STAG Industrial (NYSE:STAG) Q2 2020 Earnings Call

0:00 Greetings and welcome to the Stagg Industrial Second Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Matts Pinard, Senior Vice President, Investor Relations. Thank you, sir. You may begin.

0:32 Thank you. Welcome to SAG Industrial's conference call covering the second quarter 2020 results. In addition to the press release distributed yesterday, we have posted an unaudited quarterly supplemental information presentation on the company's website at stagindustrial.com under the investor relations section. On today's call, the company's prepared remarks and answers to your questions will contain follow-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.

1:17 We encourage all of our listeners to review the more detailed discussion related to these forward-looking statements contained in the company's filings. As you've seen, the definitions and reconciliations and non-GAAP measures contain the supplemental informational package, which is available on the company's website. As a reminder, forward-looking statements represent Anderson's Estimates as of today. SAG 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 Matt.

1:49 Thank you, Matts. Good morning, everybody, and welcome to the second quarter earnings call for SAG Industrial. We are pleased to have you join us and look forward to telling you about our second 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 Mechie, our chief operating officer, and Dave King, our director of real estate operations. will be available to answer questions specific to their areas of focus. As we enter the month of August, there continue to be more questions than concrete answers around important items that impact all of our daily lives. Will there be a second wave of COVID-19? If so, how will this impact reopening of our economy? Will students return to the classroom or be educated virtually?

2:34 Will employees return to the office or continue to work from home? On top of these unanswered questions, we have the upcoming presidential election in November. and many more. Not surprisingly in this environment, Amazon continues to be our largest tenant. This dominant e-commerce company now accounts for 2.5% of our annualized base revenue.

3:19 This includes the recent leasing activity we have specifically discussed in conference calls and at conferences. Across our platform, we continue to see the build-out of e-commerce supply chain as a large and growing demand driver for industrial real estate. Let me now go over the leasing status for the four buildings that have been highlighted in our recent communications. Our building in Hampstead, Maryland, a 1 million square foot building to be vacated by Solo Cup in July, has seen a healthy amount of leasing activity over the past two months. Our initial expectation was that it would take 12 to 18 months to accomplish the release of this building. Based on current information, we expect to outperform that estimate. Our value-add project in Taunton, Massachusetts, a 350,000 square foot building, was acquired last year subject to a short-term lease to a known vacate tenant.

4:09 The building receives strong leasing interest from a variety of tenants, mostly for e-commerce use. We are happy to report that we have signed an 11-year lease to a dominant e-commerce tenant for the full building. In addition, we received a termination fee of over half a million dollars from the vacating tenant. The resulting zero downtime and the achieved rent significantly outperformed our budget and expectations for these metrics. Our speculative development in Burlington, New Jersey, a 250,000 square foot building that sits in one of the strongest strategic distribution markets on the East Coast, exit 6A of the New Jersey turnpike. We are happy to confirm that we have executed a full billing lease to a dominant e-commerce tenant, again outperforming our expectations on both rent and lease uptime.

4:55 Finally, we have determined the optimal path forward for our other building in Burlington, New Jersey, the 1 million square foot building that GSA will vacate in December. You may recall this asset also includes 40 acres of land adjacent to the building with development potential of over 500,000 square feet. After evaluating multiple potential paths, we will be moving forward to release the existing building and to separately continue to pursue permitting of the development parcel. This decision was driven by the continued strong leasing velocity in the Exit 6A submarket. This strength has been evidenced by the multiple discussions we are having with potential full building users. We look forward to updating everybody with details on both components in the near future. In short, on these assets and across the portfolio, some very solid performance by our experienced and capable asset management team.

5:45 With that, I'll turn it over to Bill who will discuss our second quarter operational results and updates to our 2020 guidance.

