Q3 2023 STAG Industrial Inc Earnings Call

Ladies and gentlemen, good morning, and welcome to the Stag Industrial Inc. Third quarter 2023 earnings Conference call.

Speaker 1: Ladies and gentlemen, Good morning and welcome to the Stagg Industrial Inc. Third quarter 2023 Arning's Concentrals.

Speaker 1: At this time, all participants are in a listen only mode.

At this time all participants are in a listen only mode.

Speaker 1: A brief question and answer session will follow the formal presentation.

A brief question and answer session will follow the formal presentation.

If anyone should require operator assistance during the conference. Please press star and zero on the telephone keypad.

Speaker 1: If anyone should require operator assistance during the conference, please press star and zero on your telephone keypad. As a reminder, this

As a reminder, this conference is being recorded.

Speaker 1: It is now my pleasure to introduce your host Steve Zarros in Western Relations. Please go ahead.

It is now my pleasure to introduce your host Steve Zeros Investor Relations. Please go ahead.

Okay.

Speaker 2: Thank you. Welcome to Stagg Industrial's conference call covering the third quarter of 2023 results. In addition to the press release distributed yesterday, we have posted an unadded quarterly supplemental information presentation on the company's website at www.staggindustrial.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 that are defined in the Private Security's litigation reform act of 1995.

Thank you welcome to Stag Industrials conference call covering the third quarter of 2023 yourself. In addition to the press release distributed yesterday, we have posted an unaudited quarterly supplemental information presentation on the company's website at www Dot stag industrial dot com under the Investor Relations section.

Today's call Companys prepared remarks, and answers to your questions.

Forward looking statements as defined.

But Securities Litigation Reform Act 1995.

Speaker 2: Board-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today.

Forward looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today.

Speaker 2: Examples of forward-looking statements include forecasts of CorpFO, same-storing OI, DNA, acquisition and disposition volumes, pension rates and other guidance, leasing prospects, rent collections, industry and economic trends and other matters.

Examples of forward looking statements include forecasts of course.

Same store NOI, DNA acquisition, and disposition volumes retention rates and other guidance leasing prospects rent collections industry and economic trends and other matters.

Speaker 2: I encourage all 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 recontiliations of non-GAAT measures contained in the supplemental information package available on the company's website.

We encourage all listeners to review the more detailed discussion related to these forward looking statements contained in the Companys filings with U S. C C and the definitions and reconciliations of non-GAAP measures contained in the supplemental information package available on the company's website.

Speaker 2: As a reminder, for looking statements represent management estimates as of today.

As a reminder, forward looking statements represent managements estimates as of today.

Speaker 2: The bank industrial assumes no obligation to update any forward looking statement.

Industrial assumes no obligation to update any forward looking statements.

Speaker 2: On today's call, you will hear from Bill Crocker, Chief Executive Officer, and Matt Spanard, our Chief Financial Officer. Also here with us today is Mike Chase, our Chief Investment Officer, and Steve Kembal, EVP of Real Estate Operations, who are available to answer questions specific to the areas of focus. Oh, now...

On today's call, you'll hear from Bill Crooker, Chief Executive Officer, and Matt Menard, Our Chief Financial Officer.

Also here with US today is Mike Chase, our Chief investment Officer, and Steve Campbell EVP of real estate operations, we're available to answer questions specific to the areas.

I'll now turn the call over to Bill.

Speaker 3: Thank you, Steve. Good morning, everybody, and welcome to the third quarter earnings call for Stagg Industrial.

Thank you Steve.

Everybody and welcome to the third quarter earnings call for Stag industrial.

Speaker 3: We're happy to have you with us today as we discuss our results for the quarter.

They're happy to have you with us today as we discuss our results for the quarter.

Speaker 3: Industrial leasing activity is tracking to be one of the best years on record.

Industrial leasing activity is tracking to be one of the best years on record.

Speaker 3: Tags portfolio is benefiting from secular tailwinds, including near-shoring, on-shoring, and e-commerce.

This portfolio is benefiting from secular tailwind, including Nearshoring Onshoring and E Commerce.

Speaker 3: Makarankro, however, has generally experienced a degree of normalization given the changing lens.

Market rent growth. However has generally experienced a degree of normalization given the changing landscape.

Speaker 3: Construction starts have steadily declined since the end of last year, primarily driven by more expensive debt capital, which in many instances is difficult to obtain at affordable rate.

Construction starts have steadily declined since the end of last year, primarily driven by more expensive debt capital, which in many instances is difficult to obtain at affordable rates.

Speaker 3: We expect the lack of new construction starts to provide an acceleration of market rent growth as the existing supply is absorbed.

We expect the lack of new construction starts to provide an acceleration of market rent growth as the existing supply is absorbed.

The source the softest part of the industrial market continues to be concentrated in big box spaces between 500001 million square feet.

Speaker 3: The softest part of the industrial market continues to be concentrated in big box spaces between 500,000 and 1 million square feet, particularly first.

Particularly first generation space.

Speaker 3: In light of the potential economic uncertainty, large tenants are often to leverage third party logistic providers as opposed to funding expensive capital projects to move into new space. Sublucing has also-

In light of the potential economic uncertainty large tenants are opting to leverage third party logistic providers as opposed to funding expensive capital projects to move into new space.

Sub leasing has also been concentrated in these larger spaces is.

Speaker 3: is important to note that the stegg's average suite size is less than 150,000 square feet and does not compete directly with these larger spaces.

It is important to note that stags average suite size is less than 150000 square feet.

Does not compete directly with these larger spaces.

Deliveries are projected to be approximately 3% of the overall industrial stock this year with nearly half of these deliveries classified as big box buildings. These deliveries are expected to result in national vacancy rate of four 4% by year end.

Speaker 3: Deliveries are projected to be approximately 3% of the overall industrial stock this year, with nearly half of these deliveries classified as big box build.

Speaker 3: These deliveries are expected to result in national vacancy rate of 4.4% by year end, a slight uptick from last quarter's forecast. This level of vacancy is

Slight uptick from last quarters forecast.

This level of vacancy is still indicative of strong conditions.

Speaker 4: We expect market rent growth in our portfolio to be in the high single digits this year. We expect market rent growth in our portfolio for 2024 to be in the mid-single digits.

We expect market rent growth in our portfolio to be in the high single digits. This year.

Check Mark rent growth in our portfolio for 2024 to be in the mid single digits.

The portfolio has remained resilient due impart to our positioning within the markets we operate in.

Speaker 4: If portfolio has remained resilient, do impart to our positioning within the markets we operate in.

Speaker 4: Because of the average suite size, our portfolio is meeting the strongest part of the demand in our market.

Because of the average fleet size our portfolio is meeting the strongest part of the demand in our markets.

Speaker 4: There has been a convergence and rank growth between coastal and non-coastal markets, which is largely driven by the speculative tailwinds mentioned earlier, as well as an influx of economic investment by both the federal government and private enterprises in non-coastal markets.

There's been a convergence in rent growth between coastal and non coastal markets, which is largely driven by the secular tailwind as mentioned earlier.

As well as an influx of economic investment by both the federal government and private enterprises and non coastal markets.

Speaker 3: The Proud Report cash and gap leasing spreads at record highs for Stagg.

We are proud to report cash and GAAP leasing spreads at record highs for stag.

Speaker 4: As of October 24th, we've achieved 98% of leasing we expect to accomplish in 2023 at cash leasing spreads of 30.1%.

October 24th.

<unk> 98 per cent of leasing we expect to accomplish in 2023, our cash leasing spreads of 31%.

Speaker 4: For 2024, we have addressed 37% of next year's expected leasing, approximately 5 million square feet, achieving 30% cash releasing spread.

For 'twenty 'twenty four we have addressed 37% of next year's expected leasing approximately 5 million square feet, achieving 30% cash re leasing spreads.

Speaker 4: Moving to acquisitions, in the middle of this year, the bid-ask spread between sellers and buyers narrowed towards levels where transactions could begin to clear.

Moving to acquisitions.

In the middle of this year, the bid ask spread between sellers and buyers narrowed towards levels, where transactions could begin to clear.

Our acquisition volume for the third quarter totaled $204 $3 million.

Speaker 4: Our acquisition volume for the third quarter totaled $204.3 million.

Speaker 4: This consisted of 12 buildings with cash and straight line cap rates of 6.2% and 6.7% respectively.

This consisted of 12 buildings with cash and straight line cap rates of 6.2, and six 7% respectively.

Speaker 4: Subsequent to quarter end, we acquired three buildings for $67.5 million at a 6.7 cash cap rate.

Subsequent to quarter end, we acquired three buildings for $67 $5 million at a $6 seven cash cap rate.

Speaker 4: Recently, the rapid increase in interest rates has dampened the resurgence of the transaction market, and as such, we have adjusted our guidance accordingly.

Recently, the rapid increase in interest rates has dampened the resurgence of the transaction market and as such we've adjusted our guidance Accordingly.

