STAG Industrial - Q3 2023

Transcript

Operator (participant)

Ladies and gentlemen, good morning, and welcome to the STAG Industrial, Inc third quarter 2023 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 and zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Steve Xiarhos, Investor Relations. Please go ahead.

Steve Xiarhos (VP of Capital Markets & Investor Relations)

Thank you. Welcome to STAG Industrial's conference call covering the third quarter of 2023 results. In addition to the press release distributed yesterday, we have posted an unaudited quarterly supplemental information presentation on the company's website at www.stagindustrial.com under the Investor Relations section. On today's call, the company's prepared remarks and answers to your questions will contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today. Examples of forward-looking statements include forecasts of Core FFO, Same-Store NOI, G&A, acquisition and disposition volumes, retention rates and other guidance, leasing prospects, rent collections, industry and economic trends, and other matters.

We encourage all 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, and Steve Kimball, EVP of Real Estate Operations, who are available to answer questions specific to their areas of focus. I'll now turn the call over to Bill.

Bill Crooker (CEO)

Thank you, Steve. Good morning, everybody, and welcome to the third quarter earnings call for STAG Industrial. We're happy to have you with us today as we discuss our results for the quarter. Industrial leasing activity is tracking to be one of the best years on record. STAG's portfolio is benefiting from secular tailwinds, including nearshoring, onshoring, and e-commerce. Market rent growth, however, has generally experienced a degree of normalization given the changing landscape. Construction starts have steadily declined since the end of last year, primarily driven by more expensive debt capital, which in many instances is difficult to obtain at affordable rates. We expect the lack of new construction starts to provide an acceleration of market rent growth as the existing supply is absorbed.

The soft, softest part of the industrial market continues to be concentrated in big box spaces between 500,000 and 1,000,000 sq ft, particularly first-generation space. In light of the potential economic uncertainty, large tenants are opting to leverage third-party logistic providers as opposed to funding expensive capital projects to move into new space. Subleasing has also been concentrated in these larger spaces. It's important to note that STAG's average suite size is less than 150,000 sq ft and does not compete directly with these larger spaces. Deliveries are projected to be approximately 3% of the overall industrial stock this year, with nearly half of these deliveries classified as big box buildings. These deliveries are expected to result in national vacancy rate of 4.4% by year-end, a slight uptick from last quarter's forecast.

This level of vacancy is still indicative of strong conditions. We expect market rent growth in our portfolio to be in the high single digits this year, and we expect market rent growth in our portfolio for 2024 to be in the mid-single digits. The portfolio has remained resilient, due in part to our positioning within the markets we operate in. Because of the average suite size, our portfolio is meeting the strongest part of the demand in our markets. There has been a convergence in rent growth between coastal and non-coastal markets, which is largely driven by the secular tailwinds mentioned earlier, as well as an influx of economic investment by both the federal government and private enterprises in non-coastal markets. We are proud to report cash and GAAP leasing spreads at record highs for STAG.

As of October 24th, we've achieved 98% of the leasing we expect to accomplish in 2023 at cash leasing spreads of 30.1%. For 2024, we have addressed 37% of next year's expected leasing, approximately 5 million sq ft, achieving 30% cash re-leasing spreads. Moving to acquisitions. In the middle of this year, the bid-ask spread between sellers and buyers narrowed towards levels where transactions could begin to clear. Our acquisition volume for the third quarter totaled $204.3 million. This consisted of 12 buildings with cash and straight-line cap rates of 6.2% and 6.7%, respectively. Subsequent to quarter end, we acquired three buildings for $67.5 million at a 6.7% cash cap rate.

Recently, the rapid increase in interest rates has dampened the resurgence of transaction market, and as such, we have adjusted our guidance accordingly. In terms of dispositions this quarter, we sold two non-core buildings for aggregate proceeds of $28.4 million. On the development front, this quarter we achieved substantial shell completion for our Port 290 development. This is located in Greer, South Carolina. Port 290 is well positioned to compete as tenant activity remains healthy in the 75-250,000 sq ft suite range... We anticipate meeting our first half of 2024 lease commitment, commencement assumptions and rents greater than underwriting. In addition, in August, STAG closed on 31 acres of shovel-ready dirt in the east submarket of Tampa, Florida, for $9.6 million.

