STAG (STAG) Q3 2026 Earnings Call Transcript

Image source: The Motley Fool.

DATE

Wednesday, Oct. 28, 2026

CALL PARTICIPANTS

• Vice President, Investor Relations - Steve Xiarhos
• Chief Executive Officer - William R. Crooker
• Chief Financial Officer - Matts S. Pinard
• Chief Investment Officer - Michael Christopher Chase
• Chief Operating Officer - Steven T. Kimball

TAKEAWAYS

• Core FFO Per Diluted Share -- $0.66, representing a 1.5% increase compared to $0.65 in the third quarter of 2025.
• Net Income Per Diluted Share -- $0.37, an increase from $0.26 in the same period last year.
• Same Store Cash NOI -- $159.9 million, reflecting 3.5% growth compared to $154.5 million in the third quarter of 2025.
• Cash Rent Change -- 23.8%, driven by both new and renewal leasing activity across 3.6 million square feet.
• Straight-Line Rent Change -- 35.7%, for leases commenced during the third quarter.
• Retention Rate -- 90.3%, for 2.9 million square feet of leases that expired during the quarter.
• Operating Portfolio Occupancy -- 96.2%, as of Sept. 30, 2026.
• Acquisition Volume -- $107.9 million, consisting of two buildings totaling 1.1 million square feet at a 6.9% cash capitalization rate.
• Disposition Volume -- $67.9 million, from the sale of four buildings totaling 1.1 million square feet during the third quarter.
• Core FFO Guidance -- $2.64 to $2.66 per share, an increase of $0.02 at the midpoint compared to prior expectations.
• Cash Same Store Growth Guidance -- 3.5% to 3.75%, revised upward from the previous range of 3% to 3.5% due to higher occupancy and lower credit losses.
• Average Same Store Occupancy Guidance -- 96.75% to 97.25%, representing a 25 basis points increase at the midpoint.
• Acquisition Volume Guidance -- $530 million to $600 million, narrowed from the prior range due to the uncertain capital markets environment.
• G&A Guidance -- $56 million to $57 million, representing a $2 million increase at the midpoint reflecting internal employee adjustments and new hires.
• Net Debt to Adjusted EBITDAre -- 5.1 times, calculated on an annualized run rate basis.
• Liquidity -- $546 million, as of the end of the third quarter.
• Share Repurchase Authorization -- $250 million, authorized by the Board of Directors on Oct. 26, 2026.
• Development Pipeline -- 1.8 million square feet, across seven buildings with an expected stabilized yield of 7%.
• Data Center Related Leasing -- 2.5 million square feet, signed since the beginning of 2025, accounting for 26% of new operating portfolio leasing during that period.
• Market Rent Growth Forecast -- 2% to 4% for 2027, an acceleration compared to the 1.6% growth expected for 2026.
• Projected 2027 Leasing Spreads -- 15%, based on current leasing progress and approximately 40% completion of the 2027 leasing plan.
• Subsequent Acquisition -- $55 million, for one building at a 6.7% cash capitalization rate acquired after the quarter ended.

Need a quote from a Motley Fool analyst? Email pr@fool.com

RISKS

• Kimball stated, "Reno North Valleys market as the traditional fulfillment logistics users have not pushed back out to Reno," noting this specific development project presents the most leasing risk in the current portfolio.
• Crooker stated, "El Paso is going to we think, have some short term struggles," referring to short-term market fundamentals despite a positive long-term view of cross-border demand.

SUMMARY

STAG Industrial, Inc. (NYSE:STAG) reported segment results and operational performance for the third quarter, increasing its full-year guidance for Core FFO and same store cash growth following higher-than-expected occupancy and lower credit losses. Management reported a 1.5% increase in Core FFO per diluted share and executed 3.6 million square feet of operating portfolio leases with double-digit cash rent spreads. The company stated it is benefiting from improving industrial fundamentals and diversified demand drivers, including significant activity from data center related tenants. The company also confirmed a new $250 million share repurchase authorization and an inaugural investment grade credit rating from S&P Global Ratings, which provides additional flexibility for future capital deployment.

