STAG Industrial, Inc. (STAG) Q4 2025 Earnings Report, Transcript and Summary

Greetings, and welcome to the STAG Industrial, Inc. Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Steve Xiarhos, Vice President, Investor Relations. Thank you, sir. You may begin.

Thank you. Welcome to STAG Industrial's conference call covering the fourth quarter 2025 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 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 are Mike Chase, our Chief Investment Officer; and Steve Kimball, our Chief Operating Officer, who are available to answer questions specific to the areas of focus. I'll now turn the call over to Bill.

Thanks, 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 discussing the fourth quarter and full year 2025 results. We will also provide our initial 2026 guidance. As I look back on 2025, it was arguably one of our more successful years. We outperformed almost all of our budgeted metrics, including occupancy, credit loss, leasing spreads, same-store cash NOI, development starts and core FFO. We grew same-store cash NOI by 4.3% and grew core FFO per share by 6.3%. This growth was supported by an improved industrial supply backdrop with deliveries down almost 35% versus 2024. Most of the markets we operate in remain healthy from both a supply and demand standpoint with positive rent growth across almost all of our markets. While many business leaders remain cautiously optimistic, we are seeing increased tenant activity across our markets. Economic growth has begun to improve and meaningful investment has followed. We expect 180 million square feet of deliveries or less this year, much of which will be driven by build-to-suit transactions. We anticipate that net absorption will improve in 2026, contributing to another year of positive rent growth across our markets. We expect national vacancy rates to peak in the first half of this year with an inflection point in the back half of 2026. 2025 was a high watermark for leasing volume for STAG. We expect 2026 to follow suit, driven by a record amount of square footage expiring in a calendar year for our company. I'm pleased to report that we have addressed 69% of the operating portfolio square feet we expect to lease in 2026. We project cash leasing spreads of 18% to 20% for 2026. This leasing success is a testament to the quality of our portfolio and a welcome sign of tenant engagement and commitment to their space. Q4 was the most active transaction quarter of 2025. This was due in part to less macro volatility, which brought sellers to the market in the second half of the year. Acquisition volume for the fourth quarter totaled $285.9 million. This consisted of 7 buildings with cash and straight-line cap rates of 6.4% and 7%, respectively. These buildings are 97% leased to strong credits with weighted average rental escalators of 3.5%. Subsequent to quarter end, we acquired 1 building for $80.6 million with a 6.1% cash cap rate. This is a Class A building leased to a strong credit for 12 years. In terms of our development platform, we have 3.5 million square feet of development activity or recent completions across 14 buildings as of the end of Q4. 59% of 3.5 million square feet are completed developments. These completed developments are 73% leased as of December 31. In the fourth quarter, we commenced a new development that was identified within our existing portfolio by our operations team. The 186,000 square foot project is located southwest of Kansas City in Lenexa, Kansas. The project has an estimated delivery date of Q1 2027. The building will have the flexibility to demise into suites of 60,000 square feet or less in a market with healthy fundamentals. We are projecting a cash yield of 7.2% on this project. Subsequent to quarter end, we executed a 78,000 square foot lease in one of our Charlotte development projects to a manufacturing and assembly company. The building is now 39% leased. We initially underwrote fully stabilizing the building in the first quarter of 2027. Before I turn it over to Matts, I'm pleased to say that after year-end, we raised our dividend 4%, which is the largest raise we have had since 2014. This raise a result of many years of reducing our payout ratio and retaining as much free cash flow as possible. In addition to raising our dividend, we have modified the dividend payment cadence from monthly to quarterly going forward. With that, I will turn it over to Matts, who will cover our remaining results and guidance for 2026.

