STAG Industrial, Inc. (STAG) Q2 2021 Earnings Report, Transcript and Summary

Greetings, and welcome to STAG Industrial Second Quarter 2021 Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host today, Matts Pinard, Senior Vice President of Investor Relations. Please proceed, sir.

Thank you. Welcome to STAG Industrial's Conference Call covering the Second Quarter 2021 Results. In addition to the press release distributed yesterday, we have posted an unaudited quarterly supplemental information presentation on the company's website at 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 forecast 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 as well as 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 of non-GAAP measures contained in the supplemental informational 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 Ben Butcher, our Chief Executive Officer; and Bill Crooker, our President and Chief Financial Officer. Also here with us are Steve Mecke, our Chief Operating Officer; and Dave King, our Director of Real Estate Operations. They will be available to answer questions specific to their areas of focus. I will now turn the call over to Ben. Thank you, Matts. Good morning, everybody, and welcome to the second quarter earnings call for STAG Industrial. We are pleased to have you join us and look forward to telling you about our second quarter results. This month, we achieved a significant milestone in our company's history. Our portfolio of industrial real estate has surpassed 100 million square feet, tremendous growth from our 2011 IPO portfolio. Even at this size, we continue to see tremendous opportunity to acquire additional assets that are accretive to our portfolio. Our ongoing investments in the platform allow us to identify relative value opportunities across the broad array of primary and secondary markets we are active in. This is reflected in the large size of our current pipeline of potential acquisitions. As we participated in NAREIT and other events in the spring conference season, we were reminded of the growing stakeholder emphasis on ESG. Virtually every meeting included a substantive discussion of at least some element of the topic. It was gratifying to be able to report that our commitment to ESG over the years has placed STAG in an industry-leading position. We recently were awarded a GRESB public disclosure rating of B, well above both the overall industrial REIT average. We are currently preparing our inaugural ESG report, which we expect to be publishing later this year. As a good corporate citizen, our strengths in both social and governance are reflected in the very strong ISS ratings for these components. We are committed to further improvement in these areas and have joined with other REITs in executing the CEO Action pledge on Inclusion and Diversity. As a real estate company, there is elevated focus on the environmental component of ESG. We have been hard at work in this area and are pleased with the results. STAG has become a leader in the photovoltaic deployment arena, with increasing solar panel presence across our portfolio. In November 2020, STAG celebrated the groundbreaking of the largest community solar project in the United States at our project in Hampstead, Maryland. This 9.2 megawatt project will generate low-cost renewable energy and up the power over 1,000 homes, including an allocation to low-income households. STAG is on track to be placed in the top 10 real estate companies in terms of solar energy production as ranked by the Solar Energy Industries Association. We are committed to aggressively seeking opportunities for further solar array deployment elsewhere in our portfolio. A few comments on the market. The underlying fundamentals of the industrial real estate sector remained very strong. Robust reopening demand and supply chain issues caused by transportation, bottlenecks, shipping cost increases, inventory mismatches and labor constraints have caused a resurgence of demand for warehouse space. The effects of this demand resurgence can be seen in the strong leasing economics for existing facilities and the increasing levels of construction being undertaken. Not surprisingly, our operating results reflect these strengths. Demand for our assets has accelerated, tenant retention and downtime have outperformed our historical averages. As a result of these improvements, we are raising our same-store NOI guidance by 1% at the midpoint to a range of 3.25% to 3.75%. This is the highest level of guidance we've provided for this metric at any point during our time as a public company. This strength in internal growth is the primary driver for improved expectations for overall growth and our core FFO per share. Bill will cover this and other items of our guidance in greater detail in a moment. With that, I'll turn it over to Bill to discuss our second quarter operational results.

