Q3 2025 STAG Industrial Inc Earnings Call
Speaker #2: Greetings and welcome to the STAG Industrial Third Quarter 2025 Earnings Call. At this time, all participants are in a listen-only mode.
Speaker #2: 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 .
Speaker #2: As a reminder , this conference is being recorded . I would now like to turn the call over to your host , Steve Xiarhos Vice President , Investor Relations .
Speaker #2: Thank you . You may begin .
Speaker #3: Thank you. Welcome to STAG Industrial's conference call covering the third quarter 2025 results. In addition to the press release distributed yesterday.
Speaker #3: We have posted an unaudited quarterly supplemental information presentation on the company's website at STAG Industrial under the Investor Relations section . On today's call , the company is prepared .
Speaker #3: 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 may cause actual results to differ from those discussed today .
Speaker #3: Examples of forward looking statements include forecasts of core FFO . Same store NOI , G&A acquisition and disposition volumes , retention rates , and other guidance .
Speaker #3: 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 #3: 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 #3: On today's call , you will hear from Bill Crooker , our Chief Executive Officer and Matts Pinard , our chief Financial Officer . Also here with us today are Mike Chase , our Chief investment officer .
Speaker #3: And Steve Kimball , our chief operating officer . We're available to answer questions specific to the areas of focus . I'll now turn the call over to Bill .
Speaker #4: Thank you . Steve . Good morning , everybody , and welcome to the third quarter earnings call for STAG Industrial . We are pleased to have you join us and look forward to telling you about the third quarter 2025 results .
Speaker #4: Our year to date results continue to exceed internal projections . The outperformance
Speaker #4: year to date has allowed uncertainties that us to increase our core FFO guidance for the year to a range of $2.52 to $2.54 per share , a three cent increase at the midpoint .
Speaker #4: Industrial fundamentals remain stable and are improving . Leasing demand is improving with increased tours and RFPs . However , lease gestation periods remain elongated .
Speaker #4: The supply pipeline continues to decrease and we are forecasting further decreases next year . While we expect national vacancy rates to be in and around 7% for the next 2 to 3 quarters , we anticipate those will improve materially in the back half of next year .
Speaker #4: Based on this , we believe our market rent growth for next year to be similar to the 2% market rent growth expected for 2025 .
Speaker #4: We have accomplished 99% of our forecasted leasing for 2025 at levels consistent with our initial guidance , including cash leasing spreads of approximately 24% .
Speaker #4: Turning to next year , 2026 represents a record amount of square footage expiring in a calendar year for our company . I'm pleased to report that we have addressed approximately 52% of the operating portfolio's square feet .
Speaker #4: We expect to lease in 2026 . This compares to 38% at this same time last year . We expect cash leasing spreads to be between 18% and 20% for 2026 .
Speaker #4: This leasing success is a testament to the quality of our portfolio and a welcome sign of tenant engagement and commitment to their space.
Speaker #4: We have seen an increase in acquisition opportunities in the market , specifically with sellers eager close by year end acquisition volume for the third quarter totaled $101.5 million .
Speaker #4: This consisted of two buildings with cash and straight line cap rates of 6.6% and 7.2% , respectively . Subsequent to quarter end , we acquired one building for $49.2 million at a 6.5% cash cap rate .
Speaker #4: In addition to the $212 million of stabilized acquisitions , we have closed so far this year , we have $153 million more under agreement and slated to close before year end .
Speaker #4: In terms of our development platform , we have three point 4,000,000ft² of development activity or recent completions across 13 buildings as of the end of Q3 , 52% of this three point 4,000,000ft² are completed .
Speaker #4: Developments . These completed developments are 83% leased . As of September 30th . This includes a full building lease totaling 244,000ft² , which commenced in Greer , South Carolina on September 1st with 3.75% annual rent escalations .
Speaker #4: Subsequent to quarter end , we leased the remaining 91,000ft² in our Nashville development . This project is now 100% leased with a cash stabilized yield of 9.3% .
Speaker #4: We stabilized this transaction 210 basis points higher than our initial underwriting , and six months ahead of schedule . Including this transaction , our completed developments are currently 88% leased .
Speaker #4: I'm happy to announce a recently signed bill to sue project on a fully entitled, 40-acre parcel of land located in Union, Ohio.
Speaker #4: We will develop a class A 349,000 square foot warehouse with our development partner . The building is scheduled to be completed in Q3 2026 .
Speaker #4: Upon completion , the building will be fully leased for ten years , with 3.25% annual lease escalations to a strong credit tenant . The project is estimated to cost $34.6 million and is expected to have a stabilized yield of 7% , with that , I will turn it over to Matt , who will cover our remaining results and updates to guidance .
