Q2 2024 STAG Industrial Inc Earnings Call
Operator: Greetings. Welcome to the STAG Industrial Inc. second quarter 2024 earnings conference. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I'll now turn the conference over to your host, Steve Xiarhos. You may begin.
Greetings and welcome to the Stag Industrial Inc. Second quarter 2024 earnings Conference call. At this time, all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
Anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Speaker Change: Please note. This conference is being recorded I'll now turn the conference over to your host. These areas you may begin.
Steve Xiarhos: Thank you. Welcome to STAG Industrial's conference call covering the second quarter 2024 results. In addition to the press release distributed yesterday, we have posted an unaudited 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 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, same-story NOI, GNA, acquisition and disposition volumes, retention rates, and other guidance. Leasing Prospects, Rent Collections, Industry and Economic Trends, and other matters.
Speaker Change: Thank you welcome to Stag Industrials conference call covering the second quarter of 'twenty 'twenty four results.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: Forward looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today.
Speaker Change: Examples of forward looking statements include forecasts of course, it's our same store NOI DNA acquisition and disposition volumes retention rates and other guidance.
Speaker Change: Leasing prospects rent collections industry, and economic trends and other matters.
Steve Xiarhos: 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, and STAG Industrial assumes no obligation to update any forward-looking statement.
Speaker Change: 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 definitions and reconciliations of non-GAAP measures contained in the supplemental information package available on the company's website.
Speaker Change: As a reminder, forward looking statements represent managements estimates as of today.
Speaker Change: Stag industrial assumes no obligation to update any forward looking statements.
Steve Xiarhos: 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, DVP of Real Estate Operations, who are available to answer questions specific to the area's focus. I'll now turn the call over to Bill.
Speaker Change: In today's call, you'll hear from Bill Crooker, our Chief Executive Officer, and Matts Pinard, Chief Financial Officer.
William R. Crooker: Also here with US today is my choice, our Chief investment Officer.
Speaker Change: And Steve Campbell VP of real estate operations, we're available to answer questions specific to their areas of focus now turn the call over to bill.
William R. Crooker: Thank you, Steve. Good morning, everybody.
William R. Crooker: Thank you Steve good morning, everybody.
William R. Crooker: Welcome to the second quarter earnings call for STAG Industrial. We're pleased to have you join us and look forward to telling you about the second quarter 2024 results. After another quarter of strong operating results, our view on the business remains largely consistent with our last earnings call. While demand remains subdued in many markets, it is improving, with absorption accelerating in Q2. Availability and vacancy had one of the smallest quarter-over-quarter increases since the vacancy expansion began.
Speaker Change: And welcome to the second quarter earnings call for Stag industrial.
Speaker Change: We are pleased to have you join us and look forward to telling you about the second quarter climbed 24 results.
Speaker Change: After another quarter of strong operating results our view on the business remains largely consistent with our last earnings call.
Speaker Change: While demand remained subdued in many markets is improving with absorption accelerating in Q2.
Speaker Change: Availability in vacancy had one of the smallest quarter over quarter increases since the vacancy expansion again.
William R. Crooker: Additionally, the construction pipeline continues to shrink. We expect market rent growth this year to be between 4% and 5% for our portfolio. Near-shoring and on-shoring trends continue to make headlines, and we remain confident these trends will drive future industrial demand.
Speaker Change: Additionally, the construction pipeline continues to shrink.
Speaker Change: We expect market rent growth this year to be between 4% and 5% for our portfolio.
Speaker Change: Near shoring and onshoring trends continued to make headlines and we remain confident these trends will drive future industrial demand.
William R. Crooker: In addition to a handful of success stories related to Neoshoring within our portfolio, we are happy to point to our first concrete case of Onshoring Benefiting Our Portfolio. A foreign-based wood flooring company announced plans for a $150 million expansion to its campus near the Atlanta market after years of steady growth. Following this announcement, we signed a lease with this company for a 300,000 square foot warehouse, resulting in a 72.5% cash release. This transaction exceeded budgeted rent, downtime, and leasing costs and highlights the favorable backdrop for manufacturing in this market. Steel volume in Q2 remained consistent with Q1, but is still well below the levels seen over the past few years.
Speaker Change: In addition to a handful of success stories related to near shoring within our portfolio. We are happy to point to our first concrete case.
Speaker Change: Onshoring benefiting our portfolio before an ace wood flooring company announced plans for $150 million expansion to its campus near the Atlanta market after years of steady growth.
Speaker Change: Following this announcement, we signed a lease with this company for a 300000 square foot warehouse.
Speaker Change: Thing and a 72 and a half per cent cash releasing spread it's.
Speaker Change: This transaction exceeded budgeted rent downtime and leasing costs and highlights the favorable backdrop for manufacturing in this market.
Speaker Change: Your volume in Q2 remained consistent with Q1.
Speaker Change: Well below the levels seen over the past few years.
William R. Crooker: The number of buyers competing for acquisition opportunities increased during the quarter. If macro conditions continue to improve and interest rates fall, the expectation is that deal flow will accelerate into the fourth quarter. We continue to maintain our pricing discipline on acquisitions. We are focused on quality opportunities that are creative and provide prospects for future growth. Our acquisition volume for the second quarter totaled $225.6 million. This consisted of 10 buildings with cash and straight line cap rates of 6.7% and 7%, respectively.
Speaker Change: The number of buyers competing for acquisition opportunities increased during the quarter.
Speaker Change: If macro conditions continue to improve and interest rates fall.
Speaker Change: The expectation is that deal flow will accelerate into the fourth quarter.
Speaker Change: We continue to maintain our pricing discipline on acquisitions.
Speaker Change: Focus on quality opportunities that are accretive and provide prospects for future growth.
Speaker Change: Our acquisition volume for the second quarter totaled $225 $6 million.
Speaker Change: This consisted of 10 buildings with cash and straight line cap rates of six 7% and 7% respectively.
William R. Crooker: Included in this acquisition volume was a five-building portfolio totaling 947,000 square feet. We acquired this portfolio for $87.6 million at a reported cap rate of 7.1%. This portfolio offers convenient access to the greater Chicago area and labor force.
Speaker Change: Included in this acquisition volume was a five building portfolio totaling 947000 square feet.
Speaker Change: We acquired this portfolio for $87.6 million and our reported cap rate of seven 1%.
Speaker Change: This portfolio offers convenient access to the greater Chicago area in Labor Force.
William R. Crooker: It is an established business park with an immediate proximity to Interstate I-90. The portfolio is 98.8% leased, 13 tenants, with a weighted average lease term of 4.1 years. In terms of dispositions this quarter, we sold seven buildings for aggregate proceeds of $78.2 million. Five of the buildings were non-core assets. The other two buildings were in Allentown, Pennsylvania, and Southern New Jersey, resulting in proceeds of $37.7
Speaker Change: There isn't an established business park with an immediate proximity to Interstate 90.
Speaker Change: The portfolio was 98, 8% leased 13 tenants with a weighted average lease term of four one years.
Speaker Change: In terms of dispositions this quarter, we sold seven buildings aggregate proceeds of $78 $2 million.
Speaker Change: Five of the buildings were noncore assets. The other two buildings were in Allentown, Pennsylvania, and Southern New Jersey.
Speaker Change: The other thing and proceeds of $37.7 million.
William R. Crooker: On the development front, we have over 1.7 million square feet of activity across five projects in the U.S. In the second quarter, we commenced a new development that was identified within our existing portfolio by our operations. This 297,000 square foot project is located just east of Nashville in Lebanon, Tennessee. The project has an estimated delivery date of Q2 2025, with stabilization projected to occur in Q2 2026. The building will demise to suites of 150,000 square feet or less in a market with healthy fundamentals. In June, we closed on a permanent vacant land parcel of $8.2 million located in Portland, Oregon.
