Q4 2023 STAG Industrial Inc Earnings Call

Greetings and welcome to the Stag industrial fourth quarter 2023 earnings Conference call.

Operator: Greetings, and welcome to the STAG Industrial fourth quarter 2023 earnings conference. At this time, all participants are in a listen-only mode.

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

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

Operator: 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. And, as a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Steve Zarros, Investor Relations. Thank you, sir. You may begin.

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

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Steve <unk> Investor Relations. Thank you Sir you may begin.

Steve Zarros: Thank you. Welcome to the STAG Industrials conference call covering the fourth quarter 2023 results. In addition to the press release distributed yesterday, we have posted an unaudited quarterly supplemental information presentation on the company's website, 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 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 from those discussed today. Examples of forward-looking statements include forecasts of Core FFO, Game Store NOI, GNA, acquisition and disposition volumes, retention 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 reconciliations of non-GAAP 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. STAG Industrial assumes no obligation to update any forward-looking statements.

Thank you both.

To stag Industrials conference call covering the fourth quarter of 2023 results. In addition to the press release distributed yesterday, we've posted an unaudited quarterly supplemental information presentation on the company's website at Www Dot stag industrial dot com under the Investor Relations section.

On today's call the company's prepared remarks and answers to your questions will contain forward looking statements as defined in the private Securities Litigation Reform Act of 1995.

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

These forward looking statements include forecasted or F. O same store NOI G&A acquisition disposition volumes retention rates, another 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 S. E C.

Initiatives and reconciliations of non-GAAP measures contained in the supplemental information package available.

On the company's website.

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

Stag industrial assumes no obligation to update any forward looking statements.

Steve Zarros: On today's call, you'll hear from Bill Crooker, our Chief Executive Officer, and Matt Pinard, our Chief Financial Officer. Also here with us today is Mike Chase, our Chief Investment Officer, and Steve Kimball, EVP of Real Estate Operations, who are available to answer questions specific to the areas of focus. I'll now turn the call over to Bill. Thank you, Steve.

On today's call, you'll hear from Bill Crooker, our Chief Executive Officer, and Mastercard, Chief Financial Officer.

Also here with US today, Mike Chase, our Chief Investment Officer, Steve Kimball EVP of real estate operations, who are available to answer questions specific to their areas of focus on that.

I'll turn the call over to Bill.

Thank you Steve Good morning, everybody and welcome to the fourth quarter earnings call for Stag industrial.

William R. Crooker: 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 2023 results. 2023 was one of the best operational years we had as a public company, which produced record leasing spreads and record cash same-star NOI. These leasing spreads and same-star NOI growth were driven by continued market rent growth in our portfolio. 2023 market rent growth for our portfolio was high single-digit. While national market rent growth has generally experienced a degree of normalization, non-coastal markets outperformed coastal markets in 2023. Recent retail sales prints have been strong, especially in e-commerce, indicating that consumer health remains intact.

We were pleased to have you join us and look forward to telling you about the fourth quarter and full year 2023 results.

2023 was one of the best operational years, we had as a public company.

We produced record leasing spreads and record cash same store NOI.

These leasing spreads and same store NOI growth were driven by continued market rent growth in our portfolio.

Only 23 market rent growth for our portfolio was high single digits.

While national market rent growth has generally experienced a degree of normalization.

In coastal markets outperformed coastal markets in 2023.

Recent retail sales trends have been strong, especially in e-commerce, indicating that consumer health remains intact.

Secular tailwind, including near shoring and onshoring have contributed to a boom in domestic manufacturing requirements, which grew by 60% in 2023.

William R. Crooker: Secular tailwinds, including near-shoring and on-shoring, have contributed to a boom in domestic manufacturing requirements, which grew by 60% in 2023. Some of the largest markets for manufacturing space in the U.S., including Chicago, Detroit, Minneapolis, and Greenville, experienced some of the highest rent growth last year. These are markets that we have a strong presence in. Additionally, while STAG has minimal direct exposure to manufacturing plants, this increased manufacturing activity is expected to further drive demand for warehouse distribution facilities.

Some of the largest markets for manufacturing space in the U S, including Chicago, Detroit, Minneapolis and Greenville.

<unk> experienced some of the highest rent growth last year.

These are markets that we have a strong presence in.

Stag has minimal direct exposure to manufacturing plants. This increased manufacturing activity is expected to further drive demand for warehouse distribution facilities.

William R. Crooker: 2023 deliveries totaled approximately 3% of stock. While the existing supply is being absorbed at a healthy rate, vacancy ended the year above last quarter's expectations at 4.9%. While supply remains elevated, new construction starts have declined nationally by approximately 65% on a year-over-year basis as of Q4 2023. In addition, forecasts for 2024 and 2025 deliveries are expected to decrease to just 2.2% of stock.

123 deliveries totaled approximately 3% of stock are.

While the existing supply is being absorbed at a healthy rate vacancy ended the year above last year last quarter's expectations at four 9%.

Also product supply remains elevated new construction starts have declined nationally by approximately 65% on a year over year basis as of Q4 2023.

In addition forecast for 'twenty 'twenty, four and 'twenty 'twenty five deliveries are expected to decrease to just 2.2% of stock.

William R. Crooker: Vacancy rates will likely continue to rise in the near term, but we expect the peak to occur sometime in the second half of 2024 with normalization around year-end. We still expect market rent growth for our portfolio to be in the mid-single digits for 2024. We are proud to report cash and straight line leasing spreads of 31 and 44 percent in 2023. As of today... We have achieved 69% of the leasing we expect to accomplish in 2024 for approximately 9 million square feet at cash leasing spreads of 29.5%. Moving to acquisitions and development, as discussed in our last call, spiking interest rates put the transaction market back on hold for the latter part of 2023. Our acquisition volume for the fourth quarter totaled $48.7 million. This consisted of two buildings with cash and straight-line cap rates of 6.5% and 6.9%, respectively. Located in the Sparks sub-market of Reno, Nevada, the buildings benefit from both their central infill location within Reno, as well as their close proximity to I-80, with a weighted average lease term of 1.9 years and approximately 33% below market rent.

They can see rates will likely continue to rise in the near term, but we expect the peak to occur sometime in the second half of 'twenty 'twenty four with normalization around year end we.

We still expect market rent growth for our portfolio to be in the mid single digits for 'twenty 'twenty four.

We are proud to report cash and straight line leasing spreads of 31 and 44% in 2023.

As of today.

<unk> achieved 69% of leasing we expect to accomplish in 2024 or approximately 9 million square feet.

Our cash leasing spreads of 29, 5%.

Moving to acquisitions and development as discussed on our last call Viking interest rates, but the transaction market back on hold for the latter part of 2023.

Our acquisition volume for the fourth quarter totaled $48 $7 million.

This consisted of two buildings with cash and straight line cap rates of six 5% and six 9% respectively.

In October staying close on a 165000 square foot Frontload building, but $30 million.

Our reported cap rate of six 1%.

Located in the spark Submarket of Reno, Nevada, and building benefits from both its central infill location within Reno as well as close proximity to I 80.

But the weighted average lease term of 1.9 years and approximately 33% below market rents.

William R. Crooker: The building offers a high growth market opportunity within a low-vacancy submarket. Also in October, STAG closed on one vacant, newly developed spec building, totaling 233,000 square feet for $18.7 million at a cap rate of 7.1% upon stabilization. As part of this transaction, we also require one asset under development for $18.7 million. Adjacent buildings are well located in Spartanburg County, South Carolina, with direct frontage and visibility to I-85.

The building offers a high growth mark to market opportunity.

Within a low vacancy submarket.

Also in October stay closed on one vacant newly developed spec building totaling 233000 square feet for $18 $7 million at a cap rate of seven 1% upon stabilization.

