Greetings, welcome to the STAG Industrial fourth quarter 2022 earnings conference call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Steve Xiarhos, Associate, Capital Markets and Investor Relations. Thank you, Steve. You may begin.
Thank you. Welcome to STAG Industrial's conference call covering the fourth quarter 2022 results. In addition to the press release distributed yesterday, we have posted an unaudited quarterly supplemental information package 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 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 Bill Crooker, our Chief Executive Officer, and Matts Pinard, our Chief Financial Officer. Also here with us today is Mike Chase, our Chief Investment Officer, who is available to answer questions specific to his area of focus. I will now turn the call over to Bill.
Thank you, Steve. Good morning, everybody, welcome to the fourth quarter earnings call for STAG Industrial. We are pleased to have you join us and look forward to telling you about the fourth quarter and full year 2022 results. The fourth quarter results provided a fitting conclusion to another strong year for STAG. Thank you to our tremendous team for their hard work and dedication. This year featured many successes, including a record level of same-store growth, opportunistic investments in a volatile transaction market, and operational efficiencies that resulted in impressive cash flow growth. The economy continues to digest and react to multiple drivers of volatility. Rising interest rates, geopolitical unrest, labor force variables, including levels of employment and wage growth, have resulted in various potential recessionary outcomes. Against this macro backdrop, we see persistently strong demand for industrial real estate.
The secular tailwinds specific to industrial real estate remain intact. Near and onshoring, e-commerce, supply chain reconfiguration, and inventory level rebuilds will drive robust market rent growth for the foreseeable future. STAG's portfolio is well-positioned to build on last year's success and will produce attractive internal growth in 2023. For the year, cash same-store NOI growth was 5%, continuing the trend of setting new record levels of internal growth. This growth is sustainable, supported by our average annual rental escalators of 2.5% across the portfolio. There's upward pressure on this number. Leases signed over the past twelve months have averaged annual rental increases of 3%, with certain markets bearing increases of 4% and above. Cash leasing spreads will accelerate in 2023.
As of today, we have addressed 61.5% of the new and renewal leasing we expect to commence in 2023, achieving cash leasing spreads of 31.6%. The average annual rental escalator on our 2023 leasing activity achieved to date is 3.4%. This encompasses 8.4 million sq ft of leasing out of the 13.7 million sq ft projected in 2023, further demonstrating the strength and positioning of our portfolio. We have 1,715,000 sq ft development in process in Greer, South Carolina. This two building project is progressing on schedule and is expected to outperform our underwriting. We have funded $42 of the $68 million project and have seen strong pre-leasing activity to date.
On the external growth front, the acquisition market ended the year quietly as sellers are seeking price stability, and this dynamic has continued into the first part of this year. Given this market uncertainty, we are introducing 2023 acquisition and disposition volume with wider than normal ranges. Our base case assumes modest success in identifying and acquiring attractive opportunities in the back half of 2023. We expect acquisition volume between $300 million-$700 million and disposition volume between $50 million-$200 million. No incremental capital is needed to operate at the midpoint of our net acquisition guidance while maintaining our guided leverage range. Expected cash capitalization rates reflect an expansion of approximately 100 basis points from levels we achieved in the first half of 2022.
With that, I will turn it over to Matt, who will cover our remaining results and guidance for 2023.
Thank you, Bill, and good morning, everyone. Core FFO per share was $0.55 for the quarter and $2.21 for the year, an increase of 7.3% as compared to 2021. Cash available for distribution totaled $342.7 million in 2022, a year-over-year increase of 16.7%. Consistent with our previous messaging, the dividend payout ratio continues to moderate, declining from 82.1% to 77.8% at year-end 2022.
This past year, we retained approximately $76 million of free cash flow after dividends paid. These dollars are available for incremental investment opportunities, debt repayment, and other general corporate purposes. Leverage remains within our normal range, with net debt to annualized run rate adjusted EBITDA equal to 5.2x, with $847 million of liquidity at year end. During the quarter, we commenced 27 leases totaling 3 million sq ft, which generated cash and straight-line leasing spreads of 14.2% and 25.4% respectively. Retention was 79.5% for the quarter and 71% for the year. When adjusted for instances of minimal downtime and immediate backfills, adjusted retention was 90.4% for 2022.