Speaker Change: Oh development front, we have over one 7 million square feet of activity across five projects in the U S.
Speaker Change: In the second quarter, we commenced a new development that was identified within our existing portfolio by our operations team.
Speaker Change: This 297000 square foot project is located just east of Nashville in Lebanon, Tennessee.
Speaker Change: The project has an estimated delivery date of Q2 2025 with stabilization projected to occur in Q2 point 26.
Speaker Change: The building will demise to suites of 150000 square feet or less and a market with healthy fundamentals.
Speaker Change: In June we closed on a permanent vacant land parcel $8.2 million located in Portland, Oregon.
William R. Crooker: We've started development for a 200,000 square foot Build-A-Suit project on this site for a 3PL user to service a contract with Intel. The project has an estimated delivery date of Q2 2025. Our two-building, 715,000-square-foot development project in Greer, South Carolina, was completed in Q1, 2024, and stabilization is projected to occur in Q3, 2025. Our 233,000 square foot development in Spartanburg, South Carolina, was completed in Q2 2024. Stabilization for this project is projected to occur in Q3 2025.
Speaker Change: You started development for a 200000 square foot build to suit project on this site for a three P. L user the servicing contract with Intel.
Speaker Change: The project has an estimated delivery date of Q2 2025.
Speaker Change: Our two building 715000 square foot development project in Greer, South Carolina was completed in Q1 'twenty 'twenty four.
Speaker Change: Stabilization is projected to occur in Q3 2025.
Speaker Change: Our 233000 square foot development in Spartanburg, South Carolina was completed in Q2 'twenty 'twenty four.
Speaker Change: <unk> for this project is projected to occur in Q3 point 25.
William R. Crooker: Lastly, our two-building 300,000 square foot project in Tampa, Florida, has a Q4 2024 estimated delivery date with stabilization expected in the second half of 2025. With that, I will turn it over to Matts, who will cover our remaining results and updates to guidance. Thank you.
Speaker Change: Lastly, our two building 300000 square foot project in Tampa, Florida has a Q4 'twenty 'twenty four estimated delivery date.
Speaker Change: With stabilization expected in the second half of 2025.
Speaker Change: With that I will turn it over to Matt who will cover our remaining results and updates to guidance.
Matts S. Pinard: Thank you, Bill, and good morning, everyone. Core FFO per share was $0.61 for the quarter, an increase of 8.9% as compared to last year. Included in Core FFO are two one-time items that contributed one penny to Core FFO. Cash available for distribution for the second quarter totaled $95.1 million. We have retained approximately $55.8 million of cash flow after dividends paid through June 30th of this year. These dollars are available for incremental investment opportunities, debt repayment, and other general corporate purposes. Leverage remains low, with net at the annualized run rate adjusted EBITDA equal to five times.
Matt: Thank you Bill and good morning, everyone.
Matt: <unk> per share was 61 cents for the quarter.
Speaker Change: The eight 9% as compared to last year included in court.
Matt: Our two one time items that contributed one penny to class I thought.
Matt: Cash available for distribution for the second quarter totaled $95 $1 million, we ever to paint approximately $55 $8 million of cash flow after dividends paid through June 30 of this year.
Matt: Dollars are available for incremental investment opportunities that repayment not the general corporate purposes.
Speaker Change: It remains low with net debt to annualized run rate adjusted EBITDA of five times liquidity stood at $975 million at quarter end inclusive of available foreign ATM proceeds.
Matts S. Pinard: Equities stood at $975 million at quarter end, inclusive of available forward ATM proceeds. During the quarter, we commenced 26 leases totaling 3.5 million square feet, which generated passion straight line leasing spreads at 36.8% and 51.8%, respectively. Retention was 79.9% for the quarter. We achieved same store cash and wide growth of 6.1% for the quarter and 6.5% year to date. One of the primary drivers of our same store growth in the first half of the year is due to two large leases signed in the back half of 2020.
Speaker Change: During the quarter, we commenced 26 leases totaling $3 5 million square feet, which generated cash and straight line leasing spreads.
Speaker Change: 36, 8% and 51, 8% respectively.
Speaker Change: Retention was 79, 9% for the quarter.
Speaker Change: We achieved same store cash NOI growth of six 1% for the quarter and six 5% year to date one.
Speaker Change: One of the primary drivers of our same store growth in the first half of the year at least the two large leases signed in the back half of 2023.
Matts S. Pinard: Those two leases were located in Burlington, New Jersey, and featured large rental interest. These leases contribute approximately 90 basis points to our year-to-date same-store growth. However, this favorable comparison is not a tailwind in the second half of the year.
Speaker Change: Those two leases were located in Burlington, New Jersey and featured large rental increases.
Speaker Change: These leases contribute approximately 90 basis points to our year to date same store growth is favorable comparisons not a tailwind in the second half of the year.
Matts S. Pinard: Moving to capital markets activity, On May 28th, the company funded $450 million of fixed-rate senior unsecured notes from a private placement offering completed in March of this year. The notes consist of 5, 7, and 10 year tenors with a weighted average fixed interest rate of 6.17%.
Speaker Change: Moving to capital markets activity on May 28, the company funded $450 million of fixed rate senior unsecured notes from a private placement offering completed in March of this year.
Speaker Change: The notes consist of five seven and 10 year tenors with a weighted average fixed interest rate of 6.17%.
Matts S. Pinard: The proceeds were used to pay down the outstanding revolver balance. As of today, we have approximately $72 million of forward equity proceeds available to fund at our discretion. Equity will be used to pay down the revolver and match fund our acquisition development pipeline. Moving the guidance, we made the following changes. Our expected average same-score portfolio occupancy loss has been moderated to 25 basis points as compared to our initial guidance of 50 basis points.
Speaker Change: Proceeds were used to pay down the outstanding revolver balance.
Speaker Change: As of today, we have approximately $72 million of forward equity proceeds available to fund at our discretion.
Speaker Change: He will be used to pay down the revolver and match fund our acquisition and development pipeline.
Speaker Change: Moving to guidance, we made the following updates our expected average same store portfolio occupancy loss has been moderated to 25 basis points as compared to our initial guidance of 50 basis points, we have updated our cash leasing spread guidance to a range of 27, 5% to 30% and our retention guidance increased to seven.
Matts S. Pinard: We have updated our cash leasing spread guidance to a range of 27.5% to 30%, and our retention guidance has been increased to 75% based on leases signed to date. As a result of these operational guidance improvements, we've increased our cash scene for guidance to a range of 5% to 5.5% for the year, or a 25 basis point increase at the mid- The expected acquisition volume remains the same, while we increased our expected cash capitalization rate to a range of 6.25% to 6.5%. Finally, we increased our expected disposition volume to a range of $100 to $150 million. I will now turn it back over to Bill.
Speaker Change: 5% based on leases signed to date.
Speaker Change: As a result of these operational guidance improvements we've increased our cash same store guidance to a range of 5% to five 5% for the year or 25 basis point increase at the midpoint.
William R. Crooker: Record acquisition volume remains the same while we increased our expected cash capitalization rate to a range of $6 two 5% to six 5%. Finally, we increased our expected disposition volume to a range of $100 million to $150 million I will now turn it back over to Bill.
William R. Crooker: Thank you mats stag is well positioned for sustained growth through our operating and acquisition platform.
William R. Crooker: STAG is well positioned for sustained growth through our operating and acquisition platform. I want to thank our team for their continued hard work and achievement towards our 2024 goals. We'll now turn it back to the operator for questions.
