Q1 2025 STAG Industrial Inc Earnings Call

Operator: Greetings and welcome to STAG Industrial Inc. First Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode.

Greetings and welcome to Stag industry, Inc. First quarter 2025 earnings conference call.

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. As a reminder, this conference is being recorded.

Anyone should require operator assistance during the conference. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.

Steve Xiarhos: It is now my pleasure to introduce your host, Mr. Steve Xiarhos, Industrial Relations. Thank you, Mr. Xiarhos. You may begin. Thank you.

It is now my pleasure to introduce your host Mr. Steve Schott Horse Investor Relations. Thank you Mr. Shaw you.

Speaker Change: You may begin.

Speaker Change: Thank you welcome to Stag Industrials conference call covering the first quarter 2025 shops.

Steve Xiarhos: Welcome to STAG Industrials conference call covering the first quarter 2025 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.

Speaker Change: And in the press release distributed yesterday, we have posted an unaudited quarterly supplemental information presentation on the company's website at www Dot stag industrial dot com under the Investor Relations section.

Steve Xiarhos: 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, 1995. Forward-looking statements address matters that are subject to risks and uncertainties and 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. 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.

Speaker Change: On today's call the company's prepared remarks and answers to your questions will contain forward looking statements under the private Securities Litigation Reform Act 1995.

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

Speaker Change: Ample to forward looking statements include forecasts of course about same store NOI G&A acquisition and disposition volumes retention rates another guidance leasing prospects ranked collections industry and economic trends and other matters.

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.

Speaker Change: And reconciliations of non-GAAP measures and in the supplemental information package available on the company's website.

Steve Xiarhos: As a reminder, forward-looking statements represent management's estimates as of today. STAG Industrial assumes no obligation to update any forward-looking statements.

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

Speaker Change: The 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 Matts Pinard, our Chief Financial Officer. Also here with us today is Mike Chase, our Chief Investment Officer, Steve Kimball, EVP of Real Estate Operations. We're available to answer questions specific to their areas of focus.

Speaker Change: Today's call you'll hear from Bill Crooker, our Chief Executive Officer, and Mastercard, Our Chief Financial Officer also here with US today is Mike Chase, our Chief investment Officer, Keith Kendall EVP of real estate operations, we're available to answer questions specific to their areas of focus I'll now turn the call over to Bill.

Steve Xiarhos: I'll now turn the call over to Bill. Thank you, Steve.

Speaker Change: Thank you Steve.

William Crooker: Good morning, everybody, and welcome to the first quarter earnings call for STAG Industrial. We're pleased to have you join us and look forward to telling you about the first quarter 2025 results. We had a very strong start to the year, resulting in Corfo per share of 61 cents in the first quarter, exceeding our initial expectations. I'm happy to report that we have already leased 78.5% of the operating portfolio square feet we currently expect to lease in 2025, achieving cash leasing spreads of 25.1%. This level of leasing is at a similar pace to last year and consistent over the last few years.

Speaker Change: Good morning, everybody and welcome to the first quarter earnings call for Stag industrial.

Speaker Change: We're pleased to have you join us and look forward to telling you about the first quarter of 2025 results.

Speaker Change: But a very strong start to the year, resulting in core <unk> per share of 61 cents in the first quarter.

Speaker Change: Exceeding our initial expectations.

Speaker Change: I'm happy to report that we have already leased 78, 5% of the operating portfolio square feet. We currently expect to lease in 2025, achieving cash leasing spreads of 25, 1%.

Speaker Change: This level of leasing is that a similar pace to last year and consistent over the last few years.

William Crooker: All tenant activity was healthy in Q1. The escalation of the global trade war continues to monopolize headlines. At this point, it is too early to quantify the potential impact of tariffs on our business. With the threat and implementation of tariffs, we have heard from some of our tenants that a key priority for them is diversification of their supply chain. We view this as a net positive to our portfolio, given our geographic diversity and focus on CBRE Tier 1 markets. Generally, we have witnessed some lengthening in lease gestation periods stemming from these macroeconomic events. We are still seeing plenty of tours for our vacant spaces, but those tours are taking longer to convert to signed LOIs.

Speaker Change: While tenant activity was healthy in Q1.

Speaker Change: Escalation of the global Trade War continues to monopolize headlines at this point, it's too early to quantify the potential impact of tariffs on our business.

Speaker Change: With the threat and implementation of tariffs we've heard from some of our tenants, but a key priority for them is diversification of their supply chains.

Speaker Change: We view this as a net positive to our portfolio.

Speaker Change: Our geographic diversity and focus on CBRE tier one markets.

Speaker Change: Generally we have witnessed some lengthening and least gestation periods.

Speaker Change: These macro economic events.

Speaker Change: We are still seeing plenty of course for our vacant spaces over.

Speaker Change: What were those tours are taking longer to convert signed loi's.

William Crooker: With that being said, tenants are continuing to make leasing decisions in light of current uncertainty. Through today, we have signed 3.6 million square feet of leases commencing in the second quarter, a million of which is new leasing. This is highlighted by a 500,000-square-foot full-building lease executed in the Savannah Market. This lease was accomplished with zero downtime and produced a 25% cash leasing spread. The supply pipeline continues to contract, with the national underconstruction pipeline decreasing more than 16% sequentially since the fourth quarter. In the longer term, weaker economic growth may negatively impact warehouse space demand, but this would be partially offset by increased near-shoring and on-shoring activity.

Speaker Change: But that being said tenants are continuing to make leasing decisions in light of current uncertainty.

Speaker Change: Through today, we have signed three 6 million square feet of leases commencing in the second quarter a million of which is new leasing.

Speaker Change: This is highlighted by a 500000 square foot full building lease executed in the Savannah market.

Speaker Change: This lease was accomplished with zero downtime and produced a 25% cash leasing spread.

Speaker Change: The supply pipeline continues to contract.

Speaker Change: National under construction pipeline decreasing more than 16% sequentially since the fourth quarter.

Speaker Change: And the longer term weaker economic growth may negatively impact warehouse space demand.

Speaker Change: This will be partially offset by increased near shoring and onshoring activity.

William Crooker: STAG's portfolio would be a relative beneficiary compared to other industrial portfolios due to our geographic footprint.

Speaker Change: The AG portfolio would be a relative beneficiary compared to other industrial portfolios due to our geographic footprint.

William Crooker: Moving to acquisitions, volume for the first quarter totaled $43 million. This consisted of three buildings with cash and straight line cap rates of 6.8% and 7.0% respectively.

Speaker Change: Moving to acquisitions volume for the first quarter totaled $43 million.

Speaker Change: This consisted of three buildings with cash and straight line cap rates of six 8% and 7.0% respectively.

William Crooker: In January, STAG acquired a 162,000 square foot building located in Shakopee, Minnesota, for $16.6 million at a cash cap rate of 6.5%. The building is 100% leased at rents approximately 40% below market to a single tenant with strong credit profile. This acquisition provides STAG the opportunity to acquire a stabilized deal at an attractive yield and strong projected same-story NOI growth.

Speaker Change: In January Stag acquired a 162000 square foot building located in Shakopee, Minnesota were $16 $6 million at a cash cap rate of six 5%.

Speaker Change: The building is 100% leased at rents approximately 40% below market to a single tenant with strong credit profile.

Speaker Change: This acquisition provides the opportunity to acquire a stabilized deal at an attractive yield.

Speaker Change: And strong projected same store NOI growth.

William Crooker: In February, STAG closed in a two-building portfolio totaling 232,000 square feet for $26.7 million and a cash cap rate of 6.9 percent. The portfolio is located in Buffalo Grove, Illinois, an infill submarket of Chicago. The portfolio is 100% leased to two tenants with a weighted average lease term of 3.3 years. The transaction provided an attractive combination of high yield and durable cash flow given the entrenched tenancy.

Speaker Change: In February <unk>.

Speaker Change: Clothes in a two building portfolio totaling 232000 square feet for $26.7 million and a cash cap rate of six 9%.

Speaker Change: Our portfolio is located in Buffalo Grove, Illinois, infill Submarket of Chicago.

Speaker Change: The portfolio is 100% leased to two tenants with a weighted average lease term of three three years.

Speaker Change: Zack should provide an attractive combination of high yield and durable cash flow given the entrenched Tennessee.

William Crooker: In terms of dispositions this quarter, we sold one building in Nashua, NH for gross proceeds of $67 million, representing a cash cap rate of 4.9%.

Speaker Change: In terms of dispositions this quarter, we sold one building in Nashua, New Hampshire for gross proceeds of $67 million, representing a cash cap rate of four 9%.

William Crooker: This disposition was the result of our team successfully repositioning the asset and ultimately selling it to a user.

Speaker Change: This disposition was a result of our teams successfully repositioning the asset and ultimately selling it to a user.

