Q2 2021 STAG Industrial Inc Earnings Call
[music].
Greetings and welcome to the Stag industrial second quarter, 2021 conference call.
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As a reminder, this conference being recorded.
I would now like to turn the conference over to your host today.
Pinata Senior Vice President of Investor Relations. Please proceed sir.
Thank you welcome to Stag Industrials conference call covering the second quarter of 2021 results.
In addition to the press release distributed yesterday, we've posted an unaudited quarterly supplemental information presentation on the company's website at stag industrial Dot com under the Investor Relations section on todays call. The Companys prepared remarks on the answer to your questions will contain forward looking statements as defined in the private Securities Litigation Reform Act of 1095.
Forward looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today.
Samples are forward looking statements include forecast of core <unk> same store NOI, G&A acquisition, and disposition volumes retention rates and other guidance leasing prospects rent collections interchange.
As well as other matters, we encourage all of our listeners to review the more detailed discussion related to these forward looking statements contained in the company's filings with the SEC and the definitions and reconciliations of non-GAAP measures contained in the supplemental informational package available on the company's website.
As a reminder, forward looking statements represent.
Economically its estimates as of today stag industrial assumes no obligation to update any forward looking statements on today's call you'll hear from Ben Butcher, Our Chief Executive Officer, and Bill Crooker, Our President and Chief Financial Officer also here with US are Steve Mackey, Our Chief operating officer, and Dave King Our director of real estate operations, they will be available.
Manny just a question specific to their areas of focus I will now turn the call over to Ben.
Thank you, Matt Good morning, everybody and welcome to the second quarter earnings call for Stag industrial.
Pleased to have you join us and look forward to telling you about our second quarter results.
This month, we achieved a significant milestone on our company's history, our portfolio of industrial.
The <unk> has surpassed 100 million square feet tremendous growth from our 2011 IPO portfolio.
Even at this size, we continue to see tremendous opportunity to acquire additional assets that are accretive to our portfolio.
Our ongoing investments on the platform allow us to identify relative value opportunities across a broad array of primary.
Real real estate markets, we are active in.
This is reflected in the large size of our current pipeline of potential acquisitions.
As we participated in NAREIT and other events from the Spring conference season, we are reminded of the growing stakeholder emphasis on ESG.
Virtually every meeting included a substantive discussion or at least some element of.
And secondly, it was gratifying to be able to report that our commitment to ESG over the years has placed stag and an industry leading position.
We recently were awarded a grasp the public disclosure rating of B well above both the overall industrial REIT average we are currently preparing our inaugural ESG report, which we expect to.
Be publishing later this year.
As a good corporate citizen our strengths on both social and governance are reflected on the very strong ISS ratings for these components. We are committed to further improvement in these areas joined with other Reits and executing the CEO action pledge on inclusion and diversity.
As a real estate.
Company there is elevated focus on the environmental component of ESG, we have been hard at work in this area and are pleased with the results stag has become a leader in the photovoltaic deployment arena with increasing solar panel presence across our portfolio in November 2020, stag celebrated the groundbreaking on the largest community solar project in the United States at.
In Hampstead, Maryland. This $9.2 megawatt project will generate low cost renewable energy enough to power over 1000 homes, including on allocations to low income households, stag is on track to place on the top 10 real estate companies in terms of solar energy production as ranked by the solar Energy Industries Association, we are committed to.
Of our approximately seeking opportunities for further solar array deployment elsewhere in our portfolio.
A few comments on the market.
The underlying fundamentals on the industrial real estate sector remained very strong robust reopening demand and supply chain issues caused by transportation bottlenecks shipping cost increases inventory.
Inventory mismatches and labor constraints have caused a resurgence of demand for warehouse space. The effects of this demand resurgence as can be seen in the strong leasing economics for existing facilities and the increasing levels of construction being undertaken.
Not surprisingly our operating results reflect these strengths demand for our assets.
2 a graduated tenant retention and downtime has outperformed our historical averages.
As a result of these improvements we are raising our same store NOI guidance by 1% at the midpoint to a range of 3 and a quarter to 3 and 3 quarters per cent.
