Q3 2019 Earnings Call
Greetings and welcome to the Stag industrial third quarter 2019 earnings Conference call. At this time, all participants are no listen only mode. A question answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad as a reminder.
Conference is being recorded it is now my pleasure to introduce your host that's been art Senior Vice President of Investor Relations. Thank you Sir you may begin.
Thank you welcome to Scott Industrials conference call covering the third quarter 2019 result.
In addition to the press release distributed yesterday, because in order to quarterly supplemental informational presentation is web site at stag industrial Dot com under the Investor Relations section.
Today's call it the company's prepared remarks and answers your questions will contain forward looking statements as defined in the private Securities Litigation Reform Act like to 95.
Forward looking statements address matters are subject to risks and uncertainties that may cause actual results to differ from those discussed today.
Forward looking statements include statements relating to earnings trends do you name out acquisition disposition volumes retention rates that capacity dividend rate industry, and economic trends and other matters.
We encourage all of our listeners to review the more detailed discussion related to these forward looking statements concerning the company's filings actually seen the definitions and reconciliations to non-GAAP measures continuous supplemental information package also available on the company's website as a reminder.
Looking statements represent management's estimates as of today.
Stag industrial assumes no obligation to update any forward looking statements on today's call you'll hear from Penn Butcher, Our Chief Executive Officer, and Bill Crooker, Our Chief Financial Officer, I'll now turn the bothered about.
Thank you Matt.
Good morning, everybody and welcome to the third quarter earnings call for Stag Industrial we're pleased to have you join us and look forward to telling you about a third quarter results.
Presenting today in addition to myself will be Bill Crooker, our Chief Financial Officer will discuss the bulk of the financial operational data also made there Steve Mecke, our chief operating officer, and Dave Kang I direct your real estate operations.
It will be available to answer a question specific to there is a focus.
Yesterday, we announced acquisition volume of just over $300 million for the third quarter. This brings our your day total including acquisitions that have closed subsequent to quarter at approximately.
875 million.
So we've raised the top end up about 2019 acquisition guidance to $1.2 billion, a significant increase from our initial volume guidance.
I've already close well in excess of any previous years acquisition totals and showing this will be the company's most successful year on external growth.
At the same time, our operating metrics for the first three quarters of 2019 remains strong.
We achieved cash releasing spreads of 11.4% for Tesoro, 74% and same store cash NOI growth of 1.9%.
All of these metrics meet or should have surpassed our initial and then any subsequently increased 2019 guidance.
This is prompted a further upward revision toward 2019 same store NOI guidance this quarter that bill will describe in his remarks.
This marks one of the company's most successful years producing internal growth.
Stag has demonstrated the rare ability to provide both external and internal growth.
[noise] growing GDP in a particular continued strong consumer spending provide strong demand support for the industrial sector.
Continued growth of e-commerce , the associated supply chain reconfiguration and increase inventory needs are large editor drivers on industrial demand.
As we've previously highlighted stacks portfolio is located proximate to centers are population and is directly benefiting from these secular tailwinds.
Consistent with headlines and various industry reports stags markets contains a benefit from healthy demographic trends.
The transient population unemployment growth, which drive income growth and industrial demand have generally been positive nationwide and this holds true when looking at our largest market exposures.
Population growth, that's specifically growth in prime working age population helped drive Metro GT GDP growth.
Metro GDP is projected to grow across our top market exposures and broadly across our portfolio wide market exposure. This has given our robust portfolio company operating metrics for this year.
This fall we rolled out a third annual comprehensive Tenet survey. This survey has proven to be a valuable tool that allows us the gain additional insights into our tenants you on their business the world and other current and future real estate needs are being that.
Consistent with last year results from the survey show an increase in business activity, both at the corporate and building level.
52% of respondents indicated business activity is increasing at the corporate level and 41% indicator to increase at the building level.
The macro environment continues to be uncertain, specifically with regard to trade wars in response to a direct question related to the impact of terrorists and other restrictions or tenants in the kids on the average there was a small negative impact to their business, where the sponsors ranging from a large negative impact to a small benefit.
We continue to believe is too early to tell what these impacts will be but nodes. The results from the 10 of the survey indicates that the tone has become more cautious compared to our survey from one year ago.
