Q2 2022 STAG Industrial Inc Earnings Call
[music].
Greetings and welcome to Stag Industrial's second quarter 2022 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. During the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded I would now like to turn the conference over to your host Steve about the associate capital markets and Investor Relations. Please go ahead.
Right.
Thank you welcome to Stag Industrials conference call covering the second quarter 2022 results. In addition to the press release distributed yesterday, we've posted an unaudited quarterly supplemental information presentation on the company's website at Www Dot stag industrial dot com under the Investor Relations section.
On today's call the company's prepared remarks and answers to your questions will contain forward looking statements as defined in the private Securities Litigation Reform Act of 1995.
Forward looking statements address matters that are subject to risks and.
And uncertainties that may cause actual results to differ from those discussed today.
Examples of forward looking statements include forecasts of course, with our same store NOI G&A acquisition and disposition volumes retention rates and other guidance leasing prospects rent collections industry and economic trends and other matters. We encourage our listeners to review the more detailed discussion related to these four.
Looking statements contained in the Companys filings with the SEC and the definitions and reconciliations of non-GAAP measures contained in the supplemental information package available on the company's website.
As a reminder, forward looking statements represent managements estimates as of today stacking.
Stag industrial assumes no obligation to update any forward looking statements.
On today's call, you'll hear from Bill Crooker, our Chief Executive Officer, and Matts Pinard, our Chief Financial Officer.
Also here with US today is Steve Mackey, our Chief operating Officer, and Mike Chase, our Chief investment Officer.
Available to answer questions specific to their area of focus.
I will now turn the call over to Bill.
Thank you Steve.
Good morning, everybody and welcome to the second quarter earnings call for Stag industrial.
We are pleased to have you join us and look forward to telling you about this quarter's results.
As we noted on our last earnings call. The industrial fundamental story is very much intact.
We continue to see strong demand across our markets. We believe the short and medium term secular demand drivers, including e-commerce supply chain reconfiguration and increases in inventory levels will continue to be a tailwind for some time.
Additionally, near shoring and onshore shoring should provide incremental demand in the medium term.
Hawaii is coming online at a moderate pace constrained by increased construction cost and supply chain backlogs.
Vacancy rates remain low and our markets and market rents continue to grow at a strong rate.
This positive industrial backdrop, coupled with our team's operational excellence resulted in another strong quarter.
<unk> per share was <unk> 56, this quarter, a seven 7% increase over the prior year.
Our same store NOI continues to be a big contributor of this growth.
The capital markets remain quite volatile the rapid rise in interest rates has caused the market to enter a period of price discovery that was ongoing.
This has caused a general slowdown across the industrial capital markets and for stag specifically.
Even with this slow down our acquisition volume for the second quarter totaled $165 $4 million.
This consisted of nine buildings with stabilized cash and straight line cap rates of five two and five 7% respectively.
The acquisitions this quarter are consistent with our investment thesis our underwriting model allows us to adjust price to reflect current market conditions and that is evidenced this quarter.
Given the uncertainty in the capital markets, we have widened our acquisition volume range and reduced the midpoint for the back half of the year.
We've also increased our cash cap rate guidance by 25 basis points this year.
In addition to the acquisition this quarter, we closed on 92 acres of permitted land on two parcels in the Greenville, Spartanburg market of South Carolina for $5.6 million.
This speculative development project is strategically located nearly inland port in Greer, Greenville, Spartanburg Airport and the BMW plant.
The project is expected to be completed next year and will consist of two buildings totaling over 700000 square feet.
We remain focused on capital recycling, we had one noncore asset sale during the quarter and closed the sale of a two property portfolio totaling 1 million square feet subsequent to quarter end.
This sale generated $82 million of gross proceeds at a five 2% cash cap rate.
We acquired these assets is approximately five years ago at a six 2% cash cap rate and produced an 11, 4% Unlevered IRR during our whole period.
We are maintaining our disposition guidance range of $200 million to $300 million. This year and expect our disposition cap rate for the year to be between four five and 5.1%.
With that I will turn it over to Matt who will cover our remaining results for the quarter.
