Earnings Call: Q2 2021

Jul 28, 2021

Greetings, and welcome to STAG Industrial Second Quarter 2021 Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host today, Matt Pinyard, Senior Vice President of Investor Relations, please proceed, sir. Thank you. Welcome to STAG Industrial's conference call covering the Q2 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 stagindustrial.com under the Investor Relations section. On today's call, the company's prepared remarks and answers to your questions will contain forward 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 and A, acquisition and disposition volumes, retention rates and other guidance, leasing prospects, rent collections, industry and economic trends well as other matters. We encourage all of our listeners to review the more detailed discussion related to these forward looking statements contained in the company's filings with the SEC and the definitions and reconciliations of non GAAP measures contained in the supplemental information package available on the company's website. As a reminder, Forward looking statements represent management's estimates as of today. STAG Industrial assumes no obligation to update any forward looking statements. On today's call, you will hear from Ben Butcher, our Chief Executive Officer and Bill Crooker, our President and Chief Financial Officer. Also here with us are Steve Mecky, 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. I will now turn the call over to Ben. Thank you, Max. Good morning, everybody, and welcome to the Q2 earnings call for STAG Industrial. We're pleased to have you join us and look forward to telling you about our Q2 results. This month, we achieved a significant milestone in our company's history. Our portfolio of industrial real estate has surpassed 100,000,000 square feet, tremendous growth from our 2011 IPO portfolio. Even at this size, we continue to see tremendous opportunity to acquire additional assets that are accretive to our portfolio. Our ongoing investments in the platform allow us to identify relative value opportunities across the broad array of primary and secondary markets we are active in. This is reflected in the large size of our current pipeline of potential acquisitions. As we participated in NAREIT and other events in the spring conference season, We are reminded of the growing stakeholder emphasis on ESG. Virtually every meeting included a substantive discussion of at least some element of the topic. It was gratifying to be able to report that our commitment to ESG over the years has placed STAG in an industry leading position. We recently were awarded a GRESB public disclosure rating of B, well above both the overall industrial REIT average. We are currently preparing our inaugural ESG report, which we expect to be publishing later this year. As a good corporate citizen, our strengths in both social and governance are reflected in the very strong ISS ratings for these components. We are committed to further improvement in these areas Now joined with other REITs in executing the CEO Action Pledge on inclusion and diversity. As a real estate There is elevated focus on the environmental component of ESG. We have been hard at work in this area and are pleased with the results. STAG has become a leader in the photovoltaic deployment arena with increasing solar panel presence across our portfolio. In November 2020, STAG celebrated the groundbreaking of the largest community solar project in the United States at our project in Hampstead, Maryland. This 9.2 megawatt project We'll generate low cost renewable energy enough to power over 1,000 homes, including an allocation to low income households. STAG is on track to place in the top 10 real estate companies in terms of solar energy production as ranked by the Solar Energy Industries Association. We are committed to aggressively seeking opportunities for further solar rate deployment elsewhere in our portfolio. A few comments on the market. The underlying fundamentals of the industrial real sector remain very strong. Robust reopening demand and supply chain issues caused by transportation bottlenecks, Shipping cost increases, inventory mismatches and labor constraints have caused a resurgence of demand for warehouse space. The effects of this demand resurgence can be seen in the strong leasing economics for existing facilities and the increasing levels of construction being undertaken. Not surprisingly, our operating results reflect these strengths. Demand for our assets has accelerated, tenant retention and downtime have outperformed our historical averages. As a result of these improvements, we are raising our same store NOI guidance by 1% at the midpoint to a range of 3.25% to 3.75%. This is the highest level of guidance we have provided for this metric at any point during our time as a public company. This strength in internal growth is the Primary driver for improved expectations for overall growth and our core FFO per share. Bill will cover this and other items of our guidance in greater detail in a moment. With that, I'll turn it over to Bill to discuss our Q2 operational results. Thank you, Ben, and good morning, everyone. Core FFO was $0.52 for the quarter, An increase of 10.6% as compared to the Q2 of 2020. Included in core repo this quarter was the impact of inheriting the ownership of a solar panel array on one of our buildings in New Jersey. This resulted in a $1,500,000 non cash Increase to revenue, contributing $0.01 to core FFO per share. Cash available for distribution totaled $147,200,000 year to date through the Q2, an increase of 17.8% as compared to the first half of twenty twenty. Net debt to run rate adjusted EBITDA was 4.7 times We acquired 9 buildings for $126,700,000 during the 2nd quarter With stabilized cash and straight line cap rates of 5.7% and 6.2%, respectively. These acquisitions span across 9 different states and included one asset in the stock to market, which has been a focus for that deal team. The strong demand for our buildings is reflected in our reporting leasing stats. Leasing results year to date are across 43 leases. E commerce continues to drive leasing demand, but it is important to note that e commerce does not simply mean Amazon. We are seeing small logistics companies reconfigure and enhance their real estate footprint. Tenants who traditionally operated offline Are now building out new e commerce operations as they adapt and adjust to the change in consumer behavior that was accelerated by the pandemic. Approximately 40% of the leases commenced this year involve an e commerce component. This is a trend we do not see slowing down anytime soon. During the quarter, we commenced 23 leases totaling 3,900,000 Square Feet, Which generated cash and straight line leasing spreads of 8.1% and 15.1% respectively. Retention was 80% for the quarter. As a result of these operating statistics, cash same store NOI grew 4.4% for the quarter and 3.6% for the year. Both of these metrics are record highs for STAG. Moving to capital market activity, we raised gross proceeds $42,200,000 through our ATM program at a weighted average share price of $34.95 in the 2nd quarter. Subsequent to quarter end, we raised an additional $65,300,000 to our ATM at a weighted average share price of $37.98 Additionally, we have $184,100,000 of unfunded forward equity proceeds available to us as of June 30. Subsequent to quarter end, on July 8, we closed a $325,000,000 private placement transaction The transaction consists of 2 tranches, dollars 275,000,000 of 10 year notes with a coupon of 2.8% and $50,000,000 of 12 year notes with a coupon of 2.95%. Funding is expected to occur in September. Our guidance is included on Page 21 of our supplemental reporting package. Changes to our guidance are as follows. As Ben previously noted, we have raised our guidance related to cash same store growth to a range of 3.25% to 3.75%, an increase to the midpoint of 1%. This same store guidance increase is driven by high single digit rollover rents expected for this year and the continued decrease of downtimes for our assets. With approximately $522,000,000 Under contract and subject to letter of intent, our acquisition volume for the year has been increased to a range of $1,000,000,000 to $1,200,000,000 An increase of $100,000,000 at the midpoint. In conjunction with the update to acquisition volume, we have revised our stabilized cash cap rate guidance We expect Straight line cap rates to be approximately 50 basis points higher than cash cap rates. The expected level of G and A for the year has been adjusted to a range of $45,000,000 to $47,000,000 Note, this range excludes a one time non cash expense related to the adoption of the retirement plan during 2021. Finally, we have updated our guidance related to core FFO per diluted share to a range of $2.02 to $2.04 This is an increase equal to $0.05 at the midpoint, representing a 7.4% accretion over the prior year. I will now turn it back over to Ben. Thanks, Bill. I would like to thank our excellent team for their outstanding work and contributions towards another successful quarter. The first half of twenty twenty one demonstrated the strength of the STAG platform and investment thesis. The demand for our space and our portfolio combined with our increasing Thank you. At this time, we will conduct a question and answer session. Our first question comes from Sheila McGrath with Evercore. Please proceed. I guess, good morning. Congratulations on the quarter. Same store NOI guidance moved meaningfully higher. I just wondered if you could give us Some more specifics. For example, I think, Bill, you mentioned lower downtime. What was that like a couple of years ago? And how does that compare to now? Thanks, Sheila. It was a good quarter and we always appreciate speaking with you. So as Bill mentioned, lower down I think we're probably underwriting 12 months a few years ago as an average downtime across markets, and that's probably closer to 6 months today. Actual experience is running less than our under has been recently running less than our underwriting. So that's a big component. Obviously, Same question, like what were they a couple of years ago and what do they look like now? Sheila, it's Bill. Now they're running on new deals close to 3%. Historically, that was in and around 2%, Renewals are 2.5% to 3%. So we've been that we've been experiencing that for the past couple of years. So that's been starting to flow through our same store numbers. Okay, great. And one more question. Leasing spreads were strong in the quarter. I was just wondering if you have a view On where your portfolio's in place rents compare on average to market rents today? That's obviously, there's a lot of different markets excuse me, a lot of different assets within those markets and the submarkets. So having Getting any great degree of specificity is difficult. We are very confident that it is under market, probably