William R. Crooker: I want to thank our team for their continued hard work and achievement towards our 'twenty 'twenty four goals.
Speaker Change: I will now turn it back to the operator for questions.
Operator: Thank you. At this time, we will be conducting a question and answer session, and 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 zone. You may press star 2 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 star 2. We also ask all participants in the queue to please limit themselves to one question and one follow-up question. Our first question comes from the line of Craig Mailman with Citi. Please proceed with your question.
Speaker Change: Thank you at this time, we will be conducting a question and answer session.
Speaker Change: If you'd like to ask a question. Please press star one on your telephone keypad.
Speaker Change: Confirmation tone will indicate your line is in the questions.
Speaker Change: You May press starts and people like to remove your question from the queue.
Speaker Change: Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star.
William R. Crooker: We also ask all participants in the queue to please limit themselves to one question and one follow up question.
William R. Crooker: Our first question comes from the line of Craig Mailman with Citi.
Speaker Change: Please proceed with your question.
William R. Crooker: Yeah.
Craig Allen Mailman: Hey, good morning. Just on the guidance front, Matt, you know, you guys had a beat here in the quarter. I know there's some puts and takes around maybe one-time items, but it seems like you guys are a little bit ahead of the pace on acquisitions. Could you just kind of run through maybe what? in more detail what some of the puts and takes are that kept guidance the same despite what seemed like better performance.
Craig Allen Mailman: Hey, good morning.
Craig Allen Mailman: Just on the on the guidance front Mats you know you guys had a beat here in the quarter I know, there's some puts and takes.
Speaker Change: Around maybe one time items, but it seems like you guys are a little bit ahead of pace on on acquisitions could you just kind of run through maybe what.
William R. Crooker: In more detail what some of the <unk>.
Speaker Change: And takes are that kept guidance the same despite what seemed like a better performance in the quarter.
Matts S. Pinard: Yeah, absolutely. Good morning, everyone. Good morning, Craig.
Speaker Change: Absolutely good morning, everyone. Good morning, Craig.
Speaker Change: Thank you for the question.
Matts S. Pinard: Thank you for the question. Starting with internal growth, as you have noticed, we have increased our same sort of guidance by 25 base points at the midpoint. But the portfolio is operating at a high level, higher than we initially guided, which drove that same sort of guidance increase. To your question, the primary reasons for not increasing the corporate flow guidance are related to acquisition and disposition activity. In terms of acquisition volume, yes, we're slightly ahead on the volume side, but the in-place cash cap rate on what we've acquired to date is 5.4%, and that's due to the $32 million Bacon acquisition we made in El Paso this quarter.
Speaker Change: Starting with the internal growth as you know as you noticed we have increased our same store guidance by 25 basis points at the midpoint.
Speaker Change: But the port for the portfolio is operating at a high level higher than we initially guided which drove that same store guidance increase.
Speaker Change: To your question the primary reasons for not increase in the corporate so guidance is related to acquisition and disposition activity.
Speaker Change: In terms of acquisition volume, Yes, we're slightly ahead on the volume side, but the in place cash cap rate on what we've acquired you need is five 4% and that's due to the $32 million make an acquisition we made in El Paso This quarter we.
Matts S. Pinard: We do not have that building contributing to earnings in our budgets for this year. We have downtime of roughly nine months associated with that building. Look, we're really comfortable with the increased same-store guidance, and we're very comfortable with the midpoint of the acquisition range at this point. The other item to note is the disposition side. Of the $78 million in dispositions that we've had this year, the cash cap rate on these dispositions is approximately 8%.
Speaker Change: We do not have that building contributing to earnings in our budgets for this year, we have downtime of roughly nine months associated with that building I look we're really comfortable with the increased same store guidance and we're very comfortable at the midpoint and acquisition range at this point.
Speaker Change: The other item to note is the disposition side of the $78 million dispositions that we've had this year the cash cap rate on these dispositions or approximately 8%.
Matts S. Pinard: The majority of these sales are non-core. Now, look, this is modestly dilutive to corporate flow this year. The sales do improve the long-term growth profile of the portfolio, and they also allowed us to exit some markets we don't want to operate in anymore. If you look at the list, you can see Belvedere, Illinois, which we're in the process of exiting, and Chickapee, Massachusetts, which is really western Massachusetts, as an example.
Speaker Change: These sales are noncore are no look this is modestly dilutive to <unk> this year.
Speaker Change: I was doing prove the long term growth profile of the portfolio and also it allowed us allowed us to access the market. So we don't want to operate in anymore.
Speaker Change: The last you can see Belvidere, Illinois, which we're trying to we're in the process of exiting Chicopee, Massachusetts, which is really western Massachusetts as an example.
Matts S. Pinard: That's helpful. And just a couple of follow-ups on that. Can you run through what drove the higher other income in the quarter? And also, you know, did the sales, how was the same store increase all fundamentally driven, or was any of that a benefit of getting some of these non-core assets off the book?
Speaker Change: Okay. That's that's helpful and just a couple of follow ups on that can you run through what drove the higher other income in the quarter and also you know did the sale.
Speaker Change: Was the same store increase all fundamentally driven or was any of that benefit of getting some of these noncore assets off the books.
Matts S. Pinard: Why don't we take that in reverse? In terms of the increase to the same score, look, the primary driver is the fact that we're, I would say, outperforming initial guidance in terms of cash leasing spreads. You know, we've done 95% of our leasing at approximately 29%. And then also on the occupancy. You know, as I said in my prepared remarks, we've modified our view on occupancy losses for the quarter. We've revised that to 25 basis points of occupancy losses as opposed to 50 basis points. And then there is credit loss. We've maintained a 50 basis points.
Speaker Change: Yeah, why don't we take that in reverse in terms of the increase the same store I look the primary driver is the fact that were what I would say we're <unk>.
Speaker Change: Outperforming initial guidance weighed to the cash leasing spreads you know we've done 95% of our leasing at approximately 29% and then also as you know on the occupancy side you know it as I said in my prepared remarks, we modified our.
Speaker Change: Our view on occupancy losses quarter, we've revised that to 25 basis point ox yolasa as opposed to 50 basis points and then credit loss.
Speaker Change: We maintain a 50 basis point, so really the primary driver here is the occupancy and slight outperformance on the cash leasing spreads Craig.
Matts S. Pinard: So, really, the primary driver here is occupancy and slight outperformance on the cash leasing spreads, Craig. And then, to the one-time items here, there really were two items that I'm going to point out. They equated to approximately one penny or $2.1 million of the other income. There were two settlements. The first was a settlement with a third-party consultant, and the second was a settlement with a former tenant-related building where that was not completed. We've been in the process of negotiating these settlements for a while, and they were included.
Speaker Change: And to the one time items here are there really were two two items that I'm going to point out a equated to approximately one penny or $2.1 million of the other income for two settlements. The first was the settlement with a third party consultant and the second was a settlement with a former tenant related to building work that was not completed.
Speaker Change: The process of negotiating these settlements for a while and they were included in guidance.
Matts S. Pinard: And just to add on one thing Craig, on the occupancy in the same store pool, you can see that we increased our retention guidance. We're at the high end of that range, and that was a helpful driver of the average occupancy increase. Okay, so it wasn't just selling some vacant assets; it was actually... No, I think part of the reason why we didn't increase the core flow guidance was because we did sell this income at a higher cap rate, which was really one of the bigger drivers. And as Matt said, buying the one vacant asset in El Paso that will have some drag this year will be a portfolio quality improvement, as well as drive some future growth.
Speaker Change: Okay, and just to add on.
Speaker Change: One thing there Craig on the occupancy in our same store pool are you can see that we increased our retention guidance. We're at the high end of that range. So that was a that was a helpful driver to average occupancy increasing.