Thank you, Bill. and good morning, everyone. Core FFO per share was $0.66 for the quarter and $2.55 for the year, representing an increase of 6.3% as compared to 2024. Included in core FFO for the quarter are 2 onetime items that contributed approximately $0.01 to core FFO per share. During the quarter, we commenced 31 leases totaling 3 million square feet, which generated cash and straight-line leasing spreads of 16.3% and 27.4%, respectively. This leasing activity included 5 fixed rate renewal options totaling 882,000 square feet, most of any quarter in 2025. Excluding these 5 fixed rate leases, fourth quarter cash leasing spreads would have been 0.2%, an increase of 570 basis points. For the year, we achieved cash and straight-line leasing spreads of 24% and 38.2%, respectively. Same-store cash NOI growth was 5.4% for the quarter and 4.3% for the year. We incurred 22 basis points of cash credit loss in 2025. Retention was 75.8% for the quarter and 77.2% for the year. As mentioned by Bill, we have accomplished 69% of the square feet we currently expect to lease in 2026, achieving 20% cash leasing spreads. Moving to capital market activity. On December 8, the company settled $157.4 million of proceeds related to forward ATM sales that occurred throughout 2025. Net debt to annualized run rate adjusted EBITDA was 5.0x at year-end with liquidity of $750 million. 2026 guidance can be found on Page 20 of our supplemental package, which is available in the Investor Relations section of our website. Same-store cash NOI growth is expected to range between 2.75% and 3.25%. The components of our same-store cash NOI guidance include the following: retention to range between 70% and 80%, cash leasing spreads of 18% to 20%. Average same-store occupancy for 2026 is expected to be between 96% and 97%. And consistent with previous years, 50 basis points of credit loss is included in our initial cash same-store guidance. Acquisition volume guidance is a range of $350 million to $650 million with a cash capitalization rate between 6.25% and 6.75%. Acquisition timing will be more heavily weighted to the back end of the year. Disposition volume guidance is between $100 million and $200 million. G&A is expected to be between $53 million and $56 million. Finally, the increase in interest expense from our recent refinancing of our $300 million Term Loan G will be a $0.03 headwind to core FFO per share growth in 2026. Incorporating these components, we are initiating a core FFO per share range between $2.60 and $2.64 per share. I will now turn it back over to Bill.

Thank you, Matts, and thank you to our team for their continued hard work and outperformance of our 2025 goals. We are excited about the opportunities that are in front of us here at STAG, and we look forward to building off this momentum in 2026. We will now turn it back to the operator for questions.

[Operator Instructions] Our first question comes from Craig Mailman with the Citi.

Just kind of curious on the leasing front. I know, Bill, you said you guys aren't expecting vacancy nationally to peak until middle of the year. But just from commentary from peers and brokers, it feels like the leasing environment and velocity is picking up. So I'm just kind of curious, as you guys kind of contemplated the 100 basis points of occupancy decline, which I understand you guys have 20 million square feet rolling and so 25% of that nonrenewal is a fairly large amount. But I'm just kind of curious how you guys thought about the pace of backfill activity in guidance and kind of what could be the upside to that if the momentum that we're seeing coming out of '25 kind of hold and sustainable and maybe even picks up a bit?

Yes. Thanks, Craig. I mean we had a really successful year in 2025 with leasing and exceeded, as I mentioned, most, if not all, of our budgeted metrics, including our leasing volume. Certainly, if that continues, there's -- we could lease product earlier in the year, and that would be upside. And the way we look at it and prepare our budgets, and we entered the year in 2026 at close to 98% occupancy rate. And so when you have 20 million square feet rolling at our historical retentions, you've got a fair number of square feet that's going vacant. And our budgets have contemplated a 9- to 12-month lease-up period for those assets. There is a number of examples where we outperformed that in 2025. Just one example, for example, we leased an asset in Savannah, Georgia. in '25. It went vacant in the first quarter. We anticipated re-leasing that in the first quarter of '26. We found a tenant, released that asset with no downtime. That was in a market that at that time had 10% vacancy rates. So some other options for the tenants ultimately decided to go with our building. And that's something when we budget, we're going to budget that, I think, prudently to lease up in 9 to 12 months, but we -- our outcome was 0 downtime. There's several other examples I could give you on that, that happened in '25. Those scenarios could pan out in '26. But the way we budget, we try to be prudent, and we certainly don't budget 0 downtime for our assets, but there's -- those things happen some years, and it certainly happened a lot in '25, and we hope it continues in '26. And then just going back to our view on the overall industrial market, I mean, it's still pretty strong, right? I mean we have to chew through some of this supply. We think that happens peaks midway through '26 and it starts to really improve as you move through the back half of '26 and into '27. So overall, really happy with the way 2025 played out, really happy with the results coming into the year with some really high occupancy, some great trends. We hope it continues as we move through '26, but we try to be prudent when we budget for '26.