5:52 Thank you, Ben. Good morning, everyone. Core FFO was $0.47 for the quarter, an increase of 4.4% compared to the second quarter of 2019. Leverage remains at the low end of our guidance at quarter end, and we expect leverage to normalize as we increase our acquisition activity moving into the second half of the year. Net debt to run rate adjusted at EWDA is 4.3 times prior to factoring in the outside forward equity proceeds related to our January equity offering. and 3.9 times when those proceeds are included. Acquisition volume for the second quarter totaled $11.9 million with stabilized cash and straight line cap rates of 6.4% and 6.8% respectively. Year-to-date, our acquisitions totaled $131.3 million. As stated in our guidance, we expect acquisition volume to increase in the second half of the year.

6:48 For the quarter, 2.7 million square feet of operating leasing activity commenced with cash and straight line releasing spreads of 1.6% and 9.6% respectively. Note that the releasing spreads within our disclosure exclude the impact of short-term leasing. Additionally, we leased 483,000 square feet of value-add buildings during the quarter. Retention was 100% for the quarter and is 95% for the year. Same Store Cash NOI grew by 2.1% for the quarter and 2.3% year-to-date, largely driven by a retention rate of 95%. For the quarter, we collected 98% of our base rental billings. Of the remaining 2% of uncollected rent, 1.4% has been deferred, with repayment generally expected by year-end.

7:38 As of July 28th, we have collected 90.9% of our July base rental billings. An additional 4.6% of July base rental billings yet to be received relates to investment-grade tenants and tenants who pay in arrears. We expect these tenants to remit payments within the next two weeks, bringing the total to 95.5%. The timing of these expected payments is consistent with past practices. 2.8% of the remaining 4.5% of uncollected base rental billings has been deferred. The remaining uncollected base rental buildings is associated with smaller tenants that have been impacted by the pandemic. To date, we have received rent relief requests totaling 5.3% of ABR or $21.1 million.

8:27 Of the $21.1 million of rent relief requested, we have granted rent relief of approximately $2.1 million, equal to 52 basis points of ABR. The general framework includes a period of rent deferral as opposed to abatement, with the deferred rent amounts repaid within the next 12 months. As of today, we have six tenants on cash basis accounting given their financial situation and our view of their ability to pay due to the economic climate. We incurred a total of $1.5 million of credit loss related to these six tenants. Approximately $900,000 of that loss related to the write-off of straight line rent and approximately $600,000 of that loss relates to cash credit loss. The cash credit loss equates to 20 basis points of our current same-store cash and Y credit loss guidance. These specific tenants account for approximately $4.2 million of ADR. Our credit loss guidance for 2020 includes the impact related to these tenants.

9:28 Moving to the capital market activity, on April 17th, we refinanced Term 1s B and C, totaling $300 million, which were scheduled to mature this September and March of next year. SAG, at its sole discretion, has the option to execute two one-year extension periods, which, if both exercised, would result in an outside maturity date in April of 2023. The term loan is fully swapped with an all-in fixed rate of 1.78% through April 2023. As a result of this transaction, we have no debt maturing until March of 2022 if we were to exercise our rights to extend. We have updated We maintain the expected acquisition volume of between $300 million and $600 million for 2020. We continue to expect all acquisitions to be stabilized assets with an expected cash cap rate range of 6.25% to 6.75%.

10:37 Due to the expectation that we will hold and not sell the GSA building in Burlington, New Jersey, we have reduced our disposition volume range to between $100 million and $150 million. We continue to expect retention to be within a range of 60% and 70%. The drivers for the lower than historical retention include the known non-retentions with SoloCup and GSA. We expect the 2020 annual same-store pools cash NY growth to be between 0 and 100 basis points for the year. This range includes a credit loss range of 100 to 150 basis points. We continue to expect G&A to be between $39 and $41 million for the year. We expect to run leverage between 4.5 times and 5.25 times for the year, with leverage increasing from the low end as we acquire more in the second half of the year.

11:29 Capital expenditures per average square foot is still expected to be between 27 and 31 cents for the year. and we continue to expect a range of core portfolio per share between $1.80 and $1.88 for the year. I will now turn it back over to Ben.

