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spk10: A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Steve Zaros, Investor Relations. Thank you, sir. You may begin.
spk15: Thank you. Welcome to Stagg Industrial's conference call covering the fourth quarter 2023 results. In addition to the press release distributed yesterday, we have posted an unaudited quarterly supplemental information presentation on the company's website, 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, game store and OI, 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. Dagenust Real assumes no obligation to update any forward-looking statements. On today's call, you will hear from Bill Crooker, our Chief Executive Officer, and Matt Spenard, 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.
spk08: I'll now turn the call over to Bill. Thank you, Steve. Good morning, everybody, and welcome to the fourth quarter earnings call for Stagg Industrial.
spk06: We are pleased to have you join us and look forward to telling you about the fourth quarter and full year 2023 results. 2023 was one of the best operational years we had as a public company. We produced record leasing spreads and record cash same-star NOI. These leasing spreads and same-star NOI growth were driven by continued market rent growth in our portfolio. 2023 market rent growth for our portfolio was high single digits. While national market rent growth has generally experienced a degree of normalization, non-coastal markets outperformed coastal markets in 2023. Recent retail sales prints have been strong, especially in e-commerce, indicating that consumer health remains intact. Secular tailwinds, including nearshoring and onshoring, have contributed to a boom in domestic manufacturing requirements. which grew by 60 percent in 2023. Some of the largest markets for manufacturing space in the U.S., including Chicago, Detroit, Minneapolis, and Greenville, experienced some of the highest rent growth last year. These are markets that we have a strong presence in. While Stagg has minimal direct exposure to manufacturing plants, this increased manufacturing activity is expected to further drive demand for warehouse distribution facilities. 2023 deliveries totaled approximately 3% of stock. While the existing supply is being absorbed at a healthy rate, vacancy ended the year above last quarter's expectations at 4.9%. While supply remains elevated, new construction starts have declined nationally by approximately 65% on a year-over-year basis as of Q4 of 2023. In addition, forecasts for 2024 and 2025 deliveries are expected to decrease to just 2.2% of stock. Vacancy rates will likely continue to rise in the near term, but we expect the peak to occur sometime in the second half of 2024 with normalization around year end. We still expect market rent growth for our portfolio to be in the mid single digits for 2024. We are proud to report cash and straight line leasing spreads of 31 and 44% in 2023. As of today, we have achieved 69% of the leasing we expect to accomplish in 2024 for approximately 9 million square feet at cash leasing spreads of 29.5%. Moving to acquisitions and development, as discussed in our last call, spiking interest rates put the transaction market back on hold for the latter part of 2023. Our acquisition volume for the fourth quarter totaled $48.7 million. This consisted of two buildings with cash and straight-line cap rates of 6.5% and 6.9% respectively. In October, Stagg closed on a 165,000-square-foot front-load building for $30 million at a reported cap rate of 6.1%. Located in the Sparks sub-market of Reno, Nevada, the building benefits from both its central infill location within Reno, as well as close proximity to I-80. With a weighted average lease term of 1.9 years and approximately 33% below market rents, the building offers a high growth marked market opportunity within a low vacancy sub-market. Also in October, SAG closed on one vacant, newly developed spec building totaling 233,000 square feet for $18.7 million at a cap rate of 7.1% upon stabilization. As part of this transaction, we also acquired one asset under development for $18.7 million. Adjacent buildings are well located in the Spartanburg County, South Carolina, with direct frontage and visibility to I-85. Stagg's ability to source the deal off-market after another buyer failed to perform gave Stagg the opportunity to buy the assets at a below-market basis. Stagg was able to negotiate a lease during diligence and immediately after closing signed a full building lease on the completed building, allowing us to exceed both our underwritten rent and downtime. There was good activity on the second 233,000-square-foot building, which has an expected construction completion date in the second quarter of 2024. Including the previous project, we have over 1.2 million square feet of development and value-add activity across three projects located in the Southeast and U.S. We achieved substantial shell completion in our performing office build-out work on our two-building, 715,000-square-foot project in Greer. This project is located next to the Inlandport Airport CMW Manufacturing Facility and I-85 in the Greenville Spartanburg South Carolina market. Activity remains healthy and we anticipate leasing a meaningful amount of space in the first half of 2024. The third development project is our two building, 298,000 square foot project in Tampa, Florida. These buildings are under construction with a Q4 2024 estimated delivery date and stabilization in 2025. The suite sizes of approximately 50,000 square feet align well with demand in this high barrier to entry, low vacancy market. The acquisition market appears to be heading in a positive direction as we start 2024. We have underwritten more deals in January than the entire fourth quarter of 2023. While there is still some price discovery to be made, we expect a more stable acquisition market in 2024. With that, I will turn it over to Matt who will cover the remaining results and our guidance for 2024.