As part of this transaction. We also inquiry, we also acquired one asset under development for $18 $7 million.

The adjacent buildings are well located in the Spartanburg County, South Carolina, but direct frontage on and visibility to I 85.

<unk> ability to source the deal off market. After another buyer failed to perform gave <unk> the opportunity to buy the assets at a below market basis.

William R. Crooker: STAG was able to negotiate a lease during diligence and, immediately after closing, signed a full building lease on the completed building, allowing us to exceed both our underwritten rent and downtime. There's good activity on the second 233,000 square foot building, which has an expected construction completion date in the second quarter of 2024. Including the previous project, we have about 1.2 million square feet of development and value-add activity across three projects located in the Southeast and U.S. We achieved substantial shell completion in our performing office build-out work on our two-building, 715,000-square-foot, Project in Greer, which is located next to the Inland Port. Airport, CMW Manufacturing Facility, and I-85 in the Greenville and Spartanburg, South Carolina market.

That he was able to negotiate a lease during diligence and immediately after closing signed a full building lease on the completed building, allowing us to exceed both our underwritten rent and downtime.

There was good activity on the second 233000 square foot building, which has an expected construction completion date in the second quarter of 2024.

Including the previous project.

Have about one 2 million square feet of development and value add activity across three projects located in the southeastern U S.

We achieved substantial shell completion and are performing office build out work on our two building 715000 square foot.

Project in Korea.

This project is located next to the inland port.

Airport BMW manufacturing facility.

And I 85 in the Greenville, Spartanburg, South Carolina market.

William R. Crooker: Activity remains healthy, and we anticipate leasing a meaningful amount of space in the first half of 2024. And our third development project is our two-building, 298,000 square foot project in Tampa, Florida. These buildings are under construction with a Q4 2024 estimated delivery date and stabilization in 2025. The acquisition market appears to be heading in a positive direction as we start 2024. While there are still some prices to be made, we expect a more stable acquisition market in 2024. With that, I will turn it over to Matts, who will cover the remaining results and our guidance for 2024. Thank you, Bill. And good morning, everyone.

Activity remains healthy and we anticipate leasing a meaningful amount of space in the first half of 2024.

The third development project is our two building 298000 square foot project in Tampa, Florida.

These buildings are under construction with a Q4 'twenty 'twenty four estimated delivery date and stabilization in 2025.

The suite size at approximately 50000 square feet align well with demand in this high barrier to entry low vacancy market.

The acquisition market appears to be heading in a positive direction as we start 2024.

We have underwritten more deals in January and the entire fourth quarter of 2023.

While there is still some price discovery, we made we expect a more stable acquisition market in 2024.

That I will turn it over to Matt who will cover the remaining results and our guidance for 2024.

Thank you Bill and good morning, everyone or peso per share was 58 cents for the quarter and $2 29 tenths for the year, an increase of three 6% as compared to 2022.

Matts Pinard: 4 FFO per share was 58 cents for the quarter and $2.29 for the year, an increase of 3.6% as compared to 2022. Cash available for distribution totaled $361.3 million in 2023, a year-over-year increase of 5.4%. Consistent with our previous messaging, the dividend payout ratio continues to moderate, declining from 78% at year-end 2022 to 75% at year-end 2020. This past year, we retained approximately $90 million of free cash flow after dividends paid.

Cash available for distribution for the $361 $3 million in 2023, a year over year increase of five 4%.

With our previous messaging the dividend payout ratio continues to moderate declining from seven 8% at year end 2022, 75% at year end 2023.

This past year, we retained approximately $90 million of free cash flow after dividends paid.

Matts Pinard: These dollars are available for incremental investment opportunities, debt repayment, and other general corporate purposes. Leverage remains below the low end of our guide range, with net debt to annualized run rate adjusted EBITDA equal to 4.9%. Equities stood at $657 million at year-end, inclusive of available forward ATM proceeds issued in the fourth quarter.

They're available for incremental investment opportunities debt repayment and other general corporate purposes.

Leverage remains below the low end of our guided range with net debt to annualized run rate adjusted EBITDA equal to $4 nine tenants.

<unk> stood at $657 million at year end inclusive of available forward ATM proceeds issued in the fourth quarter.

During the quarter, we commenced 23 leases totaling $2 6 million square feet, which generated cash and straight line leasing spreads of 36, 2% and 55% respectively.

Matts Pinard: During the quarter, we commenced 23 leases totaling 2.6 million square feet, which generated cash and straight-line leasing spreads of 36.2% and 50.5%, respectively. Retention was 88% for the quarter and 77.7% for the year. When adjusted for instances of minimal downtime and immediate backfills, adjusted retention was 87.2% for 2023.

<unk> was 88% for the quarter and 77, 7% for the year when adjusted for instance, there's a minimal downtime and immediate back those adjusted retention was 87, 2% for 2023.

Matts Pinard: Average same store occupancy declined 30 basis points in 2023, outperforming our initial expectations of a 50 basis point decline. Moving to capital market activity, in the fourth quarter, we issued 1.1 million shares on a forward basis under our ATM program at a gross average share price of $38, resulting in gross proceeds of $41.8 million. Subsequent to quarter end, we issued approximately 567,000 shares on a forward basis under our ATM program at a gross share price of approximately $38.88, resulting in gross proceeds of $22.1 million.

Same store occupancy declined 30 basis points in 2023 outperforming our initial expectations about 50 basis point decline.

Moving to capital market activity in the fourth quarter, we issued one 1 million shares on a forward basis under our ATM program and a gross average share price of $38, resulting in gross proceeds of $41 $8 million subsequent to quarter end, we issued approximately 567000 shares on a forward basis under our ATM program at a gross share price of approximately 38.

It made sense.

Resulting in gross proceeds of $2 $1 million as of today, we have approximately $63 million of forward equity proceeds available to fund at our discretion.

Matts Pinard: As of today, we have approximately $63 million of forward equity proceeds available to fund at our discretion. This equity will be used to match funder acquisition development. There are minimal debt maturities coming up this year with a $50 million private placement note returning in 2024. Samesport Cash NY grew 6.8% for the quarter and 5.6% for the year, representing another annual record growth for STAG. We experienced 13 basis points of credit loss in 2023, well below our initial guidance of 50 basis points.

The equity will be used to match fund our acquisition development pipeline.

Minimal debt maturities coming up this year with a $50 million private placement note maturing in 2024.

Same store cash NOI grew six 8% for the quarter and five 6% for the year, representing another annual same store cash NOI growth record for stag, we experienced 13 basis points of credit loss in 2023, well below our initial guidance of 50 basis points.

Matts Pinard: As mentioned by Bill, we continue to see healthy dynamics across the portfolio. Our 2024 guidance range for same-sort cash and Y growth is 4.75% to 5.25%, anchored by weighted average rental escalators in the 2.7% area. We expect retention in the 70% to 75% area. Cash leasing spreads are expected to be between 25% to 30% on 13 to 14 million square feet of projected new and renewal leasing for the year. As Bill mentioned, approximately 69% of our projected 2024 leasing has been addressed, with aggregate cash leasing spreads of 29.5% accomplished to date. A detailed 2024 guidance can be found on page 19 of our supplemental package, which is available in the investor relations section of our website.

As mentioned by Bill we continue to see healthy dynamics across the portfolio. Our 2020 full guidance range for same store cash NOI growth is 475% to 525% anchored by weighting average weighted average rent escalators in the two 7% area, we expect retention to 70% to 75% area cash leasing spreads are expected to be.

I mean, 25% to 30%.

14 million square feet of protecting new any new leasing for the year.

Bill mentioned approximately 69% of our projected 2024 leasing has been addressed with the aggregate cash leasing spreads of 29, 5% accomplished to date.

