Greetings, and welcome to STAG Industrial second quarter 2019 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star then zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Matts Pinard, Senior Vice President of Investor Relations. Please go ahead.
Thank you. Welcome to STAG Industrial's conference call covering the second quarter 2019 results. In addition to the press release distributed yesterday, we posted an unaudited quarterly supplemental informational presentation on the company's website at stagindustrial.com under the investor relations section. On today's call, the company's prepared remarks and the 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 statements relating to earnings trends, G&A amounts, acquisition and disposition volumes, retention rates, debt capacity, dividend rates, 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 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, and Bill Crooker, our Chief Financial Officer. I will now turn the call over to Ben.
Thank you, Matts. Good morning, everybody. Welcome to the second quarter earnings call for STAG Industrial. We're pleased to have you join us and look forward to telling you about our second quarter results. Presenting today, in addition to myself, will be Bill Crooker, our Chief Financial Officer, who will discuss the bulk of the financial and operational data. Also with me today are Steve Mecke, our Chief Operating Officer, and Dave King, our Director of Real Estate Operations. They will be available to answer questions specific to their areas of focus. The industrial sector remains healthy with tenant demand outpacing new supply in virtually every market in which we operate. Given these conditions, rental rates have continued to grow across these markets. Our second quarter and year-to-date operating metrics bear this out. STAG's portfolio continues to perform very well.
The geographic diversity of STAG's portfolio reflects our vast opportunity set and will provide superior insulation from any market-specific dislocations if and when they should occur. Year to date, our portfolio has produced double-digit cash re-leasing spreads, retention of 80%, and cash same-store NOI growth at the upper end of our public guidance. We continue to see an abundance of investment opportunity across the markets we prospect in. This was demonstrated in Q2, the second largest acquisition quarter in our company's history. We have built and continue to refine a platform that has demonstrated an ability to identify, evaluate, and close accretive granular industrial transactions in volume. Our investments over the past several years to enhance our internal processes, to train our dedicated employees, and to promote the use of data analytics across the organization are all bearing fruit.
This will be reflected in Bill's remarks with regards to our annual acquisition guidance. Included in our second quarter acquisition volume is an 857,000 square foot Amazon fulfillment distribution facility located in West Jefferson, Ohio. This recently completed building is an integral part of Amazon's growing package distribution and delivery service effort for the region. As of quarter end, Amazon is now our second largest tenant, representing 1.7% of ABR. In our last quarter, we announced our first speculative development project, a 250,000 square foot warehouse distribution facility at Exit 6A of the New Jersey Turnpike in Burlington, New Jersey. You may recall that this project is on a piece of excess land associated with an acquisition made years ago. We're happy to announce the project is on schedule for completion by year end.
We will continue to update you on the progress of our development and at this point, expect to meet or exceed our initial pro forma. With that, I will turn it over to Bill who will discuss our operational results.
Thank you, Ben, good morning, everyone. core FFO was $0.45 for the quarter, equal to the second quarter of 2018. Leverage remains low with net debt to run rate adjusted EBITDA of 4.6 times. Acquisition volume for the second quarter totaled $260 million with a stabilized cap rate of 6.1%. We did not acquire any value-add assets or sell any buildings this quarter. The portfolio operating metrics continue to demonstrate the health of our portfolio. Retention for the quarter was 79.5% with new and renewal cash leasing spreads of 22.8% and 5.8% respectively. Straight-line releasing spreads for the quarter were also strong with new and renewal straight-line releasing spreads of 34.2% and 15.4% respectively.
Included in our leasing activity this quarter, and as an example of the strength in tenant demand we are seeing across our markets, we backfilled a building in Savannah, Georgia with zero downtime while achieving releasing spreads well in excess of 20%. Same-store cash NOI grew by 1% for the quarter, which was positively impacted by our retention and cash releasing spreads and partially offset by a decline in occupancy with the same-store pool in the second quarter.
Year-to-date, same-store cash NOI has grown 2.2%, driven by a retention rate of 80.2% and cash re-leasing spreads of 11.7% through the first half of the year. Moving to the capital market activity, we executed the previously discussed equity offering, which resulted in net proceeds of approximately $215 million. During June, we raised an additional $22 million of net proceeds through our ATM program. At quarter end, net debt to run rate adjusted EBITDA was 4.6 times, and our fixed charge coverage ratio equals 5.3 times. Subsequent to quarter end, on July 12th, we closed on a $200 million, five-and-a-half year delayed draw term loan. The term loan is fully swapped with an all-in fixed rate of 3.11%. On July 25th, we funded our $175 million term loan E, which was originated last year, with the proceeds used to retire revolver balances.
