Stag Industrial Inc (STAG) Q2 2019 Earnings Call Transcript

STAG earnings call for the period ending June 30, 2019. Read More...

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Stag Industrial Inc (NYSE: STAG)
Q2 2019 Earnings Call
Jul 31, 2019, 10:00 a.m. ET

Prepared Remarks:

Operator

Greetings, and welcome to STAG Industrial Second Quarter 2019 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host Matts Pinard, Senior Vice President of Investor Relations. Please go ahead.

Matts Pinard — Vice President of Investor Relations

Thank you. Welcome to STAG Industrial’s conference call covering the second quarter 2019 results. In addition to the press release distributed yesterday, we posted an unaudited quarterly supplemental informational presentation on the company’s website at stagindustrial.com under the Investor Relations section.

On today’s call, the company’s prepared remarks and the 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 statements relating to earnings trends, G&A amounts, acquisition and disposition volumes, retention rates, debt capacity, dividend rates, industry and economic trends and other matters.

We encourage all of our listeners to review the more detailed discussion related to these forward-looking statements contained in the company’s filings with the SEC and the definitions and reconciliations to 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’ll hear from Ben Butcher, our Chief Executive Officer; and Bill Crooker, our Chief Financial Officer.

I will now turn the call over to Ben.

Benjamin S. Butcher — Chief Executive Officer, President and Chairman

Thank you, Matts. Good morning, everybody, and welcome to the first quarter earnings call for STAG Industrial. We’re pleased to have you join us and look forward to telling you about our first quarter results. Presenting today in addition to myself will be Bill Crooker, our Chief Financial Officer, who will discuss the bulk of the financial and operational data. Also with me today are Steve Mecke, our Chief Operating Officer; and Dave King, our Director of Real Estate Operations. They will be available to answer your questions specific to their areas of focus.

The industrial sector remains healthy, with tenant demand outpacing new supply in virtually every market in which we operate. Given these conditions, rental rates have continued to grow across these markets. Our second quarter and year-to-date operating metrics bear this out. STAG’s portfolio continues to perform very well. The geographic diversity of STAG’s portfolio reflects our vast opportunity set and will provide superior insulation from any market-specific dislocations, if and when they should occur. Year-to-date, our portfolio has produced double-digit cash releasing spreads, retention of 80% and cash same-store NOI growth at the upper end of our public guidance. We continue to see an abundance of investment opportunity across the markets we prospect in. This was demonstrated in Q2, the second largest acquisition quarter in our company’s history.

We have built and continue to refine a platform that has demonstrated an ability to identify, evaluate and close accretive granular industrial transactions in volume. Our investments over the past several years to enhance our internal processes to train our dedicated employees and to promote the use of data analytics across the organization are all bearing fruit. This will be reflected in Bill’s remarks with regards to our annual acquisition guidance. Included in our second quarter acquisition volume is an 857,000 square foot Amazon fulfillment distribution facility located in West Jefferson, Ohio. This recently completed building is an integral part of Amazon’s growing package, distribution and delivery service effort for the region. As of quarter end, Amazon is now our second largest tenant representing 1.7% of ABR.

In our last quarter we announced our first speculative development project, a 250,000 square foot warehouse distribution facility at Exit 6A of the New Jersey Turnpike in Burlington New Jersey. You may recall that this project is on a piece of excess land associated with an acquisition made years ago. We’re happy to announce the project is on schedule for completion by year-end. We will continue to update you on the progress of our development and at this point expect to meet or exceed our initial pro forma.

With that, I will turn it over to Bill who will discuss our operational results.

William R. Crooker — Chief Financial Officer, Executive Vice President and Treasurer

Thank you, Ben, and good morning everyone. Core FFO was $0.45 for the quarter, equal to the second quarter of 2018. Leverage remains low with net debt to run rate adjusted EBITDA of 4.6 times. Acquisition volume for the second quarter totaled $260 million with a stabilized cap rate of 6.1%. We did not acquire any value-add assets or sell any buildings this quarter. The portfolio operating metrics continue to demonstrate the health of our portfolio. Retention for the quarter was 79.5% with new and renewal cash leasing spreads of 22.8% and 5.8% respectively.

