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STAG Industrial, inc (STAG) Q3 2021 Earnings Call Transcript

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STAG earnings call for the period ending September 30, 2021.

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STAG Industrial, inc (STAG 1.48%)
Q3 2021 Earnings Call
Oct 29, 2021, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings. And welcome to the STAG Industrial Third Quarter 2021 Earnings Conference Call. [Operator Instructions]

It is now my pleasure to introduce your host, Matts Pinard, Senior Vice President of Investor Relations. Thank you, sir. You may begin.

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

Thank you. Welcome to STAG Industrial's conference call covering the third quarter 2021 results. In addition to the press release distributed yesterday, we've 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 forecasts of core FFO, same-store NOI, G&A, acquisition and disposition volumes, retention rates, and other guidance, leasing prospects, rent collections, industry and economic trends, and other matters. We encourage all our listeners to review the more detailed discussion related to these forward-looking statements contained in the Company's filings with the SEC and the definitions and reconciliations of non-GAAP measures contained in the supplemental informational package available on the Company's website.

As a reminder, forward-looking statements represent management's estimates as of today. STAG Industrial assumes no obligation to update any forward-looking statements. On today's call, you will hear from Ben Butcher, our Chief Executive Officer; and Bill Crooker, our President and Chief Financial Officer. Also here with us today is Steve Mecke, our Chief Operating Officer, who is available to answer questions specific to operations.

I will now turn the call over to Ben.

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

Thank you, Matts. Good morning, everybody. And welcome to the third quarter earnings call for STAG Industrial. We are pleased to have you join us and look forward to telling you about our third quarter results. Industrial market fundamentals remain sound with historic net absorption levels supported by broad-based demand across the nation. We're having daily conversations across our tenancy to help address their real estate needs. Conversation topics range from building expansions to sourcing additional space across the 60-plus markets, in which we operate, the sustainability related upgrades, such as efficient lighting conversion. These themes were highlighted in our recently completed fifth annual tenant survey. This survey provides us an opportunity to obtain real-time insights into how our tenants are thinking about their businesses and how their real estate needs are evolving in these unprecedented times. Not surprisingly, there was a dominant theme in their responses, the need for additional space.

Tenants are looking to enhance the resilience and strength of their supply chains, as well as to support new growth initiatives. Labor availability remains a widely held concern and limiting factor in these gross initiatives by our tenants. The majority of respondents indicated e-commerce activity has increased over the last 12 months, consistent with the belief that there has been a structural change in consumer behavior. Continuing the trend, approximately 40% of the buildings in our portfolio support some level of e-commerce activity. Our tenants, like our society in general, are also more focused on ESG matters. In particular, the survey revealed a noticeable increase in the importance of sustainable building operations as a measure of building fit.

STAG continues to be a leader in ESG. We recently received our 2021 GRESB Public Disclosure letter grade rating of B. Our score remains above the REIT average and ranked second of the 10 industrial real estate companies scored by GRESB. We look forward to releasing our inaugural corporate sustainability report in the coming weeks, which will provide a comprehensive view into how we are addressing and accomplishing our ESG initiatives.

The demand for industrial real estate seen through our portfolio operating metrics and heard through our tenant survey is also reflected in the asset transaction market. Yesterday, we closed on the sale of a building located in Taunton, Massachusetts which is approximately 40 miles south of Boston. Acquired vacant in 2019, investment strategy included repositioning 350,000 square foot building to optimize its appeal as a warehouse facility. A short-term lease was signed with a large private company as we initiated the permitting process. Shortly thereafter, we entered negotiations with the large e-commerce tenant to fully lease the facility on a long-term basis. This e-commerce tenant identified the facility as a primary location to service as same-day delivery to greater blossom [Phonetic], also known as last-mile delivery, an example of the common misperception of the widely used term last mile.

