Q4 2019 Earnings Call
Greetings, ladies and gentlemen, and welcome to the Stag Industrial incorporated fourth quarter 2019 earnings Conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
If anyone should require operator assistance, please press star zero and your telephone keypad.
Now my pleasure to introduce your host Mats Dennard. Thank you Sir you may begin.
Thank you welcome to stack Industrials conference call covering the fourth quarter 2019 result. In addition to the press release distributed yesterday, we posted an unaudited quarterly supplemental information presentation. The company's website at stag industrial Dot com under the under the Investor Relations section on today's call. It the company's prepared remarks and answers your questions will contain forward looking for.
Maintenance as defined in the private Securities Litigation Reform Act or 90 95.
Forward looking statements address matters are subject to risks and uncertainties that may cause actual results to differ from those discussed today. Examples of forward. Looking statements include statements relating to earnings trends DNA announced acquisition disposition volumes retention rates that capacity dividend rate industry in economic trends and other matters, we incurred all of our listeners to review the more.
Detailed discussion labor. These forward looking statements contained in the company's filings with the FCC and the definitions and reconciliations of non-GAAP measures can tend to something mineral informational package available in the company's website. As a reminder, forward 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 would.
Here from Ben Butcher, our Chief Executive Officer, and Bill Crooker, Our Chief Financial Officer, I would now trying to <unk>.
Thank you, Matt Good morning, everybody and welcome to the fourth quarter earnings call for Stag industrial I'm pleased to have you join us and look forward to telling you about our fourth quarter results.
Presenting today in addition to myself will be Bill Crooker, our Chief Financial Officer, who will discuss the bulk of the financial operational data also with me today or Steve Mecke, Our Chief operating officer, Dave King our direct a real estate operations. They will be available to answer your question specific to their areas of focus.
The fourth quarter conclusion historic year for stag industrial, which they successfully executed our 2019 business plan with all of our guidance achieved or exceeded.
The company is very well positioned for a great 2020.
The U.S. industrial market continues to perform well and 29 team rents were up almost 4% in the aggregate according to our friends at CB Ari.
Please also 63 million square feet modestly edged out net absorption of 56 million square feet for the fourth quarter.
For the year the markets, our 224 million square feet of completions compared to 183 million square feet of net absorption.
As a result vacancy rose 20 basis points year over year to 4.4%.
But still remains significantly below long term average is.
Construction activity remains robust with a pipeline of 309 million square feet Cleanouts development.
Well most markets remain quite strong under a few submarkets with over supply concerns the Houston, Atlanta, Chicago, and Dallas markets are larger metro's robust construction activity and are watching certain submarkets and those materials for the effects of oversupply.
These submarkets include the north and northwest Carter's of Houston, South Atlanta, South Dallas, and the southwest I 85, excuse me I 55, I'd card or Chicago.
Our only lease maturity exposures to the sub markets on the next two years or in South Atlanta, 3.3% of annualized base rent in 2020, and northwest Houston also 0.3% of annualized base rent and 2021.
We see strength in most other markets nationally, including markets, where we own and where we are active. These include markets such as Portland, Raleigh, Detroit, Charlotte and Northern New Jersey, Slash New York.
And our view this robust construction activity and near record low vacancy rate supports long term conference in the future for the industrial sector.
E Commerce and its correspondent impacts on the modern supply chain remain down dominant forces transportation issues labor cost and availability and proximity to the customer remain critical items for tenant decision makers as we and others have noted rent as a small fraction of total logistics cost for our clients.
Although supply is on the mines in many in this robust construction environment, we believe a slowdown in demand maybe a bigger risk factor to watch. However, as noted earlier recent demand has remained solid with 183 million square feet, especially absorbed in 29 team and with more than 50 million square feet absorbed in the fourth quarter.
We continue to monitor the macro economy and the supply demand fundamentals of individual Submarkets. These are important components of our data driven approach to underwriting and to asset management.
In 2019, we acquired a record $1.2 billion of assets in one off transactions. This was nearly double the amount acquired in 2018.
This increase in volume acquired as a matter of both the growing capacity of our skilled acquisition professionals and of our market presence.