We'll construct two warehouse distribution buildings totaling 298,000 sq ft. Anticipated to deliver in the fourth quarter of 2024, the assets will accommodate up to 3 tenants per building. This was an opportunity for STAG to add to its growing development portfolio in a high barrier to entry, strong rent growth submarket of Tampa. With that, I will turn it over to Matts, who will cover our remaining results and updates to guidance.

Matts Pinard (CFO)

Thank you, Bill, and good morning, everyone. Core FFO per share was $0.59 for the quarter, an increase of 3.5% as compared to the third quarter of last year. Included in core FFO is a $900,000 settlement with a former tenant. This settlement resulted in an additional $0.01 of core FFO for the quarter and is excluded from same-store cash NOI. Cash available for distribution for the third quarter totaled $96.8 million. We have retained $71.4 million of cash flow after dividends paid this year through September 30. Leverage is just below the low end of our guidance range, with net debt to annualized run rate adjusted EBITDA equal to 4.9x. Liquidity today stands at $683 million.

During the quarter, we commenced 19 leases totaling 2.3 million sq ft, which generated record cash and straight-line leasing spreads of 39.3% and 54.2%, respectively. We expect cash leasing spreads of approximately 30% for the year. Retention was 74.4% for the quarter and 82.5% when adjusted for immediate backfills. We achieved same-store cash NOI growth of 5.3% for the quarter and 5.3% year-to-date. We've experienced 3 basis points of credit loss through September 30 this year. In terms of capital market activity, on July 27, we fully settled all outstanding forward equity contracts and received $61.2 million in proceeds. Moving to guidance, we made the following updates.

We increased our cash same-store guidance to a range of 5.25% and 5.5% for the year, or 25 basis points at the midpoint. Due to the current uncertain macro environment, we have reduced our expectation for acquisitions and disposition volume for the remainder of the year. We have decreased and narrowed the range of expected acquisition volume to a range of $300 million-$350 million. Acquisition cap rates for the year are now expected to range between 6.2% and 6.3%. These ranges are driven by the material reduction in incremental acquisition volume this year and largely reflective of acquisitions made year to date.

We decreased our disposition guidance to a range of $100 million-$125 million based on our progress through today, a decrease to the midpoint of $37.5 million. Core FFO per share guidance has increased to a range of $2.26-$2.28 per share, an increase to the midpoint of 2 cents. We've updated our retention percentage to 75% for the year. G&A expectations for the year have been decreased to a range of $48 million-$49 million. Finally, we expect net debt to annualized run rate adjusted EBITDA to be between 5 and 5.25 times. I will now turn it back over to Bill.

Bill Crooker (CEO)

Thank you, Matts. Our team continues to drive value in the face of continued macroeconomic uncertainty. I'm happy about STAG's relative position within the public REIT sector. Our defensive balance sheet, coupled with the resilience of industrial fundamentals within the industrial space, will allow us to be opportunistic as the landscape evolves going forward. We'll now turn it back to the operator for questions.

Operator (participant)

Thank you. Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question, please press star and one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and 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. Ladies and gentlemen, we request you to restrict to one question and one follow-up question per participant. One moment, please, while we poll for questions. Our first question comes from Craig Mailman with Citi. Please go ahead.

Craig Mailman (Director and Equity Research Analyst)

Hey, good morning, guys. Just one clarification. In the Supp, when you guys put the 6.2 cash cap rate and 6.7, are those initial cash cap rates, or is that more of a stabilized cash cap rate?

Bill Crooker (CEO)

It's a stabilized cap rate if the lease is expiring within the first year, effectively. We had a couple of those, or there's a vacancy in there, Craig. Other than that, it's the in place. From a market cap rate perspective, for the Q3 acquisitions, it's around 6.7-6.8, if that helps.

Craig Mailman (Director and Equity Research Analyst)

Okay. But what, what would be the difference between the 6.2 and the initial? Would, you know, would it be pretty tight, or...?

Bill Crooker (CEO)

There's some vacancy in one of our buildings, so that's obviously going to drag it down. It's probably in the 100 basis points plus lower for a short period of time.

Craig Mailman (Director and Equity Research Analyst)

And then just a follow-up question. Bill, your commentary on market rent growth sounds relatively good versus some of your coastal peers this earnings season. Which markets do you think are really kind of the driver of only seeing kind of a downtick from maybe high single digit rent growth this year to mid-single digit next year, you know, given some of the issues that some of the coastal markets are facing?