After executing a long-term lease to this tenant, we are approached by multiple interested buyers. We ultimately sold the building for gross proceeds of $78 million, representing a 48% unlevered IRR for our three-year hold period. Proceeds of this sale will be redeployed accretively into our opportunity set, 150% nominal gain over our all-in cost basis was a great result for STAG. This sale was consistent with our practice of selling assets that are worth more to others than they are to us.

With that, I'll turn it over to Bill to discuss our third quarter operational results.

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

Thank you, Ben, and good morning, everyone. Demand for industrial real estate continues to increase, driven by the acceleration of supply chain issues initiated by the COVID pandemic. Backlogs of ships at ports and other transportation bottlenecks, shipping cost increases, inventory mismatches and labor constraints are driving demand for warehouse space as companies attempt to adjust their supply chain networks. Consumer adoption of e-commerce is permanent and reflected in our healthy portfolio operating results.

Core FFO was $0.53 for the quarter, an increase of 15.2% as compared to the third quarter of 2020. Included in core FFO this quarter was the impact of a settlement agreement related to a former tenant. The settlement included a $1.7 million cash payment to STAG, which accounted for $0.01 of core FFO per share this quarter. Cash available for distribution totaled $219.6 million year-to-date through the third quarter, an increase of 22.1% as compared to the first nine months of 2020.

Net debt to run rate adjusted EBITDA was 4.8 times at quarter end. We acquired 24 buildings for $427.2 million during the third quarter with stabilized cash and straight-line cap rates of 5.3% and 5.7%, respectively. Our acquisition activity this quarter included further additions to our portfolio's growth in the Central Valley of California and our entry into the Salt Lake City submarket. Year-to-date, as of today, we have acquired $757.5 million of acquisitions with a healthy closing schedule of transactions under contract and subject to a letter of intent as we head toward year-end.

There continues to be increasing competition for larger single asset transactions and portfolios. Large capital sources simply don't have the ability to efficiently acquire at a granular individual asset level. Our platform was built to identify and underwrite individual assets, allowing us to deploy our relative value investment strategy nationwide, while avoiding the auction like pricing of larger transactions. This is reflected in our pipeline of $3.7 billion today. Disposition for the quarter totaled $39.4 million. As highlighted by Ben, subsequent to quarter end, we sold our Taunton, Massachusetts facility for $78 million, realizing a 3.1% cash cap rate on the sale.

During the quarter, we commenced 22 leases totaling 3.7 million square feet, which generated cash and straight-line leasing spreads of 8% and 14.7%, respectively. Retention was 55.7% for the quarter and 76.2% year-to-date. The broad-based demand for our assets is robust and has resulted in numerous instances of available space being backfilled immediately with minimal to no downtime. When adjusted for immediate backfills, retention was 77.7% for the third quarter and 89.8% for the year. Cash same-store NOI grew 2.9% for the quarter and 3.4% year-to-date. This metric continues to be a high watermark for STAG, driven by strong rental escalators, cash leasing spreads and lower average downtime per vacancy.

Moving to capital market activity. We raised gross proceeds of $127.5 million through our ATM program at a weighted average share price of $39.59 in the third quarter. In addition to the equity raise for the ATM program, on September 29, we fully settled all outstanding forward equity contracts and received $182.2 million in proceeds. On September 28, we funded our previously announced private placement notes. The 10 and 12-year notes totaled $325 million and bear a weighted average interest rate of 2.82%.

On October 26, we refinanced our $750 million unsecured revolving credit facility. The revolver matures in October 2025, with two six-month extension options. The facility bears an interest rate of LIBOR plus the spread of 77.5 basis points based on the company's current leverage level and debt rating, a reduction in pricing of 12.5 basis points. In addition, the company refinanced $150 million unsecured term loan, which was previously set to mature in March 2022. The term loan now matures March 2027 and is fully swapped with an all-in interest rate of 2.15%. Finally, the pa improved pricing on $675 million of term loan debt, specifically term loans E, F, and G. The term loans now bear a current interest rate of LIBOR plus the spread of 85 basis points, a reduction in pricing of 50 basis points with no change to maturities.