• The company received an inaugural investment grade credit rating of BBB from S&P Global Ratings in Aug. 2026, which CFO Pinard noted was a gating item for entering the public bond market.
• Management refinanced and combined $350 million in term loans, extending the maturity to Jan. 2032 and achieving a 5 basis points savings across all bank debt.
• National industrial fundamentals showed improvement, with net absorption totaling approximately 75 million square feet in the third quarter, the highest quarterly figure since early 2023.
• Demand drivers include third-party logistics, advanced manufacturing, and data center related tenants, with the latter accounting for 30% of new leasing year to date.
• Approximately 40% of the 2027 leasing plan is complete, with cash rollover spreads on those leases currently at 12%.
• Management reported that credit losses were 12 basis points through the third quarter, outperforming the initial 50 basis points expectation set at the beginning of the year.
• The company maintains $70 million in available unsettled forward equity net proceeds to fund future acquisition and development activity at its discretion.

INDUSTRY GLOSSARY

• Core FFO: A non-GAAP measure used by REITs that excludes certain items like debt extinguishment costs and non-recurring expenses from standard Funds From Operations.
• Same Store Cash NOI: A metric measuring the property-level profit growth of assets owned for the full comparative period, excluding straight-line rent and other non-cash adjustments.
• 3PL: Third-party logistics providers that manage supply chain functions and distribution for other companies.
• Cash Capitalization Rate: The ratio of a property's first-year estimated cash net operating income to its purchase price plus capital expenditures.
• ATM Program: An "at-the-market" equity offering that allows a company to sell shares directly into the secondary market over time.
• Basis Points: A unit of measure for interest rates and other percentages, where 100 basis points equals 1 percentage point.

Full Conference Call Transcript

Operator: Greetings. Welcome to the STAG Industrial Incorporated Third Quarter 26 Earnings Conference Call. At this time, participants are in a listen only mode. A question and answer session will follow the formal presentation. Please press 0 Please note this conference is being recorded. I will now turn the conference over to Steve Xiarhos, Vice President, Investor Relations. Thank you, Steven. You may begin.

Steve Xiarhos: Thank you. Welcome to STAG Industrial's conference call covering the third quarter 2026 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 2 thousand. Forward looking statements address matters that are subject to risk 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 and 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. 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 S.

Pinard, our chief financial officer. Also here with us today are Mike Chase, our chief investment officer, and Steven T. Kimball, our chief operating officer. Who are available to answer questions specific to their areas of focus. I will now turn the call over to Bill.

William R. Crooker: Thank you, Steven. Good morning, everybody, and welcome to the third quarter earnings call for STAG Industrial. We are pleased to have you join us and look forward to discussing the third quarter. 2026 results. The third quarter marked a continued improvement in industrial fundamentals, with national vacancy rates down since last quarter. Net absorption totaled approximately 75 million square feet nationally, the highest quarterly figure since early 2023 has now topped 69 million square feet in each of the last 2 quarters. Through 9 months, market has absorbed more than 186 million square feet, a pace we have not seen since 2022. And noncoastal markets drove 80% of year to date absorption. New construction remains disciplined.

While development starts are up, product under construction totals less than 2% of existing inventory. With much of it already committed through preleasing or build to suit agreements. We are seeing broad based demand primarily from 3PLs, advanced manufacturing, and data center related tenants. We have now leased 2.5 million square feet to data center related tenants since the start of 2025. This data center related leasing activity accounted for 26% of all of our new operating portfolio leasing, during that same period. The table is set for us to see upward pressure on rent growth in many markets as leverage gradually shifts back to the landlord.

We expect our market rent growth for next year to be in the range of 2-4%, an acceleration as compared to the 1.6% market rent growth expected for 2026. Geographically, the strength has been most pronounced in the markets where STAG is concentrated. Acquisition volume for the third quarter totaled $107.9 million This consisted of 2 buildings with cash and straight line cap rates of 6.9%, 7.2%. Respectively. Subsequent to quarter end, we acquired 1 building for $55 million at a cash and straight line cap rate of 6.7%, 7.1%, respectively. In terms of our development platform, we have 7 buildings, or 1.8 million square feet of development activity that is not in service as of the end of Q3.

These buildings are in various stages of development, and have expected stabilized yield of 7%. We executed 2 development leases this quarter, totaling 69 thousand square feet. The first was a 47 thousand square feet lease at our Resource Drive building in Reno. Bringing that building to 62% leased. The other was for 21 thousand square feet at our Piedmont Commerce Street building in Charlotte. Bringing that building to 100% leased. With that, I will turn it over to Matts who will cover our remaining results and guidance for 2026.