Speaker #5: Thank you , Bill , and good morning everyone . Cawf.info per share was $0.65 for the quarter . An increase of 8.3% as compared to last year .
Speaker #5: During the quarter , we commenced 22 leases totaling two point 2,000,000ft² , which generated cash in straight line leasing spreads of 27.2% and 40.6% , respectively .
Speaker #5: Additionally , executed leasing activity accelerated from four point 1,000,000ft² leased in the second 4:45 point 9,000,000ft² leased in the third quarter . 2025 is on track to be a record year in terms of leasing volume .
Speaker #5: Retention for the quarter was 63.4% and 78% for the year through September 30th . We have accomplished 98.7% of the operating portfolio . Square feet .
Speaker #5: We expected . We currently expect to lease in 2025 , achieving 23.9% cash leasing spreads , demonstrating the strength of our portfolio . As mentioned by Bill , we have accomplished 52% of the square feet we currently expect to lease in 2026 .
Speaker #5: Achieving 21.8% cash leasing spreads . Same store cash NOI grew 3.9% for the quarter and has grown 3.5% year to date . Included in same store , cash , and wise 23 basis points of cash credit loss incurred this year as of yesterday .
Speaker #5: Moving to capital market activity on September 15th , we refinanced the $300 million term loan G , which was scheduled to mature in February 2026 and now matures March 15th , 2030 with one one year extension option .
Speaker #5: The terminal bears an aggregate fixed interest rate inclusive of interest rate swaps of 1.7% until February 5th , 2026 , and will then earn aggregate fixed interest rate inclusive of interest rate swaps .
Speaker #5: A 3.94% from February 5th , 2026 through initial maturity . Leverage remains low , with net debt to annualized run rate adjusted EBITDA equal to 5.1 times with liquidity of $904 million a quarter end .
Speaker #5: As for guidance , we have made the following updates . We have decreased and narrowed the range of expected acquisition volume to a range of 350 to $500 million .
Speaker #5: As a reminder , the impact of external acquisition volume has always been heavily weighted to the end of the year and has a minimal impact on our core FFO guidance and expectations for the year have been reduced to a range of 51 to $52 million , a decrease of $1 million at the midpoint .
Speaker #5: Cash same store guidance has been increased to a range of 4 to 4.25% for the year . An increase of 25 basis points at the midpoint .
Speaker #5: These guidance changes contributed to a revised guidance range of $2.52 to $2.54 per share, an increase of $0.03 at the midpoint. I will now turn it back over to Bill.
Speaker #4: Thank you . Matt , and thank you to our team for their continued hard work and achievement towards our 2025 goals . We are excited about the opportunities that are in front of us here at Stag .
Speaker #4: Activity is improving across all aspects of our platform , including acquisitions , operations and development . These areas will all be key contributors to the future growth at Stag .
Speaker #4: We will now turn it back to the operator for questions .
Speaker #2: Thank you . If you'd like to ask a question , please press star One on your telephone keypad . A confirmation tone will indicate your line is in the question queue .
Speaker #2: You may press star two if you'd like to remove your question from the queue for participants using speaker equipment , it may be necessary to pick up your handset before pressing the star key to allow for as many questions as possible .
Speaker #2: We ask that you each keep to one question and one follow up . Thank you . Our first question comes from the line of Craig Mailman with Citi .
Speaker #2: Please proceed with your question .
Speaker #6: Hey , good morning guys . I'm Bill . The progress on 26 here is is really good . Put you guys in a good spot for next year .
Speaker #6: I'm just kind of curious . Is it tenants coming to you ? Like , could you just talk about what is driving that ?
Speaker #6: I guess . Is there a higher weighting of those maturities ? Kind of skew toward the first half . And so you're just in that window of tenants kind of looking to get that done .
Speaker #6: Or are people coming to you early ? I just kind of want a little bit more color on on what's driving that . And is it probably like , what's the breakout of renewals versus kind of new leasing or backfills of vacated lease expirations ?
Speaker #4: Yeah . Thanks , Craig . I'll just answer the second part first . The the the breakup between renewals and call it new leasing .
Speaker #4: About 95% of that number is renewals which makes sense . Just given where we are in the calendar . So 5% renewals . And then with respect to are they coming to us .
Speaker #4: We go to them . It really is a blend right ? We've been a little bit more proactive with our tenants , just given the larger than than normal lease expirations we have in 2026 .
