Welcome to the STAG Industrial Fourth Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen only mode. A brief Q&A session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Steve Xiarhos. Thank you, Steve. You may begin.
Thank you. Welcome to STAG Industrial's conference call covering the fourth quarter 2021 results. In addition to the press release distributed yesterday, we have posted an unaudited quarterly supplemental information presentation on the company's website at www.stagindustrial.com under the Investor Relations section. 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 forecasts 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 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 informational 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 Ben Butcher, our Chief Executive Officer, Bill Crooker, our President, and Matts Pinard, our Chief Financial Officer. Also here with us today is Steve Mecke, our Chief Operating Officer, who is available to answer questions specific to operations. I will now turn the call over to Ben.
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 our fourth quarter results. Before we get started, I wanted to touch on the succession announcement we made a little over a month ago. As previously announced, on July 1st, my title will be changing. I will leave the CEO role and become the Executive Chair of the Board of Directors. Bill Crooker, our President, will be taking over my position as CEO. My transition from CEO to Executive Chairman this July will be made without the slightest hesitation or concern. Almost 11 years ago, we had the opportunity to move our successful Private Equity Fund platform to the public markets. The compelling reasons for making this move have all been validated by our experience in the public markets.
I take great pride in the company we have built, a company that continues to exceed operational expectations, is genuinely a great place to work and grow. We have focused on growing our team from within. This commitment to employee development has provided us with a deep and talented bench of colleagues that we can rely on now and in the future. As we enter 2022, I'm highly confident of the STAG team across all levels of the organization. I want to thank you for the opportunity to be your CEO since we founded the company over 18 years ago. My job has been made easier by the immense level of support I receive from the many stakeholders in STAG. I'm excited for my new role and for the next phase of STAG's journey as a public company. 2021 was another great year for STAG Industrial.
Strong execution across all facets of the company allowed us to meet or exceed all our goals and guidance for the year. Our performance in the fourth quarter was no different. The acquisition volume in the quarter was our highest ever, and we produced a high level of Same Store NOI growth. We accomplished all of this while maintaining our strong investment grade balance sheet. Industrial fundamentals remained strong as we start 2022 and are projected to remain healthy for some time. Demand exceeded supply in almost all U.S. markets throughout 2021. This drove the strongest market rent growth we have seen in our portfolio in our operating history. Based on our current projections, we expect to see continued strong market rent growth throughout 2022.
As Bill and Matts will discuss shortly, these market dynamics contributed to both our very positive 2021 results and our strong 2022 guidance. Finally, I am proud to report that the company's inaugural Environmental, Social, and Governance Report was published in December. We take great pride in our best-in-class ESG profile and fully expect this to be an annual Sustainability Report. This report represents an additional tool for us to comprehensively communicate our ESG efforts and provide context for the considerable progress we continue to make. With that, I'll turn it over to Bill who will discuss our acquisition and disposition results and outlook for 2022.
Thank you, Ben. Good morning, everyone. First, I want to thank the entire STAG team for its tremendous effort during the record fourth quarter and record year. We acquired over $700 million of properties in the span of three months, including an ongoing development project. This is a testament to the platform STAG has built, the best in class processes in place, and the hard work of our talented team. Acquisition volume for the fourth quarter totaled $689.5 million across 35 buildings with stabilized cash and straight-line cap rates of 5% and 5.2%, respectively. For the year, acquisition volume totaled $1.3 billion with stabilized cash and straight-line cap rates of 5.2% and 5.6%, respectively. Competition for industrial properties remain elevated.
The re-evaluation of supply chain infrastructures and challenges associated with inventory continue to drive demand to historical levels. These dynamics have attracted capital from traditional and new investors looking to increase exposure to industrial real estate. One of our core competencies is the ability to acquire industrial real estate on a granular basis across 60+ markets nationwide with an attractive return profile. The ability to efficiently evaluate 1,000+ transactions per year to identify attractive relative value on a granular basis continues to be extremely valuable. Today, our pipeline of potential investments is $4.1 billion, demonstrating the opportunity set in front of us today. There are a few larger transactions I would like to highlight that closed this quarter.
In November, STAG acquired a small portfolio of four warehouse distribution facilities totaling 580,000 sq ft located in Greater Chicago for $62.9 million at a 4.9% stabilized Cash Cap Rate. This collection of leases features below-market rents with a weighted average lease term of approximately three and half years, providing an attractive opportunity to create value in the near term. One of the four buildings contains a 50,000 sq ft vacant suite that has seen a high level of activity, and we expect to execute a lease on this suite soon. This transaction is a good example of how we have built an investment process that avoids decision rules.