Matts S. Pinard: Thank you, Bill, and good morning, everyone. Core FFO per share was $0.66 for the quarter, an increase of 1.5% as compared to last year. Net debt to annualized run rate adjusted EBITDA was equal to 5.1 times our liquidity stood at $546 million. During the quarter, we commenced 30 leases across 3.6 million square feet, generating cash and straight line leasing spreads of 23.8%, and 35.7%, respectively. Retention for the quarter was 90.3%. Same store cash NOI grew 3.5% for the quarter, and 3.9% year to date.

Year to date same store cash NOI growth of 3.9% includes approximately 30 basis points of benefit related to a single tenant whose rent was unpaid as of the third quarter 2025 is substantially collected in the fourth quarter of 25. The benefit reverses in Q4, and we expect full year same store growth within our guidance range which we revised upward since our last earnings call. Moving to capital market activity, As discussed on our last call, we did repay the $50 million private placement note fee which matured on July 1.

Also mentioned on our last call in July, we combined our term loans A and F, both of which were set to mature in March 2027, into a single $350 million term loan maturing in January 2032. The swap fixed rate is 3.53% until March 2027, and 4.79% from then on until maturity. We also repriced our revolver and all of our term loan, saving 5 basis points across our bank debt. As of today, the company has total forward equity net proceeds $70 million available to settle at our discretion. We are pleased to announce that in August of this year, STAG received an investment grade rating from S&P Global Ratings.

S&P assigned a rating of BBB to STAG with a stable outlook. The company also maintains an investment grade rating of BBB with a stable outlook from Fitch, and investment grade rating of Baa2 with a stable outlook from Moody's. Moving to guidance, we have made the following updates. Average same store occupancy guidance has been increased to a range of 96.75% to 97.25% an increase of 25 basis points at the midpoint. Cash same store growth guidance has also been increased from a range 3-3.5% to a range of 3.5-3.75% for the year. This increase is driven by the upward revision of occupancy expectations and lower than expected cash credit loss.

We have narrowed the range of expected acquisition volume to a range of $530 million to $600 million We now expect a stabilized capitalization rate range between 6.3-6.4%. G&A guidance has been increased to a range of $56 million to $57 million These guidance changes result in an increase in corporate book guidance to a range of $2.64 to $2.66 per share. An increase of $0.02 at the midpoint. 2026 guidance can be found on page 21 of our supplemental package which is available in the Investor Relations section of our website. Will now turn the call back over to Bill.

William R. Crooker: Thank you, Matts S. Pinard. And thank you to our team for their continued hard work and achievement towards our 2026 goals. We will finish this year ahead of our initial budgets and are well positioned going into 2027. With that, I will turn it back to the operator for questions.

Operator: Thank you. We will now be conducting a question and answer session. We ask that each participant limit themselves to 1 question and 1 follow-up. If you would like to ask a question, please press 1. The confirmation tone will indicate that your line is in the question queue. You may press 2 if you would like to remove your question from the queue. Our first question is from Craig Mailman with Citigroup. Please proceed with your question.

Craig Mailman: Good morning, guys. Bill, appreciate your comment on your market rent growth expectation for 2027. And apologies if I missed this, but did you discuss where you think rent spreads are coming in and maybe give us an update on progress on 2027 expirations to date? I know you used to give this metric in the press release.

William R. Crooker: Yeah. Hey, Craig. Yeah. We did not, we did not include that, but I can I can give an update now? We are about 40% through our, 2027 leasing plan. Those spreads on the 40% were 12% cash rollover spreads. The 1 nuance there is almost all of our fixed renewal options are in that 40%. So when you take those out, the spreads on that 40% was, 17 and a half. We expect leasing spreads next year to be around 15%.

Craig Mailman: Okay. That is helpful. And I know you guys I am asking for 2027 now. I am gonna get greedy and ask for 2028. But a lot of the questions I am getting are just it you guys and some of your peers have talked about the sorta mid to high teens spread for next year. Can you just walk us through the math or how we should think about maybe a normalized rate of desal or where, like, 2028, 2029 could be from a rent spread perspective on a basis? And just kinda walk us through the math and what that could look like.

William R. Crooker: Yeah. I mean, do wanna go out to 2030, 2031 too? Or no? Hey. Listen. If your crystal ball is that good, go for it. No. I understand I understand the question. The way we look at it. I mean, with moderate market rent growth, we are probably in the you know, the low double digits to mid double digits of leasing spreads as you kinda move out to 2028, 2029. I mean, it kind of would not say it bottoms out in 2027, but it is. It should be pretty steady from here on out. Perfect. Thank you. You are welcome.

Operator: Our next question is from Nicholas Thillman with Baird. Please proceed with your question.

