STAG Industrial, Inc. (NYSE:STAG) Q4 2022 Earnings Call Transcript

STAG Industrial, Inc. (NYSE:STAG) Q4 2022 Earnings Call Transcript February 16, 2023

Operator: Thank you. Greetings and welcome to the STAG Industrial Fourth Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow a formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Steve Xiarhos, Associate, Capital Markets and Investor Relations. Thank you, Steve. You may begin.

Steve Xiarhos: Thank you. Welcome to STAG Industrial’s conference call covering the fourth quarter 2022 results. In addition to the press release distributed yesterday, we have posted an unaudited quarterly supplemental information package on the company’s website at www.stagindustrial.com, under the Investor Relations section. On today’s call, the company’s prepared remarks and answers to your questions will contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today. Examples of forward-looking statements include forecast of core FFO, same-store NOI, G&A, acquisition and disposition volumes, retention rates and other guidance, leasing prospects, rent collections, industry and economic trends and other matters.

We encourage all of our listeners to review the more detailed discussion related to these forward-looking statements contained in the company’s filings with the SEC and the definitions and reconciliations of non-GAAP measures contained in the supplemental information package available on the company’s website. As a reminder, forward-looking statements represent management’s estimates as of today, STAG Industrial assumes no obligation to update any forward-looking statements. 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 is Mike Chase, our Chief Investment Officer, who is available to answer questions specific to their area of focus. I’ll now turn the call over to Bill.

Bill Crooker: Thank you, Steve. Good morning, everybody, and welcome to the fourth quarter earnings call for STAG Industrial. We’re pleased to have you join us and look forward to telling you about fourth quarter and full year 2022 results. The fourth quarter results provided a fitting conclusion to another strong year for STAG. Thank you to our tremendous team for the hard work and dedication. This year featured many successes including a record level of same-store growth, opportunistic investments in a volatile transaction market, and operational efficiencies that resulted in impressive cash flow growth. The economy continues to digest and react to multiple drivers of volatility, rising interest rates, geopolitical unrest, labor force variables, including levels of employment and wage growth have resulted in various potential recessionary outcomes.

Against this macro backdrop, we see persistently strong demand for industrial real estate. The secular tailwind specific to industrial real estate remain intact. Near and onshoring, e-commerce, supply chain reconfiguration and inventory level rebuilds will drive robust market rent growth for the foreseeable future. STAG’s portfolio is well positioned to build on last year’s success and will produce attractive internal growth in 2023. For the year, cash same-store NOI growth was 5%, continuing the trend of setting new record levels of internal growth. This growth is sustainable supported by our average annual rental escalators of 2.5% across the portfolio. There’s upward pressure on this number. Leases signed over the past 12 months have averaged annual rental increases of 3% with certain markets varying increases of 4% and above.

Cash leasing spreads will accelerate in 2023. As of today, we have addressed 61.5% of the new and renewal leasing we expect to commence in 2023, achieving cash leasing spreads of 31.6%. The average annual rental escalator on our 2023 leasing activity achieved to-date is 3.4%. This encompasses 8.4 million square feet of leasing out of the 13.7 million square feet projected in 2023 further demonstrating the strength and positioning of our portfolio. We have won 715,000 square foot development in process in Greer, South Carolina. This two building project is progressing on schedule and is expected to outperform our underwriting. We have funded $42 million of the $68 million project and has seen strong pre-leasing activity to-date. On the external growth front, the acquisition market ended the year quietly as sellers are seeking price stability and this dynamic has continued into the first part of this year.

Given this market uncertainty, we are introducing 2023 acquisition and disposition volume with wider than normal ranges. Our base case assumes modest success in identifying and acquiring attractive opportunities in the back half of 2023. We expect acquisition volume between $300 million and $700 million and disposition volume between $50 million and $200 million. No incremental capital is needed to operate at the midpoint of our net acquisition guidance while maintaining our guided leverage range. Expected cash capitalization rates reflect an expansion of approximately 100 basis points from levels we achieved in the first half of 2022. With that, I will turn it over to Matts, who will cover our remaining results and guidance for 2023.