Our guidance is included on Page 21 of our supplemental reporting package. Changes to our guidance are as follows: with approximately $758 million acquired plus assets on our closing schedule, our acquisition volume expectation for the year has been increased to a range of $1.1 billion to $1.2 billion, an increase to the low end of the range of $100 million. In conjunction with the update to acquisition volume, we revised our stabilized cash cap rate guidance to a range of 5.25% to 5.5%, a decrease of the high end of the range by 25 basis points.

As a result of the Taunton, Massachusetts disposition, our disposition volume expectations for the year has been increased to a range of $150 million to $200 million, an increase to the low end of the range of $50 million. The expected level of G&A for the year has been adjusted to a range of $45 million to $46 million, a decrease of the high end by $1 million. Note that this range excludes nonrecurring cash expenses related to the adoption of the retirement plan during 2021 and severance charges incurred in Q3 of 2021. Finally, we have updated our guidance related to core FFO per diluted share to a range of $2.04 to $2.06. This is an increase equal to $0.02 at the midpoint, representing 8.5% accretion over the prior year.

I will now turn it back over to Ben.

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

Thanks, Bill. Another great quarter, driven by the strong industrial fundamentals and the excellent execution by the STAG team. In our view, these strong fundamentals are likely to persist for some time. I have no doubt that the matching execution excellence by the STAG team will persist for the long term.

Thank you for your time this morning. We'll now turn it back to the operator for questions.

Questions and Answers:

Operator

[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. Ben, I was just wondering if you could give us your big picture thoughts on rent growth profile or outlook on secondary markets versus primary markets? And where you think STAG's in place rents compare right now versus market compared to like a couple of years ago?

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

Well, first of all, Sheila, always good to talk to you. Secondary markets have always been, in our view, and I think the data supports this less volatile than primary markets. And obviously, during a period of quickly rising rents, the primary markets to that volatility versus the benefit of landlords. We are seeing strong rent growth against the secondary -- across all the markets and secondary and primary markets that we operate in. And we expect that to continue. I think the mark-to-market without getting into too great detail, but the fact that you have stronger rising rents must mean that the portfolio was slightly more under market than it would have been a few years ago, but that's more of an academic answer than a asset-by-asset evaluation. I think that shows up in the rent spreads, which are -- we expect to run in the high single-digits. So nothing specific in terms of an answer. But again, we're -- we feel our portfolio is in a good place.

Sheila McGrath -- Evercore -- Analyst

Okay, thanks. And then, Bill, G&A guidance went lower at the top end. There were some adjustments for severance or something that you mentioned. Can you comment on what might be a good run rate for us to think about in fourth quarter or more importantly for 2022?

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

Yes. Sheila, I mean, without getting into guidance for next year, which would include new hires, cost of living adjustments. But run rate in Q3 for Q1, I would add probably another $750,000. And that's more related to the retirement plan we put in place at the beginning of the year. Those costs will be front-loaded for some employees that are eligible. So it's an additional $750 million from Q3 to Q1.

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

And Sheila, I might add that as always, we note that we have a very scalable business. So the growth in our portfolio, which is sizable, does not translate directly to G&A. It's a -- the marginal add to G&A is de minimis compared to the size of the portfolio again.

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

And just to reiterate, that's not -- guidance for next year, we'll come out with our official G&A guidance in January -- in February, excuse me.

Sheila McGrath -- Evercore -- Analyst

Okay. And last question, two acquisitions in the quarter were vacant. Just wondering if you have tenants in hand for those? Or do you have to do a lot of capex spend to reposition those assets?

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

These assets are effectively ready to lease the underwriting for our acquiring assets, whether they're tenanted or untenanted, it's the same. We're looking at the projected downtime capital costs, etc., and the lease achievement once leased, the rental achievement once leased, and evaluating our returns going forward. And again, these assets, though vacant by our projections still meet our return thresholds.