spk13: Thank you, Bill, and good morning, everyone. 4 FFO per share was $0.58 for the quarter and $2.29 for the year, an increase of 3.6% as compared to 2022. Cash available for distribution totaled $361.3 million in 2023, a year-over-year increase of 5.4%. Consistent with our previous messaging, the dividend payout ratio continues to moderate, declining from 78% at year-end 2022 to 75% at year-end 2023. This past year, we retained approximately $90 million of free cash flow after dividends paid. These dollars are available for incremental investment opportunities, debt repayment, and other general corporate purposes. Leverage remains below the low end of our guide range, with net debt to annualized run rate adjusted EBITDA equal to 4.9 times. Inquiries stood at $657 million at year end, inclusive of available forward ATM proceeds issued in the fourth quarter. During the quarter, we commenced 23 leases totaling 2.6 million square feet, which generated cash and straight line leasing spreads of 36.2% and 50.5% respectively. Retention was 88% for the quarter and 77.7% for the year. When adjusted for instances of minimal downtime and immediate backfills, adjusted retention was 87.2% for 2023. Average same-store occupancy declined 30 basis points in 2023, outperforming our initial expectations of a 50 basis point decline. Moving to capital market activity, in the fourth quarter, we issued 1.1 million shares on a forward basis under our ATM program at a gross average share price of $38, resulting in gross proceeds of $41.8 million. Subsequent to quarter end, we issued approximately 567,000 shares on a forward basis under our ATM program at a gross share price of approximately 38.88 cents. resulting in gross proceeds of $22.1 million. As of today, we have approximately $63 million of forward equity proceeds available to fund at our discretion. The equity will be used to match funder acquisition development pipeline. There are minimal debt maturities coming up this year with a $50 million private placement note returning in 2024. Same-store cash NOI grew 6.8% for the quarter and 5.6% for the year, representing another annual same-store cash NOI growth record for STAG. We experienced 13 basis points of credit loss in 2023, well below our initial guidance of 50 basis points. As mentioned by Bill, we continue to see healthy dynamics across the portfolio. Our 2024 guidance range for same-store cash NOI growth is 4.75% to 5.25%, anchored by weighted average rental escalators in the 2.7% area. We expect retention in the 70% to 75% area. Cash leasing spreads are expected to be between 25% to 30% on 13 to 14 million square feet of projected new and renewal leasing for the year. As Bill mentioned, approximately 69% of our projected 2024 leasing has been addressed, with aggregate cash leasing spreads of 29.5% accomplished to date. Our detailed 2024 guidance can be found on page 19 of our supplemental package, which is available in the investor relations section of our website. Components of guidance include core FFO per share to range between $2.36 and $2.40 per share. We expect same-store cash and Y growth to be between 4.75% and 5.25% for the year. Average same-store portfolio occupancy is expected to decline by 50 basis points. Cash leasing spreads will be between 25% to 30%. Acquisition volume guidance is a range of $350 to $650 million, with cash capitalization rate between 6% and 6.5%. Disposition volume guidance is a range of $75 to $125 million. G&A is expected to be between $49 to $51 million. And finally, we expect net debt to annualized run rate adjusted EBITDA to be between five and five and a half times. I will now turn it back over to Bill. Thank you, Matt.
spk06: I want to thank our team for the continued hard work and achievement of our 2023 goals. Our team continues to drive value in all macro environments. DAG is extremely well positioned for sustained growth through our operating and acquisition platform.
spk08: With that, I will turn it back to the operator for questions.
spk10: Thank you. We will now be conducting a question and answer session. We ask that all callers limit themselves to one question and one follow-up. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star keys. One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Craig Mailman with Citi. Please proceed with your question.
spk18: Hey, guys. Good morning. Bill, I just want to circle back to your commentary on the acquisition market. It seems like we've heard that sentiment A few times it's earnings season on the acquisition market getting more positive on the margin. You guys have a pretty wide range in guidance. So I'm just kind of curious maybe what you have visibility on today that's maybe close to their LOI or going under contract and potential timing on that and sort of the same thing on dispositions just as we kind of think about the potential drag and timing delays of redeployment.
