STAG Is The Moneyball Of Real Estate Investing

STAG Industrial is an Industrial REIT that went public in 2011 (the predecessor was STAG Capital Partners that formed in 2004), and since that time, the company has grown from 105 buildings to 347 buildings in 37 states, with approximately 69.1 million rentable square feet.

Summary

  • Under our current tax system, it makes more sense for companies to move manufacturing jobs out of the United States.
  • Reducing taxes on businesses and individuals, and reducing regulations, will cause more companies to invest in America again.
  • “The pleasure of rooting for David is that, while you don’t know what to expect, you stand at least a chance of being inspired.” - Michael Lewis.

Last week Republican lawmakers unveiled a sweeping rewrite of the Tax Code, outlining a $1.5-trillion plan that will deliver significant tax cuts for corporations. At the center is a proposal to permanently cut the corporate tax rate from 35% to 20%, a significant decrease for American companies that will result in increased earnings and dividend growth for many corporations.

NAREIT has published the Tax Reform bill here

Commercial real estate is a beneficiary of the proposed Tax Reform bill as many small, medium, and large businesses should see profits grow as a result of the substantial tax cuts.

Under our current tax system, it makes more sense for companies to move manufacturing jobs out of the United States, produce products in lower-wage countries, and then export their goods back to the U.S., because we do not impose corporate tax on imports.

Companies which remain in the U.S. pay the highest business tax in the world and pay American workers American-level wages. Meanwhile, they are competing with companies who are paying foreign workers incredibly low wages – and paying no corporate taxes.

Reducing taxes on businesses and individuals, and reducing regulations, will cause more companies to invest in America again. The Tax Foundation reports that Speaker Ryan’s plan will create about 1.7 million jobs in America, and increase Gross Domestic Product by more than 9 percent.

The U.S. Industrial market is over $1 trillion in size and this property sector represents one of the largest benefactors of Corporate Tax Reform. Demand exceeded new supply throughout 2016 – adding to a total of 27 straight quarters where this condition persisted.

The foundations of this prolonged and heightened demand are countless, but the growth of e-commerce is certainly a contributing factor. Supply-demand equilibrium will have to occur at some point, but Corporate Tax Reform should serve as a catalyst to boost the sector into additional innings. As Ben Butcher, CEO of STAG Industrial (STAG), explains (Annual Report),

Our experience continues to be that tenants generally do not move to obtain improved building parameters (clear height, cross dock, etc.) – they most often move to get into a larger building that will serve their specific needs such as a consolidation of facilities, M&A activity, etc..”

In STAG's 2016 Annual Report, Butcher (the CEO) goes on to explain,

In the foreword to his recent book, The Undoing Project, Michael Lewis talks about the impact that his book, Moneyball, had on how people think in areas other than baseball. Mentions were made about the “Moneyball of Farming,” the “Moneyball of Golf,” the “Moneyball of Medicine,” etc.
In all of these areas, people were improving their decision-making by using analysis to avoid the flaws engendered by the application of ‘conventional wisdom’ and/or ‘judgment.’ As in the original Moneyball (of Baseball), the point is to increase the probability of the correct decision – not to guarantee a particular outcome.
STAG’s investment thesis could be called the “Moneyball of Real Estate Investing” (as applied to the industrial sector). We use analysis to overcome judgment biases to find properties that are undervalued by other investors.
By aggregating these individual, relative value assets, we have created a large and diverse portfolio. This diversification greatly diminishes the volatility of projected returns – to the benefit of STAG’s shareholders.
We at STAG will continue to execute our investment strategy and maintain our pricing and return discipline with accretive portfolio growth. We are committed to maintaining our impeccable reputation for integrity and good corporate governance.
In the practice of real estate acquisition and management, cash flow is what matters. Our promise to you, our fellow shareholders, is to maintain our focus on delivering the best, risk-adjusted cash flow returns available.”

The Evolution of STAG

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