Bill Crooker (CEO)

... Yeah, it's still a similar scenario to what we had last quarter, where it's more of a size difference than markets for us. So the bigger boxes are slowing, and that market rent growth is probably flat, maybe even negative. And the smaller suite sizes, 100, less than 150,000 sq ft, are still holding up really well. So where we're seeing some weakness in bigger boxes, it's the big box distribution markets. Indianapolis, Columbus, South Dallas, those ones will struggle with that suite size. But when you get the smaller suite sizes, all those markets are still holding up really well.

Craig Mailman (Director and Equity Research Analyst)

Great. Thank you.

Bill Crooker (CEO)

Thank you, Craig.

Operator (participant)

Thank you. Our next question comes from John Kim with BMO Capital Markets. Please go ahead.

John Kim (US Real Estate Analyst)

Thank you. Just wanted to follow up on Craig's question on the cap rates on acquisitions. So when you look at the initial cap rate and then compare it to the adjustments, the NOI that you have on page 6 of your supplement, even adjusting for timing, it suggests the initial NOI impact would be something closer to sub-3% initial yield. So I'm wondering what that discrepancy is in regards to-

Bill Crooker (CEO)

The discrepancy is primarily related to dispositions. So we had a couple of non-core dispositions this quarter, and one was a fixed option that was a higher Cap Rate the tenant had, another was a non-core, non-CBRE Tier 1 market that we disposed of. So those were higher cap rates. So I think when you look at that run rate adjustment, it's a mix of acquisitions and dispositions.

John Kim (US Real Estate Analyst)

So what were the cap rates and dispositions?

Bill Crooker (CEO)

Matt, do you have those?

Matts Pinard (CFO)

Yeah. Hi, good morning, John. The aggregate disposition cap rate for those two, they were both 100% occupied. It was 8.8%.

John Kim (US Real Estate Analyst)

Okay.

Matts Pinard (CFO)

And again, to reiterate what Bill said, these are assets that did not have a home in our portfolio, and we opportunistically disposed of these two.

John Kim (US Real Estate Analyst)

Got it. Okay. Thank you.

Bill Crooker (CEO)

Sure.

Operator (participant)

Thank you. Our next question comes from Vince Tibone with Green Street. Please go ahead.

Vince Tibone (Managing Director)

Hi, good morning. I have a few questions on the Tampa development activity. If you could just maybe provide the expected spend and incremental yield on those buildings, and also talk about kind of what profit margins you're targeting on these projects, given just the uncertain cap rate environment. Curious how you guys thought about the market cap rate on those once they're done?

Bill Crooker (CEO)

Thanks, Vince. That was a, that was a great opportunity for us and something that I think in a different capital market environment, something that we would not have been able to enter into. And, and when we, when we acquired that, as I said, the, the dirt was, shovel-ready, and so we could begin construction on almost immediately. From a profit margin, it's, it's gonna be high teens. The reason why it's maybe not higher is because we didn't do any of the entitlement of the land, so a little bit, lower on the risk spectrum, and from a, a yield, basis, it's going to be high sixes, depending on exactly when we lease it. High sixes, maybe even touch a seven.

Vince Tibone (Managing Director)

And just clear, is that a GAAP or a cash yield? The ones you just referenced.

Bill Crooker (CEO)

That's cash. That's cash.

Vince Tibone (Managing Director)

Got it. Nope, that's helpful. And then, is this, you know, more of a one-off deal, as you mentioned, maybe unique opportunity, or do you expect to kind of look for more of these and start more development projects over the next year or so?

Bill Crooker (CEO)

I mean, we'd love to do more of these, and this is a great opportunity. We have a great partner in the transaction. It's not a JV, we own the whole thing, but just who's constructing it for us. As these opportunities present themselves, if we saw more opportunities like this, we'd absolutely execute on it. It's something that we think is, in the long term, the best interest of our stakeholders and something that, in this environment, it's better use of our capital than acquiring stabilized acquisitions.

Vince Tibone (Managing Director)

Great. Thank you.

Bill Crooker (CEO)

Thank you.

Operator (participant)

Thank you. Our next question comes from the line of Nick Thillman with Baird. Please go ahead.

Nick Thillman (Senior Research Analyst)

Hey, good morning, guys. Maybe on the acquisition activity in the third quarter, you guys kind of acquired an Inland Empire. I know that's a market that's been a little bit too pricey there, so maybe a little bit more details on what you're seeing in that market and what made that a good opportunity here?

