STAG Industrial Inc (STAG) 2013 Q1 法說會逐字稿

Greetings and welcome to the STAG Industrial, Inc., first-quarter 2013 earnings call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation.

(Operator Instructions)

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Brad Shepherd, VP of Investor Relations. Thank you, Mr. Shepherd, you may begin.

Thank you.

Welcome to STAG Industrial's conference call covering the first-quarter 2013 results. In addition to the press release distributed yesterday, we have posted an unaudited quarterly supplemental information presentation on the Company's website at www.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 those related to STAG Industrial's revenues and operating income, financial guidance, as well as non-GAAP financial measures, such as trends from operations, core FFO, and EBITDA. 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 information package available on the Company's website.

As a reminder, forward-looking statements represent management's estimates as or today, Tuesday, May 7th, 2013. STAG Industrial will strive to keep its stockholders as current as possible on Company matters, but assumes no obligation to update any forward-looking statements in the future.

On today's call, we will hear from Ben Butcher, our Chief Executive Officer and Greg Sullivan, our Chief Financial Officer. I now turn this call over to Ben.

Thank you, Brad. Good morning, everybody, and welcome to the first-quarter earnings call for STAG Industrial. We are pleased to have you join us and look forward to telling you about our first-quarter results and some significant subsequent events.

We're off to a great start in 2013. Presenting today in addition to myself, will be Greg Sullivan, our CFO, who will review our first-quarter financial and operating results. Also with me today are Steve Mecke, our COO, Dave King, our Director of Real Estate Operations, and Bill Crooker, our Chief Accounting Officer. They will be available to answer questions specific to their areas of focus.

At the end of the first quarter of 2013, the Company owned 179 industrial properties totaling 31.2 million square feet. The seven properties acquired by the Company during the first quarter represent approximately 6% increase in the square footage of the Company's real estate assets over the previous quarter. On a year-over-year basis, the square footage of our own properties increased by 71%.

As you undoubtedly know, our primary investment strategy focuses on what we perceive to be market inefficiencies in the pricing of our target properties as opportunity remains as we continue to be able to source accretive acquisitions in significant volumes.

Our first-quarter operational results provide continued validation of our investment pieces with significant leasing and acquisition activity by the Company. We have also been active in the capital markets as we continue to improve our balance sheet and capacity for growth.

Let me first mention highlights on the Company's leasing activities during the first quarter of 2013. Tenant retention for leases scheduled to expire in the first quarter of 2013 was 100%. This is somewhat above our long-term expectations due in part to the small sample size that results from our [very manageable] lease expiration schedule.

In the first quarter, the Company renewed leases totaling 510,750 square foot. In the quarter, we also leased 238,370 square feet of existing vacant space. The renovates on signed leases expired in the first quarter increased 6% on a cash basis and increased 8.6% on a GAAP basis, a significant improvement over previous quarters but does not change our relative flat expectations going forward.

As a result of these first-quarter leasing efforts and our acquisition activity, overall core rent occupancy increased to 95.4%. These results are a continuation of our experience to the prior quarters. We continue to experience strong leasing results without having to offer significant rent concessions or by incurring large capital expenditures. That is simply a feature of our investing focus on large, single-tenant industrial buildings.

Leasing continues to be positively impacted by the strong trends in US manufacturing. The continuation of these trends will further contribute to the Company's growth and stability in the coming quarters.

Our acquisition activity was very strong in the first quarter. We completed the acquisition of seven properties for a combined all-in purchased products for approximately $61 million. This compares favorably to the $38 million acquisitions we did in Q1 of 2012. And it's reflective of the strong acquisition environment we alluded to in our last call.

These acquisitions added approximately 1.8 million square feet to our portfolio, increasing our portfolio size by 6% over prior quarter. The seven properties are located in six different states, bringing the total states represented by STAG to 33. Their tenants (inaudible) like diverse industries including household durables, air freight logistics, containers, packaging, and automotive. These acquisitions have been accomplished at an average cap rate of 9%-plus, continuing in line with our targets.