That's helpful. And then just on the acquisition front, you guys are -- came out of the gates with $81 million, but Matts had mentioned it's more heavily weighted to the back end. Could you just talk a little bit more about what you have visibility on today and kind of anticipated timing versus what is speculative in the guidance for acquisitions?

Yes. I mean right now, all we've disclosed is the $81 million. We typically don't disclose any LOI acquisitions or under contract acquisitions. Things do fall out of LOI. They do fall out of contract. We have been underwriting more deals, frankly, this first quarter than we did last first quarter. The momentum from Q4 has continued into the first quarter. A typical transaction year, though, is usually slower in the first quarter and then it starts to build as you move through the year. So we do expect the first quarter to be slower, but we're underwriting more transactions now than we did in the first quarter of 2025. Our pipeline is strong. It stands at $3.6 billion. Mike can certainly dive into the details of that, if you'd like. But overall, the transaction market is really healthy. We're seeing some portfolios come to the market. There's just -- it seems to be pretty healthy. There's -- you can call it pent-up seller demand that came to the market at the back half of 2025, and that has continued as we moved into 2026.

Our next question comes from Michael Griffin with Evercore ISI.

Bill, I appreciated the comments in your prepared remarks around sort of increased tenant activity. I was wondering if you could unpack that a little bit. Are these customers or potential tenants you've been monitoring that are looking around for a deal? Or are they really, I guess, closer to signing on the dotted line? And have you seen maybe more newer prospects come into the market that might have been holding off last year?

Yes. That's a good question. Interesting question. I mean at the beginning of last year, certainly after "liberation day, there was tenants hanging around the hoop, looking into space, but it didn't feel like real demand. This tenant activity is real demand. We're seeing tenants make decisions, lease space -- we obviously had a lot of successes in 2025. I'd say the demand is pretty broad-based. We're seeing it from 3PL. We're seeing it from food and beverage. I would say something that's a little newer, a little more nuanced is we're seeing a fair bit of demand from data center tenants. So those are tenants that are either supplying generators to data centers or even some light manufacturing of data centers, storing other things for data centers, data center developments. We looked at our portfolio, we've got 3 million square feet leased to data center tenants -- and these are 5-plus year leases to good credits. In addition, we've got some prospects in some of our buildings for data center demand. So that's a newer demand. But with respect to overall tenant demand, it feels real. It doesn't feel like they're just kicking tires. These are tenants that need space and are looking for space. I think the caveat to all of that is there's some supply that we need to chew through. So these tenants have options. Our portfolio, I say this a lot is we buy buildings, we add buildings to our portfolio. We make sure those buildings fit the submarkets that they operate in and fit them well. And because of that, we have historically and continue to maintain occupancy levels well above market occupancy levels. We expect that to continue. We have been fortunate in 2025 to win deals when there were other options that tenants could have gone to. But we proved to be a very good landlord, and we proved to have very good product in our respective submarkets. So we hope that continues. And we just need to get through some of the supply, but the demand out there is real, and we expect absorption to increase as we move through the year.

Great. That's certainly some helpful context. And then maybe just going back to sort of the outlook for supply, maybe to unpack that a little bit more. I mean, look, it seems like if trends are improving into 2026, if you expect vacancies to decline in the back half of the year. If others in the industry are seeing this as well, I guess, is there a worry that we could see a ramp back up in supply if the fundamental picture continues to improve? Or are there more governors or barriers to entry, whether it's elevated development costs that might preclude an overbuilding problem that we might have had a couple of years ago?