A detailed 2024 guidance can be found on page 19 of our supplemental package, which is available on the Investor Relations section of our website components of guidance include or some type of per share to range between $2 36, and $2 40 per share. We expect same store cash NOI growth to be between $4 75, and 5.25% for the.

Matts Pinard: Components of guidance include 4 FFO per share to range between $2.36 and $2.40 per share. We expect same-store cash and oil growth to be between 4.75% and 5.25% for the year. Average same-store portfolio occupancy is expected to decline by 50 basis points.

Year average same store portfolio occupancy is expected to decline by 50 basis points cash leasing spreads will be between 25% to 30% Act.

Matts Pinard: Cash leasing spreads will be between 25 to 30 percent. Acquisition volume guidance is a range of $350 to $650 million, with a cash capitalization rate between 6 and 6.5%. Disposition volume guidance is a range of $75 to $125 million, and G&A is expected to be between $49 to $51 million. And finally, we expect net debt to annualize run rate adjusted EBITDA to be between 5 and 5.5 times. I will now turn it back over to Bill. Thank you, Matts.

Acquisition volume guidance is a range of $350 million to $650 million with cash capitalization rate between six and six 5%.

Physician volume guidance is a range of $75 million to $125 million G&A is expected to be between $49 million to $51 million and finally, we expect net debt to annualized run rate adjusted EBITDA to be between five and five five times I will now turn it back over to Bill.

Thank you mats.

I want to thank our team for their continued hard work and achievement of our 2023 goals are.

William R. Crooker: I want to thank our team for the continued hard work and achievement of our 2023 goals. Our team continues to drive value in all macro environments. Thank you. We will now be conducting a question and answer session. We ask that all callers limit themselves to one question and one follow-up. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.

Our team continues to drive value in all macro environments.

Yeah. He is extremely well positioned for sustained growth through our operating and acquisition platform.

With that I will turn it back to the operator for questions.

Thank you we will now be conducting a question and answer session.

We ask that all callers limit themselves to one question and one follow up.

If you would like to ask a question. Please press star one on your telephone keypad.

Confirmation tone will indicate your line of my question queue.

You May press Star two if you would like to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, well known the please while we poll for questions.

Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Craig Mailman with Citi. Please proceed with your question.

Thank you. Our first question comes from the line of Craig Mailman with Citi. Please proceed with your question.

Hey, guys good morning.

William R. Crooker: Bill, I just want to circle back to your commentary on the acquisition market. It seems like we've heard that sentiment a few times this earnings season about the acquisition market getting, you know, more positive on the margin. You guys have a pretty wide range of guidance, so I'm just kind of curious maybe what you have visibility on today that's maybe close to their LOI or going under contract and potential timing on that, and sort of the same thing on dispositions just as we kind of think about the potential drag and timing delays of redeployment. Ladies and gentlemen, please remain on the line; your conference will resume momentarily. Again, please stay on the line; your conference will resume in a moment. Hello? Hi, can you guys hear me?

So I just wanted to circle back to your commentary on the acquisition market. It seems like we've heard that sentiment a few times this earning season on the acquisition market getting more positive on the margin you guys have a pretty wide range in guidance. So I'm just kind of curious maybe what your visibility on today, that's may be close to either have a lie.

Our ore going under contract.

And potential timing on that and sort of the same thing on on dispositions just as we kind of think about the potential drag in timing delays of redeploying it.

Ladies and gentlemen, please remain on the line your conference where with you momentarily again. Please stay on the line your conference will resume in a moment.

Hello.

Hi can you guys hear me.

Operator: Yeah, sorry. I don't know what happened there. No worries. Did you hear my question? Do you want me to start over?

Yeah, sorry.

I don't know what what happened there.

No worries did you hear my question you want me to start off I know I heard I heard your question. Thank you I said this year, we've had a lot more confidence in the acquisition market than we did at this time last year our pipeline.

William R. Crooker: Yeah. No, I heard your question. Thank you. This year, we have had a lot more confidence in the acquisition market than we did at this time last year. Our pipeline sits at $3.1 billion. It consists about 10 to 15 percent of portfolios, 15 to 20, 25 percent of developments, redevelopments, and value add. With respect to acquisition guidance, it is wider than a typical year. As I said, we do have a little bit more confidence than we did last year.

It's at $3 1 billion a pipeline consists about 10% to 15% our portfolios.

15 to 20, 25% of developments redevelopments value add.

With respect to the acquisition guidance is wider than I than a typical year.

Hum.

I said, we do have a little bit more confidence than we did last year, our underwriting more transactions, we under a more transactions in January than we did all of Q4 2023.

William R. Crooker: We're underwriting more transactions. We underwrote more transactions in January than we did all of Q4 2023. With all that being said, we are expecting acquisitions to be more back-end weighted, just given some of the uncertainty in the market. But we're seeing a lot more deals today, and it gives us more confidence than we did last year. And do you have anything kind of close to an LOI or going under contract at this point? Not right now.

With all that being said, we are expecting acquisitions to be more backend weighted.

Just given some of the uncertainty in the market.

But we're seeing a lot more deals today and it gives us more confidence than we did last year.

And do you have anything kind of close to LOI or under contract at this point.

Alright, now what happened at the end of last year, where brokers and sellers were.

William R. Crooker: What happened at the end of last year was that brokers and sellers were. Brokers are advising sellers to wait to put deals out to market until the start of the year, so we have been underwriting a lot. I think we're close to price agreements on some deals, but you've got to get the price agreement, then you've got to negotiate the contract and close. So all that takes is a couple of months, so nothing under price agreement today or LOI today, just as deals really hit the market at the start of the year. Thanks. It's Nick Joseph here with Craig.

Oh brokers are advising sellers to wait to put deals out in the market until the start of the year. So we have been underwriting a lot I think we're close to price agreement on on some deals but yeah.

You got to get the price agreement then you've got to get negotiate the contract and close while that takes a couple of months so nothing under priced agreement today or LOI today.

Just as deals really hit the market at the start of the year.

Thanks, It's Nick Joseph here with Craig just one more you had mentioned a market rent growth in the mid single digits. I was wondering if you can touch on kind of the markets at the high end low end and what that range would look like and then just how your product fits into that just given that most of the supply.

William R. Crooker: Just one more, you mentioned market rent growth in the mid single digits. I was wondering if you can touch on kind of the markets at the high and low end and what that range would look like, and then just how your product fits into that, just given that most of the supply is obviously impacting, you know, probably at the higher end. Yeah, I mean, it is we operate in the CBRE tier one market. So it's a wide range of markets. I would say the markets that are that have lower market rent growth expectations are really the big box markets. So Indianapolis, Columbus, and some of the submarkets of Dallas.

The impact in.

Probably at the higher price point.

Yeah, I mean, there it is oh, we operate in the CBRE tier one markets. So it's a it's a wide range of markets.

Yeah, I would say the markets that are.

That have lower market rent growth expectations are really the big box markets, So Indianapolis Columbus.

Some of the Submarkets of Dallas.

William R. Crooker: And then the other markets where it's smaller boxes, you're gonna see some better market rent growth. So the dynamic that persisted in 2023 still exists today with really first-generation big box leasing being very slow, and other space sizes having more activity and more demand.

And then the other markets, where it's you have smaller boxes are you're going to see some some better market rent growth. So the dynamic that persisted in 'twenty twenty-three still exists today with.

Really first Gen Big box leasing being very slow and other space sizes are having more activity and more demand. So I think it's when you look across the markets. It really is the big box distribution markets are a little bit slower market rent growth versus some of the other markets.

William R. Crooker: So I think when you look across the markets, it really is the big box distribution markets are a little bit slower in market rent growth versus some of the other markets. Our next question comes from the line of Vince Tibone with Green Street Advisors. Please proceed with your question. Hi, good morning.