Straight line releasing spreads for the quarter were also strong with new and renewal straight line releasing spreads of 34.2% and 15.4% respectively. Included in our leasing activity this quarter and as an example of the strength and tenant demand we’re seeing across our markets we backfill the building in Savannah, Georgia with zero downtime, while achieving releasing spreads well in excess of 20%. Same-store cash NOI grew by 1% for the quarter, which was positively impacted by our retention and cash releasing spreads and partially offset by a decline in occupancy with the same-store pool in second quarter. Year-to-date, same-store cash NOI has grown 2.2%, driven by a retention rate of 80.2% and cash releasing spreads of 11.7% through the first half of the year.

Moving to the capital market activity. We executed the previously discussed equity offering, which resulted in net proceeds of approximately $215 million. During June, we raised an additional $22 million of net proceeds through our ATM program. At quarter-end, net debt to run rate adjusted EBITDA was 4.6 times and our fixed charge coverage ratio equaled 5.3 times. Subsequent to quarter end on July 12th, we closed on a $200 million 5.5 year delayed draw term loan. The term loan is fully swapped with an all-in fixed rate of 3.11%. On July 25th, we funded our $175 million term Loan A, which was originated last year with the proceeds used to retire revolver balances. This term loan is fully swapped with an all-in fixed rate of 3.92%. Including these debt transactions, our available liquidity is $745 million.

Given our performance to date, we now expect stabilized acquisition volume to be between $700 million and $800 million. Including our expected value-add acquisition activity, the guidance for the aggregate acquisition volume has increased to a range of $750 million to $900 million. The stabilized cash cap rate guidance has also been updated to a range of 6.25% to 6.75%. Additionally, we have updated our granular disposition guidance to a range of $75 million to $150 million. All of our 2019 guidance can be found in our supplemental posted to our website in the Investor Relations section.

I will now turn it back over to Ben.

Benjamin S. Butcher — Chief Executive Officer, President and Chairman

Thanks, Bill. The company is operating at high levels across all functional areas of the organization. We have an extraordinarily talented team that’s engaged and dedicated to what we’re trying to accomplish, maximizing long-term per share cash flow returns to our shareholders. This is an exciting time for STAG, as we continue to pursue the opportunity in front of us. We thank you for your continued support of our company.

Questions and Answers:

Operator

[Operator Instructions] Our first question today is from Sheila McGrath of Evercore. Please go ahead.

Sheila Kathleen McGrath — Evercore ISI — Analyst

Yes, good morning. Many of your acquisitions during the quarter had longer lease term, which typically isn’t your sweet spot on pricing. Just wondering if that’s driving cap rates a little lower, and are you bumping into more competition from the long-term net lease buyers on those purchases?

Benjamin S. Butcher — Chief Executive Officer, President and Chairman

Good morning, Sheila. Certainly the longer lease term, which produces — projects to have longer uninterrupted cash flows will produce lower cap rate and that certainly is evidenced in some of the mix of acquisitions for the month — excuse me, for the quarter. It’s not a — by design we’re not seeking longer lease terms. We’re maintaining our long-term cash flow thresholds on a per share and IRR basis. It just as this quarter we are successful in acquiring some longer lease term deals. Certainly as we do that, we will run up against people that are looking at those kinds of transactions. But again, we’ve been able to identify transactions that produce those kind of long-term returns in those longer lease terms.

Sheila Kathleen McGrath — Evercore ISI — Analyst

And on the acquisition in — on Columbus, the larger acquisition. Can you talk about competition on that particular asset acquisition?

Benjamin S. Butcher — Chief Executive Officer, President and Chairman

We saw probably — let me turn it over to Steve.

Stephen C. Mecke — Chief Operating Officer and Executive Vice President

Hi, Shiela. Yeah, that was slightly marketed. We were actually approached by the broker directly. They went to a few groups to acquire it. So the competition wasn’t as broad-based as you’d expect. But we — as Ben was mentioning, we do run up against some long-term players and the typical — in our regular acquisitions, the typical fund managers ect. But that particularly, it was limited pool.

Sheila Kathleen McGrath — Evercore ISI — Analyst

Okay. And one last one for me. On the development in New Jersey, your prepared remarks you seem confident that you’ll meet or exceed your pro forma. Can you discuss in more detail how tenant discussions are going on that project? And what is your target yield on cost for that project?