11:45 Thank you, Bill. In closing, let me touch on two topics that have been at the forefront of national attention recently, the pandemic and the persistent issues of inequality in our society. Our office has been open for almost two months on a voluntary basis. However, for the most part, our employees have continued to work from home and work collaboratively and effectively. We are confident the procedures we have in place will allow a safe return for all employees for our office when conditions permit. We've always been proud that Stagg is a place of opportunity and that we are a company that always tries to err on the side of doing the right thing. We have bad causes we believe in with both direct financial support and with paid volunteer hours. However, recent events have caused us to reflect and made us realize that we could and should do more. More as a company, and for many of us, more as individuals.

12:36 Some of the things we are doing as a company. We have significantly increased our annual budget for financial support and social causes. We are also expanding the opportunity for our employees to engage in volunteer work in the community. We will be providing educational opportunities for our employees to further awareness and understandings on these subjects. Our hiring practices are being modified to ensure a broader and more diverse applicant pool for both full-time and intern hiring. We realize that as one small company, there's only so much we can do. We hope that the steps outlined above and others we are taking will add to the progress of making both our community and society more equitable and just. Thank you for your time this morning, and I'll turn it back to the operator for questions. Thank you. We will now be conducting a question and answer session.

13:24 If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star keys. One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Manny Korchman with Citi. Please proceed with your questions.

13:53 Good morning. This is Katie McConnell. I'm for Manny. So just based on the high level of retention achieved here to date, can you walk us through the downside scenario affected into your unchanged guidance range, and what degree of confidence do you have in retention for 3TL?

14:09 So the retention numbers for the remainder of the year are down in large part because of the two known vacates that will occur in the third and fourth quarter. The GSA building in Burlington, New Jersey and the Solocop building in Hampstead, Maryland. We're very confident of our operations and execution in those buildings, but those are the big factors that will result in lower retention over the remainder of the year.

14:40 Okay, got it. And then can you discuss the percentage of leases that were signed on a short-term basis this quarter and the economics of those deals?

14:49 Yeah, I mean, obviously in a downturn or recession, you always see more short-term leasing activity. I'll ask Dave to provide a little more detail. Anecdotally, there are some tenants who were looking to move to other buildings, build the suits, et cetera, that were delayed by COVID-related issues. Work stoppages, so we benefited from that in terms of short-term renewals.

15:15 Okay, great. Thank you. Our next question comes from the line of Sheila McGrath with Evercore. Please proceed with your question.

15:25 Yes, good morning. The value-add project that you mentioned in Massachusetts and also the development project in New Jersey, the speculative one, appeared to have had good outcomes. Any insights on how the yield on cost on these projects will shake out and how that compares to your typical acquisition yields?

15:47 Well, the yield on cost is a little easier on the development project because it's just one project. It's a great yield on cost, so a very successful project. The yield on cost on the autonomous facility is a little harder, too, because you're buying a building and then applying additional costs to it, so it gets split out between the two, but certainly met our investment thresholds actually by quite a wide margin. for a long period of time.

16:34 Okay, great. And then on acquisition guidance that remains unchanged year-to-date, you're at about $131 million. That would imply a very active third and fourth quarter. Just wondering if the pipeline is shaping up with a lot more acquisitions to occur pretty soon.

16:54 So Sheila, as you probably recall, the third and fourth quarter are almost always our biggest quarters in normal times, so there's a little bit of that, but also we have seen our pipeline reduce during the because the fact that the pipeline is a billionaire today, it still may have a lot of individual assets and we're bidding on more assets. I think we're pretty confident of our ability to execute a bill. Do you have something to add to that?

17:30 Yeah, in addition to that, our current pipeline sits at $1.8 billion and we expect that to increase with more assets coming to market in August and September. Sellers did pull some of their portfolios and larger assets during and those are expected to come back to the market in the third quarter.

17:49 And do you think the forward is enough equity to fund your current expectations or do you think it would require additional equity?

17:59 This year, it's not our expectation that we'll be back in the equity markets given our current guidance. Leverage, as I said in the prepared remarks, leverage sits at 3.9 times when including the forward equity. So sufficient capital to acquire even the high end of our acquisition guidance and without hitting the equity markets.

18:21 Okay, great. Thank you.