In addition, our pipeline of deals that meet our investment criteria continues to be robust with approximately 600-plus million of potential acquisitions being reviewed and considered by our acquisition teams. This level of pipeline activity is unusually high for early in the calendar year. As these acquisitions in our pipeline indicate, we remain very confident of our ability to maintain a vibrant acquisition pace through 2013 and beyond.

On the capital markets fronts, we continue to take steps to improve our balance sheet. In January, we completed a successful third follow-up offering of common stock. The proceeds of $115 million offering were used primarily to repay indebtedness under our outstanding revolving credit agreements, which have been used to fund a portion of our fourth-quarter acquisition activity.

During the quarter, we also entered into a seven-year unsecured debt facility. Following the end of the quarter, we completed a $70 million offering of preferred stock STAG-preferred bid. Greg will describe these in greater detail shortly.

This capital market activity further positions us with both leverage and a flexible balance sheet to continue to be an active acquirer going forward.

I will now to it over to Greg to view our first-quarter financial results and provide some further detail on our balance sheet and liquidity.

Thanks, Ben.

As Ben mentioned, we had another solid quarter from an acquisition and operations standpoint.

Our cash EOY was up 69% over the first quarter of 2012. This growth was driven primarily by our strong acquisition activity. Our core FFO increased by 118% over the first quarter of 2012.

We think it is important to observe these non-per share metrics because they convey our ability to grow the business while the per share metrics are heavily influenced by our financing and liquidity decisions. To that point, we are adopting a more conservative capital structure over time because the profit margins in our business enable us to do so.

As a point of reference, we delevered our balance sheet from 51% debt to total assets in Q1 of '12 to 40% over the same period in 2013. As a result, this delevering with additional equity generated $150 million of additional debt capacity or liquidity but reduced our core FFO per share. While it was up 10% on a per share basis, it would have been up considerably more on leverage neutral basis.

We also laddered out the average maturity of our debt from 4 to 5.5 years, which given the upward slope in yield curve, also dilutes per share FFO, everything else being equal. So while the 10% per share growth rate is respectable, it is important to look at the whole picture when evaluating it.

Our AFFO for the quarter increased 113% over the first quarter of 2012. We view this is one of our key valuation benchmarks, as it is a cash metric which reflects the low CAPEX nature of our portfolio. Because of the [single-trended] focus of our business, our leasing and CAPEX costs continue to be quite modest, once again below 2% of cash and OI this quarter.

As in the past, we had a number of acquisitions closed towards the end of the quarter. Of the $61 million that closed in Q1, $38 million closed in the last two weeks of the quarter. As a result, the growth rates that I have mentioned, while impressive, are somewhat understated compared to the actual run rates.

Our occupancy was 95.4% at the end of the quarter compared to 95.1% at the end of the fourth quarter of 2012. The tenant retention rate for the leases expiring the first quarter of '13 was 100%. The rental rates on these renewed leases increased, as Ben mentioned, 6% on a cash basis and increased 8.6% on a GAAP basis.

Year over year, same-store occupancy decreased marginally from 94.5% to 94.2%, although cash and OI increased by 2.3% in 2012. And all this information is fully detailed in our supplemental.

Our cash -- our interest coverage for the first quarter was 4.9 times. Our total debt to total assets was 40%. And our debt to enterprise value was 28%. Our net debt to annualized adjusted EBITDA was 4.7 times at quarter end, but that figure is somewhat overstated since once again, a sizeable portion of the acquisition activity occurred late in the quarter.

I mentioned that there were only a few weeks of income in the quarter for several acquisitions, yet we counted the full debt balance on those acquisitions.

In general, the financing markets continue to be attracted to our properties' ability to generate high cash yields with limited leasing costs. This quarter, we put in place a new $150 million unsecured seven-year term loan with pricing currently in LIBOR plus 215 basis points and drew down $25 million of closing which we swapped, all in at 3.5%.

As of quarter end, we had approximately $12 million of cash and total liquidity of $218 million. As Ben mentioned, we did another follow-on equity offering in January and raised $115 million of gross proceeds. Subsequent to quarter end, we sold $70 million of 6-5/8 perpetual preferred. The Company used the net proceeds of these offerings to fully repay the outstanding balance on the revolving credit facility and to find acquisitions.

