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Stag Industrial Inc (NYSE:STAG)
Q4 2019 Earnings Call
Feb 13, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, ladies and gentlemen, and welcome to the STAG Industrial, Inc. Fourth Quarter 2019 Earnings Conference Call. [Operator Instructions]

It is now my pleasure to introduce your host, Matts Pinard. Thank you, sir. You may begin.

Matts S. Pinard -- Senior Vice President of Capital Markets and Investor Relations

Thank you. Welcome to STAG Industrial's conference call covering the fourth quarter 2019 results. In addition to the press release distributed yesterday, we posted an unaudited quarterly supplemental informational 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 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 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 Chief Financial Officer.

I will now turn the call over to Ben.

Benjamin S. Butcher -- Chief Executive Officer, President and Chairman of the Board

Thank you, Matts. Good morning, everybody, and welcome to the fourth quarter earnings call for STAG Industrial. We're pleased to have you join us and look forward to telling you about our fourth 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 questions specific to their areas of focus. The fourth quarter concludes a historic year for Stag Industrial. We successfully executed our 2019 business plan with all of our guidance achieved or exceeded. The company is very well positioned for a great 2020. The U.S. industrial market continues to perform well.

In 2019, rents were up almost 4% in the aggregate, according to our friends at CBRE. Completions of 63 million square feet modestly edged out net absorption of 56 million square feet for the fourth quarter. For the year, the market saw a 224 million square feet of completions compared to 183 million square feet of net absorption. As a result, vacancy rose 20 basis points year-over-year to 4.4%, but still remains significantly below long-term averages. Construction activity remains robust with a pipeline of 309 million square feet of announced development. While most markets remain quite strong. There are a few submarkets with oversupply concerns. The Houston, Atlanta, Chicago and Dallas markets, our larger metros with robust construction activity, and we're watching certain submarkets in those metros for the effects of oversupply.

These submarkets include the north and Northwest carters of Houston, South Atlanta, South Dallas and the Southwest I 85 excuse me, I 55, I 80 corridor of Chicago. Our only lease maturity exposures to these submarkets in the next two years are in South Atlanta, 0.3% of annualized base rent in 2020; and Northwest Houston, also 0.3% of annualized base rent in 2021. We see strength in most other markets nationally, including markets where we own and where we are active. These include markets such as Portland, Raleigh, Detroit, Charlotte and Northern New Jersey/New York. In our view, this robust construction activity and near-record low vacancy rate supports long-term confidence in the future for the industrial sector. E-commerce and its corresponding impacts on the modern supply chain remain dominant forces, transportation issues, labor cost and availability and proximity to the customer remain critical items for tenant decision-makers. As we and others have noted, rent is a small fraction of total logistics costs for our clients.

Although supply is on the minds of many in this robust construction environment, we believe the slowdown in demand may be a bigger risk factor to watch. However, as noted earlier, recent demand has remained solid with 183 million square feet of space absorbed in 2019 and with more than 50 million square feet absorbed in the fourth quarter. We continue to monitor the macro economy and the supply and demand fundamentals of individual submarkets. These are important components of our data-driven approach to underwriting and to asset management. In 2019, we acquired a record $1.2 billion of assets in one-off transactions. This is nearly double the amount acquired in 2018. This increase in volume acquired is a matter of both the growing capacity of our skilled acquisition professionals and of our market presence. We also experienced great success in our portfolio operations.

Approximately 10 million square feet of leases commenced with 10% cash and 18.2% straight-line rent growth, an increase from 7.9% and 15.2% for the same metrics last year, and another all-time high for the company. These robust leasing spreads, combined with a strong retention of 76.7% resulted in annual same-store cash NOI growth of 2.4%. I'd now like to mention a couple of corporate items. First, as a part of our expanding our business reach, we opened an office in Dallas, our first regional outputs. This location will allow us to more efficiently and effectively operate our national industrial real estate platform. The office will include acquisition, asset management and capital project personnel with regional responsibility focused on the southwest. Second, in November, we announced the appointment of Dr. Jit Kee Chin to our Board of Directors. She brings a strong background in the field of data analytics and provides valuable experience and insights as we continue to develop our data, analytics and technology infrastructure.

