STAG Industrial, Inc. Q4 FY2021 Earnings Call

Greetings and welcome to the STAG Industrial Fourth Quarter 2021 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. The operator will now provide instructions. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Steve Xiarhos. Thank you, Steve. You may begin.

Thank you. Welcome to STAG Industrial's conference call covering the fourth quarter 2021 results. In addition to the press release distributed yesterday, we have posted an unaudited quarterly supplemental information presentation on the company's website at www.stagindustrial.com, under the Investor Relations section. On today's call, the company's prepared remarks and answers to your questions will contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today. Examples of forward-looking statements include forecast 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 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; Bill Crooker, our President; and Matts Pinard, our Chief Financial Officer. Also here with us today is Steve Mecke, our Chief Operating Officer, who is available to answer questions specific to operations. I will now turn the call over to Ben.

Thank you, Steve. Good morning, everybody, and welcome to the Fourth Quarter Earnings Call for STAG Industrial. We're pleased to have you join us and look forward to telling you about our fourth quarter results. Before we get started, I wanted to touch on the succession announcement we made a little over a month ago. As previously announced, on July 1, my title will be changing. I will leave the CEO role and become the Executive Chair of the Board of Directors. Bill Crooker, our President, will be taking over my position as CEO. My transition from CEO to Executive Chairman this July will be made without the slightest hesitation or concern. Almost 11 years ago, we had the opportunity to move our successful private equity fund platform to the public markets. The compelling reasons for making this move have all been validated by our experience in the public markets. I take great pride in the company we have built. A company that continues to exceed operational expectations is genuinely a great place to work and grow. We have focused on growing our team from within. This commitment to employee development has provided us with a deep and talented set of colleagues that we can rely on now and in the future. As we enter 2022, I'm highly confident of the STAG team across all levels of the organization. I want to thank you for the opportunity to be your CEO since we founded the company over 18 years ago. My job has been made easier by the immense level of support I received from the many stakeholders in STAG. I'm excited for my new role for the next phase of STAG's journey as a public company. 2021 was another great year for STAG Industrial. Strong execution across all facets of the company allowed us to meet or exceed all our goals and guidance for the year. Our performance in the fourth quarter was no different. The acquisition volume in the quarter was our highest ever and we produced a high level of same-store NOI growth. We accomplished all of this while maintaining our strong investment-grade balance sheet. Industrial fundamentals remain strong as we start 2022 and are projected to remain healthy for some time. Demand exceeded supply in almost all U.S. markets throughout 2021. This drove the strongest market rent growth we have seen in our portfolio in our operating history. Based on our current projections, we expect to see continued strong market rent growth throughout 2022. As Bill and Matts will discuss shortly, these market dynamics contributed to both our very positive 2021 results and our strong 2022 guidance. Finally, I am proud to report that the company's inaugural environmental, social, and governance (ESG) report was published in December. We take great pride in our best-in-class ESG profile and fully expect this to be an annual sustainability report. This report represents an additional tool for us to comprehensively communicate our ESG efforts and provide context for the considerable progress we continue to make. With that, I'll turn it over to Bill, who will discuss our acquisition and disposition results and outlook for 2022.