We also experienced great success in our portfolio operations, approximately 10 million square feet of leases commence with 10% cash and 18.2% straight line rent growth and increased from 7.9 and 15, 2% for the same metrics last year at another all time high for the company.
These robust leasing spreads combined with a strong retention of 76.7% resulted in annual same store cash NOI growth of 2.4%.
I'd now like I mentioned, a couple of corporate items.
First as a part of our expanding our business rich we opened an office in Dallas, our first regional outposts.
Dislocation that will allow us to more efficiently and effectively operate our national industrial real estate platform. The office will include acquisition asset management and capital project personnel with regional responsibly focused on the southwest second in November we announced the point of Dr., Jackie Chan to our board of directors. She brings a strong.
Background in the field of data analytics and provides valuable experience and insight as we continue to develop our data analytics and to that technology infrastructure.
As we look forward to the rest of 2020, we see tremendous opportunity to both grow our portfolio externally through accretive acquisitions and to continue that trajectory of consistent internal growth Bill will discuss our various guidance metrics in detail, but first like to touched upon a couple of specific items relating to our 2020 operations.
In January we sold two billions located in camera REO, California to original investor for $88 million, a cap rate of 4.9%.
We acquire these buildings in 2014 for $55 million at a cap rate of 7.2%.
Two of our top 10 tenants have leases maturing this year and are expected to vacate their space. So look up the currently occupies our building and Hampstead, Maryland has a lease expires in July 2020, and accounts for 1% or annualized base rent.
We are evaluating all options, we'll keep you updated as our plans progress.
The GSK currently leases are building located off excess six day of the New Jersey Turnpike in Burlington, New Jersey their lease expires in December 2020, and accounts for 1.8% of our annualized base rent.
This asset has attracted development and redevelopment opportunities on multiple potential attractive outcomes. The site features developable excess land does that process being subdivided to building as currently marketed and we have received multiple offers to purchase the bill inside at attractive pricing levels were evaluating all of our options to lease cell and order developed assaf.
Asset.
We'll keep you updated as to our plans and progress.
Finally yesterday for the first time, we announced core FFO per share guidance for the coming year. The range for 2020 core FFO is $1.86 to $1.92 per share. This is a continuation of our effort to provide transparent and useful disclosure.
With that I'll turn it over to Bill will discuss our operational results and the remainder of 2020 guidance.
Thank you Ben Good morning, everyone core FFO was 47 cents for the quarter and $1.84 for the year, an increase of 2.2% compared to 2018.
Leverage remains near the low end of our guidance with net debt to run rate adjusted EBITDA of 4.8 times.
Our 2019 acquisition volume was $1.2 billion with stabilized cash and straight line cap rates of 6.4% and 6.9% respectively.
Subsequent to quarter end, we have acquired an additional seven buildings totaling $103 million.
Our portfolio continues to benefit from the strength the industrial sector.
As seen by a robust portfolio operating results.
Retention for the quarter was 87.4% and 76.7% for the year.
Cash and straight line leasing spreads were 6.4% and 13.2% for the quarter.
And 10% at 18.2% for the year respectively.
Same store cash NOI grew 2.4% during 2019 exceeding the high end of a revised guidance.
Same store cash NOI growth was driven by our retention rate of 76.7%.
And cash releasing spreads of 10%.
This was partially offset by a decline average occupancy in the same store pool.
Note that our annual same store pool accounted for 68.2% of the total portfolio at year end.
Moving to capital market activity on December 26, we fully settled the forward equity component of our September 2019 equity transaction.
Stag issued 7.15 million shares and receive $202 million net proceeds.
Those proceeds were used to fund fourth quarter 2019 acquisitions.
During the quarter, we raised an additional $82 million net proceeds through our ATM program.
And funded 100 million of the 200 million delayed draw term loan AFE.
Subsequent to quarter end on January 13.
We completed an equity offering at $31.40 per share.
Which resulted in net proceeds of approximately $311 million.
With a portion of those proceeds received on a forward basis.
Net proceeds of $173 million are received in January with the remaining $138 million to be settled in the future.
At quarter end net date net debt to run rate. Adjusted EBITDA was 4.8 times are fixed charge coverage ratio was 4.8 times and our available liquidity was $460 million.