As we look forward to the rest of 2020, we see tremendous opportunity to both grow our portfolio externally through accretive acquisitions and to continue the trajectory of consistent internal growth. Bill will discuss our various guidance metrics in detail, but I'd first like to touch upon a couple of specific items relating to our 2020 operations. In January, we sold two buildings located in Cameri, California to a regional investor for $88 million, a cap rate of 4.9%. We acquired these buildings in 2014 for $55 million at a cap rate of 7.2%. Two of our top 10 tenants have leases maturing this year and are expected to vacate their space. Solo Cop, who currently occupies our building in Hampstead, Maryland, has a lease expired in July 2020 and accounts for 1% of our annualized base rent. We are evaluating all options. We'll keep you updated as our plans progress. The GSA currently leases our building located off Axis 6A of the New Jersey Turnpike in Burlington, New Jersey.

Their lease expires in December 2020 and accounts for 1.8% of our annualized base rent. This asset has attractive development and redevelopment opportunities with multiple potential attractive outcomes. The site features developable excess land that is in the process of being subdivided. The building is currently marketed, and we have received multiple offers to purchase the bill insight at attractive pricing levels. We are evaluating all of our options to lease, sell and/or develop this asset. We will keep you updated as to our plans and progress. Finally, yesterday, for the first time, we announced core FFO per share guidance for the coming year. The range of for 2020 core FFO is $1.86 to $1.92 per share. This is a continuation of our effort to provide transparent and useful disclosure.

With that, I'll turn it over to Bill, who will discuss our operational results in the remainder of 2020 guidance.

William R. Crooker -- Chief Financial Officer, Executive Vice President and Treasurer

Thank you, Ben. Good morning, everyone. Core FFO was $0.47 for the quarter and $1.84 for the year, an increase of 2.2% compared to 2018. Leverage remains near the low end of our guidance with net debt to run rate adjusted EBITDA of 4.8 times. Our 2019 acquisition volume was $1.2 billion with stabilized cash and straight-line cap rates of 6.4% and 6.9%, respectively. Subsequent to quarter end, we have acquired an additional seven buildings, totaling $103 million. Our portfolio continues to benefit from the strength of the industrial sector as seen by a robust portfolio operating results. Retention for the quarter was 87.4% and 76.7% for the year. Cash and straight-line leasing spreads were 6.4% and 13.2% for the quarter and 10% and 18.2% for the year, respectively. Same-store cash NOI grew 2.4% during 2019 exceeding the high end of our revised guidance. Same-store cash NOI growth was driven by our retention rate of 76.7% and cash releasing spreads of 10%.

This was partially offset by a decline in average occupancy in the same-store pool. Note that our annual same-store pool accounted for 68.2% of the total portfolio at year-end. Moving to capital market activity on December 26, we fully settled the forward equity component of our September 2019 equity transaction. STAG issued 7.15 million shares and received $202 million in net proceeds. Those proceeds were used to fund fourth quarter 2019 acquisitions. During the quarter, we raised an additional $82 million of net proceeds through our ATM program and funded $100 million of the $200 million delayed draw term loan off. Subsequent to quarter end, on January 13, we completed an equity offering at $31.40 per share, which resulted in net proceeds of approximately $311 million with a portion of those proceeds to received on a forward basis. Net proceeds of $173 million were received in January, with the remaining $138 million to be settled in the future.

At quarter-end, net-debt-to-run-rate adjusted EBITDA was 4.8 times, our fixed charge coverage ratio was 4.8 times, and our available liquidity was $460 million. Our initial 2020 guidance can be found on page 21 of our supplemental reporting package, which is available in the Investor Relations section of our website. Our 2020 core FFO guidance is a range of $1.86 to $1.92 per share with the midpoint of $1.89. We expect acquisition volume to be between $800 million and $1 billion for 2020. We expect to acquire between $725 million and $875 million of stabilized assets with an expected cap rate range of 6% to 6.5%. We expect between $75 million and $125 million of value-add acquisitions this year with NOI coming online in 2021. The stabilized cap rate for these acquisitions are expected to be in line with our 2020 stabilized cap rate guidance. We expect disposition volume to be between $150 million and $250 million for 2020.

We expect the 2020 annual same-store pools cash NOI growth to be between 1% and 2% for the year. This range includes a credit loss estimate of approximately 50 basis points on the same-store pool. Note that the 2020 annual same-store pool accounts for approximately 80% of the portfolio as of year-end 2019. Our expectation is the same-store pool will represent between 70% and 75% of the portfolio at year-end 2020. For the first quarter of 2020, we expect same-store cash NOI to be approximately flat and grow throughout the year. We reported 2019 G&A of $35.9 million, slightly below the low end of our public guidance. Our initial 2019 guidance reflected a midpoint of $37 million which included projected additions to headcount and investments in the business. Due to improvements in the efficiency of our systems and processes, we delayed these new hires and business investments to 2020. 2020 G&A is expected to be between $41 million and $43 million for the year, of which $11.7 million is noncash compensation and is reflected in our diluted share count.