Thank you, Ben. Good morning, everyone. First, I want to thank the entire STAG team for its tremendous effort during the record fourth quarter and record year. We acquired over $700 million of properties in the span of 3 months, including an ongoing development project. This is a testament to the platform STAG has built, the best-in-class processes in place and the hard work of our talented team. Acquisition volume for the fourth quarter totaled $689.5 million across 35 buildings with stabilized cash and straight-line cap rates of 5% and 5.2%, respectively. For the year, acquisition volume totaled $1.3 billion with stabilized cash and straight-line cap rates of 5.2% and 5.6%, respectively. Competition for industrial properties remains elevated. The reevaluation of supply chain infrastructures and challenges associated with inventory continued to drive demand to historical levels. These dynamics have attracted capital from traditional and new investors looking to increase exposure to industrial real estate. One of our core competencies is the ability to acquire industrial real estate on a granular basis across 60-plus markets nationwide with an attractive return profile. The ability to efficiently evaluate 1,000-plus transactions per year to identify attractive relative value on a granular basis continues to be extremely valuable. Today, our pipeline of potential investments is $4.1 billion, demonstrating the opportunities set in front of us today. There are a few larger transactions I would like to highlight that closed this quarter. In November, STAG acquired a small portfolio of 4 warehouse distribution facilities totaling 580,000 square feet located in Greater Chicago for $62.9 million at a 4.9% stabilized cash cap rate. This collection of leases featured below market rents with a weighted average lease term of approximately 3.5 years, providing an attractive opportunity to create value in the near term. One of the 4 buildings contains a 50,000 square foot vacant suite that has seen a high level of activity, and we expect to execute a lease on this suite soon. This transaction is a good example of how we have built an investment process that avoids decision rules. The opportunity did not meet the typical criteria of two ends of the traditional real estate investor spectrum due to the lease term being too long for traditional value-add investors and too short for the typical cash flow buyer. Our differentiated approach and deep broker relationships allowed us to acquire this portfolio at a very attractive basis. In December, we acquired a 590,000 square foot warehouse distribution facility located in Hazleton, Pennsylvania for $53.8 million at a 5% stabilized cash cap rate. Well located in the I-81 corridor with proximity to both I-80 and I-81, the building is fully leased to 3 tenants. In aggregate, the leases are 9% below market with a weighted average lease term of just under 3 years, providing an attractive opportunity to bring these leases to market. This includes a 160,000 square foot suite set to roll in less than 1 year. The mix of lease terms in this multi-tenant building, along with its location in a secondary market allowed us to acquire this attractive acquisition with near-term upside. Finally, at the end of December, we acquired 2 buildings totaling 1.2 million square feet in Hagerstown, Maryland for $140.7 million at a 4.9% stabilized cash cap rate. The facilities are fully leased to strong credits who have deep commitment to the space with a weighted average lease term of 9 years. This transaction includes 13 acres of land available for potential expansion that is not encumbered by the lease providing an opportunity to add additional value to the site. These buildings have benefited significantly from the rise in big box demand tied to e-commerce and logistics tailwinds and similar to their South Central PA counterparts to the North along I-81. The last transaction I would like to highlight is a new opportunity for STAG. This is the first investment made in an ongoing speculative development project. Located in Sacramento, STAG acquired the project from the developer for $28.9 million, which consists of hard and soft costs incurred to date. Today, the building is 65% complete with total expected project cost of $34.8 million. STAG will fund the remaining development draws, which are projected to total an additional $5.9 million. As of today, we have received 3 lease proposals and expect to fully pre-lease this building prior to completion. We see this development funding transaction profile as a natural extension of our industrial operating expertise and are excited about the attractive prospects of growing this line of business. Switching to capital recycling. Dispositions for the quarter totaled $112.5 million, highlighted by our sale of the Taunton, Massachusetts facility for $78 million at a 3.1% cash cap rate. I would also like to highlight the sale of our Belfast, Maine flex office campus, which consisted of 5 buildings. With this sale, our flex office portfolio is now less than 100,000 square feet. For the year, disposition volume totaled $193.4 million with an aggregate disposition cap rate for our core industrial assets of 4.5%. Turning to guidance for 2022. We continue to see an attractive opportunity to grow our portfolio. While competition has increased, so has the cash flow profile of these opportunities we are evaluating. We expect acquisition volume to be between $1 billion and $1.2 billion with an expected stabilized cash cap rate range of 5% to 5.25%. We expect straight-line cap rates to be 40 basis points higher than cash cap rates. With the heightened appetite for industrial real estate, we have increased our expectation for capital recycling in this environment as well. We expect disposition volume to be between $200 million and $300 million for 2022 with disposition cap rates similar to those achieved in 2021. It was a busy year for STAG in 2021, and we are equally as excited to continuing our execution in 2022. Before I turn it over to Matts, I would like to take the opportunity to share how grateful I am of Ben and the Board for their confidence they have placed in me. I also want to thank Ben for his leadership, mentorship and continued counsel as we transition over the upcoming months. Ben has created an extraordinary company, and his impact will be long-lasting. With that, I will turn it over to Matts who will cover the remaining results and guidance for 2022.