Bill Crooker (CEO)

Yeah, I'll pass it over to Mike Chase to answer that one.

Mike Chase (Chief Investment Officer)

Yeah, thanks, Nick. You know, the asset is located in the southern portion of the Riverside market, which it fortunately pulls tenant base from the Inland Empire and from San Diego, which is something that we, you know, attracted us in terms of that, you know, the transaction. In addition, it was two buildings, you know, about 73,000 and 84,000 sq ft. They break down to as little as 15,000 sq ft. It was 100% occupied, but with seven tenants. But it really meets kind of the meat of the market in that area. And so that was really what kind of drew us to that transaction.

Nick Thillman (Senior Research Analyst)

That's, that's helpful. Then maybe for Matts, it looks like reimbursements kind of ticked up sequentially. Just wondering if I could get a couple of more details on that, maybe-

Matts Pinard (CFO)

Yeah.

Nick Thillman (Senior Research Analyst)

-driving forward, like, changes?

Matts Pinard (CFO)

Yeah, absolutely, Nick. There's really no theme there. This is very similar to what we've seen in previous quarters. To your point, you know, we've seen an increase in expenses, which are 100% reimbursable. So we recommend looking at the aggregate line as opposed to the revenues and expense. Again, it's just kind of a size-based percentage, right? The change on a smaller base versus a change on a bigger base.

Nick Thillman (Senior Research Analyst)

... That's helpful. Thanks, guys.

Operator (participant)

Thank you. Our next question comes from Jason Belcher with Wells Fargo. Please go ahead.

Jason Belcher (VP and Equity Research Associate Analyst)

Yeah, hi, good morning. I guess first, just following up on the Riverside, California, acquisition. I think that's your, your first foray, or at least one of your first forays into the Southern California market. Is, is, is that gonna be a new market that you're targeting for additional growth, or is it more of a, a one-off opportunity at this point?

Bill Crooker (CEO)

Yeah, we own another asset in San Diego, which is, you know, close to there. We like the market. It's just for us, it's always been entry price there. So this deal, in particular, was a 6.5 cap, and I think, was 10%-15% below market as well, and that's not included in the 6.5%. So, for us, a good opportunity to get into that market. And as Mike said, the suite sizes we really like there, and it meets the demand. So as those opportunities present themselves as in this type of capital market environment, we're gonna execute on them if we can.

Jason Belcher (VP and Equity Research Associate Analyst)

Got it. Thanks. And then, just thinking about, you know, all, all, all the noise we're hearing around, larger tenants, taking longer to make, leasing decisions. Just can you help us think about how this affects your, you know, your largely single-tenant portfolio, and, do you think this dynamic, could drive occupancy headwinds if it persists into, 2024?

Bill Crooker (CEO)

Yeah, so our portfolio is 75% single tenant, 25% multi-tenant. The way we underwrite our assets is if it's a market that is smaller suite size, we make sure that our assets can break down if we need to. With that being said, you know, larger assets. Next year, we have no assets rolling above 400,000 sq ft. We have a few that are rolling above 300,000 sq ft, but I think for the majority of those, we've already renewed them. So, for us, our portfolio doesn't really face those big box headwinds next year. And again, as I said in my prepared remarks, our average suite size is less than 150,000 sq ft. I think it's 140-ish thousand sq ft.

Jason Belcher (VP and Equity Research Associate Analyst)

That's helpful. Thank you.

Bill Crooker (CEO)

Thank you.

Operator (participant)

Thank you. Our next question comes from Samir Khanal with Evercore ISI. Please go ahead.

Samir Khanal (Equity Research Analyst)

Hey, good morning, everyone. I guess, Bill, on, on this market rent growth, you know, this sort of high single digits kind of range you're talking about now, maybe expand on, on the demand, so that's sort of driving that. And just, is that a function of demand you're seeing, like nearshoring or onshoring, given your markets?

Bill Crooker (CEO)

Mm-hmm.

Samir Khanal (Equity Research Analyst)

You know, maybe the low supply in your markets? I'm just trying to get a bit of a better understanding, given that it's different from your peers. Thanks.

Bill Crooker (CEO)

Yeah, it's a good question. This year, the high single digits, it's a little over 8%, to get a little more specific on that. The demand is coming from a number of various industries. 3PLs have been a big driver. We're seeing e-commerce tenants continue to be a big driver. With respect to nearshoring, onshoring, we've had some wins this year. I mentioned the last call, the call before, our El Paso assets. We'd had significant demand when we put those assets out to market, and we effectively doubled what we thought our asking rents were gonna be on those assets. With respect to onshoring, we haven't seen the direct demand impact our portfolio, but as we mentioned in our investor presentations, it certainly feels like it's coming.