The opportunity did not meet the typical criteria of two ends of the traditional real estate investor spectrum due to the lease term being too long for traditional value-add investors and too short for the typical cash flow buyer. Our differentiated approach and deep broker relationships allowed us to acquire this portfolio at a very attractive basis. In December, we acquired a 590,000 sq ft warehouse distribution facility located in Hazleton, Pennsylvania for $53.8 million at a 5% stabilized Cash Cap Rate. Well located in the I-81 corridor with proximity to both I-80 and I-81, the building is fully leased to three tenants. In aggregate, the leases are 9% below market with a weighted average lease term of just under three years, providing an attractive opportunity to bring these leases to market.
This includes 160,000 sq ft suite set to roll in less than one year. The mix of lease terms in this multi-tenant building, along with its location in a secondary market, allowed us to acquire this attractive acquisition with near-term upside. Finally, at the end of December, we acquired two buildings totaling 1.2 million sq ft in Hagerstown, Maryland for $140.7 million at a 4.9% stabilized Cash Cap Rate. The facilities are fully leased to strong credits who have deep commitments to the space with a weighted average lease term of nine years. This transaction includes 13 acres of land available for potential expansion that is not encumbered by the lease, providing an opportunity to add additional value to the site.
These buildings have benefited significantly from the rise in big box demand tied to e-commerce and logistics tailwinds similar to their South Central PA counterparts to the north along I-81. The last transaction I would like to highlight is a new opportunity for STAG. This is the first investment made in an ongoing speculative development project. Located in Sacramento, STAG acquired the project from the developer for $28.9 million, which consists of hard and soft costs incurred to date. Today, the building is 65% complete with total expected project costs of $34.8 million. STAG will fund the remaining development draws, which are projected to total an additional $5.9 million. As of today, we have received 3 lease proposals and expect to fully pre-lease this building prior to completion.
We see this development funding transaction profile as a natural extension of our industrial operating expertise and are excited about the attractive prospects of growing this line of business. Switching to capital recycling, dispositions for the quarter totaled $112.5 million, highlighted by our sale of the Taunton, Massachusetts facility for $78 million at a 3.1% cash cap rate. I would also like to highlight the sale of our Belfast, Maine flex /office campus, which consisted of five buildings. With this sale, our flex/office portfolio is now less than 100,000 sq ft. For the year, disposition volume totaled $193.4 million with an aggregate disposition cap rate for our core industrial assets of 4.5%.
Turning to guidance for 2022, we continue to see an attractive opportunity to grow our portfolio. While competition has increased, so has the cash flow profile of these opportunities we are evaluating. We expect acquisition volume to be between $1 billion and $1.2 billion with an expected stabilized Cash Capitalization Rate range of 5.5% - 5.25%. We expect straight-line cap rates to be 40 basis points higher than Cash Cap Rates. With the heightened appetite for industrial real estate, we have increased our expectation for capital recycling in this environment as well. We expect disposition volume to be between $200 million and $300 million for 2022, with disposition cap rates similar to those achieved in 2021.
It was a busy year for STAG in 2021, and we are equally as excited to continue our execution in 2022. Before I turn it over to Matts, I would like to take the opportunity to share how grateful I am of Ben and the board for the confidence they have placed in me. I also want to thank Ben for his leadership, mentorship, and continued counsel as we transition over the upcoming months. Ben has created an extraordinary company, and his impact will be long lasting.
With that, I will turn it over to Matts, who will cover the remaining results and guidance for 2022.
Thank you, Bill, and good morning, everyone. Core FFO was $0.51 for the quarter and $2.06 for the year, an increase of 9% as compared to 2020. Cash available for distribution totaled $293.8 million in 2021, a year-over-year increase of 20.5%. Consistent with our previous messaging, the dividend payout ratio continues to moderate, declining from 90% in 2020 to 82.4% at year-end 2021. Leverage at year-end remains near the lower end of our range, with net debt to run rate adjusted EBITDA equal to 5x. During the quarter, we commenced 30 leases totaling 3.6 million sq ft, which generated cash and straight-line leasing spreads of 16% and 22.6% respectively.
Retention was 77.6% for the quarter and 76.6% for the year. Cash Same Store NOI grew 3.4% for the quarter and 3.8% for the year, the highest level on record for STAG. 2021 included an 80 basis point benefit from free rent associated with two large leases at our Hampstead, Maryland, and Memphis, Tennessee facilities. This benefit does not exist in 2022. Our initial 2022 guidance range for cash Same Store is 3%-4%, anchored by weighted average rental escalators of approximately 2.35%, Retention of 70% at the midpoint of our guidance range, and cash leasing spreads expected to be in the low teens for the year.