This is the highest level of guidance we've provided for this metric at any point during our time as a public company.
On the strength of internal growth is the primary driver for improved expectations for overall growth in our core <unk> per share Bill will cover this and other items of our guidance in greater detail on in a moment.
With that I'll turn it over to bill to discuss our second quarter operational results. Thank you Ben and good morning, everyone.
Core <unk> was 52.
From the corner, an increase of 10, 6% as compared to the second quarter of 2020.
Include important call on this quarter was the impact of inheriting the ownership.
On panel right on 1 of our buildings in New Jersey.
This resulted in a $1.5 million noncash increase.
2 revenue contributing 1 penny per.
Per share.
Cash available for distribution totaled $147.2 million year to date through the second quarter.
An increase of 17, 8% as compared to the first half of 2020.
Net debt to run rate adjusted.
EBITDA was 4.7 times at the low end of our guidance range.
We acquired 9 buildings.
$126.7 million during the second quarter with stabilized cash and straight line cap rates of 5.7% and 6.2% respectively.
These acquisitions spanned across 9 different states and included 1 asset in the Stockton market, which has been a focus for that deal team.
The strong demand for our buildings as reflected in our reporting leasing stats leasing results year to date, our across 43 leases.
E Commerce continues to drive leasing demand.
But it is important to note that e-commerce does not simply mean, Amazon, we're seeing small logistics companies reconfigure and enhance their real estate footprint.
Tenants, who traditionally operated offline on now building out new ecommerce operations as they adapt and adjust to the change in consumer behavior that was accelerated.
By the pandemic.
Approximately 40% of the leases commenced this year involve an e-commerce component.
This is a trend we do not see slowing down anytime soon.
During the quarter, we commenced 23 leases totaling $3.9 million square feet, which generated cash and straight.
Leasing spreads of 8.1% and 15, 1% respectively.
Retention was 80 per cent for the quarter.
As a result of these operating statistics cash same store NOI grew 4.4% for the quarter and 3.6 per cent for the year.
On these metrics are record highs for stag.
Moving to capital market activity, we raised gross proceeds of $42.2 million through our ATM program at a weighted average share price of $34.95.
In the second quarter.
Subsequent to quarter end, we raised an additional $65.3 million through our ATM at a weighted average share price of.
Line $11.98.
Additionally, we have $184.1 million of unfunded forward equity proceeds available available to us as of June 30.
Subsequent to quarter end on July 8 we closed a $325 million private placement transaction with a weighted average.
Interest rate of 282%.
This was the lowest interest rate we achieved in this market in the company's history.
The transaction consists of 2 tranches $275 million of 10 year notes with a coupon of 2.8% and $50 million of 12 year notes with a coupon of 295% funded.
Funding.
<unk> is expected to occur in September.
Our guidance is included on page 21 of our supplemental reporting package changes to our guidance are as follows.
As been previously noted we have raised our guidance related to cash same store growth to a range of $3.2 5%.
375% an increase to the mid.
Midpoint of 1%.
This same store guidance increase is driven by high single digit rollover rents expected for this year and the continued decrease of downtime for our assets.
With approximately $522 million under contract and subject to letter of intent or acquisition volume from the year.
Has been increased to a range of 1 billion to $1.2 billion, an increase of $100 million at the midpoint.
In conjunction with the update to acquisition volume, we revised our stabilized cash cap rate guidance to a range of $5.2 5% to 575% a decrease equal to 25 basis points at the midpoint.
We expect straight line cap rate to be approximately 50 basis points higher than cash cap rates.
Expected level of G&A from here has been adjusted to a range of $45 million to $47 million.
This range excludes a onetime noncash expense related to the adoption on the retirement plan during 2021.
We have updated our guidance related to core <unk> per diluted share to a range of $2 <unk> to $2 <unk>.
This is an increase equal to 5 at the midpoint, representing a 7.4% accretion over the prior year I will now turn it back over to Pat Thanks Bill.
I would like to.
Finally, our excellent team for their outstanding work and contributions towards another successful quarter.
The first half of 2021 demonstrated the strength of the stag platform and investment thesis the demand for our space in our portfolio combined with our increasing opportunity set has positioned the company for a strong second half of the year and beyond.
