STAG Industrial - Q3 2024
October 30, 2024
Transcript
Operator (participant)
Greetings and welcome to the STAG Industrial Inc. Third Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Steve Zaros, Senior Associate Investor Relations and Capital Markets. Thank you. You may begin.
Steve Zaros (Senior Associate Investor Relations and Capital Markets)
Thank you. Welcome to STAG Industrial's conference call covering the Third Quarter 2024 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. Welcome to the Third Quarter Earnings Call for STAG Industrial. We are pleased to have you join us and look forward to telling you about the Third Quarter 2024 results. We are happy to report another strong quarter of operating results. The industrial supply pipeline continues to contract, and absorption remains stable in many of our markets. Availability and vacancy appear to be approaching a trough, although our expectation remains that we won't see an inflection point until the back half of next year. Market rent growth for our portfolio stands at 3.2% through September 30th, keeping us on track for full-year market rent growth of approximately 4%. The leasing market is active with tenants committing to space.
I'm happy to report that we have already leased 38% of the sq ft we currently expect to lease in 2025, achieving cash leasing spreads of 24.1%. This level of leasing is on a similar pace to last year. On October 22nd, American Tire Distributors voluntarily filed for Chapter 11 bankruptcy. In conjunction with this filing, the tenant entered into a restructuring support agreement with participation from the current holders of its term loans. American Tire Distributors is the nation's largest independent tire distributor with over 80,000 customers. American Tire Distributors operates within seven of our facilities across 841,000 sq ft. They represent 1% of our annualized base rent, or approximately $6.1 million. In the aggregate, these seven leases have rents at market, and all seven buildings are actively utilized. All leases are current with zero missed rental payments. We are monitoring the situation closely.
This event is reflected in our updated guidance provided in yesterday's earnings release, including core FFO per share for the year. The acquisition market regained momentum in the third quarter, with activity noticeably accelerating post-Labor Day. Acquisition volume for the third quarter totaled $113 million. This consisted of six buildings with cash and straight-line cap rates of 6.7% and 7.2%, respectively. During the quarter, we acquired a five-property portfolio totaling 290,000 sq ft. The total acquisition cost was $78.1 million, with a cash cap rate of 6.9%. The portfolio is located in the supply-constrained Route 128, Route 3 submarkets of Boston, Massachusetts. All of the buildings are located within close proximity to I-93, I-95, and I-495. The portfolio is 100% leased to five tenants, with a WALT of 4.9 years and weighted average lease escalations of 3.75%.
Subsequent to quarter-end, we acquired two buildings for $66.6 million at a 6.3% cash cap rate. On the development front, as of September 30th, we have over 2.1 million sq ft of activity across nine buildings in the U.S. In July, we closed on a five-acre land site. The planned 76,000 sq ft building will be developed with an estimated delivery date of Q3 2025. In August, we closed on our first single-asset joint venture with a national developer. The project will consist of a single 284,000 sq ft distribution facility capable of accommodating up to two tenants, with an estimated delivery date of Q4 2025. Both projects sit in the North Valley submarket of Reno, which has experienced robust tenant demand and rent growth over the past several years and continues to be a premier location in the market for distribution tenants.
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. Good morning, everyone. Core FFO per share was $0.60 for the quarter, an increase of 1.7% as compared to the third quarter of last year. Cash Available for Distribution for the third quarter totaled $88 million. We have retained approximately $75 million of cash flow after dividends paid through September 30th of this year. These dollars are available for incremental investment opportunities, debt repayment, and other general corporate purposes. Net Debt to Annualized Run Rate Adjusted EBITDA was 5.1 times, and liquidity stood at $974 million at quarter-end, inclusive of available forward ATM proceeds. During the quarter, we commenced 20 leases totaling 3.3 million sq ft, which generated Cash and Straight-Line Leasing Spreads of 24.6% and 34.3%, respectively.
As of today, we have achieved 99.5% of the leasing we expect to accomplish in 2024, or approximately 13.2 million sq ft at cash leasing spreads of 28.5%. There are six large leasing spread outliers totaling 1.2 million sq ft that featured aggregate positive cash leasing spreads of almost 100%. Excluding these leases, cash leasing spreads would be 22.5% for the year. As mentioned by Bill, we have accomplished 38% of the sq ft we currently expect to lease in 2025, achieving 24.1% cash leasing spreads, spreads that are relatively in line with the adjusted 2024 level. We achieved same store cash NOI growth of 4.4% for the quarter and 6.1% year to date. We've increased our annual same store cash NOI guidance to a range of 5.25% to 5.5% for the year, or a 12.5 basis point increase at the midpoint. Moving to capital market activity.
