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Stag Industrial Inc (STAG 1.17%)
Q1Â 2019 Earnings Call
May. 01, 2019, 10:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Greetings, and welcome to the STAG Industrial First Quarter 2019 Earnings Call. (Operator Instructions) As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host, Mr. Matts Pinard, Senior Vice President of Investor Relations for STAG Industrial. Thank you. You may begin.
Matts Pinard -- Vice President
Thank you. Welcome to STAG Industrial's conference call covering the first quarter 2019 results. In addition to the press release distributed yesterday, we 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 the answers to your questions will contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today. Examples of forward-looking statements include statements relating to earnings trends, G&A amounts, acquisition and disposition volumes, retention rates, debt capacity, dividend rates, industry and economic trends and other matters.
We encourage all of our listeners to review the more detailed discussion related to these forward-looking statements contained in the company's filings with the SEC and the definitions and reconciliations to non-GAAP measures contained in the supplemental information package available on the company's website. As a reminder, forward-looking statements represent management's estimates as of today. STAG Industrial assumes no obligation to update any forward-looking statements.
On today's call, you'll hear from Ben Butcher, our Chief Executive Officer; and Bill Crooker, our Chief Financial Officer. I will now turn the call over to Ben.
Benjamin S. Butcher -- Chairman, Chief Executive Officer and President
Thank you, Matts. Good morning, everybody, and welcome to the first quarter earnings call for STAG Industrial. We're pleased to have you join us and look forward to telling you about our first quarter results. Presenting today in addition to myself will be Bill Crooker, our Chief Financial Officer, who will discuss the bulk of the financial and operational data. Also with me today are Steve Mecke, our Chief Operating Officer; and Dave King, our Director of Real Estate operations. They will be available to answer your questions specific to their areas of focus.
Our first quarter operating results represent a great start to 2019. The $185 million of accretive acquisitions represents the largest first quarter acquisition volume in the history of our company by a significant margin. The portfolio produced 3.5% same-store NOI growth, reflecting a strong start to the year. These impressive metrics demonstrates STAG's ability to provide both external and internal growth. These operationally based achievements are further supported by the continuing strength of underlying industrial fundamentals. The tenants in our portfolio are both healthy and active. They're continuing to sign leases with significant rollouts and elevated contractual rental escalators.
After many consecutive quarters of net industrial demand exceeding new supply, the elevated supply is projected to potentially reverse that balance in 2019. However, it is important to note that this excess supply is isolated in a handful of large primary markets, and in some cases, more specifically, certain submarkets within these markets. Supply remains constrained across the vast majority of markets and submarkets in which STAG operates.
It should be noted that large book assets generally have different leasing demand drivers than smaller distribution buildings located in the same city. It is thus vitally important to evaluate assets in the context of how they are positioned in and relative to other assets within the submarket they operate in. This is one part of the fulsome analysis that STAG performs to apply a relative vital lens to assets across the 60-or-so markets we're active in. The result of this broad inquiry is, we regularly identify mispriced assets that can be acquired on an attractive risk-adjusted return basis.
As we have always done, we're continuing to maintain broad diversification within our portfolio in any of the prior parameters that might introduce an undue degree of correlated risk. In addition to other benefits, this diversification also helps meet any exposure to submarket specific supply considerations to the extent they were to occur.
In early April, the company executed an equity offering at very attractive pricing that directly funded our Q1 and April acquisitions as well as reduced our overall leverage levels. This was STAG's first equity transaction outside of ATM issuance since October 2014. The offering was upsized and resulted in approximately $215 million of net proceeds to the company. This recent equity transaction demonstrates our willingness to remain flexible and evaluate all available options to efficiently capitalize the business.
STAG leverages its real estate platform to create value in several ways. Our principal business is identifying, acquiring and managing stabilized industrial real estate assets. We also pursue non-stabilized value-add acquisitions. These include acquiring vacant or under-occupied assets, assets prying for repositioning or those with significant capital investment needs. The stabilization of these acquisitions has created an average of approximately 100 basis points of incremental value at the asset level.
Further along the spectrum of utilizing our operating platform to create value is ground-up development. As a fully staffed real estate platform, we've always had the capability to develop industrial buildings. Historically, we've seen greater risk-adjusted returns available to us through acquisition, especially on a time-weighted basis. However, in 2015, we purchased an asset in Central New Jersey that came with significant excess land at little or no additional cost, i.e., the cash flow returns of the transaction was sufficient to justify the acquisition without attributing wire to the excess land.