With the January common offering and our quarter-end earnings blackout, the APM was not heavily utilized this quarter. We did use the APM program during the first few days of the quarter and raised around $2.5 million of gross proceeds. We expect to continue to utilize the APM going forward as the need arises.

Given our extremely strong [credit] statistics, our financing strategy is to continue to emphasize unsecured financings, extend (inaudible) term generally, given the attractive rate environment, and maintain credit metrics consistent with an investment-grade rating, and the financial flexibility that comes with that, as we continue to grow.

Both the (inaudible) in a preferred equity offerings and our most recent unsecured financing demonstrate our continued ability to drive down our cost to capital, which becomes increasingly attractive relative to our acquisition cap rates of 9%-plus. Because of this sizeable investment spread, we can afford to run the Company at lower leverage and still produce outsized returns.

I should add that we increased the dividend by 11% in our first quarter and we'll continue to monitor it during the year with a dividend strategy of paying out roughly 90% of the FFO. Because of the ongoing high positive spreads between our [going] and cap rates and our financing rates, our existing portfolio is able to generate a dividend yield that is roughly twice the average rate dividend even if we didn't buy another asset. Yet, it has been mentioned our pipeline is larger than we have ever seen, so we expect to continue to deliver attractive income plus growth for our investors.

I'll now turn it back over to Ben.

Thank you, Greg.

A busy and successful first quarter has set the tone for what we expect will be a great 2013 for STAG. We will continue to move forward with our low-level strategy for the execution of our differentiated investment thesis.

I continue to be proud of our team and its solid performance in executing our strategy in the public markets. STAG continues to benefit from the combination of factors that provide a significant volume of quality and accretive opportunities for acquisitions, growth on a relative value and a spread-investing basis.

We believe that the ongoing improvement in the general economy combined with the continued strength in the manufacturing sector, will positively impact our own portfolio in terms of occupancy levels and rental rates. The continued relative lack of speculative development generally across the country and specifically in our markets will enhance our performance on these important metrics.

Thus, we continue to be optimistic about the future of our company for our owned assets and for our investment thesis. We believe that our business plan to aggregate and operate a large portfolio of granular and diversified industrial assets will produce strong and predictable returns for our shareholders.

Our first-quarter operational results provide continued validation for this contention. We will continue our (inaudible) focus on shareholder returns.

We thank you for your continued support.

Thank you. We will now be conducting a question-and-answer session.

(Operator instructions)

Our first question comes from the line of Blain Heck with Wells Fargo. Please proceed with your question. Your line is live.

Thanks. Good morning, guys. Ben, on the acquisition side, are you guys looking at any large portfolios? Or is it still one -- more one-option transactions?

Good morning, Blaine. Thanks for the question.

We continue to focus on granular acquisitions because we think that the relative value opportunity's greater there than it is on portfolios. Having said that, we are looking at a number of smaller portfolios, say on the order of $50 million -- for $20 million to $50 million where we think we can still garner the types of returns that will deliver the returns to the shareholders that we're seeking.

So primarily continuing granular one-op acquisitions with a couple of smaller portfolios thrown in.

Are you seeing that there's any sort of a price premium on -- even though they're smaller portfolios, but they are portfolios?

De minimis. If they're looking for a [break] premium, no, that's what we're trying to conquer by doing our granular activities. So we would pass on something where there was significant premium.

Sure. That's helpful. And then, same store looked good on a cash basis. But it looked like the operating expense is up pretty significantly. Was there anything specific to the quarter that drove that increase?

There was a little bit of seasonality in the first quarter. Some of the utility costs were up in the vacant properties. But other than that, it was pretty much ordinary course.

Okay. And then, Greg, one for you. After -- including the effect of the potential -- well, I guess executed and potential $108 million of additional acquisitions planned for the second quarter, it looks like you're getting close to the upper end of your debt (inaudible) at the target. Do you think now is a good time to tap the capital market to fund future growth?

Actually, we've got quite a bit of room in our leverage stats. If you look at our debt-to-enterprise value, we're running about 28%. So we've got quite a bit of room.