in the mid to upper single digits. And that's what we've been experiencing for rollover rents too, Sheila. Okay, great. Thank you. Thank you. Our next question comes from Emmanuel Korchman with Citi. Please proceed. Hey, this is Chris Macurray on with Manny. I was just wondering if you could comment on trends that you're seeing in the transaction market today, both from Pricing to buy our competition as well as some of the timing of the acquisitions as the pipeline begins to ramp? Well, I mean, the market obviously is very active. A lot of people have been looking at the industrial sector and seeing the type of supply demand dynamics that will drive rent growth. We've talked about shorter downtimes, etcetera. So a lot of people interested in our platform, our ability to buy individual assets insulates us From some of this more aggressive or new capital to the market. Bill, do you want to add something to that? Yes. I mean, I think the bite sized Acquisitions that are our bread and butter allows us to differentiate ourselves from some of this bigger capital. Cap rates have come down, but with the decrease in cap rates, we're seeing better internal growth with these acquisitions, and you're starting to See that flow through our numbers as well. So certainly more competition, the platform allows us to invest across the 60 plus markets we operate in, More bite size ranges $5,000,000 to $25,000,000 in terms of acquisitions. And just a quick follow-up to that. But for some of those larger portfolio acquisitions, would you look to sell assets to fund some of those? Or Could you just comment on the funding strategy for some of the larger acquisitions? So our funding strategy for all our acquisitions is basically the same. We are looking for Accretion to our portfolio. So whether underwriting an individual asset or a portfolio of a couple of $100,000,000 of assets, We're still looking for the same thing, accretion to our portfolio. Obviously, the diversification benefits of a portfolio Offer alternative buyers to us, those diversification benefits without having to that you don't get buying individual assets. So We find the capital to be more aggressive on diversified portfolios, obviously, because of that diversification, an element of which allows them to more easily finance those assets. So, our strength is I and Bill have mentioned is in buying individual assets where The potential downside of a vacant asset or non renewal or whatever is greater and we find pricing inefficiency to be greater. Yes. And Chris, as we look throughout the rest of the year, we're still comfortable with our disposition guidance of $1,000,000 to $200,000,000 That does not include any portfolio sales and we're not anticipating Any portfolio sales for the rest of the year? Yes, the mantra that we've talked about before is, if it's worth some more to somebody else than it is to us, we're happy to sell it. But But it is not a funding mechanism. We're perfectly happy with the accretion that we're getting by issuing common equity and buying assets. Got it. And then final question here, just with competitive capital chasing the space, are you looking to build out more developments or What are some specific markets that you've been focused on? Thanks. So our investments in the platform have been not to build out our development capacity, which we have In house development capacity has been to build out our acquisition team. We've gone from 6 to 11 outward facing acquisition people over the last few years. That has allowed us to identify more individual assets, approach non marketed assets, so where we are the initiator of the discussion And has produced the pipeline of $3,500,000,000 plus pipeline that we have today, as well as our ability to continue to buy in the volume that we've indicated, Despite the fact that our hit rate, the number of deals that we acquire as a percentage of the deals that we underwrite is down this year, But our acquisition volume has been maintained at very high levels because of the expansion of the acquisition team. And Chris, we don't focus on specific markets, but we certainly have been successful in some new markets. I'd say one that we've mentioned in the past has been the Sacramento, Stockton, California markets, we've acquired close to $200,000,000 over the past 2 years in that market. Thank you. Thanks. Our next question comes from Elvis Rodriguez with Bank of America. Please proceed. Hey, guys. Good morning and great quarter. Just a quick question on the makeup of the pipeline. So I know the volume went up, but the square footage went down. Sorry, the square footage went up, but Dollar price went down. So perhaps you can share any details on sort of the makeup, the markets, The regions quarter over quarter and any relation to the cap rates compression with the change in the pipeline? Thanks. So what I alluded to with the on the prior question is the fact that we are continue to be and even more so broadly looking across these We're looking deep more deeply in markets because of the breadth of our acquisition team. But this pipeline is made up of circa 85% individual assets That are the product of are going out and looking for assets, scouring listings as well as being the initiator of the discussion. So The makeup of our portfolio has not changed markedly in terms of where they're coming from, the type of assets or the potential return. Got it. And then just a question on the credit facility. So it increased