Cash same-store NOI grew 4.5% for the quarter and 5% for the year, representing another annual same-store record growth for STAG. Our 2023 guidance range for cash same-store growth is 4.5%-5%, anchored by weighted average rental escalators of approximately 2.5%, retention of 70% at the midpoint of our guidance range, and cash leasing spreads ranging between 25%-30% on approximately 13.7 million sq ft of projected leasing for the year. Note that this projected leasing volume includes renewal and new leasing. As Bill mentioned, approximately 61.5% of our projected 2023 leasing has been addressed, with aggregate cash leasing spreads of 31.6% accomplished to date. There are no large known move-outs included in our guidance range.
Note that our 2023 same-store pool will include 92.7% of our total square footage owned at year end. In terms of capital market activity, subsequent to quarter end, we repaid our $100 million private placement Note F, which matured on 5th January . There are minimal debt maturities for the next two years, with only $53.3 million maturing through 2024. Our 2023 guidance can be found on page nineteen of our supplemental package, which is available in the investor relations section of our website. Components of guidance include Core FFO per share to range between $2.22 - $2.26 per share. We expect same-store cash NOI growth to be between 4.5%-5% for the year, with a retention range of 65%-75%.
As mentioned by Bill, acquisition volume guidance is a range of $300 million-$700 million with a cash capitalization rate between 5.75% and 6.5%. Disposition volume guidance is a range of $50 million-$200 million. G&A is expected to be between $48 million and $50 million. Finally, we expect net debt to annualized run rated adjusted EBITDA to between 5 and 5.5 times. I will now turn it back over to Bill.
Thank you, Matt. STAG enjoyed a very successful 2022. The company is in great position, and we entered 2023 with significant momentum across the platform. I look forward to the opportunities in front of us and another great year. We'll now turn it back over to the operator for questions.
Thank you. We will now 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'd 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 poll for questions. Thank you. Our first question is from Craig Mailman with Citi. Please proceed with your question.
Hey, good morning. Matt, just doing some back of the envelope math with the annual escalators and rent spreads you guys are assuming, it seems within the same-store guidance, you guys are assuming about 50 to 100 basis point pullback in occupancy. Is that about right?
Hey, Craig. Good morning. That's correct. You know, right now the portfolio at year end is roughly 99% occupied. We do not expect to operate this portfolio at 99%. Implied in our guidance is 50 basis points of average occupancy loss. What I would point to is offsetting the occupancy loss are the very, very, very healthy rental spreads that we've accomplished, basically year to date in 2023, between 25%-30%. There is a trade-off between the occupancy and the rental spreads that we're able to achieve.
Yeah. Then from a bad debt perspective, do you guys have anything baked in there?
We do. We have roughly 50 basis points of credit loss baked into our guidance. just for context, in previous years we've had roughly 40. It's a ground up analysis. We rely on our credit team, asset managers, et cetera. We go tenant by tenant. What I will say is we incurred zero credit loss in 2022, and this 50 basis point budgeting really isn't identified to specific tenants necessarily, but consistent with our budgeting practices at the beginning of the year, particularly in the heightened volatility that we are, we think it's prudent budgeting.
No, that's helpful. You know, you guys on the leasing that you've done so far for 2023, you know, you guys had a nice pickup in the rent spreads on a blended basis that you're reporting here so far. I mean, it seems like there's a little bit of a pullback, at least at the midpoint from where you guys are signing leases. I mean, has it been a mix issue so far this year that's been driving the rent spreads above 30% and what you guys kind of have in your sights for the remaining 40%-ish of leases is different markets or, you know, different spaces? I'm just kind of curious as to the conservatism there given, you know, you guys are almost two-thirds done leasing.
Yeah. Hey, Craig, it's Bill. I mean, from a mix change, it's hard to say it's a mix that's really driving it. In the 8.4 million sq ft we lease, that's across 63 leases. It's across a number of markets, about 55% of those leases were renewals, 27% are new leasing. I think that's right. In terms of the guidance of 25%-30%, I mean, that's just where we feel like things are shaking out. As Matt said, there's a lot of volatility in the market right now, and so that's where we're budgeting for the year.