William Crooker: On the development front, we have approximately 2.5 million square feet of activity across 11 buildings in the U.S. Roughly 50% of that 2.5 million square feet is under construction and 16% is pre-leased. The remaining 50% has been delivered and is currently 51% leased.

Speaker Change: On the development front, we have approximately $2 5 million square feet of activity across 11 buildings in the U S.

Speaker Change: Roughly 50% of that $2 5 million square feet is under construction and 16% is pre leased.

Speaker Change: The remaining 50% has been delivered and is currently 51% leased.

William Crooker: This includes a new lease totaling 102,000 square feet of warehouse and distribution space, which commenced at our building in Welford, South Carolina on April 1st.

Speaker Change: This includes a new lease totaling 102000 square feet.

Speaker Change: Warehouse and distribution space, which commenced at our building and welfare South Carolina on April 1st.

Matts Pinard: With that, I will turn it over to Matts who will cover our remaining results and updates to guidance. Thank you, Bill. And good morning, everyone. Our FFO per share was $0.61 for the quarter, an increase of 3.4% as compared to last year. Cash available for distribution totaled $106.5 million, an increase of 8.5% as compared to the prior period. Leverage remains low with net debt to annualized run rate adjusted EBITDA equal to 5.2 times. Plaintiffs stood at $1 billion a quarter end when incorporating committed private placement debt proceeds. During the quarter, we commenced 36 leases totaling 5 million square feet, which generate cash and straight line leasing spreads of 27.3% and 42.1% respectively.

Speaker Change: With that I will turn it over to Matt who will cover our remaining results and updates to guidance.

Matt: Thank you Bill and good morning, everyone.

Speaker Change: Core <unk> per share was 61 cents for the quarter, an increase of three 4% as compared to last year.

Speaker Change: Cash available for distributions totaled $106 $5 million, an increase of eight 5% as compared to the prior period.

Speaker Change: Leverage remains low with net debt to annualized run rate adjusted EBITDA equal to five two times.

Speaker Change: Ladies stood at $1 billion at quarter end, when incorporating committed private placement debt proceeds.

Speaker Change: During the quarter, we commenced 36 leases totaling 5 million square feet, which generated cash and straight line leasing spreads of 27, 3% and 42, 1% respectively.

Matts Pinard: Retention for the quarter was 85.3%. As mentioned by Bill, we have accomplished 78.5% of the operating portfolio's square feet we currently expect to lease in 2025, achieving 25.1% cash leasing spreads. This demonstrates the strength of our portfolio. STAG has started the second quarter of leasing with strong momentum. This is highlighted by the execution of one million square feet of new leasing commencing in second quarter thus far.

Speaker Change: For the quarter was 85, 3%.

Speaker Change: As mentioned by Bill we've accomplished 78, 5% of the operating portfolio square feet. Currently expect at least in 2025 excuse me 25, 1% cash leasing spreads this demonstrates the strength of our portfolio.

Speaker Change: <unk> started the second quarter leasing was strong momentum. This is highlighted by the execution of 1 million square feet of new leases commencing in second quarter, thus far.

Matts Pinard: We will release a second quarter business update at the end of the week, similar to previous updates in advance of a large industry conference we'll be attending next week. We achieved same-store cash and Y growth of 3.4% for the quarter. Primary drivers of our same-store growth in the first quarter include the leasing spread to 27.3% and annual escalators at 2.8%, partially offset by previously forecasted and now realized occupancy loss of 80 basis points. Moving to capital market activity, we repaid the $100 million private placement note fee, which matured on February 20th.

Speaker Change: We will release, our second quarter business update at the end of the week similar to previous updates in advance of a large industry conference we'll be attending next week.

Speaker Change: We achieved same store cash NOI growth of three 4% for the quarter.

Speaker Change: Primary drivers of our same store growth in the first quarter include the leasing spread of 27, 3% and annual escalators of two 8%, partially offset by previously forecasted and now realized occupancy loss of 80 basis points.

Speaker Change: Moving to capital market activity.

Speaker Change: We repaid the $100 million private placement notes, which mature on February 20th there are minimal debt maturities remaining in 2025.

Matts Pinard: There are minimal debt maturities remaining in 2025.

Matts Pinard: Subsequent to quarter end on April 15th, the company entered into a note purchase agreement to issue $550 million of fixed rate senior unsecured notes in a private placement offering. The notes consisted of five, eight, and 10-year tenors with a weighted average fixed interest rate of 5.65% and a weighted average tenor of 6.5 years. The notes will be funded on June 25th and the proceeds will be used to pay down the which will restore liquidity to approximately $1 billion. We experienced minimal credit loss in the first quarter.

Speaker Change: Subsequent to quarter end on April 15th the company entered into a note purchase agreement to issue $550 million of fixed rate senior unsecured notes in a private placement offering. The notes consisted of five eight and 10 year tenors with a weighted average fixed interest rate of 565% and a weighted average tenor.

Speaker Change: At six five years.

Speaker Change: The notes will be funded on June 25th and the proceeds will be used to pay down the revolver, which will restore liquidity to approximately $1 billion.

Speaker Change: We experienced minimal credit loss in the first quarter.

Matts Pinard: There's no update for discussions with American Tire distributors at this time. American Tire distributors are current under 2025 rents through today.

Speaker Change: There's no update for discussions with American tire distributors at this time American.

Speaker Change: American tire distributors are current on their 2025 rents through today.

Matts Pinard: At this point, we're maintaining our 2025 credit loss guidance to 75 basis points, and we're maintaining all other guidance as well.

Speaker Change: This point, we are maintaining our 2025 credit loss guidance of 75 basis points.

Speaker Change: Maintaining all other guidance as well I will now turn back over to Bill.

William Crooker: I will now turn it back over to. Thank you, Matts. want to thank our team for their continued hard work and achievement towards our 2025 goals. Our team continues to drive value in all macro environments. STAG has set the foundation of sustainable growth in 2025 and will continue to benefit from a strong balance sheet, ample liquidity, and broad market diversification.

Bill Crooker: Thank you mats.

Speaker Change: I want to thank our team for their continued hard work and achievement towards our 2025 goals are our team continues to drive value in all macro environments.

Speaker Change: Yeah, I can set the foundation of sustainable growth in 2025, and we will continue to benefit from a strong balance sheet ample liquidity.

Speaker Change: In broad market verification.

Steve Xiarhos: We'll now turn it back to the operator for questions. Thank you.

Speaker Change: We will now turn it back to the operator for questions.

Speaker Change: Thank you.

Operator: We will now be conducting a question and answer session. 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 questions from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start key.

Speaker Change: We'll now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.

Speaker Change: A confirmation tone will indicate your line is in the question queue.

Speaker Change: Do you start to if you would like to move your questions from the queue.

Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Operator: As a reminder, please restrict yourself to one question and one follow-up. One moment, please, while we poll for questions.

Speaker Change: As a reminder, please restrict yourself to one question and one follow up.

Speaker Change: One moment please poll for questions.

Speaker Change: Yeah.

Craig Mailman: The first question comes from the line of Craig Mailman with Citi. Please go ahead. Hey, good morning. Um, Matt, did I hear right that you guys have signed a million square feet of new leasing quarter to date, so just in the month of April?

Speaker Change: The first question comes from the line of Craig mainland.

Speaker Change: Go ahead.

Craig mainland: Hey, good morning, Mats did I hear right that you guys have signed a million square feet of new leasing.

Speaker Change: Quarter to date, so just in the month of April.

William Crooker: Yeah, Craig, it's Bill. Yeah, in Q2, we've signed 3.6 million, we have 3.6 million leases commencing, a million of which is new leasing. And one success we had was we had a space of 500,000 square foot space that we were notified a couple months ago, they were going to vacate in Q2, and we backfilled that space with no downtime, seven-year lease, no downtime, and a 25% rollover leasing spread. So really happy with the execution there.

Mats: Yeah, Craig it's it's felt yeah in Q2, we've signed 3.6 million, we have $3 6 million leases commencing.

Speaker Change: One of which is new leasing.

Mats: And one.

Mats: One success, we had was we had a a space of 500000 square foot space that we were notified a couple months ago, they're going to vacate in Q2, and we backfill that space with no downtime seven year lease.

Mats: No downtime.

Mats: 25% rollover leasing spreads so really happy with the execution there.

William Crooker: And so, apologies, so the, you keep saying commence, was the million square feet of new leases executed quarter to date or some of those were done before and they'll just commence in the quarter? It's a mix with the new leasing generally they're signed and commencing in a in a shorter window versus some of the renewals may have been executed earlier. But for example, the million square feet that's commencing in effectively April was all signed in the last, you know, 30 to 60 days.

Mats: So apologies to the.

Mats: You keep saying commence was the million square feet of new leases executed quarter to date or some of those were done before and they'll just commenced in the quarter.

