STAG Industrial Inc

NYSE:STAG

Earnings Call Analysis

STAG Industrial Reports Robust 2023 Results

STAG Industrial celebrated a banner year in 2023, achieving record leasing spreads and same-store NOI growth, spurred by high single-digit market rent growth in their property portfolio. Despite a national market rent normalization, non-coastal areas, where STAG is well-represented, outperformed coastal markets. A surge in domestic manufacturing, up by 60%, bodes well for STAG's demand as a warehouse distribution facilities provider, even amidst a 4.9% vacancy rate and reduced future supply forecasts. Core FFO per share increased to $0.58 for the quarter, up 3.6% annually, with cash available for distribution rising to $361.3 million, a 5.4% year-over-year gain. Dividend payout ratio saw a drop from 78% to 75%, with $90 million retained for reinvestment and corporate needs.

A Strong Operational Year and Positive Growth Prospects

The company highlighted 2023 as one of its best operational years, setting records in leasing spreads and cash same-store net operating income (NOI). Benefiting from high single-digit market rent growth, the non-coastal markets, where the company has a strong presence, performed particularly well. This operational success was underpinned by robust retail sales, the e-commerce sector, and a 60% surge in domestic manufacturing space requirements, emphasizing the demand for warehouse distribution facilities in the company's portfolio.

Strategic Acquisitions and Development Projects

The company reported a total acquisition volume of $48.7 million in Q4, which comprised two buildings at cap rates of 6.5% and 6.9%. They highlighted specific investments in Nevada and South Carolina, demonstrating an ability to secure off-market deals and negotiate leases beneficially. Additionally, they anticipate leasing a significant space of their 715,000 square feet project in South Carolina during the first half of 2024, signifying their strategic growth through development and value-add activities.

Financial Performance and Capital Market Activity

Core Funds From Operations (FFO) per share increased to $0.58 for the quarter and $2.29 for the year, up 3.6% from 2022. The company maintained strong liquidity, with year-end cash available for distribution at $361.3 million, a 5.4% increase from the prior year. Leverage remained under control with a net debt to EBITDA ratio of 4.9x, and the dividend payout ratio dropped to 75%, showing clear signs of sustainable financial health. In terms of capital markets, the company issued shares under their ATM program, contributing to a total of $63.9 million in gross proceeds.

Guidance for the Year Ahead

The company expects continued growth with same-store cash NOI projected to increase between 4.75% and 5.25%. Retention rates are anticipated to be in the 70-75% range with cash leasing spreads expected between 25-30%. An important note is that 69% of their projected leasing for 2024 is already addressed with an aggregate cash leasing spread of 29.5%. They estimate acquisition volume to range from $350 million to $650 million, targeting a cash capitalization rate between 6% and 6.5%, while disposals are guided to range from $75 million to $125 million. In the broader financial perspective, core FFO per share is expected to be between $2.36 and $2.40, and net debt to EBITDA to range between 5x and 5.5x, indicating strategic balance sheet management.

Earnings Call Transcript 2023-Q4

[Operator]

Greetings, and welcome to the STAG Industrial Fourth Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Steve Xiarhos, Investor Relations. Thank you, Xiarhos. You may begin.

[Steve Xiarhos, executive]

Thank you. Welcome to STAG 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, same-store NOI, G&A, acquisition and disposition volumes, retention rates and other guidance, leasing prospects, rent collections, industry and economic trends and other matters.

I encourage all listeners to review the more detailed discussion related to these forward-looking statements contained in the company's filings with the SEC and the definitions and reconciliations of non-GAAP measures contained in the supplemental information package available on the company's website.

As a reminder, forward-looking statements represent management's estimates as of today. STAG Industrial assumes no obligation to update any forward-looking statements.

On today's call, you will hear from Bill Crooker, our Chief Executive Officer; and Matts Pinard, our Chief Financial Officer. Also here with us today is Mike Chase, our Chief Investment Officer; and Steve Kimball, EVP of Real Estate Operations, who are available to answer questions specific to the areas of focus.

I'll now turn the call over to Bill.

[William Crooker, executive]

Thank you, Steve. Good morning, everybody, and welcome to the fourth quarter earnings call for STAG Industrial. 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-store NOI. These leasing spreads and same-store NOI growth were driven by continued market rent growth in our portfolio. 2023 market rent growth for our portfolio was high single digits.

On 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% 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 STAG 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 year -- 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 leasing we expect to accomplish in 2024 or approximately 9 million square feet at cash leasing spreads of 29.5%.

Moving to acquisitions and development. As discussed on 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 2 buildings with cash and straight-line cap rates of 6.5% and 6.9%, respectively.