Given the strength and our understanding of the submarket, we undertook and recently completed the process of subdividing and permitting this excess land, creating an attractive development opportunity. We have now formally broken ground and commenced construction on a 250,000 square-foot speculative warehouse building. The expected completion date is in Q4 of this year and leasing interest is strong. We expect the project to stabilize above an 8% return on cost and produce a value-creation margin of approximately 50%.
We do not expect that the development will be of large part of our business in the near intermediate term. We're not building a land bank, especially on the current market conditions for developable land. However, we have excess land in a number of currently owned locations that could be similarly subdivided and permitted for development. These potential opportunities will periodically be evaluated and will undertake those projects that make financial sense. This is yet another way that STAG can create long-term value for shareholders than one that further demonstrates the capability of the STAG operating platform.
I'll now turn it over to Bill.
William R. Crooker -- Chief Financial Officer, Executive Vice President and Treasurer
Thank you, Ben. Good morning, everyone. Before I discuss the financial results, I wanted to point out some disclosure enhancements we made beginning this year. The leasing activity disclosure will reflect the lease commencement date as compared to the lease execution date. This change will connect the leasing activity reported in the period to the net operating income reported within the same period, consistent with how we view our real estate internally. We have expanded our diversification disclosure to include top 20 exposures across markets, tenants and industries from top 10 previously. We've also eliminated our AFFO definition due to the diversity and practice surrounding this disclosure. As a replacement, we have included supplemental financial information in our non-GAAP financial statements that provide users of our financial statements the relevant information to calculate AFFO or CAD.
Moving to the financial results. Core FFO was $0.45 for the quarter, an increase of 4.7% as compared to the first quarter of 2018. This Core FFO growth occurred while maintaining a defensive balance sheet with net debt to run rate adjusted EBITDA of 4.8x. Stabilized acquisition volume for the first quarter totaled $141 million and value-add acquisition volume for the first quarter totaled $44 million. These acquisitions were acquired at a stabilized cap rate of 6.6%.
This quarter's acquisitions of $185 million is the largest first quarter volume in the company history and more than $100 million greater than the first quarter of last year. Disposition proceeds for the quarter equaled $18 million. Portfolio operating results continuing to reflect the strength of our markets and our portfolio. Same-store cash NOI grew by 3.5%, which was driven primarily by retention for the quarter of 80.7% and cash releasing spreads of 14.9%. Straight-line releasing spreads were extremely strong as well coming in at 24.3% for the quarter.
During the quarter, we received notice that Ditech, a tenant on our watch list operating in a non-core flex/office building, had formally rejected their lease in bankruptcy and has vacated their space. This specific tenant was on our watch list in Q4 2018 and this loss of income was factored into our credit loss guidance of 50 basis points for the year. We took an impairment charge of $5.3 million related to this non-core flex/office building during the quarter and we plan to dispose off this asset this year. We're continuing to closely monitor our dynamic watch list and are currently not adjusting the 50 basis points of credit loss guidance for the year.
In terms of capital market activity and the balance sheet, we raised $150 million of equity through ATM issuance in Q1, resulting in quarter end net debt to run rate adjusted EBITDA of 4.8x, fixed charge coverage equal to 4.8x and liquidity of $562 million. Subsequent to quarter end in early April, we executed an equity offering at $29.25 per share, resulting in net proceeds of approximately $215 million. The net proceeds were used to repay balances on the revolver and fund our April closings. Adjusting for the equity offering and subsequent net acquisitions, leverage is currently 4.3x. We expect to continuing to operate at the lower end of our leverage guidance of 4.75x to 6x.
As a result of the strong start to 2019, we now expect stabilized acquisition volume to be between $650 million and $750 million, which increases the aggregate acquisition volume range to $700 million to $850 million. We're continuing to expect $50 million to $100 million of value-add acquisitions, with $44 million closed through today. All of our 2019 guidance can be found on our supplemental posted to our website in the Investor Relations section.
With that, I will now turn it over to Ben.