quarter over quarter by approximately $50,000,000 How do you think about Using that as a funding vehicle versus deploying forward equity. And then just to add on the forward equity, how do you plan to deploy that for the balance of the year, if Hey, Elvis. So as I mentioned, we raised that private placement as $325,000,000 So That will be funded in September and we'll use that to take care of the line. In terms of the forward equity, we're going to match Fund our acquisitions and operate within our leverage levels. Thanks. And then just one more. Tremus, It seems like you either sold an asset or they didn't renew perhaps a lease that they had. Any update you can share on that tenant? Yes, that's in specific case, we had a sub tenant in that building. So really the use of the building continued. TriMas Is no longer in the lease though. Got it. Thanks for the update. Yes. Our next question comes from Dave Rodgers with Robert W. Baird. Please proceed. Yes. Good morning, everybody. Ben, I think you've addressed some of these topics before, but I guess I wanted to ask about market rent Growth underwriting and as cap rates come lower, I know you guys have been a total return buyer, but maybe talk about how you've changed, if at all, your market rent growth underwriting expectations. Maybe how much of that's taken up by better escalators? And then maybe the last thing is on cap rate reversion at the end as you think about exiting at some point? Yes. So I mean, we are one of the differentiators perhaps of our team is that we have a market rent Team in here that uses both Seabury and Reis data in addition to our own developed data To do not only market, but submarket rent growth projections for in detail annually for 5 years and then looking at long term growth rates after that. So We're very specific about the market rent growth for a particular asset and a particular submarket as we underwrite them. So The market rent growth has been because of the macro demand for industrial real estate and then Taking that down to individual markets, looking at the supply demand characteristics and the projections for those in individual markets, we're developing What are, as you might as you are alluding to, better rent growth expected in virtually every market that we look at. I can't think of a market where rent growth is expectations Strong enough to at least hold up rent growth to where it was. Exit cap has been is certainly a part of our analysis because we do both For share metrics that are obviously dependent on our cost of equity as well as levered IRR metrics is a part of our threshold testing. The exit cats we use in those IRR calculations are based on the market, the portfolio impact of putting Into our the specific market portfolio impact of putting those assets into our portfolio as well as long term treasury rates curve. So A combination of those things. In virtually every case, the expected exit cap is in excess of our acquisition cap rate. And on the market rent growth side, I guess how has that changed for you guys maybe over the last 2 or 3 years? And I guess maybe the point of the question is if market Growth continues to be elevated. Should we anticipate cap rates for you guys on the acquisition pipeline in, say, 2022 will continue to kind of Lower as you add more confidence in market rent? Well, I think, yes, I mean, certainly that's a factor. We're projecting along with the rest of the industry, pretty That's a crystal ball item that I don't think we have the answer to. We have a pretty good handle on given the facts that are on the ground today, the expectations over the next 5 years on an individual market basis. But whether it improves from here, I don't see anything to tell me that that's going to be the case. Dave, and on that same question, I mean, if Market rates continue to improve, escalators continue to improve, our cost of capital continues to improve. There's certainly a case that Cap rates could decrease, but we'll still be able to achieve the accretion that Ben mentioned as well as the same long run returns. Yes, Dave, you may have never heard me say cap rate is a point in time measure, But it is a point in time measure. Maybe only once. Thanks, Bill and Ben for that. Maybe last For Dave King or Bill, but on tenant rollover outlook, just as you look through the rest of this year and you get a peek into kind of next year's rollover early in the year, are we looking for Anything that's changed in terms of any exposure? No, there's nothing out of the normal course. We expect Retention to be in our historical range. We expect roles to be generally up. So nothing concerning on that front. Dave, earlier this year, we mentioned beginning of the year mid to high single digit guidance for rollover rents for 'twenty one. We're forecasting high single digits this year now, just due to some of the rent growth. High single digits this year now, just due to some of the rent growth and some of the leasing successes Dave's teams had. Okay, great. Thanks guys. Thank you. Our next question comes from Michael Carroll with RBC Capital. Please proceed. Yes. Can you provide some color on the property level trends and how they differ, I guess, In your markets, I mean, are you seeing greater demand activity or rent growth in your larger markets such as Chicago, Philadelphia or Boston Given how many markets we operate in, I would say the markets that continue to be extremely strong are some of the bigger markets, New