Stephen C. Mecke — Chief Operating Officer and Executive Vice President

Were just about the [Indecipherable] were just about the poor slabs, the building is becoming reality for potential tenants. So we have a list of tenants that are quite interested in the building. But the reality quotient if you will is going up because flat is about the point. So we’re just getting into the point where it becomes a reality for people visiting the site. I think, we talked about it in our prior call that we expected returns to be at or around 8% development returns.

Sheila Kathleen McGrath — Evercore ISI — Analyst

Okay, great. Thank you.

Operator

The next question is from Brendan Finn of Wells Fargo. Please go ahead.

Brendan Patrick Finn — Wells Fargo Securities — Analyst

Hey guys, good morning. So you talked about this a little bit in your prepared remarks, but rent spreads have been pretty strong so far this year. I think at 11.7% on a cash basis. So previously you guys have talked about on a full-year basis, you did end up in the mid single-digit range. Is there an update to that, or is there — is it likely that you’ll exceed that range?

Benjamin S. Butcher — Chief Executive Officer, President and Chairman

Yeah. I think our guidance for that is still — it’s mid to high single-digits, Brendan. We’re still comfortable with that guidance for the year.

Brendan Patrick Finn — Wells Fargo Securities — Analyst

It sounds good. And then, like what has been the driver of the stronger retention this year versus your initial expectations? Is that a few leases that have renewed where you initially thought they weren’t, or is it just stronger retention across the board?

Benjamin S. Butcher — Chief Executive Officer, President and Chairman

That’s right, at the beginning of the year, we have assumptions on our assets that are rolling and there are some that were on the fence that we projected to not retain and some that we did retain. I did mention that one asset this quarter that we release was zero downtime. If we had retained that tenant, that would have resulted in a 100% retention this quarter.

Brendan Patrick Finn — Wells Fargo Securities — Analyst

Got you. That’s helpful. Thanks, guys.

Benjamin S. Butcher — Chief Executive Officer, President and Chairman

You’re welcome.

Operator

The next question is from Dave Rodgers of Baird. Please go ahead.

David Bryan Rodgers — Robert W. Baird and Company — Analyst

Hey, Ben going back to the acquisitions and I guess specifically thinking about the second half of the year and what you closed in the second quarter. I mean, given the longer average lease term it sounds like you’re buying much newer building. Are you just seeing a much greater amount of merchant building out there and kind of quick flips and sell? What are you seeing on the construction side? And do you expect that to continue in your acquisition pipeline going forward?

Benjamin S. Butcher — Chief Executive Officer, President and Chairman

I think there’s no question that merchant builders are taking advantage of the market and putting their assets out for sale relatively quickly. I think that will continue as long as pricing is as strong as it is today. We’re still seeing lots of opportunity in existing buildings in the 5, 10, 15 years old not brand new building seem plenty of opportunity there. And as we — as I talked about in our prepared remarks, we are more capable in seeing more transaction. Our pipeline is as big as a probable deals or deals that we would acquire. The pipeline is as big as it’s ever been and we’re being — have a bigger presence and a more in-depth inquiry of the markets that we are prospecting in. So we continue to see lots of opportunity including these build-to-suits.

David Bryan Rodgers — Robert W. Baird and Company — Analyst

You know, these build-to-suits that you’re acquiring and like you did in the second quarter what would be average rent bump in those leases or the annual escalators relative to kind of the five or 10-year-old building that you’re…

Benjamin S. Butcher — Chief Executive Officer, President and Chairman

So they run 2% to 3%. 2% at the low end probably 3% at the high end. You might have clearly see it above 3%, but in that 2% to 3% range.

Stephen C. Mecke — Chief Operating Officer and Executive Vice President

Yeah, generally Dave the longer the lease the lower the bumps. So the longer term one the 15-year plus is generally around 2%. But what that results in is you get a higher straight line cap rate. So our straight line cap rates this quarter was 68 as in — that’s a 70 basis point difference between the cash cap rate. Generally that has averaged around 50 basis points. So you see a little wider spread there with the longer-term leases.

David Bryan Rodgers — Robert W. Baird and Company — Analyst

Great. Maybe another one. The tenant roll over looking over the next 12 months to 18 months anything we should be paying attention to there?