spk10: Ladies and gentlemen, please remain on the line. Your conference will resume momentarily. Again, please stay on the line. Your conference will resume in a moment.
spk07: Hello? Hi, can you guys hear me?
spk06: Yeah, sorry. I don't know what happened there. No worries. Did you hear my question? You want me to start over? Yeah, no, I heard your question. Thank you. I said this year we've had a lot more confidence in the acquisition market than we did at this time last year. Our pipeline sits at 3.1 billion. Pipeline consists about 10 to 15% portfolios, 15 to 20, 25% of developments, redevelopments, value add. With respect to the acquisition guidance, It is wider than a typical year. Like I said, we do have a little bit more confidence than we did last year. We're underwriting more transactions. We underwrote more transactions in January than we did all of Q4 2023. With all that being said, we are expecting acquisitions to be more back-end weighted, just given some of the uncertainty in the market. But we're seeing a lot more deals today, and it gives us more confidence than we did last year.
spk18: And do you have anything kind of close to LOI or going under contract at this point?
spk06: Not right now. What happened at the end of last year were brokers and sellers were, brokers were advising sellers to wait to put deals out to market until the start of the year. So we have been underwriting a lot. I think we're close to price agreement on some deals, but you got to get the price agreement, then you got to negotiate the contract and close. So all that takes a couple of months. So Nothing under price agreement today or LOI today, just as deals really hit the market at the start of the year.
spk17: Thanks. It's Nick Joseph here with Craig. Just one more. You mentioned market rent growth in the mid-single digits. I was wondering if you could touch on kind of the markets at the high and low end and what that range would look like and then just how your product fits into that, just given that most of the supply is obviously impacting probably at the higher price point.
spk06: Yeah, I mean, we operate in the CBRE Tier 1 market, so it's a wide range of markets. I would say the markets that have lower market rent growth expectations are really the big box markets, so Indianapolis, Columbus, some of the submarkets of Dallas, and then the other markets where it's smaller boxes. you're going to see some better market rent growth. So, the dynamic that persisted in 2023, you know, still exists today with really first-gen big box leasing being very slow and in other space sizes having more activity and more demand. So, I think it's when you look across the markets, it really is the big box distribution markets are a little bit slower market rent growth versus some of the other markets.
spk10: Our next question comes from the line of Vince Tavone with Green Street Advisors. Please proceed with your question.
spk02: Hi, good morning. A few of your recent acquisitions are more value-add in nature. Could you just discuss how leasing risk is being priced in the transaction market today? Basically, what is the spread, typical spread, between a core stabilized cap rate to one where you're taking on the leasing risk?
spk06: Yeah, I would say typically, Vince, I mean, it depends on the market. It depends on the demand in the market, the velocity. You could see anywhere from 25 to 50 basis points of incremental return. The deal we acquired in Q4, the one in the Greenville market, That was a unique opportunity. That was a deal that was under contract with another buyer. Ultimately, that buyer wasn't able to perform. The seller wanted to get the deal closed before year end, so we acquired that transaction. That was acquired for about 125 basis points higher return than we otherwise would have gotten if we acquired that stabilized. I mentioned in the prepared remarks that you know, the stabilized yield on that deal was a 7.1. That was our underwriting. What we actually signed the lease at was a 7.6. So effectively bought that deal and negotiated a lease during diligence and put a tenant in there with a five-year lease, 4% escalators at a 7.6 cap rate. So Every situation is different, but going back to your original question, 25 to 50 basis points to take that leasing risk. And as you move further back when you look at some of these deals that have finishing out developments or have some value-add component, putting more docks in, doing some parking work, expanding the truck court, those type of things, you start to increase the return as compared to a stabilized deal.
spk02: It's all really helpful. And just in terms of your potential 24 acquisitions, do you have a target split between sites or buildings that are more value-add nature versus core? Are you seeing more opportunities in one bucket versus the other? And also just from a risk perspective, just curious how we should think about the mix of acquisitions going forward.