Nicholas Thillman: Hey, good morning, guys. Maybe wanted to comment or get your thoughts on the updated deployment strategy. Obviously, the Board authorizing the buyback here. As you look across acquisitions with the interest rate rises, are you seeing more opportunities there? Or do you see opportunity on the buyback? I guess weighing all the buckets you can pick at, where are you seeing the best opportunity to deploy capital today?

William R. Crooker: Yeah. it is interesting, Nick. I mean, it changes. The good thing is the buyback, it is another, you know, tool in our in our toolkit here. So when that is the best use of capital, we will deploy it to that. And if we can find stabilized acquisitions, at higher yields that we like those assets in those markets. We will deploy it there and you know, historically or at least in the, you know, the past year, 2 years, we have seen is developments has been our best opportunity to deploy capital. Right now, we are those developments are yielding 7% plus and build to suits a little bit inside of that.

We saw we were able to pick off some nice acquisitions and in this quarter, I think those came in at about a 6.9% cap rate. So we will look across you know, all those opportunities and you know, frankly, if none of them are what we view as a good opportunity to pull capital, then we will not do any of it. So we have done a good job of allocating capital in the past. And this just gives us another tool to use if we see that as the best opportunity.

Nicholas Thillman: And then maybe for my follow-up just on the overall development leasing and the progress you are seeing at some of your projects, I believe you guys underwrite 12 months post completion for lease up for a lot of these projects. So maybe just some of the bigger ones how discussions have progressed on that front. And where the overall tenant mix and type. And how far along we are within the pipeline, executed deals.

William R. Crooker: Yeah. I can pass over to Steven to walk through the details there. But I will say, our disclosure have developments that we have placed in service that are well within the 12 month lease up. So I think that you know, that is something that needs to be factored into when you look at the progress on developments.

Steven T. Kimball: Yeah. Thanks, Phil. And thanks, Nick. I get a few questions on the development side. Let me frame it a little bit first. We have kind of this is becoming a core part of our business with over $100 million you know, annual starts. And we expect that to trend up as we go forward. So if you are looking at page 10 and 11 of the supplemental you know, we are tracking over $500 million of investment in 16 buildings, and we have we spread that out across 11 markets. And with 20% plus, in the build to suit category. So. And as you 2 were just mentioning, we do underwrite 12 months of downtime for the spec construction.

I think that is why Bill directed you to the couple of deals that we have stabilized and put into service. As of September 30, and those 2 are obviously a 100% occupied. If you put those together with the assets that we are working on right now, that are complete but not in service that bring that occupancy number up a little higher to, like, 37% But on the 1.8 million as a total that we have active projects to work on, let me just walk you through them quickly. In the under construction side, because I think there is some good news there, we are in Kansas City.

With a 188 thousand-square-foot deal. that is a 4% vacancy mark, and we have had excellent, activity on that, Nick. So we feel very good about that project. Dallas, that is a build to suit 343 thousand-square-foot. So construction's on time, and we expect that delivery to be smooth Then the third project is Phoenix, and we are we are only breaking ground in Phoenix. Right now and just starting that construction. But it is a 184 thousand-square-foot project in West Chandler, which is just off the I 10. And the Phoenix dynamics of that market continued to improve with vacancies moving down closer to 9. They were a little bit higher prior to that.

So there is a lot of activity in Phoenix, and we feel really good about those projects. So the under construction bucket, 48% leased, 27 deliveries, and we think we will lease up and feel comfortable with 12 months of downtime. When you move to the more highlighted section, the complete not in service, we are really looking at 3 markets. I think the first property that is listed there, Resource Drive, only have 28 thousand square foot left to lease there. that is currently being demised with office built out. We expect that will be leased up pretty quickly. You move down to Reno, the Mount Anderson Building.

The 284, and candidly, that is the 1 project that probably sticks out that has the most leasing risk right now. The Reno market, when it comes to pure distribution, fulfillment uses and the submarket we are in North Valleys, has been slower. Now the good news there is the trend is that vacancy is coming down. Absorption picked back up in the fourth quarter of 25 and has been consistently positive. But we do have some leasing challenges in the Reno North Valleys market as the traditional fulfillment logistics users have not pushed back out to Reno. So we do have activity there. We have had activity since we delivered it.

We just have not landed those deals as they tend to be multi market. Opportunities, and there is a lot of competition. Moving down to Charlotte, Charlotte is on the list here, but remember, that was a 2-building development. The first building leased within 7 months. We did 4 leases in that building. Just systematically leased it up. We are very active on the building that shows here the 200 thousand. And those leases, you can expect, will come in at 40 to 50 thousand square foot leases, and I would expect we will have 3 or 4 leases to lease up that final building.