Matts Pinard: Thank you, Bill, and good morning, everyone. Core FFO per share was $0.55 for the quarter and $2.21 for the year, an increase of 7.3% as compared to 2021. Cash available for distribution totaled $342.7 million in 2022, a year-over-year increase of 16.7%. Consistent with our previous messaging, the dividend payout ratio continues to moderate declining from 82.1% to 77.8% at year-end 2022. This past year, we retained approximately $76 million of free cash flow after dividends paid. These dollars are available for incremental investment opportunities, debt repayment and other general corporate purposes. Leverage remains within our normal range with net debt to annualized run rate adjusted EBITDA equal to 5.2x with $847 million liquidity at year-end.

During the quarter, we commenced 27 leases totaling 3 million square feet, which generate cash in straight line leasing spreads of 14.2% and 25.4% respectively. Retention was 79.5% for the quarter and 71% for the year. When adjusted for instances of minimal downtime and immediate backfills, adjusted retention was 90.4% for 2022. Cash same-store NOI grew 4.5% for the quarter and 5% for the year, representing another annual same-store record growth for STAG. Our 2023 guidance range for cash same-store growth is 4.5% to 5%, anchored by weighted average rental escalators of approximately 2.5%, pretention of 70% at the midpoint of our guidance range and cash leasing spreads ranging between 25% to 30% on approximately 13.7 million square feet of projected leasing for the year.

Note that this projected leasing volume includes renewal and new leasing. As Bill mentioned, approximately 61.5% of our projected 2023 leasing has been addressed with aggregate cash leasing spreads of 31.6% accomplished to-date. There are no large known move outs included in our guidance range. Note that our 2023 same-store pool will include 92.7% of our total square footage owned at year-end. In terms of capital market activity, subsequent to quarter end, we repaid our $100 million private placement note F, which matured on January 5. There are minimal debt maturities for the next two years with only $53.3 million maturing through 2024. Our 2023 guidance can be found on Page 19 of our supplemental package, which is available in the Investor Relations section of our website.

Components of guidance include core FFO per share to range between $2.22 to $2.26 per share. We expect same-store cash NOI growth to be between 4.5% and 5% for the year with a retention range of 65% to 75%. As mentioned by Bill, acquisition volume guidance is a range of $300 million to $700 million with the cash capitalization rate between 5.75% and 6.5%. Disposition volume guidance is a range of $50 million to $200 million. G&A is expected to be between $48 million and $50 million. And finally, we expect net debt to annualized run rate adjusted EBITDA to between 5x and 5.5x. I’ll now turn back over to Bill.

Bill Crooker: Thank you, Matts. STAG enjoyed a very successful 2022. The company is in great position and we entered 2023 with significant momentum across the platform. I look forward to the opportunities in front of us and another great year. We’ll now turn it back over to the operator for questions.

Q&A Session

Operator: Thank you. We’ll now be conducting a question-and-answer session. Thank you. Our first question is from Craig Mailman with Citi. Please proceed with your question.

Craig Mailman: Hey, good morning. Matts, just doing some back of the envelope math with the annual escalators and rent spreads, you guys are assuming it seems like within the same-store guidance, you guys are assuming about 50 to 100 basis point pullback in occupancy. Is that about right?

Matts Pinard: Hey, Craig, good morning. That’s correct. Right now, the portfolio at year end is roughly 99% occupied. We do not expect to operate this portfolio at 99%. Implied in our guidance is 50 basis points of average occupancy loss. And what I would point to is offsetting the occupancy loss are the very, very, very healthy rental spreads that we’ve accomplished basically year-to-date and 2023 between 25% to 30%. So there is a trade-off between the occupancy and the rental spreads that we’re able to achieve.