There are no large known move-outs or material free rent tailwinds included in our guidance range. Moving to capital market activity and beginning with equity. In the fourth quarter, we completed an equity offering at $42.50 per share, which resulted in aggregate net proceeds of approximately $386.3 million, with a portion of the proceeds to be received on a forward basis. Net proceeds of $220.4 million were received in November. On December 27th, we partially settled the forward equity component of this transaction and received $115 million in net proceeds, which we used to fund fourth quarter acquisitions. As of year-end, we have an additional $50.1 million of net proceeds available at our option to fund forward future acquisitions.
As previously discussed, in October, we refinanced our $750 million unsecured revolving credit facility. This revolver matures in October 2025, with two six-month extension options at our option. The facility bears an interest rate of LIBOR plus a spread of 77.5 basis points based on the company's current leverage level and debt rating. In addition, the company refinanced a $150 million unsecured term loan. The term loan now matures in March 2027 and is fully swapped with an all-in interest rate of 2.15%. Finally, the company improved pricing on $675 million of term loan debt, specifically term loans E, F, and G. The term loans now bear a current interest rate of LIBOR plus a spread of 85 basis points with no change in maturities.
Our initial 2022 guidance can be found on page 21 of our supplemental package, which is available in the investor relations section on our website. Components of our initial 2022 guidance are as follows. Our Core FFO guidance is a range of $2.15-$2.19 per share, with a midpoint of $2.17. We expect 2022 annual Same Store NOI growth to be between 3%-4% for the year, with a Retention range of 65%-75%. G&A is expected to be between $49-$51 million for the year. Note that this range now includes the expense related to the retirement plan. This expense is expected to be $671,000 in both the first and second quarters.
We expect net debt to run rate adjusted EBITDA to be between 4.75x and 5.5x for the year. I will now turn it back over to Ben.
Thank you, Bill and Matts. In closing, I want to reiterate what a great position our company is in. My colleagues worked extremely hard this year and have throughout the pandemic. My thanks to them for achieving the great 2021 results. I also want to thank our various stakeholders again for their constant and continued support. I'm very proud of STAG and everything we've accomplished in the past year, and more importantly, over the last decade. I have the utmost confidence in the team and our strategy going forward. Thank you for your time this morning. I'll now turn it back to the operator for questions. I turn the speaker off now.
Thank you. We will now be conducting a Q&A session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would 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 keys. One moment, please, while we pull for questions. Thank you. Our first question is from Sheila McGrath with Evercore ISI. Please proceed with your question.
Yes, good morning. Congrats on the smooth transition and all the promotions. My first question is on the acquisition of the development that you mentioned, Bill. What kind of premium yield are you thinking about when you're buying a development, and are there other projects in the pipeline similar to that?
Sheila, I'll start by saying, although that was directed to Bill, thank you for your thank yous, and I'll let Bill answer the question.
Hey, thanks, Sheila. That transaction was a great transaction for STAG. We don't necessarily target a development yield. There's-
You know, various yields we're looking at for those type of projects. This particular project will stabilize in and around a five cap with a 33% per pro forma development yield. Very happy about that. There are some other development type of projects in our pipeline that we're hopeful we'll be successful on going forward.
Okay, on the dispositions, you mentioned in 2022 are gonna be higher. What's driving that? Are there opportunistic sales like the Amazon one that you did, or is there a portfolio? Just how should we think about timing on that?
We do have a small two-property portfolio that is on the market now that will likely close in the beginning of Q2. The guidance for this year, $200 million-$300 million of dispositions is elevated as compared to past years. As I noted, the weighted average cap rate for our dispositions this year we expect to be in and around the same cap rate we had for 2021, which is mid-fours cap rate.
Okay. Thank you.
Thank you. Our next question comes from Jamie Feldman with Bank of America. Please proceed with your question.
Great. Thank you. Going back to the comments on the dividend payout ratio, you know, it improved during 2021. I'm just curious what your thoughts are on 2022. Do you think that'll improve further?
You know, Jamie, that certainly has been a goal of ours throughout the last five or six years. We've been looking at getting that payout ratio down. We're getting pretty close to the point where we're comfortable that it is sort of a continuing level. That's something we'll look at as we go through the year. Mats, do you have something to add to that?
No, that's exactly right, Ben. We're at 82.4% at the end of 2021. Jamie, just for context, we were at 90% at 2020, so a material decrease in the payout ratio. As Ben said, we continue to look at it, but we're happy with the progress we have made.
Okay. Thank you. Similar to Sheila's comments, congratulations, everyone, for the transitions and the changes. Do you expect to see more, you know, management, you know, creation of additional management roles or new hiring to fill any voids going forward? Or is G&A kind of set where it looks today?
Yeah. We are, you know, the transition involves a couple of pieces, most of which has been announced. We don't see any need for additional hires at, you know, at significant compensation levels.