spk06: What's great about our platform is we have the ability to invest across that spectrum. So developments like the one we mentioned last year in Tampa to the value add where we're just taking, you know, lease risk to something that we're adding more value with redevelopment as well as acquiring stabilized deals. So depending on the opportunity, we're going to deploy that capital at the best risk adjusted returns. Q4, Q1, there just were not a lot of stabilized acquisitions on the market. And I said, I mean, I make Q3 and Q4 of 23. There weren't a lot of stabilized acquisitions on the market. And part of that was just, you know, the volatility and the debt costs. And now we're starting to see more of those stabilized opportunities. So my guess is there's going to be some split, probably waiting more to stabilize deals. But there'll certainly be some value add redevelopments and hopefully some more of these developments that we announced last year. But it'll be weighted more to stabilize deals.
spk08: Great. Thank you. Thank you.
spk10: Our next question comes from the line of Bill Crow with Raymond James. Please proceed with your question.
spk04: Hey, good morning. Bill, in your opinion, what is it that is bringing sellers back to the table after, you know, kind of a quiet period for the last couple of years? Are they looking at fundamentals? concerns and rising vacancy rates? Are they figuring they missed the bottom on cap rates and that they might drift higher? What is causing that switch in their mentality?
spk06: Yeah, and I'll answer the question, but I do want to point out a stat that we've said before is that the owners of industrial real estate, I mean, the ownership is so highly fragmented. I mean, the top 20 owners, including ourselves and some of our public peers, only own about 15% to 16% of the overall stock. So there generally is uncorrelated reasons for assets coming to market, but what happened the past year was you know, the volatility in interest rates, the rapid rise in interest rates, there was, there wasn't a lot of comfort with where capital costs were coming in. And now that that's stable, there's more confidence in borrowing costs. And once you have your cost of capital or some comfort in your cost of capital, then you can back into where, you know, an appropriate price to either buy or sell an asset. So going back, I mean, did they miss the top of the market? I mean, based on where interest rates are today, yes. And I think because the 10-year has been somewhat stable over the past six to nine months, that gives sellers the confidence that they're selling at a market price versus a price maybe that is not market.
spk04: Thank you. The asset you acquired, the newly developed one and the 7-1s, turned into a 7-6, I guess. How does that compare to the construction costs that were the development costs of the seller?
spk06: Steve, Mike, I don't know if you have that.
spk12: Yeah, I mean, we don't have pure visibility into the seller's development costs, but we feel that we were able to get that at a total per square foot price that was at replacement cost, given that it was a brand new building. The yield was above what we could typically get.
spk06: Yeah, I think in this transaction, Bill, the seller, and you don't always have perfect visibility into their costs, but the seller had a lower basis in the land and also had opportunity to develop some other parcels of land. So this was a good opportunity for them to make some return on their investment without taking any leasing risk. And that's where we were able to add our value. So the fair market value of that land was obviously much higher than where the seller initially purchased the land and then went through the entitlement and permitting process.
spk04: All right. No, I appreciate that.
spk08: I'll leave it there. Thank you. Thanks, Bill.
spk10: Our next question comes from the line of Samir Kunal with Evercore. Please proceed with your question.
spk11: Hi. Good morning, everyone. I guess, Bill or Matt, on the shifting to the internal growth guide here on same store, I mean, 5% is still a good number, but it is slowing a little bit. Maybe just talk about how you're thinking about occupancy through the year, credit loss assumptions. Thanks.
spk06: Yeah. Last year, Matt's correct me if I'm wrong, I think we incurred about 13 basis points of credit loss. We normally guide to 50 basis points of credit loss, which is what we're guiding to in 2024. We look at it on occupancy, average occupancy. Average occupancy in our same stroke pool last year was down 30 bps. We're guiding to average occupancy in 2024 down 50 bps. When you think about The supply coming online, it's, you know, we had a fair bit of supply come online in 2023. That's getting absorbed. We have another, you know, 2.2% of supply coming online in 2024. But development starts are down 65% year over year. So I feel like overall, you know, national vacancy rates are going to, you know, tick up as we move through the year. And you know, when we get near the end of the year, those should start to come back down. But overall, for this year, we're guiding to both 50 basis points of credit loss and 50 basis points of average occupancy loss in our same stroke pool. And that's offset by some really strong, you know, rollover rents. Again, we're guiding 25 to 30%. We signed almost 70% of our leases for 2024 at, you know, close to 30% today. So, We feel pretty good about where our same store is coming in at the initial guide here.
spk11: I guess as a follow-up to that, I mean, like you said, you are signing close to 30%, and then your guide's like 25% to 30%. I guess what's driving that a little bit on the pricing power side? I mean, are you seeing anything material, or are you just sort of being conservative here?