This G&A guidance includes costs associated with the opening of our second office in Dallas. The business remains highly scalable, and over the past three years, the portfolio has grown 23% per year on average compared to less than 3% annual growth in G&A. Looking specifically at Q1 2020, g&A is expected to be between $11 million and $11.5 million due to seasonality. Our leverage range continues to be between 4.75 and 6 times with the expectation that we operate at the lower end of that band between 4.75 and 5.25 times for 2020. Capital expenditure per average foot is expected to be between $0.27 and $0.31 for the year.

I will now turn it back over to Ben.

Benjamin S. Butcher -- Chief Executive Officer, President and Chairman of the Board

Thank you, Bill. STAG enters 2020 with significant momentum across all aspects of our business. We continue to see attractive investment opportunities nationwide and our investments in data and technology improvements have visibly increased the efficiency of our acquisition platform. The tenancy across our portfolio is vibrant and confident in their lines of business. This is reflected in our impressive operating metrics for the year. With our low leverage and ample liquidity, our balance sheet is positioned to support the numerous opportunities we see today and expect to see in the future. We are proud of our historic 2019 performance and are excited to continue to execute our business plan in 2020.

We thank you for your time this morning and for your continued support of our company. So with that, I'll turn it over to the operator for questions.

Questions and Answers:

Operator

Thank you, [Operator Instructions] Our first question comes from the line of Sheila McGrath with Evercore. Please proceed with your question.

Sheila McGrath -- Evercore -- Analyst

Yes, good morning. Amazon jumped into the top tenent position, would did you acquire another Amazon property during the quarter?

Benjamin S. Butcher -- Chief Executive Officer, President and Chairman of the Board

We did acquire a building though at least a building, excuse me, to Amazon during the quarter that had been another tenant had vacated. It's also one of the reasons why our TI and BI expenditures are large for the quarter, it's repairing that building for Amazon.

Sheila McGrath -- Evercore -- Analyst

You had to reset it specifically for their uses?

Benjamin S. Butcher -- Chief Executive Officer, President and Chairman of the Board

Yes.

William R. Crooker -- Chief Financial Officer, Executive Vice President and Treasurer

Yes, Sheila, it was a great transaction. We had a tenant that was expected to vacate the building. We agreed to a termination penalty for that tenant. So they gave us termination income. There was no downtime. We signed Amazon up for a 10-year lease with 2.5% contractual rental escalators.

Sheila McGrath -- Evercore -- Analyst

And was the in-place rent of Amazon higher than the expiring previous tenant?

Benjamin S. Butcher -- Chief Executive Officer, President and Chairman of the Board

Yes. The face rate was about 10% higher, and then there's some amortization of the above standard TIs in there. So that combined with a 10-year term, which makes your commission larger, drives that larger-than-average transaction cost.

Sheila McGrath -- Evercore -- Analyst

Okay, great. And I don't know if I missed this if you mentioned it, but could you give us an update on the New Jersey development house leasing progress going there? And what's your expectation on the stabilized yield on costs that, that might be?

William R. Crooker -- Chief Financial Officer, Executive Vice President and Treasurer

We have just completed the building. We are encouraged by the traffic we've seen to date. Our pro forma rents from a year ago are probably low relative to market currently. And we expect to be on time with leasing and other deal terms as we go forward.

Benjamin S. Butcher -- Chief Executive Officer, President and Chairman of the Board

So we had said that we thought that the pro forma return on cost would be somewhere in the 8s, so we're now expecting to certainly achieve that, if not do better.

Sheila McGrath -- Evercore -- Analyst

And so would that come online this year, you think?

Benjamin S. Butcher -- Chief Executive Officer, President and Chairman of the Board

Very much expect it to come online this year, yes.

Sheila McGrath -- Evercore -- Analyst

Okay, great. And just one last one on dispositions in your guidance of $200 million, that was certainly higher than we had in our model. I'm just wondering, are these noncore assets? Or just talk about what's driving the volume on dispositions?

