Q4 2022 STAG Industrial Inc Earnings Call
Thank you.
Greetings and welcome to the Stag industrial fourth quarter 2022 earnings conference call. At this time all participants are in a listen only mode. A brief 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.
This conference is being recorded.
My pleasure to introduce your host Stephen Dara.
Capital markets and Investor Relations. Thank you Sir you may begin.
Thank you welcome to Stag Industrials conference call covering the fourth quarter 2022 results. In addition to the press release distributed yesterday, we've posted an unaudited quarterly supplemental information package 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 uncertainties that may cause actual results to differ that was discussed today.
Examples of forward looking statements include forecast of course, as well same store NOI DNA.
Acquisition, and disposition volumes retention rates and other guidance leasing prospects rent collections industry and economic trends and other matters.
Carriage all 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.
And in the supplemental information package.
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 matched Bernard our Chief Financial Officer also here with US today is Mike Chase, our Chief investment Officer, who is available to answer questions specific to his area of focus I'll now turn the call over to Bill.
Thank you Steve Good morning, everybody and welcome to the fourth quarter earnings call for Stag industrial.
We are pleased to have you join us and look forward to telling you about the fourth quarter and full year 2022 results.
Fourth quarter results provided a fitting conclusion to another strong year for stag.
Thank you to our tremendous team for their hard work and dedication.
This year featured many successes, including a record level of same store growth opportunistic investments in a volatile transaction market and operational efficiencies that resulted in impressive cash flow growth.
The economy continues to digest and react multiple drivers of volatility.
Rising interest rates geopolitical unrest labor force variables, including levels of employment and wage growth have resulted in various potential recessionary outcomes.
Against this macro backdrop, we see persistently strong demand for industrial real estate.
The secular tailwind specific to industrial real estate remain intact.
Near an onshoring e-commerce supply chain reconfiguration, and inventory level rebuilds will drive a bus market rent growth for the foreseeable future.
Thanks portfolio is well positioned to build on last year's success and will produce attractive internal growth in 2023.
For the year cash same store NOI growth was 5% continuing the trend of setting new record levels of internal growth.
This growth is sustainable supported by our average annual rental escalators of 2.5% across the portfolio.
There's upward pressure on this number this is signed over the past 12 months have averaged annual rental increases of 3% but.
But certain markets bearing increases of 4% and above.
Cash leasing spreads will accelerate in 2023.
As of today, we have addressed 61, 5% of the new and renewal leasing we expect to commence in 2023, achieving cash leasing spreads of 31, 6%.
The average annual rental escalator on our 2023 leasing activity achieved to date is three 4%.
This encompasses $8 4 million square feet of leasing out of the $13 7 million square feet projected in 2023.
Further demonstrating the strength and positioning of our portfolio.
We have one 715000 square foot development in process in Greer South Carolina.
This two building project is progressing on schedule and is expected to outperform our underwriting.
We have funded 42 of the $68 million project and has seen strong pre leasing activity to date.
On the external growth front the acquisition market ended the year quietly as sellers are seeking price stability and this dynamic has continued into the first part of this year.
Given this market uncertainty, we are introducing 2023 acquisition and disposition volume with wider than normal ranges.
Our base case assumes modest success in identifying and acquiring attractive opportunities in the back half of 2023.
We expect acquisition volume between 300, and $700 million and disposition volume between 50 and $200 million.
No incremental capital is needed to operate at the mid point of our net acquisition guidance, while maintaining while maintaining our guided leverage range.
Expected cash capitalization rates reflect an expansion of approximately 100 basis points from levels, we achieved in the first half of 2022.
With that I will turn it over to Max who will cover there are remaining results and guidance for 2023.
Thank you Bill and good morning, everyone core <unk> per share was 55 cents for the quarter and $2 21 tenths for the year, an increase of seven 3% as compared to 2021.
Cash available for distribution totaled $342 $7 million in 2022, a year over year increase of 16, 7%.
Consistent with our previous messaging the dividend payout ratio continues to moderate declining from 82.1% to 77, 8% at year end 2022.
This past year, we retained approximately $76 million of free cash flow. After dividends paid these dollars are available for incremental investment opportunities debt repayment and other general corporate purposes.
