Matts Pinard: Blaine, this is Matts. I think we can start with the cost of debt. You look at our investment-grade balance sheet, we have a mix on there. We have a mix of term loans and private placement notes primarily. So the original tenors of those instruments are five years, seven years, 10 years. You take a look at the 10-year, it bounced around recently, particularly yesterday. If we were to originate that today in the 6% area, granted, that’s a little higher than what we have originated over the previous three years, a lot of that is related to the 10-year. If we think about capital allocation for this year, look, the funding plan for ’24, it really begins with the retained cash flow after dividends paid. As I mentioned in my prepared remarks, we did retain $90 million last year.
We expect to retain roughly the same this year. We do have asset dispositions in our guidance. We’re going to have those proceeds to deploy as well. And then what I do think is important is, we do have $63 million of unfunded equity that’s available to us on the forward ATM. That’s at a gross share price north of $38. So, you take that and then you take a look at the balance sheet, it’s under-levered compared to our — to a range of 5 to 5.5. So, we have a lot of what we need right now. And with the movement in 10 years, yes, it does have an impact on our cost of debt.
Blaine Heck: Okay. That’s helpful. And then just on the mid-single-digit rent growth you guys are projecting this year. That seems to be a bit above some of your peers and some brokers that are guiding to flat or low single-digit growth. I guess what’s giving you confidence in that higher number? Or what do you think is unique to your portfolio or markets that might push rent growth a little better this year?
Bill Crooker: And some of the things I said in the prepared remarks, I mean, just where — and some previous questions. But our buildings fit the submarkets we’re in really well. Generally, our buildings are on the smaller side as compared to where the vacancy is now, so the vacancy is generally big boxes, call it, 400,000 square feet and above. And so, when you look at where the demand is — it’s — it’s on the smaller boxes. We’re seeing — still seeing near-shoring demand. We’re anticipating some on-shoring demand in the coming years. And then the way our buildings fit the submarket, we feel really confident about their ability to lease and drive good strong rental growth. Last year, we went out and we forecasted really well in terms of where we came out.
I think we started the year at high single digits or mid- to high-, and we ended up at a little north of 8%. And this year, it’s — we’re starting the year at mid-single digits. So, it is a ground-up analysis that our team spends a lot of time reviewing and we have a lot of confidence in it.
Operator: Our next question comes from the line of Camille Bonnel with Bank of America. Please proceed with your question.
Camille Bonnel: Can you expand more on the 31% outstanding leasing you have less to address in 2024? How much of that is near-term weighted versus back half? And are there any big concentrations in any one market?
Bill Crooker: No big concentrations in any one market. No, I think I mentioned this on the last call, too, nothing over 400,000 square feet, which is just kind of our line of demarcation of big box, small box. More of it’s back-end weighted, which is why our range leasing spreads is 25% to 30%, and we’re coming in close to 30% for the amount we’ve leased to date. So that — because if it’s more of it’s back-end weighted, that’s why our range is where it is. But we’re really excited about where we are today. Like I said, earlier, it was 61% at this time last year, and now we’re close to 70%. So there’s really good activity on that.
Camille Bonnel: Right. And for my second question, the core operations ended in a very solid place. But as we look to the bottom line and adjust for noncash-related items to get you to your cash available for distribution, this came in about 5% lower than the sell side was expecting. So I was wondering how should we think about CAD growth this year? And would this be similar to the 4% FFO in your guidance?
Bill Crooker: Yes. So one thing, I’m not going to comment on where the sell side comes, and I think you guys have your own models there. But for this year, our same-store cash NOI came in at 5.6%, which was a record for us. And our CAD available for distribution, just on a gross number, was up 5.4%. So pretty consistent with our cash same-store NOI. Every year, you’ve got some nuances in that number with — in terms of CapEx, but CapEx has averaged anywhere from $0.25 to $0.30 per square foot. That seems pretty consistent. Going forward. I think when you think about it as a percentage of NOI, it’s around 7% of NOI. So that number should be pretty consistent. So I think we can still drive some pretty strong CAD growth and CAD per share growth going forward.
Operator: Our next question comes from the line of Michael Carroll with RBC. Please proceed with your question.
Michael Carroll: I know Bill that STAG is pursuing a lot of active development projects, I mean, I guess, a few right now. Guess what’s the opportunity set here? I believe earlier in the prepared remarks, you said there was, what, 25% of the pipeline developments. I think you threw around a lot of numbers, so I’m not sure if that was the exact number tied to the development projects. But what is the activity? I mean, how many do you think you can really pursue in 2024? Or how many do you want to pursue in 2024?