Thank you for your time this morning, I will now turn it back to the operator for questions.
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1 moment, while we pull from the first question.
Our first question comes from Sheila Mcgrath with Evercore. Please proceed.
I guess.
Good morning, congratulations on the corner on same.
Same store NOI guidance moved meaningfully higher I, just wondered if you could give us some more specifics for example, I think bill you mentioned lower downtime what was that like a couple of years ago, and how does that compare to now.
Thanks Sheila.
Good quarter, and we always appreciate speaking with you.
So as Bill mentioned lower downtime I think you know, we're probably underwriting 12 months a few years ago as an average downtime across markets and that is probably closer to 6 months a day and actual experience is running less than or under has been recently running less than our underwriting.
So that's a that's a big component.
Ponant, obviously continued.
Continued rent growth is a big component as well as the improving contractual rent bumps over time.
And then on in terms of the contractual rent bumps same question like what were they a couple of years ago.
What do they look like now.
Hey, Sheila its Phil.
Now theyre running on new deals close to 3%.
Historically that was in and around 2% renewals are 2.5% to 3%.
So we've been that we've been experiencing that for the past couple of years. So that's been starting to flow through our same store numbers.
Okay, Great and 1 more question leasing spreads.
We're strong in the quarter I was just wondering if you have a view on where your portfolios in place rents compare on average to market rents today.
That's.
So there's a lot of different markets excuse me a lot of different assets within those.
Those markets on the Submarkets, so having getting to any great degree of specificity is difficult. We are very confident that it has on their market probably in the mid to upper single digits.
Okay.
And that's what we've been experiencing for rollover rents to Sheila.
Okay, great. Thank you.
Thank you.
Our next question comes from Emmanuel Korchman with Citi. Please proceed.
Hey, this is Chris Mccrary on with Manny I was just wondering if you could comment on trends that youre seeing in the transaction market today, both from pricing to buy our competition as well some of the timing of the acquisition.
The acquisition does the pipeline.
Volume begins to ramp.
Well I mean, the market obviously is very active a lot of people have been looking at the industrial sector and seeing the type of <unk>.
Supply demand dynamics that will drive rent growth.
We're talking about shorter down times.
Et cetera, so a lot of people interested in our platform our ability.
To buy individual assets Insulates us from some.
Some of this more aggressive on new capital to the market Bill do you want to add something.
Think the bite sized acquisitions that are our bread and butter.
Allows us to differentiate ourselves from some of the some of those bigger capital.
Cap rates have come down.
But with the decrease in cap rates, we're seeing better internal growth with these acquisitions and youre starting to see that flow through our numbers as well. So certainly more competition on the platform allows us to invest across 60 plus markets. We operate in more bite size range is 5% to 25%.
<unk> million dollars in terms of.
Acquisitions.
And just a quick follow up to that but for some of those larger portfolio acquisitions would you look to sell assets to fund some of those or could you just comment on the funding strategy for some of the larger acquisitions.
So our funding strategy for all our acquisitions is basically the same we are looking for accretion.
To our portfolio, so whether underwriting on an individual asset or portfolio of a couple of hundred million dollars of assets. We're still looking for the same thing accretion.
Our portfolio, obviously, the diversification benefits of a portfolio offer alternative buyers to us those diversification benefits without.
Having to do you don't get buying individual assets. So we find the capital to be more aggressive on diversified portfolios, obviously because of that diversification and element of which is allows them to more easily finance those assets.
Our strength is eye on.
And Bill have mentioned is in buying individual assets.
That's where the.
The potential downside of a vacant asset or non renewal of whatever is greater than we find pricing inefficiency to be greater.
Chris as we look throughout the rest of the year, we're still comfortable with our disposition guidance of 1 to 200 million debt does not include any portfolio sales and we're not anticipating any.
Portfolio sales for the rest of the year. The mantra that we've we've talked about before is if it's worth more to somebody else than it is to us we're happy to sell it.
But it is not a funding mechanism, we're perfectly happy with the accretion that were getting by issuing common equity and buying assets.