Okay. Then I guess, Ben, big picture, you know, when I think back to the IPO and where the company stood then and where the industrial market stood then versus, demand for assets today and operating conditions today, I assume as you thought about, you know, transitioning your career, you thought about potentially selling the company or cashing out. You know, what was the thought process to, you know, think about, STAG 2.0 with you in a different role, and kinda what's your vision of the next 10 years versus maybe, you know, had you cashed out today or sold the company today, you know, what was that thought process like?
Well, I mean, I think, you know, one of the important elements is that we look at the opportunity set in front of us as large, and we think we can still create a tremendous amount of value for our shareholders by continuing to buy individual granular assets. You know, we're depending on what day you look at us, you know, we have around $10 billion of assets. Again, depending on valuation today, that's still a very, very minor portion of the overall industrial landscape. Again, we think there's a lot of opportunity to continue to grow creatively, continue to drive our FFO per share up. I think that the, you know, the board is always amenable to listening to, you know, an investor inquiry as to selling the company.
That would have to be a very dear price to get the board to walk away from the opportunity set we see in front of us.
Okay, that makes sense. I guess just focusing again on next year, can you talk about some of the larger expirations? Any risk of some occupancy loss?
Yeah. I'll let Steve answer this more granularly, but it is, without question, a less bumpy year. There's nothing big that I'm aware of in the system. Steve?
Yeah. Hey, Jamie, it's Bill. Yeah, looking at 2022, there's no large lease expirations. Our average lease size is in and around the 200,000 - 250,000 range. There's nothing above 400,000 expiring this year, and everything is contemplated in our guidance. Much different than it was a couple of years ago where we had those two 1 million sq ft expiring. We have nothing like that in 2022.
Okay. Any of the 400,000, like what are your largest move-outs?
I think our largest move-out is right around 300,000 sq ft. This is Steve. We've, you know, got good activity on almost all of our known vacates at this point. We're pretty confident for the year.
Jamie, one thing I might add to that is, as you've seen in our occupancy levels and Same Store NOI, et cetera, is downtime has dropped, you know, significantly over the last couple of years as is reflective of demand in the market.
A lot of, you know, we've developed this parlance of immediate backfills. That is a sort of a hallmark of the market now, is there's demand for almost every asset in every market that is immediate.
Okay. I guess similarly, if you look at some of the acquisitions in the quarter, you had some pretty low WALTs on several of them, kind of one, you know, one to two years. Can you provide a little bit more color on those transactions?
Sure.
Go ahead, Bill.
I was gonna say, yeah, I mean, there's a few, right? There's the Omaha, there's the Sacramento transaction, there's the Philadelphia. I would say on average, those are double digit below market rents. Jamie, some markets that we're very comfortable operating in, some near term expirations that we'll be able to unlock some value there. As you know, our cap rates reflect the current in-place rents on those properties and do not reflect a mark-to-market on those.
Okay. You feel pretty comfortable with back-filling? Like, are you already in discussions with some of them?
Very comfortable. Generally, given the supply-demand dynamics we're seeing in our markets, we're not entertaining lease discussions over 12 months out. We'll start those discussions usually six, maybe six to nine months out, just because market rents are moving quite quickly, so we don't want to entertain too early lease discussions.
And, and reflective-
Okay
Of that, Jamie, tenants are starting to talk about renewals, et cetera, 12-18 months out, so that, in our prior history, they would've been the ones probably waiting longer to start the discussions, but now reflective of the fact that rents are moving, they're starting earlier.
Okay. All right. Great. Thanks for your thoughts.
Thanks, Jamie.
Thank you. Our next question comes from Manny Korchman with Citi. Please proceed with your question.
Hey, good morning, everyone. Earlier in the call you mentioned the fact that some of the stuff you're looking at doesn't fit the sweet spot for other investors, whether the WALT being too long or too short or I don't know, it sounds like the porridge isn't just right. Have you seen changes in the landscape of buyers where they're getting more comfortable sort of operating outside of their traditional, limitations on whether it be WALT or geography or value or otherwise?
Manny, there's no question the market is hotter across all sorts of facets. The one thing that remains the case is that it's very difficult, excuse me, for passive equity to get involved in individual granular transactions. That is one of our great strengths, the ability to look at these, a short-term deal on its own or a long-term deal on its own, as opposed to the mix within a portfolio. While we're seeing, you know, more activity generally across the markets, our peculiar strength in looking at individual transactions remains kind of a hallmark. Bill, do you have anything to add?
Yeah, that's right, Ben. I mean, as we said in the prepared remarks, and you noted, Manny, I mean, there are certain asset types or lease terms that the traditional investors are looking for. Markets may change what they're looking at, but generally, it's either the value add players or the longer-term cash flow buyers. Generally, those are bigger transactions. Our approach continues to be individual granular transactions, and we're able to acquire both long-term leases and, as you know, I just talked in the last call, the last question was, you know, shorter term leases where we can add some value in the near term. We look at all those aspects.