Benjamin S. Butcher — Chief Executive Officer, President and Chairman

Nothing in particular. I mean it’s all well factored into our guidance there Dave.

David Bryan Rodgers — Robert W. Baird and Company — Analyst

And then lastly on the dispos. Due to disposition guidance down, but acquisition guidance up I realized equity is the component of that. But what kind of made you not want to sell as many assets into kind of the strong markets that we have today?

Benjamin S. Butcher — Chief Executive Officer, President and Chairman

So our mantra has been from the get-go is that we’ll sell assets when people will pay more than we think they’re worth to us in our portfolio and so we continue to do that. But we have — and at the beginning of the year we had expectation a certain amount would occur that, you know, we tempered that expectation through the year. We’re still — we’ll sell assets if, again if people think they’re — or wanted pay more than we think there were. And so we’ve been consistent in doing that. Just a certain amount of that occurs every year. And so I always clear at the beginning of the year what that number will be?

David Bryan Rodgers — Robert W. Baird and Company — Analyst

All right. Thanks guys.

Operator

The next question is from Michael Carroll of RBC Capital Markets. Please go ahead.

Michael Carroll — RBC Capital Markets — Analyst

Yeah, thanks. Ben can you talk a little bit about the competitive environment. I guess, I understand that the reason why the cap rates are lower as due to the remaining lease term and maybe the newer properties. But how has competition been? Has that pushed private market valuations higher? Is it just that you’re being going after a different subset of properties?

Benjamin S. Butcher — Chief Executive Officer, President and Chairman

Well, I think one of the things that we continue to take advantage of is that they’re not consistent competition across all the places we look. So as we evaluate the competition at some of the — competing for some of the assets we acquired, there is basically — there are almost no names that come up more than once in those kind of assays of competition. So we’re not seeing I think any particularly new competition or increased competition for assets. It’s just there’s competition out there with that rates where they are and obviously, industrial being a very favorite asset class.

It continues to be competition everywhere, but we’re out there in 60-plus markets looking broadly across those markets and still only with our pricing discipline someone inquiring and say about 15% of the ones that we underwrite. So it is a — it’s more the fact that there is competition out there, but we have a very broad level of inquiry and we’re able to find assets in increasing levels in terms of volume of acquisitions.

Michael Carroll — RBC Capital Markets — Analyst

Okay. And then I mean looking at your — I guess, your pipeline of assets, you’re looking at right now. I guess, what’s the breakout between the remaining lease term on some of those assets? Is it longer like we’ve seen in the second quarter, or is it more normal like we have seen over the past few years?

Benjamin S. Butcher — Chief Executive Officer, President and Chairman

Steve is going to give you little — status of the pipeline as he looks at it right now. My suspicion is that the average remaining lease term is probably not that much different than it’s been over the last couple of years.

Stephen C. Mecke — Chief Operating Officer and Executive Vice President

Yeah, that’s exactly true. It’s basically running very similar to what we had in the last couple of years. It all depends on a mix. I mean, this quarter, it was just a different mix than previous quarters. So the 11 plus years is probably less indicative of the normalized lease term.

Matts Pinard — Vice President of Investor Relations

Skewed up by a couple of longer lean-up — particularly longer lease terms. I think that we’ve been able to extend the lease some of the portfolio a little bit over the last couple of quarters and last year, but we’re looking to buy opportunity where we find it. And if the opportunity is in shorter lease terms to provide better cash flow over time to our shareholders, that’s where we’ll go. But we’re agnostic at the lease term as we are to most things. We’re just looking for the best long-term returns for our shareholders.

Michael Carroll — RBC Capital Markets — Analyst

Okay. Then going forward looking at acquisition cap rates, I guess, is it fair to assume that those deals are going to be completed in the high 6% range, kind of in line with the initial guidance range that was provided?

Benjamin S. Butcher — Chief Executive Officer, President and Chairman

Well, we reduced our guidance range for the year. This quarter 6.25% to 6.75%. So we feel pretty — really comfortable that we’ll be within that range.

Michael Carroll — RBC Capital Markets — Analyst

But that was due to the 2Q activity. I guess if you’re looking at the second half activity, it’s going to be back to what was previously expected and the reduction in this quarter was mainly due to the low cap rates completed this quarter.