In October, STAG closed on a 165,000 square foot front load building for $30 million at a reported cap rate of 6.1%. Located in the spark submarket 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 mark-to-market opportunity within a low vacancy submarket.

Also in October, STAG 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 on development for $18.7 million. The adjacent buildings are well located in the Spartanburg County, South Carolina, with direct frontage on in visibility to I-85.

STAG's ability to source the deal off market after another buyer failed to perform, gave STAG the opportunity to buy the assets at a below-market basis. STAG was able to negotiate a lease staring 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's 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 3 projects located in the Southeastern U.S. We achieved substantial shell completion and our performing office build out work on our 2 building 715,000 square foot project in Greer. This project is located next to the Inland Port, airport, BMW manufacturing facility, and I-85 in the Greenville, Spartanburg, South Carolina market. Activity remains healthy, and we anticipate leasing a meaningful amount of the space in the first half of 2024.

The third development project is our 2-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 and 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 Matts, who will cover the remaining results and our guidance for 2024.

[Matts Pinard, executive]

Thank you, Bill, and good morning, everyone. Core 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 4.9x. Liquidity 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 in 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 ATM program at a gross share price of approximately $38.88 resulting in gross proceeds of $22.1 million.

As of today, we have approximately $63 million of forward equity proceeds to be able to fund at our discretion. The equity will be used to match fund our acquisition development pipeline.

There are minimal debt maturities coming up this year, with a $50 million private placement note maturing 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%, incurred by a 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% and 13 million 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 the 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 NOI 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 million to $650 million, with a cash capitalization rate between 6% and 6.5%. Disposition volume guidance in a range of $75 million to $125 million. G&A is expected to be between $49 million and $51 million. And finally, we expect net debt to annualized run rate adjusted EBITDA to be between 5x and 5.5x.

I will now turn it back over to Bill.

[William Crooker, executive]

Thank you, Matts. I want to thank our team for their continued hard work and achievement of our 2023 goals. Our team continues to drive value in all macro environments. STAG is extremely well positioned for sustained growth through our operating and acquisition platform.

With that, I will turn it back to the operator for questions.

[Operator]

We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Craig Mailman with Citi.

[Craig Mailman, analyst]

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 this 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 closer to 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.

[Technical Difficulty]

[Operator]

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.

[William Crooker, executive]

Hello?

[Craig Mailman, analyst]

Hi. Can you guys hear me?

[William Crooker, executive]

Yes. Sorry. I don't know what happened there.

[Craig Mailman, analyst]

No worries. Did you hear my question? You want me to start over?

[William Crooker, executive]

Yes. 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. It gives us more confidence than we did last year.

[Craig Mailman, analyst]

And do you have anything kind of close to LOI or going under contract at this point?

[William Crooker, executive]

Not right now. What happened at the end of last year were brokers and sellers -- brokers are 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.

[Nicholas Joseph, analyst]

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 can 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?

[William Crooker, executive]

Yes. I mean it is -- we operate in the CBRE Tier 1 market, so it's a wide range of markets. I would say the markets that are -- 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 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.

[Operator]

Our next question comes from the line of Vince Tibone with Green Street Advisors.

[Vince Tibone, analyst]

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 core stabilized cap rate to one where you're taking on the leasing risk?

[William Crooker, executive]

Yes. 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 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, negotiated lease staring diligence and put a tenant in there with a 5-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 in the -- when you look at some of these deals that have finishing out developments or have some value-add component, putting more docs in, doing some parking work, expanding the truck court and those type of things, you start to increase the return as compared to a stabilized deal.

[Vince Tibone, analyst]

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 in 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?

[William Crooker, executive]

Yes. 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 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 say -- I mean, Q3 and Q4 of '23. There weren't a lot of stabilized acquisitions on the market, and part of that was just the volatility in the debt cost. And now we're starting to see more of those stabilized opportunities.

So my guess is there's going to be some split, probably way to more to stabilized deals, but there'll certainly be some value-add redevelopments and hopefully, some more of these developments that we announced last year. But it will be weighted more to stabilized deals.

[Operator]

Our next question comes from the line of Bill Crow with Raymond James.

[William Crow, analyst]

Bill, in your opinion, what is this bringing sellers back to the table after kind of a quiet period for the last couple of years? Are they looking at fundamental concerns and rising vacancy rates? Are they figuring they missed the bottom on cap rates and that they might drift higher? Or what is causing that switch in their mentality?