Thanks for that. Could you, I don't know if this one's for Bill or Matts, but, can you talk about your going-in cap rates? You talked a lot about stabilized cap rates, and we're just wondering what the spread is between going-in cap rates and stabilized.
Yeah. I mean, when we say stabilized, that is our going in. I mean, that's what we're for modeling purposes you would just take that out, multiply by the acquisition price, and that's gonna generate our year one NOI. I mean, there's some transactions that we have that have three years of lease term. You know, the one in St. Louis, for example, that's one that, again, we're looking at the in-place cash flows, but it's also one that we're able to roll up in three years. When you say stabilize, I don't know how far you look out before we stabilize these. Everything is in place cash flows, except for if there's a vacancy. Then under vacancies, we will use the prevailing market rate to stabilize that.
I guess on that point, if you look at whether it be 4Q 2021 acquisitions or total for 2021, including those vacancies, I don't remember how much of it was vacant, but was there a big spread between sort of your year one cash flow and then your to your point that fully stabilized lease, everything that's under leased or vacant perspective?
It's probably, I don't know, 25-ish basis points, probably, the difference there. We can get you the exact number, but that's probably a good estimate for now.
Manny
The last
I'm sorry, it would be smaller than what normally it would be because of the fact the downtime has gotten so short.
Right. Maybe this is a follow-up on the lease expiration question. But your Retention rate for next year is projected to be lower than it was this year or last year. You know, what is driving that lower Retention rate? Is it pushing rents? Is it a few of those move-outs that just , you are foreseeing but they're smaller in scale or something else?
Manny, typically across, you know, cycles, the more vibrant the market is, the lower the Retention is because the tenants are doing things, you know, moving to bigger buildings, consolidating, et cetera. It's reflective of the fact that it's a vibrant market. You know, generally, across all of our markets, there's vibrancy among tenant behavior. That leads to lower retention, but doesn't necessarily lead to increased vacancy because these downtimes are also being driven down. It's generally, you know, good reasons why tenants are doing things. There is some sticker shock. You know, you have a tenant that's sort of been existing in a location that they probably didn't need to be in because it should have been more expensive.
As we move to market rents, some of those tenants will move to less expensive buildings in probably less attractive locations. There's some of that. Generally speaking, the low Retention is reflective of vibrant market activity.
Thanks, everyone.
Thank you. Our next question comes from Blaine Heck with Wells Fargo. Please proceed with your question.
Great. Thanks. Good morning. Matts or Bill, can you guys just talk about how you're planning on running the balance sheet and any shifts in your leverage profile you guys may have in the future? You know, you're running at 5x on a run rate basis, and your guidance is somewhat wide at 4.75x-5.5x. You know, clearly there's a bit of a balancing act between keeping dry powder for acquisitions and increasing leverage to drive a little bit more FFO growth. You know, can you just talk about your thoughts around that subject and whether we should expect you to run closer to the lower end or the higher end of that guidance range?
Hey, Blaine. Good morning. This is Mats, obviously. We're very comfortable where the balance sheet is today. You know, 5x is at the lower end of the range, 4.75-5.5. You know, looking at equity, you know, we have $500 million of forward equity available to us today. You know, acquisition volume is historically weighted the back half of the year. First quarter is traditionally the lower point. So as we sit here today, 5x is a comfortable place for us with balance sheet leverage.
Blaine, that's consistent with our investment grade ratings as well. The range that we put forth, we could operate anywhere in that range, even at the high end of that range consistently and be well within the investment grade ratings that we have.
Great. That's helpful, guys. Bill, and I think two of the acquisitions you described in your prepared remarks, the properties were multi-tenant properties with either vacant suites or upcoming expiries in suites. Can you just talk about. Is that just a coincidence or are you guys seeing more opportunity in the multi-tenant buildings than in your more traditional targets, the single-tenant properties?
We have been adding multi-tenant properties to the portfolios over the years. I mean, it's something that we underwrite. We talked earlier on the call and we really don't implement decision rules. As long as we're able to underwrite the property, the real estate, then we'll evaluate it and determine a price to pay for it. These opportunities were ones where I think we had a little bit of a competitive advantage. We knew the markets. We knew we could operate the properties. As I mentioned, they weren't a traditional type of acquisition for either a value add buyer or a long-term cash flow buyer. We'll continue to evaluate those type of transactions. If we're successful, we're very comfortable adding those to the portfolio.
Right now our portfolio is circa 80% single tenant with 20% multi-tenant.
Great. That's helpful.
Again, you know.
Go ahead.
Blaine, I was just gonna say we're, you know, we're looking for overlays where we're being overpaid for whatever risk we might be taking in the acquisition, and we can find that in multi-tenant as well as single tenant.