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

Yes. We're very comfortable with the leasability of the assets. There's three buildings that we acquired vacant, one of which we already have a lease in hand. And the others, we expect leases in the not-too-distant future.

Sheila McGrath -- Evercore -- Analyst

Okay, great. Thank you.

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

Thank you.

Operator

Our next question comes from the line of Manny Korchman with Citi. Please proceed with your question.

Chris McCurry -- Citi -- Analyst

Hey, it's Chris McCurry on with Manny. I was just wondering if you could comment around the acquisition strategy, specifically how steep competition is in some of these target markets? You lowered your acquisition cap rate guidance. So I'm just wondering, is that just a factor of more competition in these markets?

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

Well, certainly, competition is a factor. But the main reason that cap rates are lower than they were in prior periods is that the rent growth profiles and the cash flow profile of the assets we're buying is better. So that the future cash flows justify, given our return requirements, the lower cap rates. As we've said before, cap rates are a point in time measure, they can be in the view -- can be altered. There's a bunch of different cap rates that people quote. But we're interested in long-term cash flows and making sure that we deliver the returns to our shareholders that we think they deserve.

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

Yes. And as we mentioned in the prepared remarks, we're seeing a lot greater competition in bigger asset sizes and portfolios. Our sweet spot in that $5 million to $30 million range, we're still able to achieve our historical hit rates for those smaller asset sizes.

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

Where we're seeing the impact of greater competition is that our hit rates are much lower than they were a couple of years ago. We have expanded our capacity to identify and underwrite, but to buy the $1.1 billion to $1.2 billion that we're projecting to buy this year, we're having to look at more assets or underwrite more assets to get to that number. But that's what -- that's our peculiar advantage in the market. Our ability to do that allows us to still get the returns that we're achieving for our shareholders.

Chris McCurry -- Citi -- Analyst

Got it. Yes, more at that. Makes sense. Switching over to dispositions. What exactly are you looking to sell today? And what is the appetite to use some of those proceeds for land or covered land plays?

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

So our -- what we're looking to sell today is what we've always been looking to sell, which is our assets that others think are worth more than we think they're worth in our portfolio. So the Taunton asset, obviously, was a prime example of that. It's not an asset that we disliked owning. Someone else was willing to pay not only more -- significantly more than we thought it was worth to us in our portfolio. And as we evaluate our portfolio, there are other assets that will pop up or be evaluated by our staff as potential candidates to sell. So that we continue to review our portfolio, and undoubtedly, we'll find some of those this year, and that's in our projected disposition total of $100 million to $200 million for this year.

And we expect -- we have not issued guidance for next year, but that's not unreasonable number to expect. So covered land plays. We look at it the same way we look at a tenanted building. What are the prospects for that building, whether it's a teardown and rebuild, an expansion and improvement to the existing structure, perhaps improvement in tenancy of an existing structure. All those things can be evaluated on the basis of their cash flow going forward. And again, given our return requirements, not only on a per share basis but on an absolute basis, if they meet those return requirements, we're happy to buy those.

Chris McCurry -- Citi -- Analyst

Got it, thanks.

Operator

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

Blaine Heck -- Wells Fargo -- Analyst

Great, good morning. So guys, if you think about your cost of capital, it's been solid, probably not exactly where you want it to be, but it's enabled you guys to buy some lower cap rate assets with longer duration, maybe in better markets. Do you think your acquisition pipeline changes at all if your cost of capital were to increase for whatever reasons?

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

If our cost of capital increases, obviously, we wouldn't be able to buy the same cash flows that we can buy today. The returns on a higher cost of capital, we'd have to find more attractive financial deals. So the answer to that is, of course, the change in cost of capital will change, especially our per share metrics, core FFO per share, CAD per share, etc. We are hopeful that the market appreciates our ability to identify and acquire assets that are accretive, and therefore, our cost of capital, certainly on the equity side, we hope to improve going forward.

