Bill Crooker: Yes. What’s great about our platform is we have the ability to invest across that spectrum. So developments like the one we mentioned last year in Tampa, to the value add, where we’re just taking lease risk to something that we’re adding more value with redevelopment, as well as acquiring stabilized deals. So depending on the opportunity, we’re going to deploy that capital at the best risk-adjusted returns. Q4, Q1, there just were not a lot of stabilized acquisitions on the market. And I say — I mean, you make Q3 and Q4 of ’23. There weren’t a lot of stabilized acquisitions on the market, and part of that was just the volatility in the debt cost. And now we’re starting to see more of those stabilized opportunities.
So my guess is there’s going to be some split, probably way to more to stabilize deals, but there’ll certainly be some value-add redevelopments and hopefully, some more of these developments that we announced last year. But it will be weighted more to stabilize deals.
Operator: Our next question comes from the line of Bill Crow with Raymond James. Please proceed with your question.
Bill Crow: Bill, in your opinion, what is this bringing sellers back to the table after kind of a quiet period for the last couple of years? Are they looking at fundamental concerns and rising vacancy rates? Are they figuring they missed the bottom on cap rates and that they might drift higher? Or what is causing that switch in their mentality?
Bill Crooker: Yes. And I’ll answer the question, but I do want to point out a stat that we’ve said before is that the owners of industrial real estate, I mean the ownership is so highly fragmented. I mean, the top 20 owners, including ourselves and some of our public peers only own about 15% to 16% of the overall stock. So, there generally is uncorrelated reasons for assets coming to market. But what happened the past year was the volatility in interest rates, the rapid rise in interest rates, there wasn’t a lot of comfort with where capital costs were coming in. And now that that’s stable, there’s more confidence in borrowing costs. And once you have your cost of capital or some comfort in your cost of capital, then you can back into where an appropriate price to either buy or sell an asset.
So going back — I mean, did they miss the top of the market? I mean, based on where interest rates are today, yes. And I think because the 10-year has been somewhat stable over the past six to nine months that gives sellers the confidence that they’re selling at a market price versus a price, maybe, that is not market.
Bill Crow: But the asset you acquired, the newly developed one in the 7.1 turned into a 7.6. I guess, where is that — how does that compare to the construction costs that were — the development cost of the seller?
Bill Crooker: Steve, Mike, I don’t know if you have that?
Steve Kimball: Yes. I mean we don’t have pure visibility into the seller’s development costs. But we feel that we were able to get that at a total per square foot price that was at replacement cost, given that it was a brand new building. The yield was above what we could typically get.
Bill Crooker: Yes. I think in this transaction, Bill, the seller — and you don’t always have perfect visibility into their costs, but the seller had a lower basis than the land and also had opportunity to develop some other parcels of land. So this was a good opportunity for them to make some return on their investment without taking any leasing risk. And that’s where we were able to add our value. So, the fair market value of that land was obviously much higher than where the seller initially purchased the land and then went through the entitlement and permitting process.
Bill Crow: All right. I appreciate that. I’ll leave it there.
Operator: Our next question comes from the line of Samir Khanal with Evercore. Please proceed with your question.
Samir Khanal: I guess, Bill or Matts, on the shifting to the internal growth guide here on same-store, I mean 5% is still a good number, but it is slowing a little bit. Maybe just talk about how you’re thinking about occupancy through the year, credit loss assumptions?
Bill Crooker: Yes. We — last year — Matts, correct me if I’m wrong, I think we incurred about 13 basis points of credit loss. We normally guide to 50 basis points of credit loss, which is what we’re guiding to in 2024. From an — we look at it on occupancy, average occupancy, average occupancy in our same-store pool last year was down 30 bps. And we’re guiding to average occupancy in 2024 down 50 bps. I mean when you think about the supply coming online, it’s — we had a fair bit of supply come online in 2023. That’s getting absorbed. We have another 2.2% of supply coming online in 2024. But development starts are down 65% year-over-year. So I feel like, overall, national vacancy rates are going to tick up as we move through the year.
And when we get near the end of the year, those should start to come back down. But overall, for this year, we’re guiding to both 50 basis points of credit loss and 50 basis points of average occupancy loss in our same-store pool. And that’s offset by some really strong rollover rents again. We’re guiding 25% to 30%. We signed almost 70% of our leases for 2024 at close to 30% today. So, we feel pretty good about where our same-store is coming in at the initial guide here.
Samir Khanal: I guess as a follow-up to that, I mean, like you said, you are signing close to 30% and then your guides like 25% to 30%. I guess — what’s driving that a little bit, kind of on the pricing power side. I mean are you seeing anything material? Or are you just sort of being here?