18:23 Thank you. Thank you. Our next question comes from the line of James Feldman with Bank of America Merrill Lynch. Please proceed with your question. Good morning, guys. This is Elvis on for Jamie. Just touching upon Sheila's question there on funding and you highlighting that potentially you'll do some more equity in the future, can you talk about how much of the acquisition pipeline you think you can do or can you end up at the higher end of that range at the end of this year where there's just not enough product? Alex the Simple Man has been...

19:01 We can stand by the new guidance, upper end of the new guidance is five and a quarter for this year. Longer term, our guidance is as high as six times, or five and three quarter times. But we can stand by that five and a quarter and still acquire 600 million of assets over the remainder of the year. From where we are today, that would be well above our total guidance for acquisitions for the year. That would be closer to three quarters of a billionth of the year. Got it. And is there anything that you're seeing that gives you sort of more confidence that maybe you could do more than what you're stating? Obviously, your stock price is back up at a level that makes it sort of accretive to continue to do these deals. So just trying to get an understanding of what can change here in the back half of the year, given the strong and

19:53 are a little part of the world and say there's a lot of uncertainty. So developing a great degree of certainty, these are our normal times. But as Bill has mentioned, we are expecting and have heard from numerous brokerage shops that the expectations are that assets that have been held in the market, didn't come to market, or for whatever reason, are going to start coming back in in August, September. So we expect the supply to be enhanced. The pipeline that we have today will certainly, we believe, strongly will get us into our guidance numbers. But if that supply of assets for us to evaluate comes back to market, we believe that that will allow us to move further into the range of our guidance.

20:42 Okay. And just one more for me. So I know we've talked about this probably a little bit more offline than online, but Just the benefits that you're starting to see in your portfolio or any early indication or signs of reshoring and tenants starting to talk about using your assets or markets to bring some manufacturing back to the U.S.?

21:04 Yeah, I think it's still pretty early days on that. I think the big question mark on reshoring is at what cost. So I think there's Thank you for joining us. I'm sure I've heard people talk about the lead time to develop a farm and manufacturing plant could be two to three years.

22:00 So it's not an instantaneous thing. Our assets are well positioned. They are around population centers, so they're well positioned to benefit from that when it happens, as well as being in traditional production areas like Wisconsin. Great. That's very helpful. Thanks, guys. Our next question comes from the line of Brendan Finn with Wells Fargo. Pleasure to see you with your question.

22:27 Hey, guys. Good morning. I guess, Ben, in your opening remarks, you talked a lot about e-commerce. So I guess can you just comment maybe on the trajectory of demand from e-commerce tenants? It seemed like initially we had a pretty big surge in demand, but has that, I guess, we've seen velocity of demand from these types of tenants leveled off as we've gotten older? Into later Q2 and early Q3

22:55 I mean, at a very high level, there's an expectation that maybe it will slow down. There was such a mad rush as the pandemic came on, but I think we're still seeing a lot of people position themselves for the further increases in e-commerce activity that will ensue as we move, hopefully, out of the pandemic era, but certainly as we continue through the pandemic era. Bill, I'm assuming. Do you have any... I would say initially the e-commerce share was very high because most other participants had receded from the market. As they've come back, the share has gone down. We do see broad-based demand and I would say pretty close to normal demand in our vacancies and near-term roles. And it's across a wide variety of industries.

23:43 Okay. Thanks, Jeff. And then just on deferrals, it looks like deferred rents picked up a little bit in July relative to your average monthly deferral rate for Q2. So I guess, are there any trends or can you talk about what types of tenants are now maybe receiving deferred rents that were not in Q2?

24:07 Hey, Brendan, it's Bill. The tenants that received deferred rent in Q2 in July, it's the same population of tenants The increase in July is really driven by some of those tenants paying April and May rent and then agreeing to deferrals

24:28 later in the quarter. I think Bill is correct. We haven't had any new deferral requests for some time, or a very limited amount of deferral requests for some time.

24:36 The total number of tenants that received deferrals, Brennan, is about eight. There's eight tenants today.