Yes.

Our next question comes from the line of Vince <unk> with Green Street Advisors. Please proceed with your question.

Hi, Good morning, a few of your recent acquisition or more value add in nature could you just discuss how leasing risk is being priced in the transaction market today basically what is the spread pivotal spread between a core stabilized cap rate to one where you're taking on the leasing risk.

William R. Crooker: A few of your recent acquisitions are more value-add in nature. Can you just discuss how leasing risk is being priced in the transaction market today? Basically, what is the typical spread between a core stabilized cap rate and one where you're taking on the leasing risk? Yeah, I would say typically, Vince. I mean, it depends on the market.

Yeah, I would say typically Vince I mean, it depends on the market it depends on the.

William R. Crooker: It depends on the demand in the market, the velocity; you could see anywhere from 25 to 50 basis points of incremental return. The deal we acquired in Q4, the one in the Greenville market, that was a unique opportunity. That was a deal that was under contract with another buyer, but ultimately, that buyer wasn't able to perform.

The demand in the market the velocity.

You could see anywhere from 25 to 50 basis points of incremental return.

The deal we acquired in Q4, the one in the Greenville market.

That was a unique opportunity that was a deal that was under contract with another buyer ultimately that buyer wasn't able to perform the shallow wanted to get the deal closed before year end.

William R. Crooker: The seller wanted to get the deal closed before year-end, so we acquired that transaction. That was acquired for about 125 basis points, a higher return than we otherwise would have gotten if we acquired that stabilized. You know, I mentioned in the prepared remarks that the stabilized yield on that deal was a 7-1. That was our underwriting. What we actually signed the lease at was a 7-6, so we effectively bought that deal and negotiated a lease during diligence, and put a tenant in there with a five-year lease, 4% escalators at a 7-6 cap rate. So every situation is different, but going back to your original question, you have 25 to 50 basis points to take that leasing risk. And as you move, you know, further back in the pipeline, when you look at some of these deals that have, you know, finishing out developments or have some value added component, you know, putting more docks in, doing some parking lot work, expanding the truck court, those type of things, you start to increase the return as compared to a stabilized deal. It's all really helpful.

So we acquired that transaction that was acquired for about 125 basis points.

Higher return than we otherwise would have gotten if we acquired that stabilize.

Mentioned in the prepared remarks that you know the stabilized yield on that deal was a seven one that was our underwriting.

While we actually sign the lease that was a seven six so effectively bought that deal and.

Negotiated lease during diligence and put a tenant in there with a five year lease 4% escalators are at a seven six cap rates. So every situation is different but going back to your original question, Yes, 25 to 50 basis points to take that that leasing risk.

And as you move you know.

Further back in the you know when you look at some of these deals that have you know, finishing out developments or have some value added component.

Putting more docs in doing some parking lot work expanding the truck court and those type of things you you start to increase the.

Our return as compared to a stabilized deal.

That's all really helpful. And then just in terms of your potential 24 acquisition do you have a target split between yeah sites or buildings that are more value add in nature versus core are you seeing more opportunities in one bucket versus the other and also just from a risk perspective, just curious how we should think about the mix of <unk>.

William R. Crooker: And just in terms of your potential 24 acquisitions, do you have a target split between, you know, sites or buildings that are more value-add in nature versus core? Are you seeing more opportunities in one bucket versus the other? And also, just from a risk perspective, just curious how we should think about the mix of acquisitions going forward? Yeah, what's great about our platform is we have the ability to invest, you know, across that spectrum. So developments like the one we mentioned last year in Tampa, to the value add, where we're just taking, you know, the least risk to something that we're adding more value with redevelopment, as well as acquiring stabilized deals. So depending on the opportunity, we're going to deploy that capital at the best risk-adjusted returns. Q4, Q1, there just were not a lot of stabilized acquisitions on the market. And I said, I mean, I could make Q3 and Q4 of 23.

Acquisitions going forward.

Yeah, what's great about our platform is we have the ability to invest across that spectrum. So.

Developments like the one we mentioned last year in Tampa.

Two the value add where we're just taking lease risk to something that we're adding more value with redevelopment as well as acquiring stabilized deals so depending on the opportunity we're going to deploy that capital off the best risk adjusted returns.

Q4, Q1 are they just were not a lot of stabilized acquisitions.

On the market and I say Q2, Q3, and Q4 of 'twenty three there were there weren't a lot of stabilized acquisitions on the market and part of that was just the volatility in the debt costs.

William R. Crooker: There weren't a lot of stabilized acquisitions on the market, and part of that was just the volatility and the debt costs. And now we're starting to see more of those stabilized opportunities. So my guess is there's going to be some split, probably waiting more to stabilize deals. But there'll certainly be some value added, redevelopments, and hopefully some more of these developments that we announced last year, but it'll be waiting longer to stabilize deals. Great, thank you. Thank you.

And now we're starting to see more of those stabilized opportunities. So my guess is there's going to be some some split probably weighted more to stabilized deals, but there'll certainly be some value add redevelopments and hopefully some more of these developments that we announced last year, but.

But it'll be weighted more to stabilized deals.

Great. Thank you.

Thank you.

William R. Crooker: Our next question comes from the line of Bill Crowe with Raymond James. Please proceed with your question. Good morning.

Our next question comes from the line of Bill Crow with Raymond James. Please proceed with your question.

Hey, good morning, Bill in your opinion, what is this bringing sellers back to the table after.

William R. Crooker: Bill, in your opinion, what is it that's bringing sellers back to the table after, you know, kind of a quiet period for the last couple of years? Are they looking at fundamental concerns and rising vacancy rates? Are they figuring they missed the bottom on cap rates and that they might drift higher? Or what is causing that switch in their mentality?

You know kind of a quiet period for the last couple of years are they are they looking at fundamental concerns and rising vacancies.

Vacancy rates are they.

They figure and they miss the bottom on cap rates.

And that they might drift higher or what what is what is causing that switch in their mentality.

Yeah.

William R. Crooker: Yeah, and I'll answer the question, but I do want to point out a stat that we've said before: the owners of industrial real estate, I mean, the ownership is so highly fragmented. I mean, the top 20 owners, including ourselves and some of our public peers, only own about 15 to 16 percent of the overall stock. There generally are uncorrelated reasons for assets coming to market, but what happened the past year was, you know, the volatility in interest rates, the rapid rise in interest rates; there wasn't a lot of comfort with where capital costs were coming from. And now that that's stable, there's more confidence in borrowing costs. And once you have your cost of capital or some comfort in your cost of capital, then you can back into where, you know, an appropriate price to either buy or sell an asset is.

I'll answer the question, but I do want to point out a stat that we said before is that the owners of industrial real estate I mean, the ownership is it's still highly fragmented I mean, the top 20 owners, including ourselves in some of our public peers only on about 15% to 16% of the overall stock so.

They're there generally is uncorrelated reasons for assets coming to market, but what happened the past year was the volatility in interest rates the rapid rise in interest rates there.

There was there wasn't a lot of comfort with where capital costs were coming in and now that that's stable there's more confidence in borrowing costs and once you have that.

Cost of capital or some California cost of capital than you can back into where you know an appropriate price to either buy or sell an asset.

William R. Crooker: So going back, I mean, did they miss the top of the market? I mean, based on where interest rates are today, yes. And I think because the 10 years have been somewhat stable over the past six to nine months, that gives sellers the confidence that they're selling at a market price versus a, you know, a price maybe that is not the market price. Thank you. The asset you acquired, the newly developed one in a 7-1, turned into a 7-6, I guess. How does that compare to the construction costs that were the development costs of the seller? Steve, Mike, I don't know if you have that.