When you put the 2 buildings together, we should average 12 or 13 months of downtime to stabilization So feeling good about that market and the progress that we have in Charlotte. And then the large project that really jumps off the page is our 500 thousand square footer in Louisville, Again, a very healthy market. A 5.9% vacancy. We are in the right park. We are in the right submarket. And there is been a lot of very positive activity in that market with some of the competing buildings being taken down, and we are active as well with prospects for that building. So in general, we feel pretty good about the complete not in service portfolio.

No. that is very thorough, and I appreciate the time, guys.

Nicholas Thillman: Thank you. You are welcome.

Operator: Our next question is from David Rodgers with Raymond James. Please proceed with your question.

David Rodgers: Yeah. Hey, good morning, guys. Wanted to ask about the step up in earnings from 3Q to 4Q. it is a pretty strong increase sequentially for this late in the year. So was leasing just well ahead of expectations? You know, is the business just performing better than anticipated? And then you mentioned the same store kind of split between '3 and 4Q. Can you quantify kind of what that looks like from the tenant last year?

Matts S. Pinard: Yeah. So, hey, David. Good morning. it is Max. You are right. You know, if you were to take over the midpoint of our guidance, we would expect step up in corporate flow for the fourth quarter. 1 of the drivers is the fact that what we acquired this quarter occurred literally in the last week of September, so you can get a full a full quarter of economics on the 6.9% cap rate deals. And then the same store. Right? We increased occupancy credit losses, trending much better than we would initially projected in February. We did moderate our expectation of credit loss in the last call, and we continue to outperform there.

Those are the 2 biggest drivers And was there a second part to your question?

David Rodgers: Oh, you know, the. You had mentioned that there was a same store NOI impact from the tenant last year. And I do not know if there is there is. That gonna be a bigger impact or she. what is that look like from a quantification standpoint?

Matts S. Pinard: Yeah. Absolutely. So the simple answer is past same store is 3.9% year to date. And if you adjust the timing, which I will walk into a second, that 3.9% would be 3.6%. So just kind of back up and reframe what occurred A tenant last year in the third quarter was affiliated with the First Brands bankruptcy. We moved them to cash basis. There was kind of a disruption in communication. They are domiciled in Europe. They did not pay rent in the third quarter. They fully paid the third quarter rent and the current rent in the fourth quarter, So no payment in the third quarter, double payment in the fourth quarter.

Again, on a calendar year basis, no impact. But on a quarter to quarter, you know, Q3 artificially high due to the favorable comp, and it would reverse in the fourth quarter. I think really the story here, David, is our 3.9% year to date, if you account for this, timing mismatch in 2025, 3.9 is 3.6% which is in the. Basically, the midpoint of our updated guidance. That clearly answer that question?

David Rodgers: Yeah. I got that. Thank you. that is helpful. And then just as a follow-up, I think Nick asked a good capital equation question. Earlier. But I am curious if you change that 39 where you seem comfortable. So curious if maybe changing that equation of how do we raise money maybe more accretively today to take advantage of this backup in cap rates because this could help you drive growth even more?

Matts S. Pinard: Is that something you are thinking about? Yeah. They. We evaluate everything. We are obviously very familiar with the convert market. You know, the good news is, look, we have a we have a revolver balance of 500 million. We have $70 million of unfunded equity. We retain a $130 million of cash after dividends paid. So we do not really need additional do not need additional capital right now. You know, we would raise capital in the sense that we saw opportunities to deploy it, but where we are right now with where our balance sheet is, our liquidity, and our retained cash flow, we are in a very comfortable spot capital wise.

David Rodgers: Alright. Thanks, guys.

Operator: Our next question is from Michael Griffin with Evercore ISI. Please proceed with your question.

Michael Griffin: Great, thanks. Maybe just starting on the acquisitions environment. I saw the cap rate guidance ticked up marginally. Imagine that was largely due to the acquisitions in the third quarter, But have you gotten a sense if you have seen any repricing or retrading on deals just given the volatility in interest rates recently? Curious if buyer or seller expectations have moved, the bid ask spreads widened, any additional color there would be helpful.