Craig Mailman: Fair. And then from a bad debt perspective, do you guys have anything baked in there?

Matts Pinard: We do. So we have roughly 50 basis points of credit loss baked into our guidance, just for context, the previous years we’ve had roughly 40. It’s a ground up analysis. We rely on our credit team, asset managers, et cetera. We go tenant-by-tenant. What I will say is we incurred zero credit loss in 2022, and this 50 basis point budgeting really isn’t identified to specific tenants necessarily, but consistent with our budgeting practices at the beginning of the year, particularly in the heightened volatility that we think it’s prudent budgeting.

Craig Mailman: No, that’s helpful. Then, you guys on the leasing that you’ve done so far for 2023, you guys had a nice pickup in the rent spreads on a blended basis that you’re reporting here so far. I mean, it seems like there’s a little bit of a pullback at least at the midpoint from where you guys signed leases. I mean, has it been a mix issue so far this year that’s been driving the rent spreads above 30% and what you guys kind of have in your sites for the remaining 40-ish% of leases is different markets or different spaces. I’m just kind of curious as to the conservatism there given, you guys are almost two-thirds done leasing.

Bill Crooker: Yes. Hey Craig, it’s Bill. I mean, from a mix change, it’s hard to say, it’s a mix that’s really driving it. In the 8.4 million square feet we lease, that’s across 63 leases. It’s across a number of markets about 55 €“ it’s about 55% of those leases were renewals. 27% are new leasing. I think that’s right. And then in terms of the guidance of 25% to 30%, I mean, that’s just where we feel like things are shaking out. As Matts said, there’s a lot of volatility in the market right now, and so we’re just that’s where we’re budgeting for the year. As we said right now, we’re 61.5% of our expectations done at 31.6% spreads.

Craig Mailman: Yes, that’s helpful. Then just one more on the dispositions, I know it was helpful for you guys to give the acquisition cap rate, so I’m just kind of curious what type of assets you’re looking to sell? Is it just non-core with maybe some upside or assets that you’ve already stabilized and kind of how does that factor into the yields where we’ve kind of seen stuff that’s stabilized, cap rates are blowing out more than stuff that still has near-term upside?

Bill Crooker: Yes, and that’s consistent with this past year, it’s called €“ the longer the wall, the lower the escalators, the more the cap rates have expanded. Our dispositions in 2023, there’s got to be a mix as it has been in the past of opportunistic and non-core dispositions. Opportunistic dispositions are the dispositions we execute on that generally produce lower cap rates than where we’re buying and it’s a source of equity capital. It’s a pretty wide range that we put out for this year just given the volatility in the market. So it’ll be a mix of opportunistic and non-core dispositions.

Craig Mailman: So at the midpoint, if you guys do the $500 million on acquisitions and your dispo guidance at the midpoint kind of match, what’s the net impact to FFO that you guys are assuming in guidance?

Matts Pinard: So the midpoint of our guidance is $2.24. What I will say is that acquisition volume is backend weighted in our guidance. So if you take a look at obviously what we did in the fourth quarter, the $8 million, we have closed zero transactions year-to-date through today. We have nothing on our closing pipeline. So the actual contribution to core-FFO is really backend weighted, so it’s relatively minimal as opposed to being more inquisitive at the beginning of the year.

Craig Mailman: Perfect. Thank you.

Operator: Thank you. Our next question is from Dave Rodgers with Baird. Please proceed with your question.

Dave Rodgers: Yes. Hey Bill, Matts, good morning. Maybe wanted to start with something that came up, I think on a lot of the other calls is just I think the word normalization for industrial as we moved into 2023, a little bit thinner in terms of the demand pipeline and market rent growth slowing down a little bit. Can you talk about what you’re seeing maybe from a market level perspective? Obviously, the numbers you’re posting are really good. But maybe kind of looking behind the curtain a little bit, give us a little bit more color on what you’re expecting for market rent growth and the trend that you’ve seen moving into the end of the year and into 2023?