Benjamin S. Butcher — Chief Executive Officer, President and Chairman

So, Mike for the year we’re still in that — for the year, our cash cap rates are still — stabilized cap rates are still in the range of 6.25% to 6.70%. This second quarter was below, but for the year, we’re still in that range. So we’re not expecting a material change from sort of where we’ve been running on cap rates.

Michael Carroll — RBC Capital Markets — Analyst

Okay. Thanks.

Operator

The next question is from Mitch Germain of JMP Securities. Please go ahead.

Mitchell Bradley Germain — JMP Securities — Analyst

Just one more cap rate question. I mean, how do we consider the cap rate on Columbus versus what a more traditional cap rate from what I’d characterize be a standard acquisition that you guys make? How should we think about the differential there?

Benjamin S. Butcher — Chief Executive Officer, President and Chairman

Well, I think as we’ve said a few times, the cap rate is just a point in time measure that that asset has a nearly 15-year lease with brand new buildings of very low capex as rent bumps. And as Bill mentioned, the cash — excuse me the GAAP cap rates are much — straight line cap rates are much higher, 70 basis points higher across our all of our acquisitions, so for the quarter. So it’s really going to have a lower cap rate because it has a very strong credit and a long-term lease with bumps and no capex. So you can develop or you will develop the kind of accretive cash flow — long-term cash flow we’re looking for out of the lower cap rate. So yes, it will be a lower cap rate and demonstrably lower cap rate because of all those factors.

Mitchell Bradley Germain — JMP Securities — Analyst

Got you. And then, you might have talked about this last quarter and I apologize if you went into a detail, how many other development type opportunities that you’re doing in New Jersey? How much of that exists in your portfolio today?

Benjamin S. Butcher — Chief Executive Officer, President and Chairman

Well, I mean, there is excess land and a lot of the assets we own in varying degrees because the best way to or the most common way to lose a tenant is the building is not big enough. So the ability to expand the building is something that we look for. And certainly on build-to-suit transactions, people build in generally expansion capability on the site.

Having said that, most of the available land or excess land isn’t covered by the existing lease and/or either directly in the lease or an understanding with a tenant or belief on our part that we want to maintain that flexibility to keep the tenant. But there are certain instances and we’re evaluating, whether is excess land that would allow development immediately.

Mitchell Bradley Germain — JMP Securities — Analyst

Do you pursuing entitlements? Is that the way to consider evaluating, or…

Benjamin S. Butcher — Chief Executive Officer, President and Chairman

That might be a little strong.

Mitchell Bradley Germain — JMP Securities — Analyst

Got you. Thank you.

William R. Crooker — Chief Financial Officer, Executive Vice President and Treasurer

We investigate the market for viability. And then, if we determine this, it’s a path we want to go down, we will work on marketing entitlement. Those are handful of instances at present.

Mitchell Bradley Germain — JMP Securities — Analyst

Appreciate it.

Operator

The next question is from Bill Crow of Raymond James. Please go ahead.

William Andrew Crow — Raymond James — Analyst

Hey, good morning. Ben, would you be OK, I guess if your pipeline really started to skew toward that sub 6% cap rate as well as it’s either a newer building longer lease or better bumps? Is that the right takeaway here?

Benjamin S. Butcher — Chief Executive Officer, President and Chairman

Yes, I think, again, reiterating the cap rate discipline in time measure. We’re really focused in our return analysis on longer-term measures. And so, big rental bumps, longer leases, clean capex, someone’s just replaced the roof on a building even a marginally older building where the roof is brand new can project a lower end perhaps HVAC [Indecipherable] parking lots and rebuilding can protect that lower CapEx. So all those things can mitigate toward lower cap rates, but I don’t think that the — I don’t think that necessarily, we’re going to be trending down toward those lower cap rate.

The other thing to keep in mind is, our debt costs are low. Our equity costs or cost of equity if you will is pretty favorable right now. I think it should be more favorable. I guess every CEO does. But so we’re in a place where the cost of capital also is mitigated to making lower cap rates still accretive. Across all the acquisitions we’ve done this year, we’re looking for FFO accretion — marginal FFO accretion in 15% to 20% relative to where we are today. So we’re still finding immediately accretive transactions to undertake.