So going back I mean did they missed the top of the market I mean, I I mean based on where interest rates are today, yes.

And I think because the you know the 10 years and somewhat stable over the past.

Six to nine months.

Give sellers the confidence that they're selling at a market price versus a you know a.

Price, maybe that that is not market.

But thank you.

We ask that.

You acquired the newly developed one of the seven was turned it into a seven six I guess.

Where does that how does that compare to the construction costs that were the development cost.

Of the seller.

Steve or Mike I don't know if you have that.

William R. Crooker: Yeah, I mean, we don't have pure visibility into the sellers' development costs, but we feel that we were able to get that at a total per square foot price that was at replacement cost, given that it was a brand new building. The yield was above what we could expect. I think in this transaction, Bill, the seller, and you don't always have perfect visibility into their costs, but the seller had a lower basis in the land and also had the opportunity to develop some other parcels of land. So this was a good opportunity for them to make some return on their investment without taking any leasing risk. And that's where we were able to add value. So the fair market value of that land was obviously much higher than where the seller initially purchased the land and then went through the entitlement and permanent, All right. No, I appreciate that.

Yes, I mean, we don't have pure visibility into.

This sellers development costs, but we feel that we were able to get that at a.

At a total per square foot price that was.

That was at replacement cost given that it was a brand new brand new building the yield was above.

It was above what we typically get yes, I think in this transaction bill that the seller and you don't always have perfect visibility into their cost, but the seller had a lower basis in the land and also had opportunity to develop some other parcels of land. So this was a good opportunity for them to make summer.

Turn on their investment without taking any leasing risk.

And you know that.

That's where we were able to add our value. So the fair market value of that land was obviously much higher than where the seller initially purchased the land.

And then went through the entitlement entitlement and permitting process.

Alright, no I appreciate that.

William R. Crooker: I'll leave it there. Thank you. Thanks, Bill. Our next question comes from the line of Samir Khanal with Abercore. Please proceed with your question. Hi, good morning, everyone.

I'll leave it there. Thank you okay. Thanks Bill.

Our next question comes from the line of Samir Kumar with Evercore. Please proceed with your question.

Hi, Good morning, everyone, I guess bill or Matt on the shifting to the internal growth.

William R. Crooker: I guess Bill or Matt on the shifting to internal growth, um guide here on same store, I mean, five percent is still a good number, but it is slowing a little bit, maybe just talk about how you're thinking about occupancy through the year, and the credit loss assumption. Yeah, when we last year, Matt's correct me if I'm wrong, I think we incurred about 13 basis points of credit loss. We normally guide to 50 basis points of credit loss, which is what we're guiding to in 2024. We look at it on occupancy, average occupancy. The average occupancy in our Stamestroke pool last year was down 30 bps; we're guiding to average occupancy in 2024 being down 50 bps. I mean, when you think about the supply coming online, it's, you know, we had a fair bit of supply come online in 2023. That's what's getting absorbed.

Guide here on same store I mean, 5% still a good number but it is slowing a little bit maybe just talk about.

How you're thinking about occupancy through the year credit loss assumptions.

Yeah.

We last year, Matt Correct me, if I'm wrong, I think we incurred about 13 basis points of credit loss.

We normally guide to 50 basis points of credit loss, which is what we're guiding to in 2020 for from and as we look at it on occupancy average occupancy average occupancy in our same store pool last year was down 30 bps and we're guiding to average occupancy in 2024 down 50 bps I mean, when you think about.

The supply coming online. It's you know we had a fair bit of supply come online in 2023.

It's getting absorbed we have another two 2% of supply coming online in 'twenty 'twenty four but development starts are down 65% a year over year. So feel like overall, you know national vacancy rates are going to tick up as we move through the year and you know when we get near the end.

William R. Crooker: We have another 2.2% of supply coming online in 2024, but development starts at 65% year over year. So I feel like, overall, national vacancy rates are going to pick up as we move through the year. And, you know, when we get near the end of the year, those should start to come back down. But overall, for this year, we're guiding to both 50 basis points of credit loss and 50 basis points of average occupancy loss in our same stroke pool.

The year those should start to come back down but overall for.

For this year, we're guiding to a boat.

Both 50 basis points of credit loss, and 50 basis points of average occupancy loss in our same store pool, and that's offset by <unk>.

William R. Crooker: And that's offset by some really strong, you know, rollover rents. Again, we're guiding 25 to 30%. We signed almost 70% of our leases for 2024 at, you know, close to 30% today. So we feel pretty good about where our same store is coming in at the initial guide here. I guess as a follow-up to that, I mean, like you said, you are signing close to 30%, and then your guys are like 25 to 30, I guess. What's driving that a little bit on the pricing power side? Are you seeing anything material or not?

Some really strong you know rollover rents again, we're guiding 25% to 30%, we signed almost 70% of our leases for 'twenty 'twenty four at close to 30% today. So we feel pretty good about where our same stores coming in at the initial guide here.

I guess as a follow up to that I mean like you said you you are signing close to 30% and then you guys like 25 to 30 I guess.

What what's driving that a little bit terrible on the pricing power side are you seeing anything material or.

Can you just sort of being here and part of it is and this goes back down to our basic thesis here is when we buy.

William R. Crooker: properties; we make sure those properties fit the submarket really well and fit the teeth of the demand in those submarkets. So by having those type of assets, we're able to, you know, push rents because demand's really high. There is, you know, anticipated leasing in the back half of 24, which, you know, we're forecasting spreads for, but there's a lot of time between now and when those leases are going to be forecasted, which is why our guide is 25 to 30%. But we have signed, as I said, almost 70% of our leases for 2024 at 30%. And, you know, one point that I don't think we've brought up yet is that compared to the same time last year, we're about 60, 61%. So we're ahead of where we were last year in terms of leases. Got it. Thanks so much.

Properties will make sure those properties fit the sub market really well and.

Fifth the the teeth of the demand in the Submarket. So by having those type of assets, we're able to push rents because demand is really high there is.

Anticipated leasing in the in the back half of 'twenty four.

Which we're forecasting spreads for but there's a lot a lot of time between now when those leases are going to be forecast. This which is why our guide is 25% to 30%, but we have signed you know as I said almost 70% of our leases for 2024.

At 30% and one point that I don't think we brought up yet is same.

Same time last year were about 60, 61%. So we're ahead of where we were last year in terms of leasing.

Got it thanks, so much.

William R. Crooker: Thank you. Our next question comes from the line of Blaine Heck with Wells Fargo. Please proceed with your question. Great, thanks. Good morning.

Thank you.

Okay.

Our next question comes from the line of Blaine Heck with Wells Fargo. Please proceed with your question.

Great. Thanks, good morning.

William R. Crooker: Can you just talk about how you're thinking about your overall cost of capital today and the spread between your cost of debt or, more importantly, probably cost of equity and your required returns on investment? Has that gap, you know, expanded, and that's what's driving a little bit more of the acquisition expectation? Hey, Blaine, this is Matts.

Can you just talk about how you're thinking about your overall cost of capital today and the spread between your cost of debt or more importantly, probably cost of equity and your required returns on investment as that gap, you know expanded and that's what's driving a little bit more of the acquisition.

My expectation.

Yeah, Hey, Blaine this is Max good morning.

Matts Pinard: Good morning. I think we can start with the cost of debt. You know, we look at our investment grade balance sheet, we have a mix on there. We have a mix of term loans and private placement notes, primarily. So the original tenors of those instruments are five years, seven years, and ten years.

We can start with the cost of debt you know you look at our investment grade balance sheet, we have a mix on there we have a mix of term loans and private placement notes primarily.

The original tenants of those instruments are five years seven years 10 years when you take a look at the tenure it bounced around recently.