spk06: I mean, part of it is, and this goes back down to our basic thesis here, is when we buy – properties we make sure those properties you know fit the sub market really well and and fit the uh the teeth of the demand in those sub markets so by having those type of assets um we're able to you know push rents because demand's really high um there is you know anticipated leasing in the in the back half of 24 which you know we're forecasting spreads for but there's a lot a lot of time between now and when those leases are going to be forecasted, which is why our guide is 25% to 30%. But we have signed, as I said, almost 70% of our leases for 2024 at 30%. And one point that I don't think we brought up yet is same time last year, we were about 60%, 61%. So we're ahead of where we were last year in terms of leasing.
spk08: Got it. Thanks so much. Thank you.
spk10: Our next question comes from the line of Blaine Heck with Wells Fargo. Please proceed with your question.
spk03: Great. Thanks. Good morning. Can you just talk about how you're thinking about your overall cost of capital today and the spread between your cost of debt or, more importantly, probably cost of equity and your required returns on investment? Has that gap, you know, expanded? And that's what's driving a little bit more of the acquisition expectation.
spk13: Hey, Blaine. This is Max. Good morning. I think we can start with the cost of debt. You know, you look at our investment grade balance sheet, you know, we have a mix on there. We have a mix of term loans and private placement notes primarily. So the original tenors of those instruments are five years, seven years, 10 years. You know, you take a look at the 10 year, it's bounced around recently, particularly yesterday. You know, if we were to originate that today in the 6% area, granted that's a little higher than what we have originated over the previous three years. A lot of that is related to the 10 year. If we think about capital allocation for this year, You know, look, the funding plan for 24, it really begins with the retained cash flow after dividends paid. As I mentioned in my prepared remarks, we did retain $90 million last year. We expect to retain roughly the same this year. We do have asset dispositions in our guidance. You know, we're going to have those proceeds to deploy as well. And then where I do think it's important is we do have $63 million of unfunded equity that's available to us on the forward ATM. That's at a gross share price north of $38. So, You know, you take that and then you take a look at the balance sheet. It's under levered compared to our range of five to five and a half. So, you know, we have a lot of what we need right now. And, you know, with the movement in 10 years, yes, it does have the impact on our cost of debt.
spk03: Okay. Thanks, Matt. That's helpful. And then just on the mid-single-digit rent growth you guys are projecting this year, that seems to be a bit above some of your peers and some brokers that are guiding to flat or low single-digit growth. I guess what's giving you confidence in that higher number, or what do you think is unique to your portfolio or markets that might push rent growth a little better this year?
spk06: Some of the things I said in the prepared remarks, I mean, just where, and in some some previous questions, but our buildings fit the submarkets we're in really well. Generally, our buildings are on the smaller side as compared to, you know, where the vacancy is now. So, the vacancy is generally big boxes, call it, you know, 400,000 square feet and above. And so, when you look at, you know, where the demand is, it's on the smaller boxes. We're still seeing nearshoring demand. We're anticipating some on-shoring demand in the coming years. And then the way our buildings fit the sub-market, we feel really confident about their ability to lease and drive good, strong rental growth. Last year, we went out and we forecasted really well in terms of where we came out. I think we started the year at high single digits or mid-high, and we ended up at a little north of 8%. And this year, we're starting the year at mid-single digits. So It is a ground-up analysis that our team spends a lot of time reviewing, and we have a lot of confidence in it.
spk08: Great. Thanks. Thanks.
spk10: Our next question comes from the line of Camille Bonnell with Bank of America. Please proceed with your question.
spk09: Hi. Good morning, everyone. Can you expand more on the 31% outstanding leasing you have left to address in 2024? How much of that is near-term weighted versus back half, and are there any big concentrations in any one market?
spk06: No big concentrations in any one market. I think I mentioned this on the last call, too. Nothing over 400,000 square feet, which is just kind of our line of demarcation of big bucks, small bucks. More of it's back-end weighted, which is why our range for leasing spreads is 25% to 30%, and we're coming in close to 30% for the amount we've leased to date. So because it's more of it's back-end weighted, that's why our range is where it is. But we're really excited about where we are today. Like I said earlier, it was 61% at this time last year, and now we're close to 70%. So there's really good activity on that.