Benjamin S. Butcher -- Chief Executive Officer, President and Chairman of the Board

Well, some the big piece of that was the move of the Camario asset from the fourth quarter to the first quarter. So $88 million of was shifted from one year to the next. So that's a big piece. I don't think they've...

William R. Crooker -- Chief Financial Officer, Executive Vice President and Treasurer

Sheila, when we get a vacancy, we market it for sale or for lease. And we have seen some pretty good activity in the user-buyer market. So as you see Solo and other larger vacancies come in, we are marketing those for similar lease. So we have some probability that we will sell those assets.

Benjamin S. Butcher -- Chief Executive Officer, President and Chairman of the Board

And that's true of the Camerio asset as well. That was market for sale or lease, and there was quite a lot of leasing activity. We just had somebody show up and pay us basically more than we thought it was going to be worth to us on a lease basis.

Sheila McGrath -- Evercore -- Analyst

Okay, great. Thank you.

Operator

Thank you. 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. In terms of acquisitions for 2020, are you guys going to be targeting, I guess, assets in the southeast markets, just given that you recently opened up the Dallas office?

Benjamin S. Butcher -- Chief Executive Officer, President and Chairman of the Board

I think that our investment focus is to identify individual assets within the 60 or so markets we look at, but defined assets that will deliver the shareholder returns that we're looking to deliver to our shareholders. And so I don't think that the opening of the Dallas office specific targeting toward any particular markets. It undoubtedly will produce more opportunity for us in the markets in or around Dallas. So is there a potential for us to be more active in those markets? Yes, but it's not particular that we're targeting those markets because we remain very much a bottom-up investor. We're looking for the transactions that make sense, not the markets where we want to try to necessarily try and find transactions. Having said that, we also have a we also have our radar STAG radar system where we do evaluate markets in terms of resource allocation where we the markets where we're most likely to find those individual transactions that meet our return requirements.

William R. Crooker -- Chief Financial Officer, Executive Vice President and Treasurer

And just to clarify, the Dallas office will be covering the southwest, not the southeast.

Brendan Finn -- Wells Fargo -- Analyst

Okay, got you. That's helpful. And then, I guess, congrats on the strong rent spreads that you guys had in 2019. What are you guys anticipating in terms of cash rent spreads for 2020?

William R. Crooker -- Chief Financial Officer, Executive Vice President and Treasurer

Mid-single digits.

Brendan Finn -- Wells Fargo -- Analyst

Okay. And then last one for me. You guys talked about the 50 basis point impact to same-store NOI growth in 2020 from Credit loss. Does that represent any situations that you're currently monitoring? Or is that more of a placeholder?

William R. Crooker -- Chief Financial Officer, Executive Vice President and Treasurer

That's a placeholder right now. It's a similar credit loss that we guided to last year. I'd say the one difference between last year and this year is last year, we had a one or two tenants on our watch list, we don't have any tenants are on a watch list to date. But given where we are in the calendar, in mid-February, we felt 50 basis points was a good estimate for the year.

Brendan Finn -- Wells Fargo -- Analyst

Cool, some day. Yes. Thanks.

Benjamin S. Butcher -- Chief Executive Officer, President and Chairman of the Board

Thank you.

William R. Crooker -- Chief Financial Officer, Executive Vice President and Treasurer

Thank you.

Operator

Thank you. Our next question comes from the line of Dave Rogers with Baird. Please proceed with your question.

Dave Rogers -- Baird -- Analyst

Yes, Good morning. Just one follow-up, Bill, on that last question. What was your actual credit loss in 2019 versus the 50 that you had guided to?

William R. Crooker -- Chief Financial Officer, Executive Vice President and Treasurer

It was right around 50 basis points, it's right on top of it.

Dave Rogers -- Baird -- Analyst

All right, great, thanks for that. On the term income you mentioned related to that Amazon deal, I mean, was that sizable in the fourth quarter? And where was that?

William R. Crooker -- Chief Financial Officer, Executive Vice President and Treasurer

It was about $500,000. That's included in core FFO excluded from same store.

Dave Rogers -- Baird -- Analyst

Okay. And now you've run extra revenue, OK. On the asset sales, it sounds like the range contemplates the potential sale of follow as well as the GSA building and it sounds like that would be gets you into that range pretty comfortably. If you don't end up selling those, if you're able to release those, how should we think about that disposition guidance? One, are there other assets you would put in there? And then two, I think your presentation also mentioned that it excluded portfolio sales. How likely do you think you are to take more to the market and beat that number this year?