In the third quarter, we issued 2.3 million shares on a forward basis under our ATM program at a gross average share price of $39.89, resulting in gross proceeds of $93 million. As of today, we have $164 million of forward equity proceeds available to fund at our discretion at a net share price of $38.86. This equity will be used to pay down the revolver and match fund our acquisition and development pipeline. On September 10th, we refinanced our $1 billion senior unsecured credit facility. The refinanced revolving credit facility matures in September 2028 with two six-month extension options and no change to pricings or covenants. Subsequent to quarter-end, we fully repaid our $50 million private placement note, which matured on October 1st. Moving to guidance, we made the following updates.
As previously mentioned, we have increased the cash same store growth expectation to a range of 5.25%-5.5%, an increase of 12.5 basis points at the midpoint. Additionally, we have increased and narrowed the range of expected acquisition volume to a range of $500-$700 million. G&A expectations for the year have been decreased to a range of $49-$50 million, a decrease of $500,000 at the midpoint. These guidance changes result in core FFO guidance revision to a range of $2.38-$2.40 per share, an increase of $0.01 at the midpoint. I want to note that we've also added a new slide to our supplemental information package. Given the increase of development projects, we've added the slide to detail each project in our development pipeline. This can be found on page 10 of our supplemental informational package.
I will now turn it over to Bill.
Bill Crooker (CEO)
Thank you, Matts, and thank you to the rest of our team for their continued hard work and achievement towards our 2024 goals. We'll now turn it back to the operator for questions.
Operator (participant)
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 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We ask that you please limit yourself to one question and one follow-up question. One moment, please, while we poll for your questions. Our first questions come from the line of Craig Melman with Citi. Please proceed with your questions.
Craig Malman (Analyst)
Hey, good morning. Bill, maybe just going back to your commentary about the leasing market getting more active. Over the last year, you guys have become less active than historically, partly on cost of capital and then just deal flow. What do you think it is now that's really kind of opening up the deal pipeline to you guys? Is it just the cost of capital, or are you just seeing better opportunities out there? And kind of what do you think we could get back to sort of the baseline level of acquisition you guys were doing a couple of years ago?
Bill Crooker (CEO)
Yeah, thanks, Craig. And just to clarify, you're referencing the acquisition market, right? I thought I heard leasing market.
Craig Malman (Analyst)
Oh, sorry. So no acquisition market, yes.
Bill Crooker (CEO)
Yeah, okay. Yeah. Yeah, I think it's a number of things. I think there was pent-up, call it seller demand to sell properties. So we've seen a lot more properties on the market. I think with rates stabilizing for a period of time, it reduced the bid-ask spreads. So you saw a lot of transactions occurring. And I think there's just a lot of confidence that where we can buy a building, the cap rates we can pay for it, that that's market. So we're seeing a lot of opportunities. Our pipeline, as you saw, moved a little bit north of $4 billion, which was nice to see. About 75% of that pipeline is individual assets across the CBRE Tier One Markets. About 20% of that pipeline is, you call it portfolios, anywhere from a little five buildings or more. And about 5% of the pipeline is development.
So I think regarding your second part of your question and what pace of acquisitions we can achieve, I think it's going to be subject to interest rates and seller expectations. When we look at transactions, we price transactions to be accretive day one. And typically, with some growth embedded in it, whether it be from escalators or mark-to-market, and we make sure that those acquisitions fit the submarkets that they're in really well. So certainly happy with the progress we've had on the acquisition front this year. We raised our guidance. We've had a bit of success subsequent to quarter-end. I think we closed another $67 million of acquisitions subsequent to quarter-end. So the pace right now is really strong. Typically, the fourth quarter is the biggest quarter with regards to acquisitions. We'll see if that pans out this year.
But overall, we're really happy with what we're seeing in the acquisition market.
Craig Malman (Analyst)
And just from a competitive standpoint, I know you guys are in markets with other REITs, but largely not as much overlap. I mean, is that the competitive advantage here that your local peers may just need to source financing, and you guys are all cash, and that's giving you surety of close? Is there a differentiator for you guys, or is it solely just your cost of capital is getting better, you can maybe be a little bit more flexible on price, and that's what's getting the deal flow back up?