Our initial 2020 guidance can be found on page 21 of our supplemental reporting package, which is available any investor relations section of our website.
Our 2020 core FFO guidance as a range of $1.86 to $1.92 per share with the midpoint of $1.89.
We expect to acquisition volume to be between $800 million and $1 billion for 2020, we expect to acquire between 725.
And $875 million have stabilized assets with an expected cap rate range of 6% to 6.5%.
We expect between 75 at $125 million of value add acquisitions this year with ally coming online in 2021.
The stabilized cap rate for these acquisitions are expected to be in line with our 2020 stabilized cap rate guidance.
We expect disposition volume to be between 150 million and $250 million for 2020.
We expect to 2020 annual same store pools cash NOI growth to be between 1% and 2% for the year.
This range includes a credit loss estimate of approximately 50 basis points on the same store pool.
Note that the 2020 annual same store pool accounts for approximately 80% of the portfolio as of year end 2019.
Our expectation is the same store pool represent between 70 and 75% of the portfolio at year end 2020.
For the first quarter of 2020, we expect same store cash NOI to be approximately flat and growth throughout the year.
We reported 2019 gionee of $35.9 million slightly below the low end of our public guidance.
Our initial 2019 guidance, reflecting a midpoint of $37 million.
Which included projected additions to head count and investments in the business.
Due to improvements in the efficiency of our systems and processes, we delayed these new hires and business investments to 2020.
2020, DNA is expected to be between 41 at $43 million for the year.
Which $11.7 million is noncash compensation and as reflected in our diluted share count.
This DNA guidance includes costs associated with the opening of our second office in Dallas.
The business remains highly scalable and over the past three years the portfolio has grown 23% per year on average compared to less than 3% annual growth and Gina.
Looking specifically at Q1.
2020, DNA is expected to be between 11 and $11.5 million due to seasonality.
Our leverage range continues to be between 475, and six times with the expectation that we operate the lower end of that band between 475, and five 5.25 times for 2020.
Capital expenditure per average press foot foot as its back to be between 27 and 31 cents for the year.
I'll now turn it back over to ban.
Thank you Bill.
Stag enters 2020 with significant momentum across all aspects of our business, we continue to see attractive investment opportunities nationwide and our investments in data and technology improvements have visibly increased the efficiency of our acquisition platform.
The Tennessee across our portfolio is vibrant and confident there lines of business. This is reflected in our impressive operating metrics for the year.
With our low leverage and ample liquidity our balance sheet is positioned to support the numerous opportunities we see today and expect to see in the future.
We are proud of our historic Tony 19 performance on our excited to continue to execute our business plan in 2020.
We thank you for the time this morning and for your continued support of our company.
With that I'll turn it over to the operator for questions.
Thank you, ladies and gentlemen, we will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad and confirmation total indicate your line is the question Q. You May proceed star to if you'd like to remove your question from the Q.
For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys, one moment. Please let me pull for questions.
Our first question comes from the line of Sheila Mcgrath with Evercore. Please proceed with your question.
Yes, good morning.
Amazon jumped into the top tenant position I would do you acquire another Amazon property during the quarter.
We did acquire a building the or at least to build the excuse me to Amazon during the quarter that had been another tenant at vacated.
It's also one of the reasons why are.
T it'd be I expect as there is a larger the course repair and that building for Amazon.
Oh, you had to leave we said it specifically for their usage.
Yes.
So I was a it was a great transaction, we had a tenant that was expected to vacate the building.
We agreed to a termination penalty for that tenants. They gave US termination income there was no downtime, we signed Amazon out for a 10 year lease with two and a half a percent contractual rental escalators.
And with the in place rents of Amazon higher than the expiring previous tight.
Yes.
Sure. It was about 10% higher and then there is some amortization of.
Above standards you guys. There so that combined with the tenure turn which make sure commissioned larger drives that larger the average transaction costs.
Okay, great and.
I don't know if I missed this if you mentioned it but could you give us that I'm an update on the New Jersey development House leasing progress going there and what's your expectation on the stabilized yield on costs that that might be.
We have just completed the building.
We are encouraged by the traffic we've seen to date.