And provide an update to our 2022 guidance.
Thank you Bill and good morning, everyone corporate <unk> was 56 cents for the quarter, an increase of seven 7% as compared to the second quarter of last year.
Cash available for distributions totaled $87 $2 million for the quarter, an increase of 16, 6% as compared to the prior period.
Leverage remains near the low end of our range with net debt to run rate adjusted EBITDA equal to 5.1 times, we've not issued equity since the beginning of January .
During the quarter, we commenced 22 leases totaling $3 2 million square feet, which generated cash and straight line leasing spreads of 14, 1% and 21, 9%, respectively retention was 89, 6% for the quarter.
Cash same store NOI grew 4% for the quarter and four 7% year to date move.
Moving to capital market activity on June 28, we funded our previously announced private placement notes the 10 year notes totaling $400 million and bear a weighted average interest rate of 4.12%. The proceeds were used to repay balances on our revolving credit facility.
Subsequent to quarter end on July 26, we refinanced term loan D, which was scheduled to mature in January 2023, and term loan E, which was scheduled to mature in January 2024, with new term loans totaling $375 million. These new term loans mature in January 2028, and bearing fixed interest rates inclusive of an interest rate swaps.
A 3.31% at close.
In addition to the term loan refinance we upsized, our revolving credit facility to a notional of $1 billion improving our liquidity profile. This represents an increase in revolver capacity of $250 million with no change to pricing or the maturity date.
In terms of guidance, we have made the following updates we've widened the range of expected acquisition volume from a range of 1 billion to $1 $2 billion to range of $700 million to $1 $1 billion, resulting in a decrease in the midpoint to $900 million acquisition cap rates for the year are now expected to range between five five and five 5%.
As compared to the previous range of 5% to 5.25%.
These revisions reflect the uncertain macro environment as we head into the second half of the year.
We have increased our same store guidance from a range of four to four 5% to a range of four to five to $4 75 per cent and increase to the midpoint of 25 basis points. This increase was driven by the robust demand. We are experiencing part buildings and leasing results that have exceeded our initial expectations. Finally, we've adjusted guidance for net debt to run rate adjusted.
EBITDA from a range of $4 75 to five five times to a range of five to five five times for 2022, I will now turn it back over to Bill.
Thank you mats, a great quarter with a strong outlook for the remainder of the year.
I want to thank our team for their continued hard work without them. None of this would be possible lastly.
Lastly.
I want to thank Ben for everything he has done for stag Venice created an amazing organization with a sound investment thesis that has resulted in extraordinary shareholder returns through the years.
I'm excited to work with Ben and his new role as executive Chairman I look forward to executing on the many opportunities that lie ahead.
We will now turn it back over to the operator for questions.
At this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
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You May press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, one moment, please slowly poll for questions.
Our first question is from Sheila Mcgrath with Evercore ISI. Please proceed with your question.
Hi, Yes. Good morning, Bill I was wondering if you could comment on your underwriting for acquisitions with your stock price lower and debt costs higher have you increased your hurdle rate given the change in cost of capital and is the market cooperating with cap rates moving higher.
Hey, Sheila thanks.
Part of our underwriting cost of capital as an input that's in our underwriting model inclusive of that cost forward interest rates our stock price.
And because of that our hurdle rates are naturally increase.
As I've mentioned in the prepared remarks price discovery in this market is real.
There are less assets coming to market now.
Given the uncertainty in the market, which is one of the reasons why we widened our acquisition guidance.
We expect once there's price discovery period to normalize we expect to return to our more normalized acquisition pace.
Okay, great and as a follow up.
This is for Matt does your acquisition require.
More common equity at the higher end of the range and just.
If you can comment on funding debt versus equity.
Absolutely good morning Sheila.
It's a great question.
Not issued equity since the beginning of January we don't need to issue equity this year, which is implied in our guidance. We increased the leverage range. This quarter. We have strong internal growth you know we have material retained cash from earnings now and we have the opportunity to Accretively recycle capital now we're going to continue evaluate all options, but our guidance can be achieved without common equity this year.
Okay, great. Thank you.