Mats: It's a mix with the new leasing generally there they're signed and commencing in a in a shorter window versus some of the renewals may have been executed earlier, but for example, the million square feet. That's commencing in effectively April was all signed in the last 30 to 60 days.

Mats: Okay and then just for the follow up can you just talk about kind of the demand that you're seeing.

William Crooker: Okay, and then just for the follow up, can you just talk about kind of the demand that you're seeing across different sub markets, right? You guys have had good activity in Greenville, which is maybe auto related. Could you talk about what you're seeing in more of your manufacturing type markets versus distribution? Are there any differences you're seeing across demand and tenant conversations? I mean, the tenant conversations that we've had is, you know, the tariffs Everything that we're seeing in the macro environment is just causing a little bit more uncertainty. And with that uncertainty creates a little bit longer time frame between lease negotiations and signing an LOI and a lease.

Mats: Across different Submarkets right you guys have had good activity in Greenville, which is maybe auto related could you talk about what you're seeing in more of your manufacturing type markets versus distribution are there any differences you're seeing across demand and tenant conversations.

Mats: I mean, the tenant conversations that we've had as you know the tariffs.

Mats: Everything that we're seeing in the in the macro environment is just causing a little bit more uncertainty.

Mats: And with that uncertainty creates a little bit longer.

Mats: Frame between lease negotiations and signing an LOI in the lease.

William Crooker: With respect to markets, I mean, kind of similar to last quarter where some of those Midwest markets are operating really well, Milwaukee, Chicago, Minneapolis is doing really well. We're still seeing good demand in Detroit. And then Sunbelt is strong. Nashville is really strong. And in markets that, you know, one of which you noted that's improving, Greenville is improving, Columbus is improving.

Mats: With respect to markets.

Mats: Kind of similar to last quarter, where you know some of those Midwest markets are operating really well Milwaukee Chicago Minneapolis.

Mats: Is doing really well.

Mats: We're still seeing good demand in Detroit.

Mats: And then Sun belt.

Mats: His strong Nashville is really strong.

Mats: Markets that one of which you noted that's improving our Greenville is improving Columbus is improving and then I'm sure. If you have another follow up question is what's the weaker markets.

William Crooker: And then I'm sure if you had another follow-up question is what's the, you know, weaker markets. We're a little bit of weakness in Atlanta, certainly some weakness. We own an asset in San Diego, a lot of weakness there. And then Indianapolis is still a little slow. But overall, your tenants are still executing leases. It's just taking a little bit longer. And just one other, I guess, point I'd like to make is we're seeing is some good demand from tenants wanting to renew leases early. So leases that are rolling in 26, even 12 months out, we're in conversations with with large tenants to renew those leases.

Mats: We've seen some a little bit of weakness in Atlanta, certainly some weakness we own an asset in San Diego a lot of weakness there and then Indianapolis is still it's still a little slow.

Mats: But overall your tenants are still executing leasing are at least as it's just taking a little bit longer and just one other point I'd like to make is we're seeing.

Mats: There's some good demand from tenants wanting to renew leases early so leases that are rolling in 'twenty six even 12 months out now we're in conversations with with large tenants to renew those leases so.

Craig Mailman: So I think there's a lot of demand in the system. But with the events in the past 30 days, it just creates a little bit more uncertainty and, and some of those discussions taking a little bit longer than what they normally Great, thank you. Thanks, Craig.

Mats: I think theres a lot of demand in the system.

Mats: But with the events in the past 30 days, its just creates a little bit more uncertainty in and some of those discussions taking a little bit longer than what they normally take.

Mats: Great. Thank you.

Greg: Thanks, Greg.

Speaker Change: Thank you next question comes from the line of Jonathan Hughes with Raymond James. Please go ahead.

Jonathan Hughes: Next question comes from the line of Jonathan Hughes with Raymond James. Please go ahead. Good morning. Thanks for the prepared remarks, just kind of sticking with leasing activity there. You know, these tenants that are coming to you, are they just trying to renew early to get ahead of expected supply inflection in hopes of achieving better rates. You know, was there an increased push to lease space ahead of tariffs so they could fill space with imported goods? They're just really trying to better understand that strong leasing volume because you're at kind of 11 million square feet year to date.

Jonathan Hughes: Hey, good morning, Thanks for the prepared remarks, just kind of sticking with the leasing activity there.

Jonathan Hughes: Tenants that are coming to you or are they just trying to renew early to get ahead of.

Jonathan Hughes: We expected supply inflection in hopes of achieving better rates was there an increased push to lease space ahead of tariffs and they could fill space with imported goods.

Jonathan Hughes: Yeah, just really trying to better understand that strong leasing volume because you're at kind of 11 million square feet year to date, that's not far off last year's total and right at 7 million expiring at the start of the year. So any.

Jonathan Hughes: That's not far off last year's total and they only had 7 million expiring at the start of the year.

William Crooker: So Any common theme as to why the early Yeah, I mean, we just sat with the regional managers yesterday and talked about that exact point is, I think there's a combination, right? I mean, there's still demand in the system, especially for these early renewals. I think tenants are seeing a little bit of an opportunity, right, with some of the noise out there to say, hey, maybe we can get a little bit better rate instead of waiting 12 months when, you know, we're post that inflection point, whenever that may be. And then, you know, rates start to increase at, you know, a faster pace.

Jonathan Hughes: Yeah, I would deem as to why the early renewals. Thanks, Yeah. I mean, we just sat with the regional managers yesterday and talked about that exact point is I think there's a combination right I mean, there's still demand in the system, especially for these or early renewals I think tenants are seeing.

Jonathan Hughes: A little bit of an opportunity right with some of the noise out there to say hey, maybe we can get a little bit better rate instead of waiting 12 months when you know.

Jonathan Hughes: Post that inflection point whenever that may be and then you know rates start to increase at a faster pace.

William Crooker: And tenants need the space, right? There's still demand. I still think there's pent up demand from last year. Tenants took a lot of time leasing space last year in front of the election. And then, you know, we saw a lot of activity to start the year. And then we have, you know, a little bit of, you know, call it a little bit of a slowdown or, you know, taking a step back, evaluating everything that's going on from a macro level in the past month. But tenants still need space. I was really optimistic with the new leasing that we've signed in Q2, a million square feet one month into the second quarter of new leasing.

Jonathan Hughes: And tenants need the space right, there's still demand I still think there's pent up demand from last year tenants took a lot of time leasing space last year in front of the election, and then we saw a lot of activity to start the year and then we have you know.

Jonathan Hughes: A little bit of Yep.

Jonathan Hughes: Call it a little bit of a slow down or you know taking a step back of evaluating everything that's going on from a macro level in the past month.

Jonathan Hughes: But tenants still need space.

Jonathan Hughes: Really optimistic with the new leasing that we've signed in Q2 a million square feet are one month into the second quarter of new leasing that's a big number for us so.

Jonathan Hughes: That's a big number for us, so really happy with that. And it was a big number on, you know, executing with some pretty strong leasing spreads. So overall, the demand feels really good. I think tenants are just taking, you know, a little bit more time making those decisions. And the tenants that are in those spaces, to your point, I think are trying to get ahead of some of what we see as potential inflection point at the end of this year. All right, thanks for that. I'll see you in the floor, thanks. Thank you.

Jonathan Hughes: I'm really happy with that and it was it was a big number on you know executing with some pretty strong leasing spreads.

Jonathan Hughes: So overall the demand feels really good I think tenants are just taking you know a little bit more time, making those decisions and the tenants that are in those spaces are to your to your point I think are trying to get ahead of some of the some of what we see as potential inflection point at the end of this year.

Jonathan Hughes: Alright, thanks for that I'll cede the floor. Thanks.

Jonathan Hughes: Thank you.

Jonathan Hughes: Thank you.

Vince Tibone: Next question comes from the line of Vince Tibone with Green Street. Please go ahead. Hi, good morning.

Jonathan Hughes: Next question comes from the line of Vince people.

Speaker Change: <unk> Street. Please go ahead.

Speaker Change: Hi, good morning could you.

Vince Tibone: Could you discuss trends in the private transactions market since April 2? And more specifically, are you seeing any retrading activity just given the uncertainty or potential sellers pulling deals that have already begun some form of formal marketing process? Just curious kind of how the transaction market and, you know, it's kind of evolved in the last few weeks.

Speaker Change: Can you discuss trends in the private transaction market since April 2nd and more specifically are you seeing any re trading activity just given the uncertainty or yeah.

Speaker Change: Pulling deals that may have already begun some form of formal marketing process, just curious kind of how the transaction market and.

Speaker Change: Are evolved in the last few weeks.

William Crooker: Yeah, I'll start off and then I'll pass it off to Mike and To date, we haven't seen those trade. Broker feedback has been the buyers are still involved. There's still a lot of bids for these properties. But nothing has traded. And I think I may be wrong here, but I think, you know, one or two smaller portfolios have been pulled just due to some dislocation pricing.