Benjamin S. Butcher -- Chairman, Chief Executive Officer and President
Thanks, Bill. It seems that one of the most frequently mentioned topics in real estate today is data analytics. The use of data to improve decision-making and operations. Some sections of real estate, multifamily and self-storage to name a couple, have been perusing initiatives in this area for some time with notable successes, particularly in revenue management. Our sector, industrial real estate, has been a laggard for a variety of reasons. One is inertia, change comes slowly to this sector. Another is a relative lack of good clean data. Industrial sector with this large long-term leases and relevantly nonhomogeneous assets, simply doesn't provide as much granular data as other sectors for our analyst to work with. Neither of these reasons should be sufficient impediments to us to not to advance the use of our data in our operations.
We have stated, we've always been proud of how well we use data in the efficient execution of our investment thesis. As we look forward, we can see areas where data analytics should provide a meaningful additional benefits to operations. Two areas that have garnered our attention are: one, the aforementioned revenue management; and two, deal sourcing and corporate resource allocation, the targeting of specific submarkets even down to individual assets based on the likelihood of accretive acquisitions being available. We have begun working in these areas and are confident they will produce a nonzero benefit to our operations. Our team will be constantly looking to improve the quality and quantity of the data that we have to work with.
In closing, I would like to touch on the other topic de jure, ESG. Advancement in the areas of environmental, social and governance are key drivers to our operational successes today and in the future. My annual letter to shareholders located at the front of our annual report deals with this topic on a more fulsome basis. I encourage all interested parties to read it.
We thank you for the time this morning and your continued support of the company. We look forward to your questions.
Questions and Answers:
Operator
(Operator Instructions) Our first question comes from the line of Sheila McGrath with Evercore ISI. Please proceed with your question.
Sheila McGrath -- Evercore ISI -- Analyst
Good morning. Same-store NOI for the quarter was 3.5% that's well above your annual guidance. I was just wondering if you could explain if there were something unique driving that the quarter's results well above the guidance?
William R. Crooker -- Chief Financial Officer, Executive Vice President and Treasurer
Sheila, it's Bill. There were some one-time items this quarter. A few of our tenants reimbursed us for release in this quarter. So that increased our cash same-store NOI this quarter. So we'll -- our guidance though, we still feel comfortable at 1% to 2% for the year.
Sheila McGrath -- Evercore ISI -- Analyst
Okay. Great. And on the equity side, you raised a lot of equity early in the year. Should we expect the remaining parts or the second half of the year, you'll be using more debt financing?
William R. Crooker -- Chief Financial Officer, Executive Vice President and Treasurer
Yes, the equity transaction we raised was primarily due to the acquisition volume in the first quarter as well as April. So we were able to immediately use those proceeds for those acquisitions. But as we stated in our guidance, our leverage range is 4.75 to 6x. And we do plan on operating at the lower end of that range. When you factor in this equity transactions as well as the subset -- as well as subsequent acquisitions, our leverage is around 4.3x. So we will need less equity as the year goes through. And just going back to your same-store comment as well, I just -- the impact of those tenants that reimburses for the roofs. Once factoring those in, it comes about 2.7% same-store NOI growth for the quarter, eliminating those one-time items.
Sheila McGrath -- Evercore ISI -- Analyst
Okay. Great. One last quick one. I mean, if you could give us a little bit more detail on the value-add acquisitions that you closed on in the quarter and kind of your plan or vision for a couple of those?
Stephen C. Mecke -- Executive Vice President and Chief Operating Officer
Sheila, it's Steve. Yes. So we bought -- we acquired 2 properties. The first one is a vacant asset and the plan there is to do some reconfiguration of the building, add dock doors, basically spruce up the building, bring up to market standard and then lease. The second building is an expansion for an existing tenant. The situation there was the current -- the seller couldn't actually fund the expansion that the tenant desired. So we came in, we're able to buy it and come to an agreement with the tenant on a longer term lease in exchange for the expansion.
Sheila McGrath -- Evercore ISI -- Analyst
Okay great. Thank you.
Operator
Our next question comes from the line of Brendan Finn with Wells Fargo. Please proceed with your question.
Brendan Finn -- Wells Fargo -- Analyst
Hey guys. Good morning. So it looks like rent spreads were particularly strong this quarter, especially on renewals. So I guess, were there any large leases in there that were driving that? Or were there any of your geographic regions that were particularly strong this quarter?
William R. Crooker -- Chief Financial Officer, Executive Vice President and Treasurer
The rent spreads were fairly broad based. Everything rolled up during the quarter. We didn't see any outside spikes that drove that number. We had in the past given guidance for the year in the mid-single-digit number -- mid-single-digit growth range. And I think we'll probably end up there, maybe on the high-end, high-single-digit range by the end of the year.