This term loan is fully swapped with an all-in fixed rate of 3.92%. Including these debt transactions, our available liquidity is $745 million. Given our performance to date, we now expect stabilized acquisition volume to be between $700 and $800 million. Including our expected value-add acquisition activity, the guidance for the aggregate acquisition volume is increased to a range of $750 million to $900 million. The stabilized cash cap rate guidance has also been updated to a range of 6.25% to 6.75%. Additionally, we have updated our granular disposition guidance to a range of $75 million to $150 million. All of our 2019 guidance can be found in our supplemental posted to our website in the investor relations section. I will now turn it back over to Ben.
Thanks, Bill. The company is operating at high levels across all functional areas of the organization. We have an extraordinarily talented team that is engaged and dedicated to what we're trying to accomplish, maximizing long-term per-share cash flow returns to our shareholders. This is an exciting time for STAG. As we continue to pursue the opportunity in front of us, we thank you for your continued support of our company.
At this time, we'll be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. 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 key. One moment please, while we poll for questions. Our first question today is from Sheila McGrath of Evercore. Please go ahead.
Yes, good morning. Many of your acquisitions during the quarter had longer lease term, which typically isn't your sweet spot on pricing. Just wondering if that's driving cap rates a little lower, are you bumping into more competition from the long-term net lease buyers on those purchases?
Good morning, Sheila. Certainly, the longer lease term, which projects to have longer uninterrupted cash flows, will produce lower cap rates, and that certainly is evident in the mix of acquisitions for the month. Excuse me, for the quarter. By design, we're not seeking longer lease terms. We're maintaining our long-term cash flow thresholds on a per share and IRR basis. It just is this quarter we're successful in acquiring some longer lease term deals. Certainly, as we do that, we will run up against people that are looking at those kinds of transactions. Again, we've been able to identify transactions that produce those kind of long-term returns in those longer lease terms.
On the acquisition in Columbus, the larger acquisition, can you talk about competition on that particular asset acquisition?
Let me turn it over to Steve.
Hi, Sheila. That was lightly marketed. We were actually approached by the broker directly. They went to a few groups to acquire it. The competition wasn't as broad-based as you'd expect. As Ben was mentioning, we do run up against some long-term players in our regular acquisitions, the typical fund managers, et cetera. In that particular, it was a limited pool.
Okay, one last one for me. On the development in New Jersey, your prepared remarks, you seem confident that you'll meet or exceed your pro forma. Can you discuss in more detail how tenant discussions are going on that project? What is your target yield on cost for that project?
I should let Dave take this. We're just about to pour slab, the building is becoming reality for potential tenants. We have a list of tenants that are quite interested in the building. The reality quotient, if you will, is going up because slab is about to be poured. We're just getting it to the point where it becomes a reality for people visiting the site. I think we talked about it in our prior call that we expected returns to be at or around 8% development returns.
Okay, great. Thank you.
The next question is from Brendan Finn of Wells Fargo. Please go ahead.
Hey, guys. Good morning. You talked about this a little bit in your prepared remarks, but rent spreads have been pretty strong so far this year, I think 11.7% on a cash basis.
Previously, you guys had talked about on a full year basis, you'd end up in the mid-single-digit range. Is there an update to that, or is it likely that you'll exceed that range?
Yeah. I think our guidance for that is still mid to high single digits, Brendan.
We're still comfortable with that guidance for the year.
Sounds good. I guess, what has been the driver of the stronger retention this year versus your initial expectations? Is that a few leases that have renewed where you initially thought they weren't? Is it just stronger retention across the board?
That's right. At the beginning of the year, we have assumptions on our assets that are rolling, and there's some that were on the fence that we projected to not retain and some that we did retain. I did mention that one asset this quarter that we re-leased with zero downtime. If we had retained that tenant, that would've resulted in 100% retention this quarter.
Got you. That's helpful. Thanks, guys.
You're welcome.
The next question is from Dave Rodgers of Baird. Please go ahead.