Yes. I mean I think the developers in industrial are generally prudent. We had a little bit of excess supply there. But I think really the story there was just a falloff in demand, right? So I think the supply was okay. It was just the falloff in demand. And as that picks back up and you start to look at your crystal ball and underwrite more market rent growth, more developments pencil out, right? But I think those developments, if you've got a piece of land and you need a permit and a title it and then build it, you're looking well into '27 before any of these things come online, right? So there's a window here where it's going to flip. And when it starts to flip, I think it's going to flip pretty quickly. in the landlord's favor here. So with respect to new supply coming online and being a concern, I'm not concerned about it. Our team is not concerned about it. And if that supply comes back on, it's going to come back on, I think, prudently, and I think middle to late '27 or even later than that.

Our next question comes from Nick Thillman with Baird.

Bill, I just want to make sure you and Matts are on talking terms after Sunday, but we can move on to some other things. Just overall on -- I understand there is a new organic growth story with STAG. And you had mentioned in your prior conversations, looking to maybe even improve on that growth rate by potentially looking to do some more strategic exits of individual markets that might cause some like near-term dilution, but enhance the longer-term growth rate. I guess, has there been any changes in that conversation or any recent developments on the thought process there? And is any of that baked into some of the disposition guidance that is included in 2026?

Yes. I would say it's not a material shift to what we've been executing on in the past 5 years, right? There's every year, there's some noncore assets we dispose of and every year, there's some opportunistic dispositions. Generally, we can -- we have a sense of the noncore dispositions to start the year. We don't really have a sense of the opportunistic because oftentimes, those are reverse inquiries that come in. And we had 2 of those in 2025. Two assets, one was in the first quarter, one was in the fourth quarter where there were assets that went vacant, and we love the leasing prospects, and we were planning on holding those assets and leasing them up, and we got -- we sold both of those assets at what a market rate would be -- market cap rate would be -- market rent would be, and those were sold at a 4.9% cap rate. So just great execution from the team, but users wanted the space and they didn't want to lease it. So great execution. So we anticipate having some -- hopefully having some of those this year. But right now, the plan is what's in our guide is just some noncore dispositions, but nothing in excess of past years. I think reflecting back on our conversation, Nick, that's just when you look at the map of STAG's portfolio, there might be one asset in a market. And if we don't feel like we can grow into that market over time, that's an asset that we'll opportunistically dispose of just to be a little bit more efficient on the operating side. But that's on the margin and not really that impactful to the numbers.

Very helpful. And then maybe just appetite to hold land on the balance sheet for development opportunities, understanding that that's a growing part of the business. And most of your development opportunities have been with JV partners, but just appetite on growing the land bank.

Yes, certainly not part of our 2026 plan, something that's part of our long-term development plan. We're going to step our way into that. Right now, we've got a fair amount of developments. I'm very happy with how the development initiative has progressed. The results we're seeing. It's great to see that lease get signed in our Concorde development. There are some good opportunities that we're looking at now with some other potential leasings on the development side. And with respect to newer development opportunities, hopefully, there are some things we can announce in the near future on that. And then when you start to think about the longer-term view of markets, the land is not in our plan, as I mentioned, holding land right now is not in our plan for '26, but we are looking -- it's early days, but looking into some phase developments that may be an opportunity to -- for us to have a, call it, quasi land position. But we're looking at a lot of those things as we grow this platform.

Our next question comes from Blaine Heck with Wells Fargo.

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 maybe more importantly, cost of equity and your required returns on investment?

Blaine, this is Matts. So cost of debt is pretty easy. If we were to go to the private placement market where we historically have been an issuer, spreads are anywhere between 140 and 150 basis points over. If we go to the public bond market, which we have been evaluating and have discussed on these calls, after our inaugural issuance, we would likely -- we've been told, receive a 25 to 30 basis point pricing benefit. So if we think about today in the market in which we are currently operating in, it's call it, 5.5% to 5.75% depending on tenor. Cost of equity, you can do that in many different ways from an implied cap rate basis using one of our sell-side analysts, rubrics, we're in the low 6s. But what is important is we are retaining and Bill mentioned in his prepared remarks, we're retaining north of $100 million of cash flows after dividend as well. So a different way to kind of go through the funding for '26. If you look at the net acquisitions of $350 million, and that's obviously gross acquisitions less dispositions, factor in the $100 million plus of retained earnings, we have the ability to operate this business plan without accessing the equity capital markets. Our leverage would be right in the midpoint of our range. Right now, we're at 5x levered. We operate this business plan for '26 at the midpoint, we'd be at 5.25x leverage.