Speaker #4: So we've been proactive . Our team has been proactive . But then also we've had our larger sophisticated tenants reach out to us and engage earlier than normal because , you know , I think a couple factors .
Speaker #4: One , they like their space . They view themselves in their space for long term , and they wanted to lock it up because in some instances they have a large investment in that space .
Speaker #4: And that skews a little bit more to the bigger suite sizes . So next year we had we have five , 5 or 6 large lease expirations .
Speaker #4: So call it anything over 400,000ft² . So of those we've addressed all of them except for one which we're an active negotiations with .
Speaker #4: So that was a little bit of a different dynamic in 26 than we've had in previous years . So that that also impacted the the 52% versus , prior years , circa 38% .
Speaker #6: And you guys , you talked about the build to suit in Ohio . You guys got Greenville done . You got Nashville done .
Speaker #6: I mean , is this I know that everyone and you guys included have been talking about sort of a thawing of this tenant decision making .
Speaker #6: I mean , is it people just feeling more comfortable putting cap out the door , or is there a bit of FOMO in some of your markets where you don't have as much new supply as kind of , you know , where it's top heavy in a couple markets in the US ?
Speaker #6: And so some things have been taken off the table , and now people are rushing to make sure they secure a spot . Like , could you talk a little bit about the dynamics across some of your markets and maybe point out some of the really kind of your best and maybe still slowest markets in terms of , you know , activity ?
Speaker #4: You're good . Craig I think that was six questions in one . But I'll do my best to try to address .
Speaker #6: All of them .
Speaker #7: I'll try I'll try to address .
Speaker #4: As much as I can . There . You know , with respect to our markets and developments , we haven't had the volatility that the , you know , they call it the top five markets in the US have with respect to vacancy .
Speaker #4: So our vacancy rates have held in there . Our occupancy rates in those markets have held in there a little bit better than others .
Speaker #4: So that's been beneficial to us . And you can , you know , corroborate that through any , you know , third party industry report .
Speaker #4: You know , is there FOMO for developing in our markets ? I think to some degree , you could say that we're certainly having a lot of success in our development platform .
Speaker #4: I've said the past , you know , several quarters , you're our best use of capital . Then was was incremental deployment of capital was developments .
Speaker #4: Really happy with the way that initiative is playing out . And then if you think about what our messaging has been the last two quarters , it's been this degree of uncertainty in the market .
Speaker #4: And , you know , our messaging now is this stability in the market . So it really has been pretty big shift as we move into the , you know , the last quarter of the year here .
Speaker #4: And that's a great thing . And we knew this was going to start to come now . And we say stability . But as I mentioned in prepared remarks industry reports vacancy rates nationally around 7% , I think our numbers maybe high sixes .
Speaker #4: When does that really start to tick down . And you can drive some additional market rent growth . It's probably another two three quarters , but overall , we feel really good about where our portfolio sits with respect to the markets there in I , maybe I got four out of six there .
Speaker #4: I tried Craig .
Speaker #6: You got you got a bunch . Thanks , Bill .
Speaker #8: Thanks .
Speaker #2: Thank you . Our next question comes from the line of Nick Tilghman with Baird . Please proceed with your question .
Speaker #9: Hey . Good morning guys . Maybe talking on the 26 leasing and the progress . They're just the sustainability of these spreads in the mid 20s .
Speaker #9: A little bit higher . You mentioned sort of the four large renewals . If we just look at the expiration schedule , it looks like the rents expiring here or around 15% below where they were at the beginning of this year .
Speaker #9: So just curious on on what we're thinking for spreads for the remainder of the expirations .
Speaker #7: Yeah .
Speaker #4: Thanks , Nick . I mean , as I said in my prepared remarks , we're we're guiding to 18 to 20% cash leasing spreads for next year .
Speaker #4: And if you look at where they were a few years ago or I think , you know , 30 and then went to 24 this year and 18 to 20 next year .
Speaker #4: And if you look at where our mark to market has been in those years , it's , you know , similar to what our escalators have been .
Speaker #4: So you haven't been driving additional , you know , Mark to market opportunities . So naturally that , you know , similar type of degradation and spreads will happen .
Speaker #4: And then yeah , with respect to , you know , next year and those , those large tenants , you know what we've done , those tenants are renewed , as I mentioned earlier to Craig , much ahead of time .
Speaker #4: But when you think about the spreads, what we’ve signed to date and what we’re guiding to next year, there’s a little bit of a difference there.
Speaker #4: We usually don't get too much into the fixed renewal options , but they're a part of our portfolio . Every year . So the remaining 48% of incremental leasing next year , almost all of our fixed renewals are in that number , which is why the spreads are a little bit lower for the remaining non leased asset plan for next year .