William Andrew Crow — Raymond James — Analyst

Okay. And my second question is that, we have been seeing weakening manufacturing data over the last few months. Can you just kind of take us inside the mind of your tenants? And whether that’s the auto or other manufacturing sectors. What are you hearing?

Benjamin S. Butcher — Chief Executive Officer, President and Chairman

I’m going to turn it over to Dave. I can voice my opinion, but he’s a little closer to the tenants.

David G. King — Executive Vice President and Director of Real Estate Operations

Yeah. Our customers are still exhibiting a high degree of confidence. Lease terms have held up on new activity. And there might be a little more cautious, a little more aware, but their actions haven’t really changed over time.

William Andrew Crow — Raymond James — Analyst

Okay. That’s it for me. Thank you.

Benjamin S. Butcher — Chief Executive Officer, President and Chairman

Thanks, Bill.

Operator

The next question is from John Massocca of Ladenburg Thalmann. Please go ahead.

John James Massocca — Ladenburg Thalmann and Company — Analyst

Good morning.

Benjamin S. Butcher — Chief Executive Officer, President and Chairman

Good morning, John.

William R. Crooker — Chief Financial Officer, Executive Vice President and Treasurer

Good morning.

John James Massocca — Ladenburg Thalmann and Company — Analyst

So, let me the probe on kind of the Amazon cap rate a little bit more. How much did that kind of impacts the overall cap rates in the quarter? I mean, would you have been more in line with the new kind of midpoint of guidance without that transaction?

David G. King — Executive Vice President and Director of Real Estate Operations

Obviously, that add because of the features we’ve talked about on the cash flows to be derived from one of that asset. Clearly, it was at a lower cap rate than the average cap rate for the quarter. So yes, it wouldn’t raise the average cap rate for the quarter had we not acquired that. We’re not going to get into individual cap rate on acquisitions, but clearly that’s a transaction. We had another transaction had an 18-year lease and that obviously also would have mitigated the cap rates lower.

John James Massocca — Ladenburg Thalmann and Company — Analyst

Okay. And then on Amazon again, I mean, what got you comfortable with that particular asset? Given sometimes Amazon properties can maybe be characterized as being kind of overbuilt or over specified. Just any details on the actual property itself?

Benjamin S. Butcher — Chief Executive Officer, President and Chairman

Sure. This is a generic, if you will generic Amazon state-of-the-art fulfillments, the 855,000 and 857,000 foot. This is what they’re building today. Amazon as we have a shell there Amazon has put a bunch of money in on top of that shell cost. The 15 years from now we can’t foresee exactly what Amazon is going to be looking for, what other tenants are going to be looking for. But this is a good functional e-commerce fulfillment building state-of-the-art as of today.

John James Massocca — Ladenburg Thalmann and Company — Analyst

Okay. And then can you maybe provide some color on what if any portion of 2Q 2019 acquisition activity was value add?

Benjamin S. Butcher — Chief Executive Officer, President and Chairman

We did not do any value-add acquisition activity in the quarter.

John James Massocca — Ladenburg Thalmann and Company — Analyst

Okay. And then month-to-month leases came down pretty significantly. I know it’s fairly variable quarter-over-quarter but it was a pretty significant drop from 1Q to 2Q. Can you maybe provide some color around what drove that?

Benjamin S. Butcher — Chief Executive Officer, President and Chairman

There is no — there is no outstanding issue, I can point to. That number as you mentioned is going to be quite volatile. So it could very well tick up for next quarter. We don’t really spend a lot of time trying to predict that number.

David G. King — Executive Vice President and Director of Real Estate Operations

But month-to-month tenancy tends to either go away or get long-term, right? They tends to move out — move away from the middle or from that to the boundaries either vacancy or longer term lease.

John James Massocca — Ladenburg Thalmann and Company — Analyst

Okay. I mean, just given your retention rate it kind of felt like it went to a longer term lease. I mean, is that kind of a trend you’re seeing? Could that run lower going forward?

Benjamin S. Butcher — Chief Executive Officer, President and Chairman

I think as Dave said there is no real trend to that number. I mean, every quarter, it’s a different number. So, yeah, some of those obviously went to longer-term leases with the renewals. But it changes every quarter.

John James Massocca — Ladenburg Thalmann and Company — Analyst

Okay. That’s it for me. Thank you very much.

