STAG Industrial: A Lesson In Due Diligence

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About: STAG Industrial, Inc. (STAG)
by: Beyond Saving

Summary

Reading a recent Seeking Alpha article revealed something about STAG that I completely missed.

Investor presentations are all about selling the company to investors, and require a healthy dose of skepticism.

Do not be afraid to look to SEC filings to make sure the slide is saying what you believe it is saying.

I just wrote an article about STAG Industrial (STAG) yesterday. I thought I had said everything that needed to be said. Now I need to apologize to my readers because I missed something I consider to be pretty big.

Generally, I pay very little attention to "investor presentations". The entire point of such presentations is to sell shares. So I treat them like I might treat a presentation for a time-share. I expect some puffery, some spin, and some shining the spotlight on the good so that the warts are less obvious. Part of being a C-suite executive is making your company look good. That is especially important for businesses like REITs which rely heavily on issuing more equity.

My approach to investor presentations is usually a quick scan and sometimes I ignore them completely. For REITs, I strongly favor relying on quarterly supplementals, which are usually produced in a consistent format quarter to quarter and provide information directly tied to SEC filings.

So when I wrote my article on STAG, I used their quarterly supplements and their SEC filings. I did not even open their investor presentation. That lapse is what caused me to miss this slide,

Source

Fortunately, here on SA we have a broad community and other authors will often find things that we might miss. I discovered this slide while reading a bullish article.

In general, STAG provides very little information regarding dispositions. Their supplements look like this,

Source

You get the square footage, the number of buildings, the general market, and the gross proceeds. They do not provide an estimated cap-rate, current or prior NOI, occupancy, the size of the gain or loss, or the IRR. It is frustrating to even figure out exactly which buildings they sold, you have to literally compare 10-K to 10-K and find the differences.

If you notice, this page is from Q4 of 2016 and has 24 buildings sold during the year for gross proceeds of $154.7. In the slide provided in their investor presentation, they provide details on 6 buildings totaling 1.15 million square feet with proceeds of $57.3 million.

A casual reading of the investor presentation would lead an investor to believe that STAG is routinely selling properties for big gains. While completely ignoring the numerous properties they sold for a loss.

Compiling the numbers for the 3 years, here is what was reported in the presentation versus what is reported in the quarterly supplements.

Source: Numbers from Winter 2018 Presentation and quarterly supplements

On average, STAG is only reporting IRR for slightly over 30% of the properties they sold. I could understand if they were excluding one or two large sales that were abnormal, although even then they should have a footnote explaining why that sale was excluded. I do not understand excluding almost 70% of sales without being very explicit that the represented sales are cherry-picked.

When I see a picture of a particular property and some details, I expect that they are bragging about a situation that might or might not be the standard. For example, this slide,

Source

When most readers see this slide they likely interpret it as a couple of selections that represent the ideals or goals. It is a "this is what we try to do, and here are a couple of successes". Every reader knows that a case study is not going to be prepared for every single property.

When you provide a list with dates and details, I assume you are including every property that would logically belong on that list. The dispositions slide of the investor presentation is extremely misleading. Even a veteran of REIT investing can fall into the trap of trusting it.

STAG continues to market a portfolio of assets for sale and the company said that “interest and investor activity has been robust.” Here’s a snapshot of recent dispositions:

Source

When I was reading the article, I initially glanced over it and accepted it at face value. It was only after realizing that it had dates back to 2016 I realized there were not nearly enough sales on the list and took a deeper look.

In reality, the slide is not a snapshot of "recent dispositions", it is a snapshot of select dispositions.

Conclusion

I fully expect investor presentations and conference calls to include spin, puffery, and management doing their best to make the company look as good as possible. After all, selling the company is an important part of their job.

On the other hand, it is vital as an investor that I am able to generally trust the accuracy of the information I am provided. In my opinion, the slide as presented portrays to the reader that it is an all-inclusive list of property dispositions when in reality it is less than 1/3rd of their dispositions.

Providing information on the total return of disposed properties is something that a lot of REITs do poorly. It is often hard to figure out whether a sold property was cash-flow positive or not. I wish all REITs would provide the IRR for all of their dispositions. Most don't. Providing such information on 1/3rd of properties is worse than useless. It gives investors the impression that they know what returns are typical on STAG dispositions when the average return could be substantially different.

As presented, this slide is highly misleading. It fooled me at first glance and it no doubt fooled thousands of readers. I cannot say whether the deception was intentional on STAG's part, perhaps whoever put the slide deck together thought the title "Opportunistic Dispositions" was clear enough that the slide was only covering a portion of dispositions. As a writer, I know all too well that sometimes something that makes perfect sense in your head is perceived extremely differently by the audience.

As investors, the burden is on us to do our due diligence. This is a reminder to be particularly careful when relying on "investor presentations" as a part of that process. Take everything portrayed with a healthy dose of salt and do not be afraid to double or triple check any claims made in those presentations by data checking using official SEC filings. Sometimes a slide is not portraying what you initially believe it is portraying.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.