Brendan Finn -- Wells Fargo -- Analyst
Okay. Cool. And then I guess, on dispositions, it looks like almost all your dispositions this quarter were Midwest assets. So I guess, going forward, is that kind of where you're focused for dispositions? Or is that just a coincidence for this quarter?
Benjamin S. Butcher -- Chairman, Chief Executive Officer and President
Yes. I would say, it probably falls under the level of coincidence. We're selling assets that are either we're culling from the heard, if you will, are non-core assets or assets opportunistically. The opportunistic opportunities come up when they come up. So there was not a -- definitely not a geographic focus on what we're disposing of. It was either the nature of the asset or the opportunity to sell an asset to somebody from when we thought it was worth.
Brendan Finn -- Wells Fargo -- Analyst
Gotcha. Okay. Thanks guys.
Operator
Thank you. Our next question comes from the line of Mitch Germain with JMP Securities. Please proceed with your question.
Mitch Germain -- JMP Securities -- Analyst
Good morning. Ben, what do you attribute the growth in the deal pipeline to? Have you made further investment in the acquisition team? Is there anything specific you can point to?
Benjamin S. Butcher -- Chairman, Chief Executive Officer and President
So as we have mentioned in a number of calls in the past, Mitch, and thanks for asking the question, we continue to grow the outward facing capacity of our team. There is a direct relation, we think a pretty high correlation to the amount of transactions that we see by doing that. Our hit rate has not changed. Our return requirements haven't changed. We're just putting more assets through the filters and therefore, producing more transactions that are being closed.
Mitch Germain -- JMP Securities -- Analyst
Got you. And then just a question, obviously, Ditech hit this quarter. You mentioned your watch list. Is there any tenants in there that have multiple assets? Or is it just really these one-off situations?
William R. Crooker -- Chief Financial Officer, Executive Vice President and Treasurer
Yes, it's just these one-off situations. Our guidance for our watch list tenants does remains unchanged at 50 basis points and that includes Ditech. But it's just one-off tenants, no material exposure there.
Benjamin S. Butcher -- Chairman, Chief Executive Officer and President
Mitch, and as you'll recall, ATD, which was a multiple asset tenant of ours that went through a 11 filing last year, affirmed all their leases. So again, we're -- part of our analysis in tenants is obviously not only their credit and their potential for financial distress, but how they use the buildings and the likelihood of affirmation in the lease under defaulter-ship.
Operator
Thank you. Our next question comes from the line of Dave Rodgers with Baird. Please proceed with your question.
Dave Rodgers -- Baird -- Analyst
Yeah good morning guys. Ben or Bill, I mean, may be you could address this. But just in terms of the leverage, I think you said you're comfortable at 4.75 to 6x EBITDA. I think that's a slight change from may be where you've been just in the recent past with a high -- may be a little higher. So, I mean, you're not going to get there. It doesn't sound like anytime in the near term. But is there something that gives you kind of confidence to kind of have a higher end to that range? Or want to stay at a different level than you have been?
William R. Crooker -- Chief Financial Officer, Executive Vice President and Treasurer
Yes, Dave, we're comfortable with that range. In the near term, I don't think we'll be at the high end of that range. The rating agencies are comfortable with our BBB and BAA3 ratings operating within that range. So we feel like, it's a conservative range. But given where we are today, we're very comfortable operating at the low end of that range.
Benjamin S. Butcher -- Chairman, Chief Executive Officer and President
And Dave, we haven't changed the upper end of that range. We just -- you may not have remembered that upper end is there because we've operated so far below it for the -- certainly in the medium term and near term. We want to have that upper end of the range out there in terms of flexibility and optionality in capital raising. But as Bill points out, we have been an intent to stay at the bottom end of that range going forward. The change that we made to the range was, I believe, at the end of last year, we introduced, we lowered the bottom end of the range from 5 to 4.75x. But that's actually the only change to the range we've made in the recent history.
Dave Rodgers -- Baird -- Analyst
That's helpful. And then maybe on the asset sales, talk about maybe the appetite for portfolio premiums out there and thoughts about kind of taking some bigger portfolios to market versus the one-off picking approach that you've done. And just kind of how you weigh the balance of those two?