Matts Pinard: You know, you take a look at the ten-year, it's bounced around recently, particularly yesterday. You know, if we were to originate that today in the 6% area, granted, that's a little higher than what we have originated over the previous three years. A lot of that is related to the 10-year. If we think about capital allocation for this year, you know, look, the funding plan for 24, it really begins with the retained cash flow after dividends paid. As I mentioned in my prepared remarks, we did retain $90 million last year.

No, particularly yesterday you know.

If we were to originate that today in the 6% area granted that's a little higher than what we have originated over the past three years a lot of that is related to the tenure.

So if we think about capital allocation for this year you know the funding plan for 'twenty four it really begins with the retained cash flow after dividends paid.

I mentioned in my prepared remarks, we did retain $90 million last year, we expect to retain roughly the same this year and we do have asset dispositions in our guidance, we're going to have those proceeds to deploy as well and then where I do think it's important that we do have $63 million of unfunded equity that's available to us on the Ford ATM, that's at a gross share price north of $38. So.

Matts Pinard: We expect to retain roughly the same amount this year, although we do have asset dispositions in our guidance. You know, we're going to have those proceeds to deploy as well. And then where I do think it's important is that we do have $63 million of unfunded equity that's available to us on the forward ATM. That's at a gross share price north of $38. So, you take that, and then you take a look at the balance sheet. It's underleveraged compared to our range of five to five and a half. So, you know, we have a lot of what we need right now. And, you know, with the movement in 10 years, yes, it does have an impact on our costs. Okay, thanks, Matt. That's helpful.

You take that and then you take a look at the balance sheet is under levered compared to our <unk>.

For a range of five to five and a half. So you know we have a lot of what we need right now and you know with the movement in 10 years, yes. It does have the impact of our cost of debt.

Okay. Thanks, Matt that's helpful and.

William R. Crooker: And then just on the mid-single-digit rent growth you guys are projecting this year, that seems to be a bit above some of your peers and some brokers that are guiding flat or low-single-digit growth. I guess what's giving you confidence in that higher number, or what do you think is unique to your portfolio or markets that might push rent growth a little better this? And some of the things I said in the prepared remarks, I mean, just where, and in some previous questions, but our buildings fit the submarkets we're in really well. Generally, our buildings are on the smaller side, as compared to, you know, where the vacancy is now. So the vacancy is generally big boxes, call it, you know, 400,000 square feet and above. And so when you look at, you know, where the demand is, it's in the smaller boxes.

And then just on the mid single digit rent growth you guys are projecting this year that seems to be a bit above some of your peers and some brokers that are guiding to flat or low single digit growth I guess, what's giving you confidence in that higher number or what do you think is unique to your portfolio or markets that might push rent growth a little better this year.

And some of the things I said in the prepared remarks, I mean, just where.

And in some some previous questions, but all our buildings fit the submarkets were in really well.

Generally our buildings are on the smaller side as compared to you know where the vacancy is now so the vacancy is generally big box is call. It 400000 square feet and above and so when you look at where the demand is it's.

It's on the smaller boxes, we're seeing still seeing near shoring demand.

William R. Crooker: We're still seeing near-shoring demand, and we're anticipating some on-shoring demand in the coming years. And then the way our buildings fit the sub-market, we feel really confident about their ability to lease and drive good, strong rental growth. Last year, we went out, and we forecasted really well in terms of where we ended up coming out. I think we started the year at high single digits or mid-high, and we ended up at a little north of 8%. And this year, we're starting the year at mid-single digits.

We're anticipating some onshoring demand and in the coming years.

And then the way our buildings fit the sub market, we feel really confident about their ability to lease in and drive good strong rental growth last year, we went out and we forecasted really well in terms of where we came out I think we started the year at high single digits or mid to high and we ended up at a little north of 8% and.

This year, it's we're starting the year at mid single digits. So it is it is a ground up analysis that our team spends a lot of time, reviewing and we have a lot of confidence in it.

William R. Crooker: So it is a ground-up analysis that our team spends a lot of time reviewing, and we have a lot of confidence. Great, thanks. Our next question comes from the line of Camille Bonnel with Bank of America. Please proceed with your question. Hi, good morning, everyone.

Great. Thanks.

Thanks.

Our next question comes from the line of Camille Bonnell with Bank of America. Please proceed with your question.

Hi, Good morning, everyone can you expand more on the 31% outstanding leasing you have to laugh too exact in 'twenty 'twenty four how much of that is near term way to add versus back half and are there any big concentrations in any one market.

William R. Crooker: Can you expand more on the 31% outstanding leasing you have left to address in 2024? How much of that is near-term weighted versus the back half? And are there any big concentrations in any one market?

William R. Crooker: No big concentrations in any one market. No, I think I mentioned this on the last call too, nothing over 400,000 square feet, which is just kind of our line of demarcation and big box, big box, small box, more of its back end weighted, which is why our range for leasing spreads is 25 to 30%. And we're coming in, you know, close to that 30% for the amount we've leased to date. So that, because it's more of its back end weighted, that's why our range is where it is.

No big concentrations in any one market no I think I mentioned this on the last call to nothing now.

Nothing over 400000 square feet, which is this kind of a line of demarcation in big box Big box small box.

More of it's back end weighted which which is why our range for leasing spreads is 25% to 30% and we're coming in close to 30% for.

The amount we've leased to date.

So.

Is that because of its more of its back end weighted that's why our range is where it is.

William R. Crooker: But we're really excited about where we are today. Like I said earlier, it was 61% at this time last year, and now we're close to 70%. So there's really good activity on that.

But we're really excited about where we are today like I said earlier.

Earlier, it was 61% at this time last year and now we're close to 70% some really good activity on that.

Great and for my second question. The core operations ended in a very solid place, but as we look to the bottom line and adjust for noncash related items to get you to your cash available for distribution. This came in about 5% lower than the sell side with expected.

Matts Pinard: And for my second question, the core operations ended in a very solid place, but as we look to the bottom line and adjust for non-cash-related items to get to your cash available for distribution, this came in about 5% lower than the sell side was expecting. So I was wondering, how should we think about CAD growth this year? And would this be similar to the four percent FFO in your guidance? Yeah. So one thing, I'm not going to comment on where the sell side comes in. I think you guys have your own models there.

So I was wondering how should we think about CAD growth. This year and would this be similar to the 4% S. S. L. In your guidance.

Yeah. So one thing I'm not going to comment on where the sell side comes and I think you guys have your own models there.

Matts Pinard: But for this year, you know, our same store cash and why came in at, you know, 5.6%, which was a record for us. And our CAD available for distribution, just on a gross number, was up 5.4%. So pretty consistent with our cash same store in a way. Every year, you've got some nuances in that number in terms of CapEx, but CapEx has averaged anywhere from 25 to 30 cents per square foot.

But for this year are our same store cash NOI came in at five 6%, which was a record for us.

And our CAD available for distribution.

On a gross number was up five 4%, so pretty consistent with our with our.

Cash same store NOI.

Every year, you've got some some nuances in that number with in terms of capex, but in Capex has averaged anywhere from 25 to 30 per square foot that seems pretty consistent.

William R. Crooker: That seems pretty consistent going forward. I think when you think about it as a percentage of NOI, it's around 7% of NOI. So that number should be pretty consistent. And I think we can still drive some pretty strong CAD growth and CAD per share growth going forward. Thank you. Our next question comes from the line of Michael Carroll with RBC. Please proceed with your question. Yeah, thanks. I know, Bill, that STAG is pursuing a lot of active development projects. I mean, I guess a few right now.

Going forward I think when you think about it as a percentage of of NOI, it's around 7% of NOI.

So that number should be pretty consistent so I think we can still drive some pretty strong cash.