Benjamin S. Butcher -- Chief Executive Officer, President and Chairman of the Board

So we always are opportunistic. As Dave and mentioned earlier, we take buildings to the markets for lease or sale and that we've seen quite a lot of activity from the user market. And so that part of the that guidance is reflective of the fact that we are in a environment where those sales are occurring. And so yes, and we do not plan any portfolio sales at this time.

Dave Rogers -- Baird -- Analyst

So I mean I get you'll get to that guidance one way or the other? Or the $88 million done...

William R. Crooker -- Chief Financial Officer, Executive Vice President and Treasurer

Dave, that's the disposition guidance, once you back out the camario sales, is pretty consistent with prior years. So it will be a mix of noncore opportunistic dispositions. Depending on the opportunistic dispositions and what we see during the year, it could be the upper end of that guidance or lower end of the guidance. We will update you guys as the year progresses. But seeing we already locked in $88 million of disposition proceeds, that's why you see an elevated disposition guidance for the year.

Dave Rogers -- Baird -- Analyst

Okay. And then maybe just last, on the G&A. You guys gave a lot of detail in the prepared comments, but 17% or 18% increase at the midpoint, the Dallas office, and some technology investment, how far does that get you kind of after this year in terms of kind of a big increase this year. You know, How what's the capacity addition? How do you think about that in terms of kind of then the future scale of the business, Ben?

Benjamin S. Butcher -- Chief Executive Officer, President and Chairman of the Board

Well, we give guidance for one year out, Dave. I think in G&A, it's not linear. So as we've mentioned in the prepared remarks, we had a CAGR of about 3% over the past three years. We came in below the low end of our guidance last year. So some of those efficiencies that we put in place during 2019, delayed postponed some of the headcount additions that are coming online in 2020. We'll give guidance G&A guidance for 2021 at a later time, but we did put in our investor presentation in November that we're going to trend down to 10% of NOI over time.

Dave Rogers -- Baird -- Analyst

Thank you.

Operator

Thank you. Our next question comes from the line of Bill Crow with Raymond James. Please proceed with your question.

Bill Crow -- Raymond James -- Analyst

Good morning, guys. What are the expiring rents on Solo Cup compared to market?

Benjamin S. Butcher -- Chief Executive Officer, President and Chairman of the Board

Dave, they're right at market. So we expect that to roll somewhat sideways, if not a little bit up.

Bill Crow -- Raymond James -- Analyst

Got you. And then I think you bought that for about $44 per square foot. What do you think the market is for that sort of building?

Benjamin S. Butcher -- Chief Executive Officer, President and Chairman of the Board

Difficult to tell, we if we find a user who is interested in buying, it's probably at that number or in excess. If it's a redevelopment opportunity, it's likely be below that.

Bill Crow -- Raymond James -- Analyst

Is the extended term you've been reporting on your acquisitions, is that is that largely driven by that the waiting of the big lease in the fourth quarter? The Amazon lease?

Benjamin S. Butcher -- Chief Executive Officer, President and Chairman of the Board

And some build-to-suit acquisitions, which are longer-term as well. Again, we're not targeting a longer lease terms. It's just the mix for that quarter ended up having those longer lease terms. But it is Amazon, for sure.

William R. Crooker -- Chief Financial Officer, Executive Vice President and Treasurer

Yes, Bill, we didn't acquire Amazon in the fourth quarter, that was a new lease we signed. And there is if you look at the acquisition activity in the fourth quarter, I mean, there's a number of the acquisitions that had greater than 10 years of lease term. So it's just a it's just a mix of assets as we acquired. We've acquired this year value-add acquisitions with that were vacant, up through leases that had 15 years of lease term. So it's a wide range of acquisitions.

Bill Crow -- Raymond James -- Analyst

And one final question for me. Your new slide deck talked about healthier same-store NOI growth of kind of 2% to 3%. I'm just wondering, as you look into 2021, any known move-outs that would kind of get in the way of that number?

Benjamin S. Butcher -- Chief Executive Officer, President and Chairman of the Board

The GSA building that we mentioned, Burlington, looks like that's going to be a known move out, and that will be in December. Again, there's a lot of options with that building, as we discussed in the prepared remarks, we'll update the street as we go through. And 2% to 3% in the investor presentation is something that we think is a good short-to-medium-term number for us. That was impacted by the credit loss we discussed as well as the Solo Cup vacancy this year.