Speaker 4: In terms of dispositions this quarter, we sold two non-core buildings for aggregate proceeds of $28.4 million.

In terms of dispositions this quarter, we sold two noncore buildings for aggregate proceeds of $28 $4 million.

On the development front this quarter, we achieved substantial sell complete shell completion for a port to 90 development.

Speaker 4: On the development front, this quarter we achieved substantial shell completion for our Port 290 development. This is located in Greer.

This is located in Greer South Carolina.

Speaker 4: Fortune 90 is well positioned to compete as tenant activity remains healthy in the 75 to 250,000 square foot suite range.

What's your 90 is well positioned to compete as tenant activity remains healthy in the 75 to 250000 square foot suite range.

Speaker 4: We anticipate meeting our first half of 2024 lease commencement assumptions and rents greater than underwriting.

We anticipate meeting our first half of 2024 at least commitment commencement assumptions and rents greater than under our underwriting.

Speaker 4: In addition, in August , STAG closed on 31 acres of shovel-ready dirt in the east sub-market of Tampa, Florida for $9.6 million.

In addition in August stayed closed on 31 acres of shovel ready dirt in the east Submarket of Tampa, Florida for $9 $6 million.

Speaker 4: We will construct two warehouse distribution buildings totaling 298,000 square feet.

We'll construct to warehouse distribution buildings totaling 298000 square feet.

Speaker 4: Anticipated to deliver in the fourth quarter of 2024, the assets will accommodate up to three tenants per building.

Anticipated to deliver in the fourth quarter of 2020 for the assets will accommodate up to three tenants per building.

Speaker 4: This was an opportunity for Stagg to add to its growing development portfolio and a high barrier to entry, strong rent growth, sub market of Tampa.

This was an opportunity for stag to add to its growing development portfolio in a high barrier to entry strong rent growth submarket of Tampa.

With that I will turn it over to Mats will cover our remaining results and updates to guidance. Thank you Bill and good morning, everyone corporate Volcker share was 59 cents for the quarter, an increase of three 5% as compared to the third quarter of last year included in Corp. Included in corporate that was a $900000 settlement with a former tenant.

Speaker 5: With that, I will turn it over to Max, who will cover our remaining results and updates to guidance. Thank you, Bill. And good morning, everyone. Core FFO per share was 59 cents for the quarter, an increase of 3.5% as compared to the third quarter of last year. Included in Core FFO is a $900,000 settlement with a former tenant.

Speaker 5: This settlement resulted in an additional penny of corporate vote for the quarter and is excluded from paying sort cash in a while.

This settlement resulted in an additional penny of corporate <unk> for the quarter and is excluded from same store cash NOI.

Speaker 5: Cash available for distribution for the third quarter totals $96.8 million. We have retained $71.4 million of cash flow after dividends paid this year through September 30th.

Cash available for distribution for the third quarter totaled $96 $8 million, we have retained 71 $4 million of cash flow after dividends paid this year through September 30.

Speaker 5: Leverage is just below the low end of our guidance range with net debt to annualized run rate adjusted EBITDA equal to 4.9 times. Liquidity today stands at $683 million.

Leverage is just below the low end of our guidance range with net debt to annualized run rate adjusted EBITDA go to four nine times.

<unk> today stands at $683 million.

Speaker 5: During the quarter, we COVID-19 leases totaling 2.3 million square feet, which generated record cash and straight line leasing spreads of 39.3% and 54.2% respectively. We expect cash leasing spreads of approximately 30% for the year.

During the quarter, we COVID-19 leases totaling $2 3 million square feet, which generated record cash and straight line leasing spreads of 39, 3% and 54, 2% respectively.

We expect cash leasing spreads of approximately 30% for the year.

Speaker 5: Retention was 74.4% for the quarter and 82.5% when adjusted for immediate backfills. We achieved same SOAR cash NOI growth of 5.3% for the quarter and 5.3% year-to-date. We've experienced three basis points of credit loss through September 30th this year.

Pension was 74, 4% for the quarter and 82.5% when adjusted for media back. Those we achieved same store cash NOI growth of five 3% for the quarter and five 3% year to date.

We've experienced three basis points of credit loss through September 30 of this year.

Speaker 5: In terms of capital market activity, on July 27th, we fully settled all outstanding forward equity contracts and received $61.2 million in proceeds.

In terms of capital market activity in July 27th we fully settled all outstanding forward equity contracts and received $61 $2 million in proceeds moving to guidance. We made the following updates we increased our cash flow guidance to a range of $5, two 5% and five 5% for the year were 25 basis points at the midpoint.

Speaker 5: Moving to guidance, we made the following updates. We increased our cash transfer guidance to a range of 5.25% and 5.5% for the year, or 25 basis points at the mid.

Due to the current uncertain macro environment, we have reduced our expectation for acquisitions and disposition volume for the remainder of the year, we have decrease and narrowed the range of expected acquisition volume to range of $300 million to $350 million acquisition cap rates for the year are now expected to range between six 2% and six 3%. These.

Speaker 5: Due to the current uncertain macro environment, we have reduced our expectation for acquisitions in disposition volume for the remainder of the year. We have decreased and narrowed the range of expected acquisition volume to a range of $300 to $350 million. Acquisition cap rates for the year are now expected to range between 6.2% and 6.3%.

Speaker 5: These ranges are driven by the material reduction incremental acquisition volume this year and largely reflective of acquisitions made year-to-date.

These ranges are driven by the material reduction incremental acquisition volume this year and largely reflective of acquisitions made year to date.

Speaker 5: We decreased our disposition guidance to a range of $100 to $125 million based on our progress through today, a decrease to the midpoint of $37.5 million.

We decreased our disposition.

<unk> guidance to a range of $100 million to $125 million based on our progress through today are decreasing the midpoint of $37 $5 million.

Speaker 5: ORFFL per share guidance has increased to a range of $2.26 to $2.28 per share, an increase to the midpoint of two cents.

Or if it's all per share guidance has increased to a range of $2 26 to $2 28 per share an increase to the midpoint of <unk>.

Speaker 5: We've updated our retention percentage to 75% for the year.

We've updated our retention percentage to 75% for the year.

Speaker 5: DNA expectations for the year have been decreased to a range of 48 to 49 million dollars.

DNA expectations for the year decreased to a range of $48 million to $49 million.

Speaker 5: Finally, we expect net debt to annualize run rate adjusted EBITDA to be between 5 and 5.25 times. I will now turn it back over to Bill.

Generally we expect net debt to annualized run rate adjusted EBITDA to be between five and 5.25 times I will now turn it back over to Bill.

Thank you mats.

Speaker 4: our team continues to drive value in the face of continued macroeconomic uncertainty.

Our team continues to drive value in the face of continued macroeconomic uncertainty.

I'm happy about stags relative position within the public REIT sector.

Speaker 4: I'm happy about STAG's relative position within the public REIT sector.

Speaker 4: A defensive balance sheet, coupled with the resilience of industrial fundamentals within the industrial space will allow us to be opportunistic as a landscape evolves going forward. We'll now turn it back to the operator.

Our defensive balance sheet, coupled with the resilience of industrial fundamentals within the industrial space will allow us to be opportunistic as the landscape evolves going forward.

I will now turn it back to the operator for questions.

Thank you.

Speaker 1: Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question, please press star and 1 on your telephone keypad.

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Ladies and gentlemen, we request you to restrict to one question and one follow up Western PA participant.

Speaker 1: Ladies and gentlemen, we request you to restrict to one question and one follow-up question per participant.

One moment, please while we poll for questions.

Speaker 1: Our first question comes from Craig Millman with City. Please go ahead.

Our first question comes from Craig Mailman with Citi. Please go ahead.

Speaker 6: Hey, good morning, guys. Just one clarification. In the SEP, when you guys put the 6-2 cash cap rate and 6-7, are those initial cash cap rates or is that more of a stabilized cash?

Hey, good morning, guys.

One clarification in the south, but and you got to put the six two cash cap rate and six seven or those initial cash cap rates or is that more of a stabilized cash cap rate.

Speaker 4: It's a stabilized cap rate if the lease is expiring within the first year effectively. So we had a couple of those, or there's a vacancy in there, Craig. But other than that, it's the in place. So from a market cap rate perspective for the Q3 acquisitions, it's around 6.7, 6.8, if that helps.

It's a stabilized cap rate if if the leases expiring within the first year effectively.

So we had a couple of those ore or there's a vacancy in there Craig.

But other than that it's the in place so.

From a market cap rate perspective for the Q3 acquisitions, it's around 6768, if that helps.

Speaker 6: Okay, but what would be the difference between the 6-2 and the initial? Would it be pretty tight or...

Okay, well what would be the difference between the six two in the initial what would it be pretty tight or.

Speaker 4: There's one of our buildings, there's some vacancy in there, so that's obviously going to drag it down. It's probably in the 100 basis point plus a little lower for a short period of time.