It's just hard to measure the exact timing and the significance of the impact to market rent, the positive impact to market rent growth. And then, you know, how our market rent growth compares to our peers, and part of it's the demand we just talked about, as well as the limited supply. Then when you look at the map and where supply is coming online, half of the supply is big box, not competing with our space, and a lot of the other supply is in the top, you know, call it 10, 15 markets. So, less supply with continued demand, and I think in the short to medium term, incremental demand from the onshoring.

Samir Khanal (Equity Research Analyst)

Got it. Thanks, Bill, for that. And then I guess, just as a follow-up, you know, I'm sorry if I missed this, but I know in the last quarter, you talked about these development acquisition opportunities. It sounds like it's pencils down for kind of the overall acquisition guidance, but, you know, I guess, what's the case with those development acquisitions as well? What are the opportunities you're seeing, for the next-

Bill Crooker (CEO)

We're seeing yeah, we're seeing opportunities similar to the one that we're executing in Tampa, where, you know, the initial price is low. So when you think about our pipeline, the pipeline is, you call it, $100 million-$150 million of these potential development opportunities, but that's just our initial outflow of capital for that. So a, you know, $8 million-$15 million land parcel, and then you'll build another $40 million to build a development. So there's a lot of those opportunities we're seeing just given the state of the capital markets. But we're focused I think I've mentioned this on a prior call as well, you know, our strategy is being in the Tier One CBRE markets.

From a development standpoint, it's really the top half of those markets, so probably the top 30 markets. And that's what we're doing with, you know, both our Port 290 and our Tampa development. So we expect there to be more opportunities. We're seeing opportunities, it's just they take a little bit longer, and obviously, we wanted to get them for the most effective price for us.

Samir Khanal (Equity Research Analyst)

... And the funding for those opportunities would come from sort of free cash flow, or how are you thinking about that?

Matts Pinard (CFO)

Yeah, a combination of free cash flow and revolver right now.

Samir Khanal (Equity Research Analyst)

Got it. Thank you, guys.

Matts Pinard (CFO)

Thank you.

Operator (participant)

Thank you. Our next question comes from the line of Camille Bonnel with Bank of America. Please go ahead.

Andrew Berger (Equity Research Associate)

Good morning. This is Andrew Berger on behalf of Camille. Just wondering if we could get some more thoughts around dispositions. I know your dispositions this quarter were non-core, but just wondering about how you're thinking about capital recycling, big picture, you know, whether you'd sell core assets as we, you know, end 2023 and head into 2024.

Bill Crooker (CEO)

Yeah, I mean, on an aggregate basis, this year, we had about half of our dispositions were non-core, half were, call it, opportunistic. On aggregate, I think the cap rate was high 6s-low 7s, so opportunistic dispositions were in the mid-5s. So very good execution, given the capital market environment. You know, when we adjust our acquisition guidance down, we also adjust our disposition guidance down. It's. We've really entered, again, a price discovery phase in the market. So when we're not able to efficiently acquire, it's tough to efficiently dispose of assets. So it's something that is always in our capital plan each and every year, and we'll fine-tune this as we give our 2024 guidance in February. But right now, the market's pretty quiet, just given the volatility interest rates.

Andrew Berger (Equity Research Associate)

Got it. That makes sense. And then as my follow-up, could you please talk a little bit about how you're thinking about equity versus debt as a capital source and maybe the current cost spread between the two?

Matts Pinard (CFO)

Absolutely. Hi, this is Matts. I think, number one, the overarching thing is we need an appropriate use for any capital deployment. You know, as Bill mentioned, the acquisition market, we, we... Look, we've reverted to price discovery. We do not have anything on our closing schedule. Tons of capacity on the balance sheet. We're lowly levered. There's a significant amount of liquidity. We're going to retain $90-$100 million of free cash flow this year, so as we deploy capital, that would be the first piece. Then, as Bill mentioned, there would be some incremental revolver dollars to the extent we find appropriate opportunities. I think really the take-home point here right now is we're not seeing opportunities. Deals aren't trading. Deals are being pulled. Ten-year hit, hit five, that kind of reset the market.