Bill Crooker: It’s a good question, Mike. I did throw around a lot of numbers, so I apologize if some information got kind of lost there. Our pipeline is $3.1 billion. Of that, call it, 15% to 25%, it’s a pretty wide range, but is some sort of mix of developments, value-add redevelopments. Part of the wider range is the $3.1 billion only includes land cost. So if it’s a $50 million project, it’s $10 million of — that’s in our pipeline today. We haven’t guided to specific development projects, more starts, right? So we’ve got two that are on — three that are ongoing now, wrapping up that Port 290. We’ve got the Tampa development. And then we’ve got the one we just acquired here that’s almost complete and should be ready by the end of Q2.
So those are underway. And for the year right now, there’s — we don’t have anything that we’re negotiating price agreement for. We do anticipate there’ll be some opportunities there. And we’re evaluating some opportunities in our own portfolio as well, that we have some excess land and looking to potentially subdivide some of those parcels. So, as we have more clarity into that, we will guide to it. We’re just not, at this point, as we ramp up this initiative, we’re not comfortable giving specific guidance for 2024. But as we have more insight into these projects, we’ll certainly let you and everyone know of those projects.
Michael Carroll: Okay. Great. And then can you remind us on what your limit of developments that you want to pursue within the portfolio? I believe you provided to us before. And does that limit change based on leasing? So some of these developments are in process to get leased. Does that give you more capacity to pursue more starts?
Bill Crooker: Yes. We do have some soft kind of limits internally. I mean, it’s certainly less than some of our peers just as we’re ramping up that opportunity. The way we view it is outstanding developments, obviously, build-to-suit is less risky, depending on the rights that the tenant has to bow out of that in case something were delayed. And then as we lease up a project and it stabilized, it drops off of that cap. So, we’re not close to the cap, Mike, right now, guidance for starts and caps, certainly will be something we’ll be providing in the future more specifically. But right now, we’re not close to any sort of soft internal caps we have. But the riskier of the project, obviously, it impacts the capital a little bit more than a build-to-suit with very limited rights for the tenant to bow out of that.
Operator: Our next question comes from the line of Nick Thillman with Baird. Please proceed with your question.
Nick Thillman: Maybe just touching a little bit on the dispositions and kind of the composition or write-down of that, is the bulk of that is going to be that non-CBRE Tier 1 market that you guys are trying to basically concentrate in and just kind of basically putting the portfolio here? Or are we — are you kind of viewing this more as like sources for the acquisition pipeline?
Matts Pinard: Nick, this is Matts. Yes. So our disposition guidance of $75 million to $125 million, as you accurately noted, is a mix between opportunistic capital recycling in non-core dispositions. If you think about the mix in 2023, it was roughly 50-50. Look, there’s always the bottom 5%, and to the extent we just don’t think it’s a good part of our portfolio we’ll disclose. And on the flip side, on the opportunistic, those are generally reverse inquiries from users. They view the real estate a little differently. They kind of have different expectations, corporate mandates, et cetera. So, those reverse inquiries happen every single year. They’re a little unpredictable. So, there is called the unidentified opportunistic within that number. But I think a 50-50 split is relatively reasonable, given our history.
Bill Crooker: And Nick, I think you correctly pointed out. The non-core dispositions are primarily those non-CBRE Tier 1 markets that were legacy properties.
Nick Thillman: That’s helpful. And you guys kind of touched a little bit on weakness in big box demand. But maybe just on like the pricing and what you’re seeing in underwriting for acquisitions on maybe a stabilized basis, maybe smaller properties, first larger, is there a big differentiation between the pricing on those products? Or are they still pretty similar?
Bill Crooker: Yes. I mean there’s so much that goes into the pricing, right? You could have a small box that’s got a 10-year lease and 1.5% escalators, and that’s going to trade much differently than a small box that has a five-year lease and 4% escalators. Mark-to-market, obviously, is going to be impactful, too. If you’ve got a big box that’s got a five-year lease in a market that has historically been a strong big box leasing market, I think that trades pretty close to some of the small boxes with five-year leases. It’s really — if the property, the building fits the submarket well and it’s got enough term, I think it’s going to trade pretty reasonably. With all that being said, we’re just — deals are coming out. They’re still coming out.
We’re hearing some deals come on to price agreement. It takes some time for these deals to close. So all of that will be vetted in the next couple of months, and I think it will give us and others more certainty as to where these deals are closing.
Operator: Our next question comes from the line of Eric Borden with BMO Capital Markets. Please proceed with your question.
Eric Borden: Just sticking with the disposition theme, how much of the portfolio left of the portfolio is the non-core legacy non-CBRE Tier 1 markets that could be disposed of to use for future funding sources?
Bill Crooker: Yes. So, I do want to point out that we do have a portion of our portfolio that is non-CBRE Tier 1 that we really like and is not part of our non-core portfolio. But we generally look at circa 5% of our portfolio is something that we are constantly evaluating for disposition to improve the quality of the portfolio.