Yeah. Hey, Ben, going back to the acquisitions and I guess specifically thinking about the second half of the year and what you closed in the second quarter. Given the longer average lease terms, sounds like you're buying much newer buildings. Are you just seeing a much greater amount of merchant building out there and kind of quick flips and sells? What are you seeing on the construction side, and do you expect that to continue in your acquisition pipeline going forward?
I think there's no question that merchant builders are taking advantage of the market and putting their assets out for sale relatively quickly. I think that will continue as long as pricing is as strong as it is today. We're still seeing lots of opportunity in existing buildings in the 5, 10, 15 years old, not brand-new buildings. Seeing plenty of opportunity there. As we talked about in our prepared remarks, we are more capable and seeing more transaction. Our pipeline is as big as probable deals or deals that we would acquire. The pipeline is as big as it's ever been. We have a bigger presence and a more in-depth inquiry in the markets that we are prospecting in. We continue to see lots of opportunity, including these build-to-suits.
These build-to-suits that you're acquiring and like you did in the second quarter, what's the average rent bump in those leases or the annual escalators relative to kind of the five- or 10-year-old buildings that you're buying?
They'll run 2%-3%. Two at the low end, probably three at the high end. You might occasionally see above three, but in that 2%-3% range.
Yeah. Generally, Dave, the longer the lease, the lower the bump. The longer-term ones, the 15-year-plus, is generally around 2%. What that results in is you get a higher straight line cap rate. Our straight line cap rates this quarter was 6.8. That's a 70-basis-point difference between the cash cap rate. Generally, that has averaged around 50 basis points. You see a little wider spread there with the longer-term leases.
Great. Maybe another one. Tenant rollover, looking over the next 12-18 months, anything we should be paying attention to there?
Nothing in particular. It's all factored into our guidance there, Dave.
Lastly, on the dispos. You took disposition guidance down, but acquisition guidance up. I realize equity is a component of that. What kind of made you not want to sell as many assets into kind of the strong market that we have today?
Our mantra has been from the get-go, is that we'll sell assets when people will pay more than we think they're worth to us in our portfolio. We continue to do that. At the beginning of the year, we had an expectation a certain amount would occur. We've tempered that expectation through the year. We still will sell assets, again, if people are willing to pay more than we think they're worth. We've been consistent in doing that, just a certain amount of that occurs every year, and it's not always clear at the beginning of the year what that number will be.
All right. Thanks, guys.
The next question is from Michael Carroll of RBC Capital Markets. Please go ahead.
Yeah, thanks. Ben, can you talk a little bit about the competitive environment? I guess I understand the reason why the cap rates are lower is due to the remaining lease term and maybe the newer properties. How has competition been? Has that pushed private market valuations higher, or is it just that you're being going after a different subset of properties?
I think one of the things that we continue to take advantage of is that they're not consistent competition across all the places we look. As we evaluate the competition that competed for some of the assets we acquired, there are almost no names that come up more than once in those kind of assays of competition. We're not seeing, I think, any particularly new competition, or increased competition for assets. It's just there's competition out there with debt rates where they are, and obviously industrial being a very favored asset class, there continues to be competition everywhere. We're out there in 60-plus markets looking broadly across those markets and still only, with our pricing discipline, still only acquiring, say, about 15% of the ones that we underwrite.
It's more the fact that there's competition out there, but we have a very broad level of inquiry, and we're able to find assets at increasing levels in terms of volume of acquisition.
Okay. Then when you're looking at your pipeline of assets you're looking at right now, I guess, what's the breakout between the remaining lease term on some of those assets? Is it longer like we've seen in the second quarter, or is it more normal like we have seen over the past few years?
Steve's going to give you an assessment of the pipeline as he looks at it right now. My suspicion is that the average remaining lease term is probably not that much different than it's been over the last couple of years.
Yeah. That's exactly true. It's basically running very similar to what we had in the last couple of years. It all depends on the mix. This quarter was just a different mix than previous quarters. The 11-plus years is probably less indicative.
The normal.
Yeah, less indicative of the normalized lease terms.
Skewed up by a couple of particularly longer lease terms. I think that we've been able to extend the lease term of the portfolio a little bit over the last couple of quarters and last year. We're looking to buy opportunity where we find it. If the opportunity is in shorter lease terms to provide better cash flow over time to our shareholders, that's where we'll go. We're agnostic as to lease term, as we are to most things. We're just looking for the best long-term returns for our shareholders.