Great. That's helpful. Maybe one for you, Ben. There's been a lot of discussion in the industrial sector about rent growth differential between primary tier one markets and secondary markets. You know, based on your rent spreads this year, it seemed like the secondary markets had picked up and started to see rent growth that was similar to primary markets. Now we're hearing about 20%-30% year-over-year rent growth in some of those coastal tier one markets. I guess, how would you characterize the year-over-year rent growth in your markets in 2022? Do you think we'll see the same surge as they're seeing since, supply seems to be pretty limited everywhere?
Yeah. I would agree supply is limited everywhere, and that's why you're seeing the strong rent growth across all markets. We've always maintained that the market or the spread of markets that we invest in is less volatile than the primary markets. You know, we're never gonna see across the 60 or so markets an average of 20%. You may see in markets we're involved in that have significant rent growth, but I wouldn't expect the 20% or 30% rent growth that you see in some of these primary markets. The important thing is what is the cost of entry into those markets?
20% rent growth over an initial 2.5 cap doesn't get you that far, you know, relative to the cap rates we can find and the growth we can find in other markets. We're looking at the cash flows to be derived from owning assets over a long period of time, and not necessarily overpaying for, you know, one or two years of spectacular rent growth.
Great. Thanks. Congrats, Bill, Matts, and Ben. I'm sure y'all see you, but it's been great working with you over the years, and all the best in the future.
Thank you, Blaine. I'm not disappearing. I'm ascending to Executive Chair.
Fair enough.
Thank you. Our next question comes from Michael Carroll with RBC Capital. Please proceed with your question.
Yeah, thanks. I wanted to circle back to the development investment. I know, Bill, you mentioned that there's a few in the pipeline. I mean, how big is that opportunity set? In general, why are these developers electing to sell their properties in the middle of the construction period?
Yeah, I mean, part of it is, Mike, is that they're moving on to the next project, right? They're able to realize, you know, some of the profit, but they've also got more projects in the pipeline. These are local regional developers. These aren't your national developers who move from project to project, right? That, that's a big part of it, kind of dovetails right into our acquisition strategy, the granular acquisition strategy. There are some in the pipeline, but our pipeline is $4.1 billion. You know, we're hopeful to be successful on some more of these. They're obviously great returns. But we'll see how the year unfolds and what our success rate is going forward on these.
Okay. It sounds like there's.
Mike, I might add.
Go ahead, Ben.
Mike, I was just gonna say, we're seeing some of the national developers reach out and look for this, these kinds of transactions too, but they're looking for, you know, all their profit up front, plus funding the next development, et cetera. You know, as we do on individual stabilized transactions, we're looking to get paid well for whatever risk we're taking.
Okay. It sounds like there's what? Maybe a what, a handful of these in the pipeline. Is that a fair statement? Are there specific markets that you're looking at, where you wanna do these? Or are you willing to go to really, most markets as long as the fundamentals are healthy?
Yeah. I mean, again, I would characterize it as a handful. I think that's fair at this point. In terms of the markets, it's markets that we're familiar with and we've operated and leased properties in. I mean, this one was Sacramento. We've been talking about that market for a couple of years. We really like the fundamentals. We have a very good handle on market conditions, supply-demand dynamics in those markets. If it's other markets that we've been operating in for a while, you know, pick Greenville, Spartanburg, for example. I mean, that's a market we'd be comfortable doing something like this in too. It really is markets that we know very well and we're very comfortable with the underwriting and leasing those assets. I mean, we lease a lot of square feet every year across our portfolio.
For us, this is not really, it's just an extension of what we're already doing.
Okay, great. On the private market trends, I mean, has some of the macro volatility, I guess, particularly higher interest rates, I mean, has or do you expect that will push cap rates on the type of deals that you're pursuing higher? Have you seen any of that happening right now?
We have seen a-
I think that the
Yeah, Ben, you go. You can take it.
No, I was gonna say, we're, you know, cap rates have declined, continued to decline, but I, you know, the expectation of higher interest rates, especially on the kind of assets that we're pursuing, the granular assets where our competition is smaller and typically more leveraged buyers. We would expect cap rates to stabilize. You know, on the individual acquisition front, we would expect them to stabilize and perhaps move higher, as if interest rates do indeed move. The place where passive equity is involved, which is in our portfolios or larger transactions, I wouldn't be surprised to see cap rates hold up, you know, and perhaps even decline further, because of the way we back capital.
Okay, great. Thank you.
You know, the spread between our granular acquisitions and portfolio valuation should increase.
Great. Thanks.
Thank you. As a reminder, if you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. Our next question comes from Dave Rodgers with Baird. Please proceed with your question.