I think there -- the other side of the equation are the 30% of our capital structure that is debt. There are learning people who are projecting increases in the cost of debt, and there were learning people who are projecting decreases to the cost of debt. What we are cognizant of and pay attention to is that our forward projections of the cost of debt during our hold period. So we believe we are a rational assessor of cost of capital not only today but going forward.

Blaine Heck -- Wells Fargo -- Analyst

Makes sense. Okay. And then, Bill, just a question on same-store expenses this quarter. If I'm looking at it right, the expenses increased a little over 18% year-over-year this quarter. I know you guys are reimbursed for a lot of the expenses given your lease structure, but just wanted to ask what the driver of that increase was?

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

Yes, I mean, the primary driver is just occupancy. Some of these expenses are paid for directly by the tenant. And when paid directly by the tenant, they don't show up on our P&L. And so when you have an occupancy decline, those expenses now show up on the P&L.

Blaine Heck -- Wells Fargo -- Analyst

Got it. And then lastly, just wanted to touch on retention this quarter. You guys were a little lower than normal at 56%. I think you guys typically point to tenant expansions as the reason for most of your move-outs. Does that apply to this quarter? And then looking forward, is there any reason you think the lower retention could stick around? Or should we expect it to normalize closer to, I guess, the 70% mark?

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

So when we talk about expansion, so it's tenants that feel they need more space, not really looking to expand to the building. That could be through consolidation, whatever. I think that still remains one of the principal reasons why tenants vacate buildings. I don't have any color.

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

Yes, in this situation, Blaine, we mentioned it on the prepared remarks, retention was 56%. But when adjusting for immediate backfills, it was 78%, and that was just situations where we were able to push rent a little bit more. Those immediate backfill tenants, we were able to roll off low double-digit cash flow of rents.

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

But again, the reason for the original tenant departing maybe, as Bill said, rent sticker shock or, again, a normal course of business, it's most typically, they're looking for more space. And indeed, in our tenant survey, we had a significant number of our tenants who are looking for more space, and we're able to accommodate them in many instances.

Blaine Heck -- Wells Fargo -- Analyst

Got it, thanks.

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

Thanks.

Operator

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

Yes, thanks. Ben, with regard to STAG's hit rate on new acquisitions, can you quantify where that number is today? And how has it trended? I believe it's down roughly 50% versus pre-COVID level. I mean, first, is that correct? And is this just a new, I guess, should we expect to kind of stay at this level given all the competition that we're seeing in the industrial space?

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

I think there's a few things going on. So this past quarter, we're a little better than 12%, which is, say, 2/3 of our pre-COVID hit rate earlier in the year it had been running sub-10%. There is a variety of fact -- obviously, there's a lot of competition in the market. There's also a lot of assets being brought to market. And our activity in unsolicited bids has also been increased, which is, by nature, have a lower hit rate. So the seller hasn't decided to sell at the time we approach them, hasn't made that over decision to sell. So there's a number of factors that go into it.

I think you're right though, the competition is certainly a big piece of that. We continue to underwrite deals in primary markets where the hit rate is going to be lower because of the amount of competition. And as I said, the unsolicited offers are always going to have a lower hit rate because we don't know for certain that the seller is indeed a seller. Just one of the advantages of our -- the improvements we've made to the people, systems and processes on our acquisition team is we have an even greater and a growing ability to identify an underwriting asset. So we can maintain volume even though we have that lower hit rate.

Michael Carroll -- RBC Capital Markets -- Analyst

Okay. Yes, understood. And then I guess, Bill, earlier, and I know that you kind of mentioned this already in the Q&A regarding the competition for those larger assets. Does the size of asset matter to garner that increased competition depending on the market or region? Or is it fairly uniform that these new investors coming into the space just are trying to buy larger portfolios or larger single assets just deploy capital?