Benjamin S. Butcher -- Chairman, Chief Executive Officer and President
Well, certainly, we've recognized in our history that there is a demonstrable portfolio premium for aggregating these kinds of single tenant industrial assets. And we've seen depending on how you measure contemporaneous 100 basis points or more historic i.e. from where we bought assets to where we sold them in excess of 250 basis points. Having said that, we do believe that these assets within the portfolio, the diversified portfolio, that portfolio premium exist as an aggregated portfolio.
And so the benefit to the shareholders that the stabilized predictable cash flow portfolio produces is being recognized from a value perspective. So given our operating leverage, the fact that we are -- do have this great amount of operating leverage, continuing to grow the size of the portfolio, recognizing the value within the portfolio, has seemed like a better course of action to us rather than some form of partial liquidation through larger portfolio sales.
Dave Rodgers -- Baird -- Analyst
Great. And then last question. Maybe over the last 6, 12 months or maybe if still over the last couple of years, as you think about the acquisitions that you've done and underwriting kind of underlying market rent growth. How has that changed for you guys in terms of kind of seeing the cap rates when the acquisitions come down? Have you seen a lot of additional underwriting of market rent growth as you kind of think about those assets in the portfolios that you've purchased?
William R. Crooker -- Chief Financial Officer, Executive Vice President and Treasurer
Well, I think that the market rent growth has continued to be strong across most of the country. As you see, equilibrium perhaps been reached on an aggregate basis. You would expect that market rent growth may be diminishing. However, contractual rent bumps continue to be very strong, which obviously impacts the projected cash flows under the tenancy of the lease that allows for potentially paying a lower cap rate.
Cap rate, as we've mentioned many times, just a point in time measure, perhaps indicative, but not precisely indicative of the cash flow that you'll receive over the course of the lease. The other thing that we've had is, we've been seeing longer lease terms and what we're acquiring obviously that affects the confidence and the aggregate cash flow you received during the 5 or 3-, 5- or 10-year period.
o the resulting cap rates have come out of our acquisition activity are reflective of -- at this point, we believe are largely reflective of mix as opposed to any change in market conditions. And when you see lower cap rates, it's because the cash flows resulting from those acquisitions are either -- will grow more strongly or more secure, have less potential interruptions over the 3, 5 and 10 periods.
Dave Rodgers -- Baird -- Analyst
Thank you.
Operator
Thank you. Our next question comes from the line of Jason Idoine with RBC Capital Markets. Please proceed with your question.
Jason Idoine -- RBC Capital Markets -- Analyst
Yeah. This is Jason on for Mike. I just had a question on the increased investment activity that you guys saw in the first quarter. I'm wondering if this should be the new norm that we can expect moving forward. And also you mentioned that you've been kind of building out that team. So what's the outlook look like for continuing to grow that team? And then as you continue to grow it, what kind of acquisition should we expect?
Benjamin S. Butcher -- Chairman, Chief Executive Officer and President
Well, I would caution you not to simply extrapolate from the $180 million that we did in the first quarter. Historically, the first quarter has been about 15% of the annual volume. So extrapolating from that would leave you to a number in excess of $1 billion. Certainly, our guidance is not saying that. We did have a very successful first quarter. We continue to have had success in the second quarter. But we're not at a point yet where we're looking to change our guidance more than we have already. So I think we've raised the midpoint of our guidance...
William R. Crooker -- Chief Financial Officer, Executive Vice President and Treasurer
$50 million.
Benjamin S. Butcher -- Chairman, Chief Executive Officer and President
Yes.
William R. Crooker -- Chief Financial Officer, Executive Vice President and Treasurer
Our guidance -- we're very comfortable with the $700 million to $850 million of our acquisition guidance that we put forth.
Jason Idoine -- RBC Capital Markets -- Analyst
Great. Thank you.
Operator
Thank you. Our next question comes from the line of Sarah Tan with JP Morgan. Please proceed with your question.
Sarah Tan -- JPMorgan -- Analyst
(Technical Difficulty)
Benjamin S. Butcher -- Chairman, Chief Executive Officer and President
we're having a hard time hearing you. Could you repeat that, please?
Sarah Tan -- JPMorgan -- Analyst
Sure. So just a question on acquisition volumes and the split between stabilized and value-add. I thought you guys raised on guidance for the stabilized assets. But how can we think about split between value-add and stabilized going forward?
Benjamin S. Butcher -- Chairman, Chief Executive Officer and President
So the value-add is not an initiative if you will, we're going out and seeking value-add. These are assets that come up within our regular inquiry. They'll probably be on the order of 10% of our volume. But we're -- we increased the -- our projections for the stabilized assets because we've just seen that mix coming in. So the value-add is something that we do every year, have always done, but again, it's relatively small portion of the overall mix.