Yeah, good morning, everybody. I'll add my congratulations to Ben and Bill and Matts on your upcoming ascensions. I wanted to quickly ask about just the acquisition pipeline overall. It continues to grow, and obviously, you guys have added people to help with that process. One of the stats that you give that's pretty good is about the percentage of revenues coming from tenants, like over $100 million in revenues. And that number has continued to come down. I guess two questions embedded in this. One is, you know, is that a function of more multi-tenant acquisitions? Is that a function of maybe more coastal migration-oriented market acquisitions?
Two, just on the pipeline in general, can you give us a breakdown for kind of what that looks like in terms of multi-tenant? You've kind of addressed the development side, but what's the breakdown of the pipeline that's allowed you to continue to grow that?
Yeah. Hey, thanks, Dave. I would say there's not an overarching reason why maybe the number of publicly rated tenants is decreasing a bit. I would say we're very comfortable with the underwriting, where our assets are, the fundamentals of the market. In those situations, certainly comfortable taking on, call it, non-publicly rated tenants and leasing those assets if there was something to happen. I will say, going back to 2020, we collected 99.6% of our rents. In 2021, we collected 99.8% of our rents. Our collection history is extremely strong, whether those tenants are publicly rated or not. We feel credit overall on the portfolio is extremely strong.
In terms of the pipeline and the makeup of that pipeline, consistent with what we've said in the past, I would say there is some multi-tenant in there. I think it's fair to say it's close to what the portfolio is today, 20% multi-tenant, maybe a touch higher, the rest being single tenant. There are some development transactions that we are looking at. As I said to Mike, that's, you know, handful, I think is fair characterization of that today. That's, yeah, I think that's pretty good characterization of the pipeline.
Great. That's helpful. Thank you.
Thanks, Dave.
Thank you. Our next question comes from Mike Mueller with JP Morgan. Please proceed with your question.
Yeah, hi. I guess on the development transaction, I'm curious, what changed, where you're willing to look at these transactions and pull the trigger on some of them where you just hadn't done it in the past?
I think, Mike, that the reason is just the growing comfort with our ability to manage those transactions. We've always had the capacity to manage those transactions. Having completed a ground-up development ourselves and completed and sold just more comfort, and also more of that capacity has been developed internally with the growth of our capital projects team. A higher degree of comfort just part of the evolution of the business.
Got it. In terms of economics, I apologize if I missed it before, but what sort of yield benefit are you getting from acquiring it this way as opposed to if you buy the same building once the lease has been signed? Is it you're getting a yield benefit, or is it you're just securing the building and kind of taking on a little more risk, but kind of getting a market price? I mean, which dynamic is it?
Yeah, I think we're getting 15%-20%+ better pricing by entering, you know, and maybe more depending on Bill described one earlier that we expect to get 30%+ better pricing. I think it's mostly, I mean, it is a combination of securing transactions, I mean, sort of better market, better building transactions at a favorable price. It allows us to participate sometimes in markets that would be harder for us to participate in, a variety of reasons. There is an economic benefit, certainly a financial benefit to doing it.
Got it. Okay, that was it. Thank you.
Thank you. Our next question comes from Chris Lucas with Capital One Securities. Please proceed with your question.
Hey, good morning, everybody. I'll add my congratulations to everyone as well. Just a couple of detailed questions. On the tenant Retention guide for the year, just so I understand, you indicated that there weren't any major leases that you were aware of that were under non-renewal status. This is kind of a placeholder, but I guess I'm really curious, and just making sure, Ben had mentioned that there's you know more lead time for early renewals. If you get early renewals, do those go into this tenant retention metric?
Yes, Chris, this is Bill. They do. As we mentioned earlier, given the supply-demand dynamics, we're not entertaining lease renewals, you know, greater than six-nine months ahead of lease expiration. Those will factor in to the Retention number. I think the question before, what other large known move-outs, and the answer is no. Yeah, as we move into the. We're in February right now, as we move to the back half of the year, there are tenants that are rolling that we're not in lease negotiations with because, you know, partly because of us. We view those as coin flips and those situations, some we're projecting to renew and some we're projecting not to renew.
In the case of non-renewal, the market is extremely strong, and we feel really comfortable getting those spaces back and leasing those, as Ben said earlier, in shorter downtimes than we've historically seen.
Okay. Thanks for that, Bill. Then just in terms of the acquisitions for the quarter, I mean, it appears that there's a little bit more value add. Obviously, the development deal is unique or somewhat unique for what you guys typically do. If you strip those deals out, kind of what's the core cap rate that you were buying at for sort of your standard bread-and-butter deals that you've traditionally invested in?
Those deals are, you know, the cap rates we're reflecting are reflective of those deals. We're again in the low fives, with a little bit the balance of the value add, et cetera, you know, perhaps a little lower, but stabilize at or above those numbers.