Stacks emphasis on geographic and industry diversification should provide a level protection should negative trade impacts start to be evident.
Ecommerce is clearly an important and growing incremental demand driver at 44% of our portfolios billions are currently handling e-commerce activity and 47% a response indicate that ecommerce activity has increased and their facility over the past year.
These responses have grown compared to last year and we expect this trend to continue.
It is important to note that the traditional demand drivers for industrial real estate, such as GDP growth and improved business confidence continue to provide baseline support to industrial fundamentals.
Survey results are consistent with our operating results the increase in business activity and increasing importance of ecommerce toward tenants businesses have directly contributed to our strong operating results over the past several quarters.
With that I'll turn it over to Bill will discuss our operational results.
Thank you bad and good morning, everyone.
Core FFO was 46 cents for the quarter, an increase of 2.2% compared to the third quarter 2018.
Leverage remains at the low end of our guidance with net debt to run rate adjusted EBITDA of 4.7 times.
Acquisition volume for the thought third quarter totaled $303 million with a stabilized cash cap rate of 6.8%.
And a straight line cap rate of 7.2%.
Straight line cap rate incorporates weighted average rental and escalators of 2% associated with this quarter's acquisitions.
This brings acquisition volume through Q3 to $748 million with stabilized cash and straight line cap rates of 6.5% and 7.1% respectively.
Subsequent to quarter on our acquisition volume today is $126 million.
The demand for our buildings continue to be reflect in our portfolio operating results with new and renewal cash leasing spreads of 19.7% and 8.6% respectively.
Straight line, releasing spreads for the quarter robust as well with new and renewal straight line, releasing spreads of 24.7% and 14.8% respectively.
Attention for the quarter was 61%.
Same store cash NOI grew by 1.3% for the quarter, which was positively impacted by our attention and cash releasing spreads and partially offset by decline occupancy within the same store pool in the third quarter.
Year to date and same store cash NOI has grown 1.9% driven by retention rate of 74% and a cash releasing spreads of 11.4%.
This was partially offset with the decline in occupancy in the year to date same store pool as Ben mentioned these metrics have exceeded our budgets and have contributed to our increase in same store cash NOI guidance for 2019.
Moving to our capital market activity as previously discussed on the second quarter call. We funded term loan E and originally originated term on F.
Turning one he has a notional of $175 million and is fully swapped to fixed rate of 3.92%.
Term loan AFE has a delay draw feature and is currently undrawn with a notional the 200 million and it's fully swapped at a fixed rate of 3.11%.
On September 24th we completed an equity offering at $29 per share, which resulted in aggregate net proceeds of approximately $362 million.
With a portion of those proceeds we received on a forward basis.
We received net proceeds of $157 million in September and expect to settle the forward contract.
And the received the remaining $205 million in the next few months.
The $157 million EMEA proceeds were used to fund a third quarter acquisitions, and a $205 million or proceeds to be forward. It settled will help fund upcoming identified acquisitions.
At quarter end date net debt to run rate adjusted EBITDA was 4.7 times are fixed charge coverage equaled five times.
Valuable liquidity is $623 million.
Weve updated our public guidance to reflect our activity to date.
We now expect acquisition volume to be between 1.1 and $1.2 billion. This includes between 50, and a 100 million a value add acquisitions. The stabilized cash cap rate guidance has also been updated to a range of 6.3% to 6.5%.
And we expect the straight line stabilized cap rate to be approximately 50 basis points higher.
Gionee guidance has been decreased to a range of $36 million to $36.5 million.
We have reduced our granular disposition guidance range between 50, and $75 million and we find retention guidance to 75%.
Finally, we have increased our same store cash NOI guidance to a range of 2% to 2.25%, which reflects the impact of our leasing success year to date.
All 2019 guidance can be found in the supplemental posted to our website and they're in the Investor Relations section.
I'll now turn it back over to ban.
Thanks Bill.
This quarter and for the year to date Stag has again demonstrated the strength of our portfolio.
Of our operating platform and love our investment thesis. This strength was evidenced by our historic <unk> historic quarter for acquisitions, and our outstanding third quarter and year to date operating metrics.