Great. That's helpful color, Matts. Second question, you guys commented on the fixed rate renewals weighing on spreads during the fourth quarter. Can you just tell us what percentage of your leases have those fixed rate renewals incorporated in their terms and whether there are any chunky ones that we should be aware of in the coming quarters?

Yes, it's single digits. Usually, we don't even call that out, Blaine. We just called it out in the fourth quarter because it looked like spreads were moderating in Q4, but it was really due to that. So every year, there's a few fixed renewal options, a handful, and they're just spread out throughout the year. So it's just part of our leasing plan. But because it was concentrated in the fourth quarter, it's why we called it out. So it's single digits, and they're laddered. But the good thing is as you get through these, you work these off, it's not like there's unlimited fixed renewal options. Generally, there's one and then you get through it and then you're just pushing out the mark-to-market opportunity.

Our next question comes from Vince Tibone with Green Street.

How should we think about potential development starts in '26? And kind of what is your appetite to start new spec projects this year? Is it dependent on leasing current projects or just on a deal-by-deal basis? Curious how you're thinking about that and the amount that's maybe reasonable this year.

Yes. Vince, I mean, given where our development portfolio sits today, we're very eager to start some new spec projects, right, especially given our outlook on the industrial market in the back half of '26 and into '27, right? It's just we view it as a great time to start some projects. So for us, it's just whether we can source some more. We think we can. This year, we're a little over $100 million of kind of new projects sourced. I think that's our -- that is what we have planned for this year. Hopefully, we can exceed that. Now that's not going to come in day 1, right? It's going to come in throughout the year. But it's something that is -- it's an initiative that I feel strongly that we continue to build on. The team feels strongly we can continue to build on it. And we think it's something that we will be able to build on. But with respect to starting a new spec project today, very happy to do that, assuming the returns pencil out.

No, makes sense. Helpful color. And maybe just switching gears. Can you talk a little bit broadly about kind of the concession environment in your markets, like particularly free rents. Do you feel that free rent levels or TIs have really stabilized across the market among private players with some more vacancy potentially? Some of your peers have called that out as a headwind to near-term growth. It doesn't look like that's an issue for your same-store guide. So just love to hear color on kind of free rent trends and concessions in your market.

Yes. I mean we think they're very stable. They've been stable really since beginning of '25. But there are instances in markets in our markets where you'll have a private landlord, I don't see it really with the public peers, but you have a private landlord that has been sitting on an asset and just saying, you know what, I'm going to buy this deal, and I'm going to give them whatever they need, and I'm going to give them a bunch of free rent. And that isn't market, right? I mean if you've got 5 buildings that are competing against one another and one is willing to just give a ton of free rent and concessions, the other 4 are not. So generally, what we're seeing in a market that has vacancy rates 5% to 10%, you're seeing half a month of free rent per year right now, but that's been stable since '25. With respect to TIs, we haven't seen a material change in TIs. What you do see sometimes is, okay, a tenant wanting additional dock doors, if there isn't maybe LED lighting, generally, our buildings have that. But if there isn't something like that where it's more of a building upgrade, they may ask for that. And in those situations, you're seeing landlords in the market, and we'll be willing to do it, too, to put that capital into the building. But that's -- I don't view that as much as TI as it is like putting capital in your building, making your building more marketable and frankly, more valuable, much different than a tenant-specific TI. So I haven't seen a big uptick in tenant-specific TI packages, which is what we really view as concessions.

Our next question comes from Mike Mueller with JPMorgan.

Just a quick one. What's baked into your '26 guide for development leases?

Sorry, I missed that. Mike, what was that again?

Yes, sorry. What's baked into your '26 guide for development?

Yes. Mike, it's Steve Kimball here. We've guided for 957,000 square feet of leasing. And we've -- one of those is a build-to-suit that's in those numbers. We -- and Bill mentioned the Charlotte lease that was done after the quarter. So we'd have -- after those 2, we'd be left with 530,000 square feet of leasing or about 0.5 million square feet of leasing that we have projected to do in 2026.