Thanks Sheila.
Yes.
Our next question comes from Craig Melman with Citi. Please proceed with your question.
Thank you.
You guys have from geographic standpoint, maybe a little bit different portfolio than some of your peers here and I'm just kind of curious.
If you're seeing any kind of varying levels of demand as you go from you know.
Some of the primary markets down to some of the tertiary markets I'm you know I'm, just whether some of this economic weakness or inflation.
It's having an impact on demand or you know, it's a broad national trends are kind of holding tight.
Yeah. Thanks, Craig.
I mean, the broad natural trends are holding tight certainly we have some markets that are that are stronger than others and some markets that are weaker than others, but generally this last quarter our markets rent market rent growths are about 8%, so strong market rent growth and some of the stronger markets. We're seeing as you know Philadelphia Central Ta El Paso.
Oh Sacramento.
So overall the trends are very strong and you're seeing that flow through our operations, our leasing spreads mid teens and one thing that you saw in this quarter's results as occupancy pick up in our same store pool. So that's the result of reduced downtime. So historical down times are probably coming in six months.
<unk> from long term averages so what we're seeing today.
Okay.
And gestation periods on our leasing decisions are those have you seen any shift in that from the beginning of the year to now.
Yeah. It's a good question and something we look at no material changes in the leases we've signed four gestation periods.
Okay, and then shifting to acquisitions you know clearly isn't there you guys have kind of <unk>.
Signal tighter underwriting standards.
So the change in acquisition guidance shouldn't have come as a surprise, but I'm just curious as I looked at the pipeline you guys were down from three $7 billion to $3 billion.
This quarter was that a function of.
You know just less transactions being pulled from the market or.
Everything the pipeline just didn't meet your criteria. So you kind of self selected and remove some stuff I'm just kind of curious what because that's a pretty it's like a 20% reduction.
Yeah.
It's a pretty big reduction I would say the pipelines down more so for less assets coming to market unless sellers need to sell a lot of brokers are advising sellers just to wait and.
And not put assets on the market during this volatile time and price discovery time.
And we've obviously talked about in all of our peers have talked about so I think that's part of it I would say a smaller component of the reduction is just stricter underwriting thresholds and inputs.
Okay, and then just last one for me.
On the $82 million portfolio, you just sold I know you know relative to initial pricing, you're probably off 70 basis points and.
That was a function of a longer Walt on those assets I guess, if you kind of bucket did your portfolio I know, you're Walt has come down over time, but how much of your portfolio. Do you think is seeing kind of some outsized cap rate movement is based on.
Kind of lease duration versus you know less cap rate move it because it's just got better mark to markets.
You know the ability to get to it quicker.
Yes, it's an interesting question, it's a tough one to answer I would say that portfolio in particular have had.
Lower escalators are the rents were at market. So really it was a it was a low growth.
Two property portfolio.
Our our portfolio varies from some vacancy short term leases to long term leases and even some of those longer term leases are well below market and.
And when you start to do the math those those assets would not.
Move from a cap rate perspective as much as this portfolio as much as two property portfolio.
So yeah. It's a it's just very difficult question to answer that that our portfolio is around 15% below market today, we continue to see strong market rent growth.
Great. Thank you.
Thanks, Greg.
Our next question comes from Blaine Heck with Wells Fargo. Please proceed with your question.
Great. Thanks. Good morning, So you guys adjusted your expected cap rate on acquisitions with your guidance update but I didn't see any mention of the expected pricing on dispositions, which you guys had previously indicated would be around four 5% can you talk about whether there is any change in expectations there.
Yeah. Thanks Blayne.
In the prepared remarks at the end of it.
I did mention that we expect cap rates for dispositions before and a half to 5%. It wasn't in our supplemental something that we may add going forward, but so that implies a 25 basis point increase in acquisition cap rates similar to what we're seeing I mean disposition cap rate excuse me similar to what we're seeing on the acquisition side.
Got it and is there any kind of change in the composition of the bucket of assets for sale. This year as pricing has changed in order to kind of hit that cap rate target I know, it's up a little bit 25 basis points, but are you changing kind of the buckets of assets that youre looking to sell so.