With our successful equity transaction in September our conservative balance sheet at our healthy pipeline of potential accretive acquisitions. The company is well positioned to close out a very successful 2019.
We thank you for your time. This morning for your continued support of our company I'll now turn it over to the floor for questions.
Thank you, ladies and gentlemen, we will now be conducting the question and answer session. If he would like to ask a question. Please press star one on your telephone keypad. The confirmation I would indicate that your line is in the question Q you May press star to if he would like to remove your question from the Q for participants you think speaker equipment and may be necessary to pick up your handset before.
Nothing with Sarkies.
Our first question comes from Sheila Mcgrath with Evercore. Please proceed with your question.
Yes. Good morning, then acquisition volume in the quarter with a record annual guidance meaningfully we keep hearing how competitive it is to acquire industrial buildings. Just wondering if you could give us some insight how you're able to continue to capture this kind of volume at attractive cap rate.
Good morning show. Thank you for a participant and thank you for the question as we've talked about in previous quarters.
We have built and continue dog man and a the experience of the team continues to grow so it's really by covering a broad swath of the fungible industrial market.
And a lot of it as in areas, where we don't have a significant institutional competition. So we look at 60 or so markets and again in a lot of those markets. We're not we're not competing with.
A large and a potential buyer. So it's a it's an interim process, we still only by about 15% of what we underwrite and we underwrite a very small portion of the things that we identify only the things that we think we have a reasonable chance of acquiring so it's a large it or a process that.
By virtue of the experience and maturing over the organization and the growth of the organization allows us to identify and acquire and those types of volumes.
Have you added to the acquisition team this year.
We we have we made a decision a number of years ago to grow our own acquisition people and so we are have people that have moved up through the racks of financial us analysts the senior financial analyst on that have been rotated out into the field and are picking up coverage in markets.
So are the number of people we have outward facing has gone from effectively five or so to eight or so.
They're out there interacting with brokers identified assets.
And and helping us identify those acquisitions that you see in the acquisition totals.
Okay, great and any update on your New Jersey development project.
Yes, Joe this is Dave King.
Project does deliver in December and is both on time and on budget and we expect to remain the most likely exceed pro forma.
Okay, great. Thank you.
Thank you.
Thank you. Our next question comes from Michael Carroll with RBC Capital markets. Please proceed with your question.
Yeah. Thanks, Ben can you talk what about your near term I guess investment activity, what's driving the lower acquisition yields do you have any other lumpier transactions coming in in the fourth quarter.
So the acquisition yields any I think you reflect referring to cap rates cap rates as we've discussed for a point in time measure, we're still adhering to and exceeding our long term return metrics in terms of IR our.
Or CAD per share overtime, and so from quarter to quarter, we see.
Cap rates move up or down depending on the mix of what we're acquiring long term leases with little capital expenditure and and good contractual rental bumps I was it can be bought at lower cap rates and still deliver the same kind of returns.
So I don't think you're going to we're very comfortable that our acquisition guidance for the year remained solid in terms of in terms of cap rates expected.
So I don't think you're you're really should they expect to see anything different in the fourth quarter than what we normally acquire it's just.
There are mix changes from quarter to quarter. The result in different reported cap rates.
Okay do you have another I guess I'm larger acquisition come in the fourth quarter with and expand that lease term and that's what's driving a little bit lower.
No again Thats just the same mix that we always by you know there and there could be.
Depending on the next I don't know, particularly but it could be some sale leasebacks and there is something that is longer term with again, which would have low a lower initial cap rate lower and again, the red bumps et cetera, Yeah, Mike for the year, where it's further for the ever at six and a half on <unk> on a cash cap rate and that's.
Within the range.
Our guidance for the year, so the only quarter that would dip really below that was Q2, so we're not expecting anything or like a Q2 cap rate for Q4.
Okay, Great and then can you talk a little bit about your your I guess, new same store guidance that you raised this quarter, what's driving this improvement as the just the strong year to date leasing trends that's been able to record.
That's the big it that's one of the biggest driver as Mike is just the.
You are seeing the strong leasing strike trends, you're seeing the cash rollover rents that and as that just to remind you. Those are those leases that have commenced so if they have commenced.