Leverage remains within our normal range with net debt to annualized run rate adjusted EBITDA equal to 5.2 times with $847 million of liquidity at year end.
During the quarter, we commenced 27 leases totaling 3 million square feet, which generated cash in straight line leasing spreads of 14.2, and 25, 4% respectively.
Pension was 79, 5% for the quarter and 71% for the year when adjusted for instances of minimal downtime and immediate back those adjusted retention was 94% for 2022.
Cash same store NOI grew four 5% for the quarter and 5% for the year, representing another annual same store of record growth for stag.
Our 2023 guidance range for cash same store growth is 4.5% to 5% anchored by weighted average rental escalators of approximately two 5%.
Attention to 70% at the midpoint of our guidance range and cash leasing spreads ranging between 25% to 30% on approximately $13 7 million square feet of projected leasing for the year.
Note that this projected leasing volume includes renewal and new leasing as Bill mentioned, approximately 60.5 61, 5% of our projected 2023 leasing has been addressed with aggregate cash leasing spreads of 31, 6% accomplished to date.
No large known move outs included in our guidance range note that our 2023 same store pool warrant will include 92, 7% of our total square footage owned at year end.
In terms of capital market activity subsequent to quarter end, we repaid our $100 million private placement notes, which matured on January 5th.
There are minimal debt maturities for the next two years, that's only $53 $3 million maturing through 2024.
Our 2023 guidance can be found on page 19 of our supplemental package, which is available on the Investor Relations section of our website.
So guidance include Corpo per share to range between $2.22 to $2.26 per share.
We expect same store cash NOI growth to be between four and a half and 5% for the year with a retention range of 65% to 75%.
As mentioned by Bill acquisition volume guidance is a range of $300 million to $700 million with the cash capitalization rate between $5 75, and six 5%.
Disposition volume guidance is a range of $50 million to $200 million.
G&A is expected to be between 48 and $50 million and finally, we expect net debt to annualized run rate adjusted EBITDA to between five and five five times I will now turn it back over to Bill.
Thank you mats stag enjoyed a very successful 2022.
Company is in great position, and we entered 2023 with significant momentum across the platform.
Look forward to the opportunities in front of us and another great year, we'll now turn it back over to the operator for questions.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment and it would be necessary to pick up your handset before pressing the star keys.
One moment, please while we poll.
Questions.
Okay.
Yeah.
Thank you. Our first question is from Craig Mailman with Citi. Please proceed with your question.
Hey, good morning.
And that's just doing some back of the envelope math with the.
Escalators and rent spreads you guys are assuming it seems like you know within the same store guidance you guys are assuming about 50 to 100 basis point.
Pull back in occupancy is that about right.
Hey, Craig Good morning, that's correct you know right now the portfolio at year end is roughly 99% occupied we do not expect to operate this portfolio at 99%.
Implied in our guidance is 50 basis points of average occupancy loss and what I would point to is offsetting the occupancy loss are the very very very healthy rental spreads that we've accomplished I basically year to date in 2023 between 25% to 30%. So there is a trade off between the occupancy and the rental spreads that we're able to achieve.
From a bad debt perspective, do you guys have anything baked in there.
We do so we have roughly 50 basis points of credit loss baked into our guidance just for a context previous previous years, we've had roughly 40. Its a ground up analysis, we rely on our credit team asset managers et cetera. We go tenant by tenant what I will say is we incurred zero credit loss in 2022 and this 50 basis point.
Budgeting.
It really isn't identified two specific tenants necessarily but consistent with our budgeting practices at the beginning of the year, particularly in the the heightened volatility that we are we think it's prudent budgeting.
No. That's helpful. And then you know you guys on the on the leasing that you've done so far for 'twenty three you guys had a.
A nice pick up in the rent spreads on a blended basis that you're reporting here so far I mean.
It seems like there's a little bit of a pullback a at least at the midpoint for where you guys are signed leases I mean has it been a mix issue. So far this year, that's been driving the rent spreads above 30% and what you guys kind of have in the in your sites for the remaining 40 ish percent of leases as different markets.