Speaker #9: No , that's very helpful . And then just on on maybe Matt's on on occupancy . You a little bit of a headwind .
Speaker #9: This year as we think of building blocks for 26 . Good progress on the leasing . How are we feeling about sort of portfolio occupancy or potentially even growing that in the same store pool next year ?
Speaker #5: Yeah . Hey , morning . You know , I think as we sit Nick . Good here in October , we're going to provide 2026 guidance in February .
Speaker #5: So I don't think that we're prepared to start walking down the list of what guidance is going to be next year . I think Bill gave a lot of the color in terms of the change maybe a little bit of instability in the first half of the year into the third quarter to a much more stable environment .
Speaker #5: Now , you know , again , I just point to the fact that we did the 52% of what we expected to do last year , which is north of 10% higher than from where we normally are at this point during the calendar year .
Speaker #9: You know , I had to try my best . Matt's you guys .
Speaker #10: It was it was it was it was very obvious . Do a great job . Thanks .
Speaker #8: A .
Speaker #11: Great .
Speaker #2: Thank you . Our next question comes from the line of Eric Boyden with BMO Capital Markets . Please proceed with your question .
Speaker #12: Hey , good morning everyone . Bill , can you just talk a little bit about your appetite to lean into developments here ? Just given the improving demand environment and the potential for , you know , a vacancy inflection in the back half of 26 , is there ?
Speaker #12: How are you feeling about potentially leaning into developments to get ahead or time up ? You know , the deliveries with the improving landscape ?
Speaker #4: Yeah , we're bullish on on development . We're we're trying to sign up . You know the right developments . We obviously are very careful with our underwriting .
Speaker #4: And we still want to achieve you know at least that 7% going in yield . We're really happy with the Ohio deal Ohio build a deal .
Speaker #4: We signed up . And you know that we signed up at a 7% yield to a very strong credit . So happy there .
Speaker #4: There's you know we're working on some others . We're trying to get you know more internal developments done as well as some additional , you know , partner developments .
Speaker #4: And you know , as we as we sign those up , you know , we'll we'll announce those . So it's certainly a great use of our capital .
Speaker #4: The market , you know , is stable now . And looks to be improving . And certainly in the back half of next year .
Speaker #4: But what you know , one other change in terms of , you know , deploying capital , we're seeing a great opportunity to deploy capital on acquisitions right now , which is , you know , not what we saw earlier this year .
Speaker #4: So if you look at where we are from , an acquisitions , we did we did lower the top end of our guidance .
Speaker #4: But we've you know , we've closed 212 million to date . We've got another 150 under contract in Loi . So to get to our midpoint we need to we need to sign up another , you know , call it 60 million between now and Thanksgiving .
Speaker #4: And we're underwriting a lot of deals . We're evaluating a lot of deals on a weekly basis . So you know , we're hopeful that we can we can get to that midpoint this year .
Speaker #4: So that's been , you know , a pretty nice change that we've seen over the past couple of quarters .
Speaker #12: Thanks . I appreciate that . Just one on the guidance . You know you raised it raised guidance $0.03 at the midpoint . But it implies a sequential deceleration from the third quarter to the fourth quarter .
Speaker #12: Maybe . Could you just talk about some of the offsetting factors in the fourth quarter that are driving that sequential drag ?
Speaker #5: Yeah , absolutely . I'd say the easiest thing to point to here is credit loss . You know , we've been outperforming our credit loss guidance , but we're not through the rest of the year .
Speaker #5: So we do have some credit loss baked in on a speculative basis for the remainder of the year . To the extent we .
Speaker #5: Outperform that. And again, these are unforeseen. Just call it more of a modeling number. We would be at the higher end.
Speaker #7: Yeah . So you're .
Speaker #4: At the midpoint I assume right .
Speaker #7: Yeah . That's right I think it .
Speaker #4: Depends on .
Speaker #7: Where .
Speaker #4: We fall within that that core range .
Speaker #12: Okay . Great . Thank you .
Speaker #7: Thanks .
Speaker #2: Thank you . Our next question comes from the line of Blaine . Heck with William . I'm Wells Fargo . Please proceed with your question .
Speaker #12: Great . Thanks . Good morning guys . Just following up on acquisitions . Bill , can you talk about what might have changed over the last 90 days to to kind of pull back on your forecast ?
Speaker #12: If there was anything specific that you noticed and then , you know , this is difficult to forecast now , but given the trends you're seeing today that you just alluded to , how do you feel about your ability to make up for this 2025 decrease in 2026 and show a more significant increase in activity year over year ?