Thank you, Ben, and good morning, everyone. Core FFO was $0.52 for the quarter, an increase of 10.6% as compared to the second quarter of 2020. Including core FFO this quarter was the impact of inheriting the ownership of a solar panel array on one of our buildings in New Jersey. This resulted in a $1.5 million non-cash increase to revenue, contributing $0.01 to core FFO per share. Cash available for distribution totaled $147.2 million year-to-date through the second quarter, an increase of 17.8% as compared to the first half of 2020. Net debt to run rate adjusted EBITDA was 4.7x at the low end of our guidance range. We acquired 9 buildings for $126.7 million during the second quarter with stabilized cash and straight-line cap rates of 5.7% and 6.2%, respectively. These acquisitions span across 9 different states and included 1 asset in the Stockton market, which has been a focus for that deal team. The strong demand for our buildings is reflected in our reporting leasing stats. Leasing results year-to-date are across 43 leases. e-commerce continues to drive leasing demand, but it's important to note that e-commerce does not simply mean Amazon. We are seeing small logistics companies reconfigure and enhance their real estate footprint. Tenants who traditionally operate offline are now building out new e-commerce operations as they adapt and adjust to the change in consumer behavior that was accelerated by the pandemic. Approximately 40% of the leases commenced this year involve an e-commerce component. This is a trend we do not see slowing down anytime soon. During the quarter, we commenced 23 leases totaling 3.9 million square feet, which generated cash and straight-line leasing spreads of 8.1% and 15.1%, respectively. Retention was 80% for the quarter. As a result of these operating statistics, cash same-store NOI grew 4.4% for the quarter and 3.6% for the year. Both of these metrics are record highs for STAG. Moving to capital market activity, we raised gross proceeds of $42.2 million through our ATM program at a weighted average share price of $34.95 in the second quarter. Subsequent to quarter end, we raised an additional $65.3 million through our ATM at a weighted average share price of $37.98. Additionally, we have $184.1 million of unfunded forward equity proceeds available to us as of June 30. Subsequent to quarter end, on July 8, we closed a $325 million private placement transaction with the weighted average interest rate of 2.82%. This was the lowest interest rate we achieved in this market in the company's history. The transaction consists of 2 tranches, $275 million of 10-year notes with a coupon of 2.8% and $50 million of 12-year notes with a coupon of 2.95%. Funding is expected to occur in September. Our guidance is included on Page 21 of our supplemental reporting package. Changes to our guidance are as follows. As Ben previously noted, we have raised our guidance related to cash same-store growth to a range of 3.25% to 3.75%, an increase to the midpoint of 1%. This same-store guidance increase is driven by high single-digit roll over rents expected for this year and the continued decrease of downtimes for our assets. With approximately $522 million under contract and subject to a letter of intent, our acquisition volume for the year has been increased to a range of $1 billion to $1.2 billion, an increase of $100 million at the midpoint. In conjunction with the update to acquisition volume, we have revised our stabilized cash cap rate guidance to a range of 5.25% to 5.75%, a decreased equal to 25 basis points at the midpoint. We expect straight-line cap rates to be approximately 50 basis points higher than cash cap rates. The expected level of G&A for the year has been adjusted to a range of $45 million to $47 million. Note, this range excludes a one-time non-cash expense related to the adoption of the retirement plan during 2021. Finally, we have updated our guidance related to core FFO for diluted share to a range of $2.02 to $2.04. This is an increase equal to $0.05 cents at the midpoint, representing a 7.4% accretion over the prior year. I will now turn it back over to Ben.

Thanks, Bill. I would like to thank our excellent team for their outstanding work and contributions towards another successful quarter. The first half of 2021 demonstrated the strength of the STAG platform and investment thesis, the demand for our space in our portfolio combined with our increasing opportunities set has positioned the company for a strong second half of the year and beyond. Thank you for your time this morning. We'll now turn it back to the operator for the questions.

[Operator Instructions]. Our first question comes from Sheila McGrath with Evercore.

Congratulations on the quarter. Same-store NOI guidance moved meaningfully higher. I just wondered if you could give us some more specifics, for example, I think Bill, you mentioned lower downtime. What was that like a couple of years ago and how does that compare to now?

Thanks, Sheila. It was a good quarter and we always appreciate speaking with you. So as Bill mentioned, lower downtime, I think, we're probably underwriting 12 months a few years ago as an average downtime across markets, and that's probably closer to 6 months today. And the actual experience is running less than or under -- has been recently running less than our underwriting. So that's a big component obviously. Continued rent growth is a big component as well as the improving contractual rent bumps over time.

Ben, in terms of the contractual rent bumps, same question, like what were they couple of years ago, and what do they look like now?

Sheila, it's Bill. Now they're running on new deals close to 3%. Historically, that was in and around 2%. Renewals at 2.5% to 3%. So we've been -- that we've been experiencing that for the past couple of years, so that's been starting to flow through our same-store numbers.