Bill Crooker: Dave, good question. We’re seeing €“ we’re continuing to see strong demand, supplies coming online. I think right now we’re looking at about 3.5% of inventory coming online. New supply coming online this next year that is taking a little longer to come online than it has in, call it normal cycles just due to the supply chain issues that we’re still seeing. But rent growth for our portfolio, we’re projecting mid to high-single-digits for rent growth. Demand is still really strong. We’re seeing it across a lot of different industries including e-commerce, 3PLs, food and beverage, packaging industry. So we’re still seeing really strong demand. One thing we are seeing is just a little bit of uptick from our lease gestation periods. We’re seeing, call it a month longer between when tenants sign LOI and take occupancy. So we bake some of that into our budgeting. So we budget a little bit longer downtime in 2023.

Dave Rodgers: Great. Appreciate the color, Bill. And then maybe you guys gave really good detail with regard to the leases that you’ve addressed already for this year, the 61%. But curious, you have the 65% to 75% retention in the guidance, and so it’s almost like you’re kind of there and I realize it’s a mix between new and renewals and not all renewals, but you’re kind of at the guidance a little bit already. Are there €“ although, they’re not in your guidance according to math, are there some big known move outs that we should anticipate in the numbers or just things that you’re uncertain of that could hit as we get into the later part of the year?

Bill Crooker: No, no. No big known move outs, we kind of look at that number as leases being 400,000 square feet or larger, so we don’t have any of those in the pipeline. The retention guide is 65% to 70%, we feel pretty good with. This last year we had retention adjusted with immediate backfill of 90%, like we’re looking at something closer to 80% right now for 2023. That number if anything will only increase if it does because we’re not budgeting one to two months of downtime for vacant spaces.

Dave Rodgers: Okay. That’s helpful. Lastly for me on the acquisition front. Anything different that you’re looking at in acquisitions or as part of that investment guidance would you consider doing a little bit more development or redevelopment value-add type transactions? I guess maybe just your thoughts on where you anticipate to take the capital budget in 2023? Thanks.

Bill Crooker: Yes. Right now, as Matts said that the acquisitions are really backend weighted. Developments, redevelopments value-adds, we’ve been extremely successful on those projects over the years. We’re on our €“ as I mentioned in the prepared remarks, our third development that’s tracking to outperform our budget and underwriting. And so if there’s good opportunities there and we think there might €“ there may be, then we’ll execute on those. But we’re still in a price discovery market, so it’s probably going to take a little bit of time here to come to agreement with some pricing.

Dave Rodgers: Thanks, Bill. Appreciate it.

Bill Crooker: Thanks, Dave.

Operator: Thank you. Our next question is from Michael Carroll with RBC Capital Markets. Please proceed with your question.

Michael Carroll: Yes. Thanks. With the plan 2023 leasing activity, I know you already addressed roughly 60% of that. I mean, how does that compare in years past? I mean, are you ahead of expectations as you are right now, or is this kind of in line with where you usually are at the beginning of the year?

Matts Pinard: Good morning, Mike. This is Matts. We’re roughly in line to where we are historically, so anywhere in the high 50s, the low 60s at this point of the year have been addressed. 61.5%, maybe a tick higher, but really what’s higher here are the leasing spreads. In terms of the actual progress we made, it’s relatively in line.

Michael Carroll: Okay. And then, I know you announced about an extra 2.4 million square feet this quarter compared to the 2023 leasing activity you announced last quarter. And it looks like on that incremental leases that were announced your spreads are near the 40% range. I mean, I guess first, is that correct? And is there anything lumpy in there within that last 2.4 million square feet that was just announced?

Bill Crooker: I think the one €“ I’m just looking at Matts, I think the one lumpy piece was probably the Amazon building that was rolling in the fourth quarter of next year we did renew them. We anticipated rolling that up about 30%. We ended up rolling that up 60%, so vastly outperformed our budgets there. That was probably one of the bigger lumpier items there.