Later in Q3, you're going to see that roll through.
The rest of that in Q4, and and drive the year to date results.
Okay, great. Thank you.
Thank you bye.
Thank you. Our next question comes from Blaine Heck with Wells Fargo. Please proceed with your question.
Hi, Thanks, good morning.
Ben it's been a lot of discussion in the industrial sector about rent growth differential between smaller buildings in big box with smaller reportedly seeing better growth you guys have a pretty good mix between the two so I wanted to get your take on the subject can whether its size, that's the biggest determinant of rent growth or or or if it.
It's more based on you know the submarket or availability of land or some other factor.
Well I think long very long term rent growth and industrial markets as cost base tends to be cost base. So when you have very hot markets and land prices go up you can see unusual rent growth in those markets for a period of time.
History has been in and of course, we can accept the this time, maybe different but to answer has been that rental growth for industrial properties is pretty much the same across all the all the top 50 or so markets. It is different variability, depending where you are in the cycle.
And that's also true a likely true for smaller versus larger I would say smaller spaces are more expensive to build and maintain and therefore may have an under some type of underpinning for higher rent.
But I don't think Thats, a underpinning for higher rent growth as much. It is for higher absolute rent. So I think that are I think our belief is that the smaller spaces are to the extent that are outperforming in this market is more of a cyclical I wouldn't say anomaly, but more of a cyclical feature.
Yeah, and Blaine weight, when you look at the stats within our portfolio.
We're not seeing that our large boxes are producing as good as rent growth as the small boxes.
All right that's helpful.
And you guys bought a building in Memphis over a million square feet, which I think as the only on that side of the bought in a while can you just talk about what attracted you to that asset and whether we should expect you got the purchase some of these larger buildings going forward.
Sure it's Steve.
This building what attracts towards it that's the class a building with a long term tenant that just recently expanded into it was originally to kind of building that tenets are now expanded into the balance of the building. It's had a grand logistics location, it's nearly a BNSF intermodal yard in Memphis and I expect.
Sure.
So we are very bullish on the and the the property and to the extent that the tenant ever decides leaving the tenants been there almost.
In the 19 or 20 years.
We're very comfortable the re leasing prospects for that that site as well.
And I think to that generally the question about whether or not we're comfortable buying million square foot build and like everybody else in the industry. We have there is some degree of a consideration of the fact that they haven't met a lot of millions square foot billions of role we have been looking at the statistics on that and we derive comfort from the suffer.
Next on second generation space.
Leasing of those buildings, but it's certainly something that we pay attention to as we do with all the buildings underwriting what the how the reuse of that building would occur after the tenant later.
Alright, thanks, guys.
Thank you. Our next question comes from Dave Rodgers with Baird. Please proceed with your question.
Yeah. Good morning, Ben maybe on the acquisition front you guys have done a lot of the acquisitions. This year on a one off basis, which again is a good testament to the strategy you've got but you know talk about maybe why you haven't been able to find as many value add opportunities.
As you increased guidance that was not an increase and then can you also talk about the portfolio premium for your type of assets in your markets that are keeping you back to the single asset trade.
So.
I'll address the second first the portfolio premium in markets that are deemed the more risky whether they are not as as subject that we'd be happy discussed at length, but the debt markets that are deemed more risky.
An individual asset basis, the premium as higher if you bought I mean, it goes to the to ridiculous extreme if you buy 50, a treasury bills. The risk is the same as if you buy one I think some people view assets in for instance, inland Empire west as being relatively low risk the portfolio premium you would see on a collection of assets in a an extra day in new.
For the or in in Ontario, California are in long Beach those types of things have very little in the way a portfolio premium if you have a.
Collection of assets in fungible markets like say Cincinnati Indianapolis.
Which are deemed a little bit more risky generally.
You will see a bigger portfolio premium and so we believe that as we work across a six year. Some markets that we operate and we see different levels of portfolio premium accruing to the accruing to those assets we acquire.
In those various markets.
Im sorry, the first quite a part of the question I've gotten value.
So we have a a level inquiry that we have it with regard to evaluate what do we have I wear out looking for value add transactions and we acquire them as they come through our filter.