Speaker Change: Yeah, I'll start off and then I'll pass it off to Mike Pence.

Speaker Change: What we saw at the beginning of the year was the private market continued to be really strong you know public.

Speaker Change: Public bids on.

Speaker Change: On properties, maybe a little bit wider than the private marks we saw some big portfolios come out either you know Paul.

Speaker Change: Folio sale, a recap come out to the market at some pretty attractive pricing that was compared to our portfolio comparable to our portfolio and.

Speaker Change: To date, we haven't seen those trade broker feedback has been and the buyers are still involved there's still a lot of bids for these properties. What had nothing has traded and I think I may be wrong here, but I think one or two smaller portfolios have been pulled just due to.

Michael Chase: But Mike, I'll let you elaborate on that a little bit. Sure, yeah, there just recently, we we have been getting some information on a few portfolios, both large and small that have have been pulled from the market just because of the volatility and concerns about pricing. We haven't heard a lot about retrading, maybe one or two, but but it's mostly just sellers pulling portfolios or deals from the market to see where the volatility settles.

Speaker Change: Some dislocation in pricing, but Mike I'll, let you elaborate on that a little bit.

Speaker Change: Sure Yeah. Just recently, we have been getting some information on a few portfolios both large and small that have had been pulled from the market just because of the volatility and concerns about pricing. We haven't heard a lot about re trading maybe one or two but it's mostly just.

Speaker Change: Sellers.

Speaker Change: Pulling.

Speaker Change: Portfolios or deals from the market to see where the volatility settles out.

William Crooker: Yeah, Vince, just one more comment there. I don't think it's too dissimilar to what we've seen over the past four to five years, really, since COVID, where you have these either spike in rates or macro uncertainty and volatility enters the market, bid-ask spreads widen, it goes on a, you know, call it a three-month, four-month pause. And then next thing you know, the acquisition transaction market starts to improve. So that is, it's not uncommon for us to see this.

Speaker Change: And Vince just said one more comment there I don't think it's too dissimilar to.

Speaker Change: And what we've seen over the past.

Four to five years really since Covid, where you have these either spike in rates or.

Speaker Change: Macro uncertainty and volatility enters the market bid ask spreads widen.

Speaker Change: It goes on it you know call. It a three month four month pause and and then and then next thing you know that the.

Speaker Change: The acquisition transaction market starts to improve.

Speaker Change: So that is it's not uncommon for us to see this I mean for US we've got a really strong balance sheet, great liquidity and when we see these type of these type of situations, where we're comfortable just just waiting it out and then pouncing on opportunities when they present themselves.

William Crooker: I mean, for us, we've got a really strong balance sheet, great liquidity. And when we see these type of situations where we're comfortable just. waiting it out, and then pouncing on opportunities when they present themselves.

Vince Tibone: No, that's really helpful color.

Speaker Change: No that's really helpful color and I guess, how are you thinking about you know your cost of capital I mean, just given recent share price changes so.

Vince Tibone: And how are you thinking about, you know, your cost of capital? I mean, just given, you know, recent share price changes, so, you know, you provide the rate of stabilized cap rates? I mean, is it fair to assume you kind of want your implied cap rate to get closer to that range? Or, you know, obviously, I imagine the hurdles higher to buying things today than it was.

Speaker Change: Yeah, you you won't provide the rain the stabilized cap rate I mean is it fair to assume you kind of want your implied cap rate to get closer to that range or you know, obviously I imagine the hurdle is higher too.

Matts Pinard: So can you talk a little bit about, you know, you didn't change acquisition guidance, but I'm imagining there's some change in underwriting or just given your cost of capital?

Speaker Change: Today than it was so if you can talk a little bit about you know you didnt change that but there were some items, but I imagine there is some change in underwriting or just given your cost of capital and I'll talk about the acquisition guidance and masking jump jump in for a cost of capital, but our acquisition initial acquisition guidance was the same as it is today.

William Crooker: Yeah, I'll talk about the acquisition guidance and then Matts can jump in for cost of capital. But our acquisition, initial acquisition guidance was the same as it is today. Everything has been affirmed. But that guidance was a wide range. And as we noted last call, and again, this call, it's very back-end weighted. So there's very little impact to our core FFO from our acquisition guide. So we have the ability to acquire a lot of product if our cost of capital is supportive of where we can deploy it creatively. Generally, in these situations of volatility, and we've had this a couple years, we do a wide range of acquisition and we assess that as we move through the year.

Speaker Change: It was well it has been affirmed but that guidance was a wide range and as we noted last call and again this call. It's very back end weighted so.

Speaker Change: It has very little impact to our core football from our acquisition guidance. So.

Speaker Change: Or we have the ability to acquire a lot of product if our cost of capital.

Speaker Change: Is supportive of where we can deploy it accretively.

Speaker Change: Generally in these situations of volatility than we've had this a couple of years, we do a wide range of acquisition and we are.

Matts Pinard: It's a little too early in the year to change that. But just a reminder to everyone, it's back-end of cash after dividends paid in the first quarter. That's great capital for us.

Speaker Change: Assess that as we move through the year, it's a little too early in the year to change that but just a reminder to everyone. It's back end weighted and very little impact to our core foci match you can jump in for cost of capital. Yeah. So I think cost of debt is the easiest one you heard in our prepared remarks and the press release, we just raised north of half a billion dollars of long term debt.

Speaker Change: At 565% now if that was all 10 year money, its probably closer to $5 75.

Speaker Change: So that's the easy part as Bill mentioned once we fund this private placement, we're going to have $1 billion of liquidity I also want to reiterate the point that we're retaining a lot of capital, we retain and north of $35 million of cash.

Speaker Change: Cash after dividends paid in the first quarter, that's great capital for US the other point I want to make sense and I think it's very very much apparent in this quarter, but it is the way that we view are our cost of capital is it accretive recycling capital, but going back to that Nash with sale, we received $67 million of proceeds at pricing sub five there was a 49.

Matts Pinard: The other point I want to make, Vince, and I think it's very, very much apparent in this quarter, but it is the way that we view our cost of capital, is that creative recycling capital. Going back to that Nashua sale, we received $67 million of proceeds at pricing sub 5. It was a 4.9 cap rate. We redeployed two-thirds of that money into assets that Bill described in his prepared remarks that fit our portfolio perfectly in markets that we love. We're now at stabilized cap rates close to 7.

Speaker Change: Cap rate, we redeployed two thirds of that money into into assets that Bill described in his prepared remarks that fit our portfolio perfectly in markets that we love.

Speaker Change: At stabilized cap rates close to seven.

Matts Pinard: So when we look at how we deploy capital in the sources, certainly in this environment, as you mentioned with the volatility and the share price, You know, creative recycling and capital coupled with the cash that we are able to retain gives us some flexibility to be opportunistic even in this And just one more point on that private placement transaction. I want to give Matt some team credit there. But that was a cover, I think $200 million on the cover of that transaction. And we raised $550 million. We had over $3 billion of demand for that transaction.

Speaker Change: So when we look at how.

Speaker Change: How we deploy capital in the sources certainly in this environment and as you mentioned with the volatility in the share price.

Speaker Change: Recycling capital coupled with the cash that we were able to retain it gives us some flexibility to be opportunistic even in this market.

Speaker Change: And just wait.

Speaker Change: But more points on that private placement transaction I'm going to give mats and team credit there, but that was a cover I think $200 million on the cover of that transaction and we raised $550 million and we had over $3 billion of demand for that transaction. So there's a lot of liquidity in that market at very attractive pricing, so I'm really happy with the execution.

Matts Pinard: So there's a lot of liquidity in that market at very attractive pricing. So I'm really happy with the execution, Matt.

Speaker Change: Madsen team did there.

Vince Tibone: Mr. Tibone, are you done with the question? Yes, thank you.

Speaker Change: Mr. Te Bond are you done with your question.

Speaker Change: Yeah. Thank you yeah. Thanks.

Speaker Change: Thank you next question comes from the line of Nick Tillman with Baird. Please go ahead.

Nick Tillman: Next question comes from the line of Nick Tillman with Baird. Please go ahead.

Nick Tillman: Hey, good morning, guys, maybe digging a little bit more into the acquisitions and kind of what you're seeing their understanding that your probably return thresholds are a little bit higher, but just a little bit more curious on kind of the characteristics of assets are underwriting. Are you looking for more near term waltz, longer term waltz? And I know you guys have made a little bit more pivot into multi tenant assets for single tenant, but how would you like describe the mix of that sort of pipeline?

Speaker Change: Hey, good morning, guys, maybe digging a little bit more into the acquisitions and kind of what youre seeing there understanding that you probably return thresholds are a little bit higher, but just a little bit more curious on kind of the characteristics of the assets are underwriting are you looking for more near term wall to longer term Walt and I know you guys have made a little bit more pivot into a multi.