Our pro forma rents from a year ago are probably low relative to market currently and we expect to be on time as leasing and other deal terms as we go forward. So we had said that we thought that the pro forma return on cost would be somewhere in the eight so we're now expecting to do it certainly achieve that have not do better.
And so would that come online this year you think.
Very much expected to come online this area.
Okay, Great and just a one last one on dispositions in your guidance of 200 million that was certainly higher than.
We had to in our model I'm just wondering.
Are these noncore assets are just talk about what's driving the volume on well some of the big piece of that was the move out of the camera REO assets from the fourth quarter to the first quarter, So 88 million.
Shifted from one year to the next.
So thats a big piece I don't think Dave.
Sure when we get a we get a vacancy we.
Marketed for sale for lease and we have seen some pretty good activity in the user buyer market. So.
As use as you see solo and other larger vacancies coming we are marketing those for similarly, so we have some probability that we will sell those assets and that's true or the camera real asset as well that was market facilities and there was quite a lot of leasing activity. We just had somebody show up and pay especially more than we thought it was going to be worth to us on a lease basis.
Okay, great. Thank you.
Thank you. Our next question comes from the line of Brendan San with Wells Fargo. Please proceed with your question.
Hey, guys. Good morning in terms of acquisitions for 2020 are you guys going to be targeting.
I guess assets in the southeast markets, just given that you.
Recently opened up the Dallas office.
I think that.
Investment focus is to identify individual assets.
Within the 60 or so mark as we look at but defined assets that will deliver the shareholder returns that were looking to deliver it to our shareholders and so I don't think that the the opening of the Dallas offices, a specific targeting towards any particular markets. It doesn't data they will produce more opportunity for us in the markets in or around Dallas. So.
The is there a potential for us to be more active those markets, yes, but it's not particularly that we're targeting those markets because were but we remain very much a bottom up investor. We're looking for the transactions that makes sense not the markets, where we want to try to shorten necessarily try and find transactions.
Having said that we also have a we also have our radar stag radar system, where we do evaluate markets in terms of resource allocation, where with the markets, where our most likely define those individual transactions that meet our return requirements and just to clarify that the Dallas office will be covering the the southwest not not the southeast.
Oh, Okay got you that's helpful.
And then I guess congrats on the strong rent spreads that you guys had in 2019.
What are you guys anticipating in terms of cash rent spreads for 2020.
Mid single digits.
Okay.
And then last one for me you just talked about the 50 basis point impact too.
Same store NOI growth in 2020 from credit loss.
Is that represent any situations that you're currently monitoring or is that more of a place holder.
That's a place holder right now it's similar credit loss that we guided to last year and say the one difference between.
Last year in this years last year, we had a tenant or two on our watch list. We don't have any tenants in our watch list today, but given where we are in the calendar in mid February without 50 basis points was a good estimate for the year.
Cool sounds good guys. Thanks.
Thank you.
Thank you. Our next question comes from the line of Dave Rodgers with Baird. Please proceed with your question.
Yeah. Good morning, just one follow up Bill on that last question what was your actual credit loss in 2019 versus the 50 that you'd guided to.
It was right around 50 basis points.
It was right on top of it.
Okay, great. Thanks for that.
On the term income you mentioned related to that Amazon deal I mean, we that sizable in the fourth quarter and where was that.
I was about 500000.
That's included and Corfo excluded from same store.
Okay, and now you've read that through revenue okay.
On the asset sales it sounds like the range contemplates the potential billable fellow as well as yet they building and it sounds like that would be gets you into that range pretty comfortably you don't end up selling though is if you're able to release, though is how should we think about that disposition guidance. One is are there other assets you would put in there.
And then two I think your your presentation also mentioned that it excluded portfolio sale, how likely do you think you are to take more to the market and beat that number. This year. So we always are Albert opportunistic.
As David mentioned earlier, we take buildings to the market for lease or sale and that we've we've seen quite a lot activity from the user market and so that part of the that guidance is reflective of the fact that we are.
[music].
Environment, where those sales or are occurring.
And.
So, yes, and we do not plan any portfolio sales at this time.
So I mean I guess.
You'll get to that guidance, one way or the other or I mean 88, Doug I guess.
The the disposition guidance once you back out the camera sales pretty consistent with prior year, so it'll be a mix of non core opportunistic dispositions.
