Last week, STAG Industrial, Inc., a Boston-based REIT, announced that it had acquired a 31-property portfolio in the US for about $129 million ($30 per square foot). This portfolio has properties in 10 states, mostly warehouse and distribution facilities, with 29 different tenants. The properties are 91% leased and were purchased at a 9% cap rate.
STAG's latest purchase brings the company's total acquisition activity in 2012 to $343 million. With the addition of this portfolio, the company's total square footage has increased by 63% since the end of 2011.
"We focus on assets that will produce the best cash flow," says Benjamin Butcher, STAG's CEO, referring to the company's strategy of buying single tenant, Class B industrial buildings, mostly in secondary markets in the US. STAG Industrial, which did an IPO in April, 2011, usually buys industrial buildings that are 100% occupied, he says.
"The secondary markets have higher cap rates," says Butcher. Plus, single-tenant properties require less investment for leasing and management, he says. "Single tenant properties tend to be managed by the tenants themselves," says Butcher. And, according to the company website, Class B industrial properties tend to have higher current returns and lower volatility than Class A industrial properties.
Butcher founded STAG Industrial's predecessor business in 2003. Since 2004, the company has deployed approximately $1.8 billion of capital, representing the acquisition of 294 properties, totaling about 49.4 million rentable square feet.
STAG has 165 assets in 30 states, mostly in the Midwest, Southeast and Northeast, although the company does not focus on particular markets, says Butcher. Prices for these properties range from $5 million to $25 million, although most are in the $5 million to $15 million range, and the average building size is about 175,000-square feet, he says. As for the average age of the buildings, Butcher says, "We pay more attention to the age of the roof," than the age of the whole building.
Butcher says that he can't say how much Stag will grow in the remainder of 2012. But in 2013, and for the foreseeable future, he expects the company to grow about 25% per year. "Since our IPO," he says, "we have grown about 80%," in terms of the dollar volume that Stag invested in its assets.
Part of reason for Stag's success, as well as for the improvement in the industrial real estate market in general, says Butcher, is the resurgence in manufacturing in the US and the improvement in the economy overall, as well as the dearth of new industrial buildings.
As for the REIT market generally, according to REIT.com, as of early September, of the 18 REITs that have had IPOs since the beginning of 2010, only five have out-performed the SNL US REIT Index since completing their offerings--CoreSite Realty Corp.,(NYSE: COR); Retail Properties of America (NYSE:RPAI); American Assets (NYSE:AAT); Select Income REIT (NYSE: SIR) and Stag Industrial (NYSE:STAG).