As we said, right now, we're 61.5% of our expectations done at 31.6% spreads.
Yeah, that's helpful. Just one more on the dispositions. I know it was helpful for you guys to give the acquisition cap rate. I'm just kind of curious what type of assets you're looking to sell. Is it just non-core with maybe some upside or assets that you've already stabilized? Kind of how does that factor into the yields where, you know, we've kind of seen stuff that's stabilized, cap rates are blowing out more than, you know, stuff that still has near term upside.
Yeah. That's consistent with this past year. It's called, you know, the longer the wallet, the lower the escalators, the more the cap rates have expanded. Our dispositions in 2023, there's gotta be a mix as it has been in the past, of opportunistic and non-core dispositions. Opportunistic dispositions are the dispositions we execute on that generally produce lower cap rates than where we're buying, and it's a source of equity capital. It's a pretty wide range that we put out for this year, just given the volatility in the market. It'll be a mix of opportunistic and non-core dispositions.
At the midpoint, if you guys do the $500 million on acquisitions and your dispo guidance at the midpoint, kind of match what's the net impact to FFO that you guys are assuming in guidance?
The midpoint of our guidance is $2.24. What I will say is that acquisition volume is back-end weighted in our guidance. If you take a look at, you know, obviously what we did in the fourth quarter, the $8 million, we have closed zero transactions year-to-date through today. We have nothing on our closing pipeline. The actual like contribution to Core FFO is really back-end weighted, so it's relatively minimal as opposed to being more acquisitive at the beginning of the year.
Perfect. Thank you.
Thank you. Our next question is from Dave Rodgers with Baird. Please proceed with your question.
Hey, Bill, Matt. Good morning. maybe wanted to start with something that came up, I think on a lot of the other calls. Is just, I think the word normalization for industrial as we moved into 2023, a little bit thinner in terms of the demand pipeline and, you know, market rent growth slowing down a little bit. Can you talk about what you're seeing maybe from a market level perspective? Obviously, the numbers you're posting are really good, but maybe kind of looking behind the curtain a little bit, give us a little bit more color on what you're expecting for market rent growth and the trend that you've seen moving into the end of the year and into 2023.
Yeah, Dave, good question. We're continuing to see strong demand. Supply is coming online. I think right now we're looking at about 3.5% of inventory coming online, new supply coming online this next year. That is taking a little longer to come online than it has in called normal cycles, just due to the supply chain issues that we're still seeing. Rent growth for our portfolio, we're projecting mid to high single digits for rent growth. Demand is still really strong. We're seeing it across a lot of different industries, including e-commerce, 3PLs, food and beverage, packaging industry. We're still seeing really strong demand. One thing we are seeing is just a little bit of uptick from our, you know, lease gestation periods.
We're seeing, you know, call it a month longer between when tenants sign LOI and take occupancy. We bake some of that into our budgeting. We budget a little bit longer downtime in 2023.
Great. Appreciate the color, Bill. Then maybe you guys gave really good detail with regard to the leases that you've addressed already for this year, the 61%. Curious, you have the 65%-75% retention in the guidance, it's almost like you're kind of there, and I realize it's a mix between new and renewals and not all renewals, but you're kind of at the guidance a little bit already. You know, are there, although they're not in your guidance according to Matt, are there some big known move-outs that we should anticipate, you know, in the numbers or just things that you're uncertain of that could hit as we get into the later part of the year?
No. No. No big known move-outs as we kind of look at that number as, you know, leases being 400,000 square feet or larger. We don't have any of those in the pipeline. The retention guidance is 65%-70% we feel pretty good with. This last year, we had retention adjusted with immediate backfill of 90%. I think we're looking at something closer to 80% right now for 2023. That number, if anything will only increase if it does, because we're not budgeting 1-2 months of downtime for vacant spaces.