<unk> growth in <unk> per share growth going forward.

Thank you.

Thank you.

Our next question comes from the line of Michael Carroll with RBC. Please proceed with your question.

Yeah. Thanks, Bill that stag is pursuing a lot of active development projects I mean, I guess, a few right now I guess, what's the opportunity set here I believe earlier in the prepared remarks, you said there was like 25% of the pipelines developments I think you threw around a lot of numbers I'm not sure. If that was the exact number tied to the development projects.

William R. Crooker: I guess what's the opportunity set here? I believe earlier in the prepared remarks, you said there was, what, 25% of the pipeline's development? I think you threw around a lot of numbers. I'm not sure if that was the exact number tied to development projects. But what is the activity?

William R. Crooker: I mean, how many do you think you can really pursue in 2024? How many do you want to pursue in 2024? It's a good question, Mike.

What is the activity you mean, how many do you think you can really pursue in 2024, how many do you want to pursue in 2024.

It's a good question, Mike I did throw around a lot of numbers. So apologize if if some information got kind of lost there. Our pipeline is $3 1 billion of that you know.

William R. Crooker: I did throw around a lot of numbers, so I apologize if some information got kind of lost there. Our pipeline is $3.1 billion. Of that, 15 to 25 percent, it's a pretty wide range, but it is some sort of mix of developments, value-add, and redevelopments. Part of the wider range is the $3.1 billion only includes land costs, so if it's a $50 million project, it's $10 million of that's in our pipeline today. We haven't guided to specific development projects, more starts, right? So we've got a product, we've got two that are on, three that are ongoing now, wrapping up that Fort 290, we've got the Tampa development, and then we've got the one we just acquired here that's almost complete and should be ready by the end of Q2.

15% to 25%, it's a pretty wide range, but is some sort of mix of developments value add redevelopment part of the wider range is the 3.1 only includes land costs. So if it's a 50 million dollar projects, it's $10 million of.

Yeah, that's in our pipeline today, we haven't guided to specific development projects more starts right. So we've got probably we've got two that are on three that are ongoing now wrapping up that port to 90, we've got the Tampa development.

And then we've got the one we just acquired here, that's almost complete and should be ready by the end of Q2. So those are underway and for the year right. Now. There's we don't have anything that we're negotiating price agreement for a we do anticipate there'll be some opportunities there and.

William R. Crooker: So those are underway, and for the year right now, we don't have anything that we're negotiating a price agreement for. We do anticipate there'll be some opportunities there, and we're evaluating some opportunities in our own portfolio as well, where we have some excess land and looking to potentially subdivide some of those parcels. So as we have more clarity on that, we will guide you on that. We're just not, at this point, as we ramp up this initiative, comfortable giving specific guidance for 2024, but as we have, you know, more insight into these projects, we will certainly, you know, let you and everyone know about those projects. Okay, great.

We're evaluating some opportunities in our own portfolio as well, though we have some some excess land in and looking to potentially subdivide some of those parcels. So.

As we have more clarity into that we will guide to it.

We're just not at this point as we ramp up this initiative, we're not comfortable giving specific guidance for 2024, but as we have.

More insight into these projects, we will we will certainly let you and everyone no.

Of those projects.

William R. Crooker: And then, can you remind us of the limit of developments that you want to pursue within the portfolio? I believe you provided us with that information before, and does that limit change based on leasing? So some of these developments that are in the process get leased? Does that give you more capacity to pursue more more starts? Yeah, I mean, we do have some soft kind of limits internally.

Okay, Great and then can you remind us on.

Whats your limit of developments that you wanted to pursue within the portfolio. I believe you provided to us before and does that limit change based on leasing. So some of these developments are in process get at least does that give you more capacity to pursue more more starts.

Yeah, I mean, we do have some soft kind of limits internally I mean, it's certainly less than.

William R. Crooker: I mean, it's certainly less than, you know, some of our peers just as we're ramping up that opportunity. The way we view it is, you know, outstanding developments, obviously, build the suit is less risky, depending on the rights that the tenant has to bow out of that in case something, you know, we're delayed. And then, as we lease up a project, and it gets stabilized, it drops off of that cap. So, we're not close to the cap, Mike, right now. Guidance for starts and caps, you know, certainly will be something we'll be providing in the future more specifically. But right now, we're not close to any sort of soft internal caps we have, but the riskier the project, obviously, it impacts the cap a little bit more than, you know, a build-to-suit with very limited rights for the tenant to bow out of. Okay, great. Thank you. Our next question comes from the line of Nick Stillman with Baird.

You know some of our peers just as we're as are wrapping up that opportunity.

The way we view it is outstanding.

Elements, obviously build to suit is less risky depending on the rights that the tenant has too.

The bow out of that in case, something you know were delayed.

And then as we lease up a project and stabilize it drops off of that cap. So I'm we're.

We're not close to the cap, Mike right now guidance for starts and caps.

Certainly we will start will be something we'll be riding in the future more specifically, but right now we're not close to any sort of soft internal caps, we have but the riskier. The project obviously it impacts the cap a little bit more than you know what.

Build to suit with with.

Very limited rights for the tenant to bow out of that.

Okay, great. Thank you.

Yes.

Our next question comes from the line of Nick Filming with Baird. Please proceed with your question.

William R. Crooker: Please proceed with your question. Good morning, guys. Maybe just touch on the dispositions and kind of the composition or breakdown of that. Is the bulk of that just going to be that non-CBRE tier one market that you guys are trying to basically concentrate on? And just kind of basically putting the portfolio here? Or are we just, are we kind of just viewing this more as like sources for the acquisition pipeline? Hey, Nick.

Hey, good morning, guys, maybe just touching a little bit on the dispositions in kind of the composition or breakdown of that is the bulk of that that's going to be that non CBRE tier one market you guys are trying to basically concentrated.

And just kind of basically putting the portfolio here or are we just are you kind of just viewing this more as like sources for the acquisition pipeline.

Hey, Nick Good morning. This is Matt yeah, so our disposition guidance of $75 million to $125 million. As you accurately noted is a mix between opportunistic capital recycling and non core dispositions do you think about the mix in 2023. It was roughly 50 50 look there's always a bottom 5% and to the extent, we just don't think it's a good part of our poor.

Matts Pinard: Good morning. This is Matt. Yeah, so our disposition guidance for $75 to $125 million, as you accurately noted, is a mix between opportunistic capital recycling and non-core dispositions. If you think about the mix in 2023, it will be roughly 50-50. Look, there's always the bottom 5%, and to the extent we just don't think it's a good part of our portfolio, we'll dispose of it. And on the flip side, on the opportunistic side, those are generally reverse inquiries from users. They view the real estate a little differently. They kind of have different expectations, corporate mandates, et cetera.

Polio will dispose and on the flip side on the opportunistic those are generally reverse inquiries from users.

They view the real estate, a little differently to kind of have different expectations corporate mandates et cetera. So.

Matts Pinard: Those reverse inquiries happen every single year; they're a little unpredictable. So there is what is called the unidentified opportunistic within that number, but I think a 50-50 split is relatively reasonable given our history. And Nick, I think you correctly point out that the non-core dispositions are primarily those non-CBRE, you know, tier one markets that were legacy properties. That's helpful. And you guys kind of touched a little bit on weakness and big box demand, but maybe just on like the pricing and what you're seeing in underwriting for acquisitions on maybe a stabilized basis, maybe smaller properties versus larger, is there a big differentiation between the pricing on those products, or are they still pretty similar? Yeah, I mean, there's so much that goes into the pricing, right?

Those reverse inquiries happened every single year, a they're a little unpredictable.

So there is called the unidentified opportunistic within that number but I think a 50 50 split is relatively reasonable given our history.

And Nicky I think correctly pointed out.