Speaker Change: Or not.
Speaker Change: Wasn't it wasn't just selling some vacant assets it was actually.
Speaker Change: And on this part of the part of the reason why we Didnt increase the core <unk> guidance was because.
Matt: We did sell the same time at a higher cap rate Israeli what was one of the bigger drivers that in and as Matt said buying the.
Matt: The one vacant asset in El Paso that will have some drag this year, but will be you know our portfolio quality improvement as well as some drive some future growth in the future.
Speaker Change: Perfect. Thank you.
Greg: Thanks, Greg.
Michael Albert Carroll: Thank you. Our next question comes from the line of Michael Carroll with RBC Capital Markets. Please proceed with your question.
Speaker Change: Thank you. Our next question comes from the line of Michael Carroll with RBC Capital markets. Please proceed with your question.
William R. Crooker: Yeah, thanks, Bill. I wanted to touch on the health of the investment market that you kind of highlighted in your prepared remarks. I mean, are sellers, at least sellers of quality products, holding back on putting assets in the market yet? Are they just waiting for the capital markets to stabilize? I guess, what's the catalyst are we waiting for to kind of drive some more activity within the space?
Michael Albert Carroll: Yes, Thanks, Bill I wanted to touch on the health of the investment market did you kind of highlighted in your prepared remarks, I mean, our sellers at least sellers of quality product are they holding back on putting assets to the market yet or are they just waiting for the capital markets to stabilize I guess, what what's the catalyst starwood waiting for it to kind of drive some more activity within the space.
William R. Crooker: Yeah, so it's been an interesting year, Mike. I mean, in the first quarter, seller expectations were aligned with buyer expectations, and you saw what was trending toward a very healthy transaction market. We had that spike in interest rates, I think in April, and we had the pause really in Q2, and now what you're seeing in the back half of Q2 and into Q3, you're seeing a fair amount of product come online. Pricing guidance, you know the bid-ask spreads are narrowing so to the extent you know interest rates pan out the way they're baked into the street right now with a cut in September, we feel like the transaction market will pick back up.
Speaker Change: Yeah. So it's been an interesting year, Mike in the first quarter seller expectations were aligned with fire expectations and you saw what was trending to a very healthy transaction market.
Speaker Change: You had that spike in interest rates I think in April and we had to pause really in Q2 and now what you're seeing in the back half of Q2 and into Q3, I'm, you're seeing a fair amount of product come online pricing guidance.
Michael Albert Carroll: As spreads are narrowing so to the extent you know interest rates pan out the way there.
William R. Crooker: There are a lot of sellers in the market. The pipelines are healthy, as you see; it's about 3.7 billion, a slight increase over last quarter. So, if this continues, we expect the transaction market to pick up, and, you know, we're hopeful that that means more acquisitions for us. But, as we've seen over the past several years, the interest rate market environment has been volatile, and if that continues, then we could have another start-stop. So, I think we're cautiously optimistic at this point as we look into the second half of the year.
Speaker Change: There are baked into the street right now with a cut in September we feel like the transaction market will will pick back up there are a lot of sellers in the market. The pipeline's healthy as you see its about $3 7 billion, a slight increase over over the last quarter or so.
Speaker Change: If this continues we expect the transaction market to pick up and you know we're hopeful that that means more acquisitions for us, but as we've seen over the past several years.
Speaker Change: The interest rate market environment has been volatile and if that continues then we could have another start stop so I think we're we're cautiously optimistic at this point as we look into the back half of the year.
William R. Crooker: Okay, that's helpful. And how should we think about the pricing of these assets? And I don't know if that still remains to be seen. I know about the stabilized cap rates that you achieved in the second quarter in the high sixes, which is a pretty good rate. I mean, is that what we should think about, or is it going to be trending back down to the mid sixes to the low sixes, kind of like what you did in the first quarter? Yeah, I mean, the guidance that we've put out.
Speaker Change: Okay. That's that's helpful. And then how should we think about the pricing of these assets and I don't know if that still remains to be seen I know on the stabilized cap rates that you achieved in the second quarter in the high sixes, which is a pretty good rate I mean is that.
Speaker Change: What we should think about or is it going to be trending back down to the mid sixes to low six is kind of what you did in the first quarter.
William R. Crooker: Yeah, I mean the guidance that we've put out and increased our cash cap rate guidance for the year. But, as you noted, a lot of that's been, you know, Fairmont that's been baked in the first half. You know, we constantly reset our cost of capital as we evaluate transactions and make sure that those transactions are not only accretive day one but also have some growth baked into them going forward, whether that be below market leases or market rent growth anticipating the future in those markets.
Speaker Change: Yeah, I mean, the guidance that we've put out and increased our cash cap rate guidance for the year, but as you noted a lot of that's been fair amount of that's been baked in the first half.
Speaker Change: We constantly reset our cost of capital as we evaluate transactions and make sure that those transactions are not only accretive.
Speaker Change: Day, one, but also have some growth baked into them going forward, whether that be below market leases or market rent growth that we're anticipating in the future in those markets. So with where you know that rates are now in our cost of capital you could see probably in the lower six range for the remainder of the year, but that all depends on where.
William R. Crooker: So with where you know debt rates are now and our cost of capital, you can see that we'll probably be in the lower six range for the remainder of the year, but that all depends on where cost of capital is as we move throughout the year and price these transactions.
Speaker Change: Our cost of capital is as we move throughout the year and price these transactions.
Speaker Change: Okay, great. Thank you.
Speaker Change: Okay.
William Andrew Crow: Thank you. Our next question comes from the line of Bill Crow with Raymond James. Please proceed with your question.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Bill Crow with Raymond James. Please proceed with your question.
William R. Crooker: Hey, good morning, Bill and Matts.
Speaker Change: Hey, good morning, Bill that's.
William Andrew Crow: It seems as time passes that you're going to be doing more acquisitions of of properties, where the leases were signed and kind of the peak period of 'twenty two.
William R. Crooker: It seems as time passes that you're going to be doing more acquisitions of properties where the leases were signed and in kind of the peak period of 22 and into 23, and with kind of three to 4% annual bumps. I'm wondering how you're thinking about the possibility that five or six years down the road from when those leases are signed as they expire, you're going to have to start reporting negative cash runs on renewals. Is that something that goes into your thought process and your underwriting process? Yeah,
Speaker Change: Into 'twenty three.
William Andrew Crow: With kind of 3% to 4% annual bumps and I'm wondering how you're thinking about that.
Speaker Change: Possibility that five or six years down the road from when those leases are signed.
Speaker Change: As they expire because I'd have to start recording negative.
Speaker Change: Cash spreads on renewals.
Speaker Change: Does that is that.
Speaker Change: And that goes into your your your thought process in your underwriting process.
William R. Crooker: Yeah, Mark, I would say it's a different way. Market rent growth is factored into all of our acquisitions. And depending on where the acquisition is, if we buy an acquisition, the lease is at market, we forecast future market rent growth. And then that tenant, you know, when that lease expires, that rolls to whatever market rent growth is at the time. I would say in the past, we have been very conservative with our market rent growth expectations that go into our underwriting. We use two third-party advisors for our initial market rent growth expectations.
Speaker Change: Mark I would say I'd say it a different way of market rent growth is factored into all of our acquisitions and.
Mark: Depending on where the acquisition is if we buy an acquisition the leases at market.
Mark: We forecast future market rent growth and then that tenant when that lease expires.
Mark: That rolls to whatever market rent growth is at the time I would say in the past we have been very conservative with our market rent growth expectations that go into our underwriting we used to third party advisors form for our initial market rent growth expectations and then we.