Okay. That's helpful. Lastly for me, on the acquisition front, anything different that you're looking at in acquisitions or as part of that investment guidance? Would you consider doing a little bit more development or redevelopment, value-add type transactions? I guess maybe just your thoughts on where you anticipate to take the capital budget in 2023. Thanks.
Yeah. Right now, as Matts said, the acquisitions are really back-end weighted. Developments, redevelopments, value adds, we've been extremely successful on those projects over the years. We're on our, as I mentioned in the prepared remarks, our third development that's tracking to outperform our budget and underwriting. If there's good opportunities there, and we think there may be, then we'll execute on those. We're still in a price discovery market, so it's probably gonna take a little bit of time here to come to agreement with some pricing.
Thanks, Bill. Appreciate it.
Thanks, Dave.
Thank you. Our next question is from Michael Carroll with RBC Capital Markets. Please proceed with your question.
Yep, thanks. I know, with the planned 2023 leasing activity, I know you already addressed roughly 60% of that. I mean, how does that compare in years past? I mean, are you ahead of expectations as you are right now, or is this kind of in line with where you usually are at the beginning of the year?
Hey, good morning, Mike. This is Matt. We're roughly in line to where we are historically. Anywhere in the high 50s to low 60s at this point of the year have been addressed. 61.5 may be a tick higher. Really what's higher here are the leasing spreads. In terms of the actual progress we made it's relatively in line.
Okay. I know you announced about an extra 2.4 million sq ft this quarter compared to the 2023 leasing activity you announced last quarter. It looks like on that incremental leases that were announced, your spreads are near the 40% range. I mean, I guess first, is that correct? Is there anything lumpy in there within that last 2.4 million sq ft that was just announced?
I'm just looking at Matt, so I think the one lumpy piece was probably the Amazon building that was rolling in the fourth quarter of next year. We did renew them. We anticipated rolling that up about 30%. We ended up rolling that up 60%, so vastly outperformed our budgets there. That was probably one of the bigger, lumpier items there.
That's right, Mike. Just to add on, that's a 250,000 sq ft building in Burlington, New Jersey, with high face rates. Being able to double our expectations certainly pushes those numbers.
Okay, great. Is there anything different with the remaining 40% that needs to be done? I mean, is the mix, the geographic mix different or anything like that compared to the stuff that you just completed or announced already?
Not materially different, Mike. It's just, you know, that stuff's expiring at the end of the year. Tenants, you know, typically engage in renewal discussions six months ahead of time, sometimes a little bit longer. I'd say the only difference is more of those expirations are back half of the year.
Okay, great. Thanks.
Thanks, Mike.
Thank you. Our next question is from Camille Bonnell with Bank of America. Please proceed with your question.
Good morning. Based on your investment activity this past quarter and expectations to execute on transactions in the back half of the year, can you just speak to the confidence you have in terms of hitting the low and high end of your acquisition guidance?
It's a tough question to answer. I would say we, you know, we put our guidance out there with pretty wide ranges because of the volatility in the market today. It is guidance and, , right now our expectation is that we will operate within our guidance ranges, otherwise we wouldn't put them out there. They're wider than normal, both on the volume side and the cap rate side.
Okay. You have great coverage over your upcoming expiries for the next few months. Just on an earlier point about the supply chain issues that are persisting, though, can you speak to whether you're seeing any change in tenant decision-making in terms of where they're basing their operations and building their logistics footprints?
We haven't seen anything material. As I mentioned in one of the earlier responses, the only, you know, small thing we're seeing from tenants is just taking a little bit longer time from LOI to actual taking occupancy. Nothing material from a footprint perspective.
Okay. Final question. Going back to same-store NOI growth, just focusing on the rental growth opportunity within the portfolio. On one hand, you mentioned that there's now a greater number of leases on 3%-4% escalators, while on the other side you have high mark-to-market potential. How should we just be thinking about the balance between these two factors in contributing to an same-store NOI growth?