Our next question comes from Brendan Lynch with Barclays.

Bill, maybe you could just walk through your markets and highlight which ones are particularly strong right now and which ones are lagging?

Yes. So we're seeing some really good demand in the Midwest markets. I mean, similar to the last couple of quarters, Minneapolis remains strong, Chicago, Milwaukee, but what we've seen really in the past, I would say, 4 months is an increase in demand in some of the big bulk Midwest distribution markets, Indianapolis being one of them. Louisville is really strong. Columbus has strengthened with a lot of bulk distribution leases getting done there. Southeast has been pretty strong. I would say the -- on the other side of it, where we're seeing a little bit more weakness, it's some of the Southeast port markets, frankly, it's Jacksonville, Savannah, Charleston, seeing some weakness there. And then -- but then when you think about going down -- continuing down, you go around to Texas, Houston is really strong. Dallas is really strong. So overall, I mean, some good fundamentals, but seeing some weakness in those Southeast port markets.

Okay. Great. That's helpful. And I believe you've suggested in the past that market rent growth would be kind of 0% to 2% throughout 2026. With that context in mind in those markets that are particularly strong, how much are we seeing those stronger markets deviate from that 0% to 2% average?

Yes. I don't have all the numbers right in front of me, but I would say, generally, it's a pretty tight band because you are still -- you still have some vacancy in those markets. So you're getting a couple of 3% market rent growth in some of those stronger markets. But like, for example, in India or Columbus that has really strengthened lately, I don't think you're seeing a 3% rent growth there. But in the Minneapolis and Milwaukee and Chicago, you might be seeing it there. And then on the other side, it's closer to that 0% to 1%.

Okay. So it's the demand -- it's mostly coming through as absorption rather than pushing rents more aggressively.

Yes. I think what you're seeing -- you're going to see the rent growth really start to accelerate as you move into '27. And I think that dynamic is, I think why you're seeing some -- and what we're seeing, I think others are, too, is our larger, more sophisticated tenants coming to us well in advance to try to renew their leases to try to get ahead of some of the market rent growth that is likely to come.

Our next question comes from John Kim with BMO Capital Markets.

You've had a healthy leasing activity recently. I'm wondering if you could provide the leasing executed or signed during the quarter and in particular, the volume versus the 3.5 million square foot average that you had last year and the lease spreads compared to your 18% to 20% guidance.

A lot there, John. I don't have the executed leases in front of me, but we're -- with respect to what we're budgeting for this year, I think we're budgeting almost 18 million square feet of leasing for 2026. So it's -- it will be our largest just absolute square footage of leasing for the year. So I don't -- when you look at our leasing spreads of 18% to 20%, what the stuff -- just from recollection, like we see these leases getting signed and we get notified of everything. There's nothing that I see that's kind of a big deviation one way or the other with respect to those spreads. You might see something a little bit lower because the lease was a little closer to market or something a little bit higher because the lease was a little bit below market, but it's not like we're seeing a trend one way or the other. And rent bumps are holding up, and we're signing rent bumps in the 3% to 3.5% range.

But just following up on that, I mean, if you expect an 18 million square feet of leasing that's almost 30% more than what you did last year, yet you're expecting occupancy to go down. So is this a lot of early renewals? Or I'm just trying to marry the versus the occupancy guidance.