William R. Crooker: And then we make adjustments with our regional managers and our market teams here. And those adjustments are generally a little bit more conservative, which has served us well in the past. And that's the way we're continuing to underwrite.
Speaker Change: To make adjustments with our regional managers and our market teams here and those adjustments are generally a little bit more conservative yeah that has.
Speaker Change: Has treated us well in the past and that's the way, we're we're continuing to underwrite.
William R. Crooker: We certainly have not in the past underwritten the market rank growth that we've achieved in our markets. And as we've mentioned, and it's in our investor presentation, I think there are some really positive tailwinds for the industrial sector. And a lot of these are not baked into market rank growth, or the market rank growth forecast. One of them's the near-shoring, on-shoring dynamic I mentioned. We had our first real example of this in Q2, where we leased a warehouse to effectively an on-shoring tenant.
Speaker Change: We certainly have not in the past underwritten the market rent growth that we've achieved in our markets.
Speaker Change: And as we mentioned and it's in our Investor presentation, I think there's some really positive tailwind to the industrial sector and a lot of these are not baked into mark around full market rent growth forecast one of them.
Speaker Change: And they're showing onshoring dynamic I mentioned, we had our first real example of this than in Q2 were released to a warehouse to a effectively and onshoring tenant and then you've got the continued buildup of our e-commerce and supply change in the U S, which we still think.
William R. Crooker: And then you've got the continued buildup of e-commerce and supply change in the U.S., which we still think has a lot of room to go, especially as you compare that to what's happening across the pond. So overall, good fundamentals in the sector. And with respect to five or six years, it's all baked into our underwriting.
Speaker Change: Has a lot of room to go, especially as you compare that to what's happening across the pond. So overall.
Speaker Change: Overall, good fundamentals in the sector.
Speaker Change: And with respect to you know five or six years, its all baked into our underwriting.
William R. Crooker: Okay, that's it for me. Thank you.
Speaker Change: Oh, Okay. That's it for me thank you.
Speaker Change: Thanks Bill.
Nicholas Patrick Thillman: Thank you. Our next question comes from the line of Nick Dillman with Bayard. Please proceed with your question.
Speaker Change: Thank you. Our next question comes from the line of Nick <unk> with Baird. Please proceed with your question.
William R. Crooker: Hey, good morning, guys. Maybe talking about just what's commencing in the second half based on what you've signed to date, it kind of shows that there is a kind of de-selling to the lower 20s. I guess maybe you can talk about the mix of that or any specific markets dragging that number down or specific leases in particular.
Nick: Hey, good morning, guys, maybe talking on just what's commencing in the second half based on what you've signed to date. It kind of shows that spreads kind of decelerate to the lower twenties. I guess, maybe you can talk about the mix of that or any specific markets dragging that number down or specific leases in particular.
William R. Crooker: I mean, it's a pretty wide range of markets. I think we estimated 12 to 13 million square feet. And we had pretty good visibility, and we put out our original guidance this year. So I would say nothing to call out. It was just the pace in which some of those leases rolled this year.
Speaker Change: I mean, it's a pretty wide range of markets.
Speaker Change: Estimating 12 to 13 million square feet.
Speaker Change: And we had pretty good visibility and we put out our original guidance. This year. So I would say nothing to call out. It was just the cadence in which some of those leases rolled this year.
William R. Crooker: That's helpful, and then I appreciate the additional color on the kind of lease up expectations in the development pipeline, but has there been any progress thus far on just leases signed on that pipeline to date?
Speaker Change: That's helpful. And then I appreciate the additional color on kind of lease up expectations on development pipeline, but has there been any progress thus far on just leases signed on that pipeline today.
William R. Crooker: No, not on leases signed, certainly activity, a lot of RFPs, a lot of TORs, you know, some of the [inaudible] lease up expectations for development are prudent, hopefully we outperform them, but nothing has been signed to date. That's it for me, thank you.
Speaker Change: No not on leases signed certainly.
Speaker Change: Activity a lot of Rfps a lot of tours.
Speaker Change: You know some of the.
Speaker Change: Stuff for example, the Tampa development that is historically not a pre leasing market, even with that said, we're starting to get some initial inquiries there so.
Speaker Change: We feel like our.
Speaker Change: Lease up expectations for development R. R.
Speaker Change: Our.
Speaker Change: Prudent hopefully, we outperform them, but where I'm nothing has been signed to date.
Speaker Change: That's it for me thank you.
Speaker Change: Thank you.
Speaker Change: Yeah.
Vince James Tibone: Thank you. Our next question comes from the line of Vince Tibone with Green Street. Please proceed with your question.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Vince That's a bone with Green Street. Please.
Speaker Change: With your question.
William R. Crooker: Hi, good morning. Could you please provide the economics of the new development starts in the quarter? Specifically, what is the expected yield? And how does that compare to your view of stabilized cap rates once it is stabilized?
Speaker Change: Hi, Good morning could you provide the economics of the new development starts in the quarter I'm just specifically what is your expected yield and how does that compare to your view of stabilized cap rates once leased.
William R. Crooker: Sure, and we're certainly forecasting these to be leased up in the future as I noted in the prepared remarks, but the Nashville transaction that we're projecting in the mid-7s for a stabilized yield there, that's probably a hundred basis points higher than maybe market, maybe a little bit more, part of that was just a lower land basis that we had for that transaction, and then the Portland, Oregon, it's mid to high 6s, you know, call up between 6.5 and 6.75 for that transaction, and that's a build-to-suit transaction.
Speaker Change: Sure I mean, we're certainly forecasting these to be leased up and in the future as I noted in the prepared remarks, but.
Speaker Change: The Nashville transaction that we're projecting in the mid sevens for a stabilized yield there.
Speaker Change: That's probably 100 basis points higher than maybe market, maybe a little bit more part of that was just a lower land basis that we had for that transaction and then the Portland, Oregon.
Speaker Change: It's mid to high sixes call it between six and a half and 675 for that transaction.
Speaker Change: And that's a build to suit transaction.
Matts S. Pinard: Got it. That's helpful. And then how do you view your cost of capital today? Are you considering any equity issuances to fund external growth? And can you just remind me what's incorporated in FFO guidance in terms of, you know, funding sources for the acquisitions and development spend? Absolutely. Good morning, Vince.
Speaker Change: Got it.
Speaker Change: That's helpful. And then how do you view your cost of capital today or are you considering any equity issuances to fund external growth and can you just remind me what's incorporated in <unk> guidance in terms of funding sources for the acquisitions and development spend.
Matts S. Pinard: Absolutely. Good morning, Vince.
Matts S. Pinard: In terms of cost of capital, if we were to go out and raise a long term capital,
Speaker Change: Absolutely good morning, Vince in terms of cost of capital. If we were to go out and raise long term debt it would be in the private placement market no looking back the transaction that we did in March that closed in May if we use the same tenders, we would likely be able to raise.
Matts S. Pinard: In terms of cost of capital, if we were to go out and raise long-term debt, it'd be in the private placement market. You know, looking back at the transaction that we did in March that closed in May, if we used the same tenors, we would likely be able to raise, you know, that $450 million in the high 5 to the 6 percent area. So there has been some, I'd say, decrease in costs on the long-term debt side.
Speaker Change: That $450 million in the high five to the 6% area. So there has been some.
Speaker Change: A decrease in costs on the long term debt side.
Matts S. Pinard: You know, in terms of equity in guidance, we have no incremental equity issuance included in our guidance. And I do want to remind you, we have $72 million of proceeds on the floor that are currently available and unfunded. And then in terms of capital allocation, you know, we're retaining approximately $100 million of cash after dividends paid. We did increase our disposition guidance and will, you know, those sale proceeds can be available to us for corporate purposes.
