2.9180 % One-month L Jan-12-2024PNC Bank, N.A. Jul-24-2018 Jul-26-2019$ 50,000 $ 170 2.9190 % One-month L Jan-12-2024 Bank of Montreal Jul-24-2018 Jul-26-2019$ 50,000 $ 170 2.9190 % One-month L Jan-12-2024U.S. Bank, N.A. Jul-24-2018 Jul-26-2019$ 25,000 $ 85 2.9190 % One-month L Jan-12-2024Wells Fargo Bank, N.A. May-02-2019 Jul-15-2020$ 50,000 $ 930 2.2460 % One-month L Jan-15-2025U.S. Bank, N.A. May-02-2019 Jul-15-2020$ 50,000 $ 936 2.2459 % One-month L Jan-15-2025Regions Bank May-02-2019 Jul-15-2020$ 50,000 $ 933 2.2459 % One-month L Jan-15-2025 Bank of Montreal Jul-16-2019 Jul-15-2020$ 50,000 $ 1,590 1.7165 % One-month L Jan-15-2025U.S. Bank, N.A. Feb-17-2021 Apr-18-2023$ 150,000 $ 7,690 0.9385 % One-month L Feb-5-2026Wells Fargo Bank, N.A. Feb-17-2021 Apr-18-2023$ 75,000 $ 3,818 0.9365 % One-month L Feb-5-2026 The Toronto-Dominion Bank Feb-17-2021 Apr-18-2023$ 75,000 $ 3,861 0.9360 % One-month L Feb-5-2026Regions Bank Oct-26-2021 Apr-01-2022$ 50,000 $ 3,446 1.3045 % One-month L Mar-15-2027 Bank of Montreal Oct-26-2021 Apr-01-2022$ 50,000 $ 3,472 1.3045 % One-month L Mar-15-2027PNC Bank, N.A. Oct-26-2021 Apr-01-2022$ 50,000 $ 3,462 1.3045 % One-month L Mar-15-2027 The swaps outlined in the above table were all designated as cash flow hedges of interest rate risk, and all are valued as Level 2 financial instruments. Level 2 financial instruments are defined as significant other observable inputs. As ofJune 30, 2022 , the fair value of all 23 of our interest rate swaps were in an asset position of approximately$37.9 million , including any adjustment for nonperformance risk related to these agreements. As ofJune 30, 2022 , we had approximately$1,091.0 million of variable rate debt. As ofJune 30, 2022 , all of our outstanding variable rate debt, with the exception of our unsecured credit facility, was fixed with interest rate swaps through maturity. To the extent interest rates increase, interest costs on our floating rate debt not fixed with interest rate swaps will increase, which could adversely affect our cash flow and our ability to pay principal and interest on our debt and our ability to make distributions to our security holders. From time to time, we may enter into interest rate swap agreements and other interest rate hedging contracts, including swaps, caps and floors. In addition, an increase in interest rates could decrease the amounts third parties are willing to pay for our assets, thereby limiting our ability to change our portfolio promptly in response to changes in economic or other conditions.
Off-balance Sheet Arrangements
As ofJune 30, 2022 , we had letters of credit related to development projects and certain other agreements of approximately$3.6 million . As ofJune 30, 2022 , we had no other material off-balance sheet arrangements.
© Edgar Online, source