Michael Christopher Chase: Yeah. Hey, Michael. This is Mike Chase. Appreciate the question. I mean, it takes a little while for the volatility to push through the market, but there has been some indications of, you know, higher retrades. And general repricing on deals that are coming to market. Know, I am not. You know, the cap rates. You know, the movement in cap rates will take a little bit to flush through the system, but I would say so far, you know, I would say it is probably somewhere in the 25 to 30 basis points based on kind of the retrades we have we have heard about. Some of those retrades are happening. And some of the sellers are saying no.

And either waiting to see what happens with the capital markets and the and the kind of market volatility. Or, buyers are pushing through. So we have seen a few retrades here and there or and hearing about them.

William R. Crooker: Yeah. We expect it to stabilize if, you know, all else being equal, you know, 35 basis points higher than what it was this year. And the reason for the lag generally is, you know, 1.03 thousand buyers hold up pricing for a little bit. And that usually, as Mike was saying, flushes through within 3 to 6 months. And with respect to our guidance, yeah, really, our guidance was moved and represents very little acquisition activity for the rest of the year just due to the uncertain. Capital markets environment.

Michael Griffin: Thanks. I certainly appreciate the context there. And then Bill, going back to your comments in the prepared remarks about continued improvement in industrial fundamentals. As you talk to your big customers, your big tenants out there, I mean, what are they saying is the reason for this increase demand? Is there more certainty in their business? And, you know, do they just feel more confident about the macro outlook and the need to lease space? And then just also if you could add anything, whether proposal activity, decision timelines have shrunk, you know, some commentary around that would be great too.

William R. Crooker: Yeah. I mean, what we are hearing in there is a couple of demand drivers, and this has been pretty consistent. For the past 6, 12 months is even further, I guess, is our large sophisticated tenants global tenants have said they have wanted to diversify supply chains for years, and that dates back to port strikes and you know, water levels in the Panama Canal and for a number of reasons, diversification of supply chains is important for the business because the disruption is very costly to them. So that takes years and years to implement.

And part of that is, you know, onshoring manufacturing. it is bringing goods into The US through other ports. it is it is near shoring. So that is a demand driver we are seeing. We are also seeing for a couple years there, was some there is a very. A lack of demand, I would say. A couple years were the lowest level of demand we have seen in industrial in a in a decade. That created some pent up demand. And so those tenants are in the market and active. And so I think there is confidence in their in their businesses. Obviously, oil prices are driving, you know, some issues with the economy.

And driving inflation, but overall, business activity remains really strong, and that is a that is a big driver of demand. With respect to call it, least gestation periods, those have short. Those have shortened. Certainly in markets where vacancy has dropped, I mean, 1 of our bigger markets is probably more unique to us, Greenville Spartanburg. I mean, there is some buildings there that over 300 thousand square feet class a facilities beginning at 2025. There was double digit vacancies. that is close to zero now. So that is a market where you know, tenants are looking for space. They are really quickly to take it down because they are going to lose it.

And that you when you have urgency in markets, when you have vacancy rates coming down, that shortens the least gestation periods.

Michael Griffin: Great. that is it for me. Thanks for the time. Thank you.

Operator: Our next question is from Jason Belcher with Wells Fargo. Please proceed with your question.

Jason Belcher: Hi, good morning.

Matts S. Pinard: Matts, just thinking about the ratings upgrade from S&P in August. Can you touch on how that might change the calculus on tapping the public unsecured market? Maybe tell us where you think you could price a 10 year offering today. Yeah. Absolutely. So this is our inaugural rating, from S and P. Previously, we had Moody's and Fitch. Fitch at BBB stable. Moody's at Baa2 stable. And then we originated the S&P rating at BBB stable. And to your point, that was what we felt was a gating item to enter the public bond market. We were looking at the market earlier this year. You know, the capital market world changed, capital deployment has slowed.

So like I explained to David Rodgers, I do not really have a need for long term. Tech capital at this point. Again, with $500 million plus liquidity in the unfunded forward plus the retained earnings. But to directly answer your question, if we were to go to the public bond market, we would likely look at the 5 year tenor. If we looked at the 5 year tenor spreads, they are anywhere between 100 and 110 over.

If we were to look at the 10 year, you know, add an additional 20 basis points to that credit spread, So to kinda sum that up, the all in coupon rate on a 5 year public bond with our 3 ratings would be a little below 6% and closer to 6.25%, 6.4% in the 10 year. But, again, to reiterate, we are we are not actively looking at that We do not have a need for long term debt capital right now.

Jason Belcher: Understood. Thank you. And then just if you could give us an update on your tenant credit profile, if there are any tenant industries that are giving you more concern than others currently, and maybe how that is trended over the past couple quarters.