Speaker Change: Turns of equity.
Speaker Change: In in guidance, we have no incremental equity issuance included in our guidance and I do want to remind you we have a $72 million of proceeds on the four that are currently available in unfunded.
Speaker Change: And then in terms of capital allocation, you know, we're retaining approximately $100 million of cash after dividends paid.
Speaker Change: We did increase our disposition guidance and will those sale proceeds cannot be available to us for corporate purposes.
Matts S. Pinard: We talked about equity. And then again, the balance sheet is at the low end of our guidance range, we're five times levered, and our public guidance range is five to five and a half. So we're incredibly well positioned from a capital side, a leverage side, and a liquidity side.
Speaker Change: Talking about the equity and then again the balance sheets at the low end of our guidance range. We're five times Levered, our public guidance range is five to five and a half so we're incredibly well positioned from a capital side leverage side and liquidity side.
Speaker Change: Yes.
Vince James Tibone: That's great. Thank you. I appreciate it.
Speaker Change: No. That's that's great. Thank you appreciate it.
Vince: Thanks Vince.
Eric Martin Borden: Thank you. Our next question comes from the line of Eric Borden with BMO Capital Markets. Please proceed with your question.
Vince: Thank you.
Speaker Change: Our next question comes from the line of Eric Boyd with BMO capital markets. Please proceed with your question.
Matts S. Pinard: Hey, good morning, guys. Appreciate the color. I'm maintaining the credit loss assumption of minus 50 bps for the year. I was just curious if you could provide an update on, you know, what has been captured here to date? And are there any known tenant issues for the back half of the year? Thanks.
Eric Martin Borden: Hey, good morning, guys.
Eric Martin Borden: I appreciate the color on maintaining the credit loss assumption.
Eric Martin Borden: 50 bps for the year I was just curious if you could provide an update on what has been captured year to date and is there any known tenant issues for the back half of the year. Thanks.
Matts S. Pinard: Good morning, Eric. So in terms of our watch list, it's similar to what it was 90 days ago; we've experienced approximately a million dollars of credit losses year to date, which equates to 17 basis points. You know, our guidance is 50 base points for the year, which we maintain. That implies we're going to incur more credit losses in the second half of the year as compared to the first. But again, that guidance is maintained, not increased. I also want to note that this level of credit loss is in line with the historical average, and we're not seeing anything thematic across our portfolio that we can really extrapolate from.
Eric Martin Borden: Yeah. Good morning, Eric So in terms of our watch list is similar to what it was 90 days ago, we've experienced approximately a million dollars a credit last year to date, which equates to 17 basis points.
Vince: You know our guidance is 50 basis points for the year, which we maintain that implies we're going to incur more credit loss in the second half of the year as compared to the first but again that guidance is maintained not increase I also wanted to note that this level of credit losses in line with our historical average and we're not seeing anything dramatic across our portfolio that we can really extrapolate from.
Matts S. Pinard: That's helpful. And then
Speaker Change: Okay. That's helpful and then.
Matts S. Pinard: Just with essentially all the 24 lease expirations already addressed, I was just wondering if you could provide some color on the 25s, you know, as it relates to any potential known move outs that we should have on our radar.
Speaker Change: With essentially all of the 24 lease expirations already addressed I was just wondering if you could provide some color on the 20 fives as it relates to any potential known move outs that we should have on our radar.
Matts S. Pinard: Yeah, we don't have any large, no move outs for 25 at this point. Certainly not going to give 25 guidance this early into the 24th. So as we move through this year, and if there's anything that does come up, we'll certainly let you and our investors know.
Speaker Change #101: Yeah, we don't have any large known move outs for 'twenty five a at this point.
Speaker Change: Certainly not going to give 25 guidance. This early into the 24 or so.
Speaker Change #102: As we move through this year and if theres anything that does come up we'll certainly let you and our investors now.
Eric Martin Borden: Thank you. I appreciate the time.
Speaker Change #107: Thank you I appreciate the time.
Vince: Yeah.
Samir Upadhyay Khanal: Thank you. Our next question comes from the line of Samir Khanal with Evercore ISI.
Samir Upadhyay Khanal: Thank you. Our next question comes from the line of Samir <unk> to now with Evercore ISI. Please proceed with your question.
William R. Crooker: Hey, Bill, when I look at your same store occupancy at the end of the quarter, I guess it was a bit lower than the average occupancy for the quarter. Can you provide a bit more color? I just want to make sure I didn't miss anything.
Samir: Thank you Hey, Bill when I look at your same store occupancy at the end of the quarter I.
Samir Upadhyay Khanal: I guess it was a bit lower than the average occupancy for the quarter can you provide a bit more color I just want to make sure I didn't miss anything.
Matts S. Pinard: Hold on. Hey, Samir. I can take this one.
Speaker Change: Homeowners paid case may I take this one yeah. So what I want to put you back to is our guidance. So the way that we guide occupancies in the same store pool and it's on average occupancy we improved the way I guess, you know kind of upgraded our view from the 50 basis points of occupancy loss to 25 basis points of occupancy loss on an average basis.
Matts S. Pinard: Yeah. So what I want to point you back to is our guidance. So the way that we guide occupancy is in the same sort of pool, and it's on average occupancy. We improved, or I guess, you know, kind of upgraded our view from the 50 base points occupancy loss to 25 base points occupancy loss on an average basis. Year to date, we're 30 basis points down. So we generally expect to end in the same area, called the High 90s.
Speaker Change: Year to date with 30 basis points down so we generally expect to earn.
Speaker Change: In the same area called the high 97%.
Speaker Change: On an oxy basis.
Matts S. Pinard: Okay, so there's nothing in July. No, put it differently. You're not missing it.
Speaker Change: Okay.
Speaker Change: All right.
Matts S. Pinard: No, we're at 30 basis points average occupancy lawsuit year to date. Our guidance is 25 basis points occupancy loss for the year. Okay, okay. And how is July playing out versus expectations here from a demand perspective for you all?
Speaker Change: I'll put it differently you are not missing it.
Speaker Change: 30 basis points average occupancy loss year to date, our guidance is 25 basis points of occupancy loss for the year.
Speaker Change: Okay. Okay.
Speaker Change #103: And how is sort of July playing out versus expectations here from a demand perspective for you all.
William R. Crooker: I mean, we're seeing healthy demand, you know, across our markets. And when I think about, you know, healthy markets, it's similar to what I called out last quarter, which was, you know, the Midwest is generally healthy. Those markets, Milwaukee, Detroit, Minneapolis, Chicago, El Paso, Sacramento, Nashville, Tampa, those are all strong markets. Although, we see some weakness in, you know, the Columbus Indy, we don't have any real near-term exposure to those markets.
Speaker Change: I mean, we're seeing healthy demand.
Speaker Change: Ross are our markets I think about you know healthy markets similar to what I called out last.
Speaker Change #111: A quarter, which was the Midwest is generally healthy those markets Milwaukee, Detroit, Minneapolis, Chicago, El Paso is really strong Sacramento Nashville, Tampa those are all strong markets seeing some weakness in the Columbus Endy are we don't have any real need.
William R. Crooker: Philly, South Jersey, but again, same thing, limited exposure in those markets for us. So with that backdrop and the increase in our same store guidance, July has been trending as budgeted, if not maybe a little bit better.
Speaker Change #111: <unk> exposure to those markets Philly South Jersey, but again same thing lymnaea exposure in those markets for us so with that backdrop.
Speaker Change: And the increase in our same store guidance in July has been trending.
Speaker Change: You know as budget, if not maybe a little bit better.
William R. Crooker: Got it. And sorry, just this one last one if I can. With regard to market rent growth, did you provide sort of your view for the year? I know, and in the past, you said mid-single-digit growth.