Okay. Great. And one more question. Leasing spreads were strong in the quarter. I was just wondering if you have a view on where your portfolios in-place rents compare on average to market rents today?

Obviously, there's a lot of different markets, a lot of different assets within those markets and the submarkets. So having -- getting any great degree of specificity is difficult. We are very confident that it is under market, probably in the mid to upper single digits.

And that's what we've been experiencing for all over rents too, Sheila.

Our next question comes from Eman Katzman with Citi.

This is Chris McCurry on with Manny. I was just wondering if you could comment on trends that you're seeing in the transaction market today, both from pricing to buyer competition as well some of the timing of the acquisitions as the pipeline begins to ramp?

Well, I mean, the market obviously is very active. A lot of people have been looking at the industrial sector and seeing the type of supply demand dynamics that will drive rent growth. We talked about shorter downtimes, et cetera, so a lot of people are interested in our platform, our ability to buy individual assets insulates us from some of this more aggressive or new capital to the market. Bill, do you want to add something to that?

Yes. I mean I think the bite-size acquisitions that are bread-and-butter allows us to differentiate ourselves from some of this bigger capital. Cap rates have come down but with the decrease in cap rates, we're seeing better internal growth with these acquisitions, and you're starting to see that flow through our numbers as well. So certainly, more competition. The platform allows us to invest across the 60-plus markets we operate in, more bite-size ranges, $5 million to $25 million in terms of acquisitions.

And just a quick follow-up to that. But for some of those larger portfolio acquisitions, would you look to sell assets to fund some of those? Or could you just comment on the funding strategy for some of the larger acquisitions?

So our funding strategy for all our acquisitions is basically the same. We are looking for accretion to our portfolio. So whether we underwrite an individual asset or a portfolio of a couple of hundred million dollars of assets, we're still looking for the same thing, accretion to our portfolio. Obviously, the diversification benefits of a portfolio offer alternative buyers to us, those diversification benefits without having to -- that you don't get buying individual assets. So we find the capital to be more aggressive on diversified portfolios. Obviously, because of that diversification, an element which just allows them to more easily finance those assets. So where -- our strength is I and Bill have mentioned, is in buying individual assets where the potential downside of a vacant asset or non-renewal or whatever is greater, and we find pricing and efficiency to be greater.

Yes. And Chris, as we look throughout the rest of the year, we're still comfortable with our disposition guidance of $100 million to $200 million. That does not include any portfolio sales, and we're not anticipating any portfolio sales for the rest of the year.

Yes. The mantra that we've talked about before is, if it's worth more to somebody else than it is to us, we're happy to sell it. But it is not a funding mechanism. We're perfectly happy with the accretion that we're getting by issuing common equity and buying assets.

Got it. And then final question here. Just with competitive capital chasing the space, are you looking to build out more developments? Or what are some specific markets that you've been focused on?

So our investments in the platform have been not to build out our development capacity, which we have in-house development capacity. It has been to build out our acquisition team. We've gone from 6 to 11 hour facing acquisition people over the last few years. That has allowed us to identify more individual assets, approach non-marketed assets, so -- where we are the initiator of the discussion and has produced the pipeline of 3 plus -- $3.5 plus billion pipeline that we have today as well as our ability to continue to buy in the volume that we've indicated, despite the fact that our hit rate, the number of deals that we acquire as a percentage of the deals that we underwrite is down this year, but our acquisition volume has been maintained at very high levels because of the expansion of the acquisition team.

Yes. Chris, we don't focus on specific markets, but we certainly have been successful in some new markets. I'd say, one that we've mentioned in the past has been the Sacramento, Stockton, California market. We've acquired close to $200 million over the past two years in that market.

Our next question comes from Elvis Rodriguez with Bank of America.

Just a quick question on the makeup of the pipeline. So I know the volume went up, but the square footage went down -- sorry, the square footage went up, but the dollar price went down. So perhaps you can share any details on sort of the makeup, the markets, the regions quarter-over-quarter? And any relation to the cap rates compression with the change in the pipeline?

So what I alluded to with the -- on the prior question is the fact that we are -- continue to be and even more so broadly looking across these markets. We're looking more deeply in markets because of the breadth of our acquisition team. But this pipeline is made up of circa 85% individual assets that are the product of -- are going on and looking for assets, scouring listings as well as being the initiator of the discussion. So the makeup of our portfolio has not changed markedly in terms of where they're coming from, the type of assets or the potential return.