Matts S. Pinard: Yeah. Absolutely. Happy to report I really do not have a change in the answer to this question from 90 days ago. You know, tenants come on or come off, etcetera, but you know, the theme really is. it is not necessarily sector or business line. it is smaller businesses with higher leverage in low margin businesses, think furnitures for example. You know, we have incurred 12 basis points of credit loss through the third quarter. We started the year at a 50 basis point expectation. We lowered that last quarter when we spoke in July.

The outperformance of credit loss, which is a weird way to say it, but doing better than what we expect is 1 of the primary drivers of the increase of our same store guidance this quarter. Great.

Jason Belcher: Thanks a lot.

Operator: Our next question is from Eric Borden with BMO Capital Markets. Please proceed with your question.

Eric Borden: Great. Thanks, everyone. Thanks for taking my question. Not getting too far ahead of 2027 guidance, but could you just help us think about the building blocks for cash same store outside of contractual rent bumps and the leasing spreads that you are previously discussed. Know, is there anything meaningful from a free rent burn? Or the timing of cash commencements that we should keep in mind?

William R. Crooker: No. Nothing from a free rent. Perspective. Mean, you think about the building blocks. You have. As you noted, it is it is contractual escalators, which are around 3%. We got leasing spreads, which as I noted, we are targeting around 15% for next year. Occupancy is a material driver. We had some occupancy loss this year. I think we have explained it in numerous times, but just assume flat occupancy for next year. And then we bake in 50 basis points of credit loss. Right? So you can back to the envelope that, and you are gonna be you know, close to the mid single digits, you know, c. 5%.

Eric Borden: Great. And then just on the fixed renewal option, how much of the portfolio still has those embedded in how is that exposure trended over time? You know, as you negotiate leases today, are you generally able to move away from those fixed options? Or are tenants still asking for?

William R. Crooker: Yeah. Those are those are not in any of our kind of form leases. When we sign new leases, those are not in there. These are. When you acquire a lease, you acquire a building subject to a lease, you acquire the lease. And sometimes those are in there, and sometimes it takes a, you know, a couple of renewals to get through those fixed renewal options. it is. You know, 3-5% of our portfolio. But think the impact on leasing spreads every year has been consistent the last 3 years. So you know, we try not to back them out of our numbers. They are they are part of our numbers.

You know, the good thing is you are just kicking the can down the road with respect to the rollover rents for those. So, we will we will we will get at those market rents at some point. But it is really year over year, it is not really an impact to same store.

Eric Borden: Alright. Thank you very much.

Operator: Our next question is from Henry Newell with RBC Capital Markets. Please proceed with your question.

Michael Carroll: For Michael Carroll this morning, Just wanted to move back to the acquisition pipeline for another moment. it is a pretty big pipeline. Can you quantify really what portion of this pipeline is maybe in the later stages of negotiation? And would we expect acquisitions to increase in 4Q and moving into 2027?

William R. Crooker: Yeah. So the pipeline. Our pipeline may be. You know, the way may be different than others. The way we define it is you know, deals that we are evaluating have underwritten. You know, maybe they are back on the market. Maybe we are you know, talking about them internally. They are at various stages. So you know, it is it is a pretty healthy number, but those are all the deals we are evaluating in the Some of those deals are. The pricing is too rich for us, but we hang around the hoop and if they can. If the pricing changes, then we will we will be there.

So for us, I mean, when you look at that pipeline, I mean, historically, you know, our hit rate on that pipeline is really low. You know? So when I think about acquisition guidance for the year, and we updated that. We spent a lot of time on it. it is not really factoring in additional. Many additional acquisitions this year just due to the uncertain macro environment. Now with respect to next year, we will evaluate the opportunity. We will evaluate our capital and we will buy what we. What makes sense. You know, based on our free cash flow and our liquidity and that is the calculus we use for next year's acquisitions and, frankly, every year acquisitions.

So it is hard to pinpoint a number at this point.

Michael Carroll: Great. I appreciate that context. And then just on the demand side of things, in Q3 and Q4 to date, are you guys continuing to see lot of really data center adjacent demand? And are you seeing this emerge more or less in any specific markets?

William R. Crooker: I mean, the markets where we are seeing it is where the data centers are. Right? I mean, you are seeing them in the Midwest and the Southeast and Texas and frankly, we have had some really good success on leasing to data center related tenants. And there is been a lot more leasing that frankly, just has not made it into our portfolio because we have buildings in those markets that are occupied. When you look at 2025 last year, I think it counted from 20% of our new leasing in year-to-date 2026. it is about 30% of our new leasing. The good thing is these are long term leases.

