Companies use investor or analyst day presentations as venues to show deep dive details on how their businesses operate and how the management team works to build share owner value. The detailed view of a business typically provided helps me evaluate the long-term dividend growth prospects of the company making the presentation. Recently, commercial property REIT Stag Industrial Inc. (NYSE:STAG) held their first ever Investor and Analyst Day presentation. I took the opportunity to hold a microscope up to this high-yield dividend payer and see what its all about.
The timing of the presentation could not be better. The STAG share price is down 24% since REITs as a group peaked in late January. The information from management highlighted the unique business model of STAG and reaffirms my recommendation that this REIT is a long-term hold for an attractive yield –currently 6.6%– and a growing dividend. Here are the highlights.
Looking for Inefficiencies
The core of STAG’s commercial property investment strategy is to find properties that are mispriced and will produce higher long-term cash flow yields. Founder and CEO Ben Butcher discussed the concept that traditional net lease financing with high-quality tenants, in major markets, with long-term leases is as close to a riskless transaction as you could find in commercial real estate. This type of property and lease deal is highly sought by commercial investors (REITs, pension funds, etc.) and the competition results in assets priced at low but safe yields. Butcher continued to state that if you remove just one of the factors that make a high quality commercial net lease so desirable by conservative investors, the investment return can increase dramatically. To quote: “In essence you would be overpaid for the risk you were taking.â€
A business was developed to focus on single tenant industrial assets. This is a diverse market where return inefficiencies could and can be found.