William R. Crooker -- Chief Financial Officer, Executive Vice President and Treasurer
Yes. And as we put forth our guidance in February for 2019, we had some pretty good clarity into the $40 million of value-add acquisitions closing in Q1. So the way to think about it, I would just look at the midpoint of that guidance and somewhere in the order of another $30 million, $35 million potentially for the year for us.
Operator
Thank you. Our next question comes from the line of John Massocca with Ladenburg Thalmann. Please proceed with your question.
John Massocca -- Ladenburg Thalmann -- Analyst
Morning.
Benjamin S. Butcher -- Chairman, Chief Executive Officer and President
Morning.
John Massocca -- Ladenburg Thalmann -- Analyst
So can you maybe provide some more color on the developments that you mentioned earlier in the call? Specifically, kind of what do you think the total cost is for that one development? And then I know its early days, but broadly speaking, what do you see is kind of from like a dollar's perspective, the potential for total development on some of these ancillary piece of the land you have at existing assets?
Benjamin S. Butcher -- Chairman, Chief Executive Officer and President
Specific to the New Jersey development, we are anticipating the total cost to be about $15 million, excluding the land cost, which we already had in the portfolio. On a broader note, many of our sites do have excess land capacity. We evaluate those periodically. See if they're economically viable projects we can undertake. Many of those sites are encumbered by tenant leases. So the opportunities are likely to be expansions for the existing tenants.
John Massocca -- Ladenburg Thalmann -- Analyst
And is it fair to say those will probably come in kind of fit the starts, particularly given maybe the point we are in the cycle in terms of looking at...
Benjamin S. Butcher -- Chairman, Chief Executive Officer and President
Yes, yes, yes. One of the points that Dave has made to me along the way is, we have an effective land bank here. But we're not going to -- that we can utilize, it doesn't cost us anything. And we'll opportunistically look at these as they come up. One of the things that we also talk about, I mentioned in the script I believe is, the -- we see these developments as for what they are. They're very accretive but they're also very time consuming.
So we believe that on a risk-adjusted basis, the proper deployment of -- or the most efficacious deployment of our equity capital remains for the most part in volumes stabilized assets as opposed to doing development. We can probably buy 10 assets in the amount of time it will take us to develop 1. So although the numbers are very strong and I would say that the 50% profit margin that we alluded to on that development is based on pretty conservative assumptions. This still takes a lot of time to do that.
So we're very happy about that development. We do expect to be producing great results out of it. But it's not -- we don't believe it will be a core part of our business going forward.
John Massocca -- Ladenburg Thalmann -- Analyst
Understood. And then a quick detail question. With the Houston value-add property that had a tenant in place, was that paying any cash rent kind of day one? And if so, what was kind of the initial kind of non-stabilized cap rate?
Benjamin S. Butcher -- Chairman, Chief Executive Officer and President
The tenant is paying rent, it's a de minimis amount of rent relative to the long-term lease. It really is a situation where the tenant needed to build and expanded and then sort of staying in place, while the building that activity occurs and the asset has stabilized and the tenant initiate this long-term lease. So probably de minimis returns at the outset.
John Massocca -- Ladenburg Thalmann -- Analyst
Understood. And then on the balance sheet side, understand you still have the term loan available drawdown. As you kind of look at beyond that in terms of debt market issuance. Given the size of your acquisition activity, is there any thought to maybe moving kind of beyond private placements to public unsecured debt?
William R. Crooker -- Chief Financial Officer, Executive Vice President and Treasurer
Something we constantly evaluate. Given our pipeline, given the access to private markets, given the pricing of the public versus private markets, we're very comfortable operating the private placements -- placement market in the next year or 2. We'll continue to evaluate that. But again, going to your point on what does the outlook look for the year in terms of debt and we certainly to look to raise some longer term debt this year. And when we fund that term Loan E, we'll probably put another term loan in place with a 1-year delay to draw feature as well.
Benjamin S. Butcher -- Chairman, Chief Executive Officer and President
Yes, the other thing I would say is that the -- before we enter the public market given the initial -- I mean, the discount that is usually in place for infrequent issuers. We own the principal of the markets who are ready to be a regular issuer in that market. So we believe that's coming, but it won't be in the near term.