Speaker Change: On it assets for single tenant, but how would you feel like describe the mix of that sort of pipeline.

William Crooker: Thank you. Yeah, I mean, the mix is, is is a broad mix of assets that we evaluate. That, you know, this quarter happened to be, you know, a two building portfolio, and then an asset, you know, right outside of, you know, Minneapolis, both assets, strong markets ability to, to mark those assets to market, I think the Minneapolis asset, I think it's 40% below market. So we're not focusing on one type of acquisition, we're not just saying we want to buy a Unknown Executive, Steve Xiarhos, Eric Borden, Steven Kimball, Unknown Executive, Jason Belcher, That's helpful.

Speaker Change: Yeah I mean, the mix is is is a broad mix of assets that we evaluate.

Speaker Change: This quarter it happened to be you know.

Speaker Change: At two building portfolio, and then and asset write outside of Minneapolis.

Speaker Change: Both assets strong markets ability to mark those assets to market I think the.

Speaker Change: Minneapolis asset I think it's 40% below market so are.

Speaker Change: We're not focusing on one type of acquisition, we're not just saying we want to buy it.

Speaker Change: Three and a half year, four and a half year lease or seven year lease or a 10 year lease we're evaluating the opportunities our thresholds have effectively increase just.

Speaker Change: Just on the inputs that go into our underwriting model, but.

Speaker Change: But we're evaluating long term leases short term leases roll ups.

Speaker Change: Even bacon assets, but depending on where those where those assets are.

Speaker Change: We might extend the lease up period for some of those assets just given some of the earlier commentary about.

Speaker Change: Some tenants, taking a little bit longer to make leasing decisions. So it all factors into our underwriting, but where we're looking at everything.

Speaker Change: That's helpful and then Matt maybe on credit loss, you you mentioned minimal amount in the first quarter, maybe more details on our numbers around that to men.

Matts Pinard: And then Matt, maybe on credit loss, you mentioned minimal amount in the in the first quarter, maybe put some more details or numbers around that. And then on the 75 basis points for the full year, how much of that is attributable to American Tire? Thanks for the question, Nick. When I say minimal, I mean one basis point is roughly $50,000 of credit loss. An important note here is related to American Tires. They're current on rent through today. We have not incurred any credit loss related to that situation. With that being said, we're still in that process.

Speaker Change: And 75 basis points for the full year, how much of that is attributable to American tire.

Speaker Change: Thanks for the question when I say minimal I mean, one basis point is roughly $50000 of credit loss and an important note here is it related to American tires, they're current on rent through today, we have not incurred any credit loss related to that situation. What's happening said, we're still in that process.

Matts Pinard: The expectation is by the end of May, we will have a firmer idea of the accept, reject and potential restructure. So we have 75 basis points of credit loss baked into our guidance, which is the same as that we had in February when we initiated. We just said, you know, going back to Bill's original points, given this volatility, the last thing we wanted to do was get aggressive on our credit loss assumption. I will continue to update the market if and when there's a ATD settlement related to our leases. In terms of the split, our guidance is 50 basis points of cash credit loss, which is basically how we start every single year, and we added 25 specifically for the American Tire Distributor situation.

Speaker Change: The expectation is by the end of May we will have a firmer idea of the accept reject and potential restructure. So we have 75 basis points of credit loss.

Speaker Change: Our guidance, which is the same as that we had in February when we initiated we just said you know going back to those original points. Given this volatility of the last thing we wanted to do was got.

Speaker Change: <unk> got aggressive on a credit loss assumption I will continue to update the market, if and when Theres a ETT settlement related to our leases in terms of the split our guidance is 50 basis points of cash credit loss, which is basically how we start every single year and we added 25, specifically for the American tire distributors situation and again I want to reiterate.

Matts Pinard: And again, I want to reiterate the current on every single dollar owed through today.

Speaker Change: Our current on every single dollar owed through today.

Nick Tillman: Very helpful, thank you.

Speaker Change: Very helpful. Thank you.

Speaker Change: Okay.

Nick Tillman: Thank you.

Speaker Change: Thank you next question comes from the line of Mike Kelly.

Michael Carroll: Next question comes from the line of Michael Carroll with RBC. Please go ahead. Yep, thanks. Bill, I wanted to circle back on your comments on on the broader leasing activity that it appears to be holding in there, at least so far. Is that more focused on renewals? Did I hear that correctly? What about new leasing activity? Has tenants kind of pulled back on on new leasing and most of the activity you're seeing right now is on on renewals? Well, certainly this quarter, you know, we had a lot more renewal leasing than we did new leasing.

Speaker Change: Please go ahead.

Mike Kelly: Yeah. Thanks, Bill I wanted to circle back on your comments on on the broader leasing activity that it appears to be holding in there at least so far is that.

Mike Kelly: I'm more focused on renewals did I hear that correctly, what about new leasing activity has as tenants kind of pulled back on on new leasing and most of the activity Youre seeing right now is on on renewals.

Mike Kelly: Certainly this quarter, we had a lot more renewal leasing than we did new leasing.

William Crooker: But in the second quarter, through April, we've commenced 3.6 million square feet, of which a million is new leasing. So, you know, really four times the amount of new leasing that we did in the first quarter. So I don't know if it's fair to say that new leasing is, you know, pulled back significantly. It's just taking some tenants a little bit longer to make decisions. But the example I said earlier, I mean, that tenant made a decision rather quickly because we just got noticed a couple months ago that the tenant that was in that space was not renewing, and we backfilled that 500,000 square foot facility with zero downtime.

Mike Kelly: But.

Mike Kelly: In the second quarter were through April work commands, we've commenced three 6 million square feet.

Mike Kelly: Of which 1 million is new leasing. So you know really four times the amount of new leasing that we did in the first quarter.

Speaker Change: Oh I don't know if it's fair to say that new leasing is.

Speaker Change: Pulled back significantly, it's just taking some tenants a little bit longer.

Speaker Change: To make decisions, but the example, I said earlier I mean that tenant made a decision rather quickly because we just got noticed a couple months ago that the the the tenant that was in that space was not renewing and we backfill that 500000 square foot facility with zero downtime. So.

William Crooker: So the tenants are leasing space. They are making decisions. The renewal market is really strong. You know, our renewals are very high to start the year. And we're in discussions with a number of tenants for early renewals for leases expiring in 26. So the demand is healthy.

Speaker Change: Tennant's are leasing space.

Speaker Change: They are making decisions.

Speaker Change: The renewal market is really strong you know our renewals are very high to start the year.

Speaker Change: And where we're in discussions with a number of tenants for early renewals for leases expiring in 'twenty six so the.

Speaker Change: The demand is is is healthy, but I do want to caution that two which as you know it is taking a little bit longer on some spaces and there's some uncertainty in the macro environment.

William Crooker: But, you know, I do want to caution that, too, which is, you know, it is taking, you know, a little bit longer on some spaces, and there's some uncertainty in the macro. Okay.

Speaker Change: Okay.

William Crooker: And I know you've made really good progress achieving your 2025 leasing targets, right? What, 78, 79% done so far? That is tracking a little bit below what it was last year. I mean, can we read anything into that? Or is it just kind of in the normal realm of expectations, just given I think last year you're in the low 80s, so not much farther below. Could we read anything into that at all? Yeah, I mean, if we're, you know, a percent or two difference, we kind of view that as in line. So I wouldn't read anything.

Speaker Change: And I know you've made really good progress achieving your 2025 leasing targets travel at 70, 879% done so far that is tracking a little bit below what it was last year I mean can we read anything into that or is it just kind of in the normal realm of expectations. Just given I think last year you were in the low eighties, so not much farther below us.

Speaker Change: So could we read anything into that at all yeah.

Speaker Change: Yeah, I mean, if we're yeah a percent or two difference we kind of view that as in line. So I wouldn't read anything into that.

Michael Carroll: Yeah, thanks.

Speaker Change: Okay. Thanks.

Speaker Change: Yes.

Speaker Change: Thank you next question comes from the line of Gordon BMO Capital markets. Please go ahead.

Eric Borden: Next question comes from the line of Eric Borden, BMO Capital Markets. Please go ahead. Hey, good morning, everyone. So it sounds like new leasing is off to a solid start, post quarter end, you know, driven by one tenant, but I was hoping that you could, you know, provide an update on demand for your development pipeline. You know, how are KPIs tracking interest in tours? And, you know, if you think there's a potential, if the lease up could take longer than your initial underwriting, just given, you know, the current macro uncertainty. Yeah, I mean, we're still we have a lot of activity at our available Greenville asset.

Speaker Change: Hey, good morning, everyone.

Speaker Change: So it sounds like new leasing is off to a solid start post quarter end driven by one tenant, but I was hoping that you could provide an update on demand for your development pipeline, how our kpis tracking interest in tours.

Speaker Change: And if you think there is a potential if the lease up could take longer than your initial underwriting just given the current macro uncertainty.