Got it. And then just a question on the credit facility. So it increased quarter-over-quarter by approximately $50 million. How do you think about using that as a funding vehicle versus deploying forward equity? And then just to add on the forward equity, how do you plan to deploy that for the balance of the year? If you can share an update.

Elvis, so as I mentioned, we raised that private placement, is $325 million, so that will be funded in September, and we'll use that to take care of the line. In terms of the forward equity, we're going to match fund our acquisitions and operate within our leverage levels.

Thanks. And then just one more. TriMas, it seems like you either sold an asset or they didn't renew, perhaps at least that they had. Any update you can share on that tenant?

Yes. In specific case, we had a sub-tenant in that building, so really, the use of the building continued, TriMas was no long -- is not long on the leased-up.

Our next question comes from Dave Rogers with Robert W. Baird.

Ben, I think you've addressed some of these topics before, but I guess I wanted to ask about market rent growth underwriting, and as cap rates come lower, I know you guys have been a total return buyer. But maybe talk about how you've changed, if at all, your market rent growth underwriting expectations? Maybe how much of that's taken up by better escalators? And then maybe the last thing is on cap rate reversion at the end, as you think about exiting at some point.

Yes. So I mean, we are -- one of the differentiators perhaps of our team is that we have a market rent team in here that uses both CBRE and REIS data in addition to our own developed data, to do not only market but submarket rent growth projections for -- in detail annually for 5 years and then looking at long-term growth rates after that. So, we're very specific about the market rent growth for a particular asset and in particular submarket as we underwrite them. So, the market rent growth has been -- because of the macro demand for industrial real estate and then taking that down to individual markets, looking at the supply demand characteristics and the projections for those in individual markets, we're developing what are as you might -- as you are alluding to, better rent growth expected in virtually every market that we look at. I can't think of a market where rent growth is -- expectations have gone down. Even some of the markets that are experiencing significant supply, even those markets, the demand has been strong enough to at least hold up rent growth to where it was. Exit cap has been -- is certainly a part of our analysis because we do both per share metrics that are obviously dependent on our cost of equity as well as levered IRR metrics as a part of our threshold testing. The exit caps we use in those IRR calculations are based on the market, the portfolio impact and putting assets into our -- the specific market, portfolio impact to putting those assets into our portfolio as well as long-term treasury rates curve. So a combination of those things. In virtually every case, the expected exit cap is in excess of our acquisition cap rate.

And on the market rent growth side, I guess, how has that changed for you guys maybe over the last 2 or 3 years? And I guess maybe the point of the question is that, if market rent growth continues to be elevated, should we anticipate cap rates for you guys on the acquisition pipeline in, say, 2022 will continue to kind of drift lower as you have more confidence in market rent?

Well, I think -- I mean, certainly, that's a factor. We're projecting along with the rest of the industry, pretty strong rent growth for the next 5 years. So will that rent growth estimation increase from where it is today? That's a crystal ball item that I don't think we have the answer to. We have a pretty good handle on, given the facts that are on the ground today, the expectations over the next 5 years on an individual market basis. But whether it improves from here, I don't see anything that tell me that, that's going to be the case.

Dave, on that same question, if market rates continue to improve, escalators continue to improve, our cost to capital continues to improve is certainly a case that cap rates could decrease, but we'll still be able to achieve the accretion that Ben mentioned as well as the same long run returns. Yes. Dave, you may have never heard me saying, cap rate is a point in time measure, but it is a point in time measure.

Maybe only once. Well Bill and Ben went for that. Maybe last question is for Dave King or Bill. But on tenant rollover outlook, just as you look through the rest of this year and you get a peak into kind of next year's rollover early in the year. Are we looking for anything that's changed in terms of any exposure?

No, there's nothing out of the normal course. We expect retention to be in our historical range. We expect rolls to be generally up. So nothing concerning on that front.

Dave, earlier this year, we mentioned beginning of the year, mid to high single-digit guidance for roll over rents for '21. We're forecasting high single-digits this year now just due to some of the rent growth in some of the leasing successes Dave's teams had.

Our next question comes from Michael Carroll with RBC Capital.

Yes. Can you provide some color on property level trends and how they differ, I guess, between your markets? I mean, are you seeing greater demand activity or rent growth in your larger markets such as Chicago, Philadelphia or Boston compared to maybe the smaller or regional markets? Or how should we think about that?