Jersey, Philly, some of our West Coast markets, Sacramento, Phoenix, but Detroit seeing extremely strong rent growth Right now, Raleigh, smaller market, but extremely strong rent growth. And then I would say on the other side of things, Houston is still struggling a bit, but continues to improve. So that was probably one of the weaker markets that we've had and that continues to improve as I said. Okay. And then Ben, related to one of Dave's questions, you highlight you're still seeing some pretty strong rent growth even in markets where there is Significant supply. I mean, can you highlight what markets that you're seeing significant supply and maybe the type of rent growth you're seeing in those markets versus the Portfolio in general and has it differed at all? Well, I'll just make some general comments and I'll get into specific markets. But for instance, Well, and then I'll get into a specific market. Lehigh Valley, I think people a year, year and a half ago were very worried or probably 2 years ago were very worried about that market because of Why? The advent of the pandemic, the acceleration of e commerce, etcetera, has, if you will, fixed that market. And so you're back to expectations for strong rent growth there, Where that would not have been the case a couple of years ago because of supply concerns. But again, we're underwriting every market individually. The fact of the matter is, if our expect we talked about this before, if our expectations for rent growth in a market significantly lower than other participants in that market. We'll probably won't be buying in that market. If we think that rent growth is going to be higher than the other participants, we'll probably be an active buyer in that market. So We continue to look for overlays where the risk we're being overpaid for the risk we're taking. Okay. And then, you said investment activity, I mean, you increased the guidance, I guess, for 2021. I mean, can you point to what Allowed you to increase the bottom end of that range, is it just the deal activity you're seeing you're more confident to be able to close on? Or are there deals that you have Under contract or advanced negotiations that you see a pretty good line of sight of completing this year? Yes, Mike, as I mentioned in the prepared remarks, we have $522,000,000 under contract and subject to LOI. And so you couple that with what we've closed year to date, including the subsequent and where close to $785,000,000 Under contract LOI are closed as of today. So still a lot of time to put deals on the contract and close them by year end, which gave us the confidence to raise the bottom end of the guidance. Yes, we would have been at the bottom end of the old guidance With what we have today, alluding back alluding to the expansion of our deal teams and the support teams that Work with them. We just have more capacity now. And so we're very confident of our ability to during the intervening 5 months or so remainder of the year To identify significant number of additional transactions, which led us to increase that guidance. Yes. I think COVID had an interesting impact On the overall industrial sales market, I mean, last year, the market had, I think, the most transactions ever in Q4. And what That created was a very slow Q1, not just for us, but for the entire market. And then there was a lot of RFPs started coming to market in Q2. And so this year, not only are we going to have a big half big second half of the year, but the overall industrial market will see arguably record sales in the second half Okay. And then, Bill, you did talk about this, I guess, in the Q and A, but I kind of want to touch back on the competitive landscape. And Has it changed at all with the deals that you're targeting, these smaller transactions? Are you seeing larger funds going after some of these smaller bite sized type transactions or just the same competitors that you have been seeing over the past several years? Seeing a lot of the same competitors, I mean, as you know, we still compete with deals above $25,000,000 and we're bidding on them, actively bidding on them, we're competing. We're seeing some of those deals. We're getting priced out of some of those bigger deals just because of the way the capital is chasing industrial. We saw some players that Typically, and these are other public REITs that typically are not that active in the industrial market, more than net lease side of things, Being very aggressive, in example, South Dallas and some of the Dallas Fort Worth markets. So we're seeing some increased competition in those bigger asset Deal sizes, but on the bread and butter $5,000,000 to $25,000,000 transaction, that's the same competition that we've competed with historically. Okay, great. Thank you. Thanks, Mike. Our next question comes from Bill Crow with Raymond James. Please proceed. Good morning and congratulations as well from me. Ben, is there any reason why the Higher same store guidance shouldn't persist next year 2023, 2024, given your comments about the 5 year outlook? Obviously, every year has this individual idiosyncrasies. Our long term building blocks of growth slide has suggested 2% to 3% is our expectation longer term. Having said that, we're in a pretty good environment these days. And so Expectations are probably at the upper end of that guidance and we'll see what the years hold. Look, I guess the portfolio has gotten so big that it's tough to point to individual properties or markets that