Bill Crow -- Raymond James -- Analyst

If your credit loss was 50 basis points last quarter last year, and do it again, another 50, wouldn't that have been baked into your expectations in that slide deck?

Benjamin S. Butcher -- Chief Executive Officer, President and Chairman of the Board

Some of it was, yes. But when you layer that back in with the Solo Cup, you're at at low twos.

Bill Crow -- Raymond James -- Analyst

Alright, appreciate it. Thank you.

Benjamin S. Butcher -- Chief Executive Officer, President and Chairman of the Board

Thanks Bill.

Operator

Thank you. Our next question comes from the line of Sarah Tan with JP Morgan. Please proceed with your question.

Sarah Tan -- JP Morgan -- Analyst

Hi, good morning. This is Sarah on for Mike Muller. As you posted accelerating same-store NOI results from over the past few years, could you talk a bit about how you're pushing rents? And how we can expect that to trend through the year?

Benjamin S. Butcher -- Chief Executive Officer, President and Chairman of the Board

So I think, as Bill just said, our short-to-medium-term expectations for same-store NOI are 2% to 3%. The fourth quarter the slowdown versus the year, just an anomaly of the quarter. Our expectations for the year and for the medium-term are in that 2% to 3% range.

Sarah Tan -- JP Morgan -- Analyst

Thanks.

Operator

Thank you. Our next question comes from the line of Michael Carroll with RBC Capital Markets. Please proceed with your question.

Michael Carroll -- RBC Capital Markets -- Analyst

Hey thanks, Ben, can you provide some color on the type of investments STAG has made to improve your overall platform that has driven your acquisition rate higher? And do you think that improvement in the hit rate is sustainable going forward?

Benjamin S. Butcher -- Chief Executive Officer, President and Chairman of the Board

Well, the improvements have been both human and machine. So human in that we've added acquisition people that are in the field. And the people that we have in the field are have been in the field longer, so reflective of the wonderful place to work that STAG is. We are able to retain our employees for long periods of time, and they get more mature in the markets that they're operating in. But internally, we are it's basically manipulation of data and systems to more efficiently underwrite as well as use the data that we have to more efficiently target our human capital as they move out and around in the market. So all those things come together to help us to continue to identify and acquire those assets.

Michael Carroll -- RBC Capital Markets -- Analyst

Okay. Can you quantify how that has improved your overall hit rate on type of deals in 2019 versus prior years?

Benjamin S. Butcher -- Chief Executive Officer, President and Chairman of the Board

Yes, one of the things I would say is that our guidance for this year I mean, our hit rate in 2019 was above our recent trends. And so we think it's reflective of the improvements we've made. But the guidance that we put out is almost 20% hit rate. The guidance that we put out for acquisitions for 2020 is reflective of some moderation of that hit rate, maybe back closer to the 2018 numbers at 15%. So although we hope and expect that the improvements that we've undertaken will continue to produce that better targeting that will allow us to have the higher hit rate, we are not baking that into our guidance at this point.

Michael Carroll -- RBC Capital Markets -- Analyst

Okay. And then just last question for me, related to the GSA expiration at the end of 2020. I know that you have talked about either releasing that space and potentially selling the building. How are those discussions going right now? And what's the factors that will make you choose releasing versus selling or vice versa?

Benjamin S. Butcher -- Chief Executive Officer, President and Chairman of the Board

As with every transaction we look at, we're looking at the long-term returns for our shareholders, what best delivers us returns. This is a building that has and a site that has a lot of demand. This is very close to where we're doing the Burlington ground-up development, a mile or so away, I guess. A couple of miles away. And it is an asset that has a very strong leasing market, lots of demand, and we are the root our confidence is buoyed out of the fact that, as mentioned in our prepared remarks, we have people willing to pay us very, very healthy returns, simply to acquire the asset and the developable land today. So we as with the other Burlington development, we looked at selling the land versus developing the land, and we'll make the same kind of analysis here as we look at this one obviously has the additional component of a building to be leased, but we view this all in all the components here as plus. That's a very strong market.

Michael Carroll -- RBC Capital Markets -- Analyst

Great, thank you.

Operator

Thank you. Our next question comes from the line of Elvis Rodrigues with Bank of America. Please proceed with your question.

Elvis Rodrigues -- Bank of America -- Analyst

Hey, good morning, guys.

Benjamin S. Butcher -- Chief Executive Officer, President and Chairman of the Board

Good morning, Elvis.