I mean it is market-by-market, Mike, it's a little harder for us to answer that, just given how many markets we operate in. I would say the markets that continue to be extremely strong are some of the bigger markets, New Jersey, Philly, some of our West Coast markets, Sacramento, Phoenix but Detroit is seeing extremely strong rent growth right now, Raleigh, smaller market, but extremely strong rent growth. And then I would say on the other side of things, Houston is still struggling a bit, but continues to improve. So that was probably one of the weaker markets that we've had, and that continues to improve, as I said.

Okay. And then, Ben, related to one of Dave's questions, you highlighted you're still seeing some pretty strong rent growth even in markets where there is significant supply. I mean, can you highlight what markets that you're seeing significant supply and maybe the type of rent growth you're seeing in those markets versus the portfolio in general and has it differed at all?

Well, I'll just make some general comments, not get in to specific markets. But for instance, well, and then I get into a specific market. Lehigh Valley, I think people, 1 year, 1.5 years ago, were very worried, or probably 2 years ago, were very worried about that market because of supply, the advent of the pandemic, the acceleration of e-commerce, et cetera, has, if you will, fix that market. And so you're back to expectations for strong rent growth there, where that would not have been the case a couple of years ago because of supply concerns. But again, we're underwriting every market individually. In -- the fact of the matter is, if our expect -- we talked about this before, if our expectations for rent growth in a market are significantly lower than the other participants in that market, we'll probably won't be buying in that market. If we think that rent growth is going to be higher than the other participants, we'll probably be an active buyer in that market. So we continue to look for overlays where the risk were being overpaid for the risk we're taking.

Okay. And then I guess investment activity, I mean, you increased the guidance, I guess, for 2021. I mean, can you point to what allowed you to increase the bottom end of that range? Is it just that the deal activity you're seeing your more confident to be able to close on? Or are there deals that you have under contract or advanced negotiations that you see a pretty good line of sight of completing this year?

Yes, Mike, as I mentioned in the prepared remarks, we have $522 million under contract and subject to LOI. And so you couple that with what we've closed year-to-date, including the subsequent and we're close to $785 million under contract LOI or closed as of today. So, still a lot of time to put deals on the contract and close them by year-end, which gave us the confidence to raise the bottom end of the guidance.

Yes, we would have been at the bottom end of the old guidance with what we have today. Alluding -- back alluding to the expansion of our deal teams and the support teams that work with them, we just have more capacity now. And so we're very confident of our ability to, during the intervening 5 months or so, the remainder of the year, to identify a significant number of additional transactions, which led us to increase that guidance.

Yes. I think COVID had an interesting impact on the overall industrial sales market. I mean last year, the market had, I think, the most transactions ever in Q4. And what that created was a very slow Q1, not just for us but for the entire market and then there was a lot of RFPs started coming to market in Q2. And so this year, not only are we going to have a big half -- big second half of the year, but the overall industrial market will see arguably record sales in the second half of the year.

Okay. And then, Bill, you did talk about this, I guess, in the Q&A, but I kind of want to touch back on the competitive landscape. And I mean, has it changed at all with the deals that you're targeting in these smaller transactions? And are you seeing larger funds going after some of these smaller bite-size type transactions? Or it's still just the same competitors that you have been seeing over the past several years?

Seeing a lot of the same competitors. I mean, as you know, we still compete with deals above $25 million, and we're bidding on them, actively bidding on them. We're competing. We're seeing some of those deals, we're getting priced out of some of those bigger deals just because of the way the capital is chasing industrial. We saw some players that typically -- and these are other public REITs that typically are not that active in the industrial market, more on the net lease side of things, being very aggressive, an example, South Dallas and some of the Dallas-Fort Worth market. So, we're seeing some increased competition in those bigger asset deal sizes. But on the bread-and-butter $5 million to $25 million transaction, it's the same competition that we've competed with historically.

Our next question comes from Bill Crow with Raymond James.

Congratulations as well from me. Ben, is there any reason why the higher same-store guidance shouldn't persist next year, 2023, 2024, given your comments about the 5-year outlook?

Obviously, every year has this individual syncrasy, that our long-term building blocks of growth slide has suggested 2% to 3% as our expectation longer term. Having said that, we're in a pretty good environment these days, and so expectations are probably at the upper end of that guidance, and we'll see what the years hold.