There's some there's a one of our buildings, there's some vacancy in there. So that's obviously going to drag it down it's a it's probably in the 100 basis points plus a low lower for a short period of time.

Speaker 6: And then just the follow-up question, Bill, your commentary on market rent growth sounds relatively good versus some of your coastal peers this earnings season.

And then just the follow up question Bill you your commentary on market rent growth.

It sounds relatively good versus some of your coastal peers. This earnings season.

Speaker 6: Which markets do you think are really kind of the driver of only seeing kind of a downtick from maybe high single-digit rent growth this year to mid-single-digit next year, you know, given some of the issues that some of the coastal markets are facing?

Which which markets do you think are really kind of the driver of only seeing kind of a downtick from maybe high single digit rent growth. This year to mid single digit next year, you know given some of the issues that some of the coastal markets are our basic.

Yeah. It's.

Speaker 4: It's still a similar scenario to what we had last quarter where

It's still it's a similar scenario to what we had last quarter where.

Speaker 4: It's more of a size difference than markets for us. So the bigger boxes are slowing and that market rank growth is probably flat, maybe even negative. And the smallest sweet size is 100, less than 150,000 square feet are still holding up really well. So where we're seeing some weakness in bigger boxes, it's...

It's more of a size differential than in markets for us so the bigger boxes or are slowing in that market rent growth is probably flat to maybe even negative.

And in the smaller suites size is 100 less than 150000 square feet are still holding up really well, so where we're seeing.

Some some weakness and bigger boxes, it's the big box distribution markets Indianapolis, Columbus, South Dallas, those ones will will struggle with that suite size.

Speaker 4: The big box distribution market, any Annapolis, Columbus, South Dallas, those ones will struggle with that sweet size. But when you get the smaller sweet sizes, those markets are still holding up really well.

But when you get the smaller suite sizes, all those markets are still holding up really well.

Great. Thank you.

Greg.

Yeah.

Speaker 1: Thank you. Our next question comes from John Kim with BMO Capital Markets. Please go ahead.

Thank you.

Our next question comes from John Kim with BMO capital markets. Please go ahead.

Thank you.

Speaker 7: Thank you. Just wanted to follow up on correct question on the cap rate.

One is a follow up on Craig's question on the cap rate on acquisitions.

So when you look at the initial cap rate and then.

Parents need adjustments the NOI that you have on page six of your supplement.

Even adjusting for timing it. It suggests the initial NOI impact would be something closer to 3% initial yield so I'm wondering what that discrepancy is.

Speaker 4: So I'm wondering what that discovery is in regards to. The discrepancy is primarily related to dispositions. So we had a couple of non-core dispositions. This core, and one was a fixed option. That was a higher cap rate that Tenantat had. And another was...

Alright, so the discrepancy is primarily related to related to dispositions. So we had a couple of non core dispositions. This quarter. One was a a fixed option that was a higher cap rate than the tenant had another was a noncore non C. B R E tier one market that we disposed off so those are higher cap rates. So I think what.

Speaker 4: a non-core non-CBRE tier one market that we dispose of so those are higher cap rates. I think when you look at that run rate adjustment it's a it's a mix of acquisition and dispositions.

You look at that run rate adjustment, it's a it's a mix of acquisitions and dispositions.

So, but where the where were the cap rates and disposition.

Matt see others, yes.

Speaker 5: Matt, see others? Hi, good morning, John . The aggregate disposition caprate for those two, they were both 100% occupied. It was 8.8%.

Yeah, Hi, good morning done the aggregate disposition cap rate for those two they were both 100% occupied it was eight 8%.

Okay.

Speaker 5: And again, to reiterate what Bill said, these are assets that did not have a home in our portfolio and we opportunistically dispose of these two. Okay.

And again to reiterate what Bill said is that these are assets that did not have a home in our portfolio and we opportunistically dispose of these too.

Got it okay. Thank you.

Sure.

Thank you.

Speaker 1: Our next question comes from Vince T-bone with Green Street. Please go ahead.

Our next question comes from Vince keyboard with Green Street. Please go ahead.

Speaker 8: Hi, good morning. I have a few questions on the Tampa Development Activity. If you could just maybe provide the expected spend and incremental yield on those buildings, then also talk about kind of what profit margins you were targeting on these projects, given just the uncertain cap rate environment, curious how you guys thought about the market cap rate on those ones they're done.

Hi, Good morning, I have a few questions on the Tampa development activity. If you could just maybe provide the expected spend an incremental yield on those buildings and then also talk about kind of what brought the margins you're targeting on these projects given just uncertain cap rate environment curious, how you guys thought about that.

The market cap rate on those once they're done.

Speaker 4: Thanks, Ben. That was a, that was a great opportunity for us and something that I think in a different capital market environment. That's something that we would not have been able to enter into and when we're required that I said that the dirt was

And that experience that was a that was a great opportunity for us and something that I think in a different capital market environment are something that we would not have been able to enter into in them and when we when we acquired that I just said that the dart was shovel ready and so we could begin construction almost immediately from a profit.

Speaker 4: shovel ready and so we could begin construction almost immediately from a profit margin It's got to be high teens Reason why it's maybe not higher is because we didn't do any of the entitlement of the land a little bit low on the risk spectrum and from a yield Basics it's going to be high six is depending on exactly when we lease at high sixes. Maybe even touches haven't

And it's it's gotta be high teens.

The reason why it's maybe not higher is because we didn't do any of the entitlement of the land so a little bit lower on the risk spectrum and from a yield basis, it's going to be high sixes, depending on exactly when we leased it high sixes, maybe even touch a seven.

Speaker 8: And just clear, is that a gap or a cash yield? The ones you just asked. Let's cash, got it.

Can you describe is that a GAAP or a cash yield the ones you surpassed that's cash got it.

Speaker 8: Nope, that's helpful. And then is this more of a one-off deal, as you mentioned, the unique opportunity, or do you expect to kind of look for more of these and start more development projects over the next year or so?

No. That's helpful. And then is this more of a one off deals you mentioned, maybe New York unique opportunity or do you expect to kind of look for more of these in and start more development projects over the next next year or so.

Speaker 4: I mean, we'd love to do more of these and this is a great opportunity. We have a great partner in the transaction. It's not a J.B. we own the whole thing, but just who's constructing it for us. As these opportunities present themselves, we saw more opportunities like this wouldn't absolutely execute on it. It's something that we think is in the long term the best interest of our stakeholders in something that in this environment, it's better use of our capital than acquiring stabilized acquisitions. This is a great opportunity.

I mean, we'd love to do more of these and this is a great opportunity we have a great partner in the in the transaction, it's not a JV we own the whole thing, but just who's constructing it for us.

These opportunities present themselves if we saw more opportunities like this would absolutely execute on it it's something that we think is in the long term the best interest of our stakeholders and something that in this environment. It's.

Better use of our capital than acquiring stabilized.

Stabilized out acquisitions.

Great. Thank you.

Thank you.

Thank you. Our next question comes from the line of Nick Feldman with Baird. Please go ahead.

Speaker 1: Thank you. Our next question comes from the line of Nick Tillman with bed. Please go ahead.

Speaker 8: Good morning guys. Maybe on the acquisition activity in the third quarter, you guys kind of acquired an inland empire. I know that's a market that's been a little bit too pricey there. So maybe a little bit more details on what you're seeing in that market and what made that a good opportunity here. Yeah, I'll pass it over to Mike.

Hey, good morning, guys, maybe on the acquisition activity in the third quarter.

You guys kind of acquired and inland Empire I know, that's a market that's been a little bit too pricy, there. So maybe a little bit more details on what youre seeing in that market and what made that a good opportunity here.

Yeah, I'll I'll pass it over to Mike Chase to answer that one.

Speaker 9: Yeah, thanks Nick. You know, the asset is located in the southern portion of the Riverside market, which

Yeah. Thanks, Nick.

The asset is located in the southern portion of the Riverside market, which.

Speaker 9: It fortunately pulls penitentiates from the Inland Empire and from San Diego, which is something that we attracted us in terms of that.

Unfortunately polls penetration from the inland Empire, and and from San Diego, which is something that we attracted.

Attracted us in terms of that.

Speaker 9: you know, the transaction. In addition, it was two buildings, you know, about 73 and 84,000 square feet. They break down to as little as 15,000 square feet. It was 100 percent occupied, but with seven tenants. But it really meets the, and the meat of the market in that area. And so that was really what kind of drove us to that transaction.

You know the transaction. In addition, it was two buildings you know about 70 384000 square feet, they break down to as little as 15000 square feet and it was 100% occupied but.

With seven tenants, but it really meet the needs of the market in a in that area.

So that was really what drove it to that that transaction.