Thank you, Bill, and good morning, everyone. Core FFO was $0.51 for the quarter and $2.06 for the year, an increase of 9% as compared to 2020. Cash available for distribution totaled $293.8 million in 2021, a year-over-year increase of 20.5%. Consistent with our previous messaging, the dividend payout ratio continues to moderate, declining from 90% in 2020 to 82.4% at year-end 2021. Leverage at year-end remains near the lower end of our range with net debt to run rate adjusted EBITDA equal to 5x. During the quarter, we commenced 30 leases totaling 3.6 million square feet, which generated cash and straight-line leasing spreads of 16% and 22.6%, respectively. Retention was 77.6% for the quarter and 76.6% for the year. Cash same-store NOI grew 3.4% for the quarter and 3.8% for the year, the highest level on record for STAG. 2021 included an 80 basis point benefit from free rent associated with 2 large leases at our Hampstead, Maryland and Memphis, Tennessee facilities. This benefit does not exist in 2022. Our initial 2022 guidance range for cash same-store is 3% to 4% driven by weighted average rental escalators of approximately 2.35%, retention of 70% at the midpoint of our guidance range and cash leasing spreads expected to be in the low teens for the year. There are no large known move-outs or material free rent tailwinds included in our guidance range. Moving to capital market activity and beginning with equity. In the fourth quarter, we completed an equity offering at $42.50 per share, which resulted in aggregate net proceeds of approximately $386.3 million with a portion of the proceeds to be received on a forward basis. Net proceeds of $220.4 million were received in November. On December 27, we partially settled the forward equity component of this transaction and received $115 million in net proceeds, which we used to fund fourth quarter acquisitions. As of year-end, we have an additional $50.1 million of net proceeds available at our option to fund future acquisitions. As previously discussed, in October, we refinanced our $750 million unsecured revolving credit facility. This revolver matures in October 2025 with two 6-month extension options at our option. The facility bears an interest rate of LIBOR plus a spread of 77.5 basis points based on the company's current leverage level and debt rating. In addition, the company refinanced a $150 million unsecured term loan. The term loan now matures in March 2027 and is fully swapped with an all-in interest rate of 2.15%. Finally, the company improved pricing on $675 million of term loan debt, specifically term loans E, F and G. The term loans now bear a current interest rate of LIBOR plus a spread of 85 basis points with no change in maturities. Our initial 2022 guidance can be found on Page 21 of our supplemental package, which is available in the Investor Relations section on our website. Components of our initial 2022 guidance are as follows: our core FFO guidance is a range of $2.15 to $2.19 per share with the midpoint of $2.17. We expect 2022 annual same-store cash NOI growth to be between 3% and 4% for the year with a retention range of 65% to 75%. G&A is expected to be between $49 million and $51 million for the year. Note that this range now includes the expense related to the retirement plan. This expense is expected to be $671,000 in both the first and second quarters. We expect net debt to run rate adjusted EBITDA to be between 4.75x and 5.5x for the year. I will now turn it back over to Ben.

Thank you, Bill and Matts. In closing, I want to reiterate what a great position our company is in. My colleagues worked extremely hard this year and have throughout the pandemic. I thank them for achieving the great 2021 results. I also want to thank our various stakeholders again for their constant and continued support. I'm very proud of STAG and everything we've accomplished in the past year; and more importantly, over the last decade. I have the utmost confidence in the team and our strategy going forward. Thank you for your time this morning. I'll now turn it back to the operator for questions.

Colleagues worked extremely hard this year and have throughout the pandemic. I thank them for achieving the great 2021 results. I also want to thank our various stakeholders again for their constant and continued support. I'm very proud of STAG and everything we've accomplished in the past year, and more importantly, over the last decade. I have the utmost confidence in the team and our strategy going forward. Thank you for your time this morning. I'll now turn it back to the operator for questions. Our first question is from Sheila McGrath with Evercore ISI.

Congrats on the smooth transition and all the promotions. My first question is on the development that you mentioned, Bill. What kind of premium yield are you thinking about when you're buying a development? And are there other projects in the pipeline similar to that?

I'll let Bill answer the question.

Thanks, Sheila. That transaction was a great transaction for STAG. We don't necessarily target a development yield. There's various yields we're looking at for those types of projects. This particular project will stabilize in and around a 5% cap with a 33% pro forma development yield. So very happy about that. There are some other development-type projects in our pipeline that we're hopeful will be successful going forward.