spk09: Great. And for my second question, the core operations ended in a very solid place, but as we look to the bottom line and adjust for non-cash-related items to get to your cash available for distribution, this came in about 5% lower than the sell side was expecting. So I was wondering, how should we think about CAD growth this year And would this be similar to the 4% FFO in your guidance?
spk06: Yeah. So one thing, I'm not going to comment on where the sell side comes in. I think you guys have your own models there. But for this year, you know, our same store cash NOI came in at, you know, 5.6%, which was a record for us. And our CAD available for distribution, just on a gross number, was up 5.4%. So pretty consistent with our cash same-star NOI. Every year you've got some nuances in that number in terms of CapEx, but CapEx has averaged anywhere from 25 to 30 cents per square foot. That seems pretty consistent going forward. I think when you think about it as a percentage of NOI, it's around 7% of NOI. So that number should be pretty consistent. So I think we can still drive some pretty strong CAD growth and CAD per share growth going forward.
spk10: Thank you.
spk08: Thank you.
spk10: Our next question comes from the line of Michael Carroll with RBC. Please proceed with your question.
spk01: Yep, thanks. I know, Bill, that STAG is pursuing a lot of active development projects. I mean, I guess a few right now. I guess what's the opportunity set here? I believe earlier in the prepared remarks, you said there was, what, 25% of the pipelines developments. I think you threw around a lot of numbers. I'm not sure if that was the exact number tied to the development projects. But what is the activity? I mean, how many do you think you can really pursue in 2024? How many do you want to pursue in 2024?
spk06: It's a good question, Mike. I did throw around a lot of numbers, so I apologize if Some information got kind of lost there. Our pipeline is 3.1 billion. You know, of that, you know, call it 15 to 25 percent. It's a pretty wide range, but is some sort of mix of developments, value-add redevelopments. Part of the wider range is the 3.1 only includes land costs, so if it's a $50 million project, it's $10 million of it that's in our pipeline today. We haven't guided to specific development projects, more starts, right? So we've got two that are on, three that are ongoing now, wrapping up that port 290. We've got the Tampa development, and then we've got the one we just acquired here that's almost complete and should be ready by the end of Q2. So those are underway. And for the year right now, there's We don't have anything that we're negotiating price agreement for. We do anticipate there'll be some opportunities there. And we're evaluating some opportunities in our own portfolio as well that we have some excess land and looking to potentially subdivide some of those parcels. So as we have more clarity into that, we will guide to it. We're just not at this point as we ramp up this initiative, we're not comfortable giving specific guidance for 2024, but as we have more insight into these projects, we will certainly let you and everyone know of those projects.
spk01: Okay, great. Can you remind us on what your limit of developments that you want to pursue within the portfolio? I believe you provided to us before. And does that limit change based on leasing? So if some of these developments that are in process get leased, does that give you more capacity to pursue more starts?
spk06: Yeah, I mean, we do have some soft kind of limits internally. I mean, it's certainly less than some of our peers just as we're ramping up opportunity the way we view it is you know outstanding developments obviously build the suit is less risky depending on the rights that the tenant has to the bow out of that in case something you know we're delayed and then as we lease up a project and it gets stabilized it drops off of that cap so we're not close to the cap Mike right now guidance for starts and caps you know, certainly will be something we'll be providing in the future more specifically. But right now, we're not close to any sort of soft internal caps we have. But the riskier the project, obviously, it impacts the cap a little bit more than, you know, a bill to suit with very limited rights for the tenant to bow out of that.
spk08: Okay, great. Thank you. Thanks.
spk10: Our next question comes from the line of Nick Stillman with Baird. Please proceed with your question.
spk05: Hey, good morning, guys. Maybe just touching a little bit on the dispositions and kind of the composition or breakdown of that. Is the bulk of that just going to be that non-CBRE tier one market that you guys are trying to basically concentrate in and just kind of basically putting the portfolio here? Or are we kind of just viewing this more as like sources for the acquisition pipeline?
spk13: Hey, Nick. Good morning. This is Matt. Yeah, so our disposition guidance is $75 to $125 million. As you accurately noted, it is a mix between opportunistic capital recycling and non-core dispositions. If you think about the mix in 2023, it was roughly 50-50. Look, there's always the bottom 5%, and to the extent we just don't think it's a good part of our portfolio, we'll dispose. And on the flip side, on the opportunistic, those are generally reverse inquiries from users. You know, they view the real estate a little differently. They kind of have different expectations, corporate mandates, et cetera. So, Those reverse inquiries happen every single year. They're a little unpredictable. So there is called the unidentified opportunistic within that number. But I think a 50-50 split is relatively reasonable given our history.