Or different spaces, I'm, just kind of curious after the conservatism. There given you guys are almost two thirds done leasing.
Hey, Craig its Phil.
I mean from a mix change, it's it's hard to say, it's a it's a mix that's really driving it.
8 million $8 4 million square feet, we leased that's across 63 leases.
It's across a number of markets.
About 55 was at about 55% of those leases where renewals are 27% on new leasing.
I think that's right.
And then.
In terms of the guidance of 25% to 30% I mean, that's just where we feel like things are shaking out as Matt said, there's there's a lot of volatility in the market right now and so we're just that's where we're budgeting for the year.
As we said right now were 61, 5% of our expectations down at 31, 6% spreads.
Yeah. That's helpful. And then just one one more on the dispositions can you I know it was helpful. For you guys to give the acquisition cap rate. So I'm just kind of curious.
What type of assets, you're looking to sell or is it just non core with maybe some upside or assets that you've already stabilized and kind of how does that.
Factor into the yields where now we've kind of seen stuff. That's stabilized cap rates are blowing out more than you know stuff that still has near term upside.
Yes.
And that's consistent with this past year, it's called yeah, the longer the Walt the lower the escalators the more of the cap rates have expanded our dispositions in 2023, there's gotta be a mix is as it has been in the past of opportunistic and non core dispositions.
Domestic dispositions are the dispositions we execute.
Execute on their generally produce a lower cap rates than.
And then where we're buying and it's a source of equity capital, it's a pretty wide range that we put out for this year just given the volatility in the market. So it'll be a mix of opportunistic and non core dispositions.
At the midpoint, if you guys do the 500 million on acquisitions and you're just below guidance at the midpoint kind of match, what's the net impact of F. I saw that you guys are assuming in guidance.
So the midpoint of our guidance is $2.04. What I will say is that acquisition volume is back end weighted in our guidance. So if you take a look at you know obviously, what we did in the fourth quarter by $8 million, we have closed zero transactions year to date through today, we have nothing on our closing pipeline. So the.
Actual.
Contribution to corporate so it is really back end weighted so it's relatively minimal as opposed to be more acquisitive at the beginning of the year.
Perfect. Thank you.
Thank you. Our next question is from Dave Rodgers with Baird. Please proceed with your question.
Yeah, Hey, Bill Matt Good morning.
Maybe wanted to start with something that came up I think on a lot of the other calls is just I think the word normalization for industrial as we moved into 2023, a little bit thinner in terms of the demand pipeline and.
Rent growth slowing down a little bit can you talk about what you're seeing maybe from a market level perspective, obviously the the numbers you are posting are really good, but maybe kind of looking behind the curtain a little bit give us a little bit more color on what you're expecting for market rent growth and the trend that you've seen moving into the end of the year and into 2023.
Yes, Dave.
Good question, we're seeing continue to see strong demand supply is coming online I think right now we're looking at about three 5% of inventory coming online.
New supply coming online. This next year that is taking a little longer to come online that it hasn't called normal cycles, just due to.
The supply chain issues that we're still seeing.
But rent growth for our portfolio, we're projecting mid to high single digits for rent growth.
Demand is still really strong we're seeing it across a lot of different industries.
Including E Commerce, three pls food and beverage packaging industry. So.
So we're still seeing really strong demand. One thing we are seeing is just a little bit of uptick from our leased gestation periods are we're seeing you know call. It a month longer between when tenants signed LOI and take occupancy. So when we bake some of that into our budgeting, so budget a little bit longer downtime in 2023.
Great appreciate the color Bill and then maybe you guys gave really good detail with regard to the leases that you've addressed already for this year that 61%.
But curious do you have the 65% to 75% retention in the guidance and so it's almost like Youre kind of there and I realize that the mix between new and renewals and not all renewals, but you kind of asked the guidance a little bit already.
Are there, although they're not in your guidance. According to math are there some big known move outs that we should anticipate in.
The numbers are just things that you are uncertain of that could hit as we get into the later part of the year.
No no no big known move outs as we.
We kind of look at that number as least as being 400000 square feet or larger.
So we don't have any of those in the pipeline the retention guidance of 65% to 70% we felt pretty good with.