Got it and then final question here just with competitive.
On the capital chasing this space are you looking to build out more developments or what are some specific markets that you've been focused on.
Thanks, So on.
Our investments in the platform have been not to build out our development capacity, which we have.
In house development capacity has been to build out our acquisition team.
We've gone from 6 to 11 outward facing acquisition people over the last few years.
That has allowed us to identify more individual assets approach non marketed assets, so where we are the initiator of the discussion.
And this has reduced the pipeline a 3 plus $3.5 plus billion dollars pipeline that we have today.
As well as our ability to continue to buy in the volume that we've indicated despite the fact that our hit rate the number of deals that we acquire.
As a percentage of the deals that we underwrite is down this year, but our acquisition volume has been maintained at very high levels because of the expansion of the of the acquisition team.
Yes, we don't we don't focus on specific markets, but we certainly have been successful on some new markets, Let's say 1 that we've mentioned in the past has been the Sacramento Stockton, California markets required.
The $200 million over the past 2 years in that market.
Thank you.
Thanks.
Our next question comes from Elvis Rodriguez with Bank of America. Please proceed.
Hey, guys good morning, and great quarter, just a quick question on the makeup of the pipeline.
So I know the volume went up but the square footage went down.
I'm sorry.
The square footage went up but the dollar price went down so perhaps you can share any.
Any details on.
So to make the markets the regions quarter over quarter, and any relation to the cap rate compression with the change in the pipeline. Thanks.
So what I alluded to with the.
Prior question is the fact that we are continue to be and then even more so broadly looking across these markets were looking deep more deeply in.
Markets because of the breadth of our acquisition team, but this pipeline is made up of circa 85% of individual assets that are the product of ours are going on and looking.
Looking for assets scouring listing as well as being the initiator of the discussion. So the makeup of our portfolio has not changed markedly in terms of.
Where they're coming from the type of assets or the potential return.
Got it and then.
Just a question on the credit facility. So it increased.
Quarter over quarter by approximately $50 million, how do you think about using that as a funding vehicle versus deploying forward equity and then just to add on the forward equity.
How do you plan to deploy that from a balance of the year. If you can share an update thanks.
Hey, al this so as I mentioned, we raised debt private placement.
It is $325 million, so that will be funded in September and we'll use that to.
Take care of the line.
In terms of the forward equity, we're going to match fund, our acquisitions and operating within our leverage levels.
Thanks, and then just just 1 more.
I'm trying to is it seems like you either sold an asset or they didn't renew.
Perhaps the lease that they had any update you can share on that tenant.
Okay.
Specific case.
We had a sub tenant in that building so really the use of the building continued charm us.
With no long is no on them at least on.
Got it thanks for the update.
Yes.
Our next question comes from Dave Rodgers with Robert W. Baird. Please proceed.
Yes, good morning, everybody Ben I think you've addressed some of these topics before but I guess I wanted to ask about market rent growth underwriting and as cap rates come low.
I know you guys have been a total return buyer but.
Maybe talk about how you've changed if at all your market rent growth underwriting expectations, maybe how much of that is taken up by by better escalators and then maybe the last thing is on on cap rate reversion at the end as you think about exiting at some point.
Yeah. So I mean, we are.
Lower 1 of the Differentiators, perhaps of our our team is that we have a market rent team in here that he uses.
Both CBRE and re stater. In addition to our own developed data to do not only on market, but sub market rent growth projections for.
In detail on annually for 5 years and then.
And then looking at long term growth rates after that so we're very specific about the market rent growth for a particular asset in a particular submarket as we underwrite them. So.
The market rent growth has been because of the macro demand.
For industrial real estate, and then taking that down.
On the individual markets look on the supply demand characteristics on the projections for those in individual markets, where develop developing what are as you might as you are alluding to better rent growth expected in virtually every market that we look at it I don't I can't think of a market where rent growth has expectations have gone down.
Even some of the markets that are experiencing.
The significant supply.
Even those markets. The demand has been strong enough to at least hold up rent growth to where it was.
Exit cap has been is certainly a part of our analysis because we do both for share metrics that are obviously dependent on our cost of equity as well as levered.