Bill Crooker (CEO)
Yeah, I think it's a combination. It depends on what markets we're in, who our competition is. I mean, a lot of our competition has been private equity, and it's a large institutional private equity. I think we still have a cost of capital advantage against some of those folks. But then it comes down to maybe their return metrics, maybe a little bit more aggressive than ours, or they have their underwriting differently. But oftentimes, we do compete against small local regional private equity where not only do we have a cost of capital advantage, but we have that surety of close. And over the years, especially in the fourth quarter, there's been opportunities where sellers need to close a disposition, in their case, an acquisition in our case, by year-end. And because of the processes and the people we have in place, we're able to close relatively quickly.
Surety of close is a priority for some sellers. There's oftentimes that we're not the highest bid, but because of our reputation, because of our broker network and our surety of close, we're able to get those transactions. Short answer to your question, it's a combination of cost of capital advantage, reputation, and surety of close.
Craig Malman (Analyst)
If I can sneak one more quick one in, any comment on what the exit or transaction during the quarter kind of means potentially for the valuation of your portfolio?
Bill Crooker (CEO)
Yeah, I don't want to talk specifically about other transactions in the market, but I think as we view our portfolio, we view the submarkets our portfolio are in, where the supply-demand dynamics are heading, we feel like there's a lot of upside to our portfolio going forward, and frankly, we're happy with where the portfolio is going.
Craig Malman (Analyst)
Great. Thank you.
Bill Crooker (CEO)
Thank you.
Operator (participant)
Thank you. Our next questions come from the line of Nick Thilman with Baird. Please proceed with your questions.
Nick Tillman (Analyst)
Hey, good morning, guys. Maybe touching a little bit on 2025 leasing. Appreciate sort of the update on spreads how they're tracking thus far. Do you think that's kind of indicative of where, as you look at 2025 roll, is that a good representation of what you guys are rolling and what you kind of expect for the full year without being?
Bill Crooker (CEO)
Yeah, Nick, we'll give a range for our leasing spreads that we always do in our February guidance for 2025. But this is indicative of what we expect at this point. But we'll give a range as we move into 2025.
Nick Tillman (Analyst)
Then maybe a follow-up for Matts on just bad debt, maybe what was it in 3Q? Appreciate the update on American Tire, but any other tenants on the watch list or things we should be watching out for?
Matts Pinard (CFO)
Yeah. Hey, good morning, Nick. So in terms of the watch list, it's similar as it was 90 days ago. We've experienced about $1.4 million of credit loss through September 30th, which is about 23 basis points. We maintained our guidance. We did raise same store rating score for FFO. This compares the guidance to 50 basis points for the year. We expect that to be a real number. We expect to incur that. But the theme across our credit events is really centered on weakness in highly levered, low-margin businesses. And our analysis is fully captured in the guidance that we gave for the year.
Operator (participant)
Thank you. Our next questions come from the line of Eric Borden with BMO Capital Markets. Please proceed with your questions.
Eric Borden (Analyst)
Hey, good morning, everyone. Maybe just starting with developments. I appreciate the new disclosure there and the new slide and the sub. I was just wondering if you could provide an update on potential tenant interest as it relates to your Greenville-Spartanburg assets and your Powell Road assets. Bill, I think you mentioned in your prepared remarks that availability and leasing, the environment appears to be troughing, and we could see a potential increase through the back half of 2025. So just curious, are more tenants kind of kicking the tires today? And could we potentially see those leased up in the upcoming quarters?
Bill Crooker (CEO)
Yeah. I mean, I think as we said on our last call, our expectation for the two Greenville-Spartanburg assets, we expect to lease in Q3 2025. The other Greenville-Spartanburg asset, the Casual Drive, that type is a 12-month lease-up period we underwrote. That one, as a reminder, it was sister building. When we acquired that project, we also acquired a fully completed building that we ended up leasing up shortly after closing for, I think it was like a 7.5% cap rate. So on the Casual Drive, I think we're closer to the 7% cap rate range. With respect to that market, it's a market that has great demand drivers. The buildings are positioned extremely well near the Inland Port, can service light manufacturing users or distribution users. And it's a market that has experienced some excess supply. That supply is getting absorbed.