Speaker Change: Yeah, I mean, we're still we have a lot of activity at our available Greenville.

William Crooker: That's the 240,000 square foot facility. I think, you know, in general, New leasing for new developments is a little slower, and that's more of a macro comment, but we're seeing a lot of good activity at that facility. And with respect to the Tampa facilities, some really strong leasing activity at the first one, the 602 O Powell Road, and the 6508 Powell Road is also getting a lot of activity. Hopefully there's something to report on soon on at least one of those. And the casual drive facility, as I mentioned at least a hundred thousand square foot, square feet there.

Speaker Change: That's the 240000 square foot facility.

Speaker Change: I think in.

Speaker Change: In general.

Speaker Change: New leasing for new developments is a little slower.

Speaker Change: And that's more of a macro comment, but we're seeing a lot of good activity at that.

Speaker Change: At that facility.

Speaker Change: With respect to the Tampa facilities.

Speaker Change: Some really strong leasing activity.

Speaker Change: Activity at the at.

Speaker Change: The first one on the six O to O Powell Road.

Speaker Change: And the 6508, Paul rode is also getting a lot of activity.

Speaker Change: Hopefully there's something to report soon on at least one of those and the casual drive facility as I mentioned, when you released 100000 square foot square feet. There so that 69%. So some good activity in those or I just covered all the ones that.

William Crooker: So that's sixty nine percent, so some good activity and those are just covered all the ones that are delivered.

Speaker Change: <unk> delivered.

William Crooker: The developments that have not delivered, the Nashville is delivering this quarter. Still, arguably the strongest industrial market in the US right now. Portland is a build to suit. The Reno is some really good activity and the Charlottes really just kind of got started. So overall, some really good activity. If anything, you might see a little bit of slippage maybe with some of the lease up periods and maybe depending on where deals get struck, maybe a little slippage on ongoing yields, but overall, really happy with the activity. Oh, okay.

Speaker Change: The developments that have not delivered the Nashville is delivering this quarter.

Speaker Change: Still probably arguably the strongest industrial market in the U S right now Portland's a build to suit.

Speaker Change: The arena has some really good activity.

Speaker Change: And the Charlotte's really just kind of got started so overall some really good activity.

Speaker Change: If anything you might see a little bit of slippage, maybe with with some of the lease up periods and maybe depending on where deals get stuck maybe a little slippage on ongoing yields, but overall really happy with the activity.

Speaker Change: Okay.

Matts Pinard: And then, Matt, I think last quarter, you guys, you said you expected about 100 basis points of occupancy loss. I was just wondering if you could provide an update there. And you know, how much of the 100 basis points is currently allocated to tenants, if any? And then what sort of buffer do you have built into the assumption? Yeah, I think that there's a little bit to unpack there, just to answer the direct question first. You know, we have not changed any piece of our guidance, and that includes the 100 basis points of Occam's Zoolots that we expect.

Speaker Change: And then.

Speaker Change: I think last quarter you guys. You said you expected about 100 basis points of occupancy loss I was just wondering if you could provide an update there and.

Speaker Change: How much of the 100 basis points is currently allocated to tenants if any and then what sort of buffer do you have built into the assumption there.

Speaker Change: Yeah, I think that there's a little bit to unpack there just to answer the direct question first we have not changed any piece of our guidance and that includes the 100 basis points of occupancy loss that we expect.

Matts Pinard: You know, in terms of what I think the question is, is did we stress test our projections, what's our downside? We absolutely did. Again, we're incredibly comfortable with all of our guidance measures. As Bill mentioned, we're even a little bit ahead this quarter, but we're being cautious given the market uncertainty that we're all living in right now. Remember, we've accomplished 80% of our leasing. So 80% of what we expect to happen this year has already been booked. So when you stress, it's really the remaining 20%. But the variables that we sensitize are pretty straightforward. What does it look like if we don't acquire an additional deal this year?

Speaker Change: You know in terms of what I think I think the question is did we stress test our projections, what's your downside.

Speaker Change: Absolutely did again, we're incredibly comfortable with all of our guidance measures.

Speaker Change: And we're even a little bit ahead, this quarter, but we're being cautious given the market uncertainty that we all we're all living in right now.

Speaker Change: Remember, we've accomplished 80% of our leasing so 80% of what we expect to happen. This year has already been booked so when you're stress, it's really the remaining 20%, but the variables that we sell sides are pretty pretty straightforward what does it look like if we don't acquire an additional deal. This year. It was it looked like if we don't lease any of our development. This year what does it look like if we model.

Matts Pinard: What does it look like if we don't lease any of our developments this year? What does it look like if we moderate the projected leasing related to that remaining 20 percent? It all ends up within our range. We're incredibly comfortable. So 100 base points of average occupancy loss continues to be the expectation.

Speaker Change: The projected leasing related to that remaining 20%.

Speaker Change: It all ends up within our range, we're incredibly comfortable so 100 basis points of average occupancy loss.

Speaker Change: <unk> to be the expectation for this year.

Matts Pinard: Well, thank you very much. Thank you.

Speaker Change: Well, thank you very much.

Jason Belcher: Thank you next question comes from the line of Jason Belcher with Wells Fargo. Please go ahead.

Jason Belcher: Next question comes from the line of Jason Belcher with Wells Fargo. Please go ahead. Yeah, hi, good morning. Just following up on the bad debt front.

Jason Belcher: Yeah, Hi, good morning, just following up on the bad debt front.

Jason Belcher: Wondering if you could talk about any tenant categories that might be giving you a little more concern than others in the current environment and also how your tenant watch list has trended over the past couple quarters. Yeah, absolutely. Thanks for the question, Jason. So we look at this often we have we have a three person, fully dedicated credit team. You know, this is their job, you know, we have financial disclosure, transparency clauses and 90% plus of our leases. We look hard at every sector. It's really not sector is what we're paying. It's not food and beverage.

Jason Belcher: Wondering if you could talk about any categories that might be giving you a little more concerned that others in the current environment and also how your tenant watch list has trended over the past couple of quarters.

Speaker Change: Yeah, absolutely. Thanks for the question Jason So we look at this off and we had a three person.

Jason Belcher: Fully dedicated credit team.

Jason Belcher: This is their job, we have financial disclosure transparency clauses and 90% plus of our leases.

Jason Belcher: We looked hard at every sector and its really not sector is what we're paying it's not food and beverage. It's not housing it's not consumer it really is taking a look at that.

Matts Pinard: It's not housing. It's not consumer. It really is taking a look at the tenants that have Low Margin Businesses with Highly Levered Balance Sheets. And good examples are the bankruptcy seen by Kahn's, Vitamin Shops, and we've talked about American Tire a few times here. So from a sector by sector, we really couldn't find anything there. It really was digging into the balance sheet and what are they selling and at what margins. The watch list is dynamic, but it has not expanded materially at all. It really is kind of the... The same few names and really it's kind of dominated by that American Tire discussion that we had.

Jason Belcher: Tenants that have.

Jason Belcher: Low margin businesses with highly levered balance sheets and good examples are the bankruptcies seen by karnes vitamin shops, and we've talked about American tire a few times here so from a sector by sector, we really couldn't find anything there it really was digging into the balance sheet.

Jason Belcher: What are they selling and at what margins.

Jason Belcher: The watch list is dynamic, but it has not expanded materially at all it really is kind of it.

Jason Belcher: The same few names and really it's kind of dominated by that American tire discussion that we had previously.

Jason Belcher: That's helpful.

That's helpful. Thank you and then.

Jason Belcher: Thank you. And then. Back on the leasing front, I know you said you've completed close to 80% of expected 25 leasing and you've already begun to tackle some of the 26 expirations. Just wondering if you could share what kind of rent spreads you're seeing on those 26 expirations and how that compares to the spreads done for 25 and then what percent of 26 expirations have been addressed so far. Yeah, it's a little too early for us to discuss, you know, 26 spreads. I mean, right now we've, we've executed, you know, given, you know, 15% plus of our 26 Unknown Executive, Steve Xiarhos, Andrew Berger, Steven Kimball, Steve Xiarhos, Unknown Executive, Understood.

Jason Belcher: Back on the leasing front I know you said, you've completed close to like 80% of expected twenty-five leasing and you've already begun to tackle some of the 26 explorations. Just wondering if you could share what kind of rent spreads you are seeing on those 26 exploration and how that compares to the spreads done it for 25.

Jason Belcher: And then what percent of 26 expirations have been addressed so far.

Jason Belcher: Yeah, it's a little too early for us to discuss 26 spreads I mean right now we've we've executed given 15% plus of our 26.

Leasing so in line with what we've done in past years at this time, but still a little early to talk about economics next year.

Speaker Change: Understood. Thanks, guys.

Jason Belcher: Thanks, guys. Thank you.

Jason Belcher: Thanks.