Non core dispositions are primarily those non CBRE.

Tier one markets that.

Where legacy properties.

That's helpful and you guys kind of touched a little bit on weakness in big box demand, but maybe just on like the pricing on what youre seeing in our underwriting for acquisitions.

Maybe stabilized basis, maybe smaller properties versus larger is there a big differentiation between the pricing on those products or are they still pretty simple I mean, there's so much that goes into the pricing right. You could have a small box. That's got a 10 year lease and one 5% escalators and that's gonna trade much differently than a small box that has a five year lease in <unk>.

William R. Crooker: You could have a small box that's got a 10-year lease and 1.5% escalators, and that's going to trade much differently than a small box that has a 5-year lease and 4% escalators. And the market, obviously, is going to be important, too. If you've got a big box that's got a 5-year lease and a market that has historically been a strong big box leasing market, I think that trades pretty close to some of the small boxes with 5-year leases. It's really, if the property, the building fits the submarket well, and it's got enough term, I think it's going to trade pretty reasonably. With all that being said, deals are coming out, they're still coming out. We're hearing some deals come under a price agreement. It takes some time for these deals to close, so all of that will be vetted in the next couple of months. I think it'll give us and others more certainty as to where these deals are closing. That's it for me; thanks, guys.

4% escalators Mark to market, obviously is going to be impactful to if you've got a big box. That's got a five year lease in a market that has historically been a strong big box leasing market I think that trades pretty close to some of the small boxes with five with five year leases, it's really if the if the proper.

The building fits a submarket well and it's got enough term I think it's got a trade you know pretty reasonably.

With all that being said, we're just you know deals are coming out they are still coming out.

We're hearing some deals come onto price agreement. It takes some time for these deals to close so you'll all of that will be will be vetted in the next couple of months and I think it'll give.

US and others, you know more certainty as to where these deals are closing.

That's it for me thanks, guys.

William R. Crooker: Our next question comes from the line of Eric Borden with BMO Capital Markets. Please proceed with your question. Hey, good morning out there.

Thanks.

Our next question comes from the line of Eric burden with BMO capital markets. Please proceed with your question.

Hey, good morning out there just sticking with the disposition theme how much of the portfolio a lot of the portfolio as the noncore legacy non CBR tier one markets that could be disposed of to use for future.

Matts Pinard: Just sticking with the disposition theme. How much of the portfolio left in the portfolio is the non-core legacy, non-CBR tier one markets that could be disposed of to use for future funding sources? Yeah. So I do want to point out that we do have a portion of our portfolio that is non-CBRE tier one that we really like and is not part of our non-core portfolio. We generally look at circa 5% of our portfolio as something that we are constantly evaluating for disposition to improve the quality of the portfolio. Okay, that's helpful. And then maybe one for Matts on the guide.

Funding sources.

Yeah.

So I do want to point out that we do have a portion of our portfolio that is non CBRE tier one that we really like and is not part of our non core portfolio.

But.

We generally look at circa 5% of our portfolio is something that we are constantly evaluating for <unk>.

Disposition to improve the quality of the portfolio.

Okay. That's helpful and then maybe one for Matt on the guidance.

Matts Pinard: Could you just provide a bridge between the same store midpoint of 5% and the implied core FFO growth of 3.9? What are the puts and takes in there, and any potential drags, or is there just some conservative built into the guide? Absolutely. Uh, so there are two drivers.

Could you just provide a bridge between the same store midpoint of 5% to the implied core <unk> growth of three nine what are the puts and takes in there and any potential drags or is there just some conservatism built into the guide.

Yes, absolutely.

So there are two drivers number one is G&A and the others interest expense at the mid point of our G&A guidance G&A as a.

Matts Pinard: Number one is G&A, and the other is interest expense. You know, at the midpoint of our G&A guidance, G&A is projected to grow 5% this year as compared to last year. And then we're gonna have higher average debt balances. And as you know, that's a little more expensive now. But one point I do want to point out on the scalability of G&A, if you take a look at the past few years, the average growth is roughly one. So, DNA in guidance will grow 5%. That's part of what's bridging that delta. Yeah, maybe one other point on that, too, is the shame store that we guide to is really a cash store number. So when you think about the impact, the core, that's a gap number.

Projected to grow 5% this year as compared to last year, and then we're going to have a higher average debt balances and as you know that's a little more expensive now.

When I do want to point out on the scalability and G&A. If you took a look at the past three years. The average growth is roughly 1% so.

DNA in guidance will grow 5%, that's part of what's bridging that delta.

Yeah, and maybe one other point on that too is the same so there we guide to is really a cash same store number so when.

When you think about the impact of core for <unk>, that's a GAAP number and typically that numbers is less.

Matts Pinard: And typically, that number is less. That's helpful. Thank you, Jessica, for taking the time. Thanks. As a reminder, if you would like to ask a question, press star 1 on your telephone keypad. Our next question comes from the line of Mike Mueller with J.P. Morgan. Please proceed with your question. Yeah, hi, pretty much everything's been answered. Just, just maybe, one quick one, though.

That's helpful. Thank you that's it for me.

Thanks.

As a reminder, if you would like to ask a question press star one on your telephone keypad.

Our next question comes from the line of Mike Mueller with JP Morgan. Please proceed with your question.

Yeah, Hi, pretty much everything's been answered just can we just maybe one quick one now when you.

William R. Crooker: When you're underwriting developments and thinking about those returns, I mean, are they different? Or how different can they be to just buying a completed development property where you're taking the lease up risk, but you're not kind of expending the capital to do it? So I guess how do those relative returns look? Yeah, I think I mean, it's not linear, Mike, but if you go all the way to buying raw land and going through the entitlement and permitting process up through buying a stabilized acquisition with a five-year lease, you're going to see returns.

Your underwriting developments and in thinking about those returns I mean are they different or how different can they be to just buying he completed development property, where you were taking lease up risk, but you're not kind of expanding the capital to do it. So I guess, how does that those relative returns look.

Yeah, I think I mean, it's not linear Mike but.

If you go all the way to buying raw land and going through the entitlement and permitting process up to buying a stabilized acquisition with a five year lease.

Good to see the returns.

William R. Crooker: The projected returns increase as you take additional risk. We've, over the years, moved from being almost solely a stabilized acquirer through now and taking on development risk, but we have not taken on permitting and entitlement risk, so when I think about a stabilized deal and then taking just a lease-up risk, it's 25 to 50 basis points. You add another 25 to 50 basis points to take on that development risk, and if you were to take on the permitting, add another 25 to 75 basis points of return.

The projected returns increase as you take additional risk.

We've over the years moved from being almost solely a stabilized acquire.

Through now and taking on development risk, but we have not taken are taking on permitting and entitlement risk so when.

When I think about a stabilized deal and then taking just the lease up risk, it's 25 to 50 basis points.

At another.

25 to 50 basis points take on that development risk and if you were to take on the permitting at another 25 to 75 basis points of of returns so.

William R. Crooker: So, but with all that, it becomes an additional risk and additional time. Got it. OK, that's helpful. Thank you. Thank you. Mr. Crooker, we have no further questions at this time.

But with all that it comes additional risk and additional time.

Got it okay. That's helpful. Thank you.

Thank you.

Yes.

Mr quicker, we have no further questions at this time I would like to turn the floor back over to you for closing comments.

William R. Crooker: I would like to turn the floor back over to you for closing comments. I just want to thank everybody for joining the call. Thank you all to the analysts for for the questions. And for those that celebrate, Happy Valentine's Day. I look forward to seeing you all soon. Take care. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day!

Just want to thank everybody for joining the call. Thank you all to the analysts for the questions.

And for those that celebrate happy Valentine's day, and look forward to seeing you all soon take care.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.