Matts Pinard: That’s right. Mike, just to add on, that’s a 250,000 square foot building in Burlington, New Jersey with high face rates. So being able to double our expectations certainly pushes those numbers.

Michael Carroll: Okay, great. And then is there anything different with the remaining 40% that needs to be done? I mean, is the mix €“ the geographic mix different or anything like that compared to the stuff that you just completed or announced already?

Bill Crooker: Not materially different, Mike. It’s just that stuff’s expiring at the end of the year and tenants typically engage in renewal discussions six months ahead of time, sometimes a little bit longer. So I’d say the only difference is more of those expirations are back half of the year.

Michael Carroll: Okay, great. Thanks.

Bill Crooker: Thanks, Mike.

Operator: Thank you. Our next question is from Camille Bonnel with Bank of America. Please proceed with your question.

Camille Bonnel: Good morning. Based on your investment activity this past quarter and expectations to execute on transactions in the back half of the year, can you just speak to the confidence you have in terms of hitting the low and high end of your acquisition guidance?

Bill Crooker: It’s a tough question to answer. I would say, we put our guidance out there with pretty wide ranges because of the volatility in the market today. So it is guidance and right now our expectation is that we will operate within our guidance ranges. Otherwise, we wouldn’t put them out there. But they’re wider than normal, both on the volume side and the cap rate side.

Camille Bonnel: Okay. And you have great coverage over your upcoming expiries for the next few months. Just on an earlier point about the supply chain issues that are persisting though, can you speak to whether you’re seeing any change in tenant decision making in terms of where they’re basing their operations and building their logistics footprints?

Bill Crooker: We haven’t seen anything material. As I mentioned in one of the earlier responses, the only small thing we’re seeing from tenants is just taking a little bit longer time from LOI to actually taking occupancy, but nothing material from a footprint perspective.

Camille Bonnel: Okay. And final question, going back to same store NOI growth just focusing on the rental growth opportunity within the portfolio. On one hand, you mentioned that there’s now a greater number of leases on 3% to 4% escalators, while on the other side you have high mark-to-market potential. How should we just be thinking about the balance between these two factors contributing to same-store NOI growth?

Bill Crooker: Well, for the €“ I’ll start, maybe Matts if you want to add on here. But for 2023, I think that €“ how to think about it is, is look at the guidance and 25% to 30% rollover rents. And we mentioned we’re close to 3.5% escalators for those leases we’ve signed in 2023, so upward pressure on the 2.5% average escalated in the portfolio. And every lease transaction is a negotiation, so sometimes tenants are more inclined to pay higher face rate and lower bumps and some the inverse. Frankly, we’re not signing really any leases that I can think of below 3% bumps now. And we’re seeing leases €“ we’re signing leases with 4% plus bumps. So I think it really is a independent specific negotiation on each lease. Anything else you want to add there, Matts?

Matts Pinard: Yes. I think Bill made the important point there that, one of the biggest building blocks of our guidance for this year are the weighted average escalators across the portfolio, today Those sit at 2.5%. But I think what’s important to note here is what Bill said is the upward pressure of that number. We have circa 115 million square feet, we lease anywhere 10% to 15% of the portfolio a year. So we are striking leases that at least begin with the 3% in terms of rental escalators, but it takes time to really move the aggregate. It would be my expectation that if we sat here in 12 months, the 2.5% would be higher due to the fact of the leasing that we expect to accomplish this year.

Camille Bonnel: Okay. Thank you for the color.

Operator: Thank you. Our next question is from Jon Petersen with Jefferies. Please proceed with your question.