Speaker 10: That's helpful and then maybe from that looks like reimbursement kind of ticked up sequentially I'm just wondering if I could give a couple more details on that Maybe driving forward like changes

That's helpful. And then maybe per match it looks like reimbursement kind of ticked up sequentially. Just wondering if I could get a couple of more details on that.

Yeah driving forward like changes.

Speaker 5: Yeah, absolutely. There's really no steam there. This is very similar to what we've seen in previous quarters. At your point, we've seen an increase in expenses, which are 100% reimbursable. So we recommend looking at the aggregate line as opposed to the revenues and expense. Again, it's just kind of a size-based percentage, right? They change on a smaller base, where it's a change on a bigger base.

Yeah, absolutely net Theres really no scheme. There. This is very similar to what we've seen in previous quarters to your point, we've seen an increase in expenses, which are 100% reimbursable. So we recommend looking at the aggregate line as opposed to the revenues and expense again, it's just kind of a size based percentage rate.

<unk> on a smaller base versus the change on a bigger base.

That's helpful. Thanks, guys.

Yeah.

Thank you.

Speaker 1: Thank you. Our next question comes from Jason Belchell with Wells Fargo. Please go ahead.

Our next question comes from Jason Belcher with Wells Fargo. Please go ahead.

Speaker 11: Yeah, good morning. I guess first just following up on the Riverside California acquisition. I think that's your first foray, or at least one of your first forays into the Southern California market. Is that going to be a new market that you're targeting for additional growth? Or is it more of a one off opportunity at this point?

Yeah, Hi, good morning, I guess first just following up on the Riverside, California acquisition.

I think that's your first foray or at least one of your first forays into the southern California market is that going to.

It could be a new market that youre targeting for additional growth or is it more of a one off opportunity at this point.

Speaker 4: Yeah, we own another asset in San Diego, which is close to there. We like the market. It's just for us, it's always been entry price there. So this deal in particular was a six and a half cap, I think.

Yeah, we own in another asset in San Diego, which is you know close to there are we like the market. It's just for US it's always been entry price there. So this deal.

<unk> in particular was a six and a half cap, but I think.

Speaker 4: was 10 to 15% below market as well, and that's not included in the six and a half percent. So for us, a good opportunity to get into that market. And as Mike said, the sweet size is we really like there, and it meets the demand. So as those opportunities present themselves is in this type of capital market environment, we're gonna execute on if we can. Go.

Was 10% to 15% below market as well and that's not included in the six 5% so for us a good opportunity to get into that market and as Mike said the suite sizes, we really liked there and it meets the demand so as those opportunities present themselves as in this type of capital market environment.

We're going to execute on them if we can.

Yeah.

Got it thanks, and then just.

Thinking about Oh, all of the noise, we're hearing around our larger tenants.

Speaker 11: Thinking about all of the noise we're hearing around larger tenants taking longer to make leasing decisions, just help us think about how this affects your largely single-tenant portfolio. And do you think this dynamic could drive occupancy headwinds if it persists into 24?

Taking longer to make a leasing decisions.

Just can you help us think about how this affects your are you largely single tenant portfolio and do you think that dynamic could drive occupancy headwinds if it persists into 'twenty four.

Speaker 4: Yeah, so our portfolio is 75% single-tenant, 25% multi-tenant.

Yeah. So our portfolio is 75% single tenant 25% multi tenant.

<unk>.

Speaker 4: The way we underwrite our assets is if it's a market that is smaller, sweet size, we make sure that our assets can break down if we need to. With that being said.

We underwrite our assets is if it's a market that is a smaller suites that we make sure that our assets can break down if we need to with that being said you know larger assets next year, we have no assets rolling above 400000 square feet.

Unknown Executive: Ladies and gentlemen, good morning and welcome to the STAG Industrial Inc. 3rd quarter, 2023 Arning's conference call. At this time, all participants are in a listen-only mode.

Speaker 4: You know, larger assets next year, we have no assets rolling above 400,000 square feet. We have a few that are rolling above 300,000 square feet, but thankfully majority of those, we've already renewed them. So for us, our portfolio doesn't really face those big box headwinds next year.

Unknown Executive: A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star and zero on your telephone keypad. As a reminder, this conference is being recorded.

We have a few that are rolling above 300000 square feet, but the majority of those are we've already renewed them. So.

For us our portfolio doesn't really face those big box headwinds next year.

Steve Xiarhos: It is now my pleasure to introduce your host, Steve Xiarhos, investor relations. Please go ahead. Thank you.

And again as I said in my prepared remarks, our average suite size is less than 150000 square feet. I think it is 100 fortyish thousands square feet.

Speaker 4: And again, as they said in the prepared marks, our average suite size is less than 150,000 square feet. I think it's 140-ish thousand square feet.

Unknown Executive: Welcome to STAG Industrial's conference call covering the 3rd quarter, 2023 results. In addition to the press release distributed yesterday, we have posted an unordered quarterly supplemental information presentation on the company's website at www.stagindustrial.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 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 from those discussed today.

That's helpful. Thank you.

Thank you.

Yeah.

Speaker 1: Thank you. Our next question comes from Samil Kahnel with Evercore ISI. Please go ahead.

Thank you. Our next question comes from Samir Khanal with Evercore ISI. Please go ahead.

Hey, Yeah. Good morning, everyone I guess bill on on this market rent growth I'm sorry.

Speaker 10: Hey, good morning, everyone. I guess, Bill, on this market rent growth, you know, this sort of high single digits kind of range you're talking about now, maybe expand on the demand that's sort of driving that. Is that a function of demand you're seeing, like near-shoring or on-shoring, given your markets, you know, maybe the low supply in your markets? I'm just trying to get a bit of a better understanding, given that it's different from your peers. Thanks.

Unknown Executive: Examples of forward-looking statements include forecasts of core of a foe, same-store NOI, DNA, acquisition and disposition volumes, attention rates and other guidance, leasing prospects, rent collections, industry and economic trends and other matters. We encourage all 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 recontiliations of non-gap measures contained in the supplemental information package available on the company's website. As a reminder, forward-looking statements represent management's estimates as of today. Stagindustrial assumes no obligation to update any forward-looking statements.

High single digits kind of range, you're talking about now.

Maybe expand on the demand. So that's sort of driving that is that a function of demand you're seeing like near shoring or onshoring given your markets.

Maybe the low supply in your markets I'm, just trying to get a bit of a better understanding given that it's different from your peers.

Speaker 4: Yeah, that's a good question. This year, the high single digits, it's a little over 8% to get a little more specific on that. The demand is coming from a number of various industries. 3PLs have been a big driver. We've seen...

Yeah. It's a good question this year the high single digits, it's a little over 8% to get little more specific on that but.

The demand is coming from a number of various industries three pls have been a big driver we're.

We are seeing.

Speaker 4: e-commerce tenants continue to be a big driver. With respect to near-sharing, on-sharing, we've had some wins this year. I mentioned the last call of the call before our El Paso assets.

E Commerce tenants continue to be a big driver with respect to near shoring Onshoring. We've had some some wins this year I mentioned the last call the call before our El Paso assets, we'd had significant demand when we put those assets out to market and we effectively doubled what we thought our asking rents were going to be.

Speaker 4: We had significant demand when we put those assets out the market and we effectively doubled what we thought our asking rents were going to be on those assets. With respect to on-shoring, we haven't seen the direct demand impact our portfolio.

Unknown Executive: On today's call, you will hear from Bill Crocker, Chief Executive Officer, and Matt Panard, our Chief Financial Officer.

On those assets are with respect to onshoring.

Bill Crocker: Also here with us today is Mike Chase, our Chief Investment Officer, and Steve Kempel, EVP of real-state operations, for available to answer questions specific to the areas of focus. I will now turn the caller to Bill. Thank you, Steve. Good morning, everybody, and welcome to the third-quarter earnings call for Stagged Industrial. We're happy to have you with us today as we discuss our results for the quarter. Industrial leasing activity is tracking to be one of the best years on record.

We haven't seen the direct demand impact our portfolio.

Speaker 4: But as we mentioned in our investor presentations, it certainly feels like it's coming. It's just hard to measure the exact timing and the significance of the impact to market rent, the positive impact to market rent growth. And then.

But as we mentioned in our Investor presentations. It certainly feels like it's coming it's just hard to measure the exact timing and the significance of the impact to market rent the positive impact of market rent growth and then whats how our market rent growth compares to our peers and part of it's the demand, we just talked about as well.

Speaker 4: how our market rent growth compares to our peers. And part of it's that demand we just talked about as well as the limited supply. And when you look at the map and where supply is coming online, half of the supply is big box, not competing with our space. And a lot of the other supplies is in the top, you know, 10, 15 market. So less supply with continued demand, and I think in a short, medium term, incremental demand from the onshore.

As the limited supply then when you look at the map and where supply is coming online have for the supply is big box not competing with our space and a lot of the other supply is is in the top you know call. It 10 to 15 market so less.