In terms of the liquidity, at the end of the quarter, we had about $13 million in cash, about $225 million of debt capacity under revolving credit facility. So that will give us about $400 million of purchasing power running at about 40% leverage.

So we actually have quite a bit of runway.

Okay. Great. Thanks, guys.

Thank you.

Thank you. Our next question comes from the line of Mitch Germain with JMP Securities. Please proceed with your question. Your line is live.

Good morning, guys. Maybe just a follow up to Blaine's question, if you guys -- Greg, maybe, if you can offer some details on how you view your leverage targets over the long term?

Sure. When we went public, we talked about having a debt-to-EBITDA ratio between 5 to 7 times. We've been fortunate, there's enough inherent profitability in this business that we're able to run the business at lower leverage and continue to produce very attractive returns.

So I think we'd be at the low end of that range, sort of between 35% and 40% debt, sort of book value, and probably 4.5 to 5 times debt to EBITDA. It may move around a little bit depending upon pacing of acquisitions. But I think you probably look to that to be long-term debt financing strategy.

And once again, I think one of the advantages of this collateral pause because it is so grey and we're so highly diversified, with the large positive investments spread and so little CAPEX, with the margin it can afford to have more leverage than other types of asset classes like CBD Office. But having said that, we can run this business very profitably without the leverage that some of the other people need to have.

And then maybe on acquisitions, are you having to change your underwriting at all, maybe accept lower credit quality, or subpar location, or lease term to hit that 9% threshold? Or is this pretty much the same thing that you've been seeing over the last couple of years in terms of the types of properties that you're--

Yes, I guess I would say that the environment has gotten marginally more competitive largely due, I think, to advances in the CMBS lending market and the continuing low yield environment generally across the investment world.

We have not changed our underwriting nor have we changed our target investment returns. I think that what you'll see is we have to put more grit through the mill, if you will, to get the same number of acquisitions. But we're holding to our (inaudible) discipline and our return targets.

So we're not diminishing the parameters on credit quality, building quality, location quality. Again, we may have to look at a few more assets to make our acquisitions, but we're holding to our standards.

Great. And have you seen any new types of competitors that are searching for yield? Or is it just the same sort of competition that you've been bidding against historically?

Well, I think as we mentioned continuously, our principal competitor is sort of an anonymous collection of small investors. That's who we usually run up against.

We do see at the margin, people like Industrial Income Trust, a public non-traded read. Sometimes we'll see Gramercy who's kind of a new -- newly re-energized participant. But not sort of down the fairway. We don't see them on every deal. We see them on an occasional deal. Maybe in the case of those two, one out of every 10 deals or something like that we'll see them.

But that is a bit of a change from sort of during the outtake, if you will, from the global financial crisis where we didn't see anybody repeatedly. We were sort of the only big -- bigger fish in the pond. We are seeing some names, not on every deal we're seeing repeatedly, some other names.

But again, most of our -- most of the time we're competing against people that we have significant capital advantages over.

Great. Thanks for the color. Great quarter.

Thank you.

Thank you. Our next question comes from the line of Sheila McGrath of Evercore. Please proceed with your question. Your line is live.

Yes, good morning. Greg or Ben, your leverage level was significantly lower this quarter than a year ago. I -- just wondering if you happen to have the growth rate on leverage neutral basis, what FFO growth rate would it have been?

Yes, it's a good question. In my sort of opening commentary, I talked about the fact that a lot of people look at core FFO growth rates sort of without pealing back the curtain. And I think in our situation, there were a lot of things that would have made that growth rate much higher.

If you, for example, took the cash that we've raised with equity and used that as debt instead, our core FFO growth rate, instead of being 10% per share, would have been over 3 times higher than that.

So again, we're able to -- because of the profitability of this business -- operate at a lower leverage level. But the fact that we move so dramatically from 51% down to 40% and we laddered out our debt maturities, which again in an upward sloping yield environment, everything else being equal, dilutes core FFO.

We've had a pretty solid quarter, although the numbers -- you have to look a little deeper to understand them.