Speaker Change: Got it and sorry, just one last one if I if I can do this market rent growth did you provide sort of your view for the year I know you've been in the past you said mid digit growth that's still.
William R. Crooker: Yeah, because we're a little more than halfway through the year, we got a little bit more specific on that. It was four to five percent we were expecting. Okay, got it. All right.
Speaker Change: Yeah cause.
Speaker Change: Little more than halfway through the year, we've got a little bit more specific on that it was 4% to 5% we're expecting.
William R. Crooker: Okay, got it. All right. Thanks, guys. Thank you. Thank you. Our next question comes from the line of Jason Belcher with Wells Fargo. Please proceed with your question.
Speaker Change #119: Okay got it alright, thanks, guys.
Speaker Change #104: Thank you.
Jason Belcher: Yeah, thanks, guys. I guess first, sorry if I missed this, but can you give us some color on what the $5 million impairment was in the quarter, and what that was related to?
Speaker Change #106: Thank you. Our next question comes from the line of Jason Belcher with Wells Fargo. Please proceed with your line.
Jason Belcher: Yeah, Hi, thanks, guys.
Jason Belcher: I guess first I'm, sorry, if I missed this but can you give us some color on what the $5 million impairment was in the quarter that was related to.
Matts S. Pinard: Yeah, hey, sure. This is Matt.
Speaker Change #109: Yeah sure.
Speaker Change: The impairment relates to an asset in Utah, it's our only asset in that market and it's just not going to be long term holds for us.
Matts S. Pinard: The impairment relates to an asset in Utah. It's our only asset in that market, and it's just not gonna be a long-term hold for us.
Speaker Change #108: Okay. Thank you and then secondly can you just talk a little bit about what you are seeing in terms of any trends across your different kind of industries are there any particular sectors picking up noticeably or conversely, any that seem to be pulling back.
Jason Belcher: Okay, thank you. And then secondly, can you just talk a little bit about what you all are seeing in terms of any trends across your different tenant industries? Are there any particular sectors picking up noticeably, or conversely, any that seem to be pulling back? Nothing to call out. I mean, Matt kind of touched on this.
William R. Crooker: Nothing to call out and Matt's kind of touched on this a little bit with with credit loss and that we're not seeing you know anything that we would extrapolate across industries but you know really nothing nothing to call out I mean we've seen you know healthy demand from a number of industries this year including 3PLs we're seeing you know you know moving away from industries but we're seeing you know big box leasing pickup small box leasing is still pretty strong so really nothing specific to call out with respect to industries or big box small box leasing
Speaker Change #123: Nothing to call out and that's kind of touched on this a little bit with with credit losses that were not seeing.
Speaker Change #108: Anything that we would extrapolate across industries.
Speaker Change #108: But you know really nothing nothing to call out I mean, we've seen.
Speaker Change #121: Healthy demand from a number of industries this year, including three pls.
Jason Belcher: Seeing yeah yeah.
Jason Belcher: Moving away from industries, but we're seeing a big box leasing pick up small box leasing is still.
Jason Belcher: Pretty strong so.
Jason Belcher: Really nothing specific to call out with respect to industries are big.
Jason Belcher: Big box small box leasing.
Speaker Change #100: Got it thanks a lot.
Speaker Change #105: Thank you.
Richard C. Schiller: Thank you. Our next question comes from the line of Rich Anderson with Redbush. Please proceed with your question.
William R. Crooker: Thank you.
Speaker Change #105: Our next question comes from the line of Rich Anderson with Wedbush. Please proceed with your question Hi.
William R. Crooker: Hi, good morning. Thanks for having me.
Richard C. Schiller: Good morning, Thanks for having me so I'm back to the same store sort of cadence.
Richard C. Schiller: So I'm back to the same store sort of cadence. You mentioned 90 basis points of impact in the first half from two large leases in the back half of 23. But to get to your guidance, you know, just simple math, six and a half years to date, same store, and a lot of growth would require four or four and a half years to get to your range. So, what is it? That's more than 90 basis points. So, what's going on there that's causing that incremental headwind over and above the 90 basis points that you mentioned?
Speaker Change: You mentioned 90 basis point impact in the first half from two large leases back half of 'twenty, three but to get to your guidance. You know just simple math six and a half year to date same store NOI growth would require four four and a half to get get to your range.
Speaker Change: So what is it that's more than 90 basis points. So so what what's going on there, that's causing that incremental headwind over and above the 90 basis points that you mentioned.
Matts S. Pinard: Yeah, good morning, Rich. Number one, I just want to remind everyone on the call that we did increase our cash same score guidance by 25 base points at the midpoint, and really, it goes back to credit loss. Rich, you know, we have 50 base points of credit loss in our guidance. We've incurred 17 base points, so there will be more credit loss in the back half of the year.
Speaker Change: Yeah. Good morning, Rich number I just wanted to remind.
Speaker Change: Although we did increase our cash same store guidance by 25 basis points at the midpoint and really goes back to credit loss ratio, we have 50 basis points of credit loss in our guidance.
Speaker Change #122: We've incurred 17 basis points. So there will be more credit loss in the back half of the year.
William R. Crooker: Okay, thank you for that. In the example of Atlanta of on-shoring, you know, you've taken on a manufacturing entity. Assuming this on-shoring movement is real and not political, could you see yourself being more open to manufacturing tenants going forward?
Speaker Change #110: Thank you for that and then.
Speaker Change #113: On the example in Atlanta of Onshoring.
Speaker Change #118: You know you've taken on a manufacturing entity.
Speaker Change: Assuming this onshoring movement is real and not political could you see yourself being more open.
Speaker Change #116: Open to manufacturing tenants.
Speaker Change #110: Forward.
William R. Crooker: Yeah, so just to clarify there, and sorry if it wasn't clear in the prepared remarks, it's a warehouse that was serving regional distribution prior to this, and now it's a supplier building for the manufacturer.
Speaker Change #114: Yeah, So just to clarify there and sorry, if I wasn't clear in the prepared remarks, it's a warehouse that was serving regional distribution fire.
Speaker Change #114: And this and now it's a supplier of building for the manufacturer.
William R. Crooker: So okay, really, it's just a warehouse that could be used for regional distribution or supplier building. And I think that's where we see the demand for onshoring coming from. In the US, the manufacturing facilities, that's not what we do. But we own warehouses that are approximately that. And that those onshoring manufacturing sites will create incremental demand for the warehouses that are already, you know, mostly leased. Okay, I apologize for that. I didn't
Speaker Change: I see so okay, well it really is just a warehouse that can be used for regional distribution or supplier of building.
Speaker Change #110: That's where we view that demand coming for onshoring.
Speaker Change #110: In the U S. The.
Speaker Change #120: The manufacturing facilities, that's not that's not what we do well we own the warehouses that are approximate to that and that that will those onshoring manufacturing sites will create incremental demand for warehouses that are already.
Speaker Change #110: Mostly leased.
Richard C. Schiller: Okay, I apologize for that. I didn't catch that nuance.
Speaker Change: Okay, I apologize for that I didn't I didn't catch that new ones. Thanks very much. Thank.
William R. Crooker: Thank you.
Michael William Mueller: Thank you. Our next question comes from the line of Mike Mueller with JP Morgan. Please proceed with your question.
Speaker Change: Thank you. Our next question comes from the line of Mike Mueller with Jpmorgan. Please proceed with your question.
William R. Crooker: Hi, two questions. One, can you provide any high-level color, and I'm not asking for specific 25 guidance, but any high-level color on how you think 2025 rent spread trends could pencil out compared to what you're guiding toward in 2024? And then a second question on asset sales. Based on the comment about BidNask's friends seemingly improving at the margin and an expectation that volumes could pick up in the back half of the year, what caused you to pull the trigger on a sale of eight-cap asset sales rather than sitting on them for a few more months?