Bill Crocker: Stagged portfolio is benefiting from secular tailwinds, including near-shoring, on-shoring, and e-commerce. Marka rent growth, however, has generally experienced a degree of normalization given the changing landscape. Construction starts have steadily declined since the end of last year, primarily driven by more expensive debt capital, which in many instances is difficult to obtain at affordable rates. We expect the lack of new construction starts to provide an acceleration of Marka rent growth as the existing supply is absorbed.

Apply with continued demand and I think in the short to medium term incremental demand from the onshoring.

Got it thanks, Bill for that and then I guess, just as a follow up.

Speaker 10: Got it. Thanks Bill for that. And then I guess this is a follow up. I'm sorry if I missed this, but I know in the last quarter you talked about these development acquisition opportunities.

I'm sorry, if I missed this but I know in the last quarter you talked about these development acquisition opportunities at.

Bill Crocker: The softest part of the industrial market continues to be concentrated in big-box spaces between 500,000 and 1 million square feet, particularly first-generation space. In light of the potential economic uncertainty, large tenants are often to leverage third-party logistic providers as opposed to finding expensive capital projects to move in the new space.

Speaker 10: It sounds like it's pencil is down for kind of the overall acquisition guidance. I guess look the case with those development acquisitions as well. What are the opportunities you're seeing?

It sounds like it's pencils down for kind of the overall acquisition guidance, but.

I guess, what's the case with those development acquisitions as well what are the opportunities you're saying.

Speaker 4: Yeah, we're seeing opportunities similar to the one that we're executing in Tampa, where the initial price is low. So when you think about our pipeline, the pipeline is...

M a C.

We're seeing yes, we're seeing opportunities similar to the one that we're executing and in Tampa, where you know the initial price is low so when you think about our pipeline. The pipeline is call. It hundreds $250 million of these potential development opportunities, but that's just our initial.

Bill Crocker: Police. Sublucing has also been concentrated in these larger spaces. It is important to note that STAG's average sweet size is less than 150,000 square feet and does not compete directly with these larger spaces. Deliveries are projected to be approximately 3% of the overall industrial stock this year, with nearly half of these deliveries classified as big box buildings. These deliveries are expected to result in national vacancy rate of 4.4% by year end, a slight uptick from last quarter's forecast.

Speaker 4: You call it $100 to $150 million of these potential development opportunities, but that's just our initial outflow of capital for that. So, a, you know, $8 to $15 million land parcel, and then you'll build another $40 million to build a development. So, there's a lot of those opportunities we're seeing just given the state of the capital markets, but we're focused, I think I mentioned this on a prior call as well,

Oh outflow of capital for that so.

A $8 million to $15 million land parcel and then you'll build another $40 million to build a development. So there's a lot of those opportunities. We're seeing just given the state of the capital markets, but we're focused I think I've mentioned this on our prior call as well you are Australia as being in the tier one.

Speaker 4: You know, our strategy is being in, you know, the Tier 1 CBR market from a development standpoint. It's really the top half of those markets, so probably the top 30 markets.

Bill Crocker: This level of vacancy is still indicative of strong conditions. We expect market rent growth in our portfolio to be in a high single digit this year. We expect market rent growth in our portfolio for 2024 to be in the mid-single digits. The portfolio has remained resilient due in part to our positioning within the markets we operate in. Because of the average sweet size, our portfolio is meeting the strongest part of the demand in our markets.

CBRE markets from a development standpoint is really the top half of those markets. So probably the top 30 markets and that's what we're doing with both a port to 90 and our tamper developments. So we expect there to be more opportunities. We're seeing opportunities is just they take a little bit longer.

Speaker 4: And that's what we're doing with both our Port 290 and our Tampa development. So we expect there to be more opportunities. We're seeing opportunities.

Speaker 4: They take a little bit longer and obviously we want to get them for the most effective price for us.

And obviously, we wanted to get them for the most effective price for us.

Speaker 8: And the funding for those opportunities would come from sort of free cash flow or how are you thinking about that? Yeah, a combination of free cash flow and Revolver right now.

And in the funding for those opportunities would come from sort of free cash flow or how are you thinking about that yes, a combination of free cash flow and and revolver right now.

Bill Crocker: There has been a convergence in rent growth between coastal and non-coastal markets, which is largely driven by the speculative tailwinds mentioned earlier, as well as an influx of economic investment by both the federal government and private enterprises in non-coastal markets. We are proud to report cash and gap leasing spreads at record highs for STAG. As of October 24th, we have achieved 98% of the leasing we expect to accomplish in 2023 at cash leasing spreads of 30.1%.

Got it thank you guys.

Yeah.

Thank you.

Speaker 1: Our next question comes from the line of Camille Bonnell with Bank of America. Please go ahead.

Our next question comes from the line of Camel Barnhill with Bank of America. Please go ahead.

Speaker 10: Good morning, this is Andrew Berger on behalf of Camille. Just wondering if we could get some more thoughts around dispositions. I know your disposition this quarter were non-core, but just wondering about how you're thinking about capital recycling, big picture, whether you sell core assets as we end 23 and head into 24.

Good morning. This is Andrew Berger on behalf since Camille just wondering if we could get some more thoughts around dispositions I know your dispositions this quarter were noncore, but just wondering about.

Bill Crocker: For 2024, we have addressed 37% of next year's expected leasing, approximately 5 million square feet, achieving 30% cash releasing spreads. Moving to acquisitions, in the middle of this year, the bid asked spread between sellers and buyers narrowed towards levels where transactions could begin to clear. Our acquisition volume for the third quarter told $204.3 million. This consisted of 12 buildings with cash and straight line cap rates of 6.2 and 6.7% respectively. Subsequent to quarter end, we acquired three buildings for $67.5 million at a 6.7 cash cap rate.

How youre thinking about capital recycling and Big picture, you know whether you'd sell core assets.

We know in 'twenty, three and head into 'twenty four.

Speaker 4: Yeah, I mean, on an aggregate basis this year, we had about half of our dispositions were non-core, half for, call it opportunistic. On aggregate, I think the cap rate was high six is low sevens. So opportunistic dispositions were in the mid-five. So very good execution given the capital market environment.

Yeah, I mean on an aggregate basis. This year, we had we had about half of our dispositions were noncore half for call. It opportunistic on aggregate I think the cap rate was a high sixes low sevens. So opportunistic dispositions were in the mid fives so very.

Good execution, given the capital market environment.

Speaker 4: You know, when we adjust our acquisition guidance down, we also adjust our disposition guidance down. It's, we've really entered again, a price discovery phase in the markets. So, when we're not able to efficiently acquire, it's tough to efficiently dispose of assets. So, it's something that is always in our capital plan, each and every year, and we'll fine tune this as we give our 2024 guidance in February . But right now the markets,

Yeah, when we adjust our acquisition guidance down we also adjust our disposition guidance down.

We really entered again a price discovery phase in the market. So when we're not able to efficiently acquire it's it's tough to efficiently dispose of assets. So it's something that is always in our capital plan each and every year and we'll we'll fine tune. This as we gave our 2024 guidance in February.

Bill Crocker: Recently, the rapid increase in interest rates has dampened the resurgence of transaction market, and as such, we have sold two non-core buildings for aggregate proceeds of $28.4 million. On the development front, this quarter we achieved substantial shell completion for our port 290 development. This is located in Greer, South Carolina. Port 290 is well positioned to compete as 10 activity remains healthy in the 75 to 250,000 square foot suite range. We anticipate meeting our first half of 2024 lease commencement assumptions and rents greater than underwriting.

But right now the markets pretty quiet, just just given the volatility of interest rates.

Speaker 4: Pretty quiet just given the volatility interest rate.

Speaker 2: Got it. That makes sense. And then as my follow up, could you please talk a little bit about how you're thinking about equity versus debt as a capital source and maybe the current cost spread between the two?

Got it that makes sense and then as my follow up could you. Please talk a little bit about how you're thinking about equity versus debt as a capital source and maybe the current cost spread between the two.

Yeah, absolutely Hi, this is Matt.

Speaker 5: Absolutely. Hi, this is Matt. I think number one, the overarching thing is we need an appropriate use for any capital deployment. You know, as we'll mention that acquisition market, we look, we've reverted to price discovery. We do not have anything on our closing schedule.

I think number one the overarching thing is we need an appropriate use for any capital deployment.

Bill Crocker: In addition, in August, Stag closed on 31 acres of shovel-ready dirt in the east sub-market of Tampa, Florida, for $9.6 million. We will construct two warehouse distribution buildings to $298,000 square feet. Anticipated to deliver in the fourth quarter of 2024, the assets will accommodate up to 3 tenants per building. This was an opportunity for Stag to add to its growing development portfolio in a high barrier to entry, strong rent growth sub-market of Tampa.

Mentioned the acquisition market look we reverted to price discovery, we do not have anything on a closing schedule.