I would say not materially change in the bucket I would say what we're looking at are assets that we view are valued.
Higher externally, then we value internally and so as we.
Go through that analysis that really drives what assets what were willing to sell.
Okay. That's helpful.
And then.
In response to Sheila's question, you talked about price discovery and not really haven't seen pricing normalize relative to the move we've seen in the cost of capital I know this is probably a tough question to answer but just just wanted to get your thoughts on how long you think it'll take for that appropriate pricing adjustment relative to what we've seen on the cost of capital side and maybe how.
Barb has pricing moved with respect to you know what you think would be just the side relative to the movement in cost of capital.
Well I agree with you. It is it is a tough question I wish I wish I knew the answer I would say generally what we're seeing is anywhere from 25% to 75 basis points in cap rates.
In some of our stronger markets with with lower Waltz, and you've got market rent increasing at a faster pace those cap rates are not moving as much and then when you have assets like the portfolio. We sold were low escalators at market long term leases those are moving a little bit.
A little bit more so in that portfolio for example, as Craig mentioned.
That moved about 70 basis points.
Okay. That's helpful. Thanks, guys.
Thank you.
Our next question comes from Michael Carroll with RBC capital markets. Please proceed with your question.
Yeah. Thanks, Bill earlier, you highlighted that the drop in the acquisition pipeline is in part due to stricter underwriting standards can you explain on that is that driven by just the cost of capital changes or is there lease up and rent adjustments that youre, making there too.
Its cost of capital primarily.
But that's the minority reason why the pipeline decrease I would say the primary reason is due to less assets.
Coming to market because of the price discovery phase rent.
Okay, Great and then the 25 basis point cap rate increase.
I believe that's your estimate of how much that they moved I mean, how much does that vary by market and I guess within your portfolio I guess, what some of the high and low ends of those cap rate moves by market.
Yeah, I think that I mean, right now again, we're in this price discovery phase. So it's I think you might get a different answer from us than than others.
I think everybody has provided a different answers so far but I think the 25% to 75 range is a good range.
And part of it is how soon can you access the role.
What market. It is how long the lease terms. So there's a number of reasons that drive.
The change in cap rate. So I think generally 25% to 75 basis points is what we're seeing.
Okay and then just last one for me can you talk a little bit about the I guess, the 2023 lease explorations.
How are you I'm, assuming you're in discussions with some of those tenants right now how how are those progressing compared to what has what are you kind of put in the in the past few quarters.
Yeah, I mean, those are progressing pretty well, we've taken care of 25% of our.
2023 lease explorations.
Rollover rents this year for 2022 is mid teens as you know next.
Next year, we're high teens, I think it's 18, 5% to 19% so far on rollover and that's on a cash basis for the 2023 lease explorations that we've already taken care of.
Great. Thanks.
Thanks, Mike.
Our next question comes from Jon Petersen with Jefferies. Please proceed with your question.
Great. Thanks.
You guys said are the mark to market on your portfolio was 15% and I was just curious is that on a cash or a GAAP basis.
That's cash in and I should have clarified this to John when I speak Mark to market. It it's really focusing on the next few years, we were not trying to predict what market rents are going to be for leases that are rolling 789, 10 years out so really in the next few years, we expect in that mid teens as I mentioned.
With Mike on the on the last question.
Next year right now is trending higher than that.
25% of our leases have been taken care of it at high teens.
Got it alright, that's helpful. And then I know you guys had talked about capital recycling. If you guys. Do you guys have any I guess different or evolving thoughts on doing joint ventures, or maybe setting up investment funds or or something like that so you can kind of keep some of these portfolios in your managed business, but extract some capital.
I mean, I would say no different than what we've discussed before and right now the business plan does not contemplate any type of joint venture structure, we're very comfortable operating our business plan operating within our guidance ranges.
As Matt said this year.
So right now no change to that thought okay, and then just.
Last question for me.
Anything different in the past few months on like the lease escalators do you guys are negotiating whether there's any sort of you know inflation linked to it or just looking at where inflations that demand overall, how much higher are you able to push escalators now versus I guess, even just a few quarters ago.