It's going to take a little bit of time, but we've had a fair bit of activity on all three of those buildings. Nothing to report yet, but overall, still expect to lease it up in our prior, as we noted in our prior quarter, in the Q3 2025 range for the first two, and then about a year lease-up for the last one.
Eric Borden (Analyst)
That's helpful, and then maybe one for Matts. Sorry if I missed this in your prepared remarks, but could you just provide an update on your same store average occupancy loss expectations for the remainder of the year?
Matts Pinard (CFO)
Yeah, absolutely. So there was no change. So if you recall, last quarter, we had adjusted our guidance. Initially, at the beginning of the year, we had guided the market to 50 basis points of average occupancy loss. We've seen some successes. We've seen retention has ended up at the higher end of our range or guidance of 75%. So we adjusted the expectation down. So we're still assuming 25 basis points of average occupancy loss on the year.
Eric Borden (Analyst)
All right. Thank you very much.
Operator (participant)
Thank you. Our next questions come from the line of Jason Belcher with Wells Fargo. Please proceed with your questions.
Jason Belcher (Analyst)
Good morning. Just wondering if you could talk about any common themes or characteristics in properties you sold recently or are targeting for sale this year. To what extent are there specific markets you may be looking to exit or maybe tenant industries or categories you're trying to avoid?
Bill Crooker (CEO)
Yeah. With respect to the markets, we have that CBRE Tier One focus. So I would expect most of our dispositions that are non-core to be in the non-CBRE Tier One markets. We'll have dispositions on an annual basis that are opportunistic, where we feel like we've achieved the most value out of that asset and will realize that value and redeploy that capital. With respect to what we sold this quarter, that was a non-core asset. I think we spoke about on the previous call that was sold for a 7.1 cap rate. But overall, we're really happy with that execution given our view on the asset.
Jason Belcher (Analyst)
Great. Thanks, and then just one more in terms of kind of the slowdown in construction we've seen this year. To what extent have you seen land prices decline, and how are you thinking about maybe adding or building up your land bank for development opportunities in the future?
Bill Crooker (CEO)
Yeah. We've seen land prices stay relatively flat throughout the year. Right now, with our development initiative, we're not buying raw land. We're really focused on sites that are permitted, and so a little not as far out on the risk spectrum, but we still continue to see a lot of opportunities to acquire permanent land for development, so that'll continue to be an issue for us, and we feel like we can continue to grow that throughout the years.
Jason Belcher (Analyst)
Great. Thank you.
Bill Crooker (CEO)
Thank you.
Operator (participant)
Thank you. Our next questions come from the line of Michael Carroll with RBC Capital Markets. Please proceed with your questions.
Michael Carroll (Analyst)
Yeah. Thanks. Bill, just kind of building off of that last question, how do you think about new development starts? I know it does look like you bought a few land parcels this past quarter. I mean, are those sites that you want to break ground and start developments on, or do you want to lease up some of your projects that are currently under construction and complete it before you start pursuing new starts?
Bill Crooker (CEO)
Yeah. The ones that we did buy, those were permanent, and we've already broken ground on those, Mike. So we're not sitting on any land parcels that are permitted ready to go. So everything that we have on that development slide, we've broken ground. As I mentioned earlier, we underwrite a 12-month lease-up period upon building completion. So you can underwrite or model when that revenue should be coming in. And with respect to new opportunities, we'll continue to value it. I like the laddered, call it development schedule that we have right now. And as we add new properties, it's going to take, call it nine to 12 months to build it and then another 12 months to lease it. So we can continue to ladder these developments. And when I look at some of the newer developments, the Tampa developments will be completed in the fourth quarter.
Those are getting some really good interest. It's not a pre-leasing market, but we feel really good about the suite sizes, how they fit the market. The Nashville property, that was on land we owned in the portfolio. We're able to permit that, break ground on that. That's going to be a very successful market, and Nashville is one of the stronger industrial markets today. The Portland development, that's a 10-year build-to-suit to a strong credit, and that is in the high sixes from a cap rate perspective, so that's a great transaction. The Reno market, we like both those locations. I mentioned that in my prepared remarks. It's one of the premier submarkets within Reno and suite sizes that I think will fit the market pretty well.
So overall, really happy with the way the development initiative is coming along and comfortable adding to it, assuming it's a building that we can put up that will fit the submarket well.