Speaker #4: That's a good that's a good one , Blaine . You know , as Matt said , I think we'll we'll we'll handle all the remaining 2026 guidance in February .
Speaker #4: But certainly, if you look at the cadence throughout this year, it's been accelerating into year-end. You know what dynamics have changed.
Speaker #4: You've got a couple of things . You've got , you know , interest rates that have been stable . I think just a macro economic environment that's a little bit more stable .
Speaker #4: And you've got some seller called seller pent up demand . So I think those are the ask spreads are the ask price is a little bit more reasonable .
Speaker #4: And if you look at , you know , what happened last year , it was not a lot of transactions trading in the market compared to historical norms .
Speaker #4: This year you had all the uncertainty as you move through the year and then and then lastly with this stability that's in the market , you have a lot of sellers that want to get their deals done by year end .
Speaker #4: So when you look at somebody like us who have a really strong reputation in closing deals and closing deals in a pretty short period of time , we're the preferred buyer in a lot of these instances and some of them were not the high bidder .
Speaker #4: It's there's a preference to close by year end so that that's another driver in terms of giving us some confidence with our with our queue .
Speaker #4: Four transactions. But I don't know if there's Mike. I don't know if there's anything else that you're seeing.
Speaker #13: No I mean I think you hit on it the , you know , end of Q3 , we started seeing a significant increase in deals coming to the market , particularly ones that wanted to close year end .
Speaker #13: And as you said , Bill , and those deals , purity of closure is almost as important as pricing . And , you know , stag has a great reputation for , for for surety of closure .
Speaker #13: So we're seeing a lot of deals and , you know , and , you know , we're cautiously optimistic that we'll have a good , good Q4 here .
Speaker #10: Yeah .
Speaker #4: And we expect a lot of deals to come to market post-Labor Day after the summer slowdown and the uncertainty that happened this year.
Speaker #4: And that's exactly what we saw .
Speaker #12: Okay . That's helpful and makes a lot of sense . Just shifting gears to leasing , can you talk about any leases you've signed that are directly or indirectly related to manufacturing projects and , and onshoring .
Speaker #12: And , you know , any markets that you think are particularly well-positioned in your portfolio to benefit from some of those trends ?
Speaker #4: Yeah . I mean , from the markets that are going to benefit from those trends . It's a lot of the markets we operate , right .
Speaker #4: It's what we've said before . It's it's it's Midwest . It's southeast . And we signed that lease last year . Or was it earlier this year .
Speaker #4: Everything's kind of blending together . But that was a direct onshoring lease . It was a it was a building that was a that was a local distribution , regional distribution building that ultimately became a supplier building to a wood flooring manufacturing company that brought their operations onshore to be closer to the consumer .
Speaker #4: So we're certainly benefiting from that . There's a couple of , you know , leases that we've signed this year that are related to solar manufacturing plants .
Speaker #4: There's some leases that we've signed that they , you know , one lease we've signed actually manufacturers , generators for data centers . So not just staging for data centers , but but generators for that .
Speaker #4: So that was a lease that we're benefiting from in our markets that maybe does not have the same demand drivers in other markets .
Speaker #12: Great. Thank you guys.
Speaker #10: Thank you .
Speaker #2: Thank you . Our next question comes from the line of Vince Debone with Green Street . Please proceed with your question .
Speaker #14: Hi . Good morning . For the near term acquisitions . You're looking at , are you considering any value add deals that will require lease up or focused more on stabilized assets ?
Speaker #14: Just curious kind of where you find the best opportunities today . And if there's any , you know , greater opportunities from some for sellers , you know , with some spec projects that have not gone according to their underwriting kind of hitting the market and allowing for any interesting opportunities for yourself .
Speaker #4: Yeah , we're seeing some of them . I would say we're not seeing a lot of value add deals come to market , or at least the ones that we we have a desktop review .
Speaker #4: We're not penciling the pricing out . So we don't they don't even make it to the the full underwriting stage . But we will absolutely evaluate those transactions .
Speaker #4: Right ? I mean , it's what we do , right ? We we we build buildings . We buy buildings , we lease buildings .
Speaker #4: So if there's a developer that wants to take some chips off the table and has a vacant asset that they don't want to , you know , try to lease or that's not their their core business , we'll absolutely take a look at that transaction and put a bit into price to price that .
Speaker #4: But we're not seeing a lot of those . I think what we're seeing now is probably a little bit more skewed to three , five .