Jon Petersen: Okay. Thanks. I think I just have one question. So the pipeline, obviously it’s been going down. I just wonder if you could give us some more color on are seller’s not putting things on the market, are you guys being more selective. I guess, how should we think about that number and kind of why it’s moving the way it’s moving, like what the bigger drivers of that are? And like what you guys are looking €“ I guess, as we look into the back half of the year, you’re expecting more acquisitions, but what are the drivers that you expect to have that pipeline increase again?

Bill Crooker: Yes. We’re expecting more acquisitions in the back half. Just at some point we feel like the price discovery is going to occur and right now we’re projecting that in the back half. With that being said, we have a wide range of acquisition volume. In terms of the pipeline being lower, a big factor there is the lack of portfolios in the pipeline. We’ve underwritten portfolios before we’ve bid on portfolios. We have not been successful on winning a lot of large portfolios, but there’s not a lot of portfolios, if any in the pipeline. And Mike, anything you want to add there?

Mike Chase: Yes. Bill, I think you mentioned it. I mean it’s more heavily weighted towards granular transactions. There’s definitely not as many fully marketed transactions coming out right now. A lot of what we’re seeing in the market are kind of lightly marketed off market transactions and transactions that we’ve looked at in the past and are coming back around that have not traded. So that would be accounted for the slight decrease in the pipeline.

Bill Crooker: And the general makeup of the pipeline, Jon, is pretty similar to the stuff we’ve been acquiring the last couple years.

Jon Petersen: Okay. All right. That’s it for me. Thank you very much.

Bill Crooker: Thanks, Jon.

Operator: Thank you. Our next question is from Jason Belcher with Wells Fargo. Please proceed with your question.

Jason Belcher: Thanks and good morning. Bill, you’ve referenced near-shoring and on-shoring as potential tailwinds for industrial demand. Just wondering if you could just talk about how you expect those trends to play out over time? Any color you could share around timing or magnitude or potential benefit would be helpful? And if there are certain markets within your portfolio that you think will benefit more than others?

Bill Crooker: Yes, I mean, I’ll try to stay away from the magnitude question because that’s a really difficult one to answer. But €“ and we’re seeing it benefit the portfolio today in our El Paso market. There’s a lot of nearshoring, onshoring happening there as well as supply chain reconfiguration. We’re also seeing some in the Southeast. We expect to see probably some in the medium term in the Midwest, but that we’ll see how that pans out. But it’s impacting the portfolio today in some of the border markets.

Jason Belcher: That’s helpful. Thank you. And then secondly, Amazon remains at your top tenant at about 3% of ABR. Can you just give us an update on any recent discussions you’ve had there and your exposure to any expiring Amazon leases in the next couple of years?

Bill Crooker: Sure. Yes. We had the Amazon lease that we renewed that I just mentioned. Again, we doubled our budgets. We expected the roll up 30% and end up rolling up 60%. So that lease has been pushed out. The next lease roll I think is a small 120-ish thousand square foot building in early 2024. That’s a below market lease. It’s a good building. It’s a second generation or third generation lease to Amazon. So it wasn’t a build to suit for Amazon. It’s a functional building. So overall the Amazon exposure has been working out quite well for us. And we’ve been able to operate those facilities either with renewals or leasing new tenants in the facilities that Amazon does not renew.

Jason Belcher: Thanks a lot. Appreciate the color.

Bill Crooker: Thank you.

Operator: Thank you. Our next question is from Mike Mueller with JPMorgan. Please proceed with your question.

Mike Mueller: Yes. Hi. May have missed this. But in the 2023 guidance, is there any equity embedded in it, given the call for net acquisitions? And I guess, secondly, are you an issuer in the mid-30s?

Matts Pinard: Hey, Mike. Good morning. I can answer the first part first, which I think makes sense. The midpoint of our guidance is really structured to assume zero incremental capital, both on the equity and the debt side. We can achieve that without needing incremental capital. We haven’t issued equity since January last year. Leverage is where we want it right within our range. I think an important point to make here is we are generating approximately $80 million of free cash flow after dividends. In terms of refinancing, we don’t have much maturing. We have a bunch of liquidity. I would say where the share price is right now, we do not have an interest. I think that as markets change. We’re going to evaluate. But the reason why we put guidance the way we did is obviously there’s a lot of uncertainty and very similar to 2022, very strong internal growth.