While our metrics as a part of our threshold testing.
The exit cost we use in those IRR calculations are based on the market.
The portfolio impact of putting assets into our specific market portfolio impact of putting those assets into our portfolio as well as long term treasury rates curve. So.
A combination of those thing in virtually every case.
Our expected exit cap is in excess of our acquisition cap rate.
And on the market rent growth side, I guess, how has that changed for you guys maybe over the last 2 or 3 years.
And I guess, maybe the point on the question is at market rent growth continues to be.
<unk> should we anticipate cap rates for you guys on the acquisition pipeline in say 2022, we'll continue to kind of drift lower as you have more confidence in market right.
Well I think yes.
Certainly that's a factor.
We're projecting along with the rest of the industry pretty strong rent growth from the next 5 years.
So.
Will that rent growth that estimation increased from where it is today.
That's a crystal ball item that I don't think we have the answer to we have a pretty good handle on given the facts are on the ground today the expectations over the next 5 years on an individual market basis.
But whether it improves from here.
Yeah.
I don't I don't see anything that tells me that that's going to be the case.
Alright.
Good day and on.
On your on that same question.
Market rates continue to improve escalators continue to improve our cost of capital continues to improve there is certainly a case that cap rates could decrease but we will still.
We'll achieve the accretion that Ben mentioned as well as the same long run returns that you may have never heard me say cap rate is a point in time measure, but it is a point in time measure.
Maybe only 1.
[laughter].
Thanks, Bill and Ben for that maybe last question for Dave King or bill, but on tenant rollover out.
Look just as you look through the rest of this year and you get a peek into kind of next year's rollover early in the year or are we looking for anything thats changed in terms of.
Any exposure.
No theres nothing out of the normal course, we expect retention to be in our historical range, we expect roles to be generally up.
So nothing nothing concerning on that from.
Dave earlier this year, we mentioned.
Beginning of the year mid to high single digit guidance for rollover rents for 'twenty for 'twenty, 1 we're forecasting high single digits. This year now.
Just due to some on the rent growth in some of the leasing successes Dave's teams had.
Okay, great. Thanks, guys.
Thank you.
Our next question comes from Michael Carroll with RBC capital. Please proceed.
Yes can you provide some color on the property level trends and how they differ I guess between your markets are you seeing greater demand activity or rent growth in your.
Per markets, such as Chicago, Philadelphia, or Boston compared to maybe the smaller regional markets or how should we think about that.
Okay.
I mean, it is market by market, Mike, It's a little harder for us to answer that just given how many markets. We operate in I would say the markets that continue to be extremely strong.
Your large on the bigger markets, New Jersey Philly.
Some of our West coast markets Sacramento Phoenix.
But detroit seeing extremely strong rent growth right now Raleigh smaller market, but extremely strong rent growth and then I would say on the other side of things Houston.
Still struggling a bit but continues.
Some roof.
So that was probably 1 of the weaker markets that we've had and that continues to improve as I said.
Okay, and then <unk> been released 1 of Dave's questions. You highlight you are still seeing some pretty strong rent growth even in markets, where there is significant supply I mean can you highlight what markets that.
2 thing Youre seeing significant supply and maybe the type of rent growth you're seeing in those markets versus the portfolio in general and has it has a different at all.
Well I'll.
I'll just make some general comments on not getting into specific markets, but for instance, and then get into a specific market Lehigh Valley I think people.
<unk> per year, and a half ago were very worried it will probably 2 years ago, a very worried about that market because of the supply the advent of the pandemic the acceleration of e-commerce et cetera.
We'll fix that market and so youre back to expectations for strong rent growth, there where that would not have been the case a couple of years ago because of supply concerns, but again, we're underwriting.
E market individually.
And the fact the matter is if our expect we talked about this before if our expectations for rent growth in a market are significantly lower than other participants in that market, we will probably won't be buying in that market. If we think that rent growth is going to be higher than the other participants will probably be in active buyer in that market.
So we continue to look for overlays, where the risks were being overpaid for the risk we're taking.
Okay and then.
That's an activity I mean, you increased the guidance I.