Speaker #4: And you know , longer lease term transactions . And part of it is the ones we are seeing , like I said , just don't pass that .
Speaker #4: Even initial desktop review with respect to where we would price those assets .
Speaker #14: No , that's helpful . Color . Maybe just switching gears for a second , just on the updated same store guide for the year , it looks like it's implying a decent acceleration in the fourth quarter .
Speaker #14: If you could just talk about kind of what's driving that , or are you expecting any sequential occupancy gains in the fourth quarter , or kind of what else may be at play to kind of get things like the mid to high fives is what it implies for the fourth quarter , the updated same store guide , can just touch on that .
Speaker #14: That'd be helpful .
Speaker #10: Yeah .
Speaker #5: Absolutely . Vince , thank you for the question . So I'm going to walk you through it . It's related to a tenant and some cash basis accounting .
Speaker #5: So number one we've executed virtually all the leasing we expect for this year . In the third quarter the metrics include the impact of moving one tenant to cash basis accounting .
Speaker #5: And obviously the associated impact of writing off the are balance . Well , you know , after September and quite recently , we executed a repayment agreement that requires a tenant to become current during this quarter .
Speaker #5: And also make the required rental payments . So they performed pursuant to the agreement through today . And to the extent they become current by year end , we'd expect to be near at the high end of our same store .
Speaker #5: Guidance . So this is this is what I think is going to help here . Had we not written off the AR balance , the Q3 same store would have been approximately 5% as opposed to where it is and year to date would have been approximately 4% .
Speaker #5: Right ? Right in line with our updated guidance . So it's basically just a matter of timing . The tenants catching up on past due payments in the fourth quarter .
Speaker #5: Q3 is lower due to the write off in the fourth quarter will benefit from the PNC made by the tenant as they become current just a little background , this customer is a supplier to the automotive industry and has an incredibly strong customer roster and is profitable .
Speaker #5: So it really is timing bins.
Speaker #14: No , that's super helpful . And any color on occupancy , I mean , should we expect same store occupancy to be around 97 as well in the fourth quarter , given it sounds like most of the leasing is done ?
Speaker #10: Yeah .
Speaker #5: I mean , our guidance , which we didn't change , is roughly 75 basis points of loss in the same store for the full year .
Speaker #5: So we didn't change .
Speaker #10: That . .
Speaker #14: Great . Thank you .
Speaker #4: Thank you .
Speaker #2: Thank you. Our next question comes from the line of John Peterson with Jefferies. Please proceed with your question.
Speaker #15: Great . Thank you . The $153 million of acquisitions that you have under agreement . Can you give us a sense of the cap rates on those properties that we should be thinking about ?
Speaker #4: Yeah , it's pretty consistent with what we've closed in the third quarter .
Speaker #15: Okay . And then the the new land that you bought in Union , Ohio , I believe that's near Dayton . Can you just talk about that market a little bit ?
Speaker #15: It's maybe not one I'm super familiar with . So just what are you seeing from a demand and supply perspective that gives you confidence in doing a development ?
Speaker #15: There ?
Speaker #4: Yeah . And just just that land that we bought , that's that build to suit that . I mentioned in the prepared remarks to strong credit for ten years .
Speaker #4: But I don't know Mike or Steve who wants to take the Mike money . Take that .
Speaker #13: Yeah . I mean , you know , Dayton is is a is kind of I would say a market that's that is up and coming and emerging .
Speaker #13: It's 104,000,000ft² . It's about 4% vacant . They have less than 1,000,000ft² of of construction going on right now . So you know , but all that said , you know , we were we were very comfortable with , you know , acquiring that land and developing as we had a , you know , a long term build to suit lease signed up with a with a strong credit tenant .
Speaker #13: So that was an easy one for us to kind of take a look at .
Speaker #4: And this and this property is near the airport .
Speaker #13: Yeah . This property is located right next to Dayton International Airport . And a couple miles away from , you know , from the main interstate there .
Speaker #4: Yeah , if not , if not the best submarket in the market , one of the best submarkets , right . It's in the building fits the market really well .
Speaker #4: So , you know , to the extent after the ten years the tenant doesn't renew it , feel very comfortable with the lease ability of that asset .
Speaker #10: Okay .
Speaker #15: And then I know we're all trying to tease out 2026 same store . So maybe I'll ask it one more way . Is there any known move outs that we should be thinking about as we look into 26 ?
Speaker #4: All right , I'll answer that one . Just because you were so direct with it , nothing material . It was . We call out the large no move outs , call it anything over 400 .
Speaker #4: As I said , I think there was five of them . We we addressed . Four of them were in active negotiations with , with the last .