This last year.
We had retention adjusted with immediate backfill of 90% like where we're looking at something closer to 80% right now for 2023.
That number if anything will only increase if if it does because we're not budgeting one to two months of downtime for our vacant spaces.
Yeah.
Okay. That's helpful. Lastly for me on the acquisition front anything different that youre looking at and in acquisitions or as part of that investment guidance would you consider doing a little bit more development or redevelopment value add type transactions I guess, maybe just your thoughts on where you anticipate to take the capital budget in 2023.
Yeah, right now as Matt said that acquisitions are really back end weighted.
Developments redevelopments value ads, we've been extremely successful on those projects over the years, where.
We're on our as I mentioned in the prepared remarks, our third.
Development, that's that's tracking to outperform our budget.
Underwriting and so if there's good opportunities there and we think there might there may be and we'll execute on those but.
There were still in a price discovery market. So, it's probably going to take a little bit of time here to come to agreement with some pricing.
Okay.
Thanks, Bill appreciate it.
Thanks, Dave.
Yeah.
Thank you. Our next question is from Michael Carroll with RBC capital markets. Please proceed with your question.
Yeah. Thanks, no with the planned 2023 leasing activity I know you dropped already addressed roughly 60% of that I mean, how does that compare in years past. I mean are you ahead of expectation and it says you are right now or is this kind of in line with where you usually are at the beginning of the year.
Hey, good morning, Mike mismatch.
We're roughly in line with where we are historically so anywhere in the high Fifty's. The low sixty's at this point of view have been addressed 61.5, maybe a tick higher but really what's higher here the leasing spreads in terms of the actual progress we made it it's relatively in line.
Okay, and then I know you've announced about an extra $2 4 million square feet. This quarter compared to the 2023 leasing activity, you announced last quarter and it looks like on that incremental leases that were announced your spreads are near the 40% range. I mean, I guess first is that correct and is there anything lumpy in there within.
Last two 4 million square feet that was just announced.
I think the one.
I'm just looking at that so I think there's the one lumpy piece was probably the Amazon building that was rolling in the fourth quarter of next year, we did renew them, we anticipated rolling that up about 30%.
We ended up rolling that up 60%.
So so vastly outperformed our budget there that was probably one of the bigger lumpier items. There that's right Mike just to add on that's a 250000 square foot building in Burlington, New Jersey with high face rates, so being able to double our expectations certainly pushes those numbers.
Okay, Great and then is there anything different with the remaining 40% and that needs to be done I mean is the mix the geographic mix different or anything like that compare to the stuff that you just completed or announced already.
And not not materially different Mike. It's just yeah that stuff's expiring at the end of the year and patents. It typically engage in renewal discussions six months ahead of time, sometimes a little bit longer. So I'm I'd say the only difference is more of those explorations are back half of the year.
Okay, great. Thanks.
It's Mike.
Yeah.
Thank you. Our next question is from Camille Bonnell with Bank of America. Please proceed with your question.
Good morning, based on your investment activity, this past quarter and expectations to execute on transactions in the back half of the year can you just speak to the confidence you have in terms of hitting the low and high end of your acquisition guidance.
It's a tough question to answer I would say.
<unk>.
We put our guidance out there with pretty wide ranges.
Because of the volatility in the market today. So it is guidance and right now our expectation is that we will operate within our guidance ranges otherwise, we wouldn't put them out there, but they are wider than normal both on the volume side and the cap rate side.
Okay.
You have great coverage over your upcoming Expiries for the next few months I'm just on an earlier point about the supply chain issues that are persisting down can you speak to whether you're seeing any change in tenant decision, making in terms of where theyre basing their operations and building their logistics footprint.
Oh, we haven't seen anything material as I mentioned in one of the earlier responses the only.
Small thing we're seeing from tenants is just taking a little bit longer time from LOI to actual taking occupancy.
But nothing material from a footprint perspective.
Okay and final question I'm going back to same store NOI growth, just focusing on the rental growth opportunity within the portfolio.
On one hand, you mentioned that there's now a greater number of leases on suite, a 4% escalators well on the other side you have high mark to market potential.
How should we just thinking about the balance between these two factors and contributing to that same store NOI growth.