Depending on the opportunistic dispositions and.
And what we see during the year it could be the upper end of that guidance or Laura for guidance, we will.
Update you guys as the year progresses, but seeing we already locked in $88 million of disposition proceeds. That's why you see an elevated disposition guidance for the year.
Okay, and then maybe just last on the DNA you get give a lot of detail in the prepared comments, but 17 or 18% increase at the midpoint, the Dallas office and some technology investment how far does that get you kind of after this year in terms of kind of a big increase this year, how what's the capacity addition, how do.
You think about that in terms of kind of than the future scale. The business then.
Well, we scale, we give guidance for one year, one year out David I think in DNA, it's not linear so as Weve mentioned in the prepared remarks, we had a CAGR of about 3% over the past three years, we came in below the low end of our guidance last year. So some of those.
Efficiencies that we put in place during 2019.
Delayed postpone some of the headcount additions that are coming online and in 2020, I will give guidance saatchi in any guidance for.
2021 at a later time, but we did put in our investor presentation. In November that we are going to trend down to 10% of and why overtime.
Thank you.
Okay.
Thank you Sir our next question comes from the line of Bill Crow with Raymond James. Please proceed with your question.
Hey, good morning, guys.
The expiring rents unsold cup compared to market.
Dave.
Right end market.
So we expect that his role somewhat side was about a little bit of.
And then I think you bought that for about $44 per square foot. What do you think the market is for for that sort of building.
Difficult. So we if we if we find a user who is interested in buying is probably.
Number or cirrhosis of ASO redevelopment opportunity is literally be below that.
The.
The extended term you've been reporting on your acquisitions is that is that largely driven by that the weighting of the.
The big.
Leased in the fourth quarter Amazon.
And some build as a build to suit acquisitions, which are longer term as well again, where we're not targeting a longer lease terms is just the the mix.
For that quarter.
Ended up having those longer lease terms, but it is Amazon for sure, yes, but we didnt acquired Amazon and the fourth quarter I was a new lease we signed on those if you look at the acquisition activity in the fourth quarter I mean, there's a number of acquisitions that had.
Todd greater than 10 years or lease trial. So it's just a as just a mix of assets as we acquired and we've acquired this year.
Value add acquisitions with a that were vacant up through leases that have 15 years lease terms. So it's a wide range of acquisitions.
As one final question for me.
Your new slide deck talked about.
Healthier same store NOI growth kind of 2% to 3% I'm just wondering as you look into 2021 any known move outs that would.
Kind of getting the way that number.
Oh.
The GSK building that we mentioned the Burlington.
Looks like that's going to be a known move out and that will be in December again, there's a lot of options with that building as as we discussed in the prepared remarks.
We'll update the street as we go through and the 2% to 3% in the Investor presentation is something we think is a good short to medium term number for us that was impacted.
By the credit loss, we discussed as well as the so a couple vacancy this year.
If you're if your credit loss was 50 basis points last quarter last year.
And again, another 50 wouldn't that have been baked into your your expectations on that slide deck.
Some of the was yes, but when you layer that back end with the cielo copier at a low twos.
All right appreciate it thank you.
As bill.
Thank you Sir our next question comes from the line of Sarit Tan with Jpmorgan. Please proceed with your question.
Hi, Good morning, Yeah, well, Mike Mauler, I'll, let you posted decelerating.
The wire.
From all over the past. He is can you talk a bit about how you're pushing rent and how can it.
Good idea.
So I think as Bill just said our mid short to medium term expectations for same store and ROI or 2% to 3%.
The the fourth quarter.
You know slowdown versus the year, just an anomaly of the quarter, our expectations for the year and for the medium term or in the 2% to 3% range.
Thank you. Our next question comes from the line of Michael Carroll with RBC Capital markets. Please proceed with your question.
Yes. Thanks, Ben can you provide some color on the type of investments that gives me to improve your overall platform.
That is driven your acquisition hit rate higher and do you think that improvement in the hit rate is sustainable going forward.
Well the the improvements have been both.
Human and a and machine so human and that we've added a acquisition people that are in the field, so and the people that we have in the field or had been in the field longer so.