Well, for the, I'll start, maybe Matt, if you wanna add on here. For 2023, I think that how to think about it is look at the guidance and 25%-30% rollover rents. We mentioned we're, you know, close to 3.5% escalators for those leases we've signed in 2023. Upward pressure on the 2.5% average escalators in the portfolio. Every lease transaction is a negotiation. Sometimes the tenants are more inclined to pay a higher face rate and lower bumps, and some the inverse. You know, frankly, we're not signing really any leases that I can think of below 3% bumps now. We're signing leases with 4%+ bumps.
I think it really is a independent, specific negotiation on each lease. Anything else you wanna add there, Matt?
Yeah. I think Bill made the important point there that, one of the biggest building blocks of our guidance for this year are the weighted average escalators across the portfolio. Today, those sit at 2.5%. I think what's important to note here is what Bill said, is the upward pressure of that number. You know, we have, you know, circa 115 million sq ft. We lease, anywhere 10%-15% of the portfolio a year. We are striking leases that at least begin with the 3 in terms of rental escalators, but it takes time to really move the aggregate. It would be my expectation that if we sat here in twelve months, the 2.5 would be higher, due to the fact of the leasing that we expect to accomplish this year.
Okay. Thank you for the color.
Thank you. Our next question is from Jon Petersen with Jefferies. Please proceed with your question.
Great. Thanks. I think I just have one question. The pipeline, obviously it's been going down. I just wonder if you could give us some more color on, you know, are sellers not putting things on the market? Are you guys being more selective? I guess, how should we think about that number and kind of why it's moving the way it's moving? Like, what the bigger drivers of that are. Then, like, what you guys are looking. You know, I guess, as we look in the back half of the year, you're expecting more acquisitions, what are the drivers that you expect to have that pipeline increase again?
Yeah. We're expecting more acquisitions in the back half. Just at some point, we feel like the price discovery is going to occur. Right now we're projecting that in the back half. With that being said, we have a wide range of acquisition volume. In terms of the pipeline being lower, a big factor there is the lack of portfolios in the pipeline. We've underwritten portfolios before. We bid on portfolios. We have not been successful on winning a lot of large portfolios. There's not a lot of portfolios, if any, in the pipeline. Mike, anything you wanna add there?
Yeah, Bill, I think you mentioned it. I mean, it's more heavily weighted towards granular transactions. There's definitely not as many fully marketed transactions coming out right now. A lot of what we're seeing in the market are kinda lightly marketed, off-market transactions and transactions that we've looked at in the past and are coming back around that have not traded. You know, that would be account for the slight decrease in the pipeline.
Just the general makeup of the pipeline, Jon, is pretty similar to the stuff we've been acquiring the last couple of years.
Okay. All right, that's it for me. Thank you very much.
Thanks, Jon.
Sure.
Thank you. Our next question is from Jason Belcher with Wells Fargo. Please proceed with your question.
Thanks. Good morning. Bill, you've referenced nearshoring and onshoring as potential tailwinds for industrial demand. Just wondering if you could just talk about how you expect those trends to play out over time. You know, any color you could share around timing or magnitude of potential benefit would be helpful. If there are certain markets within your portfolio that you think will benefit more than others.
Yeah. I mean, I'll try to stay away from the magnitude question 'cause that's a really difficult one to answer. We're seeing it benefit the portfolio today in our El Paso market. There's a lot of nearshoring, onshoring happening there, as well as supply chain reconfiguration. We're also seeing some in the Southeast. We expect to see probably some in the medium term in the Midwest, but that will we'll see how that pans out. But it's impacting the portfolio today in some of the border markets.
That's helpful. Thanks. Thank you. Secondly, Amazon remains, you know, your top tenant at about 3% of ABR. Can you just give us an update on any recent discussions you've had there and your exposure to any expiring Amazon leases in the next couple of years?
Sure. Yeah, we had the Amazon lease that we renewed that I just mentioned. Again, we doubled our budgets. We expected to roll up 30% and ended up rolling up 60%. That lease has been pushed out. The next lease roll, I think, is a small 120-ish thousand sq ft building in early 2024. That's a below-market lease. It's a good building. It's a second generation or third generation lease to Amazon, so it wasn't a build-to-suit for Amazon. It's a functional building. Overall, the Amazon exposure has been working out quite well for us.