Thanks. Greg or Ben, is there a range of debt to EBITDA numbers that we should expect that you're going to be targeting to operate at? Like is this atypically low for the quarter?

I think that today looking at sort of debt to enterprise value of 28%, that is clearly on the lower end of the range, so what we would normally be operating. But having said that, we are sensitive to wanting to run the balance sheet consistent with investment grade metrics. So that would probably be on a debt to EBITDA basis, 4.5 to 5 times, sort of on a normalized basis, recognizing it might move around a little bit within a given quarter.

But again, lots of companies go off of the North American Platform defined yield. They do joint ventures. This business is sufficiently inherently profitable that we really don't need to do that.

We can continue to run the business at lower leverage and still make very large returns.

Okay.

And I might add, with very, very high leverage rates shows (inaudible) other interest coverage and things like that are extraordinarily strong relative to our periods and other reading.

Okay. Thank you.

Thank you.

Thank you.

(Operator Instructions)

Our next question comes from the line of Dave Rodgers with Robert W. Baird. Please proceed with your question. Your line is live.

Good morning, guys. Ben, maybe you could give us a little color on leasing -- had another good leasing quarter, both on the renewal side and new leasing. Clearly, occupancy's pretty high so there's not too much left to go. But maybe some color on the negotiations and the discussions you're having with your tenants as they sit today, and new tenants that are looking for space, you ability to maybe opportunistically grow with existing customers. Are we getting to that kind of part of the cycle where you're feeling better and better about the ability to go out, either acquire vacancy or take tenants to new facilities?

I'm going to defer very shortly to Dave King, our Head of Assets Management to talk a little bit about that.

But I think generally, the sign of a healthy leasing market is when you have multiple tenants competing for space. I'm not sure we're seeing that broadly across the markets, but we're seeing evidence of that to a greater degree than we have any time since 2008. So it's a healthier market generally.

We are fortunate that we have high occupancy, relative limited rolls in the next few years. So our exposure is not great. But having probably talked more than I should, I'll turn it over to Dave.

(Inaudible) Leasing momentum has certainly improved and continues to be pretty strong. New lease activity is very strong at many of our [onsets]. Our existing tenants appear to be a little more certain in their ability to make renewal decisions and we're in discussions with several of them about expanding facilities.

But I'd say the confidence level is up and continues to improve.

Okay. Then maybe back just to the acquisition side of the story. But from the seller side, are you seeing a seller profile change at all in terms of where the assets that you're looking at are coming from, more from -- I don't know -- CMBS, more from institutions, more one-off sales from individuals -- just any more color would be grateful there. Thanks.

Yes. I'm going to let Steve Mecke, our COO, answer that question. I'll let him answer -- I'll resist the urge to talk about (inaudible).

All right. Good morning.

The excellent selling profile really hasn't changed, for the absence of [what] we're targeting, it's really coming from smaller orders. They might have a small conglomeration of assets or multiple local sellers.

We haven't really teamed into a lot of the debt CMBS portfolios or anything like that. So that really hasn't -- we haven't seen anything coming out of that yet.

We've had -- there's clearly some sellers are selling as a result of trying to get in front of a debt maturity. But our seller [fold] really hasn't been morphing into anything but what we've seen in the past several years.

Okay, great. Thank you both for the color.

Thank you. Our next question comes from the line of Nathan [Isacoff] with Transwestern. Please proceed with your question. Your line is live.

Good morning, gentlemen. Congratulations on great results.

I've been puzzled by a quandary. For a number of months I have followed the stock through Fidelity and the reports have been somewhat perplexing in that there are some sell recommendations, some underperforms, some neutrals. And the total is very bearish.

As a guy who's been in this business for 50 years and thinks you have a great strategy and are executing it to perfection, what are these people missing as it's continued to reward you?

Nathan, I think that we're puzzled sometimes by some of the things we see. I'll let Greg talk for a second -- but I think my immediate reaction is, you have a lot of sort of quantitative guys who don't understand the REIT world and who are really an earnings per share evaluators and don't understand that the concept of FFO, and AFFO, and how REITs really work. But, Greg?