Okay. And then on the dispositions, you mentioned in 2022 they are going to be higher. What's driving that? Are there opportunistic sales like the Amazon one that you did? Or is there a portfolio? And just how should we think about timing on that?

So we do have a small two-property portfolio that is on the market now that will likely close in the beginning of Q2. The guidance for this year, $200 million to $300 million of dispositions is elevated as compared to past years. And as I noted, the cap rate, weighted average for our dispositions you see here, we expect to be in and around the same cap rate we had for 2021, which is mid-4s cap rate.

Our next question comes from Jamie Feldman with Bank of America.

Going back to the comments on the dividend payout ratio, it improved during 2021. I'm just curious what your thoughts are on 2022. Do you think that will improve further?

Jamie, that certainly has been a goal of ours throughout the last five or six years; we've been looking at getting the payout ratio down. We're getting pretty close to the point where we're comfortable that it is sort of a continuing level. So that's something we'll look at as we go through the year. Matts, do you have something to add to that?

Sure, that's exactly right, Ben. We were at 82.4% at the end of 2021, Jamie. Just for context, we were at 90% in 2020. So a material decrease in the payout ratio. As Ben said, we continue to look at it, but we're happy with the progress we have made.

Okay. Congratulations to everyone for the transitions and the changes. Do you expect to see more management creation of additional management roles or new hiring to fill any voids going forward or is G&A kind of set where it looks today?

Yes. So the transition involves a couple of pieces, most of which has been announced. We don't see any need for additional hires at significant compensation levels.

Okay. And then I guess, Ben, big picture, and I think back to the IPO and where the company stood then and really where industrial markets stood then versus demand for assets today and operating conditions today. I assume as you thought about transitioning your career, you thought about potentially selling the company or cashing out. What was the thought process to think about STAG 2.0 with you in a different role? And kind of what's your vision of the next 10 years versus maybe as you cashed out today or sold the company today and what was that thought process like?

Well, I think one of the important elements is that we look at the opportunity set in front of us as large, and we think we can still create a tremendous amount of value for our shareholders by continuing to buy individual granular assets. We have around $10 billion of assets, and depending on valuation today that's still a very, very minor portion of the overall industrial landscape. Again, we think there's a lot of opportunity to continue to grow accretively and continue to drive our FFO per share up. I think the Board is always amenable to listening to an investor inquiry to sell the company, but that would have to be a very dearly priced offer to get the Board to walk away from the opportunity that we see in front of us.

Okay. That makes sense. And then I guess just focusing again on next year. Can you talk about some of the larger expirations, any risk of some occupancy loss?

I'll let Steve answer this more granularly, but it is without question a less bumpy year; there's nothing big that I'm aware of in the system. Steve?

Yes, Jamie, it's Bill. Looking at 2022, there's no large lease expirations. Our average lease size is around the 200,000 to 250,000 square foot range. There's nothing above 400,000 expiring this year, and everything is contemplated in our guidance. So much different than it was a couple of years ago where we had those 1 million square foot expirations. We have nothing like that in 2022.

I think our largest move-out is right around 300,000 square feet. And we've got good activity on almost all of our known vacates at this point. So we're pretty confident for the year.

One thing I might add to that is, as you've seen in our occupancy levels and same-store NOI, downtime has dropped significantly over the last couple of years as a reflection of demand in the market. A lot of our leasing activity has become immediate backfills; that is a hallmark of the market now. There's demand for almost every asset in every market that is immediate.

Okay. And then I guess similarly, if you look at some of the acquisitions in the quarter, you had some pretty low WALTs on several of them, kind of one to two years. Can you provide a little bit more color on those transactions?

Yes, I mean, there's a few. There's the Omaha, there's the Sacramento transaction, there's the Philadelphia. On average, those are double-digit below market rents. Some markets we're very comfortable operating in; some near-term expirations where we'll be able to unlock some value there. And as you know, our cap rates reflect the current in-place rents on those properties and do not reflect a mark-to-market on this.

And reflecting that, Jamie, tenants are starting to talk about renewals 12 to 18 months out. In our prior history, they would have been the ones probably waiting longer to start the discussions, but not reflective of the fact that rents are moving; they’re starting earlier.