The weighted average lease term is between 6 and 7 years. Really good credits. This is. These leases are supporting the ongoing operations of data centers. But I do want to note what is important here is that these buildings were in, were already built. We are in these markets. And we are there to service other demand drivers within these markets. This is just another incremental demand driver in these markets. So a lot of these buildings were leased to either, you know, regional distributors servicing the local economy, servicing a plant nearby. So our buildings in these markets were there for other reasons. This is just an incremental demand driver.

Michael Carroll: Wonderful. Thank you, and congrats on another strong report. Thank you.

Operator: Our next question is from Jessica Zheng with Green Street. Please proceed with your question.

Jessica Zheng: Hi, good morning. So in the last earnings call, you mentioned El Paso as 1 of your weak markets in terms of market rent growth. Can you just walk us through your thesis on the El Paso acquisition in this quarter?

William R. Crooker: Yeah. We like El Paso. We like the long term fundamentals in that market. The El Paso acquisition had a little over 5 years of lease term. it is right near the bridge where a lot of the demand is El Paso, especially cross border demand. So for us, you know, El Paso is going to we think, have some short term struggles, but you know, long term, we really like the market. So that was the thesis behind that acquisition.

Jessica Zheng: Great. Thank you. And then maybe just additionally, I am curious what drove the increase in the G&A guidance? This quarter?

Matts S. Pinard: Absolutely. So the midpoint of G&A increased $2 million with our updated guidance. it is not 1 item. it is it is a collection of items. It includes internal employee adjustments. We have some new hires. You know, every year, have normal course, annual service provider fee increases, true-up of the short term incentive program. So it is not 1 thing. it is a collection of things. But added together, you know, we did increase our G&A. Okay.

Jessica Zheng: that is very helpful. Thank you.

Operator: Our next question is from Sidney McGinty with JPMorgan Chase. Please proceed with your question.

Analyst: Hi, guys. So in your opening remarks, you mentioned expecting rent growth in the 2-4% range next year. Can you just talk a little bit specifically on any green shoots you are seeing in any of your markets in particular that might be making you feel better about market rent growth?

William R. Crooker: Yeah. I mean, it is we operate in a lot of markets, so it is hard to go market by market. But because it is 1 of our top markets, I will go back to the Greenville Spartanburg. I mean, that market occupancy last year, I think, was in. The vacancy rates were in the double digits it is probably mid single digits now. And depending on the product type, it is lower. Right? I think I mentioned over 300 thousand Class A is close to 0%.

So when you look at market rent growth, you also then have to further, you know, look at product type and what assets are in those markets You look at Columbus, great success in that market, lot of big box leasing. it is a big box market. So you are getting really strong market rent growth for big box distribution assets in that market. If you have got a smaller box asset there, you know, market rent growth is probably not as strong. So we take a market by market look, layer on our view of our assets in those markets, and that is where we come up with our market rent growth of 2 to 4%.

And we had this year, we had zero to 2% market rent growth, and like, we are 1.6% year to date. So trending on the higher end of that range in our portfolio and you know, we will see how 2027 shakes out, but we feel really good about the fundamentals. And how our assets fit in those markets. Okay. Great. And then maybe as a follow-up to the acquisition talk earlier, could this rate volatility in the macro environment in the acquisition market currently maybe create an opportunity to acquire assets from smaller developers who might be facing higher financing costs or watch list exposures now? Absolutely.

I mean, this is this is, you know, part of our business, and we were able to find some great opportunities in Q3. Turn the clock back 6 months. We are not able to acquire those assets for a 6.9%. I mean, I think 1 of them, we just talked about the El Paso asset. I think there is some noise there with the short term fundamentals in that in that market. But long term, we really like the market, we have got a 5-year lease to a good credit. So we will be able to get through the short term market issues there. And we got at a really strong cap rate. So, yeah, there will be opportunities.

We will we will look at them, and, hopefully, we will be able to take advantage of them.

Operator: There are no further questions at this time. I would like to turn the floor back over to Bill Crooker for closing comments.

William R. Crooker: Yes. Just thanks, everybody, for joining the call. And thank you for the questions. And we look forward to seeing you soon at the upcoming conferences.

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

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. Parts of this article were created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool recommends Stag Industrial. The Motley Fool has a disclosure policy.