Yes, that's exactly right. In fact, I'm a Fidelity customer. I'm always hounding them because if you go onto the Fidelity website and you look up STAG, it has many of the analysts that they cover in particular, have sell recommendations on the stock. And again, if you looked at those research reports, they're basically just data gathering programs that pull a bunch of data out of the various financial reports, and just crunch the numbers. And they focus exclusively on that income.

And so whenever a company is running at a loss, which of course, REITs have losses because of the significant depreciation on their income statements, and at rates, it waves a red flag. If you go further down in that Fidelity website, for example, at the very bottom, it does list the fact that we're covered by 10 real analysts. And most of those companies have buys and a couple of holds. But it is one of these inconsistencies that Fidelity, for some reason, has not been able to address.

Well, they should. Thank you.

Thank you, Nathan.

Thank you.

(Operator Instructions)

Our next question comes from the line of Michael Mueller with JPMorgan. Please proceed with your question. Your line is live.

Thanks. Morning. You've had a lot of success buying at 9 cap rates and 9-plus cap rates. Have you thought about the tradeoff of moving down a little bit lower? And is there a threshold that you think of internally where if something, say, south of 8.5, you don't think of it? Or you tend to pass on it. Or is there something that would be a positive tradeoff for looking at a portfolio that has, say, an 8 or 8.5 cap going in yield.

Yes, I thing first and foremost, we're talking about average cap rates. And a cap rate is only one of the metrics we look at. We look at IRR through post -- first the first roll. So we take into account the effects of the above and below market rents. We look at average cash and cash returns over the first 10 years. So we look at a number of metrics.

The cap rate obviously has the advantage or disadvantage of being a point-in-time measure. So it can be a little bit of obviously -- it is a little bit of what you have day 1, but maybe not that illuminative of what is -- the assets provide for you over the next number of years. It's for the whole period which for us is a permanent capital source in the long-term holder. Some of these longer-term metrics are more important to us.

Having said that, we think -- we mentioned in the call that our pipeline of deals that need our investment return requirements -- at least on a cursory or preliminary basis -- is as large as it's ever been, so that our ability to continue to do sort of the 25% growth that we've indicated at our long-term goal for the company -- is not being diminished now by the -- some tightening that has occurred in the market on cap rates with, again, I think largely due to the effects of financing both -- I earlier mentioned -- CMBS but also bank financing perhaps has gotten a little bit more aggressive than [Ed or lenient].

So I think that the little bit of tightening that we've seen on cap rates and on expanding on -- expansion on prices has not diminished our confidence in our ability to continue to do very good return deals for our shareholders maintaining the pricing discipline that we've used since our IPO.

Okay. And then switching gears for a second, leasing spreads, the 6% spread, I think that's a renewal number that you were talking about. When you talked about flat -- flattish for the full year or trending back to there, was that -- looking at renewals as well? Or is that total leasing?

That's -- I'll throw it back over to Dave, but it's a -- the flattish is a long-term trend comment, now sort of more reflective of the fact that long-term rent growth is relatively flat. Dave, any further color?

I think that's accurate. The 6% is based on (inaudible) renewals.

Okay.

Mike, it's Greg. At the beginning of the year, I think I estimated that we probably rolled down 1% to 2%. It's a little hard to tell early in the year.

And I remember back in 2012, I estimated that we were going to roll down 1% to 2%. We rolled up about 1% to 2%.

So as Dave mentioned, the leasing environment seems to be a little more positive than it might have been three months ago. I wouldn't expect huge uplifts. I think this quarter was a little higher than we might have expected.

But sort of 1% to 2% plus or minus is probably a reasonable place to have an expectation.

And the cautionary -- the continuing cautionary note about small sample size. We just have a very limited rollover schedule so that the amount of assets on a square foot [on a dog] basis are small. And then the absolute number's small. So the numbers can be -- can move around just because of small sample size.

Got it. And the last question to that. If you're looking at the new leases, the new leasing spreads, if you had disclosed those, would those be comparable to the renewal ones on average? So if you're talking plus or minus 0, give or take, are the new ones in that bandwidth as well?

New lease as relative to the prior (inaudible)?

Exactly. Exactly.