Our next question comes from Manny Korchman with Citi.

Earlier in the call, you mentioned the fact that some of the stuff you're looking at doesn't fit the sweet spot for other investors, whether the WALTs are too long or too short. It sounds like the package isn't just right. Have you seen changes in the landscape of buyers where they're getting more comfortable sort of operating outside of their traditional limitations on whether it be WAULT or geography or value or otherwise?

So Manny, there's no question that the market is hotter across almost all facets, but one thing that remains the case is that it's very difficult for passive equity to get involved in individual granular transactions. That is one of our great strengths: the ability to look at a short-term deal on its own or a long-term deal on its own as opposed to the mix within a portfolio. And while we're seeing more activity generally across the markets, our ability to evaluate individual transactions remains a hallmark. Bill, do you have anything to add?

That's right, Ben. As we said in the prepared remarks and you noted, Manny, there are certain asset types or lease terms that the traditional investors are looking for and markets may change what they're looking at. But generally, it's either the value-add players or the longer-term cash flow buyers, and generally those are bigger transactions. So our approach continues to be individual granular transactions, and we're able to acquire both long-term leases and short-term leases where we can add some value in the near term.

And then could you talk about your going-in cap rates? You talked a lot about stabilized cap rates. I was just wondering what the spread is between going-in cap rates and stabilized?

When we say stabilized, that is our going-in. For modeling purposes, you would take that multiplied by the acquisition price and that's what you'd expect to generate for year-one NOI. There are some transactions that have three-year lease terms. For example, the one in St. Louis is one where we're looking at in-place cash flows, but it's also one that we're able to roll up in three years. So when you ask stabilize, it's the in-place cash flows except where there's vacancy, and then under vacancies we will use prevailing market rate to stabilize that.

So on that point, if you look at whether it be fourth quarter 2021 acquisitions or total for 2021 including those vacancies, was there a big spread between your year-one cash flow and then your fully stabilized perspective?

It's probably around 25 basis points difference. We can get you the exact number, but that's a good estimate for now.

And it would be smaller than it normally would be because downtime has gotten so short.

And then maybe just a follow-up on the lease expiration question. Your retention rate for next year is projected to be lower than it was this year. What is driving that lower retention rate — is it pushing rents, are there a few of those move-outs that you are foreseeing, or is it something else?

Typically across cycles, the more dynamic the market is, the lower the retention is because tenants are doing things like moving to bigger buildings or consolidating. So it's reflective of vibrant tenant behavior that leads to lower retention, but doesn't necessarily lead to increased vacancy because downtimes are also being driven down. Some tenants are relocating to less expensive buildings or less attractive locations. But generally speaking, the lower retention reflects local vibrant market activity.

Our next question comes from Blaine Heck with Wells Fargo.

Matts or Bill, can you guys just talk about how you're planning on running the balance sheet and any shifts in your leverage profile you may have in the future? You're running at times on a run rate basis and your guidance is somewhat wide at 4.75 to 5.5. There's a balancing act between keeping dry powder for acquisitions and increasing leverage to drive a bit more FFO growth. Should we expect you to run closer to the lower end or the higher end of that guidance range?

Blaine, we're very comfortable where the balance sheet is today. 5x net debt to run-rate adjusted EBITDA is at the lower end of the range. Looking at equity, we have $500 million of forward equity available to us today. Acquisition volume is historically weighted in the back half of the year. First quarter is traditionally the lower point. So as we sit here today, 5x is a comfortable place for us with balance sheet leverage.

And Blaine, that's consistent with our investment-grade ratings as well. The range we put forth, we could operate anywhere in that range, even at the high end, and remain well within the investment-grade ratings that we have.

Great. That's helpful. Bill, I think two of the acquisitions you described in your prepared remarks were multi-tenant properties with either vacant suites or upcoming expiries and suites. Is that a coincidence or are you seeing more opportunity in multi-tenant buildings than in your more traditional single-tenant targets?