Operator

The next question is from Sarah Tan of JPMorgan. Please go ahead.

Sarah Tan — JPMorgan — Analyst

Hi. Good morning. So I thought, you guys [Technical Issues] but how you guys thinking about portfolio sales?

Benjamin S. Butcher — Chief Executive Officer, President and Chairman

So we looked at portfolio sales historically for capital raising. So at times, we didn’t like our common equity pricing. I didn’t feel it was a, the route just to raise common equity. We’ve done portfolio sales again to raise capital. That is not a driver at this point for us to do portfolio sales. We have positive operating leverage. And so, when we buy assets, we get to take advantage of that. When we sell assets, obviously, we do not take advantage of that. We do believe that we could do a portfolio sale, on an accretive basis. But we think it is better for us and for our shareholders at this point, to issue common equity and grow the size of the portfolio.

Sarah Tan — JPMorgan — Analyst

Got it. Thank you.

Operator

[Operator Instructions] Our next question is from Chris Lucas of Capital One Securities. Please go ahead.

Christopher Ronald Lucas — Capital One Securities — Analyst

Guys, just a couple of quick ones I think. On the balance sheet, you guys continue to bring the run rate on the leverage down based on sort of an over equitization of the acquisitions during the quarter. Is this something that we should continue to see as the stock price continues to perform? Or is this something that should balance out and gravitate more toward the — within the range that you guys have provided?

Benjamin S. Butcher — Chief Executive Officer, President and Chairman

Yeah. For the year Chris, the range is 4.75% to 6%. But as we previously say, we’re going to operate at the lower end of that range. So we are a little bit below the low end of the range today. But that should moderate as the year progresses.

Christopher Ronald Lucas — Capital One Securities — Analyst

So, no, I guess maybe a way to think about it is, you know, any sense as to whether or not you’d be willing to take that range down as the equity markets continue to support your strategy?

Benjamin S. Butcher — Chief Executive Officer, President and Chairman

Yeah. It’s something we always consider as our leverage range. Right now we’re comfortable with the 4.75% to 6% and operating at the low end of that.

Christopher Ronald Lucas — Capital One Securities — Analyst

Okay. Thanks. And then, I guess Ben, on the leasing side, a lot of success high retention rate over the last couple of years now. How much of your leasing is done in-house, versus through third parties at this point? And where are you as it relates to sort of rolling out a regional program, versus maintaining sort of centralized leasing programs?

Benjamin S. Butcher — Chief Executive Officer, President and Chairman

So, we use — we have third-party brokers on all leasing both renewal and new leasing to take advantage of the — obviously the market knowledge etc. And also to maintain good broker relations because we buy a lot of things from those brokers also. We will look at rolling out regional asset managers. But we do not intend to move our vertical integration past asset management. So we do not have a desire to be involved in property management.

Our discussions on this in the past have focused on — it’s a difficult business. It’s a difficult business to take money in. We’ll take advantage of somebody else having developed property management expertise. And use the best-in-class property managers in the individual markets in which we operate. So it’s highly likely, that we’ll maintain our vertical integration limit at the asset management level. It’s also highly likely, that we’ll have asset managers in the field at some point. But to-date they’re all still in Boston.

Christopher Ronald Lucas — Capital One Securities — Analyst

Okay. And then the last question for me. I want to say like a year ago we saw some large — very large transactions occur in the marketplace and I think it was a headwind somewhat to second half transactional opportunities for you guys. I know the pipelines very large right now, but given some other recent large industrial transactions in the marketplace, any sense as to whether or not the sort of your bread and butter one-off market will be impacted this year? Like it…

Benjamin S. Butcher — Chief Executive Officer, President and Chairman

Well, yeah, I think that the one-off market will not be impacted. We’ve talked about in the past the fragmentation of ownership of the industrial market where the top 20 owners owned somewhere between — well, it’s changing. There is a little more concentration going on, but probably at this point maybe 15% of all the fungible industrial assets in the U.S. are owned by the top 20 owners.

So the other 85% of the assets are owned by small sellers. That’s who we are mostly buying from. And their reasons for selling are usually relatively unrelated to or uncorrelated if you will. So there’s a pretty much a steady supply. Our increasing pipeline size, I think is more a factor of our presence in the market more outward facing acquisition people, better support for those outward facing acquisition people. And to some extent the use of data and that will increase its impact in identifying assets that makes sense for us to pursue. The large transactions the GLP, the IPT transactions etc, actually will probably end up being a source of transactions for people like us as the — those portfolios are winnowed down post acquisition.