The capital markets are volatile, that’s flowing through the acquisition external growth side. So we are very careful in putting together our relatively wide and lower ranges as Bill described, to be able to run this business this year without incremental equity if we need it €“ if we don’t need it.

Mike Mueller: Got it. Okay. And then apologize for this. But going back to the spread question one more time on the 31% so far this year and the call for full year of 25% to 30%. I guess the question is are you seeing anything specifically in the upcoming roles that would pull you down or is that just an assumption?

Bill Crooker: It’s an assumption, Mike. It’s leases that are rolling in the back half of the year. And that’s really what it is. So it’s just an assumption right now. Nothing known right now that’s driving it, that driving our guidance to 25% to 30%.

Mike Mueller: Got it. Okay. Thank you.

Bill Crooker: Thanks.

Operator: Thank you. Our next question is from Eric Borden with BMO Capital Markets. Please proceed with your question.

Eric Borden: Hey guys, good morning. I was just hoping if you kind of provide some color to better understand the building blocks from 2022 to 2023. Just given you have a similar same store NOI growth as last year, but it seems to be an applied drag on FFO per share. I understand that there were some one-timers in 3Q of last year just hoping that you could provide some additional color there? Thanks.

Matts Pinard: Yes, absolutely. Want to walk you through 2022 and then our 2022 guidance until we arrive there. First, I think it’s important to note on the last earnings call in Q3, we did have a one-time item. It accounted for approximately a $0.01. So there is $0.01 of one-time items in 2022. We are not budging any one time items in 2023. That one time item was related to a settlement from a prior tenant, again, impacted 2022 by $0.01. In terms of 2023, there’s really two major drivers impacting our initial core fulfill guidance, the acquisition cadence and volume, which we discussed a few times on the call. And obviously this is impacting us and everyone else, but increasing short-term interest rates. So our 2022 acquisition volume was heavily weighted to the first half of the year and very modest in the second half result in including with $8 million of investments in the fourth quarter.

As our earning earnings release states, we haven’t acquired anything this year. We do not have anything on our closing pipeline and our guidance assumes that acquisition volume will be a back half weighted as opposed to 2022 where its front half weighted. This is going to have an impact on earnings. In terms of interest rates, we have a fixed rate balance sheet except for our revolver. Interest rate on the revolvers increased almost 300 basis points comparing today to the average cost last year and that’s going to be the other major impact.

Eric Borden: Okay. That’s helpful. And then maybe on the cap rate front, where is the bid-ask spread today and how much wider do you anticipate the range moving towards the back half of the year? I know you’ve provided some in your guidance, but just curious to know where it is today.

Bill Crooker: The bid-ask €“ it’s hard to answer that specifically, the bid-ask spread is pretty wide, which is why you’re not seeing us transact with a lot of acquisitions and frankly the industrial market as a whole is down significantly year-over-year in terms of number of transactions done. So we expect the bid-ask spread to narrow a bit. There continues to be volatility with the Fed and the latest, even PPI data that came out today. So there’s a lot of information that’s coming out and the Fed reacts and that it impacts debt cost, which impacts the cap rate. So hopefully that settles out in the back half of the year and the industrial market transactions start to come to fruition.

Eric Borden: All right. Great. Thanks guys. That’s all for me.

Bill Crooker: Thanks.

Operator: Our next question is from Vince Tibone with Green Street. Please proceed with your question.

Vince Tibone: Hi, good morning. I just wanted to follow up on the funding question and just try to get a sense of when you would potentially be interested in issuing equity again, just because on our numbers, Stag is trading right around a six implied cap rate in the same range you’d be acquiring stuff. So, neutral-ish cost of capital. So I guess why not issue equity or like what needs to change it simply the stock price to get you comfortable issuing equity again?