Yeah, well I would say are our leasing team starts every lease negotiation with trying to get CPI that doesn't really go that well.
Where we're signing three plus percent escalators in our portfolio in some markets, we're seeing four plus.
It really it really depends on the supply demand dynamics in the markets, but the escalators certainly are increasing with the leases we're signing.
Do you know what the average escalator is on your in place leases today.
We do have some component of our leases that are CPI.
So the escalators range anywhere from two three to two 5%.
It's been increasing pretty significantly over the past couple of years, just due to the new leases signing at three 3% plus in some leases, 4% plus okay. Alright. That's helpful. Thank you.
Thanks, John .
Our next question is from Bill Crow with Raymond James. Please proceed with your question.
Okay.
Maybe beating a dead horse here, but on the acquisition disposition guidance.
Does this imply because you just increased expectations 25 basis points that youre going to focus on.
Acquisitions with with a typically lower Walt then you have and I assume a few re did that.
The nine year five 2% cap rate deal that you did in the second quarter I assume that would be.
The significantly higher at this point.
Yeah, and we're going to focus on on on deals that meet our investment thresholds bill and sometimes that's longer term leases and.
Sometimes a shorter I mean.
Any given quarter, we could have one year leases and 10 year leases in there. So it really it really is a mix.
A lot of the acquisitions in the second quarter as you can see were closed at the beginning of the quarter. The three that were closed at the end of the quarter.
The cap rates were 25 to 30 basis points higher.
And that's just based on the market moving a little bit.
Okay.
Okay, but you did say the range could be 75 basis points I assume those are.
Yeah, well you saw that on the mid we saw 70 basis points on the Midwest portfolio again, that's a portfolio that had.
Long term leases.
Right around 2% escalators at market.
Elyse.
Acquisitions, we signed in the second quarter were well below market, even long term leases in nature, but still well below market.
Okay alright. Thanks.
Thanks Bill.
Our next question is Jamie Feldman with Bank of America. Please proceed with your question.
Great. Thanks, and good morning, I wanted to dig a little bit into tenant credit risk can you talk about your credit watch list and maybe bigger picture. How you are feeling about any occupancy risk as we whether we're in a recession or heading into a recession or whatever the next six to nine months might bring.
Sure Hey, good morning, Jamie This is matts first let's start off with our kind of profile.
Call. It larger average building sizes and I, you know I think about 80% of our portfolio is single tenant.
That kind of lends itself to larger more sophisticated tenants north of 80% of our tenants have revenues greater than $100 million north of 60% of our tenants have revenues greater than $1 billion now not representing that as a as a credit stat, but those are large sophisticated tenants who are more likely to reorganize then to chapter 11 and leave in terms of our watch list.
Let's start with <unk>.
Lots of we've received.
We received that we that.
That has impacted us to date, we've had zero credit losses through the first six months of the year, we do have some credit loss baked into our pro forma for for same store, but we think that's prudent but as we sit here today, our tenant watch list is shorter not longer and we're broadly diversified across industries.
And just on rent collections. The last couple of years I think we're 99.6 99, 8% rent collection over the last couple of years. So we have a pretty very strong credit profile in our portfolio.
And then are there any thanks for that are there any regions or industry groups that youre seeing a change in leasing cadence.
Not particularly.
As expected, maybe a little bit more pushback from some of the three pls in terms of pricing just given how low the margins are we inquire about that at our weekly leasing call, but we really haven't seen any trends that are occurring yet.
Okay.
Alright, thank you.
Thanks, Jamie.
Our next question is it tends to burn the Green Street. Please proceed with your question.
Hi, Good morning, I wanted to continue the conversation on cost of capital a little bit and specifically just how do you assess the attractiveness of issuing equity and really what metrics or framework do you use whether when analyzing whether to issue debt or equity to fund external growth.
Yeah, I mean, there is theres a number of factors we look at Vince.
A couple.
Is the is the opportunity accretive both on.
Per share metric and a NAV basis.
And then it is it a good long term add to the portfolio. So I would say I'm very proud of what we've done over the past.