Michael Carroll (Analyst)
Okay. I mean, is there a, I guess, off of that, is there a limit to how big you want the pipeline to be that's not yet leased? I mean, at what point do you want to kind of slow that down? And then just second to that, what is your capitalization policy? So should we assume that these Greenville-Spartanburg assets will roll off capitalization in the beginning of 2025 if they're not leased?
Bill Crooker (CEO)
Yeah, that's right. I think from a capitalization policy, that's just GAAP. So I think it's 12 months is what the allowable time is to capitalize interest on that, wages on that. Sorry. I'm getting a look from Matts. So with respect to CapEx and development, it's something that we're evaluating. I mean, certainly, if you look at the total invested capital here, it's a very low percentage on our total overall enterprise value. We'll continue to evaluate that. Obviously, the build-to-suits bring a lot less risk than some of the more speculative developments that we have on here. I think anywhere in that right now is a newer initiative. Somewhere in that circa 5% of enterprise value is probably where we feel comfortable. But it'll be well laddered. It'll be diversified across geography, across suite sizes.
Michael Carroll (Analyst)
Okay. Great. Thank you.
Bill Crooker (CEO)
Thanks.
Operator (participant)
Thank you. Our next questions come from the line of Jessica Zheng with Green Street. Please proceed with your questions.
Jessica Zheng (Analyst)
Hi. Good morning. Just wondering if you could provide some color around the drop in retention rate this quarter. Was it driven by any particular leases?
Bill Crooker (CEO)
There was one lease that was a non-retention, but we backfilled it with zero downtime. And so we didn't include that in the prepared remarks. Maybe we should have. But if you factor that one in, our retention adjusted for immediate backfills is about 73%. So it was really just one outlier that we didn't retain them, but we backfilled it with no downtime.
Jessica Zheng (Analyst)
Okay. Great. Thank you. And then just maybe one more. On the occupancy side, are there any material non-move-outs in 2025 that we should be aware of?
Bill Crooker (CEO)
No. No material non-move-outs. At this point in the year, there's leases rolling in the back half that we're unsure whether they're going to retain or not, but nothing material that's a known move-out at this point.
Jessica Zheng (Analyst)
Okay. Great. Thank you.
Bill Crooker (CEO)
Thanks.
Operator (participant)
Thank you. Our next questions come from the line of Rich Anderson with Wedbush. Please proceed with your questions.
Rich Anderson (Analyst)
Hey. Thanks, team. Good morning. So if we go to American Tire, what is the bull and bear case there in terms of things that could transpire? Do you have sort of you said you're monitoring, but you're sort of devising some plan Bs. And also, where do the rents sit relative to market? Maybe there's an opportunity here in some cases. Just if you can add some more color to the extent you can.
Bill Crooker (CEO)
Yeah. On average, the leases are pretty close to market. I don't want to dive too much into this. We're speculating, right? It's their company. They filed. But if you read some of the public information out there, it's very good support from their lenders. I think it's going to come down. It appears it's going to come down to their evaluation of their distribution network and how they're utilizing the buildings and whether they affirm or reject leases. So as you can probably figure out with our guidance this year, there's not a lot related to ATD credit loss. The buildings are utilized. These are buildings that fit the submarket well. They're highly functional buildings, healthy submarkets, and with leases generally at market. So the bull and bear case, I mean, I think the bull and bear cases, they vacate all leases or they stay in all leases.
But I think the answer will be we have to figure out and see how things shake out in the first quarter next year.
Rich Anderson (Analyst)
Is it still too fresh to sort of already think about optionality should something come at you, or are you sort of sitting tight and just monitoring at this point?
Bill Crooker (CEO)
I mean, we've got some views on this. It's just nothing I want to publicly comment on right at this point.
Rich Anderson (Analyst)
Okay. Fair enough. Second question on the acquisition window, the pipeline up relative to last quarter. But you referenced sort of stable interest rate environment, which is yesterday's news at this point. I'm wondering how quickly does that pipeline kind of ebb and flow as the macro changes? We've had quite a change at the longer end of the curve in the more recent past. I'm wondering how quickly that 4.2 can go to something below 4 with some suddenness.