I guess for 2021, I mean can you point to what allowed you to increase the bottom end of that range as adjusted.
Just that the deal activity youre seeing them more confidence to be able to close on or are there deals that you have under contract or advanced negotiations that you see a pretty good line of sight of completing this year.
Yeah, Mike as I mentioned in the prepared remarks, we have $522 million under contract and subject to.
Okay.
And so you.
Couple that with what we've closed year to date, including the subsequent and where.
Close to $785 million.
Under contract LOI are closed as of today, so still a lot of time to put deals on the contract and close them by year.
And which gave us the confidence to raise the bottom end of the guidance, yes, we would've been at the bottom end of the old guidance with what we have today.
Alluding back alluding to the to the expansion of our deal teams and the support teams at that.
Work with them, we just have more capacity now and so we're very confident of our ability.
82 during the intervening 5 months or so the remainder of the year.
On to identify significant number of additional transactions, which led us to increase that guidance.
Covid Covid had.
An interesting impact on the overall industrial.
Sales market last year, the market had I think the most.
Actions ever in Q4, and what that created was a very slow Q1, not just for us per for the entire market and then there was a lot of Rfps started coming to market in Q2, and so this year not only are we going to have a big half big second half.
The year, but the overall industrial market will see arguably records.
Record sales in the second half of the year.
Okay, and then Bill you did talk about this I guess.
The Q&A, but I kind of wanted to touch back on the competitive landscape.
Has it changed at all with the deals that you are targeting smaller transactions are you seeing larger funds.
Going after some of these smaller bite sized type transactions or is still just the.
Tenders that you have been seeing over the past several years.
Seeing a lot of the same competitors I mean, as you know, we still compete with deals above $25 million and we're bidding on them actively bidding on them. We're competing we're seeing some of those deals were getting priced out of some of those bigger deals just because of the weight.
On a capital is chasing industrial.
We saw some players that.
Typically in these or other public Reits that typically are not that active in the industrial market more than net lease side of things being very aggressive in an example, south Dallas and some of the Dallas Fort worth market. So we're seeing some increased competition.
The same can those bigger asset deal sizes, but on the the bread and butter of $5 to $25 million transaction. That's the same competition that we've competed with historically.
Okay, great. Thank you.
Thanks, Mike.
Our next question comes from Bill Crow with Raymond James. Please proceed.
Good morning, and congratulations as well for me.
And is there any reason why the higher same store guidance shouldn't persist.
Next year 2023, 2024, given your comments about the 5 year outlook.
You know obviously every year.
Individually idiosyncrasies that are long term.
Building blocks of growth slide as suggested 2% to 3% is our expectation.
Longer term, having said that we're in a pretty good environment. These days and so expectations are probably at the upper end of that guidance and where we will see what the year holds.
But I guess the portfolio has gotten so big that it's tough to point to individual.
Properties or markets that would derail something like this right I mean, it's just.
Yeah, I would agree with that.
Okay.
Yes.
Bill, we'll give specific guidance for 2022.
In the normal course, but the trends are very positive from them.
Yes.
I'm not looking for guidance I'm, just trying to think about what might do.
Derail us from this.
We are at today.
I guess there isn't.
You talked about the Bill go ahead.
We've talked about this many times before the fact of the matter is.
Industrial in general on our portfolio in particular, although not immune from risk has been is pretty well insulated from risk because of diversification.
Okay.
You talked about the <unk>.
Solar array in recognition that you've received from some of that.
What is the economics to stag.
From from.
The increase in your solar presence.
Well Theres a number of a number of things to think about 1 is.
Certainly just the economics, where we're getting.
Typically we do an upfront payment.
So a 20 year lease 15, 20 year lease we do a single rent payment upfront so the.
The economics that gets spread over the life of the lease. So we are leasing the roof space to a solar operator.
And they are handling what happens with the power being generated we are we are in the in actual ownership of.
PV arrays in at least 1 case and will be and more.
Some of the things that that will do is we expect that to be able to get to carbon neutrality through that over.
Over some period of time.
What I would describe as organic carbon neutrality, we're not buying credits where we're developing credits.
