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Investing.com -- Moody’s Ratings has upgraded the credit rating of STAG Industrial Operating Partnership, L.P. (STAG) to Baa2 from Baa3. Along with this upgrade, the firm’s outlook has been revised to stable from positive.
This improvement in rating is attributed to STAG’s consistently moderate leverage, which remains in the low-to-mid 5.0x range, despite the company’s significant growth. The upgrade also acknowledges STAG’s solid operating performance and financial flexibility that will support its ongoing growth and diversification.
The stable outlook is based on the expectation that STAG will continue generating consistent operating cash flows while implementing its growth strategy based on acquisitions, without altering its leverage.
The Baa2 rating by Moody’s reflects the size, quality, and diversification of STAG’s portfolio, which helps to lessen market and tenant-specific risks. It also acknowledges the company’s consistent and cautious capital strategy over the past few years, maintaining leverage on a net debt to EBITDA basis in the low-to-mid 5x range.
STAG’s credit strengths are somewhat balanced by its exposure to single-tenant properties and non-primary industrial markets, which have usually seen weaker demand and slower rent growth. However, in the current environment, these may provide a safety net against significant downside risks as tenants increasingly look to diversify their supply chains into non-coastal or non-port-centric markets.
STAG’s upcoming lease expirations present potential risks that need careful management to ensure continued cash flow stability and NOI growth. The company’s good liquidity is supported by a large, unencumbered asset portfolio, full availability under its $1.0 billion unsecured credit facility expiring in 2028, and cash availability.
The company’s near-term debt maturities are manageable with $75 million due in 2025 and $430 million in 2026, primarily consisting of unsecured private placements. Additional capital needs related to the company’s redevelopment and development pipeline are modest.
According to Moody’s, a rating upgrade would reflect stable operating trends through industry cycles, and maintenance of net debt to EBITDA below 5.0x, and fixed charge coverage above 4.5x, each on a sustained basis. Conversely, a rating downgrade could result from deteriorating operating trends as measured by same-store NOI growth, occupancy, and leasing activity. Net debt to EBITDA above 6.0x and fixed charge coverage below 3.0x, each on a sustained basis, could also result in a downgrade.
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