Bill Crooker (CEO)
Yeah. I mean, the pipeline's dynamic. The assets roll on and off it every week. It's not going to go from 4.2-3 in a matter of a week. But a lot of times, assets will sit on the pipeline if they don't trade. So I think when you think about just the broader transaction market and what's happened, at least in the past couple of years, is you've seen spikes in interest rates, and there's a little bit of a pause in the market. And sometimes sellers reset expectations, and sometimes they don't. And that sometimes results in a pause in the acquisition market. So for us as net buyers, we adjust our returns immediately with our cost of capital.
So the benefit of the team we built is that we're looking across all the CBRE Tier One Markets and evaluating opportunities from high-net-worth individuals to large institutional private equity. And we're adjusting our returns immediately. So we think there's still some really good opportunities, even with some elevated 10-year rates right now.
Rich Anderson (Analyst)
Okay. Great. Thanks very much.
Bill Crooker (CEO)
Thank you.
Operator (participant)
Thank you. Our next questions come from the line of Brendan Lynch with Barclays. Please proceed with your questions.
Brendan Lynch (Analyst)
Great. Thank you for taking my questions. Maybe on the development, excuse me, the acquisition pipeline, can you just talk about the characteristics of the assets that you're looking for in terms of value-add or fully leased or market condition considerations?
Bill Crooker (CEO)
Yeah. I mean, it's CBRE Tier One Markets. It's building needs to fit the submarket well. It's made up about 75% individual assets, 20% portfolios, 5% developments. The individual assets, some of those are value-add. I don't have the exact breakout, but it's a wide range of opportunities. And similar to past year, similar to this year, we can buy assets that have it's a vacant asset to an asset that has a 10-year lease term. And we evaluate all the aspects of the transaction when determining whether to put a bid in for it.
Brendan Lynch (Analyst)
Great. And in the past, you've called out El Paso as being a market of particular strength. Can you give us an update there and maybe any others along the border that are performing particularly well?
Bill Crooker (CEO)
I mean, El Paso is still performing well. I mean, certainly seeing a little bit of an uptick in vacancy there with some new deliveries, but still a very strong market. I mean, I look across other markets. A lot of Midwest markets continue to be strong: Detroit, Milwaukee, Minneapolis, Chicago, Sacramento strong, Tampa strong. I mentioned Nashville earlier with our development. That's a really strong market. And then the continued weakness in Columbus, Indy. I mentioned Philly on the last call. Philly, Southern Jersey is some weakness there. Not too dissimilar from what we've seen this last quarter. I'd say on the whole, though, you're seeing markets generally absorption improving kind of quarter over quarter, at least staying flat and net absorption staying flat on a lot of our markets. And it feels like we'll see some pretty good recovery in the back half of next year.
Brendan Lynch (Analyst)
Great. Thank you for the call.
Bill Crooker (CEO)
Thank you.
Operator (participant)
Thank you. Our next questions come from the line of John Peterson with Jefferies. Please proceed with your questions.
John Peterson (Analyst)
Great. Thank you. Appreciate your time. One more question on American Tire. One of your peers has a similar situation. They talked about how there's a security deposit in place that can contribute to top-line rents in the case that they don't pay. Do you guys have anything like that with American Tire, and what would be the duration on it?
Bill Crooker (CEO)
Nothing material. I will say, just as I said in the prepared remarks, they're current on all the rent. There's no AR related to them. We've been to all seven of our facilities. They're actively utilizing our facilities. They're highly functional facilities in healthy submarkets.
John Peterson (Analyst)
Got it. Okay. All right. Appreciate that. And then maybe just one other, maybe somewhat more broad question, but what impact is election uncertainty having on your business right now, whether it's closing on transactions or the leasing market?
Bill Crooker (CEO)
It's an interesting question, John. I mean, we've heard from brokers that larger tenants are waiting on the election to make a decision. I don't know what the reason for that is other than maybe buying some time and just getting some certainty. But it feels like it's being used for a reason to delay decision-making in the leasing market. With respect to the acquisition market, I don't think it's really played a factor in that, but more on the leasing market and delaying decision-making.
John Peterson (Analyst)
All right. I'll ask you the follow-up question at a later date on what you think once we get results. Thanks, guys.
Bill Crooker (CEO)
Thank you for not asking it now.
Operator (participant)
Thank you. That does conclude our question and answer session. I would now like to turn the floor back over to Bill Crooker for closing remarks.
Bill Crooker (CEO)
Yeah. Thank you all for attending the call. And thank you to the analysts again for their thoughtful questions. And we look forward to seeing you all soon.
Operator (participant)
Thank you. That does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.