spk06: And Nick, I think you correctly pointed out that the non-core dispositions are primarily those non-CBRE tier one markets that were legacy properties.
spk05: That's helpful. And you guys kind of touched a little bit on weakness and big box demand, but maybe just on like the pricing on what you're seeing and underwriting for acquisitions on maybe a stabilized basis, maybe smaller properties versus larger. Is there a big differentiation between the pricing on those products or are they still pretty similar?
spk06: Yeah, I mean, there's so much that goes into the pricing, right? You could have a small box that's got a 10-year lease and, you know, 1.5% escalators, and that's going to trade much differently than a small box that has a 5-year lease and 4% escalators. The market obviously is going to be impactful, too. If you've got a big box that's got a 5-year lease and a market that has historically been a strong big box leasing market, you know, I think that trades pretty close to, you know, some of the small boxes with 5-year leases. It's really... If the property, the building, fits the sub-market well and it's got enough term, I think it's going to trade pretty reasonably. With all that being said, deals are coming out. They're still coming out. We're hearing some deals come under price agreement. It takes some time for these deals to close. All of that will be vetted in the next couple months. I think it'll give us and others more certainty as to where these deals are closing.
spk08: That's it for me. Thanks, guys. Thanks.
spk10: Our next question comes from the line of Eric Borden with BMO Capital Markets. Please proceed with your question.
spk16: Hey, good morning out there. Just sticking with the disposition theme, how much of the portfolio is the non-core portfolio? legacy non-CBR tier one markets that could be disposed of to use for future funding sources?
spk06: Yeah. So I do want to point out that we do have a portion of our portfolio that is non-CBRE tier one that we really like and is not part of our non-core portfolio. But we generally look at circa 5% of our portfolio as something that we are constantly evaluating for disposition to improve the quality of the portfolio.
spk08: Okay, that's helpful. And then maybe one for Matt on the guidance.
spk16: Could you just provide a bridge between the same store midpoint of 5% to the implied core FFO growth of 3.9? What are the puts and takes in there and any potential drags or is there just some conservative built into the guide?
spk13: Absolutely. Look, there are two drivers. Number one is G&A and the other is interest expense. You know, at the midpoint of our G&A guidance, G&A is, you know, projected to grow 5% this year as compared to last year. And then we're going to have higher average debt balances. And as you know, you know, that's a little more expensive now. But one point I do want to point out on the scalability in G&A, if you took a look at the past three years, the average growth is roughly 1%. So G&A in guidance will grow 5%. That's part of what's bridging that delta.
spk06: Yeah, maybe one other point on that, too, is the same store that we guide to is really a cash same store number. So when you think about the impact, the core FFO, that's a gap number, and typically that number is less.
spk08: That's helpful. Thank you. That's it for me. Thanks.
spk10: As a reminder, if you would like to ask a question, press star 1 on your telephone keypad. Our next question comes from the line of Mike Mueller with J.P. Morgan. Please proceed with your question.
spk14: Yeah, hi. Pretty much everything's been answered. Just maybe one quick one, though. When you're underwriting developments and thinking about those returns, I mean, are they different or how different can they be to just buying a completed development property where you're taking the lease up risk but you're not kind of expending the capital to do it? So I guess how do those relative returns look?
spk06: Yeah, I think, I mean, it's not linear, Mike, but if you go all the way to buying raw land and going through the entitlement and permitting process up through buying a stabilized acquisition with a five-year lease, you're going to see the returns, the projected returns increase as you take additional risk. We've, over the years, moved from being almost solely a stabilized acquirer you know, through now and taking on development risk, but we have not taken on permitting and entitlement risk. So, when I think about a stabilized deal and then taking just the lease-up risk, it's 25 to 50 basis points. You add another 25 to 50 basis points to take on that development risk, and if you were to take on the permitting, add another 25 to 75 basis points of return. But with all that, it becomes additional risk and additional time.
spk14: Got it. Okay. That's helpful. Thank you.
spk08: Thank you.
spk10: Mr. Crooker, we have no further questions at this time. I would like to turn the floor back over to you for closing comments.
spk06: I just want to thank everybody for joining the call. Thank you all to the analysts for the questions. And for those that celebrate, happy Valentine's Day. Look forward to seeing you all soon. Take care.
spk10: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.
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