[William Crooker, executive]

Yes. 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 the volatility in interest rates, the rapid rise in interest rates, 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 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 6 to 9 months, that gives sellers the confidence that they're selling at a market price versus a price, maybe, that is not market.

[William Crow, analyst]

But the asset you acquired, the newly developed one in the 7.1% turned into a 7.6%. I guess, where is that -- how does that compare to the construction costs that were -- the development cost of the seller?

[William Crooker, executive]

Steve, Mike, I don't know if you have that?

[Unknown Executive]

Yes. 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.

[William Crooker, executive]

Yes. I think in this transaction, Bill, the seller -- I mean, 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.

[William Crow, analyst]

All right. I appreciate that. I'll leave it there.

[Operator]

Our next question comes from the line of Samir Khanal with Evercore.

[Samir Khanal, analyst]

I guess, Bill or Matts, 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?

[William Crooker, executive]

Yes. We -- last year -- Matts, 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.

From an -- we look at it on occupancy, average occupancy, average occupancy in our same-store pool last year was down 30 bps. And we're guiding to average occupancy in 2024 down 50 bps. I mean, when you think about the supply coming online, it's -- we had a fair bit of supply come online in 2023. That's getting absorbed. We have another 2.2% of supply coming online in 2024. But development starts are down 65% year-over-year.

So I feel like, overall, national vacancy rates are going to tick up as we move through the year. And 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-store pool.

And that's offset by some really strong rollover rents again. We're guiding 25% to 30%. We signed almost 70% of our leases for 2024 at close to 30% today. So we feel pretty good about where our same-store is coming in at the initial guide here.

[Samir Khanal, analyst]

I guess as a follow-up to that, I mean, like you said, you are signing close to 30% and then your guides like 25% to 30%. I guess -- what's driving that a little bit, kind of on the pricing power side. I mean, are you seeing anything material? Or are you just sort of being conservative here?

[William Crooker, executive]

I mean, part of it is -- and this goes down to our basic thesis here is when we buy properties, we make sure those properties fit the submarket really well. And fit the teeth of the demand in those submarkets. So by having those type of assets, we're able to push rents because demand is really high.

There is anticipated leasing in the back half of '24, which we're forecasting spreads for, but there's 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're about 60%, 61%. So we're ahead of where we were last year in terms of leasing.

[Operator]

Our next question comes from the line of Blaine Heck with Wells Fargo.

[Blaine Heck, analyst]

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 expanded, and that's what's driving a little bit more of the acquisition expectation?

[Matts Pinard, executive]

Blaine, this is Matts. I think we can start with the cost of debt. You look at our investment-grade balance sheet, we have a mix on there. We have a mix of term loans and private placement notes primarily.

So the original tenures of those instruments are 5 years, 7 years, 10 years. You take a look at the 10-year, it bounced around recently, particularly yesterday.

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 3 years, a lot of that is related to the 10-year.

If we think about capital allocation for this year, 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. We're going to have those proceeds to deploy as well.

And then, what I do think is 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 take that and then you take a look at the balance sheet, it's under-levered compared to our -- to a range of 5 to 5.5. So we have a lot of what we need right now. And with the movement in 10 years, yes, it does have an impact on our cost of debt.

[Blaine Heck, analyst]

Okay. 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?

[William Crooker, executive]

And some of the things I said in the prepared remarks, I mean, just where -- and in 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 where the vacancy is now, so the vacancy is generally big boxes, call it, 400,000 square feet and above.

And so when you look at where the demand is, it's on the smaller boxes. We're seeing -- still seeing nearshoring demand. We're anticipating some onshoring demand in the coming years. And then the way our buildings fit the submarket, 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- to high, and we ended up at a little north of 8%. And this year, it's -- 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.

[Operator]

Our next question comes from the line of Camille Bonnel with Bank of America.

[Jing Xian Tan, analyst]

Can you expand more on the 31% outstanding leasing you have less 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?

[William Crooker, executive]

No big concentrations in any one market. No -- 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 box, small box. More of it's back-end weighted, which is why our range leasing spreads is 25% to 30%, and we're coming in close to 30% for the amount we've leased to date.

So that -- because if 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.

[Jing Xian Tan, analyst]

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 you 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?

[William Crooker, executive]

Yes. So one thing, I'm not going to comment on where the sell side comes, and I think you guys have your own models there. But for this year, our same-store cash NOI came in at 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-store NOI. Every year, you've got some nuances in that number with -- in terms of CapEx, but CapEx has averaged anywhere from $0.25 to $0.30 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.

[Operator]

Our next question comes from the line of Michael Carroll with RBC.

