STAG Industrial, Inc. Q2 FY2026 earnings call

Market Fundamentals

• Industrial market fundamentals stabilized in Q2 2026, with national and portfolio vacancy having peaked
• Q2 2026 net absorption hit 69 million square feet, a meaningful acceleration from Q1, bringing first half net absorption to 111 million square feet, the best first half result since 2022
• The national development pipeline has contracted to roughly half its 2022 peak; under construction inventory represents just 2% of total stock, 55% of which is pre-leased
• Inland U.S. markets have outperformed coastal markets on demand and absorption, and Stagg's portfolio is well positioned to benefit from this trend

Demand Drivers

• Demand tailwinds remain diversified and intact: e-commerce retail share hit a record high in early 2026, near-shoring/on-shoring continues to grow as a demand source amid supply chain diversification, and data center support warehouse demand has emerged as a strong new incremental driver
• Since early 2025, Stagg has leased 2.3 million square feet to data center-related tenants, with long weighted average lease terms and strong credit quality; demand is concentrated in the Midwest, Southeast, and Texas, and primarily supports nearby existing data center operations

Acquisition Activity

• Acquisition opportunities increased in the first half of 2026; Q2 2026 acquisition volume totaled $287.1 million, with a cash cap rate of 6.1% and straight line cap rate of 6.8% across 7 Class A assets
• Bid-ask spreads have tightened as the market has stabilized, but the company does not pay portfolio premiums and underwrites all acquisitions at individual asset pricing

Development Activity

• As of Q2 end, 2.3 million square feet across 9 buildings are in active development, with an expected stabilized yield of 7.1%
• Q2 2026 added two new development projects: a 343,000 square foot build-to-suit near Dallas, TX (delivery Q2 2027, 7.5% expected yield) and a 184,000 square foot project in Chandler, AZ (groundbreaking late Q3 2026, delivery Q3 2027)
• Two developments reached significant leasing milestones post-quarter end: 25% of the Tampa development was leased to a fueling solutions provider (August 1 start), and 62% of the Reno development was leased to an e-commerce firm (September 1 start)
• Development yields consistently exceed 7%, making this a high-value growth channel the company plans to gradually ramp up

Capital Structure and Leasing Operations

• Net debt to annualized adjusted EBITDA leverage is 5.2x, or 5.1x including unfunded forward equity proceeds, which remains at a conservative low level
• Total liquidity stood at $614 million as of Q2 end; the company completed a successful refinancing of $350 million in maturing term loans, extending maturities to 2032 and achieving a 5 basis point interest rate reduction across all bank debt
• Q2 2026 saw 36 new leases signed across 5.6 million square feet, with cash leasing spreads of 19.8% and straight line spreads of 33.7%; quarterly retention was 75.7%
• 92% of the full year 2026 planned leasing volume is already completed at levels matching guidance, with full year leasing spreads expected to land near the top of the 18-20% guidance range
• Smaller tenant demand (under 70,000 square feet) has recently picked up after a period of softness, while demand for 150,000-300,000 square foot space is also beginning to improve

Stagg Industrial operates as a single-segment industrial real estate investment trust focused on industrial warehouse properties, so no separate product segment financials are reported. Aggregate core FFO per share for Q2 2026 was $0.65, a 3.2% increase year-over-year. Same-store net operating income grew 3.4% in Q2 2026 and 3.9% year-to-date. Acquisition revenue contribution for Q2 2026 totaled $287.1 million across 7 newly acquired buildings. Development activity totaled 2.3 million square feet of unserviced projects as of Q2 end.

• Credit loss guidance was revised downward from 50 basis points to 30 basis points, driven by lower-than-expected year-to-date credit losses of only 6 basis points
• Average same-store occupancy guidance was increased by 25 basis points to a range of 96.25% to 97.25% (midpoint 96.75%, matching current spot occupancy levels)
• 2026 annual retention guidance was narrowed to 75%, in line with Q2 performance
• Cash same-store net operating income growth guidance was increased to 3% to 3.5%, a 25 basis point increase at the midpoint
• Full year 2026 acquisition volume guidance was increased to a range of $400 million to $700 million, with expected stabilized acquisition cap rates of 6% to 6.5%
• Core FFO per share guidance for 2026 was increased to a range of $2.61 to $2.65, a 1 cent increase at the midpoint

• Macroeconomic and interest rate volatility create uncertainty around acquisition cadence for the second half of 2026, limiting management's visibility for larger-than-guided acquisition volume
• Coastal port markets (including Savannah, Charleston, and El Paso) and the Reno distribution market are experiencing slower demand than inland markets, resulting in softer leasing activity for assets in these regions
• The gradual ramp-up of development activity is constrained by project lead times, limiting how quickly the company can shift capital allocation to this higher-yield channel
• Competition for acquisition assets has tightened pricing, compressing cap rates and requiring more selective underwriting to maintain accretive returns
• Non-core asset disposition timelines are extended by the need to maximize value by renewing expiring leases before sale, slowing portfolio pruning

Q: Analyst asks about the pipeline and cadence of acquisitions for the remainder of 2026, and the mix of single assets versus portfolio purchases after the company passed on a large $300 million portfolio earlier. / A: Management reports limited property is currently under contract or LOI, which is why guidance was only lifted by $50 million at the midpoint. Q4 is typically the largest acquisition quarter, but macro and rate volatility reduced management confidence in forecasting near-term cadence; if rates stay stable, the current Q2 pace can be maintained. All Q2 acquisitions were single Class A assets in high-confidence markets, with decently accretive pricing relative to the company's cost of capital, and the firm does not pay portfolio premiums for large bulk acquisitions.

Q: Analyst asks about the geographic concentration and nature of emerging data center support warehouse demand. / A: Management notes demand is broad across the Midwest, Southeast, and Texas, rather than concentrated in a single market. Almost all demand is for support space (generator storage, spare parts) for nearby existing data centers, not for building new data centers themselves. The 2.3 million square feet of data center-related leases signed since 2025 have a 7-year weighted average lease term and 33% rent uplift, representing strong long-term incremental demand.

Q: Analyst asks about the current trajectory of 2027 leasing planning compared to past years, to get early insight into market momentum heading into next year. / A: Management reports that as of late July, 35% of the 2027 leasing plan is already locked in (primarily early renewals), compared to the historical 26-28% at this point in the year. This ahead-of-schedule progress reflects solid tenant demand and high tenant retention, as tenants increasingly choose to lock in space early in the current market.

Q: Analyst asks for an update on activity in the company's in-process development projects across markets. / A: Management reports 65% of the under construction pipeline is already leased, driven by a high build-to-suit share. Activity is excellent for a spec development in Kansas City, and healthy for projects in Charlotte and Louisville, where vacancy has dropped rapidly. The only slower market is the Reno distribution submarket, where traditional logistics demand is soft due to spillover from California market weakness, though the recent 62% pre-lease of one development has meaningfully reduced exposure.