567 years with respect to being prudent allocators of capital one.
The stock prices at a level that we're not we're not comfortable that issue equity and I think we are.
We're doing that again, now or where our guidance is reduced our acquisition guidance a bit widen the range.
Coming into the year, we had elevated disposition guidance as compared to prior years. So I think this is a time, where we're going to be prudent we're going to be we're going to watch the market.
Not overpay for assets.
And.
And evaluate both off our opportunities on the acquisition and disposition side of things.
That's helpful. I was wondering if maybe follow up so just like specifically are you looking at maybe implied cap rates like maybe when your implied cap rate comes back in let's say the mid fives, which is where your acquisition cap rate assumption or is that a level, where you'd be comfortable issuing equity do you want your implied cap rates being side are you looking more on earnings metrics like I'm, just trying to get at.
As the both private and public markets move at what level.
We expect you to start issuing equity again.
Yeah, I mean, there's a number of factors we look at Vince I would say just going back to the guidance this year.
Our guidance does not imply issuing equity this year.
Just given where our balance sheet is.
The liquidity the liquidity, we have the internal growth we have so as our EBITDA increases our leverage decreases.
As well as the same store I mean, there's just there's just a lot.
Going our way this year in terms of the operations. So our guidance there is no.
Our guidance don't apply issuing equity this year.
But there are a lot of factors that we consider when we do issue equity.
Okay. Thank you maybe just one more from me switching the operations a bit and just could you talk a little bit about what drove the big occupancy increased quarter over quarter and if that was.
A big positive surprise to you or just a little bit of color on kind of the leasing or or that drove that.
Yeah. It was a positive surprise on the leasing side and you saw our occupancy tick up both on the portfolio and in the same store portfolio.
So it goes back to the earlier comment that just down times assure than what we were projecting so really it was it was occupancy pick up earlier in the year and that was a big driver for the increase in the same store guidance for the year.
Great. Thank you.
Thank you Vince.
Our next question comes from Nikita Daily J P. Morgan. Please proceed with your question.
Hey, good morning, guys.
High level, what's the early read on 2023 investment game plans, we feel funding cost don't improve from here like what happens next year.
Hey, good morning, So basically it's the same sources of capital available to US next year that are available now we have a good view into internal growth over the next 24 months.
Comfortable same store growth in the mid 4% area that you're seeing this year.
As Bill mentioned earlier in the call we have material retained earnings approximately $70 million to $80 million per annum, and we continue have the ability to recycle capital you know we're constantly evaluating sources of capital, but you know as shown this year, we do not have to issue issue equity.
Regarding your guidance you had a pretty good quarter on the core side, especially in your optic garden style way, but what made you decide not to raise the earnings guidance for the year. Despite the strong core growth is it really just the low dispersion also the lower acquisition volume or.
If something else suite.
No I think really you can see that you can see the reason right in our guidance. So we've widened and decrease the midpoint of our net acquisition expectations for the year.
And that is partially offset by an increase in the same store guidance as well. So net net that kind of keeps us in the range. We did fund $400 million of private placement notes at the end of June also factoring into our core Thats a range.
Mhm.
Two quick ones on the spreads and we have pretty good spreads in the second quarter anything to read into why they were a little bit lower than first quarter. I mean is there anything else.
<unk> comment that you could give us on that.
No color or comments broad base the leases we signed.
This quarter our commenced this quarter, it's across 20 plus leases so spreads are strong.
You look over last year, the four quarter average contained increase.
In our early outlook for 2023 is the continued increase in spreads.
Got it and then maybe last quick modeling question.
Or just issued debt at about low fours interest rate.
We worked tool caused a quarter or two quarters from now which would generally be modeling for your debt issuance. Later this year. When we were talking about mid fours high fours, you'll kind of expectation.
Hi, Thank you, yes, so the $4 one 2% notes those were originated in April we funded those in June we recently refinanced our term loans, we were able to all in swap those at 331% as we sit here today, it's a mix between private placement notes and term loans I do want to note we're effectively done.