Okay. Ben, while I've got you, just in terms of, you know, obviously your business has been built on the sort of the granular acquisition and the idea that you know, there's premium for portfolio deals. I guess if maybe you could just update us on sort of what you see as sort of the premium portfolio pricing and sort of where those breakpoints are in terms of deal sizes.
Well, you know, there's the super passive equity, the sovereign wealth funds, and people of that ilk, some of the big non-traded, et cetera, are trading portfolios of, fungible industrial assets in the three handles. We're still able to buy these assets granularly in the low fives. I mean, I think that's descriptive of the kind of spread that we're seeing. Obviously, individual portfolios with different parameters end up trading at different numbers. We historically had seen 100+ basis point differential between our individual transactions on a contemporaneous basis with portfolios of the same kind of assets. I think that spread is still at least 100 basis points. Again, historically, we seem to be larger than this.
Okay. Thank you. Appreciate it this morning.
Thank you. Our next question comes from Manny Korchman with Citi. Please proceed with your question.
It's Michael Bilerman here with Manny. I just wanted to come back sort of on capital allocation sources and uses, and clearly you've enhanced selling a little bit more this year. I think it was, you know, targeting $200 million-$300 million in a 4 cap range. Obviously, you were able to get that sale off in the fourth quarter at a three. And you just talked about how competitive the marketplace is. I guess when you step back and you look at your cost of capital, obviously the equity is not trading at a multiple, which makes these deals significantly accretive relative to selling assets. Why not be substantially more aggressive at portfolio changes in disposing dramatically more, if you're able to get access to these all your opportunities north of a five?
Michael, thank you. Thank you for the question. I mean, one of the things that remains the case is that our average FFO per share on acquisitions is significantly above our portfolio average on Core FFO. We remain significantly accretive through acquisitions. A part of that is obviously the spread between our implied cap rate and where we're buying assets. We also have operating leverage. We continue to have operating leverage that our marginal G&A is significantly lower than our average G&A. That continues to be a you know, a factor. We are increasing our dispositions this year, and we will look at you know, continuing to do that as a source of capital.
Net acquisitions because of that operating leverage remains a big driver, in part because of the operating leverage, of our FFO accretion, in addition to our internal growth, obviously.
Right. If you step back from it and you look at where your equity is trading, right? Your equity is trading on a cash flow basis, you know, north of five and on an FFO earnings basis, almost at six. As you're issuing and diluting investors by issuing that equity at arguably a discount to where those assets would trade in the private market, why not take advantage where the private market may be valuing those assets at a much higher multiple than what's embedded in STAG, right? In order to outperform, you sort of have to look to your lowest cost of capital, which may in fact be assets that are in the company today rather than enlarging your equity base at a dilutive cost?
Yeah, Michael. We are looking at that valuation, and we are certainly aware of where this passive equity is valuing our assets. That opens up opportunities, potential opportunities for things that we haven't looked at before, which certainly we're aware of those valuations. Bill, you have something to add?
Yeah. Michael, I'd just like to say right now we still have some forward equity outstanding, and we do have a, as I mentioned earlier, a small portfolio in the market. Right now we're not in the market issuing equity. I mean, it's something that we're aware of where we issue equity, where we can sell properties. Over our lifecycle as a public company, we've proven to be prudent allocators of capital, and we'll continue to do so. That disconnect is something we're well aware of.
I mean, like, you've been a pretty active issuer, right? You had a number of offerings in like 2019 and 2020, obviously at the forward last year. Your stock is traded at a meaningful discount to industrial peers and even to net lease, net lease peers. I'm just wondering if there's gonna be a more aggressive look at sources and uses of capital, cost of capital to move your multiple up? I don't think you would probably be happy that you're trading at the lowest multiple of the industrial space. Something doesn't add up, right? That's where I was just trying to dig into about whether there's gonna be a bigger focus on trying to outperform in leveraging your asset base to do that rather than diluting shareholders with new equity.
Yeah, Michael. One of the things we've talked about in sourcing equity, we've always relied primarily on common equity, when it's priced appropriately, et cetera, as a way to continue our net acquisitions. We have used leverage when we, on a temporary basis, and we certainly have used selling assets. One of the things that we have always looked somewhat askance at is joint ventures. There is a way to use joint ventures that would take advantage of the pricing in the market from passive equity for us, as a source of capital. Certainly that is something that we will look at going forward.
Okay. Thank you.
Thank you. There are no further questions at this time. I would like to turn the floor back over to Ben Butcher for any closing comments.
Well, thank you all for joining us this morning. As I've mentioned in earlier remarks, STAG is in a great place and the leadership of STAG is also in a great place. You should be comfortable with the transition that is ongoing. The opportunity set in front of us remains large, and we look forward to delivering continued great returns to our shareholders. Thanks.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.