You know, we're not really evaluating many opportunities today. But, you know, if we were to go out and issue long-term debt, it's in the low 7s. If we're going to issue term loans, it'd be in the low 5s. And from an equity perspective, we're not really looking at that right now.

Andrew Berger (Equity Research Associate)

Got it. Thank you very much.

Operator (participant)

Thank you. Our next question comes from Michael Carroll with RBC Capital Markets. Please go ahead.

Michael Carroll (Managing Director and Equity Research Analyst)

Yeah, thanks. Just off of, like, the last few questions, I know, Bill, that you're taking a step back in the investment market. I mean, how long do you expect to be on the sidelines? And really, what do you have to see before you start revamping up on the activity? Does the capital markets need to stabilize before you feel comfortable doing that?

Bill Crooker (CEO)

I think that's a catalyst for the market to open up generally. If we see good opportunities and sellers willing to sell at what returns that we're requiring in this capital market environment, we'll execute on those. We're still underwriting transactions, and just what happens is, we're back into this time where the bid-ask spreads are wider. And that's what happens when you have a rapid spike in interest rates. And then what happens, usually you get one or two deals closed, and then you start to get market comps, and everybody feels a little bit more confident what market pricing is. We're still underwriting deals, we're still evaluating deals, but we're just underwriting for higher initial returns.

Michael Carroll (Managing Director and Equity Research Analyst)

Okay, great. And then I'm not sure if you mentioned this yet or not, but last year at this time, you kind of gave us a look-through on your 2023 renewal process. I guess, can you give us an update or how you're thinking about 2024? And will cash lease spreads next year be similar to what they are this year or to date, are they similar to what they are this year?

Bill Crooker (CEO)

Yeah. So we've addressed 37% of our expecting leasing for 2024. It's about 5 million sq ft, and the rental spreads on that is, about 30%. And then from next year for, you know, what we expect for leasing spreads, I mean, we're not giving all of our guidance on this call, but it's, you know, 25%-30% is, I think, where I'm comfortable saying leasing spreads are for next year at this time.

Michael Carroll (Managing Director and Equity Research Analyst)

Okay, great. Thank you.

Bill Crooker (CEO)

Thanks.

Operator (participant)

Thank you. Ladies and gentlemen, a reminder, if you wish to ask questions, please press star and one. Our next question comes from the line of Mike Mueller with JPMorgan. Please go ahead.

Mike Mueller (Senior Equity Research Analyst)

Yeah, hi. I guess, can you talk a little bit about the view of single-tenant versus multi-tenant buildings, right now? Because it sounds like your initial developments are going to be more multi-tenant skewed. And should we think of that as the template for the developments going forward?

Bill Crooker (CEO)

Well, I think our view is we're trying to achieve the best risk-adjusted returns, Mike, and in our developments specifically, we want to make sure that our developments are meeting the demand in the market. And so for that, Tampa development, it's smaller users, and so we want to make sure we're building to meet that demand. I said 25% of our portfolio is multi-tenant today. So when we went out at our IPO 11, 12 years ago, yeah, it was a single-tenant strategy, but that has morphed over the years. And multi-tenant, I would say over the past couple of years, our acquisitions are probably, you know, close to 50/50 multi-tenant, single tenant.

Mike Mueller (Senior Equity Research Analyst)

Got it. Okay. And then, I guess, what's the spot view on a range of acquisition cap rates for comparable product that you would be looking at today, just given kind of the backup in rates? Is the 4Q transactions that you penciled, is that, do you think, the right ballpark range for right now?

Bill Crooker (CEO)

The Q4 transactions were sourced in Q3, and so those were about a 6-7. I'd say now, depending on, you know, where the assets are in relation—where the leases are in relation to market, in place is probably gonna be high 6s, low 7s, with probably a mark-to-market opportunity that's not included in that cap rate.

Mike Mueller (Senior Equity Research Analyst)

Got it. Okay. Thank you.

Bill Crooker (CEO)

Thank you, Mike.

Operator (participant)

Thank you. As there are no further questions, I would now hand the conference over to Bill Crooker, CEO, for closing comments.

Bill Crooker (CEO)

I just want to say, thank you all for, for joining the call and the support of STAG, today and through the years, and look forward to seeing you all, soon at the upcoming conferences. Take care.

Operator (participant)

Thank you. The conference of STAG Industrial Inc. has now concluded. Thank you for your participation. You may now disconnect your lines.