Speaker 5: Hunts that's passed on the balance sheet were lowly levered. It was significant mental liquidity. We're going to retain $90 to $100 million of free cash flow this year. So as we deploy capital, that would be the first piece. And then as Bill mentioned, there would be something from mental revolver dollars to the extent.

Tons of capacity on the balance sheet, we're lowly levered.

Significant amount of liquidity, we're getting routine $90 million to $100 million of free cash flow. This year. So as we deploy capital that would be the first piece and then as Bill mentioned, there would be some incremental revolver dollars to the extent we.

Speaker 5: find appropriate opportunities. But I think really the take-home point here right now is we're not seeing opportunities. Deals aren't trading. Deals are being pulled. Tenure hit five. That kind of reset the market. So, you know, we're not really evaluating many opportunities today. But, you know, if we were to go out and issue long-term debt, it's in the low sevens. If we're going to issue term loans, it'd be in the low fives. And from an equity perspective, we're not really looking at that right now.

Find appropriate opportunities, but I think really the take home point here right. Now is we're not seeing opportunities deals aren't trading deals are being pulled.

Bill Crocker: [inaudible] Core Fulfill per share was 59 cents for the quarter, an increase of 3.5% as compared to the third quarter of last year, including and core included in Core Fulfill was a $900,000 settlement with a former tenant. This settlement resulted in an additional penny of Core Fulfill for the quarter, and is excluded from paying short cash and why. Cash available for distribution to the third quarter totaled $96.8 million. We have retained $71.4 million as a cash flow after dividends paid this year to September 30th.

When you hit hit five to kind of reset the market. So no we're not really evaluating many opportunities today.

You know if we were to go out and issue long term debt. It's in the low sevens, if we're going to issue.

Loans would be in the low fives.

From an equity perspective, we're not really looking at that right now.

Got it thank you very much.

Okay.

Speaker 1: Thank you. Our next question comes from Michael Carroll with RBC Capital Markets. Please go ahead.

Thank you our.

Our next question comes from Michael Carroll with RBC capital markets. Please go ahead.

Speaker 12: Yep, thanks. Just also like to ask you questions, I know Bill that you're taking a step back in the investment market. I mean, how long do you expect to be on the sidelines? And really, what do you have to see before you start re-ramping up a activity? Does the capital markets need to stabilize before you feel comfortable doing that?

Yeah. Thanks, just off of like the last few questions I know bill that you're taking a step back in the investment market I mean, how long do you expect to be on the sidelines and really what do you have to see before you start re ramping up I'm activity does the capital markets needs to stabilize before you feel comfortable doing that.

Bill Crocker: Leverage is just below the low end of our guidance range, with Matts at the annualized run rate of subsidy, but you go to 4.9 times. The liquidity today stands at $683 million. During the quarter, we commence 19 leases totaling 2.3 million square feet, which generated record cash and straight line leasing spreads at 39.3% and 54.2% respectively. We expect cash leasing spreads of approximately 30% for the year. Attention was 74.4% for the quarter, and 82.5% when it dusted for immediate backpills.

I think that's a catalyst for the market to open up generally generally.

Speaker 4: I think that's a catalyst for the market to open up generally.

Speaker 4: If we see good opportunities and sellers willing to sell it, returns that we're requiring in this cap and market environment will execute on those. Now, we're still underwriting transactions and just what happens is we're just, we're back into this.

If we see good opportunities and sellers willing to sell at what returns that were requiring in this capital market environment, We will execute on those and we're still underwriting transactions and just what happens is we're just we're back into this time, where the bid ask spreads are wider and lapped that happens when you have a rapid spike.

Bill Crocker: We achieve same short cash and why growth of 5.3% for the quarter and 5.3% year-to-date. We've experienced three basis points of credit loss through September 30th this year. In terms of capital market activity, on July 27th, we fully settled all outstanding forward equity contracts and received $61.2 million in proceeds.

Speaker 4: time where the bid asked for their wider and that's what that happens when you have a rapid spike in interest rates. And then what happens usually you get a one or two deals close and then you start to get market comps and everybody feels a little bit more confident what market pricing is. So we're still underwriting deals. We're still evaluating deals, but we're just underwriting for higher initial.

And interest rates.

And then what happens usually you get a one or two deals close and then you start to get market comps and everybody feels a little bit more confident what market pricing is so we're still underwriting deals we're still evaluating deals, but we're just underwriting for higher initial returns.

Matts Pinard: Moving to guidance, we made the following updates. We increased our cash transfer guidance to range of 5.25% in 5.5% for the year, or 25 basis points at the midpoint. Due to the current uncertain macro environment, we have reduced our expectation for acquisitions and disposition volume for the remainder of the year. We have decreased the narrow of the range of expected acquisition volumes to range to $300 to $350 million. Acquisition capitals for the year are now expected to range between 6.2% and 6.3%.

Okay, Great and then I'm not sure. If you mentioned this yet or not but last year. At this time, you kind of gave US a look through on your 2023 renewal process.

Speaker 12: Okay, great. And then I'm not sure if you mentioned this yet or not, but last year at this time you kind of gave us a look through on your 2023 renewal process. I guess can you give us an update or how you're thinking about 2024 and will cash leaf spreads next year be similar to what they are this year or to date? Are they similar to our with their this year?

Can you give us an update or how you're thinking about 'twenty 'twenty four and will cash lease spreads next year be similar to what they are this year, our or to date are they similar to or what they are this year.

Speaker 4: Yeah, so we've addressed 37% of our expecting leasing for 2024 to about 5 million square feet. And the rental spreads on that is about 30%.

Yeah. So we've addressed 37% of our expecting leasing for 'twenty 'twenty four it's about 5 million square feet and the rental spreads on that is about 30%.

Matts Pinard: These ranges are driven by the material reduction incremental acquisition volume this year in largely reflective of acquisitions made year-to-date. We decreased our disposition guidance to a range of $100 to $125 million based on our progress through today, a decrease to the midpoint of $37.5 million. 4 of a fell per share guidance has increased to a range of $2.26 to $2.28 per share, an increase to the midpoint of 2 cents. We have updated our retention percentage to 75% for the year. DNA expectations for the year have been decreased to a range of $48 to $49 million. Finally, we expect net debt to annualize run rate adjusted EBITDA attributes between 5 and 5.25 times.

And then from there.

Speaker 4: next year for what we expect for leasing spreads. I mean, we're not giving all of our guidance on this call, but it's...

Next year for what we expect for leasing spreads I mean, we're not giving all of our guidance on this call but it's.

Speaker 4: 25 to 30% is I think where I'm comfortable saying Lee Singh spread that for next year at this time. Okay, great.

25% to 30% is I think where I'm comfortable saying leasing spreads are for next year at this time.

Okay, great. Thank you.

Yes.

Yes.

Speaker 1: Ladies and gentlemen, a reminder, if you wish to ask questions, please press star and one.

Thank you.

Ladies and gentlemen, a reminder, if you wish to ask questions. Please press star and one.

Our next question comes from the line of Mike Mueller with JP Morgan. Please go ahead.

Speaker 1: Our next question comes from the line of Mike Mulo with JP Morgan. Please go ahead.

Bill Crocker: I will now turn it back over to Bill. Thank you, Maps. Our game continues to drive value in the face of continued macroeconomic uncertainty.

Yeah, Hi.

Speaker 11: Yeah, hi. I guess can you talk a little bit about the view of single tenant versus multi tenant buildings right now? Because it sounds like your initial developments are gonna be more multi tenant skewed. And should we think of that as the template for the developments going forward?

Yes can you talk a little bit about the view of single tenant versus multi tenant buildings right now because it sounds like your initial developments are going to be more multi tenant skewed and should we think of that as the template for developments going forward.

Bill Crocker: I am happy about Staggs' relative position within the public read sector. Our defensive balance sheet coupled with the resilience of industrial fundamentals within the industrial space will allow us to be opportunistic as the landscape evolves going forward.

Well.

Speaker 4: I think our view is we're trying to achieve the best risk of just returns, Mike and in our development.

I think our view is we're trying to achieve the best risk adjusted returns, Mike and in our developments specifically, we want to make sure that our developments are meeting the demand in the market.

Unknown Executive: We will now turn it back to the operator for questions. Thank you.

Speaker 4: Specifically, we want to make sure that our developments are meeting the demand in the market. And so for that Tampa development, it's a smaller users. And so we want to make sure we're building to meet that demand. We said 25% of our portfolio is multi-tenant today. So when we went out at our IPO.

Unknown Executive: Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question, please press star and one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and two if you'd 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. Ladies and gentlemen, we request you to restrict to one question and one follow-up question per participant.

So for that Tampa development, it's a it's smaller users and so we wanted to make sure. We're building to meet that demand you said, 25% of our portfolio is multi tenant today. So.

We went out at our I P O.

Speaker 4: 11, 12 years ago, yeah, was a single tenant strategy, but that has morphed over the years. In multi-tenant, I would say over the past couple years, our acquisitions are probably close to 50, 50, multi-tenant, single-tenant.