Speaker #4: So nothing to call out .
Speaker #15: Okay . Thank you very much .
Speaker #10: Yep .
Speaker #2: Thank you. Our next question comes from the line of Michael Griffin with Evercore ISI. Please proceed with your question.
Speaker #16: Great . Thanks , Bill . I want to go back to your comment , your prepared remarks about lease gestation , time frame , remaining longer , and maybe marrying that up to the execution you've had in your 26 leasing plan already .
Speaker #16: I mean , you know , whether it's , you know , new leases or , like , can you give us a sense are tenants shopping around for a deal , or does it seem like they're , you know , getting closer and closer and ready to sign on on the dotted line ?
Speaker #16: I mean , you know , whether it's , you know , new leases or renewals Given the , you know , maybe greater clarity and certainty that's out in the market ?
Speaker #4: Yeah . And that's it's a good question . And just to clarify , it's , you know , call it , you know , a couple months for , you know , the negotiations to go on , maybe , you know , a little bit longer for , for normal negotiations with the lease , you know , historically those are the numbers .
Speaker #4: Maybe we're a little bit longer this year . But for example , in our Nashville lease that we got done , that was done from start to finish in in weeks .
Speaker #4: Right . So we do expect those to , you know , remain elongated for a period of time . You know , similar to tracking with vacancy rates .
Speaker #4: I mentioned in around that , 7% or high 6th March mark for the next , you know , couple . Three quarters . And as those vacancy rates comes down naturally , the lease gestation periods .
Speaker #4: Get reduced . Right . Because there's less options . You need to make decisions a little quicker in Nashville . Great example . Very strong industrial market .
Speaker #4: Not a ton of options . Tenant needed . Their space . We got the deal done start to finish in a matter of weeks .
Speaker #4: So I think it's just a period of time for these to stay relatively you know , call it elongated and then those will start to shorten as vacancy rates come down .
Speaker #16: Thanks . Appreciate the color there . And then maybe you could just give us some insights into the demand of the for development projects that are going to be completed in the fourth quarter .
Speaker #16: I know there's probably some time until those stabilize, but, you know, what's the traction sort of looking like in that space?
Speaker #16: And , you know , would you be willing to give on concessions in order to get the projects leased up ?
Speaker #4: Yeah , I'll let Steve answer the details there . And just as a reminder , we you know , we underwrite 12 months of lease up for our development projects .
Speaker #4: But Steve can walk through the demand that we're seeing for the ones that are going to be completed soon .
Speaker #3: Yeah . Mike , appreciate .
Speaker #17: The question . We've made good progress on the existing , but the stuff coming that we still have left to lease , I'll just walk you through the five markets .
Speaker #17: That's probably the easiest way to do it . We have a small amount of vacancy in Greenville , Spartanburg , just 70,000ft² . As you probably know , the activity in that market market has been very good with a lot of absorption in the last couple of quarters .
Speaker #17: And we do have activity on that 70,000 . So we feel pretty good about that space . It's built out the offices there .
Speaker #17: It's ready to go and we have users looking at it . The next . And that market has dropped to below 7% . Vacancy .
Speaker #17: And you know in these calls we've talked about it being double digit for some time . So big improvement in that market . The next market where we have vacancy would be in Tampa .
Speaker #17: You recall we had the two buildings there . We leased one of them relatively quickly to a single user . We have one remaining at 140,000ft² .
Speaker #17: That market as a whole is about 6.5% vacant . And our submarket is is below 5% . So and there again , we have activity for that building .
Speaker #17: And so we feel good about the Tampa market . And prospects for that building the next market where we'll be delivering here in the fourth quarter is two 200,000 square foot buildings into the Charlotte market .
Speaker #17: That market's about 8% vacancy with a lot of positive momentum , particularly in the larger bulk that's brought that vacancy down . So as was alluded to earlier , one of the questions about developing into improving markets , I think Charlotte should , should should be one of those stories where that that market's starting to improve .
Speaker #17: And we're delivering product in the submarket that we're in now in Concord . That's about a 5% vacancy market . And in that project you'll recall when we've talked about it , we have some benefits on users relative to some of the peers , because there's some zoning issues with sewer availability in the market .
Speaker #17: So we can do distribution and manufacturing tenants when some of our competition can't do the can't do the distribution next market would be Reno , where we have two buildings delivering a 285 and a 76,000 square footer .
Speaker #17: Both of those buildings fit the North Valley submarket that we're in , that market has been slower absorption in the last probably six quarters .