Those will tend more towards 0. We're -- the ability to roll a renewing tenant up is probably stronger than a new tenant coming into a big building.

Okay. Okay. Great.

Yes, one of the things that helps the rental uplift with renewals, obviously, is their average tenant size is relatively large, about 170,000 -- 175,000 square feet. So they tend to be a little sticky.

So if a tenant's rolling at $4 and the market's $3.75, and we tell them the market's $4 for their new renewal, it's difficult for them to leave, whereas a new tenant, you probably don't have that sort of stickiness factor adding to the dynamics.

Okay. Great. Thank you.

Thank you.

Thank you.

Thank you. Our next question comes from the line of Michael Salinsky with RBC Capital Markets. Please proceed with your question. Your line is live.

Good morning, guys. Ben, just following up on a couple of leasing questions. Any large lease expirations we should expect over the back of the year? Or have those been pretty much backed at this point?

Well, we have -- I'll turn this over to Dave. We had some non-move outs in the year that have been known for a period of time that they have more (inaudible) more color.

And it's something that I've mentioned on previous calls, there's a large tenant out in Wisconsin which makes up about a third of our remaining roll. It's known that they're going to leave for quite some time. So we've been marketing the space next to it. Several interested parties. But that will be a non-retention story.

And we've got one other known vacate that's fairly sizeable. But the rest of them are basically (inaudible) at this point.

And our expectations long term remain -- the tenant retention of our large sample size over a longer period of time will be in the mid-80% for this kind of asset.

Okay. Fair enough. Second question. Greg, you guys continue to make very strong progress in keeping the balance sheet well positioned. Your leverage metrics and fixed charge cover would be conducive to an investment grade rating. What are you hearing from the rating agencies? And what size do you need to get to to garner that investment grade rating?

We've had some preliminary discussions with one of the agencies. They seem pretty positive in terms of our various (inaudible) statistics. The size often can be an issue. I know that typically Moody's and S&P, the size of a couple of billion dollars and book value of assets is pretty important as well as your tenure as a public company. Fitch, I think, is probably a little more focused on the quality and strength of your credit metrics. So I think it varies a bit agency to agency.

But if you sort of look at our credit stats in a vacuum, it would certainly look like they were reasonably consistent with the lower end of an investment grade rating, although there are other factors that the agencies review as well.

When you talk about attainment of an investment grade rating, is it something to expect in the next 18 months? Or is this kind of more a longer-term goal?

I think it would probably be a reasonable expectation if we continue to drive the large positive investment spreads over the next 12 months or maybe sooner.

And one of the things, obviously, is because we've been so active in the -- not only in the equity markets, but also -- Greg put into place our seven-year unsecured, is we have quite a lot of capital in place. So our needs to access additional capital sources were (inaudible) grade rating if we had it would be useful in garnering, that's out a few months as well.

So it brought a lot of pressure on us currently to have an investment grade rating or to have any rating for that matter. But it's something we certainly are looking at and are working on. And as we go through the coming months, we will definitely focus on it.

Okay. Final question. Just giving your comments about the size of the pipeline at this point as well as there are a couple of small portfolio opportunities, any thoughts on increasing your acquisition target from 25% this year? Or is that still a pretty good target?

It's a great target. We -- I will refer back to last year where our target was $160 million. And we've announced activity thus far for the year between other contract and closed, I think it is $160 million. So that's stuff that'll happen the first half of the year. One could infer from that that the $250 will be reachable.

Fair enough. Thanks, guys.

Thank you.

Thank you. There are no further questions at this time. I would like to turn the floor back over to management for any closing comments you may have.

Thank you very much. And thank you for those questions. That was a good series of questions. I think it's the most questions we've had on a call today. And they were good and helped get us some of the messages across that we were hopeful to get across.

We're in a period of a very good time for the company and for real estate in general. We're keen to take advantage of the abundance of accretive acquisition opportunities. And we're really looking forward to a good and successful 2013.

We thank you for your support and look forward to delivering some -- continue to deliver some good results for you.

Thank you.

Ladies and gentlemen, this does conclude today's conference. You may disconnect your lines at this time. And we thank you all for your participation. Good day.