11, 12 years ago, Yeah. It was a single tenant.

Strategy, but that has morphed over the years.

And multi tenant.

I would say over the past couple of years, our acquisitions are probably close to 50 50 multi tenant single tenant.

Unknown Executive: One moment please, while we pull for questions.

Craig Mailman: Our first question comes from Craig Mailman with city. Please go ahead. Hey, good morning guys. Just one clarification in the sub, will you guys put the 6-2 cash cap rate and 6-7? Are those initial cash cap rates or is that more the stabilized cash cap rate? It's a stabilized cap rate if the lease is expiring within the first year effectively. So we had a couple of those or there's a vacancy in there, Craig.

Got it.

Speaker 11: Got it. Okay. And then I guess what's the spot view on a range of acquisition cap rates for comparable product that you would be looking at today just given kind of the backup and rates is is the four Q transactions that you've penciled is that do you think the right ballpark range for right now?

And then I guess what.

Craig Mailman: But other than that, it's the in place. So from a market cap rate perspective for the Q3 acquisitions, it's around 6-7, 6-8 if that helps. Okay, but what would be the difference between the 6-2 and the initial? Would it be pretty tight? There's a one of our buildings. There's some vacancy in there. So that's obviously going to drag it down. It's probably in the 100 basis points plus a little lower for a short period of time.

<unk> view on a range of acquisition cap rates for comparable product that you would be looking at today, just given kind of the backup in rates as is the.

The <unk> transactions that you pencil does that do you think the right ballpark range for right now.

Yeah. The the Q4 transactions were sourced in Q3, and so those were about a six seven.

Speaker 13: The Q4 transactions were sourced in Q3. And so those were about a six, seven. I'd say now, depending on where the assets are in relation, with at least our relation to market, in place is probably gotta be high sixes low sevens with probably a market opportunity that's not included in that capric.

Now depending on where the assets are in relation with the leases are in relation to market in place is probably gotta be high sixes low sevens with probably a mark to market opportunity. That's not included in that cap rate.

Got it okay. Thank you.

Thank you Mike.

Thank you.

Speaker 1: As there are no further questions, I would now hand the conference over to Bill Crocker CEO for closing comments.

As there are no further questions I would now have the conference silver to Bill Crooker CEO for closing comments.

Speaker 4: I just want to say thank you all for joining the call and the support of Stagg today and through the years.

I just want to say thank you all for joining the call and supportive stag today and through the years and.

Craig Mailman: And then just follow-up question. Bill, your commentary on market rent growth sounds relatively good versus some of your coastal peers. This earning season, which markets do you think are really the driver of only seeing a downtick from maybe high-single digit rent growth this year to mid-single visit next year given some of the issues that some of the coastal markets are facing? Yeah, it's still a similar scenario to what we had last quarter where it's more of a size difference than markets for us.

Speaker 4: Look forward to seeing you all soon at the upcoming conferences. Take care.

We look forward to seeing you all soon at the upcoming conferences take care.

Speaker 1: Thank you. The conference of Stag Industrial Inc. has now concluded. Thank you for your participation. You may now disconnect your lines.

Thank you.

Constant Stag Industrial Inc. Has now concluded. Thank you for your participation you may now disconnect your lines.

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Craig Mailman: So the bigger boxes are slowing and that market rent growth is probably flat, maybe even negative. And the smallest sweet size is less than 150,000 square feet are still holding up really well. So where we're seeing some weakness in bigger boxes, it's the big box distribution markets, Indianapolis, Columbus, South Dallas. Those ones will struggle with that sweet size. But when you get the smallest sweet sizes, all those markets are still holding up really well.

Craig Mailman: Great, thank you. Thank you, Craig.

Unknown Executive: Thank you.

John Kim: Our next question comes from John Kim with BMO capital markets. Please the cap rates on acquisitions. So when you look at the initial cap rate and then compare it to the adjustments to NOI that you have on page six of years supplement, even adjusting for timing. It suggests the initial NOI impacts would be something closer to sub three percent initial yield. So I'm wondering what that discuss is in regards to the discrepancy is primarily related to dispositions.

Okay.

John Kim: So we had a couple of non-core dispositions. This core and one was a fixed option that was a higher cap rate that tenant had and another was a non-core non-CBRE tier one market that we dispose of. So those are higher cap rates. So I think when you look at that run rate adjustment, it's a it's a next of acquisitions and this positions. So where were the cap rates in this position? Matt, see how those?

Matts Pinard: Hi, good morning, John. The aggregate disposition cap rates for those two, they were both a hundred percent occupied, it was 8.8 percent. Okay. And again, to reiterate what Bill said, these are assets that did not have a home in our portfolio and we opportunistically dispose of these two. Okay, thank you.

Unknown Executive: Thank you.

Vince Tibone: Our next question comes from Vince Tibone with Green Street. Please go ahead. Hi, good morning. I have a few questions on the Tampa development activity. If you could just maybe provide the expected spend and incremental yield on those buildings and also talk about kind of what profit margins you were targeting on these projects, given just the uncertain cap rate environment. Curious how you guys thought about the market cap rate on those ones they're done. Thanks, Vince.

Bill Crocker: That was a great opportunity for us and something that I think in a different capital market environment or something that we would not have been able to enter into. And when we're required that I said that the dirt was shovel ready and so we could begin construction on almost immediately from a profit margin. It's got to be high teens. Reason why it's maybe not higher is because we didn't do any of the entitlement of the land.

Bill Crocker: So a little bit low on the risk spectrum and from a yield basis, it's going to be high sixes depending on exactly when we lease it. High sixes maybe even touches heaven. I'm just glad is that a gap or a cash yield the ones you just asked. That's cash, got it. Nope, that's helpful.

Bill Crocker: And then is this more of a one-off deal as you mentioned maybe unique opportunity or do you expect to kind of look for more of these and start more development projects over the next next year or so? I mean we'd love to do more of these and this is a great opportunity. We have a great partner in the in the transaction. It's not a JB, we own the whole thing, but just who's constructing it for us.

Bill Crocker: As these opportunities present themselves, if we saw more opportunities like this, we'd absolutely execute on it. It's something that we think is in the long term the best interest of our stakeholders and something that in this environment, it's better use of our capital than acquiring stabilized acquisitions. Great, thank you. Thank you.

Nick Tillman: Our next question comes from the line of Nick Tillman with Bed, please go ahead. Hey, good morning guys. Maybe on the acquisition activity in the third quarter. You guys kind of acquired an inland empire. I know that's a market that's been a little bit too pricey there. So maybe a little bit more details on what you're seeing in that market and what made that a good opportunity here.

Michael Chase: Yeah, I'll pass it over to Mike Chase to answer that one. Yeah, thanks, Nick. You know, the asset is located in the southern portion of the Riverside market, which unfortunately pulls pen and face from the inland empire and from San Diego, which is something that we attracted us in terms of that transaction. In addition, it was two buildings, you know, about 73 and 84,000 square feet. They break down to as little as 15,000 square feet. It was 100 percent occupied, but with seven tenants. But it really meets the kind of the meaning of the market in that area.

Michael Chase: And so that was really what kind of drove us to that transaction. Foundation. That's helpful.

Matts Pinard: And then maybe for Matts, it looks like reimbursement kind of ticked up sequentially. I'm just wondering if I could get a couple more details on that. And maybe driving forward like changes. Yeah, absolutely. There's really no theme there. This is very similar to what we've seen in previous quarters. To your point, you know, we've seen an increase in expenses, which are 100% reimbursable. So we recommend looking at the aggregate line as opposed to the revenues and expense. Again, it's just kind of a size-based percentage, right? The change on a smaller base versus the change on a bigger base. That's helpful. Thanks, guys. Thank you.

Jason Belcher: Our next question comes on Jason Belcher with Wells Fargo. Please go ahead. Yeah, hi. Good morning. I guess first just following up on the Riverside California acquisition. I think that's your first foray or at least one of your first forays into the Southern California market. Is that going to be a new market that you're targeting for additional growth? Or is it more of a one-off opportunity at this point? Yeah, we own another asset in San Diego, which is close to there.

Jason Belcher: We like the market. It's just for us. It's always been entry price there. So this deal in particular was a six and a half cap. I think was 10 to 15 percent below market as well. And that's not included in the six and a half percent. So for us, a good opportunity to get into that market. And as Mike said, the sweet size is we really like there. And it meets the demand. So as those opportunities present themselves as in this type of capital market environment, we're going to execute on if we can. Got it.

Bill Crocker: Thanks. And then just thinking about, you know, all of the noise we're hearing around larger tenants, taking longer to make leasing decisions. You help us think about how this affects your, you know, your largely single-tenant portfolio. And do you think this dynamic could drive occupancy headwinds if it persists into 24? Yeah. So our portfolio is 75 percent single-tenant, 25 percent multi-tenant. The way we underwrite our assets is if it's a market that is smaller, sweet size, we make sure that our assets can break down if we need to.