Jason Belcher: Thank you.

Michael Mueller: Next question comes from the line of Mike Mueller with J.P. Morgan. Please go ahead. Yeah, um...

Speaker Change: Next question comes from the line of Mike Mueller with JP Morgan. Please go ahead.

Jason Belcher: Yeah.

Jason Belcher: Okay.

Michael Mueller: I guess, in the world where you have just lesser overall demand, are there any segments where, I don't know, it seems to be less of a pause or just kind of, you know, continuing along at more of a old world normal clip, or is everything kind of muted that you're seeing across the board, regardless of the category? Yeah, I mean, it's an interesting question. I mean, I think there's a big assumption there, right, that everything is muted. I would say, you know, demand is, feels like it's still there. I mean, we've had some really good new leasing, as I noted a couple times, is taking a little bit longer to make decisions.

Jason Belcher: Okay.

Speaker Change: In a world, where you have just lesser overall demand or are there any segments where.

Jason Belcher: I don't know it seems to be less of a pause or just kind of.

Speaker Change: Continuing along at more of them.

Speaker Change: Old World normal clip or is everything kind of muted that youre seeing across the board regardless of the category.

Speaker Change: Yeah, I mean, it's an interesting question I mean.

Speaker Change: I think theres, a big assumption there right that everything is is muted I would say is demand is as is.

Speaker Change: Is it feels like it's still there I mean, we've had some really good new leasing as I said as I noted a couple of times is.

Speaker Change: It's taking a little bit longer to make decisions.

Speaker Change: We're still seeing some strong activity from from three Pls and when you look at the markets.

William Crooker: We're still seeing some strong activity from 3PLs. And when you look at, you know, the markets I mentioned earlier, the strong markets. I mean, a lot of those markets have some sort of manufacturing component to them with some distribution components. So, you know, overall, I mean, we feel pretty good about the demand side. It's just, you know, in some situations, it might take a little bit longer to lease up some spaces. And that's just tenants taking longer to make decisions, given the uncertainty. I mean, if you peel back before the last 30 days, I mean, leasing activity was significant.

Speaker Change: I mentioned earlier, the strong markets I mean, a lot of those markets have some sort of manufacturing component to them.

Speaker Change: With some distribution components so.

Speaker Change: Overall I mean.

Speaker Change: Sure.

Speaker Change: We feel pretty good about the demand side. It's just you know in some situations it might take a little bit longer to lease up some spaces and that's just tenants taking longer to make decisions given the uncertainty I mean, if you Peel back before the last 30 days.

Speaker Change: I mean leasing activity was significant I mean in terms of tours rfps.

William Crooker: I mean, in terms of TORs, RFPs, Everybody was extremely busy on the team. Brokers were really busy. And then things just started to slow down a little bit when folks were looking at the macro environment. What does that mean for their business and making a long-term decision? With that being said, a lot of those folks still made that long-term decision because they need to. And I do think there was some pent up demand from last year in the delayed decision-making that made its way into this year. Absent the last call of 30 days, I think leasing on the whole for the industrial sector would have been up pretty significantly.

Speaker Change: Everybody was extremely busy other team brokers are really busy.

Speaker Change: And then things just.

Speaker Change: It started to slow down a little bit when when folks were looking at the macro environment, what does that mean for their business and making a long term decision, but that being said a lot of those folks still made that long term decision because they need to and I do think there was some pent up demand from last year and the and the delayed decision making.

Speaker Change: That made its way into this year and you know absent. The last you know call. It 30 days I think leasing on the whole for the industrial sector would have been up pretty significantly so.

Michael Mueller: So I still feel really good about the demand side. It just might take a little longer. Got it.

Speaker Change: So we still feel really good about the demand side, it just might take a little longer.

Got it maybe maybe one follow up on that.

William Crooker: Maybe maybe one follow up on that. Before you were talking about activity at Greenville and Tampa being pretty good. Can you just kind of like put some context around that? Like, Roughly, how many tours are you seeing now? How frequent are they and how did that compare to, you know, a month or two ago? I would say as compared to a month or two ago, I would say probably flat, maybe slightly down. But the activity that we're seeing is is called, for lack of a better term, better activity.

Speaker Change: Before you were talking about activity at Greenville, and Tampa being pretty good can you just kind of.

Speaker Change: Put some context around that like.

Speaker Change: Roughly.

Speaker Change: How many tours are you seeing now how frequent are they and how does that compare to a month or two ago.

Speaker Change: I would say as compared to a month or two ago I would say probably flat.

Speaker Change: Maybe slightly down.

Speaker Change: But the activity that we're seeing is.

Speaker Change: Is call it for lack of a better term better activity, so more likely to get a deal done activity versus just a lot of folks kicking the tires.

William Crooker: So more likely to get a deal done activity versus just a lot of folks kicking the tires. Okay, thank you. Thank you.

Speaker Change: Got it.

Speaker Change: Okay. Thank you.

Speaker Change: Thank you next question comes from the line of Rich Anderson.

Rich Anderson: Next question comes from the line of Rich Anderson with Redbush Securities. Please go ahead. Thank you and good morning. So I wanted to talk about the 85% retention. And if I could marry it with the, you know, the pace of early leasing, you meant, you know, 79% of it already addressed. Is it fair to say that you kind of get a bigger retention number to start the year? And that kind of marries with the activity that you've seen in terms of 2025 expirations, because tenants in that case, sort of have made a decision to stick around.

Speaker Change: Wedbush Securities. Please go ahead.

Rich Anderson: Thank you and good morning, So I wanted to talk about the 85% retention and if I can marry it with the you know the pace of early leasing you meant you know 79% of it already addressed is it fair to say that you kind of get a bigger retention number to start the year and that kind of married with the.

Rich Anderson: Tivoli that you've seen in terms of 2025 exploration because tenants in that case sort of have made a decision to stick around and so that the retention would be naturally trickle down as the year progresses is that the right way to think about it in terms of those two observations.

William Crooker: And so that the retention would maybe naturally trickle down as the year progresses? Is that the right way to think about it in terms of those two observations? Yeah, Rich, I think you got it.

Rich Anderson: Yeah, Rich I think you've got it just to say in a different way.

Matts Pinard: Just to say in a different way, and I'm sorry for repeating myself, but we've done 80% of our leasing, and we didn't change any guidance. So our guidance range is 70-75%. If we've done 80% of our leasing, I'll commence this here, we have a pretty good clear line of sight of what retention will be. The 85% in the first quarter is just mathematically high, as you see from the almost 5 million square feet of leasing, the majority of that was renewals. Phil did mention the 500,000 square foot immediate backfill, but that's a negative retention event just for that metric in the second quarter.

And I'm, sorry to repeat myself, but we've got 80% of our leasing and we didn't change any guidance. So our guidance range of 70% to 75%. If we've done 80% of our leasing will commence as here we have a pretty good clear line of sight of what retention will be at 85% in the first quarter is just mathematically hi.

Rich Anderson: As you see from the almost 5 million square feet of leasing the majority of that was renewals did.

Speaker Change: <unk> mentioned, the 500000 square foot immediate backfill, but that's a negative retention event just for that metric in the in the second quarter.

Matts Pinard: The way I would explain it is we've done most of our book of business this year, and we feel very confident with our current guidance. Yeah, we guide we guide to just an absolute retention number. We don't guide to retention adjusted for immediate backfills, which is which is basically filling the space with zero to one or two months of downtime. And so that 500,000 square foot is going to add to that retention adjusted for immediate backfill number. So as that number ticks up, it's it's it really drops the bottom line. So it's it's a great outcome for us.

Speaker Change: The way I would explain as we've done most of our book of business. This year and we feel very confident with our current guidance.

Speaker Change: Yeah, We guide we guide to just an absolute retention number we don't guide to.

Speaker Change: Retention adjusted for immediate backfill, which is which is basically filling the space with zero to one or two months of downtime.

Speaker Change: And so that 500000 square foot is going to add to that retention adjusted for immediate backfill numbers, so as that number ticks up.

Speaker Change: It's it really drops to the bottom line. So it's a great outcome for us okay.

Matts Pinard: Okay, great.

Speaker Change: Okay, Great and then.

William Crooker: And then, probably too early to observe this yet, but are you keeping an eye on where perhaps new tenants are coming from? You know, you would think that your area of the country would be, I know you think this, beneficiary of on-shoring, near-shoring. What about, like, I'm going to use the term in-migration into your area.

Speaker Change: Probably too early to observe this yet but are you keeping an eye on where perhaps new tenants are coming from you know you would think that your area of the country would be I know you think this beneficiary of onshoring near shoring.

Speaker Change: What what about like I'm going to use the term in migration into into your area. I mean is that something that you're tracking to see where we're perhaps new tenants are coming from to sort of take advantage of the manufacturing sort of a DNA of your geography.