Okay. Going forward, when we're looking at acquisition cap rates, I guess, is it fair to assume that those deals are going to be completed in the high 6% range, kind of in line with the initial guidance range that was provided?
Well, we reduced our guidance range for the year this quarter to $6.25-$6.75. We feel really comfortable it will be within that range.
That was due to the 2Q activity. I guess, if you're looking at the second half activity, it's going to be back to what was previously expected, and the reduction this quarter was mainly due to the low cap rates completed this quarter?
Mike, for the year, our stabilized cap rates are still in the range of 6.25%-6.7%. This second quarter was below, for the year, we're still in that range.
Right.
We're not expecting material change from sort of where we've been running on cap rates.
Okay, great. Thanks.
Great.
The next question is from Mitch Germain of JMP Securities. Please go ahead.
Just one more cap rate question. How do we consider the cap rate on Columbus versus what a more traditional cap rate from what I would characterize would be a standard acquisition that you guys make? How should I think about the differential there?
Well, I think, as we've said a few times, the cap rate is just a point-in-time measure. That asset has a nearly 15-year lease with brand-new buildings, so very low CapEx. As rent bumps enter, Bill mentioned the GAAP cap rates, straight-line cap rates are much higher, 70 basis points higher across all of our acquisitions for the quarter. It's really going to have a lower cap rate because it has a very strong credit and a long-term lease with bumps and no CapEx. You can develop, or you will develop the kind of accretive long-term cash flow we're looking for out of a lower cap rate. Yes, it'll be a lower cap rate and demonstrably lower cap rate because of all those factors.
Got you. You might have talked about this last quarter, and I apologize if you went into it detail. How many other development-type opportunities that you're doing in New Jersey, how much of that exists in the portfolio today?
Well, there is excess land on a lot of the assets we own in varying degrees because the best way to, or the most common way to lose a tenant is the building's not big enough. The ability to expand the building is something that we look for. Certainly, on build-to-suit transactions, people build in, generally, expansion capability on the site. Having said that, most of the available land or excess land is encumbered by the existing lease and/or either directly in the lease or an understanding with the tenant or belief on our part that we want to maintain that flexibility to keep the tenant. There are certain instances, and we're evaluating where there is excess land that would allow development immediately.
You're pursuing entitlements. Is that the way to consider evaluating?
That might be a little strong.
Got you. Thank you.
We investigate the market for viability, and then if we determine that it's a path we want to go down, we will work on marketing and entitlement. Those are a handful of instances at present.
Appreciate it.
The next question is from Bill Crow of Raymond James. Please go ahead.
Good morning. Ben, would you be okay, I guess, if your pipeline really started to skew toward that sub 6% cap rate as long as it's either a newer building, a longer lease, or better bumps? Is that the right takeaway here?
Yeah. I think, again, reiterating the cap rate, just a point-in-time measure. We're really focused in our return analysis on longer-term measures. Big rental bumps, longer leases, clean CapEx. Someone's just replaced the roof on a building. Even in a marginally older building where the roof is brand new, can project to have lower in, perhaps, HVAC equipment's been replaced, parking lot's been redone, can project to have lower CapEx. All those things can mitigate towards lower cap rates. I don't think that necessarily we're going to be trending down towards those lower cap rates. The other thing to keep in mind is our debt costs are low. Our cost of equity, if you will, is pretty favorable right now. I think it should be more favorable. I guess every CEO does.
We're in a place where the cost of capital also has mitigated to making lower cap rates still accretive. Across all the acquisitions we've done this year, we're looking for marginal FFO accretion in 15%-20% relative to where we are today. We're still finding immediately accretive transactions to undertake.
Okay. My second question is that we have been seeing weakening manufacturing data over the last few months. Can you just kind of take us inside the mind of your tenants and whether that's the auto or other manufacturing sectors, what are you hearing?
I'm going to turn it over to Dave. I could voice my opinion, but he's a little closer to the tenants.
Yeah. Our customers still are exhibiting a high degree of confidence. Lease terms have held up on new activity. They might be a little more cautious, a little more aware, but their actions haven't really changed over time.