Elvis Rodrigues -- Bank of America -- Analyst

Quick question on the investment pipeline. So at the end of the year ended at $2.1 billion versus $2.7 billion at the end of 3Q, can you just give us an update on what you're seeing and is it becoming harder to meet some of your target yields?

Benjamin S. Butcher -- Chief Executive Officer, President and Chairman of the Board

Well, part of the problem is that we bought so much in the fourth quarter, we drove the pipeline down. That's a reality, but it's also reality that the cyclicity of sort of availability of assets tends to have a stop point at the end of the year. So it would not be atypical for us to have the pipeline dip at the end of the year, and then sort of build start to build back up as the new year begins. $2 billion of individual assets is an awful lot of assets to be for us to be for anybody to be looking at. There's it's lots of opportunity out there. These are assets that have gone through an initial triage. Our initial triage is better than it was in the past. So we're highly confident this is a pool of assets that makes sense for us to underwrite. And if we can derive the returns we're looking for, a pooled assets that will deliver to us a lot of good acquisitions.

William R. Crooker -- Chief Financial Officer, Executive Vice President and Treasurer

Yes, I wouldn't read too much into the decrease from Q3 to Q4. It's a point in time measure, and Ben hit on the reasons why it's a little lower right now.

Elvis Rodrigues -- Bank of America -- Analyst

Excellent. So you've obviously grown the business tremendously over the last couple of years, but FFO has only grown, call it, in the 2% to 2.5% range. Can you talk about when we should see that sort of get higher to where your peers are? And in addition, maybe you could target the internal growth piece as well?

Benjamin S. Butcher -- Chief Executive Officer, President and Chairman of the Board

Yes, I mean, one of the issues is, as we grow, we're buying lots of or historically have and continue to have lots of fully occupied building. So we do have the occupancy headwind that we that weighs on as we're continuing to grow. We at the at our IPO, we had an equity market cap of a couple of hundred million, we now have an equity market cap over $5 billion. There's been a lot of growth. There continues to be a lot of growth and unfortunately, that does weigh on because we continue to build the machine as well in a very scalable manner, but we're continuing to build the machine. All these things have weighed on. If we simply stop growing, I think you would see more growth fall to the bottom line from the existing portfolio.

William R. Crooker -- Chief Financial Officer, Executive Vice President and Treasurer

Yes, we talked about the components of this year's growth, and we put out a range of core FFO at the midpoint of $189 million. So there's a lot of factors every year that would that impact core FFO per share growth, and we discussed those previously.

Benjamin S. Butcher -- Chief Executive Officer, President and Chairman of the Board

And as Bill has noted before, we have been continuing delevering, although our under the year metrics didn't perhaps show the metric the delevering quite as much, our average leverage during the year was a deleveraging from the prior year.

Elvis Rodrigues -- Bank of America -- Analyst

Okay, that's helpful. Just one more for me. Can you talk a little bit more about sort of tenant demand and rent growth across your markets. So I understand you're going to get some of these boxes back and you sold the route of, perhaps, I can sell it or perhaps I can retenant it. But can you talk about the decision and kind of how tenant demand is wearing weighing on those decisions across your markets today?

Benjamin S. Butcher -- Chief Executive Officer, President and Chairman of the Board

Yes. One of the things to look at is we classify markets, 25 million to 200 million of square feet is secondary markets and above 200 million is primary markets. It's interesting to note within those classifications, the occupancy or the reverse of occupancy, the vacancy in those markets is similar to the secondary markets have actually probably have recently had slightly higher occupancy. And that is an occupancy or vacancy is non retention times downtime. And so if you assume that the secondary markets might have longer downtime, they must have higher retention. But so I'm basically, what I'm saying is these are very healthy operating markets and the results that are derived from operating in the markets we are more active in, which is the lower half of the primary markets and the secondary markets, they operating metrics that are similar to in terms of delivering operating results, similar to or, in some cases, better than the primary market.

So it may not be exactly the question you asked, but we're very comfortable that the markets we operate in, will deliver good operating results. They are fungible markets with with strong tenant demand, etc., and do not suffer from the potential for oversupply that may occur in some of the larger metros where we are less active.

Elvis Rodrigues -- Bank of America -- Analyst

Okay, thank you. That's helpful.

Operator

Thank you. [Operator Instructions] Our next question comes from the line of John Massocca with Ladenberg Thalmann. Please proceed with your question.

John Massocca -- Ladenberg Thalmann -- Analyst

Good morning.