We've been able to operate those facilities, either with renewals or leasing new tenants in the facilities that Amazon does not renew.
Thanks a lot. Appreciate the color.
Thank you.
Thank you. Our next question is from Michael Mueller with JPMorgan. Please proceed with your question.
Yeah. Hi. May have missed this, but in the 2023 guidance, is there any equity embedded in it, given the call for net acquisitions? I guess secondly, are you an issuer in the mid-30s?
Hey, Mike. Good morning. I can answer the first part first, which I think makes sense. The midpoint of our guidance is really structured to assume zero incremental capital, both on the equity and the debt side. You know, we can achieve that without needing incremental capital. We haven't issued equity since January last year. Leverage is where we want it, right within our range. You know, I think an important point to make here is we are generating approximately $80 million of free cash flow after dividends. In terms of refinancing, we don't have much maturing. We have a bunch of liquidity. I would say where the share price is right now, we do not have an interest. I think that as markets change, we're going to evaluate.
You know, the reason why we put guidance the way we did is obviously there's a lot of uncertainty. Very similar to 2022, very strong internal growth. The capital markets are volatile. That's flowing through the acquisition external growth side. We're very careful in putting together our relatively wide and lower ranges, as Bill described, to be able to run this business this year without incremental equity if we don't need it.
Got it. Okay. Apologize for this, but going back to the spread question one more time on the 31% so far this year and the, and the call for full year of 25%-30%. I guess the question is, are you seeing anything specifically in the upcoming roles that would pull you down or is that just an assumption?
It's an assumption, Mike. It's leases that are rolling in the back half of the year. That's really what it is. It's just an assumption right now. Nothing, nothing known right now that's driving our guidance to 25%-30%.
Got it. Okay. Thank you.
Thanks.
Thank you. Our next question is from Eric Borden with BMO Capital Markets. Please proceed with your question.
Hey, guys. Good morning. I was just hoping if you kind of provide some color to better understand the building blocks from 2022 to 2023, just given you have a similar same-store NOI growth as last year, but it seems to be an implied drag on FFO per share. I understand that there were some one-timers in 3Q of last year, just hoping that you could provide some additional color there. Thanks.
Yeah, absolutely. Want to walk you through 2022 and then our 2022 guidance, how we arrived there. First, I think it's important to note on the last earnings call in Q3, we did have a one-time item. It accounted for approximately $0.01. There is $0.01 of one-time items in 2022. We are not budging any one-time items in 2023. That one-time item was related to a settlement from a prior tenant, again, impacted 2022 by $0.01. In terms of 2023, there's really two major drivers impacting our initial Core FFO guidance, the acquisition cadence and volume, which we've discussed a few times on the call. Obviously, this is impacting us and everyone else, but the increase in short-term interest rates.
Our 2022 acquisition volume was heavily weighted to the first half of the year and very modest in the second half, result in including with $8 million of investments in the fourth quarter. As our earnings are restated, we haven't acquired anything this year. We do not have anything on our closing pipeline, and our guidance assumes that acquisition volume will be back half weighted as opposed to 2022 where it was front half weighted. Now this is gonna have an impact on earnings. In terms of interest rates, we have a fixed rate balance sheet except for our revolver. Interest rate on the revolvers increased almost 300 basis points, comparing today to the average cost last year, and that's gonna be the other major impact.
Okay, that's helpful. Then maybe on the cap rate front, where's the bid-ask spread today? You know, how and then how much wider do you anticipate the range moving towards the back half of the year? I know you've provided some in your guidance, but just curious to know where it is today.
It's hard to answer that specifically. The bid-ask spread is pretty wide, which is why you're not seeing us transact with a lot of acquisitions. Frankly, the industrial market as a whole is down significantly year-over-year in terms of number of transactions done. We expect the bid-ask spread to narrow a bit. There continues to be volatility with the Fed and, you know, the latest, , even PPI data that came out today. There's a lot of information that's coming out and the Fed reacts, and then it impacts debt costs, which impacts the cap rate. You know, hopefully that settles out in the back half of the year and the industrial market transactions start to come to fruition.