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

I mean, it's not 100% uniform, Mike. I mean there are some markets that some of the larger investors just do not feel comfortable investing in, which is perfectly fine with us. But I would say, absent that, it's pretty uniform in that the larger deal size is $40 million plus just garner a much lower cap rate in this environment.

Michael Carroll -- RBC Capital Markets -- Analyst

And then I'm sorry if I missed this, can you quantify the difference between the cap rate for those larger versus the smaller transactions? I mean, is there an easy way to do that?

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

It's a continuum. So the $40 million deal attracts a certain amount of capital, the $400 million deal attracts a certain amount of capital and the $4 billion deal attracts a certain amount of capital. So it's really where some of our -- especially the nontraded REITs to the extent that they feel they can get involved, they typically drive lower cap rates. I wouldn't say there's a good algorithm to assess the differential is when they -- when some of these passive sources of capital or income-oriented sources of capital show up, it's going to drive cap rates down.

Michael Carroll -- RBC Capital Markets -- Analyst

Okay. And then last one for me is what percentage of the assets that you typically acquire are below $40 million? That really was a large part, right?

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

Yes, I don't have the exact percentage. I mean you can look at our earnings releases and supplementals to figure that out, but it's a very high percentage.

Michael Carroll -- RBC Capital Markets -- Analyst

Okay, great. Thanks.

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

We'll try and give you some numbers on that.

Operator

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

Vince Tibone -- Green Street Advisors -- Analyst

Hi, good morning. I would like to dive into acquisition cap rates a little deeper. Can you discuss the difference in cash cap rates between stabilized 100% leased assets and vacant properties where you're taking some leasing risk? Just how much higher are the estimated stabilized cap rates for vacant buildings compared to something similar that's fully leased?

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

Vince, this is Ben. I thought you were going to give me an easy one. The vacant ones have zero cap rate. But you did insert stabilize. So I have to defer from that. It's probably 25 or maybe a little bit more basis points. It obviously depends on the velocity of the market, how fast it's going to be leased or projected to be leased, etc. But 25, 25-plus is probably not a bad assessment.

Vince Tibone -- Green Street Advisors -- Analyst

Okay, that's helpful. And then can you just share your kind of typical leasing outcomes on some of these vacant acquisitions or what you underwrite in terms of the amount of downtime and whatnot?

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

Yes. Again, market-specific, some markets were underwriting six months, some writing nine, some 12. Our experience has been -- in current market conditions has been -- we generally have outperformed our underwriting, but we remain conservative in how we view the world. We're looking for the midpoint, not the optimistic point.

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

Yes, a couple of examples, Vince. I mean, one of the deals we acquired this quarter, we were underwriting nine months, and we have already have a lease in hand for one of the buildings. And then also, we mentioned that Taunton facility that we just sold. I mean that was an acquisition that we acquired vacate. We put a short-term lease in there almost immediately and then subsequently put a large e-commerce tenant there for a long-term lease.

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

Effectively, that one had negative downtime because the short-term lease paid to get out of the lease. But we're seeing again, downtimes are running shorter than our underwritten downtimes on a general basis. We have a number of times where we have an asset that's brought to us as an investment. And then there's a reset to the investment analysis because the lease has been executed prior to our acquisition. So that the seller may be looking for additional proceeds based on there having leased the building before we even bought it.

Vince Tibone -- Green Street Advisors -- Analyst

That makes sense, very helpful. Thank you.

Operator

Our next question comes from the line of Chris Lucas with Capital One. Please proceed with your question.

Chris Lucas -- Capital One -- Analyst

Hey, good morning, guys. Just maybe a follow-up question to that. Ben, should we be thinking about your acquisition mix maybe shifting to a little bit more value add, given the tailwinds that exist in the industrial market fundamentals?