For our scope, 1 and scope 2.
Carbon load.
So we think that is a.
Potentially a.
A big benefit to us from an Investor relations ESG compliance et cetera basis.
The green bonds are access to ESG equity funds et cetera, so that.
There are certain markets where.
We can generate power with PV, even without credits at a significant discount to the local grid costs for electricity.
So there's a variety of ways that the economics makes sense for us and we certainly have tenants that are interested on there.
Given their own ESG desire.
<unk> and goals to have a PV array on their buildings, even though they may not even whether they own or are we on it so variety of ways.
That it will benefit us both from.
From a.
Immediate economic impact as well as a long term good citizen impact.
Perfect. Thanks.
Desire.
Thanks Bill.
On the next question comes from Chris Lucas with capital 1. Please proceed.
Hey, Good morning, guys. Just a couple of quick ones from me Bill on the guidance increase for G&A, what's the driver behind that.
That's probably net primarily short term incentives Chris.
<unk>.
Our methodology for that is looking at various operating metrics, including core for faux same store leverage.
Based on those operating metrics that drive short term incentive so with the outperformance. This year, our short term incentive has been increased.
Okay, and then as it relates to the private placement I guess, just kind of curious if you could walk me through how you thought about.
On the private placement versus a public market deal and what sort of pluses and minuses you want to go through before deciding on the private market on a placement.
Yeah, we spent some time.
Considering both market.
It's.
Ultimately decided with the private market due to a number of reasons.
First and foremost price.
Still had a lot of debt.
Depth in that market, we had over $1 billion of commitments for.
For this transaction, we were also able to get a <unk>.
Delayed.
Draw features so we're able to pull that down 3 months later after closing.
And ultimately it's price and when you think about net price with fees. It was just significantly cheaper than the public market when we priced it.
And the last piece is obviously the private market is perfectly happy with our current ratings.
If we were going to go into the public market there would be.
Mark on potential for us.
Needing to get another rating doesn't isn't.
So, but there'll be some potential for that.
Okay. Thanks for that Vince and Bill and then Ben just maybe shifting to you you've talked a little bit about some of the supply.
Discussions that are.
And then the conversation with industrial over the last couple.
At least any markets that you are looking at today, where new supply is a risk factor that you are.
Meaningfully concerned about or is the environment.
Demand is not just overwhelming so not really yeah, Chris I mean, we tend to look at.
On a not on a binary basis, but on a <unk>.
Considered.
So the impact of not only supply but plans for supply.
Impact our rent growth forecast and impact our downtime forecast.
Individual looking at individual markets. So.
There is certainly no market out there that we view as having a black mark against it.
We don't want to invest in but it does inform us on our in our underwriting as to what rent growth might be as.
As well as potentially downtime.
Okay. Thanks for that and then the last question from me.
Has to do with.
Yeah.
Or was it about this.
Based on what I just lost it never mind I. Appreciate your time. This morning, I will get back to you on on for Chris.
Always happy to respond.
Respond to your queries.
Individually or in this forum.
Okay, great. Thank you guys.
Thanks, Chris I want to once again, ladies and gentlemen to ask a question. Please press star 1.
On keypad. Our next question comes from John Mcdonald with Ladenburg. Please proceed.
Good morning.
Apologies if I missed this morning apologies if I missed this earlier in the call my connection come out, but how much roughly of the per share guidance increase was tied to maybe some positives.
It's on Apprises with regards to cost of capital.
And was the remainder of the kind of core <unk> guidance increase all just the same store if not all of it if there wasn't any kind of capital cost of capital.
Yes, John So so clearly are clearly theyre mode. There a myriad of factors that contribute to that.
<unk> guidance I think that the same store.
Which is that the portfolio itself. The very strong performance there was the principal factor driving that.
Cost of capital certainly helps but the principal driver was same store John I did mention in prepared remarks, there was a 1 time.
On a noncash increase.
The increase to revenue related to the inherent sub solar panels at our 1 of our properties in New Jersey. So that was that contributed about 1 penny to core from <unk> in the second quarter.
Okay.
And basically those 3 components are kind of I mean, because the acquisition the investment activity.