But I guess the portfolio has gotten so big that it's tough to point to individual properties or markets that would derail something like this, right? I mean it's just --

I would agree with that.

Bill, we'll give specific guidance for 2022 in the normal course, but the trends are very positive for industrial...

No, I am not looking for guidance. I'm just trying to think about what might derail us from this position we're at today.

Bill, I mean you and we've talked about this many times before. The fact of the matter is, industrial in general and our portfolio in particular, although not immune from risk, is pretty well insulated from risk because of diversification.

Yes. Okay. You talked about the solar array and recognition you've received from some of that. What is the economics to STAG from increasing your solar presence?

Well, there's a number of things to think about. One is certainly just the economics where we're getting -- typically, we do an upfront payment, so a 20-year lease, 15, 20 year lease, we do a single rent payment upfront. So the economics -- that gets spread over the life of the lease. So we are leasing the roof space to a solar operator and they are handling what happens with the power being generated. We are in actual ownership of PV arrays in at least one case and will be in more. Some of the things that that will do is -- we expect that to be able to get to carbon neutrality through that over some period of time. So what I would describe is organic carbon neutrality. We're not buying credits. We're developing credits for our Scope 1 and Scope 2 carbon load. So, we think that is a -- potentially a big benefit to us from an investor relations, ESG compliance, et cetera, basis, accessing to green bonds, access to ESG, equity funds, et cetera. So, there are certain markets where we can generate power with PV even without credit at a significant discount to the local grid and cost for electricity. And so there's a variety of ways that the economics make sense for us. And we certainly have tenants that are interested in the -- given their own ESG desires and goals, to have a PV array on their buildings, even though they may not, even -- whether they own or we own it. So variety of ways that will benefit us both from an immediate economic impact as well as a long-term good citizen impact.

Our next question comes from Chris Lucas with Capital One.

Just a couple of quick ones from me. Bill, on the guidance increase for G&A, what's the driver behind that?

That's primarily short-term incentives, Chris. Our methodology for that is looking at various operating metrics, including core FFO, same-store leverage, based on those operating metrics that drive short-term incentives. So with the outperformance this year, our short-term incentive has been increased.

Okay. And then as it relates to the private placement, I guess, just kind of curious, if you could walk me through how you thought about the private placement versus a public market deal and what sort of pluses and minuses you had to go through before deciding on the private market placement?

Yes. We spent some time considering both the markets, ultimately decided with the private market due to a number of reasons. First and foremost, price. We still had a lot of depth in that market. We had over $1 billion of commitments for this transaction. We were also able to get a delayed draw feature, so we're able to pull that down 3 months later after closing.

And ultimately, it's price, and when you think about net price with fees, it was just significantly cheaper in the public market when we priced it. And the last piece is, obviously, the private market is perfectly happy with our current ratings. If we were going to go into the public market, there would be at least some potential for us needing to get another ready. It doesn't -- isn't necessarily so, but there'll be some potential for that.

Okay. Thanks for that, Ben and Bill. And then, Ben, just maybe shifting to you. You've talked a little bit about some of the supply discussions that have sort of been in the conversation with industrial over the last couple of years. Are there any markets that you're looking at today where new supply is a risk factor that you're meaningfully concerned about? Or is the environment with the demand side just overwhelming, so it's not really...

Yes. Chris, I mean, we tend to look at -- on a -- not on a binary basis but on a considered basis. So the impact of not only supply but plans for supply impact our rent growth forecast and impact our downtime forecast, individual -- looking at individual markets. So there's certainly no market out there that we view as having a black mark against it and that we don't want to invest in, but it does inform us on our -- in our underwriting as to what rent growth might be as well as potentially downtime.

Okay. And then the last question from me, has to do with -- or what was that going to go with this? I just lost it. Never mind. I appreciate the time this morning. I'll get back to you when I remember.

Chris, we're always happy to respond to your queries individually or in this forum.

[Operator Instructions]. Our next question comes from John Massocca with Ladenburg.

Apologies if I missed this earlier in the call, my connection cut out, but how much roughly of the per share guidance increase was tied to maybe some positive surprises with regards to cost of capital? And was the remainder of the kind of core FFO guidance increase all just the same-store, if not all of it, if there was any kind of capital, cost of capital component of it?