Speaker #17: And so that the little bit of headwinds there , but we expect absorption will pick up as we deliver these buildings and and we do have activity and have had activity on both buildings , but nothing to report yet .
Speaker #17: And then the last market is Louisville , probably the one I'm personally the most bullish about . It's a 4% vacancy market . We are in a class A park just south of the market , and a very established park .
Speaker #17: We have strong activity on our building and there's very limited supply that will be competing with in that market . That takes you through kind of the five markets where we have future exposure .
Speaker #16: Appreciate the detailed analysis there . And thanks so much .
Speaker #10: You're welcome .
Speaker #2: Thank you . Our next question comes from the line of Nikita Belly with JP Morgan . Please proceed with your question .
Speaker #18: Hey, good morning, guys. It looks like you are pretty bullish on both acquisitions and developments. Can you talk a little bit about how you rank them on a relative basis?
Speaker #18: One versus another ? And as you start to ramp both of them up , it appears in 2026 . How do you plan to fund it ?
Speaker #18: And are we close enough to issuing equity at these prices ?
Speaker #4: Hey , Nikita , it's Bill with respect to ranking , it's it's hard . I , I mean , I was gonna I guess I'll still say the joke .
Speaker #4: It's like ranking your children , right ? They're different . I would say we evaluate opportunities for for development and acquisitions and depending on the returns , the market , etc.
Speaker #4: , we may choose to look at one or the other . But the reality is we've got a balance sheet and liquidity to if we like both opportunities , we can deploy capital to both opportunities .
Speaker #4: So it's not an either or for us . And we certainly have , you know , the process , the people and the systems internally to evaluate all those opportunities .
Speaker #4: So for us , it's it's not an either or . So we don't have to to force rank those two opportunities . But as I said , you know , develop development was , you know , the favored choice of deployment of capital .
Speaker #4: Earlier this year . And I think , you know , acquisitions is catching up , which is which is great to see in terms of capitalizing those and financing those .
Speaker #4: I'll turn it over to Matt to talk about that .
Speaker #10: Yeah .
Speaker #5: Hi , Nikita . So as we sit here today , you know , we're retaining north of $100 million of free cash flow .
Speaker #5: Our balance sheets at the low end of our balance , of our leverage target . So those are probably the two first sources .
Speaker #5: We have $47 million of unfunded forward equity , which would be the next source . We don't anticipate any deviation from our normal leverage bands generally operate in the low five times .
Speaker #2: Thank you . Our next question comes from the line of Brendan Lynch with Barclays . Please proceed with your question .
Speaker #19: Great . Thanks for taking my question . You mentioned the fixed renewal options that are in place for some of the leases that are going to roll in 2026 .
Speaker #19: Do you have a lot more of these and are they mostly reflecting acquisitions that you've made in the contracts that were put in place by the prior owners ?
Speaker #10: Yeah .
Speaker #4: That they're almost all based on assuming leases . And I would say they're not , you know , higher , materially higher or lower than than other years .
Speaker #4: They just happen to be in the remaining portion of the unleased space for next year . Generally , those renewal options have some sort of notice period .
Speaker #4: It could be as short as three months . So some of those are to the back end of next year .
Speaker #19: Okay . Thanks . That's helpful . And then maybe kind of a strategy question . You seem to have an improving view on how the market is trending .
Speaker #19: And I think there's a lot of third party data out there to support that . When you think about the acquisitions that you have made versus the ones that you passed on .
Speaker #19: Do you get the sense that you could have been more aggressive in the past to make more acquisitions , and is that changing your calculus now , as the market seems to be improving .
Speaker #19: ?
Speaker #4: One of the things we look at for acquisitions is , you know , we deploying capital at creatively , right . And that was , you know , part of the issue that we were seeing earlier was that we weren't able to do that with all of them .
Speaker #4: You can always , you know , Monday morning quarterback , you know , decisions . You know we try to evaluate decisions with the information that we have on hand at that point in time and make the best informed decision at that point in time .
Speaker #4: So I think we've made a lot of good decisions this year , really am happy with the acquisitions that we've made this year and really happy with the development decisions we've made this year .
Speaker #4: So, we'll continue to evaluate acquisitions and development opportunities with the information that we know and try to make the best decision we can.
Speaker #19: Great . Thank you .
Speaker #4: Thank you .
Speaker #2: Thank you , ladies and gentlemen , that concludes our question and answer session . I'll turn the floor back to Mr. Crooker for any final comments .
Speaker #4: I just want to thank everybody for joining the call . And as always , the thoughtful questions and we look forward to seeing you all soon at the upcoming conferences .
Speaker #4: Take care .