Well I'll start and Thats, if you want to add on here, but.
For 'twenty to 'twenty, three I think that how to think about it is look at the guidance and 25% to 30% rollover rents.
And we mentioned, we're close to 335% escalators for those leases we signed in 2023, so upward pressure on the two 5% average escalators in the portfolio.
And every lease transaction is in negotiation so.
Sometimes that tenants are more inclined to pay higher face rate and lower bumps.
And some and some the inverse of frankly, we're not signing really any leases that I can think of below 3% bumps now and we're seeing leasing were signing leases with 4% plus form. So I think it really is a independent specific negotiation each lease.
You want to add their message I think they'll make the important point there that you know the.
One of the biggest building blocks of our guidance for this year the weighted average escalators across the portfolio today those sit at two 5%, but I think what's important to note here is what bill said is the upward pressure of that number you know we have circa 115 million square feet. We leased you know anywhere 10% to 15% of the portfolio a year. So we are striking leases that at least to begin with.
In terms of rental escalators, but it takes time to really move the aggregate it would be my expectation that if we sat here in 12 months. The 2.5 would be higher due to the fact of the leasing that we expect to accomplish this year.
Okay. Thank you for the color.
Yeah.
Our next question is from Jon Petersen with Jefferies. Please proceed with your question.
Great. Thanks, I think I just have one question so the the pipeline.
Obviously, it's been going down I, just wonder if you could give us some more color on our sellers not putting things on the market or are you guys being more selective I guess, how should we think about that number and kind of why it's moving.
The way, it's moving like what the bigger drivers of that are and then like what you guys are looking you know and I guess as we look in the back half of the year you were expecting more acquisitions, but you.
What are the drivers that you expect to have that pipeline increase again.
Yeah, we're expecting more acquisitions in the back half just at some.
We feel like the price discovery is going to occur.
And right now we're projecting that in the back half.
With that being said, we have a wide range of acquisition volume.
In terms of the pipeline being lower a big factor there is the lack of portfolios in the pipeline, we've underwritten portfolios before we bid on portfolios. We have not been successful on winning a lot of large portfolios, but theres not a lot of portfolios if any in the pipeline.
Mike anything you want to add that yeah, Bill I think you mentioned it I mean, it's more heavily weighted towards granular transactions, there's definitely I'm not as many fully marketed transactions coming out right now with a lot of what we're seeing in the market or lightly marketed off market transactions and transactions that we've looked at.
In the past and are coming back around that have not traded so that would that would be accountable for the slight decrease in the ER and then pipeline.
And then just general the general makeup of the pipe pipeline, John it's pretty similar to the stuff we've been acquiring in the last couple of years.
Okay.
Alright, that's it for me. Thank you very much thanks.
Thanks, Jonathan.
Thank you. Our next question is from Jason Belcher with Wells Fargo.
With your question.
Thanks, and good morning, Bill you've referenced the near shoring and onshoring as potential tailwind for industrial demand.
Wondering if you could just talk about how you expect those trends to play out over time and any color you could share around timing or magnitude of potential benefit well it would be helpful. And if there are certain markets within your portfolio that you think will benefit more than others.
Yeah, I mean, well I'll try to stay away from the magnitude question because that's a that's a really difficult one to answer but and we're seeing it benefit the portfolio today and our El Paso market.
There's a lot of Nearshoring onshoring are.
Happening there as well as supply chain reconfiguration, we're also seeing some.
Some in the South east.
We expect to see probably some in the medium term and in the Midwest, but that will we'll see how that pans out but its impact on the portfolio today and some of the border markets.
That's helpful. Thanks, Thank you and then secondly.
Amazon remains.
Your top tenant at about 3% of ABR.
Could you just give us an update on any recent discussions you've had there and your exposure to any expiring Amazon leases in the next couple of years.
Sure.
The Amazon leased that we renew that I just I just mentioned again, we doubled our budgets are we expected to roll up 30% at end up rolling up to 60%.
So that that lease has been pushed out.
The next lease roll I think is a smaller 100 twentyish thousand square foot building in early 2024.
That's a below market lease.