We can buy them further returns that were looking for so.
We may identify a great value add asset with somebody else is one to pay more than.
Then will allow us to achieve the returns were looking for so we are throughout the year continuing to look we don't have a cap on the amount of value add per se. It's our expectation that the the value add will be on the range.
Maybe 5% to 10% of our asset acquisitions for the year and the timing of those acquisitions, you could see a quarter, where all all 5% to 10% occurred in one quarter or you could see it spread throughout the year, but but the the we're open to acquiring them we're looking for them.
And we'll acquire them as again, we can get the returns that were looking for in those acquisitions.
And Dave just regarding the portfolios when we still underwrite portfolio is about 20% of our pipeline is.
Portfolios. It's just we're very disciplined on price and have not been able to.
Not been able to acquire this portfolio is due to price.
That's helpful. And then maybe on the disposition side, you actually took guidance down and I realize there's a high level of scale in your business, Ben but as you kind of think about increasing the guidance for acquisitions to 1 billion to at the top end.
No nothing really kind of bundled up that you kind of start to say, hey, we need to do a little bit more of the recycling.
I think it says it's a little bit of the same thing we have filters that we have set up in terms of disposition. Then we've talked about those filters in the past from quarter to quarter will.
Different levels of disposition, but we're always looking at and evaluating potential dispositions. This is this a separate aside from sort of.
Capital raising dispositions, which we've done a couple of times in the past, but as we look at our portfolio.
As we've talked about in the past their assets that we are interested in on in long term on that would be the vast preponderance of our portfolio, but there are some assets.
The the flex office assets that we've discussed we will just this.
And to get rid of overtime, I, shouldnt say get or dispose of overtime.
We continue to look to do that an opportunistic basis as we look at our portfolio. There may be times, where we decide that theres. Another sub segment that we.
I would look to dispose of but most of we're looking at on the same way as we do on acquisitions on a granular basis on an opportunistic basis.
And last question for me just on the retention year to date. Your attention is in line in the quarter is a little bit lower kind of remind us what's going on there and then the backfill of any opportunities and then as you look out into the early part of 2020 any tenants that we should be kind of paying attention to thanks.
Yeah. Thanks for the question I mean, they were very comfortable with our guidance for the year. Our long term attention has been in that range and so we don't expect anything unusual from and as we've discussed from quarter to quarter, you're going to say lower and higher numbers, but we're comfortable with our guidance for the year.
Thank you. Our next question comes from Jamie Feldman with Bank of America Merrill Lynch. Please proceed with your question.
Great Thanks, and good morning.
Can you talk more about this study you mentioned it sounded like you are seeing an increase in in E. Commerce type tenants in the portfolio or at least ecommerce activities.
If you could just give more color on exactly what people are saying and are there certain sectors.
That are using your assets more than they were in the past anything you can provide would be really helpful.
Yeah, So Jamie Thats, a that you're referring to our tenants survey with this is our second year of doing the comprehend third year of doing the comprehensive serving time does fly.
And so the survey it is an indicator we get we ask our kind of specifically what they're doing.
In the building with regard to E Commerce now.
I'm not going to tell you that its a.
Our household goods or anything like that it's just general ecommerce activity that we're acquiring about and as as you might expect since our portfolio is representative of the industrial assets in the United States, our portfolio as an e-commerce activities, increasing generally across the United States. Our portfolio is experiencing that same anchors.
Okay.
There are certain regions there are certain property sizes.
Or certain locations within markets that tend to be getting more.
e-commerce activity tends to occur in air populations. Our assets are located proximate to populations I think it's important to note that sort of whether you're talking about last mile or last toxins that doesn't mean.
One mile five mile radius is.
The the last touch assets are.
And most population centers there are out are out in and around the belt ways around those population centers, which maybe 10 or 15 miles away from from sort of the most dense population.
And I know in particular, you know as an example in Boston.
The last touched sasol occurring out around one and 128 and beyond and so.
Our assets approximate enough to those population centers into how the people that are delivering to those.
Last cuts consumers the approximate a not for the for the purposes of those.
That activity.
And then what about other characteristics like.