would derail Like this, right? I mean it's just Yes, I would agree with that. Yes, okay. Yes. Yes. And Bill, we'll give specific Guidance for 2022 in the normal course, but the trends are very positive for I'm not looking for guidance. I'm just trying to think about what might derail us from this position we're at today. I guess, there is You talked about the Bill, but Go ahead. Yes, I mean, we've talked about this many times before. The fact of the matter is Industrial in general and our portfolio in particular, although not immune from risk, is pretty well insulated from risk because of diversification. Okay. You talked about the solar array and recognition that you received from some of that. What is the economics to STAG from increasing your solar presence? Well, there's a number of things to think about. One is, certainly just the economics where we're getting, Typically, we do an upfront payment. So a 20 year lease, 15, 20 year lease, we do a single rent payment upfront. So the economics that get Spread over the life of the lease. So we are leasing the roof space to a solar operator, and they are handling what happens with The power being generated, we are in actual ownership of PV arrays in at least one case And we'll be in more. Some of the things that that will do is we expect that to be able to get to Carbon neutrality through that over some period of time. So what I would describe as organic carbon neutrality, we're not buying credits, we're developing credits For our Scope 1 and Scope 2 carbon load, so we think that is Potentially a big benefit to us from an Investor Relations, ESG compliance, etcetera, basis, Access to green bonds, access to ESG, equity funds, etcetera. So there are certain markets where We can generate power with PV even without credits at a significant discount to The local grid cost for electricity. And so there's a variety of ways that the economics make sense for us. And we certainly have tenants that are interested given their own ESG desires and goals to have a PV array on their buildings, even though they may not even whether they own it or we own it. So a variety of ways that it will benefit us both from You know, immediate economic impact as well as a long term good citizen impact. Perfect. Thanks. Appreciate the time. Thanks, Bill. Our next question comes from Chris Lucas with Capital One, please proceed. Hey, good morning, guys. Just a couple of quick ones for me. Bill, on the guidance Increase for G and A, what's the driver behind that? It's primarily Short term incentives, Chris, our methodology for that is looking at various operating metrics, including core FFO, Same store leverage, based on those operating metrics, it drives short term incentives. So with the outperformance this year, our short term incentive has been increased. Okay. And then as it relates to the private placement, I guess just kind of curious if you could walk me through how you thought about the private placement versus A public market deal and what sort of pluses and minuses you had to go through before deciding on the private market placement? Yes. We spent some time considering both markets, ultimately decided with the private market due to a number of reasons. 1st and foremost, price. We still had a lot of depth in that market. We had over $1,000,000,000 of commitments For this transaction, we were also able to get a delayed draw feature. So we're able to pull that down 3 months later after closing. And ultimately, it's price. And when you think about net price with fees, it was just significantly cheaper than the public market when we priced it. And the last piece is obviously the private market is perfectly happy with our current ratings. If we were going to go into the public market, there would be at least some potential for us Needing to get another rating. It isn't necessarily so, but there will be some potential for that. Okay. Thanks for that Ben. And Bill, and then Ben, just maybe shifting to you. You've talked a little bit about some of the supply discussions that have sort of been in the Conversation with Industrial over the last couple of years, are there any markets that you're looking at today where new supply is a risk factor that you're Meaningfully concerned about or is the environment with the demand side just overwhelming, so it's not really Yes. Chris, I mean, we tend to look at not on a binary basis, but on a considered basis. So the impact of not only supply, but plans for supply impact our rent growth forecasts And impact our downtime forecast, looking at individual markets. So there's certainly no market out there that we view as having They black mark against it and that we don't want to invest in, but it does inform us in our underwriting as to what rent growth might be, as well as potentially downtime. Okay. Thanks for that. And then the last question for me has to do with where was I going to go with this? I just lost it. Never mind. I appreciate your time this morning. I'll get back to you when I remember talking. Chris, Always happy to respond to your queries individually or in this forum. Okay, great. Thank you, guys. Thanks, Chris. Our next question John Massocca with Ladenburg. Please proceed. Good morning. Apologies if I missed this earlier in the call, my connection cut out. But how much roughly of the per share guidance increase Was tied to maybe some positive surprises with regards to cost of capital? And was the remainder of The kind of core FFO guidance