Reflective of the the wonderful place to work to stag as we are able to retain our employees for long periods of time and they get more mature in the markets. There are operating in but internally. We are it's basically manipulation of data and systems to more efficiently under right.
As well as use the data that we have to more efficiently target our human capital as they move out in around in the market, although they have.
Come together to help us to continue to identify and acquire those assets.
Okay can you quantify how that has improved your overall hit rate on type of deals in 2019 versus prior years, Yeah. One of things I would say is that the that our guidance for this year you know our hit rate in 920 19 was above our recent trends and so it is we think is roughly.
Active of the improvements we've made but the guidance that we put out is is almost 20% hit rate. The guys that we put out for acquisitions for 2020 is reflective of some moderation of that hit rate.
Maybe back closer to the 2018 numbers at 15% so, although we hope and expect that the improvements that we've undertaken will continue to produce.
That better targeting that will allow us to have the higher Ed rates, where we are not baking that into our guidance at this point.
Okay and then just last question for me related to the Geo say expiration at the end of 2020, I know that you already have talked about either re leasing that space or potentially selling the building I mean, how are those discussions going right now and and what's the factors that will make you choose releasing.
Versus selling or vice versa.
I mean as with every transaction, we look and I were looking at the long term returns for our shareholders what what best deliver those returns. This is a this is a building. The has worked in a site that has a lot of demand. This is very close to where we're doing the Burlington ground up development.
While our so I guess couple of miles away and it is a asset that has.
A very strong leasing market lots of demand.
And we are.
Our confidence is born out of the fact that as mentioned in our prepared remarks, we have people willing to pay us very very healthy returns simply to acquire the asset in the developable land today, So what we as with the other Burlington development, we looked at selling the land versus developing the land there will make the same kind of analyses here as we look.
This one obviously has the additional component of a.
Building to be to be leased but the.
We view this all the all the components here as plus that's a very strong market.
Great. Thank you.
Thank you. My next question comes from line of Elvis Rodriguez with Bank of America. Please proceed with your question.
Hey, good morning, guys.
Good morning, I was.
Quick question on the investment pipeline. So at the end of the year ended at 2.1 billion versus two seven at the end of Threeq you.
Can you just give us an update.
What you're seeing and is it becoming harder to meet some of the your target yields well part of the problem is that we bought so much in the fourth quarterly drove the pipeline down.
That's a that's a reality, but it's also reality that the the cyclicity sort of availability of assets tends to.
Have a stop point at the end of the year. So it would not be atypical for us to have the pipeline dip at the end of the air and then sort of build start to build back up as the new year begins.
2 billion of individual assets is an awful lot of assets.
To be able to win for us.
Our anybody to be looking at as its lots of opportunity out. There. These are assets that have gone through initial tree oz. Our initial two hours is better than it was in the past. So we're we're highly confident this is a pool of assets that makes sense for us to underwrite.
And if we can derive the returns were looking for.
A pool of assets will deliver to us a lot of good acquisitions, yeah, I wouldn't read too much into the decrease from Q3 to Q4, it's a point in time measure and Ben hit on the reasons why it's a little lower right now.
Excellent. So so you've obviously growing the business tremendously over the last couple of years, but that's a full has only grown call in the two 2.5% range can you talk about when we should see that you know sort of get hired two or your peers are an addition, maybe maybe you can target the internal growth piece as well.
Yeah, I mean, one of the issues is as we grow we're we're buying lots of or historically haven't continue to have lots of fully occupied building. So we do have the occupancy headwind that we would that weighs on as we are continuing to grow we at the at our IPO. We had an equity market cap of a couple hundred million. We're now in ECA equity market cap over five.
Billion.
It's been a lot of growth there continues to be a lot of growth and unfortunately that does weigh on because we'll continue to build the machine as well in a very scalable manner, but we're continuing to build the machine. All these things have weighed on if we simply stop growing.
Thank you would see.
More growth fall to the bottom line from the existing portfolio.
Yeah, we talked about the components of this year's growth, we put our range of core FFO at the midpoint of 29 so.
Theres a lot of factors every year that that impact core FFO per share growth and we discuss those previously and as bill as noted before we have been continuing de levering, although our ended the year metrics Didnt, perhaps show the metric the de levering quite as much our average leverage during the year.