ER Doc doors on both sides of the building or Chuck courts, certain sizes that are there any trends you're seeing that.
You know even help you as you think about your next round of acquisitions certain characteristics that matter more than others.
Sorry.
Yeah as you know when we underwrite an acquisition we're looking at the at the features of the building that will that will affect.
Obviously, the tenant retention. So we want to know the building is fungible excuse me a fee has the features that are our tenant current tenant uses but I also want to know if and when that tenant leaves. The this building have features that are that are.
Attractive to the tenants in that specific market and Submarket and as we underwrite those buildings you have to building is short on dock doors or the market as a market where they want to cross dock instead of single loaded we're putting in our underwriting the the the capital costs of converting that building to that to have those features and if they're building is not.
The ability with no side yards or something like that you knew you actually can add cross dock facility has a benefits market, we either going to assume that we can lease it for a long period of longer period of time or assume would have to at least it for less rent because the less.
Fully featured building all that's part of the underwriting.
And as we look at assets individually, which is again as the predominantly how we buy assets were able to a again identify and a and acquire assets have good long term viability in those markets.
But are there certain characteristics of billing today that would you wouldn't even consider them, where maybe three or four years ago. You would have like is the market change that much or not really no the market hasn't changed that much.
Okay.
And then.
Following up on the same store question, you guys have had pretty healthy leasing spread.
Salary leasing spreads for many quarters now what did I do you think about your same store potential in 2020 versus 2019, I mean can you see accelerating growth based on how well we were obviously where no. We're not in a position you have to talk about our to give guidance on 2020, I think one of the things as we think about same store at all I want to things that I.
I'd like to think about as.
We have a different acronym sang which is stabilized asset NOI growth.
We have a in play our same store pool is at the end of the years, probably going to be about 70% of all of our assets and another 2020, 5% of our assets 25% of assets are actually stabilized. So we have a significant portion of our of owned assets that are not in our same store pool, but are producing two and a half presenter so growth.
Through contractual rent bumps there stabilized assets and so we think that the SS NOI stat is a little misleading with regard to our portfolio in particular, but we're very comfortable.
With our projection weather recently revised projection for the year.
And we're very comfortable that our portfolio continue to operate well and we will visit guidance.
As we move into 2020, yes, but Jamie as you pointed out the leasing spreads has been a big driver and the acceleration of our same store.
Same store NOI over the past several years.
All right. Thanks.
Do you give us any mark to market looks like for 20.
So I I think thats still gets into guidance for 2020. We've told you Weve mentioned from time to time that they we believe our portfolio is in aggregate slightly under market. We can continue to have that belief.
Okay all right. Thank you.
Thanks, Jamie.
Thank you. Our next question comes from John Masako with Ladenburg Thalmann. Please proceed with your question good morning.
Good morning so.
Just as the guys look on the balance sheet side of things or even a little bit lighter in terms of issuance on the ATM, obviously, having the two offerings in place recently, probably drove that was that more of a structural shift where that will be more of a capital raising focus going forward.
And maybe less emphasis on the ATM or is it just a matter of of the deal flow for acquisitions being what it was that the bigger chunks of equity made more sense. Then if it becomes more granular say the started next year ATM is still kind of the primary equity raising vehicle.
Yeah, just taking a step back John I think ideally, we'd like to match fund our acquisitions with both debt and equity historically, the ATM has been a great tool to do that.
Given the increase deal volume.
We elected to do some larger bought deals and thus this recent bought deal how to forward component, which allowed us to Max spot match fund identified acquisitions, both under contract and Allied and we'll continue to be flexible with how we raise equity and and try to match fund as best we can our acquisitions and I would say.
At the sort of.
Confirming reiterate what bill said and as we're happy with the ways that we have you raise equity and we're happy to the fact that we have multiple ways to access the equity markets.
Okay, and I know, it's probably a little bit early days, but did you see any impact potentially on your Addis automotive supplier tenants from the G.M. labor stoppage at all is there anything notable.
No in checked in with them a a obviously on the news and the strike and.
There seems to be a degree of concern, but no real impact.
Okay.
And then one quick detail one how much of the expected value add volume. This year has been completed already and how much is kind of remaining let's say at the midpoint of guidance that 75 million.