We have been adding multi-tenant properties to the portfolio over the years; it's something that we underwrite. We really don't implement strict decision rules: as long as we're able to underwrite the property and the real estate economics make sense, we'll evaluate it and determine a price to pay. These opportunities were ones where we had a competitive advantage. They weren't traditional acquisitions for either a value-add buyer or a long-term cash flow buyer, so we'll continue to evaluate those types of transactions. Right now, our portfolio is approximately 80% single-tenant and 20% multi-tenant.

We're looking for overlays where we're compensated for whatever risk we might be taking in the acquisition, and we can find that in multi-tenant as well as single-tenant.

Great. That's helpful. And maybe one for you, Ben. There's been a lot of discussion in the industrial sector about rent growth differential between primary Tier 1 markets and secondary markets. Based on your rent spreads this year, it seemed like secondary markets picked up and saw rent growth similar to primary markets. But now we're hearing about 20% to 30% year-over-year rent growth in some coastal Tier 1 markets. How would you characterize year-over-year rent growth in your markets in 2022? Do you think we'll see the same surge as in the coastal Tier 1 markets since supply seems limited everywhere?

Supply is limited everywhere, and that's why you're seeing strong rent growth across markets. We've always maintained that the markets we invest in are less volatile than the primary markets, so we aren't going to see 20% average growth across the 60-plus markets. You may see pockets with significant rent growth, but I wouldn't expect 20% to 30% growth across our portfolio. Importantly, the cost of entry to those primary markets means that 20% rent growth on an initially low cap rate doesn't necessarily outperform the cap rates and growth we can find in other markets. We're focused on cash flows derived from owning assets over the long term, not overpaying for one or two years of spectacular rent growth.

Our next question comes from Michael Carroll with RBC Capital.

I wanted to circle back to the development investment. You mentioned there's a few in the pipeline. How big is that opportunity set? In general, why are developers electing to sell their properties in the middle of construction?

Part of it is that developers are moving on to the next project. They're able to realize some of the profit and have more projects in the pipeline. These are local and regional developers, not national developers, so that's a big part of it and it dovetails with our granular acquisition strategy. There are some in the pipeline, but our pipeline is $4.1 billion. We're hopeful to be successful on more of these. They are great returns if we can execute.

Okay. So it sounds like a handful in the pipeline. Is that fair? And are there specific markets you're targeting for these developments or would you be willing to go to most markets where fundamentals are healthy?

A handful is a fair characterization. In terms of markets, it's markets that we're familiar with and have operated in. The Sacramento example is a market we've discussed for a couple of years and we like the fundamentals. Greenville/Spartanburg is another market we'd be comfortable with. It really is markets that we know well and are comfortable underwriting and leasing assets in.

Okay. Great. And then on private market trends, have macro factors like higher interest rates pushed cap rates higher in the deals you're pursuing? Have you seen any of that happen yet?

Ben, you can take it.

Cap rates have continued to compress, but if interest rates rise, particularly on the kind of granular assets we're pursuing, we would expect cap rates to stabilize and perhaps move higher. For passive equity involved in larger portfolio transactions, I wouldn't be surprised to see cap rates hold up or even compress further because of the amount of capital chasing those portfolios. The spread between granular acquisitions and portfolio valuations could increase.

Our next question comes from Dave Rodgers with Robert W. Baird.

Good morning, everybody, and congratulations to Bill and Matts on your upcoming ascension. I wanted to ask about the acquisition pipeline overall. It continues to grow and you've added people to help with that process. One of the stats you give is about the percentage of revenues coming from tenants over $100 million in revenues, and that number has continued to come down. Two questions: is that a function of more multi-tenant acquisitions or migration-oriented market acquisition? And on the pipeline, what's the breakdown in terms of multi-tenant versus single-tenant and the development portion?

I wouldn't point to one overarching reason for the decline in percentage coming from very large tenants. We're comfortable underwriting assets with non‑publicly rated tenants when the fundamentals make sense. Our rent collection history is strong: in 2020 we collected 99.6% of rents and in 2021 we collected 99.8%. So credit in the portfolio is extremely strong. Regarding the pipeline makeup, it's close to the portfolio today: around 20% multi-tenant, maybe a touch higher, and the rest single-tenant. There are some development transactions in the pipeline, but it's a handful as we discussed earlier.

Our next question comes from Mike Mueller with JPMorgan.