William R. Crooker -- Chief Financial Officer, Executive Vice President and Treasurer

Good morning.

John Massocca -- Ladenberg Thalmann -- Analyst

So value-add looked like it was a larger component of the acquisition guidance for 2020 versus kind of maybe where I don't know where to end up, being necessarily for 2019, but at the start of the guidance for 2019 and kind of 3Q 2019 era. So is there some reason that, that value-add portion of the acquisitions is moving up? Is it what you're seeing in the market? Is it stuff that's already in the pipeline today maybe? What's driving that?

William R. Crooker -- Chief Financial Officer, Executive Vice President and Treasurer

Year-over-year, John, it's pretty similar. We closed about $100 million of acquisitions in 2019, midpoint of our guidance is $100 million for 2020. So it's similar year-over-year. Those are great opportunities. We are balancing how much we acquire as a percentage of the overall acquisition volume. Great opportunities. And once we add the value to those assets, whether it be leasing vacancy or expanding a building generally creates anywhere from 25 to 75 basis points of incremental value at the asset level. So good, long-term investments, but we do just balance what percentage of the overall acquisition volume is value added.

John Massocca -- Ladenberg Thalmann -- Analyst

Okay. And then understanding the decent amount of the value-add acquisition in 2019 was toward the end of the year, so you don't really know necessarily where that stands, but the stuff that was maybe earlier in the year, how have the outcomes for that gone versus maybe what were budgeting or what you expected?

William R. Crooker -- Chief Financial Officer, Executive Vice President and Treasurer

It's very similar to budgeting, if not exceeding our pro formas.

John Massocca -- Ladenberg Thalmann -- Analyst

Okay, makes sense. And then one last value-add question. In terms of the 4Q acquisitions, outside of Jacksonville, maybe what was value added? And why was it value add, if you will?

William R. Crooker -- Chief Financial Officer, Executive Vice President and Treasurer

I think it was just Jacksonville, Steve?

Stephen C. Mecke -- Chief Operating Officer and Executive Vice President

No. No, we had so we had Jacksonville, and then you had two partially vacant buildings in Texas and South Carolina.

John Massocca -- Ladenberg Thalmann -- Analyst

So it's primarily just vacancies you're leasing up, there's nothing that's like some TI involved?

Stephen C. Mecke -- Chief Operating Officer and Executive Vice President

Sure. Yes, in those specific instances, there's no development or anything we're taking advantage of a vacancy that we're looking to lease.

John Massocca -- Ladenberg Thalmann -- Analyst

Okay. Then on the top tenant list, it was a small move, but it looks like gain thing kind of came down a little bit. Was that an asset you sold? Or did they leave an asset?

William R. Crooker -- Chief Financial Officer, Executive Vice President and Treasurer

That was the Amazon scenario I referenced. So they were going to vacate that space, and that's the so we negotiate a lease termination fee and put Amazon into the space with no downtime.

John Massocca -- Ladenberg Thalmann -- Analyst

Perfect. That's it for me. Thank you very much.

William R. Crooker -- Chief Financial Officer, Executive Vice President and Treasurer

Thank you.

Operator

Thank you. Ladies and gentlemen, this concludes today's excuse me, this concludes the Q&A session. I would now like to turn the call back to Ben Butcher for closing comments.

Benjamin S. Butcher -- Chief Executive Officer, President and Chairman of the Board

Thank you for your questions this morning and for listening on our operational results. As I mentioned in our prepared remarks, we're very confident about the position of the company, the quality and the engagement of the team and our prospects for 2020. Thank you for your time and attention this morning, and we look forward to talking to you, again, next quarter.

Operator

[Operator Closing Remarks].

Duration: 40 minutes

Call participants:

Matts S. Pinard -- Senior Vice President of Capital Markets and Investor Relations

Benjamin S. Butcher -- Chief Executive Officer, President and Chairman of the Board

William R. Crooker -- Chief Financial Officer, Executive Vice President and Treasurer

Stephen C. Mecke -- Chief Operating Officer and Executive Vice President

Sheila McGrath -- Evercore -- Analyst

Brendan Finn -- Wells Fargo -- Analyst

Dave Rogers -- Baird -- Analyst

Bill Crow -- Raymond James -- Analyst

Sarah Tan -- JP Morgan -- Analyst

Michael Carroll -- RBC Capital Markets -- Analyst

Elvis Rodrigues -- Bank of America -- Analyst

John Massocca -- Ladenberg Thalmann -- Analyst

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