We've completely I mean, right now if we don't complete any other value add deals for the year, we will be within our guidance range. Okay.
Perfect. That's it for me thank you very much.
Thank you as a reminder, ladies and gentlemen, if he would like to ask a question at this time. Please press star one on your telephone keypad.
Our next question comes from Jon Petersen with Jefferies. Please proceed with your question.
Great. Thanks, I wanted to ask about your DNA in the context, you guys lowered it this quarter and now you're a company thats acquiring a billion dollars. The properties a year you guys have been able to keep that line pretty well under control the past few years, but just kind of curious given the.
The increased momentum activity in the business over the last year, whether you think you can continue to scale that number over the next couple of years.
Yeah I think.
We'll be able to continue this to scale a number.
If.
You look back several years GNS percentage of Anna why was mid to low teens, we continue to drive that number down and there was a variety of items that.
Yeah drove the reduction and Gionee guidance this year, but we're very comfortable with the revised guidance for the rest of the here.
Okay and.
And then I wanted to ask about a property taxes.
Like across most real estate types municipalities are getting more aggressive or trying to increase Ebola.
Property taxes, I know, you've got passed through to customers, but I'm kind of curious isn't the negotiations with customers on rents whether you know they look at things in terms of a total cost of occupancy and whether that.
Increased property taxes have any impact on their willingness and ability to pay rent or whether those sort of things or thought about separately.
Hi by larger tenants do look at total operating costs.
We are we aggressively appeal our property taxes are successful in may in many cases.
But you're right. There there are a pass through to the tenants. So we don't necessarily feel the immediate impact of those we do.
Perhaps see.
Bhavan rolling off situation or something like that our net rents might change, but incremental increases in property taxes haven't been significant to change our net rents.
Okay, and just just one more I apologize if I missed this but did you guys give any update on the development in New Jersey.
We did.
We want to know what is [laughter], yeah, you repeated forming [laughter] on time on on time on budget on pro forma or better.
Okay, all right. Thanks.
Thanks, John .
Thank you. The next question comes from Jamie Feldman with Bank of America Merrill Lynch. Please proceed with your question.
Hi, sorry, just a quick follow up I just wanted to get your thoughts given you know we've been in this recovery for while now we're starting to see construction rise just how are you guys thinking about the supply risk in your markets or supply growing in your markets versus maybe this time last year and what the implications for the ability to push rents and other certain yes, I think there's no question that if you look on an AD.
Actual aggregated scale of that supplies as more of an issue than it was a year ago, most of our portfolio and a lot of our activity as end markets that are less impacted by excess supply. There continues to be for Panera supply continues to be in.
A few of the top end markets the of the oversupply if you will.
So there's no question that impacts rents and I think.
In places like South Dallas year, you're you're the expectations are for continued negative rent growth.
We are it as our portfolio as we think is remains pretty balanced with regard to supply and demand. So.
We're not expecting any material impacts on.
Rent growth because of that.
So do you could you see rents accelerating still in your markets.
I think rents will continue to move up at it at a measured pace or you know we've always had a long run a very high rent rental growth I. We expect to can see continued rental growth, but what's important I think in and the exercise of our investment thesis as we underwrite every market every submarket and indeed, the building itself the car.
Dresses are building itself to understand and or project the rent growth for that building in that sub market.
So again, we're not really a top down.
Dallas is gonna grow at 3% as you know.
What's going on this particular industrial park in Dallas or in the Cincinnati or wherever so we're very granular and how we look at rent growth.
I think that as providers a question of safety and conservativism in our underwriting.
Okay all right. Thank you.
Thank you Jamie.
Thank you we have reached the end of our question and answer session. So I'd like to pass the floor back over to Mr. butter for any additional concluding comments.
Thank you very much operator, and thank you all for joining us this morning.
Thank our results both on the acquisition operating side or as we mentioned in our comments initial comments are.
And reflective of an investment thesis that is a has work and it continues to work and we're very excited about the prospects have continued to execute it as we move forward again. Thank you for your time this morning.
Ladies and gentlemen, this does conclude today's teleconference. Again, we thank you for your participation and you may disconnect your lines at this time.