On the development transaction, what changed that you're willing to look at these transactions and pull the trigger on some of them where you hadn't done it in the past?

We've grown more comfortable with our ability to manage those transactions. Having completed a ground-up development ourselves and having developed the internal capacity with our capital markets and senior capital projects team, we have a higher degree of comfort. It's part of the natural evolution of the business.

And in terms of economics, what sort of yield benefit are you getting from acquiring it this way as opposed to buying the same building once it's fully leased? Is it better pricing or just securing the building and taking on more risk?

We're getting a material pricing benefit. In one example we expect to get 30-plus percent better pricing on a pro forma development yield basis. So there's a clear economic benefit to entering earlier in the process, and it allows us to participate in markets where it might be harder otherwise.

Our next question comes from Christopher Lucas with Capital One Securities.

I'll add my congratulations as well. A couple of detailed questions. On the tenant retention guidance for the year, you indicated there weren't any major leases you were aware of that were non-renewing. So is this guidance a placeholder? Also, if you get early renewals, do those go into this tenant retention metric?

They do. Given supply-demand dynamics, we generally aren't entertaining lease renewals greater than 6 to 9 months ahead of expiration, but those will factor into the retention number. As of now, there are no large known move-outs. As we move further into the year, there will be tenants rolling where negotiations haven't started yet; some of those are coin flips. In cases of non-renewal the market is extremely strong and we feel confident in leasing those spaces with shorter downtimes.

And then in terms of the acquisitions for the quarter, it appears there were some more value-add transactions. If you strip those deals out, what's the core cap rate you were buying your traditional bread-and-butter deals at?

Those deals are reflected in the cap rates we reported. We're in the low 5% range stabilized, with some of the more value-add transactions slightly different, but stabilized around or above those numbers.

Okay. And just on portfolio versus individual pricing, historically you've seen a premium for portfolio transactions. Can you update us on the premium and where breakpoints are in terms of deal sizes?

Super passive equity and large pools of capital are trading portfolios of fungible industrial assets in the low threes. We're still able to buy assets gradually in the low 5s. Historically we've seen roughly a 100 basis point differential between individual acquisitions and contemporaneous portfolio transactions of similar assets. That spread is still at least 100 basis points, and historically has been larger.

Our next question comes from Michael Bilerman for Manny Korchman with Citi.

I wanted to come back on capital allocation sources and uses. Enhanced selling is higher this year and you're targeting $200 million to $300 million in dispositions at roughly mid-4s cap. Given where equity is trading and the dilutive effect of issuing equity at current multiples, why not be substantially more aggressive at portfolio changes and dispose of more assets to fund acquisitions, rather than issuing equity?

One of the things that remains the case is our average FFO per share on acquisitions is significantly above our portfolio average on core FFO. We remain accretive through acquisitions. Part of that is the spread between our implied cap rate and where we're buying assets, but we also have operating leverage: our marginal G&A is significantly lower than our average G&A. That operating leverage continues to be a driver of our FFO accretion in addition to our internal growth. We are increasing dispositions this year and will continue to consider sales as a source of capital, but net acquisitions remain a key driver.

Right now, we still have some forward equity outstanding and we do have a small portfolio in the market. We're not issuing equity at the moment. Over our life as a public company, we've proven to be prudent allocators of capital and we'll continue to do so. We're well aware of the disconnect between public market pricing and private market pricing.

You've been a fairly active issuer historically and the stock has traded at a meaningful discount to peers. Are you going to take a more aggressive look at sources and uses to try to move your multiple up rather than diluting shareholders with new equity?

We typically rely on common equity when it's priced appropriately to fund net acquisitions. We have used leverage and sales as temporary alternatives. Another source could be joint ventures that take advantage of market pricing from passive equity. That's something we'll consider going forward.

We've been prudent with capital allocation historically and will continue to be. We're aware of where the market is pricing these assets and will act accordingly.

There are no further questions at this time. I would like to turn the floor back over to Ben Butcher for any closing comments.

Well, thank you all for joining us this morning. As I've mentioned in earlier remarks, STAG is in a great place and the leadership of STAG is also in a great place. You should be comfortable with the transition that is ongoing. The opportunity set in front of us remains large, and we look forward to delivering continued great returns to our shareholders. Thanks.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.