increase all just the same store, if not all of it, if there wasn't any kind of capital, cost of capital Yes, John. So clearly, there are a myriad of factors that contribute to the increase in guidance. I think that the same store, which is the portfolio itself, the very strong performance there was Principal factor driving that, cost of capital certainly helps, but the principal driver was same store. John, I did mention in prepared remarks, there was a one time non cash increase to the inheritance of solar panels at one of our properties in New Jersey. So that was that contributed about $0.01 to core FFO in the second quarter. Okay. And basically those three components are kind of I mean, because the acquisition the investment activity is going to be so back end loaded, it probably What really impacted your guidance? Yes, that's right. As Ben said, I mean, that was a very little impact. The cost of capital, it was really the operating portfolio Striving a lot of the growth. And then maybe in terms of the investment activity and kind of how Scary quarter to quarter in the current year. Is there any potential impact that may have on timing in 2022? I mean, could we see Either acquisition volume be maybe front end loaded as things potentially leaked over into next year or is it is this Kind of very kind of 2H heavy investment volume kind of schedule, maybe the norm just given some of the gives and takes coming out of the pandemic? John, I mean, I think the pandemic certainly has affected everybody's calendar, but the cadence of acquisitions Has tended to be through our history and through my time prior to this has tended to be very similar. The Q1 is almost always light because the real estate industry takes a pause At the end of the year, so as you begin the Q1, you're sort of spinning back up. The Q4 tends to always be heavy because people want to get things done before year end. We expect, as Bill alluded to, in terms of our under contracted LOI numbers, we expect an unusually big Q3 In terms of acquisitions this year, so that's a little out of cadence and that you probably could describe some certainly could describe some Reopening pandemic effects there. Okay. And then with regards to kind of the in place portfolio, as you look at some of the Releasing potential and some kind of leases come due and vacancy gets this up. How are you looking at term just given Some of the strengths in the market, I mean, is there more of a bias now towards shorter term leases? I mean, Can we continue to see longer term leases? Just kind of one of the pushes and pulls there and we might kind of that weighted average lease term migrate down just given Maybe the benefit that accrues to STAG in some of these re leasing transactions or renewal transactions? Yes, John, the nature of the negotiation and it is a negotiation with the individual tenants is they have a goal and if you try and what they're looking for in a lease term, if try and move them off that goal, there's probably a cost to you. So if they're really hard set on a 3 year lease because they have some Looking for some optionality at the end of the 3 years and you say, no, I need you to sign a 10 year lease, you're going to have to give out something obviously in economics to get that. So The result of negotiating, we go into negotiations with looking for a 1,000 year lease with 3% bump, no, not quite that bad. We're looking for longer leases with fixed rent bumps and they're looking for probably optionality with a bunch of option, term extension options. So It is a negotiation. We go in looking for the best deal for our shareholders. So, I mean, in a market where we're expecting strong rent growth for 5 years, we're probably perfectly happy with the 3 year lease. But we underwrite it based on our expectations for the market, tenant retention, etcetera. But the bias would still be longer even given obviously some of the positive spreads we've seen and lower downtime and There isn't any thought process on your end to maybe seek some of these shorter leases just given I understand in place leases obviously can be attractive, but maybe even Lisa, you originally Yes, it is. So it gets to the propensity to renew. So if you're giving that tenant optionality To non renew, earlier in the potential tenancy of that tenant, that's It's going to weigh heavily on your potential cash flows over time. If you have a very high they have a very high propensity to renew, always less of an issue. If you have a tenant that is, let's say, it's a coin flip whether they renew or even 75% retention, Introducing that 25% non retention is pretty deleterious to your cash flow projection. So again, we're it's a negotiation. There's probably a generally a preference to longer term leases unless we have some unbelievably high belief that I believe could I use believe 3 times in a sense, that the tenant is going to renew even with short term leases. That makes sense. And that's it for me. Thank you very much for your time. Thank you, John. Thank you. There are no further questions in At this time, I would like to turn the call back over to Mr. Ben Butcher for closing comments. Thank you very much, operator, and thank you everybody for joining us And our expectations going forward are with this team, the continued success and the market is certainly supportive of that contention. So Thank you for joining us this morning and we look forward to talking to you next quarter. Thank you. This does conclude today's