Bill Crocker: With that being said, you know, larger assets. Next year, we have no assets rolling above 400,000 square feet. We have a few that are rolling above 300,000 square feet. But I think for the majority of those, we've already renewed them. So for us, our portfolio doesn't really face those big box headwinds next year. And again, as they said in our prepared marks, our average sweet size is less than 150,000 square feet. I think it's 140-ish thousand square feet.

Bill Crocker: That's helpful. Thank you.

Samir Kano: Our next question comes from Samir Kano with Evercore ISI. Please go ahead. Hey, good morning, everyone. I think it's Bill on this market rent growth. This sort of high single did just kind of range you're talking about now. Maybe expand on the demand that's sort of driving that. Is that a function of demand you're staying like near-shoring or on-shoring given your markets? Maybe they'll also apply in your markets. I'm just trying to get a bit of a better understanding given that it's different from your peers.

Samir Kano: Yeah, that's a good question. This year, the high single digits, it's a little over 8% to get a little more specific on that. The demand is coming from a number of various industries. Three PLs have been a big driver. We've seen e-commerce tenants continue to be a big driver. With respect to near-sharing, on-sharing, we've had some wins this year. I mentioned the last call of the call before our El Paso assets.

Samir Kano: We've had significant demand when we put those assets out the market, and we effectively doubled what we thought our asking rents were going to be on those assets. With respect to on-sharing, we haven't seen the direct demand impact our portfolio, but as we mentioned in our investor presentations, it certainly feels like it's coming. It's just hard to measure the exact timing and the significance of the impact to market rent, the positive impact to market rent growth, and then what's how our market rent growth compares to our peers.

Samir Kano: Part of it's that demand we just talked about as well as the limited supply. When you look at the map and where supply is coming online, half of the supply is big box, not competing with our space. A lot of the other supply is in the top 10-15 market, so less supply with continued demand and I think in a short, medium-term, incremental demand from the on-sharing. Got it. Thanks, Bill, for that.

Samir Kano: I'm sorry if I missed this, but I know in the last quarter, you talked about these development acquisition opportunities. It sounds like it's pencils down for the overall acquisition guidance. I guess look the case with those development acquisitions as well, what are the opportunities you're seeing? We're seeing opportunities similar to the one that we're executing in Tampa where the initial price is low, so when you think about our pipeline, the pipeline is, you call it 100 to $150 million of these potential development opportunities, but that's just our initial outflow of capital for that.

Samir Kano: So a $8 to $15 million land parcel, and then you'll build another $40 million to build the development. So there's a lot of those opportunities we're seeing just given the state of the capital markets, but we're focused, I think I've mentioned this on a prior call as well. Our strategy is being in the tier 1 CBR markets from a development standpoint. It's really the top half of those markets, so probably the top 30 markets, and that's what we're doing with both our port 290 and our Tampa development.

Samir Kano: So we've expected to be more opportunities we're seeing opportunities is just they take a little bit longer, and obviously we wanted to get them for the most effective price for us. And the funding for those opportunities would come from sort of free cash flow, or how do you think about that? Yeah, a combination of free cash flow and revolver right now. Got it. Thank you guys. Thank you.

Andrew Berger: Our next question comes from the line of Camille Bonnell with Bank of America. Please go ahead. Good morning. This is Andrew Berger on behalf of Camille. Just wondering if we could get some more thoughts around dispositions. I know your disposition of this quarter were non-core, but just wondering about how you're thinking about capital recycling, big picture, you know, whether you sell core assets as we, you know, end 23 and head into 24.

Andrew Berger: Yeah, I mean on an area basis this year we had we had about half of our dispositions were non-core, half four, call it opportunistic. On aggregate, I think the cap rate was high six is low sevens. So opportunistic dispositions were in the mid five. So very good execution given the capital market environment. You know, when we adjust our acquisition guidance down, we also adjust our disposition guidance down. It's, we really entered again a price discovery phase in the market. So, when we're not able to efficiently acquire, it's tough to efficiently dispose of assets.

Bill Crocker: So, it's something that is always in our capital plan each and every year and we'll, we'll fine tune this as we give our 2024 guidance in February. But right now the market's pretty quiet, just, just given the volatility interest rates. Got it. That makes sense.

Matts Pinard: And then it's my follow up. Could you please talk a little bit about how you're thinking about equity versus debt as a capital source and maybe the current cost spread between the two? Absolutely. Hi, this is Matt. I think number one, the overarching thing is we need an appropriate use for any capital deployment. You know, as Bill mentioned that acquisition market, we, we, look, we wereverted to price discovery. We did not have anything on our closing schedule.

Matts Pinard: Hundreds of passing on the balance sheet were lowly levered to a significant mental liquidity. We're going to retain $90 to $100 million a free cash flow this year. So, as we deploy capital, that would be the first piece. And then as Bill mentioned, there would be some incremental revolver dollars to the extent we find appropriate opportunities. But I think really that take home point here right now is we're not seeing opportunities deals aren't trading deals are being pulled.

Matts Pinard: And your hit hit five that kind of reset the market. So, you know, we're not really evaluating many opportunities today. But, you know, if we were to go out and issue long term debt, it's in the low sevens. If we're going to issue term loans and be in the low fives. And from an equity perspective, we're not really looking at that right now. Got it. Thank you very much.

Unknown Executive: Thank you.

Michael Carroll: Our next question comes from Michael Carroll with RBC capital markets. Please go ahead. Yeah, thanks. Just also like to ask you questions. I know Bill that you're taking a step back in the investment market. I mean, how long do you expect to be on the sidelines? And really, what do you have to see before you start re ramping up on activity? Does the capital markets need to stabilize before you feel comfortable doing that?

Michael Carroll: I think that's a catalyst for the market to open up generally. If we see good opportunities and sellers willing to sell it returns that we're requiring in this capital market environment will execute on those. We're still underwriting transactions and just what happens is we're just we're back into this time where the bid asked for their wider. And that's what that happens when you have a rapid spike in interest rates. And then what happens usually you get a one or two deals close and then you start to get market comps and everybody feels a little bit more confident what market pricing is. So we're still underwriting deals. We're still evaluating deals. But we're just underwriting for higher initial. Prince.

Bill Crocker: Okay, great.

Bill Crocker: And then I'm not sure if you mentioned this yet or not, but but last year at this time, you kind of gave us a look through on your 2023 renewal process. I guess can you give us an update or how you're thinking about 2024 and will cash leaf spreads next year be similar to what they are this year or to date? Are they similar to our with their this year? Yeah, so we've addressed 37% of our expecting leasing for 2024.

Bill Crocker: It's about 5 million square feet. And the rental spreads on that is about 30%. And then from next year for what we expect for leasing spreads, I mean, we're not giving all of our guidance on this call, but it's 25 to 30% is I think where I'm comfortable saying leasing spreads are for next year at this time.

Unknown Executive: Okay, great. Thank you. Thanks. Thank you.

Unknown Executive: Ladies and gentlemen, a reminder, if you wish to ask questions, please press star and one.

Mike Milo: Our next question comes from the line of Mike Milo with JP Morgan. Please go ahead. Yeah, hi.

Bill Crocker: I guess can you talk a little bit about the view of single tenant versus multi tenant buildings right now, because it sounds like your initial developments are going to be more multi tenant skewed and we think of that as the template for the developments going forward? Well, I think our view is we're trying to achieve the best risk adjust returns. Mike and in our developments, specifically, we want to make sure that our developments are meeting the demand in the market.

Bill Crocker: And so for that Tampa development, it's a it's smaller users. And so we want to make sure we're building to meet that demand. And said 25% of our portfolio is multi tenant today. So we went out at our IPO 11, 12 years ago. Yeah, it was a single tenant strategy, but that has morphed over the years in multi tenant. I would say over the past couple years, our acquisitions are probably close to 50, 50 multi tenants, single tenant. Got it. Okay.

Bill Crocker: And then I guess what's the spot view on a range of acquisition cap rates for comparable product that you would be looking at today, just given kind of the backup and rates is is the 4 queue transactions that you pencil. Does that do you think the right ballpark range for right now? The Q4 transactions were sourced in Q3. And so those were about a six seven. I'd say now, depending on, you know, where the assets are in relation with at least our relation to market in place is probably got to be high sixes low sevens with probably a market market opportunity that's not included in that cap. Got it.

Mike Milo: Okay. Thank you. Thank you, Mike. Thank you.

Bill Crocker: As there are no further questions, I would now hand the conference over to Bill Crocker CEO for closing comments.

Bill Crocker: I just want to say thank you all for joining the call and support of STAG today and through the years and look forward to seeing you all soon at the upcoming conferences. Take care. Thank you.

Unknown Executive: The conference of STAG Industrial Inc, has now concluded. Thank you for your participation. You may now disconnect your lines. .