Yes, it's because we had so much square feet rolling, that's the biggest, right? So we had initially a little over 20 million square feet rolling. And so when you have that and you've got your, call it, 75% retention rate, and these leases roll throughout the year. So we budget typically a 9- to 12-month lease-up time for these. So if they roll halfway through the year and it's a nonrenewal and just the absolute square footage is a little higher, but we're budgeting that, that lease is going to be re-leased in '27, right? So that's -- our occupancy guide is average. So if you -- that's what's impacting it, especially another example, if you have a nonrenewal happening March 31, that's going to be vacancy for 9 months of the year, right, because we're budgeting that to lease up in '27. Now maybe there's some -- maybe we leased up earlier. We certainly had several of those examples in 2025. I gave one earlier on this call. But our budget is that, that will lease up in '27. So it really is -- it's a factor of having a large amount of square feet rolling in 2026, offset by high occupancy coming into '26. So if our occupancy was lower, there's more opportunity to backfill some of that nonrenewal. And it was just an interesting dynamic that happened in '26. High occupancy numbers, good leasing spreads, really great year in '25, some great tailwinds with respect to development. We're seeing some good acquisition activity. I mean, I was just thrilled with how '25 went and '26 other than some of this occupancy losses is shaping up to be -- I'm really happy with the projections that we're putting out.

And a similar renewal rate than what you've achieved in prior years?

Right. Exactly. It's not like renewals are down. I think our midpoint of renewal guidance is 75%.

Our next question comes from Rich Anderson with Cantor Fitzgerald.

So just looking back, start the year last year, your same-store guidance was 3.5% to 4%. You easily beat that at 4.3%. You're starting this year at 3%. Not to belabor the 20 million square feet rolling in 2026 and the 75% retention. But if you beat that retention, obviously, that's the main driver to beating your 3% same-store guidance, I assume, and you can answer that -- let me just finish the thought. Do you have a line of sight into some clarity that 25% is not going to renew? Or is that just kind of going off of your history? Do you already have a sense of that vacancy level? Just curious if you could respond to that.

Yes. So I'll answer the second question first. We have line of sight for a lot of our renewal -- a lot of our lease expirations in the first half of the year. So there's certainly lease expirations in the back half of the year that we're saying, hey, these 3 are going to renew and this one is going to vacate, right? That's how we build the budget, right? The back half of the year, it's not -- we're not certain with what's going to happen. But our team is close to our tenants. We have a sense. We're usually within 5% of our retention guidance every year. So -- but some of it's speculative. And with respect to outperformance or potential outperformance on same-store, it's not just retention and retention is a factor, right? If that goes up to 80% or 83%, yes, that will help same-store because you're not incurring any downtime on that additional 5% to 8%. But really, it's -- we have lease-up projections that are -- the new leasing is really heavily weighted to the back half of the year. So I think we've got about $3 million budgeted for new leasing, most of which is expected to occur in the back half of the year. So if that leasing occurred sooner, that would be a benefit to same-store NOI. The other factor to same-store NOI -- I mean really the other components are leasing spreads. We have pretty good insight to that. And bumps in leases, we've got pretty good insight to that. But the last factor is credit loss, right? We're budgeting 50 basis points of credit loss this year in our same-store pool. Last year, we budgeted 75, and we achieved -- well, I don't know, achieved is the right word. We realized 20 basis points. So there is an incremental 30 basis points that we are budgeting for 2026. No new tenants on the watch list. It's more of a broad-based budget. It's not like we've allocated that specifically to one tenant like we did last year with some of our credit loss budgets. So that's the other factor that could move same-store one way or the other.

Okay. Great color. You mentioned early in the call, deliveries down 35% versus 2024. And I think you mentioned 180 million square feet in 2026 deliveries. What would that equate to in terms of a draft downwards versus 2025? And where do you think this all settles next year in terms of deliveries? Because -- in response to an earlier question, perhaps there'll be a reignited development activity, maybe we'll see. But I'm just curious, what's the cadence of things to 2027 as you see it right now from a delivery standpoint?

Yes, I'll let Steve jump in on this one to kick it off.

Yes. So I appreciate the question. We're looking at new deliveries in 2025 of about 225 million square feet, obviously, well down from previous years. And when you go forward to 2026, as you mentioned in our remarks, we're looking at about 180 million square feet. We think of a stabilized market at more 250 million to 300 million square feet. of deliveries. So deliveries are going to be well below the average at the $180 million. And I think they start to tick back up in 2027 to some of the questions that came earlier in the call about is there going to be a little more activity about -- around the development world and a little more interest in going spec. And I think that's probably the case. So we probably moved back up into the 200 million to 200-plus million square feet in 2027. But I don't think there'll be a big increase to the numbers that we saw a few years ago.