[Michael Carroll, analyst]

I know Bill that STAG is pursuing a lot of active development projects, I mean, I guess, a few right now. Guess what's the opportunity set here? I believe earlier in the prepared remarks, you said there was, what, 25% of the pipeline developments. I think you threw around a lot of numbers, so 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? Or how many do you want to pursue in 2024?

[William Crooker, executive]

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. Of that, call it, 15% to 25%, 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 billion only includes land cost. So if it's a $50 million project, it's $10 million of -- that's in our pipeline today. We haven't guided to specific development projects, more starts, right? So we've got 2 that are on -- 3 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'll certainly let you and everyone know of those projects.

[Michael Carroll, analyst]

Okay. Great. And then 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 some of these developments are in process to get leased. Does that give you more capacity to pursue more starts?

[William Crooker, executive]

Yes. 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 that opportunity. The way we view it is outstanding developments, obviously, build-to-suit is less risky, depending on the rights that the tenant has to bow out of that in case something were 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, 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 of the project, obviously, it impacts the capital a little bit more than a build-to-suit with very limited rights for the tenant to bow out of that.

[Operator]

Our next question comes from the line of Nick Thillman with Baird.

[Nicholas Thillman, analyst]

Maybe just touching a little bit on the dispositions and kind of the composition or write-down of that, is the bulk of that is just going to be that non-CBRE Tier 1 market that you guys are trying to basically concentrate in and just kind of basically putting the portfolio here? Or are we -- are you kind of just viewing this more as like sources for the acquisition pipeline?

[Matts Pinard, executive]

Nick, this is Matts. Yes. So our disposition guidance of $75 million 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 disclose. And on the flip side, on the opportunistic, those are generally reverse inquiries from users. 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.

[William Crooker, executive]

And Nick, I think you correctly pointed out. The non-core dispositions are primarily those non-CBRE Tier 1 markets that were legacy properties.

[Nicholas Thillman, analyst]

That's helpful. And you guys kind of touched a little bit on weakness in big box demand. But maybe just on like the pricing and what you're seeing in underwriting for acquisitions and 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?

[William Crooker, executive]

Yes. 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 1.5% escalators, and that's going to trade much differently than a small box that has a 5-year lease and 4% escalators. Mark-to-market, obviously, is going to be impactful too.

If you've got a big box that's got a 5-year lease in a market that has historically been a strong big box leasing market, I think that trades pretty close to some of the small boxes with 5-year leases.

It's really -- if the property, the building fits the submarket well and it's got enough term, I think it's going to trade pretty reasonably.

With all that being said, we're just -- deals are coming out. They're still coming out. We're hearing some deals come on to price agreement. It takes some time for these deals to close. So all of that will be vetted in the next couple of months, and I think it will give us and others more certainty as to where these deals are closing.

[Operator]

Our next question comes from the line of Eric Borden with BMO Capital Markets.

[Eric Borden, analyst]

Just sticking with the disposition theme, how much of the portfolio left of the portfolio is the non-core legacy non-CBRE Tier 1 markets that could be disposed of to use for future funding sources?

[William Crooker, executive]

Yes. So I do want to point out that we do have a portion of our portfolio that is non-CBRE Tier 1 that we really like and is not part of our non-core portfolio. But we generally look at circa 5% of our portfolio is something that we are constantly evaluating for disposition to improve the quality of the portfolio.

[Eric Borden, analyst]

Okay. That's helpful. And then maybe one for Matts on the guidance. 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?

[Matts Pinard, executive]

Yes, absolutely. Look, there are 2 drivers. Number one is G&A and the other is interest expense. At the midpoint of our G&A guidance, G&A is 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, that's a little more expensive now.

The one point I do want to point out on the scalability and G&A, if you took a look at the past 2 years, that the average growth is roughly 1%. So G&A in guidance will grow 5%. That's part of what's bringing that delta.

[William Crooker, executive]

Yes. 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 to core FFO, that's a GAAP number. And typically, that number is less.

[Operator]

[Operator Instructions] Our next question comes from the line of Mike Mueller with JPMorgan.

[Michael Mueller, analyst]

Pretty much everything has 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 spending the capital to do it? So I guess, how those relative returns look?

[William Crooker, executive]

Yes. 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 5-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 through now and taking on development risk, but we have not taken on -- taking 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 take on that development risk. And if you were to take on the permitting at another 25 to 75 basis points of return. So -- but with all that, it becomes additional risk and additional time.

[Operator]

Mr. Crooker, we have no further questions at this time. I would like to turn the floor back over to you for closing comments.

[William Crooker, executive]

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. I look forward to seeing you all soon. Take care.

[Operator]

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.