Good building, it's a second generation or third generation leased to Amazon. So it wasn't a it.
It wasn't a build to suit for Amazon to functional building.
So overall, the Amazon exposure has been working out quite well for us.
We've been able to operate those facilities either with renewals are leasing new tenants in the facilities that Amazon does not.
It does not renew.
Thanks, a lot appreciate the color.
Thank you.
Thank you. Our next question is from Mike Mueller with Jpmorgan. Please proceed with your question.
Yes, Hi may have missed this but in the 'twenty three guidance is there any equity embedded in it given the call for net acquisitions and I guess secondly are you are you an issuer in the mid thirties.
Hey, Mike.
Good morning, I can answer the first part first which I think makes sense are the midpoint of our guidance. It is really structured to assume zero incremental capital both on the equity and the debt side.
We can achieve that without needing incremental capital we haven't issued equity since January last year leverage is where we want it right within our range I think an important point to make here is we are generating approximately $80 million of free cash flow after dividends.
In terms of refinancing them around much maturing we have a bunch of liquidity.
I would say where the share prices right now we do not have an interest I think that as markets change you know, where we're going to evaluate but.
The reason why we put guidance what we did is obviously, there's a lot of uncertainty and very similar to 2022 very strong internal growth. The capital markets are volatile that's flowing through the acquisition of external growth side. So we were very careful in putting together a relatively wide and lower ranges as bill described to be able to run this business. This year without incremental equity if we need it if we don't need it.
Got it Okay and then.
Apologize for this but going back to the the spread question one more time on the 31% so far this year and and Nicole for full year of 25 to 30.
I guess the question is are you seeing anything specifically in the upcoming roles that would pull you down or is that just an assumption.
It's a it's an assumption Mike its leases that are rolling in the back half of the year.
And that's really what it is so it's just an assumption right now nothing.
Nothing known right now that's driving it to driving our guidance of 25% to 30%.
Got it okay. Thank you.
Thanks.
Yeah.
Thank you. Our next question is from Eric Gordon with BMO Capital markets. Please proceed with your question.
Hey, guys. Good morning, I was just hoping if you kind of provide some color to better understand the building blocks from 'twenty two to 'twenty. Three just given you have a similar same store NOI growth as last year, but it seems to be implied drag on half of <unk> per share I understand that there were some one timers in <unk> of last years, helping.
I'm, hoping that you could provide some additional color there. Thanks.
Yeah, absolutely wanted to walk you through 2022.
And then our 2022 guidance, how we arrived there first I think it's important to note on the last earnings call. In Q3, we did have a onetime item it accounted for approximately a penny. So there is a plenty of onetime items in 2022, we're not budgeting any one time items in 'twenty three.
That one time item was related to a settlement from a prior tenant again impacted 2022 by a penny in terms of 'twenty three there's really two major drivers impacting our initial guidance of acquisition cadence in cadence and volume, which we discussed a few times on the call obviously.
This is impacting us and everyone else the increasing short term interest rates. So our 'twenty to 2022 acquisition volume was heavily weighted to the first half of the year and very modest in the second half results and including with $8 million of investments in the fourth quarter.
Earnings release States, we haven't acquired anything this year, we do not have anything on our closing pipeline and our guidance assumes that acquisition volume will be back half weighted as opposed to point to where it was front half weighted.
No. This is going to have an impact on earnings.
Terms of interest rates, we have a fixed rate balance sheet, except for our revolver interest rate on the revolvers increased almost 300 basis points.
Impairing today to the average cost last year, and that's going to be the other major impact.
Okay. That's helpful. And then maybe on the cap rate Rand, where where is the bid ask spread today.
Hi.
Now how much wider do you do you anticipate the range moving towards the back half of the year I know you've provided some in your guidance, but just curious to know where it is today.
Yeah.
The vet out it's hard to answer that specifically the bid ask spread is pretty wide, which is why you're not seeing us transact with a with a lot of acquisitions in and frankly, the industrial market as a whole is down significantly year over year in terms of number of transactions done. So we expect the bid ask spread to narrow a bit.
There continues to be volatility with the fed and.
The latest even PPI data that came out.
Today, So there's a lot of information that's coming out and the fed reacts in that it impacts.