Okay. That's it for me. Thank you.
Thanks, Bill.
The next question is from John Massocca of Ladenburg Thalmann. Please go ahead.
Good morning.
Morning, John.
Morning.
Just want to probe on kind of the Amazon cap rate a little bit more. How much did that kind of impact the overall cap rates in the quarter? I mean, would you have been more in line with the new kind of midpoint of guidances without that transaction?
Obviously, because of the features we've talked about and the cash flows to be derived from owning that asset, clearly it was at a lower cap rate than the average cap rate for the quarter. Yes, it would've raised the average cap rate for the quarter had we not acquired that. We're not going to get into individual cap rate on acquisitions, but clearly that's a transaction. We had another transaction that had an 18-year lease in it that obviously also would've mitigated the cap rates lower.
Okay. On Amazon, again, I mean, what got you comfortable with that particular asset? Given sometimes Amazon properties can maybe be characterized as being kind of overbuilt or overspecified. Just any details on the actual property itself.
Well, this is a generic, if you will, a generic Amazon state-of-the-art fulfillment center, be it 155,000 or 157,000 foot. This is what they're building today. We have a shell there. Amazon's put a bunch of money in on top of that shell cost. 15 years from now, we can't foresee exactly what Amazon is gonna be looking for or what other tenants are gonna be looking for. But this is a good functional e-commerce fulfillment building, state-of-the-art as of today.
Can you maybe provide some color on what, if any, portion of 2Q 2019 acquisition activity was value-add?
We did not do any value-add acquisition activity in the quarter.
Okay. Month-to-month leases came down pretty significantly. I know it's fairly variable quarter-over-quarter, but it was a pretty significant drop from 1Q to 2Q. Can you maybe provide some color around what drove that?
There's no outstanding issue I can point to. That number, as you mentioned, is going to be quite volatile, so it could very well tick up for next quarter. We don't really spend a lot of time trying to predict that number.
Month-to-month tenancy tends to either go away or get long term, right? They tend to move away from the middle or from that to the boundaries, either vacancy or longer-term lease.
Okay. Just given your retention rate, it kind of felt like it went to a longer-term lease. I mean, is that kind of a trend you're seeing? Could that run lower going forward?
Look, I think as Dave said, there's no real trend to that number. I mean, every quarter it's a different number. Yeah, some of those obviously went to longer-term leases with the renewals, but it changes every quarter.
Okay. That's it for me. Thank you very much.
All right.
The next question is from Sarah Pan of JP Morgan. Please go ahead.
Hi. Good morning. I saw you guys down your distribution page, but how are you guys thinking about portfolio sales?
We looked at portfolio sales historically for capital raising. At times we didn't like our common equity pricing or didn't feel it behooved us to raise common equity. We've done portfolio sales again to raise capital. That is not a driver at this point for us to do portfolio sales. We have a positive operating leverage, and so when we buy assets, we get to take advantage of that. When we sell assets, obviously, we do not take advantage of that. We do believe that we could do a portfolio sale on an accretive basis, but we think it is better for us and for our shareholders at this point to issue common equity, and grow the size of the portfolio.
Got it. Thank you.
As a reminder, if you would like to ask a question, please press star then one on your touchtone telephone. Once again, that is star then one if you'd like to ask a question. Our next question is from Chris Lucas of Capital One Securities. Please go ahead.
Guys, just a couple of quick ones, I think. On the balance sheet, you guys continue to bring the run rate on the leverage down based on sort of an over-equitization of the acquisitions during the quarter. Is this something that we should continue to see as the stock price continues to perform, or is this something that should balance out and gravitate more towards within the range that you guys have provided?
Yeah. For the year, Chris, the range is 475 to six. As we previously stated, we're gonna operate at the lower end of that range. We are a little bit below the low end of the range today, but that should moderate as the year progresses.
No I guess maybe a way to think about it is, any sense as to whether or not you'd be willing to take that range down as the equity markets continue to support your strategy?
Yeah. It's something we always consider is our leverage range. Right now, we're comfortable with the 475 to six and operating at the low end of that.
Okay, thanks. I guess, Ben, on the leasing side, a lot of success, high retention rate over the last couple of years now. How much of your leasing is done in-house versus through third parties at this point, and where are you as it relates to rolling out a regional program versus maintaining centralized leasing programs?