And loaded it probably won't really impact.
Yeah. That's right. It's been said I mean that was a very little impact the cost of capital as it was really the operating portfolio, that's driving a lot of the growth.
And then maybe in terms of the investment activity and kind of how it varies quarter to quarter in the current.
Current year is there any potential impact that may have on timing in 2022, I mean could we see either acquisition volume may be front end loaded as things potentially leak over into next year or is it is this kind of very kind of 2 week heavy investment volume.
Schedule maybe the.
Norm just given some of the gives and takes coming out of the pandemic.
John I mean, I think you know the pandemic certainly has affected everybody's calendar, but the the cadence of acquisitions has tended to be through our history on through.
My time prior to this is tends to be very similar to first quarter is almost always light because the real estate.
It takes a pause at the end of the year. So as you began the first quarter, you're sort of spending back up in the fourth quarter tends to always be happy because people want to get things done before year end, we expect as bill alluded to in terms of our under contract and LOI numbers, we expect an unusually big third quarter in terms.
No decisions this year.
So that's a little out of cadence in that you probably could ascribe some.
It certainly could ascribe some reopening the pandemic effects there.
Okay.
And then with regards to kind of the in place portfolio as you look at some of the re leasing potential in some.
Acquisitions come due and no vacancy.
Or are you looking at term just given some of the strength in the market. I mean is there more of a bias now towards shorter term leases I mean.
So we continue to see longer term leases just kind of 1 of the pushes and pulls there than we might kind of that weighted average lease term migrate down.
Kind of we've just given.
Maybe the benefit that accrues to stag.
In some of these re leasing transactions or yeah.
Yeah, John the nature of the negotiation and it is a negotiation with the individual tenants is they have a goal and if you try and on what Theyre looking for in a loose term if you try and move.
Them off that goal, there's probably a cost to you. So if they're really hard set on a 3 year lease because they have some are looking for some optionality at the end of the 3 years and you say no I need you to sign a 10 year lease you're going to have to give up something obviously on economics. They get that so the result on negotiating we go into negotiations with looking for a.
1000 year lease with 3% bumps on that not quite that debt, but we're looking for longer leases with fixed rent bumps on they're looking for I'll, probably optionality with a bunch of options.
Term on it.
Extension options so.
It is a negotiation what we'd go in looking for the best deal for our.
For our shareholders. So I mean in a in a market, where we're expecting strong rent growth for 5 years, we're probably perfectly happy with a 3 year lease.
But we underwrite it based on our expectations for the market tenant retention.
Et cetera.
But the bias would still be longer even given.
Obviously some.
<unk> spreads we've seen in lower downtime.
There isn't any thought process on on your end to maybe see some of these shorter leases just given I understand your in place leases, obviously can be attractive, but maybe even leases you ran a shorter term.
Got it gets at the propensity to renew so if you're giving.
Youre, giving that tenant optionality to to non renew.
Earlier in the in the a potential.
Potential Tennessee of that tenant.
That's going to weigh heavily on your potential cash flows over time.
Have a very high they have a very high propensity to renew I was less of an issue, but if you're if you have a.
Tenant that is let's say, it's a coin flip whether they were nowhere even 75% retention.
Introducing that 25% non retention is pretty deleterious to your cash flow projections. So.
Again, we're it's a negotiation.
There's probably a.
Generally a preference to.
To longer term leases unless we have some unbelievably high belief that on.
Unbelievably high belief.
Can I use believe 3 times on a cents.
On the tenant is going to renew even with short term leases.
Okay that makes sense that's it from me. Thank you very much for your time.
Thank you John.
Thank you there are no further questions in queue at this time I would like to turn the call back over to Mr. Ben Butcher for closing comments.
Thank you very much operator, and thank you everybody for joining us this morning.
Obviously, a very good quarter for us and very proud of what my.
Colleagues achieved here and are expecting.
Patients going forward or with this team continued.
Continued success in the market are certainly supportive of that contention. So thank you for joining us. This morning, and we look forward to talking to you next quarter.
Thank you. This does concludes today's teleconference. You may disconnect your lines and thank you for your participation and have a great day.