William Crooker: I mean, is that something that you're tracking to see where perhaps new tenants are coming from to sort of take advantage of the manufacturing sort of DNA of your geography? Yeah, I mean, it's a little, it's a little early to Unknown Executive, Steve Xiarhos, Eric Borden, Unknown Executive, Jason Belcher, Steven Kimball, Consumption, call it for population migration, that's still a theme. And then it's, you know, it's manufacturing. And what I would as I said, in the initial prepared remarks tenants have been talking for the last couple years about diversifying their supply chains, right. And there's a lot of reasons why right, you've got port strikes.

Speaker Change: Yeah, I mean, it's a little it's a.

Speaker Change: A little early too.

Speaker Change: To talk too much about that and there's not a tremendous amount of data on that but when you look at.

Speaker Change: The demand for our buildings today, it's certainly distribution demand it.

Speaker Change: Consumption call. It four population migrate migration, that's still a theme and then it's you know it's manufacturing.

Speaker Change: As I said in the initial prepared remarks.

Speaker Change: The tenants have been talking for the last couple of years about diversifying their supply chains right and there's a lot of reasons why right you've got port strikes you've got.

William Crooker: got, you know, Low water levels in the Panama Canal. You've got terrorist attacks. We've got tariffs. There are a number of reasons why large companies should diversify their supply chains. And there has been a lot of dialogue about that. And you've started to see it over the past couple of years, a few years, with some on-shoring, with some near-shoring, and certainly some good activity on other ports in the U.S. I mean, just hate to keep bringing it up, but that tenant we signed in Q2, I mean, that's a 3PL that distributes, you know, larger goods over 50 pounds for goods that are coming into Savannah Port, and they signed a seven-year lease, right?

Speaker Change: Low water levels in the Panama Canal, you've got terrorist attacks you've got tariffs. There are a number of reasons why large companies should diversify their supply chains and there has been a lot of dialogue about that and you've started to see it over the past couple of years.

Speaker Change: Two years with some onshoring with some near shoring and.

Speaker Change: Certainly some good activity.

Speaker Change: On other other ports in the U S.

Speaker Change: Just.

Speaker Change: Hate to keep bringing up with that tenant we saw in Q2 I mean, that's a.

Speaker Change: That's a three P L that distributes.

Speaker Change: Larger goods over 50 pounds.

Speaker Change: For for goods that are coming in the Savannah port and they signed a seven year lease right. That's a new demand for that market that was clearly something that was driven on.

William Crooker: That's a new demand for that market. That was, you know, clearly something that was driven on, you know, diversifying supply chains. So we think that's a real theme. We think it's going to continue, and we think we're going to be a net benefiter.

Speaker Change: Diversifying supply chain. So we think that that's a real theme. We think it's going to continue and we think we're going to be a net benefit or from that.

Speaker Change: Okay, great. Thanks very much.

William Crooker: Great. Thanks very much.

Speaker Change: Thanks.

Speaker Change: Okay.

Speaker Change: Thank you <unk>.

Michael Griffin: Next question comes from the line of Michael Griffin with Evercore. Please go ahead. Great, thanks. I'm wondering if you can give us any insight into whether the concessionary environment has changed, you know, it seems like tenants are, you know, still kind of kicking, kicking the tire, so to say on on making decisions. So, you know, have you offered maybe any more in the concessions in order to entice them to sign leases quicker? Or are you really holding out to, you know, kind of get the best net effective rent? I mean, we hold out to the best we can.

Speaker Change: Question comes from the line of Michael Griffin with Evercore. Please go ahead.

Michael Griffin: Great. Thanks, I'm wondering if you can give us any insight into whether the concessionary environment has changed you know it seems like tenants are.

Michael Griffin: Kind of kicking kicking the tires, so to say on making decisions. So you have you offered maybe anymore in the concessions in order to entice them to sign leases quicker or are you really holding out to kind of get the best net effective rent.

Michael Griffin: I mean, we hold out to the best we can I mean, some markets that have.

William Crooker: I mean, some markets that have some higher vacancy rates, and we think that it's a great transaction, and we may give another, you know, a month or two of free rent. You know, with respect to, you know, leasing commissions, I mean, that's kind of a market commission. Those can kind of change year to year. So I don't really view that as more of a concession when I think of concessions to tenants. It's really on the TIs and free rent side of it. So it all depends on the market. So I think broadly across the industrial sector, you're probably going to see free rent increase a little bit.

Michael Griffin: Some higher vacancy rates and we think it's a great transaction and we may give another month or two of free rent.

Michael Griffin: Yeah with respect to leash leasing commissions I mean, that's kind of a market Commission.

Michael Griffin: Those can kind of change year to year. So I don't really view that as more of a concession when I think of concessions to tenants, Australia on the Ti and free rent side of it so.

Michael Griffin: It all depends on the market so.

Michael Griffin: Broadly across the industrial sector, you're probably gonna see free rent increase a little bit.

William Crooker: And TIs, I think it really, really varies. I mean, if you look at our small sample size of new leasing in Q1, it looks like there's an elevated TI really that was, you know, more of a building improvement. We enhanced the ability of the building. We had to put in a couple drive-in doors that really are going to enhance our property for that market. We put it in the TI column because the tenant wanted it, but we think it's going to increase leasing activity, and we'll stay with the building after. So it's not really a concession there.

Michael Griffin: And T is.

Michael Griffin: It really really varies I mean, if you look at our our small sample size of new leasing in Q1, it looks like Theres, an elevated ti really that was.

Michael Griffin: More of a building improvement we enhance the ability of the building and we had to put in a couple of drive in doors that.

Michael Griffin: Really are going to enhance our property for that market.

Michael Griffin: We put it in the Ti com because the tenant wanted it but we think it's going to increase leasing activity and will stay with the building. After so it's not really a concession there.

Matts Pinard: So on the whole, I think you probably see a little bit of free rent, but, you know, Great, thanks. That's helpful.

Michael Griffin: So on the whole I think you'd probably see a little bit of free rent, but yeah. Generally we're trying to hold matter of fact, the rents as best we can.

Speaker Change: Great. Thanks, that's helpful and then Matt I appreciate the commentary on you know American tire and in kind of the bad debt assumptions and realize they're current on rent through April and you know maybe this is a little hypothetical but you know if they were to reject the leases you know do you have a sense of what the.

Matts Pinard: And then Matt, I appreciate the commentary on, you know, American Tire and kind of the bad debt assumptions and realize they're, you know, current on rent through April. And, you know, maybe this is a little hypothetical, but, you know, if they were to reject the leases, do you have a sense of what the demand would be like to backfill some of those properties? Or is it still kind of too early to speculate? It really is market visibility. It's really market to market specific. There's seven leases. The good thing is the buildings are newer buildings in the 100 to 120,000 square foot range.

Speaker Change: Demand would be like to backfill some of those properties or is it still kind of too early to speculate.

Bill Crooker: It really is market. This is bill it's really market to market specific theres seven leases.

Speaker Change: Good thing is the buildings are newer buildings in.

Speaker Change: In the 100 to 120000 square foot range. So a decent clear height for those buildings I think anywhere like 30, 28 to 32 or 36 foot. So good buildings in the market what would have to go market by market and just.

Matts Pinard: So a decent clear height for those buildings, I think anywhere like 3028 to 32 or 36 foot so good buildings in the market, but would have to go market by market and just to take a step back It is, you know, one of our top tenants, but it's still 1% of our ABR, right? So it's really not that material of a tenant. We spend a lot of time talking about it, but overall, in the grand scheme of things, it's really not that big of a percentage of our ABR. And we're in active negotiation.

Speaker Change: To take a step back this.

Speaker Change: It is one of our top tenants, but its still 1% of our ABR right. So.

Speaker Change: It's really not that material of a tenant we spend a lot of time talking about it but overall in the Grand scheme of things, it's really not that big of a percentage of our ABR and we're in active negotiations with them.

Michael Griffin: Great, that's it for me. Thanks for the time. Thank you.

Speaker Change: Great. That's it for me thanks for the time.

Speaker Change: Thank you.

Speaker Change: Thank you ladies and gentlemen, we have reached the end of question answer session I would now like to turn the floor over to Bill Cooper for closing comments.

Operator: Ladies and gentlemen, we have reached the end of the question and answer session.

William Crooker: I would now like to turn the floor over to Bill Crooker for closing comments. Thank you all for joining the call this morning. As always, I appreciate the thoughtful questions and look forward to seeing you all soon.

Speaker Change: Thank you all for joining the call this morning.

Bill Cooper: As always appreciate the thoughtful questions and look forward to seeing you all soon take care.

Operator: Take care. Thank you.

Speaker Change: Thank you.

Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation. © BF-WATCH TV 2021

Speaker Change: Concludes today's teleconference. You may disconnect your lines at this time, thank you for your participation.

Speaker Change: Patient.

Speaker Change: [music].