One in the debt capital markets. This year. So this really is kind of a 2023 modeling. If you were to look at where we can issue in the private placement market today, it's in the mid to high 4% range.
You know as we sit here today I don't I wouldn't expect that to change so if you're going to model 2023, because again, we've kind of accomplished everything we wanted to do in the debt capital side for this year using a mid to high fours for long term that makes sense.
And Dave.
Yeah.
Go ahead, I'm, just going to say as Matt said in his prepared remarks that we just closed.
I had a weighted average interest rate of about 331% inclusive of interest rate swaps.
Alright, and then mid to high fours common that was still reflective of the recent fed hike right.
That's right that's the way of a current market, where we would likely issuing a private placement market, but as you know that capital markets are fluid and you know the answer may change quickly, but as we sit here today that that is a response.
As of today number okay got it thank you.
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Our next question comes from John Massacre Ladenburg Thalmann. Please proceed with your question.
Good morning.
So.
What is the outlook and appetite for maybe kind of a larger portfolio disposition or portfolio dispositions.
And I know, we're going through kind of price discovery on all kinds of asset transactions, but is there still kind of in aggregate are spread for selling larger portfolios versus <unk>.
Granular asset.
Hey, John I mean, the spread for portfolios has persisted since we've been we've been in this business.
I'd say right now it's a hard question to answer because of the price discovery I know a lot of the big private guys are on the sidelines now just just waiting to see where interest rates shake out and that probably continues through the end of the summer.
So right now I can't give a good answer of where that portfolio premium would be historically, that's been anywhere from 75, 100 150 basis points, depending on what timeframe. We look at it is hard to think that theres not a portfolio premium.
When the market <unk>.
Settles down.
And I guess, maybe your outlook for that type of a transaction.
Near term intermediate term.
Yes, I mean, it's something that we've done over the years, it's something that we're open to doing going forward right. We reevaluate all of our sources of capital portfolio disposition of individual dispositions.
As well as our other sources of capital, including debt capital and equity capital. So as we as we move through the year as we move through the next couple of years, it's something we'll evaluate and if the opportunity is attractive we will execute on it.
Okay, and then on the investment side in light of the Spartanburg development.
Transactions started you know what is the outlook for more development deals.
Especially in weighing kind of the pushes and pulls of underwriting returns in the <unk>.
Current environment.
Yeah, I mean, the development deals we've done.
So far it's.
Be it a few has proved to be extremely successful, we certainly have the capabilities to execute on this.
We're pro forming pretty strong returns for this development, which should be completed in about a year or so and so it's in markets that we're comfortable in its markets that that we really like and this opportunity as we see more of these we will execute on them over the years. It's it's been hard to find these opportunities.
But it's one of these is once you start doing a couple of those opportunities there's more of those opportunities. So we will evaluate them and if they are attractive we'll execute on them.
Okay and then.
Maybe just bigger picture any changes to the supply outlook.
Our pockets of meaningful new product and in some of your key markets.
Not no material changes as I said in supplies coming online.
It's moderated a little bit there is a fair amount of supply in the pipeline.
That supply just due to supply chain backlogs is coming on online in a slower pace, but the supply demand dynamics in our portfolio is extremely strong right now and youre seeing that through our operating trends, you're seeing that through leasing spreads or same store as Matt noted.
Same store is tracking to at least be similar next year as it has this year leasing spreads right now for the 25% of leases. We signed for next year are higher than they are this year, so supply demand dynamics in our markets are very strong.
And maybe just kind of like broadly speaking is there any divergence in supply between some larger coastal markets and some of the kind of secondary markets, where we have exposure.
Yeah.
I would say, there's a couple of our markets that have a little bit more supply, but again nothing that we're overly concerned about overall.
We feel really good about where the portfolio sits today.
Yeah.
Okay.
That's it for me thank you very much.
Thank you.
Ladies and gentlemen, we have reached the end of the question and answer session and I would like to now turn the call back over to Bill Crooker, President and CEO for closing comments.
I just want to thank everybody for joining the call today appreciate all the thoughtful questions.
I hope everybody enjoys the rest of the summer and we will we will talk to you all soon take care.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
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