All right. Great. Thanks, guys. That's all for me.
Thanks.
As a reminder, 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. Our next question is from Vince Tibone with Green Street. Please proceed with your question.
Hi, good morning. I just wanted to follow up on the funding question and just try to get a sense of, when you would potentially be interested in issuing equity again. Just 'cause on our numbers, STAG's trading right around a 6 implied cap rate, that's in the same range you'd be acquiring stuff. You know, neutral-ish cost of capital. I guess why not issue equity or like what needs to change is it simply the stock price to get you comfortable issuing equity again?
Hey, Vince. Good morning. I think number one, I think the overarching answer is issuing equity to fund uses of proceeds, right? As I mentioned, we do not have anything on our closing schedule. Leverage is where we need it. As we sit here today, we have the ability to operate without equity. We're still trying to figure out the price discovery on the external growth side. We're generating $80 million of cash just running our portfolio. We can manage leverage that way. As Bill discussed earlier, we have the ability to accretively capital recycle. We're really just taking a look at the volatile capital markets and taking a look at our position, particularly with the strength of our portfolio, we do not have a need to do that as it sits here today.
Vince, I mean, the short answer is we're being patient. We certainly don't wanna overpay for assets. Just looking at the one asset we closed in Q4, we're able to acquire that at a, you know, pretty high cap rate. It was a, you know, a sale leaseback with a decent credit, and it's a great building in a really strong market. So those are opportunities that if we had a whole pipeline of those and we could accretively deploy the equity at those levels, then we'd think long and hard about it. Right now, we don't have a whole pipeline of those acquisitions.
We're being patient, we're picking our spots, and, we're able to do so with where we are from a liquidity balance sheet perspective, and retained cash flow.
Got it. No, that makes sense. Just to confirm, like from a modeling perspective. Are you just assuming any acquisitions then in excess of free cash flow will just be put on the revolver? Is that how we should think about it? If so, like kind of what's the maybe good average rate in your mind to assume for any kind of incremental revolver debt?
Yeah. That's exactly right. The midpoint of our guidance assumes no incremental equity. On a net acquisition basis, the acquisitions we've made using the retained cash flow we talked about and anything in addition to that would be revolver debt. Right now, revolver's priced a little north of 5%. You know, you take a look at a forward curve, and you can put as much credence as you would like into a forward term SOFR curve, but anywhere in the low 5% is probably good for your modeling.
And, and as the-
Perfect.
You know, as that revolver balance increases, if we were to term that out, the rates aren't materially different, just given the flatness of the curve.
Just on that really quick. Okay. You know, how are the private debt markets today? Whether it's a , private placement Note or a term loan, are those markets still , more restrictive? How much term do you think you could get? If you could give a little more color on maybe besides just rate, some of the
Yeah.
availability of debt.
I'll kick it off and then pass off to Matt. In terms of just the private placement market, that market's still operating and functioning, and you can get debt as long as , twelve years. If we did something, it'd probably be in the 10-year range. I'll let Matt talk about the bank markets and anything to spend on the private placement market.
Right. Yeah. Vince, just to follow up on the private placement. You know, if we were to go to market today for a ten-year private placement note, and this is a market we really enjoy the flexibility. We've cultivated a pretty good following, and we've had a lot of success there. The ten-year debt would price probably in the 5% to 5.25% range. Credit spreads have come in a little bit, but , the tenure continues to bounce around. You know, we're not a public bond issuer in terms of the bank market. You know, we really took care of that in July of last year. We upsized a revolver. We have a significant amount of liquidity. We took care of our near-term refinancing, so we don't have a need for bank debt capital.
It's likely that if we were to go to the debt markets, we would look hard at the private placement market. I do wanna reiterate, the midpoint of our guidance in this market does not assume any issuance.
Got it. Super helpful. Thank you both.
Thanks, Vince.
Thank you. There are no further questions at this time. I'd like to turn the floor back over to Bill Crooker for any closing comments.
Yeah. I just wanna thank everybody for joining the call today. We look forward to seeing many, many of you at the upcoming conferences. Thanks again, and have a great weekend.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.