That cost, which impacts the cap rate so.
Hopefully that settles out in the back half of the air and in the industrial market transactions start to come to fruition.
Alright, great. Thanks, guys. That's all for me.
Thanks.
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Yeah.
Our next question is from Vince to bone with Green Street. Please proceed with your question.
Hi, Good morning, I just wanted to follow up on the funding question and just trying to get a sense of when you would potentially be issue interested in issuing equity again, just because on our numbers dogs trading right around six implied cap rate that you know the same range you'd be acquiring stuff so neutral edge.
Cost of capital.
So I guess, what why not issue equity or like what needs to change its simply the stock price to get you comfortable issuing equity again.
Hey, Vince good morning, well I think number one I think the overarching answer as you know.
Issuing equity to fund uses of proceeds right as I mentioned, we do not have anything on a closing schedule leverages, where we need it so.
As we sit here today, we have the ability to operate without equity no where we're still trying to figure out the price discovery on the external growth side, we're generating $80 million of cash just running our portfolio. We can manage leverage that way as bill discussed earlier, we have the ability to accretively capital recycle.
We're really just taking a look at that the volatile capital markets and taking a look at our position, particularly with the strength of our portfolio and we do not have a need to do that as it sits here today.
Vince I think that I mean, the short answer is we're being patient.
Certainly don't want to overpay for assets and just looking at the one asset we closed in Q4, we were able to acquire that at a pretty high cap rate.
And it was a.
Sell leaseback with a with a decent credit and it's a great building and a really strong market.
And so those are opportunities that if we had a whole pipeline of those and we can accretively deploy the equity at those levels. Then we would think long and hard about it but right now we don't have a whole pipeline of those those acquisitions. So we're being patient we're picking our spots and we're able to do so with where we are from a liquidity balance sheet perspective.
And retained cash flow.
Got it no that makes sense and then just to confirm like from a modeling perspective. So are you just assuming any acquisitions then in excess of free cash flow will just be put on the revolver is that how we should think about it and if so kind of what what's the maybe good average rate in your mind too to assume for any kind of <unk>.
Incremental revolver debt.
Yeah, Hi, so that's exactly right at the midpoint of our guidance assumes no incremental equity so on a net acquisition basis. The acquisitions. We've made using the retained cash flow. We talked about anything in addition to that would be revolver debt right now revolvers priced a little north of 5%.
Take a look at a forward curve and you can put as much credit as you would like into our forward terms over her but anywhere in the low 5% is probably good for your modeling.
And as the permanent as that revolve how's that revolver balance increases if we were to term that out the rates aren't materially different just given the flatness of the curve.
Just on that really quick I'm curious how much you know how is how are the private debt market today, whether it's a private placement note or a term loan or are those markets still more restrictive how much term do you think you get.
It's just a little more color on maybe besides just right.
Our ability of debt.
Yeah, I'll I'll kick it off with them pass off the mats, but in terms of just the private placement market that market is still operating and functioning and you can get that as long as 12 years.
We did something probably in the 10 year range.
But I'll, let Matt talked about the bank markets.
<unk> anything to spend on the private placement market right, yes, so Vince just to follow up on the private placement now if we were to go to market today for 10 year private placement note and this is a market we really enjoy the flexibility we've cultivated a pretty pretty good following and we've had a lot of success there.
10 year debt would price probably in the five to five and a quarter range credit spreads have come in a little bit, but you know the 10 year continues to bounce around.
Were not a public bond issuer in terms of the bank market and we really took care of that in July of last year, we upsized our revolver, we have a significant amount of liquidity we.
We took care of our near term refinancing. So we don't have a need for that capital and its likely that if we were to go to the to the debt markets. We would look hard at the private placement market I do want to reiterate the midpoint of our guidance in this market does not assume any issuance.
Got it Super helpful. Thank you both.
Thanks Vince.
Thank you there are no further questions at this time I'd like to turn the floor back over to Bill Crooker for any closing comments.
Yeah, I just wanted to thank everybody for joining the call today.
We look forward to seeing many many of you at the upcoming conferences, thanks, again and have a great weekend.
Yeah.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.