It was a deleveraging from the prior year.
So.
Okay. That's helpful. Just one more for me.
Can you talk a little bit more about sort of tenant demand and rent growth across your markets. So I understand you're going to get some of these boxes back.
You go that route of.
Perhaps I can sell it or perhaps I can re tenanted, but can you talk about the decision and tenant demand you know how tenant demand is wearing wayne on those decisions across your markets today.
Yeah, I mean, one of the thing is to look at as we classify markets 25 million to 200 million square feet as secondary markets and above 200 million as primary markets. It's interesting to note that though within those classifications, the occupancy or or the reverse of occupancy the vacancy in those markets is similar to is the secondary markets have actually probably have recently had slight.
The higher occupancy and that is a occupancy or vacancy is non retention times downtime and so if you assume that the second they markets might have longer downtime they must have higher retention, but so what I'm basically what I'm, saying as these are very healthy operating markets and the results that are derived from operating in the markets. We are.
More active in which is the lower half of the primary markets in the second the markets. They have operating metrics that are similar to in terms of delivering operating results similar to or or in some cases better than the primary market. So.
It may not be exactly the question you asked but a but we're very comfortable the markets. We operate operate in will deliver good operating results. They are fungible markets with with the strong tenant demand.
Et cetera, and do not suffer from the potential for oversupply that may occur in some of the larger metros, where we are less active.
Okay. Thank you that's helpful.
Thank you.
Ladies and gentlemen, if he'd like to ask your question. Please press star one under telephone keypad. Our next question comes from the line of John Miss OCO with Ladenburg Thalmann. Please proceed with your question good morning.
Good morning, so value add looked like it was a larger component of the acquisition guidance for 2020 versus kind of maybe where I don't know where it ended up being a fairly for for 2019, but.
At the stood at the guidance for 2019 in kind of Threeq you 19 area. So is there some reason that that.
Value add portion of the acquisition is moving up as it did what you're seeing in the market is it it's stuff that's already in the pipeline today, maybe what's driving that.
Year over year, John It's it's it's pretty similar we closed about 100 million of acquisitions in 2019 midpoint of our guidance is a 100 million for for 2020, so its similar year over year.
Those are great opportunities we are.
Balancing how much we acquire as a percentage of the overall acquisition volume great opportunities and once we add the value to those assets, whether it be leasing vacancy or expanding a building generally creates anywhere from 25 to 75 basis points of incremental value at the asset level. So good long term investors.
Vince, but we do just balance what percentage of the overall acquisition volume as value adds.
Okay, then in understanding the decent amount of the value add acquisition in 2019 was.
Towards the end of the year. So you don't really know necessarily where that stands but the stuff that was maybe earlier in the year how have the outcomes for that gone versus maybe what your budgeting or what you expected.
It's very similar to budgeting, if not exceeding our pro formas.
Okay makes sense and then ill one last value add question in terms of the Fourq you acquisitions outside Jacksonville, maybe what was value added in him why was it value add if you will.
I think it was just Jacksonville stever no we add so Jacksonville, and then you had to partially vacant buildings and ER.
Texas and South Carolina.
So it's primarily just vacancies your leasing up there's nothing that's like.
Some tea.
And those and those specific answers there is no development or any I'd say, we're taking advantage of a vacancy that we and were looking delays.
Okay, then I'm on the top 10 list it was a small mover, but it looked like gang thing.
Kind of came down a little bit <unk>. It was then ask that you sold to date did they leave an asset.
Well that was the Amazon scenario I referenced so they were going to vacate that space and that's the.
So we negotiate at lease termination fee and put Amazon into the space with no downtime.
Perfect. That's it for me thank you very much.
Thank you.
Thank you ladies and gentlemen, this concludes todays.
This concludes today's session I would now like turn call back to them, but your for closing comments.
Thank you. Thank you for your questions. This morning and for listening in on our operational results.
As I mentioned in our prepared remarks, we're very confident about the position of the company the quality of the engagement of the team and our prospects for 2020.
Thank you for your time and attention. This morning, and we look forward to talking to you again next quarter.
Thank you ladies and gentlemen. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.