John Massocca -- Ladenburg Thalmann -- Analyst
Thank you. Thank you.
Operator
Thank you. (Operator Instructions) Our next question comes from the line of Christopher Lucas with Capital One Securities. Please proceed with your question.
Christopher Lucas -- Capital One Securities -- Analyst
Hey good morning guys. Just a couple of quick ones. Ben, just going back to the value-add asset in the Houston, the price put forth was highest within the group of assets that you bought this quarter. Does this asset come with a fair amount of excess land? Is that the opportunity here?
Benjamin S. Butcher -- Chairman, Chief Executive Officer and President
Yes. So in order to obviously to expand the building, we need the land to do it on. So that asset did come with excess land and that is all part of the opportunity, a significant amount of excess land.
Christopher Lucas -- Capital One Securities -- Analyst
Okay. And then just going on the development side, do you guys have a sort of a minimum hurdle yield over which sort of stabilized assets could be bought that you're looking at as it relates to sort of you're going in development yield? And is there situations where you would go spec versus pre-lease? Just trying to understand sort of how you're thinking about driving that.
Benjamin S. Butcher -- Chairman, Chief Executive Officer and President
So the asset that we're doing in Burlington is currently under development and Burlington is a specular development. It's a specular development in a submarket with about 2% vacancy. Very strong leasing demand. It's sized appropriately to the market. Has a bunch of things going forward that it make us highly confident to go forward on a spec basis. Our activity in the build-to-suit basis has been largely on take outs from other developers.
Certainly, we would -- if we -- we're not resonant about signing a lease, if we had -- if a tenant sort of want us to finalize before we broke ground, we would be happy with that. But just getting that commitment sometimes requires tenants have to believe the assets are going to actually get built before the signing the lease. So promising them you go build it, may not get you quite as much activity as if the dirt is moving in and steel is going up, et cetera.
Christopher Lucas -- Capital One Securities -- Analyst
Okay. And then my last question just has to go -- has to do with sort of the transaction market, are you seeing a change in sort of who's making up the willing sellers in the market, i.e. are you looking at more institutional sellers or private individuals? What's the makeup now and how does that compare to a year or 2?
Benjamin S. Butcher -- Chairman, Chief Executive Officer and President
Yes. Chris, thank you for asking that. The backbone of our -- of the supply, if you will, deals for us to look back remains the, if you will, the great on watch, the small sellers. As we tagged it on many times, the U.S. industrial market is a huge leap fragmented ownership structure with, again, I think Green Street came out recently and said that the top 20 owners own just barely 10% of all the fungible assets. So a lot of these assets out there, especially as we move away from primary markets are in the hands of smaller sellers.
And that's who we're typically buying from. We do buy from larger sellers, where people -- some of our industrial peers deciding to exit markets. Variety of other ways that assets that are part of larger portfolios that may not meet the market requirements of the buyer, et cetera. We try and look at things on a unbiased, what's the cash flow going to be basis and by those assets are going to perform well for our shareholders.
Christopher Lucas -- Capital One Securities -- Analyst
Great. Thank you. That's all I have this morning.
Benjamin S. Butcher -- Chairman, Chief Executive Officer and President
Thanks Chris.
Operator
Thank you. Our next question is a follow-up from the line of Sheila McGrath with Evercore ISI. Please proceed with your question.
Sheila McGrath -- Evercore ISI -- Analyst
Yes, I just wanted to clarify that 8% return on the development, is that on the $15 million incremental capital? Or is that on a number where you ascribed value to the land?
William R. Crooker -- Chief Financial Officer, Executive Vice President and Treasurer
There is an implied land volume included in that, yes. So it's not just the additional comp.
Sheila McGrath -- Evercore ISI -- Analyst
Okay. So they're increment so to be a higher return on incremental?
Benjamin S. Butcher -- Chairman, Chief Executive Officer and President
Yes, absolutely. And as you can tell, that's a -- you can see why we went for the development. That's a pretty unusual return for -- on cost for the Central Jersey asset.
Sheila McGrath -- Evercore ISI -- Analyst
And then do you already have it listed with some broker for leasing? Or where does that stand?
William R. Crooker -- Chief Financial Officer, Executive Vice President and Treasurer
We do. We've had -- as Ben mentioned, some strong activity on it. So we're very hopeful for the prospects of leasing it prior to completion.