Yes, John. So clearly, there are a myriad of factors that contribute to the increase in guidance. I think that the same-store, which is the portfolio itself, the very strong performance there was the principal factor driving that. Cost of capital certainly helps, but the principal driver was same store.

And John, I did mention in the prepared remarks, there was a one-time non-cash increase to revenue related to the inherence of solar panels that are one of our properties in New Jersey. So that was -- that contributed about $0.01 to core FFO in the second quarter.

Okay. And basically, those 3 components are kind of -- the investment activity is going to be so back-end loaded, it probably won't really impact your guidance.

Yes, that's right. As Ben said, I mean, that was a very little impact, the cost of capital. It was really the operating portfolio that's driving a lot of the growth.

And then maybe in terms of the investment activity and kind of how it's varied quarter-to-quarter in the current year, is there any potential impact that may have on timing in 2022? I mean, could we see either acquisition volume maybe front-end loaded? Is things potentially leaked over into next year? Or is it -- is this kind of very kind of 2H heavy investment volume kind of schedule, maybe the norm just given some of the gives and takes coming out of the pandemic?

John, I mean, I think the pandemic certainly has affected everybody's calendar. But the cadence of acquisitions has intended to be through our history and through my time prior to this has intended to be very similar. First quarter is almost always light because the real estate industry takes a pause at the end of the year. So as you begin the first quarter, you're sort of spinning back up. The fourth quarter tends to always be heavy because people want to get things done before year-end. We expect, as Bill alluded to in terms of our under contract and LOI numbers, we expect an unusually big third quarter in terms of acquisitions this year. So that's a little out of cadence and that you probably could ascribe some -- certainly could describe some reopening pandemic effects there.

Okay. And then with regards to kind of the in-place portfolio, you look at some of the re-leasing potential and some kind of leases come due and vacancy gets this stuff. How are you looking at term just given some of the strengths in the market? I mean, is there more of a bias now towards shorter term leases? I mean, should we continue to see longer term leases? Just kind of what are the pushes and pulls there? And we might kind of that weighted average lease term migrate down, just given maybe the benefit that accrues to STAG in some of these re-leasing transactions or reaching up renewal transaction.

Yes, John, the nature of the negotiation, and it is a negotiation with the individual tenants is they have a goal, and if you try -- what they're looking for in a lease term, if you try and move them off that goal, there's probably a cost to you. So if they're really hard set on a 3-year lease because they have some -- looking for some optionality at the end of 3 years, and you say, no, I need you to sign a 10-year lease, you're going to have to give out something obvious to the economics to get that. So the result of the negotiation, I mean, we go into negotiations with looking for a 1,000-year lease with 3% bump, no, not quite that bad. But we're looking for longer leases with fixed rent bumps, and they're looking for probably optionality with a bunch of option, term extension options. So it is a negotiation. We won't -- we go in looking for the best deal for our shareholders. So I mean in a market where we're expecting strong rent growth for 5 years, we're probably perfectly happy with a 3-year lease. But we underwrite it based on our expectations for the market, tenant retention, et cetera.

But the bias would still be longer even given, obviously, some of the positive spreads we've seen and lower downtime. And there isn't any thought process on your end to maybe seek some of these shorter leases just given -- understanding in-place leases obviously be attractive, but maybe even leases you originated to get shorter term.

If you get to the propensity to renew. So if you're giving that tenant optionality to non-renew earlier in the potential tenancy of that tenant, that's going to weigh heavily on your potential cash flows over time. If you have a very high -- they have a very high propensity to renew, always less of an issue. But if you're -- if you have a tenant that is, let's say, it's a coin flip, whether they'll renew or even 75% retention, introducing that 25% non-retention is pretty deleterious to your cash flow projections. So again, we're -- it's a negotiation. There's probably generally a preference to longer-term leases unless we have some unbelievably high belief, unbelievably high belief. Can I use belief 3x in a sense? That the tenant is going to renew even with short-term leases.

Thank you. There are no further questions in queue at this time. I would like to turn the call back over to Mr. Ben Butcher for closing comments.

Thank you very much, operator, and thank you, everybody, for joining us this morning. Obviously, a very good quarter for us and very proud of what my colleagues achieved here, and our expectations going forward are with this team. The continued success and the market is certainly supportive of that contention. So thank you for joining us this morning, and we look forward to talking to you next quarter.

Thank you. This does conclude today's teleconference. You may disconnect your lines, and thank you for your participation and have a great day.