Matts Pinard: Hey Vince. Good morning. I think number one, I think the overarching answer is issuing equity to fund uses of proceeds, right? As I mentioned, we do not have anything on our closing schedule. Leverage is where we need it. So, as we sit here today, we have the ability to operate without equity. We’re still trying to figure out the price discovery on the external growth side. We’re generating $80 million of cash just running our portfolio. We can manage leverage that way. As Bill discussed earlier, we have the ability to credibly capital recycle. We’re really just taking a look at the volatile capital markets and taking a look at our position, particularly with the strength of our portfolio. And we do not have a need to do that as it sits here today.

Bill Crooker: Yes, Vince, I think that, I mean, the short answer is we’re being patient. We certainly don’t want to overpay for assets. And I’m just looking at the one asset we closed in Q4. We’re able to acquire that at a pretty high cap rate. And it was a sale lease pack with a decent credit and it’s a great building and a really strong market. And so those are opportunities that if we had a whole pipeline of those and we could creatively deploy the equity at those levels, then we’d think long and hard about it. But right now we don’t have a whole pipeline of those acquisitions. So we’re being patient. We’re picking our spots and we’re able to do so with where we are from a liquidity balance sheet perspective and retained cash flow.

Vince Tibone: Got it. That makes sense. And then just to confirm, like from a modeling perspective. So are you just assuming any acquisitions then in excess of free cash flow just be put on the revolver? Is that how we should think about it? And if so, like kind of what’s the maybe good average rate in your mind to assume for any kind of incremental revolver debt?

Matts Pinard: Yes. So that’s exactly right. The midpoint of our guidance assumes no incremental equity. So on a net acquisition basis, the acquisitions we’ve made using the retained cash flow we talked about, and anything in addition to that would be revolver debt. Right now revolver is priced a little north of 5%. You take a look at a forward curve and you can put as much credence as you would like into a forward term SOFR curve. But anywhere in the low 5% is probably good for your modeling.

Bill Crooker: And as that revolver balance increases, if we were to term that out, the rates aren’t materially different just given the flatness of the curve.

Vince Tibone: Just on that really quick, okay. How much €“ how are the private debt markets today? Whether it’s a private placement note or a term loan, are those markets still more restrictive? How much term do you think we could get? Just a little more color on maybe, besides just rate some of the availability of debt?

Bill Crooker: Yes, I’ll kick it off and then pass up the Matts. But I mean, terms of just the private placement market that market is still operating and functioning and you can get debt as long as 12 years. If we did something it’d probably be in the 10-year range. But I’ll let Matts talk about the bank markets and anything to spend on the private placement market.

Matts Pinard: Right. Yes, so Vince, just to follow up on the private placement. If we were to go to market today for a 10-year private placement note, and this is a market we really enjoy the flexibility. We’ve cultivated a pretty good following and we’ve had a lot of success there. 10-year debt would price probably in the five to five and a quarter range. Credit spreads have come in a little bit, but the tenure continues to bounce around. We’re not a public bond issuer in terms of the bank market. We really took care of that in July of last year. We upsize our revolver. We have a significant amount of liquidity. We took care of our near-term refinancing. So we don’t have a need for bank debt capital. And it’s likely that if we were to go to the debt markets, we would look harder at the private placement market. But I do want to reiterate the midpoint of our guidance in this market does not assume any issuance.

Vince Tibone: Got it. Super helpful. Thank you both.

Bill Crooker: Thanks, Vince.

Operator: Thank you. There are no further questions at this time. I’d like to turn the floor back over to Bill Crooker for any closing comment.

Bill Crooker: Yes, I just want to thank everybody for joining the call today. We look forward to seeing many of you at the upcoming conferences. And thanks again and have a great weekend.

Operator: This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.