Benjamin S. Butcher -- Chairman, Chief Executive Officer and President
And to clarify, Sheila, we are -- we moved in a number of years ago to -- we use brokers on all of our leasing opportunities, including renewals, but certainly, this is a -- as a spec development, it's listed with broker and they're actively marketing it.
Sheila McGrath -- Evercore ISI -- Analyst
Okay. Great. And then maybe you could give us a little insight on any leasing prospects or your view on how difficult it will be to backfill that recent bad debt item that you mentioned?
Benjamin S. Butcher -- Chairman, Chief Executive Officer and President
So the Ditech building is a non-core asset if you will, it's a legacy flex asset that we bought well before we went public, probably before 2007. The drivers of that kind of a building, it's a -- effectively I'd call center-type space. The drivers for that kind of building are -- the demand drivers for that kind of building are not very strong. We will undoubtedly sell that building at some point during this year.
William R. Crooker -- Chief Financial Officer, Executive Vice President and Treasurer
Sheila, we've had some user demand. It is a -- it's set up well for a call center backup operation. There is a tenant in place, minority of the space, but they and a couple of others have come forward and have interest in buying the building.
Benjamin S. Butcher -- Chairman, Chief Executive Officer and President
So we expect to be able to exit that asset on a, not a home run return, but on an adequate return over the course of our investment period.
Sheila McGrath -- Evercore ISI -- Analyst
Okay. Great. And then last one. Ben, you did mention in your prepared remarks about the data analytics. And I know you've invested there over the years. Maybe you could give us a little more detail how you guys are using the tools? Is it for credit underwriting? Or what exactly are you doing with that?
Benjamin S. Butcher -- Chairman, Chief Executive Officer and President
Yes. We're hopeful to be able to apply data analytics across the wide spectrum of things that we do in terms of analyzing assets for sale and operating those assets. The big challenge in industrial real estate, as I alluded to in my remarks, is getting good data. If you're a multifamily or a self-storage, you have -- you might have 30 data points, 50 data points a week that you're getting in on some of homogeneous assets.
That's a much lesser challenge and the kind of activity that we find in a industrial real estate. So getting our data -- getting external data where we can obviously comp data, et cetera, organizing it, verifying it are all challenges that we've been working on for years and continuing to work on in order to be able to exercise analytics to make better decisions. We believe that the -- there is opportunity to use data to be more informed in our rental rate negotiations with tenants. We believe, we'll be able to use data, as I mentioned in my prepared remarks, to better target assets that we should be pursuing in our acquisition activities.
I mentioned that highly fragmented nature. There is a bunch of different sellers out there. And the way you get to those sellers typically is through the brokers. But identifying which ones we should be allocating our resources to pursuing is something certainly that we believe data analytics can help in. Credit, we've been -- I won't say that we've been doing anything tremendously different than the rating agencies do in terms of analyzing credit and the potential for our tenant to pay us over time. But we've been pretty sophisticated in that arena for a long time and continuing to apply efforts. But that is -- I wouldn't say, we're breaking new ground there so much as just making sure we do good solid credit underwriting.
Sheila McGrath -- Evercore ISI -- Analyst
Okay. Thank you.
Benjamin S. Butcher -- Chairman, Chief Executive Officer and President
Thank you.
Operator
Thank you. And that concludes our question-and-answer session. I'll turn the floor back to Mr. Butcher for any final comments.
Benjamin S. Butcher -- Chairman, Chief Executive Officer and President
Well, as always, thank you for your insightful questions today and for bearing with my head cold, which may have impacted the tone quality at times today. But we very much appreciate your support, and look forward to continuing to work with you all as we continue our progress forward. Thank you.
Operator
Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Duration: 41 minutes
Call participants:
Matts Pinard -- Vice President
Benjamin S. Butcher -- Chairman, Chief Executive Officer and President
William R. Crooker -- Chief Financial Officer, Executive Vice President and Treasurer
Sheila McGrath -- Evercore ISI -- Analyst
Stephen C. Mecke -- Executive Vice President and Chief Operating Officer
Brendan Finn -- Wells Fargo -- Analyst
Mitch Germain -- JMP Securities -- Analyst
Dave Rodgers -- Baird -- Analyst
Jason Idoine -- RBC Capital Markets -- Analyst
Sarah Tan -- JPMorgan -- Analyst
John Massocca -- Ladenburg Thalmann -- Analyst
Christopher Lucas -- Capital One Securities -- Analyst
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