We’re not likely to be a competitor for as it’s been rumored that Blackstone may sell as much as $5 billion out of the GLP transaction. We would not be a competitor or indeed likely competitive for a large subset of that $1 billion-plus portfolio, even probably have $1 billion-plus portfolio, but there will be individual assets that will fall out of all that and we will be ready to analyze and pick those up at good accretive prices for us.

Christopher Ronald Lucas — Capital One Securities — Analyst

Great. Thank you. Appreciate it this morning.

Operator

The next question is from Alexander Pernokas of Bank of America Merrill Lynch. Please go ahead.

John James Massocca — Ladenburg Thalmann and Company — Analyst

Hey, good morning. I was just wondering if you could talk about the tenant extend and rent growth you’re seeing in specific markets? And maybe which ones stand out the most? And then which markets are you seeing the most opportunity for acquisitions?

Benjamin S. Butcher — Chief Executive Officer, President and Chairman

So we — as we start off, we’re a ground-up prospect or an investor. So we’re really not making decisions based on particular markets. There can be a great transaction in Ontario California and Dayton Ohio, and they’re going to be a really bad transaction in Ontario California and Dayton Ohio. So we’re very much focused on the individual asset and the opportunity that’s presented by that particular acquisition. And indeed, we evaluate every acquisition based on the market background and the submarket background of the building and that specific building with specific parameters operates it.

So it’s really not a top down. We like this market. We don’t like this market analysis. We’re looking broadly across 60-plus markets to find the right opportunities to avoid that good long-term cash flow and growing cash flow to our shareholders.

Alexander Mark Pernokas — Bank of America Merrill Lynch — Analyst

Okay. Cool. And then what are your thoughts on your upside for more spec development? And are you taking kind of the wait-and-see approach, or you seem pretty optimistic about how this was going so far. I was just wondering if I could get a little bit more color on that.

Benjamin S. Butcher — Chief Executive Officer, President and Chairman

Yeah. So we’re — we view specular development as a marginal, not a marginal and did a incremental add to our overall business that we’re not out acquiring land to do specular development. We have our own land as part of other acquisitions, as part of building and cash flow acquisitions that we will purpose to development as appropriate and/or build-to-suit development as appropriate. But it is not a part of our business where we’re going out to develop a land bank. What we certainly evaluate transactions that have additional land for the value inherent in that potential for additional development.

Alexander Mark Pernokas — Bank of America Merrill Lynch — Analyst

Okay. Great. Thank you.

Operator

There are no additional questions at this time. I would like to turn the call back to Ben Butcher for closing remarks.

Benjamin S. Butcher — Chief Executive Officer, President and Chairman

Well, thank you everybody for joining us this morning. As I’ve said in the prepared remarks, things are running extremely well here at STAG. The opportunity set in front of us is extremely large, and we expect to have a really good second half of the year, and going forward into 2020 a continued success. So, we appreciate your time this morning, and hope you have a good rest of the summer.

Operator

[Operator Closing Remarks]

Duration: 38 minutes

Call participants:

Matts Pinard — Vice President of Investor Relations

Benjamin S. Butcher — Chief Executive Officer, President and Chairman

William R. Crooker — Chief Financial Officer, Executive Vice President and Treasurer

Stephen C. Mecke — Chief Operating Officer and Executive Vice President

David G. King — Executive Vice President and Director of Real Estate Operations

Sheila Kathleen McGrath — Evercore ISI — Analyst

Brendan Patrick Finn — Wells Fargo Securities — Analyst

David Bryan Rodgers — Robert W. Baird and Company — Analyst

Michael Carroll — RBC Capital Markets — Analyst

Mitchell Bradley Germain — JMP Securities — Analyst

William Andrew Crow — Raymond James — Analyst

John James Massocca — Ladenburg Thalmann and Company — Analyst

Sarah Tan — JPMorgan — Analyst

Christopher Ronald Lucas — Capital One Securities — Analyst

Alexander Mark Pernokas — Bank of America Merrill Lynch — Analyst

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