We use third-party brokers on all leasing, both renewal and new leasing, to take advantage of the, obviously, the market knowledge, et cetera, and also to maintain good broker relations because we buy a lot of things from those brokers also. We will look at rolling out regional asset managers, but we do not intend to move our vertical integration past asset management. We do not have a desire to be involved in property management. Our discussions on this in the past have focused on, it's a difficult business to make money in. We'll take advantage of somebody else having developed property management expertise and use the best-in-class property managers in the individual markets in which we operate. It's highly likely that we will maintain our vertical integration limit at the asset management level.
It's also highly likely that we'll have asset managers in the field at some point, but to date, they're all still in Boston.
Okay, the last question from me. I want to say, like a year ago, we saw some very large transactions occur in the marketplace. I think it was a headwind somewhat to second-half transactional opportunities for you guys. I know the pipeline's very large right now, given some other recent large industrial transactions in the marketplace, any sense as to whether or not your bread-and-butter one-off market will be impacted this year?
Well, yeah, I think that the one-off market will not be impacted. We've talked about in the past the fragmentation of ownership of the industrial market, where the top 20 owners own somewhere between Well, it's changing. There's a little more concentration going on, but probably at this point, maybe 15% of all the fungible industrial assets in the U.S. are owned by the top 20 owners. The other 85% of the assets are owned by small sellers. That's who we are mostly buying from, and their reasons for selling are usually relatively unrelated to, or uncorrelated, if you will. There's a pretty much a steady supply.
Our increasing pipeline size, I think, is more a factor of our presence in the market, more outward-facing acquisition people, better support for those outward-facing acquisition people, and to some extent, the use of data, and that will increase in its impact in identifying assets that make sense for us to pursue. The large transactions, the GLP, the IPT transactions, et cetera, actually will probably end up being a source of transactions for people like us, as those portfolios are winnowed down post-acquisition. We're not likely to be a competitor for It's been rumored that Blackstone may sell as much as $5 billion out of the GLP transaction. We would not be a competitor or indeed likely competitive for a large subset of that, a billion-plus-dollar portfolio, even probably a half-a-billion-dollar-plus portfolio.
There will be individual assets that will fall out of all that, and we will be ready to analyze and pick those up at good, accretive prices for us.
Great. Thank you. Appreciate it this morning.
The next question is from Alexander Pernakis of Bank of America Merrill Lynch. Please go ahead.
Hey, good morning. I was just wondering if you could talk about the tenant demand and rent growth you're seeing in specific markets, and maybe which ones stand out the most. Which markets are you seeing the most opportunity for acquisition?
We start off, we're a ground-up prospector and investor. We're really not making decisions based on particular markets. There can be a great transaction in Ontario, California or in Dayton, Ohio, and there can be a really bad transaction in Ontario, California or in Dayton, Ohio. We're very much focused on the individual asset and the opportunity that's presented by that particular acquisition. Indeed, we evaluate every acquisition based on the market background and the sub-market background of the building, and that specific building with specific parameters operates in. It's really not a top-down, we like this market, we don't like this market analysis. We're looking broadly across 60-plus markets to find the right opportunities, to provide that good long-term cash flow, and growing cash flow to our shareholders.
Okay, cool. What are your thoughts on your appetite for more spec development? Are you taking kind of the wait-and-see approach, or you seem pretty optimistic about how this one's going so far? I was just wondering if I could get a little bit more color on that?
Yeah. We view speculative development as an incremental add to our overall business. We're not out acquiring land to do speculative development. We happen to own land as part of other acquisitions, as part of building and cash flow acquisitions, that we will purpose to speculative development as appropriate, and/or build-to-suit development as appropriate. It is not a part of our business where we're going out to develop a land bank. We certainly evaluate transactions that have additional land, for the value inherent in that potential for additional development.
Okay, great. Thank you.
There are no additional questions at this time. I would like to turn the call back to Ben Butcher for closing remarks.
Well, thank you, everybody, for joining us this morning. As I said in the prepared remarks, things are running extremely well here at STAG. The opportunity set in front of us is extremely large, and we expect to have a really good second half of the year, and going forward into 2020, continued success. We appreciate your time this morning and hope you have a good rest of the summer.
This concludes today's conference. You may now disconnect your line. Thank you for your participation.