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

I think the answer to that is we buy where we find returns. And if the world is shifted to focusing just on cash flow, which you could argue that the introduction of all this nontraded money, which is income-oriented, might result in and might mean that you can find better returns in value add. But that's a pendulum that swings back and forth, probably not a big arc to the pendulum. So it's not like value-add gets really attractive and income gets really unattractive. There's small gradations. And we react to -- we're going where -- Wayne Gretzky said, we go where the puck is going to be. We're going to find the places where we underwrite the best returns for our shareholders, and it may be in value-add or maybe an income. But we are -- continue to look for those returns as opposed to any particular category.

Chris Lucas -- Capital One -- Analyst

But you're not putting any guide rails in terms of maximums and in terms of what you're willing to do on the value adds?

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

No. And again, I don't think that the pendulum swings that far. So -- and again, we're looking across a whole bunch of different markets, which have different sort of -- to some extent, anyway, have different realities going on between cash flow and assets and value add assets. So across all those markets, we don't expect to move very far from the median of how much of our acquisitions are value-add versus income -- immediately income producing.

Chris Lucas -- Capital One -- Analyst

Okay. And then let me segue into markets, are you seeing any markets where there are significant rent spikes and/or tenants being more aggressive about their space needs and trying to get out in front of it and therefore, taking space in advance of when they need it, more so than they might have in the past.

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

Yes, I think the answer to that is, yes. I mean, you have -- in some markets, you have persisting, very low vacancy, where that's the driver for tenants trying to get out in front. I don't think you're going to see -- or we certainly haven't seen the kind of activities you saw in lab or urban office in some prior cycles where people went out and, I think, of Downtown San Francisco, where people just were going out trying to secure their head space way, way in advance of need. So I haven't seen that. Steve, have you seen a...

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

No, not to this -- to a specific market, but broadly based, I think what, Ben, just said is correct.

Chris Lucas -- Capital One -- Analyst

Okay, great. That's all I had this morning. Thank you.

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

Thanks, Chris.

Operator

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

Mike Mueller -- JPMorgan -- Analyst

Yeah, hi. And I got on the call a little late, so I apologize if you touched on this at the beginning. But two questions. One, if you're looking at just what you think the portfolio mark-to-market is today, what would you say that is? And then second, thinking about bumps and escalators, what is the average in-place for the overall portfolio? And then if we're looking at the leases that were signed in 2021, are they at a similar level or at different level?

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

I'll let Bill answer the second part of the question first.

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

Yes, Mike, the average escalator in the portfolio today is still around 2.25%. New and renewal leases we're signing new leases around that 3% mark and renewals anywhere from 2.5% to 3%. So consistent with what we've seen this whole year.

Mike Mueller -- JPMorgan -- Analyst

Great.

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

And the first part of the question, remind me what that was.

Mike Mueller -- JPMorgan -- Analyst

Mark-to-market.

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

Yes. I mean, we're still, obviously, given the backdrop of -- across the whole country, obviously, varying by market, a very fast rent growth relative to long-term norms, is highly likely that our -- and we believe our portfolio is under market. We don't have a specific number of how far under market, but reflecting the rent spreads that we're achieving, we certainly know that our portfolio in total is under market.

Mike Mueller -- JPMorgan -- Analyst

Got it. That was it. Thank you.

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

Thanks, Mike.

Operator

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

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

Thank you very much to the participants and to the operator. Another good quarter. The team here is executing extremely well, continues to execute in a primarily virtual environment. We have a huge opportunity set in front of us, and we look forward to continuing to deliver good returns to our shareholders. Thank you for your time this morning.

Operator

[Operator Closing Remarks]

Duration: 35 minutes

Call participants:

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

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

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

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

Sheila McGrath -- Evercore -- Analyst

Chris McCurry -- Citi -- Analyst

Blaine Heck -- Wells Fargo -- Analyst

Michael Carroll -- RBC Capital Markets -- Analyst

Vince Tibone -- Green Street Advisors -- Analyst

Chris Lucas -- Capital One -- Analyst

Mike Mueller -- JPMorgan -- Analyst

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