Speaker Change: Yeah, Hi, two questions. One can you provide any high level color and I'm not asking for specific twenty-five guidance, but any high level color on.
Michael William Mueller: How do you think 2025 rent spread trends could pencil out compared to what you're guiding toward 2024, and then a second question on on the asset sales.
William R. Crooker: Based on the comment about bid ask spreads seemingly improving at the margin and an expectation that volumes could pick up in the back half of the year why what caused you to pull the trigger on a pool of eight cap asset sales rather than sitting on them for a few more months.
Michael William Mueller: Yeah, I mean those were agreed to a couple of months ago, right? It just takes time to sell those, and those were non-core assets. And frankly, we're very happy with the pricing we've got with a couple of those. Belvedere, as Matts mentioned, is a market we're exiting. We only have a couple assets left there. And in that market, while we're exiting, there's really only one demand driver, and that's the auto plant that's there.
Speaker Change: Yeah, I mean, those were so I'll take the second question first.
Michael William Mueller: Those those were agreed to you know a couple of months ago right. It just takes some time to sell those and those are noncore assets.
Speaker Change #117: And frankly, we're very happy with the pricing, we got with a couple of those Belvidere as Matt mentioned is a market we've accident we're exiting.
Michael William Mueller: We only have a couple of assets left there.
Speaker Change: And that that market and why we're asking if there's really only one demand driver and that's the auto plant that's there.
Michael William Mueller: When you look at the majority of our portfolio, there are multiple demand drivers for our buildings. So when we see a market that only has one demand driver, that's a market that, over the long term, we try to exit. So it wasn't necessarily trying to hold on and just generate the best price. We're happy with the price we achieved there. And then subsequently, there were more indications, and the market's priced in a higher probability of rate cuts in the back half of the year, and that's not something that we're trying to time with those asset sales. And on 2025, I'll just wait till we move through this year and get more visibility into next year with respect to leasing spreads. Got it. Okay.
Speaker Change: When you look at the majority of our portfolio, there's multiple demand drivers for our buildings.
Speaker Change: So when we see a market that only has one demand driver that's a market that over the long term, we try to ask it.
Speaker Change: So it wasn't necessarily trying to.
Speaker Change: Hold on and just generate the best pricing, we're happy with the pricing we achieved there.
Michael William Mueller: And then subsequently yeah, there was more indication and the market has priced in a higher probability of rate cuts in the back half of the year and that's also not something that we're trying to time with those asset sales and on 2025 I'll just wait.
Michael William Mueller: As we move through this year and get more visibility.
Michael William Mueller: Into next year with respect to leasing spreads.
Michael William Mueller: Got it. Okay. Thank you.
Speaker Change: Got it okay. Thank you.
Michael William Mueller: Yeah.
Camille Bonnell: Thank you. And our next question comes from the line of Camille Bonnell with Bannell Bank of America. Please proceed with your question.
William R. Crooker: Thank you.
Speaker Change: And our next question comes from the line of.
Michael William Mueller: Donald.
Speaker Change: Please proceed with your question.
Andrew Jason Berger: Hi, good morning. This is Andrew Berger on behalf of Camille.
Speaker Change: Hi, Good morning. This is Andrew Berger Oncor Camille I appreciate the color around your market rent growth outlook, just curious how much of that 4% to 5% has already been achieved in the first two quarters or even through July if you have that number. Thank you.
William R. Crooker: Appreciate the color around your market rent growth outlook. Just curious how much of that 4 to 5% has already been achieved in the first two quarters or even through July, if you have that number. Thank you.
William R. Crooker: It's almost half, so it's been growing at a pretty consistent rate as we move through the year.
Speaker Change: It's it's almost half so it's.
Speaker Change: <unk> been growing at a.
Speaker Change: A pretty consistent rate as we move through the year.
Andrew Jason Berger: Got it, appreciate that. And then on the leasing side, I think last quarter you said tenants were still taking a bit longer to make decisions. Just curious if that's improved at all over the past 90 days. I know the second quarter was pretty active. And also, you've mentioned the C-suite was pretty involved in leasing decisions in the past. Just curious if that has toned down a bit at all.
Speaker Change: Got it appreciate that and then on the leasing side I think last quarter. You said tenants are still taking a bit longer to make decisions. Just curious if that's improved at all over the past 90 days I know second quarter was pretty active and also you've mentioned the C suite was pretty involved in leasing decisions.
Andrew Jason Berger: Past just curious if that has toned down a bit at all.
William R. Crooker: You know, we haven't seen it really toned down that much. I'd say the one takeaway is bigger boxes, bigger commitments, bigger leases are just taking longer than smaller ones, which is natural, especially in a volatile rate environment that we have. So that dynamic is similar to what it was last quarter.
Speaker Change: Yeah, we haven't seen it really toned down that much I'd say.
Speaker Change: One takeaway is bigger boxes bigger commitments bigger leases.
William R. Crooker: We are just taking longer than smaller which.
William R. Crooker: Is is natural especially in a volatile rate.
William R. Crooker: Environment that we have so that dynamic is is similar to what it was last quarter.
Andrew Jason Berger: Got it. And if I could maybe just sneak in one more on the acquisitions, that's obviously been a big theme. It looks like this quarter was sort of all over the map. Just curious if there are any particular geographies that you're focused on in the second half.
Speaker Change: Got it and if I could maybe just sneak in one more on the acquisitions and that's obviously been a big theme. It looks like this quarter was sort of all over the map just curious if there's any particular geographies.
Speaker Change: You're focused on in the second half.
William R. Crooker: Our strategy is CBRE Tier 1 markets, so we've built up the team and really enhanced our processes so we can be pretty efficient in evaluating opportunities across those markets. I think that's a differentiator in our strategy. So this is, you saw six different markets here in the second quarter acquisitions. Now, the other quarters you might see the same, six, seven, and sometimes you'll see a couple of assets in one market. But our ability to evaluate transactions across all the CBRE Tier 1 markets is certainly a differentiator for us. So we really don't focus on one or two or three particular markets. Okay, great. Thank you.
Speaker Change: Our strategy is CBRE tier one market so it.
Speaker Change: We've built out the team really enhanced our processes. So we can be pretty efficient in evaluating opportunities across those markets. I think that's a differentiator in our strategy. So this is you saw six different markets here in the second quarter acquisitions, you're going to and other.
William R. Crooker: Other quarters, you might see the same six seven sometimes you'll see a couple assets in one market, but our ability to evaluate transactions across all of the CBRE tier one markets is certainly a differentiator for us. So we really don't focus on.
William R. Crooker: One or two or three particular markets.
Andrew Jason Berger: Okay, great. Thank you for taking my questions.
Speaker Change: Okay, great. Thank you for taking my questions.
Speaker Change: Thank you.
Operator: Thank you, and we have reached the end of the question and answer session, and I'll turn the call back over to the clerk for a closing.
Speaker Change: Thank you.
Andrew Jason Berger: And we have reached the end of the question and answer session and I'll turn the call back over to Cook for closing remarks.
William R. Crooker: Thank you, everybody, for joining the call, and thank you to the analysts for the thoughtful questions, as always. We look forward to seeing you all soon. Thank you. And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
Speaker Change: Thank you everybody for joining the call and thank you to the analysts for the thoughtful questions as always and we look forward to seeing you. All soon thank you.
Operator: And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
William R. Crooker: And this concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.
Operator: Yeah.
Operator: Yeah.
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Speaker Change: Uh huh.
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