And then the build-to-suit component of that is like 40% this year?

Yes. It's moved up from 30% to the 40%, but that's not abnormal.

Okay. And last for me, and this is something I think I'm trying to will to happen, but you mentioned the 7,000, 8,000 square foot manufacturing-oriented lease in the first quarter. Can you sort of describe that? Is that a supplier? Is that a real manufacturing? Is it -- is there any kind of power issues? Just generally, I mean, we talk a lot about your markets and being a beneficiary of onshoring and so on. You get this question a lot, I'm sure, but I'm just wondering if there's any glimmer of manufacturing happening in your markets to a greater degree and how that might play a role longer term for STAG.

Yes. I'll let Steve answer it. And nice job sneaking in that third question there, Rich.

It's late in the call. I figured I'm the last one.

You're not the last one.

I really appreciate the question. We do have a balance of demand, particularly in our development markets where we have a balance between distribution and manufacturing. And we saw that in Nashville where half our building leased up the distribution, the other half the manufacturing. And that's boded well for the development pipeline. The lease we talked about for 78,000 square feet in the Charlotte market that we just inked that is -- they have a larger manufacturing facility that's in the submarket, and they need -- and that manufacturing is growing. And it's more around automotive, but specialty automotive and government uses. And so yes, it is manufacturing related. We are seeing it grow in that market, and we are seeing it elsewhere.

And I just want to characterize the manufacturing, it's really just light manufacturing, yes.

Yes, that's a good point. So a lot of what we're seeing is the heavy manufacturing is doing well. These are relief valves in some case, where they need to either store the raw materials or do some light assembly that is tertiary a part of their core business.

Yes. When we develop buildings, and we develop buildings and these ones in particular, these are developed as warehouse distribution buildings, but can also have some additional power that can be a solution for some of these ancillary manufacturing tenants.

Our next question is from Michael Carroll with RBC Capital Markets.

Bill, I wanted to turn back to some of your comments on the acquisition market. I guess throughout the call, did I hear you correctly that you're seeing more deals that come across your desk right now? And if so, what is driving that increased activity? Are there just more sellers coming back to the market? Or is STAG doing something differently going forward?

No, it's really sellers. And we saw that in the back half of '25. Everything just came to a halt at the beginning of the year last year, really from April to July. We saw a lot of sellers come back to the market in the back half of '25. That was one of the reasons why we had such a successful acquisition quarter in Q4 '25. And those sellers are still in the market. And we're seeing a lot more portfolios start to come to market, even whispers of portfolios coming to market. We're just evaluating more transactions. So really nothing that we're doing, just more opportunities that are in the market today.

And then how competitive are these deals? I mean, I guess, who are you competing with? And has that changed? And I mean, just looking at your acquisition cap rate guidance, I mean, 2026 is really in line with 2025. So is kind of those cap rates kind of holding steady where they were last year?

Yes. I mean, depending on the product, I mean, you can see -- you're seeing some cap rates compress. For us, when we look at deals, one of the first things we have is does this building fit the submarket it operates in, right? And it checks that box. And we need to make sure these deals are accretive to our portfolio and to earnings. And so for us, our cap rate guidance is a little bit of a function of our cost of capital. So we bid to where we can buy deals accretively and if we don't get a deal, we're okay with that. So that's a little bit -- when you think about market color, yes, we saw -- we're seeing a little bit of cap rate compression. We're certainly seeing portfolio premiums are out there. But I would say, yes, probably similar to '25 pricing, maybe slightly lower with respect to market. But because we operate in the CBRE Tier 1 markets, there's a lot of opportunities, and we can cast a pretty wide net. So we're looking at so many opportunities, and we're able to pick off the ones that fit the submarkets well, but are also accretive to our portfolio.

We have reached the end of our question-and-answer session, which means that there are no further questions at this time. I would now like to turn the floor back over to Bill Crooker for closing comments.

Yes. Thanks, everybody, again for joining the call and asking the questions. We look forward to another great year. Certainly really proud of the results we put forth in 2025, and we'll see you all soon at the upcoming conferences.

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