24:43 Gotcha. All right. Thanks, guys. Our next question comes from the line of Michael Carroll with RBC. Please receive your question.

24:54 Yeah, thanks. Ben, can you provide some more color on some of those larger blocks of available space that you highlighted? I guess specifically we could start with Solo Cup. I know a few months ago it sounded like you had a lot of tenants that are looking at that space. I mean, how should we think about a lease being signed? Could that occur relatively soon? and we can see that lease actually commenced before year end. I guess what's the timing expectations there?

25:21 Without going too deeply into ongoing negotiations, we're very, very confident that we'll have a lease in place this year.

25:30 Okay. And then I guess similarly with the GSA property, I guess can you talk a little bit about the, it seems like you have several full building users and it usually takes, about 12 months so that you enter a 12-month downtime. But since you started earlier, can we assume that those leases could occur much sooner than that typical 12-month downtime?

25:53 Yes. I mean, there's a lot of activity around that building. We're very confident we'll get something done, you know, in a shorter timeframe than that.

26:03 Great. And can you remind us where in-place rents are relative to market on that GSA property?

26:09 Yeah, obviously there's a variability about lease term and TI and other things. Pretty close to market, maybe slightly, yeah, I'd say pretty close to market.

26:20 Okay, great. And then the land parcel that's adjacent to that, what's your expectations there? I mean, I guess I don't know if I missed this under prepared remarks. Do you plan on building or developing an asset on that parcel? And if so, would you pursue that on a spec basis?

26:37 Our plan is to further the permitting to increase the value of the land parcel and then evaluate whether we'll sell it to somebody else to build a dream. Obviously, we had a very good experience not very far away in terms of return on development, but we will continue to evaluate that opportunity. The important thing is we move it forward to get in a position where we or somebody else can build on it. The market right now is... are all reasonably full of activity on a speculative basis, so we're pretty sure that someone's going to want to build on it, whether it's us or somebody else.

27:13 Okay, and then how long does it take for the entitlement process? I mean, are you able to start that right now, or does the GSA lease kind of make it a little bit more difficult until that lease expires?

27:26 We're able to start the process and indeed have started the process of... The process is ongoing.

27:36 Okay. And then lastly for me, can you talk a little bit about the lease commencements at the Burlington site and the Massachusetts property? When does rent actually start hitting the P&L?

27:50 Those are hitting the P&L already, Mike, just because one of them has one month of free rent, but that's coming in through straight line. So they're starting hitting the P&L The Thompson one was in Q2, and the Burlington one started in Q3. Okay, great. Thank you. You're welcome. Our next question comes from the line of Dave Rogers with Baird. Please proceed with your question.

28:20 Yeah, good morning. I wanted to follow up on something I think Dave King had said earlier with respect to doing short-term renewals for tenants that had planned to move out to build the suits. Is that in kind of the solo cut nature, or are these additional move-outs we should be expecting six months down the road and in their tenant retention, or is this an early 21 where we'll see kind of a higher overall proportion of move-outs as you push these leases out a little bit? Any more color would be

28:45 helpful. That was just in reference to a couple of instances where we had tenants extend for a year because their projects were not ready. And they're small, 200,000,150,000-foot leases here. And there is also activity generally, we haven't seen as much of it, but there's also activity generally in light of the sort of the uncertainty with tenants doing shorter leases. We've actually, one of the surprises I think to us operationally has been how much demand there has been for longer term leases in a recession. And again, typical recession playbook is everybody does the shorter leases. But we've seen pretty strong demand for longer leases as evidence in some of our activity.

29:27 How would you, I guess maybe in that same vein, Ben, how would you discuss kind of the rent negotiations with tenants and whether, you know, what happened to market rates and spreads and concessions overall just on the transactions that you've been negotiating? Are we at pre-COVID levels or, you know, have things taken a little bit of a pause in terms of growth? What have you seen in your markets?

29:49 You know, I think that there was certainly a pause at the outset, but I don't think there's been any great diminution. The trend line maybe flattened a little, but I don't think it's and many more. and so forth. We have not seen evidence of that in the current leasing market. Maybe they'll both be down at a level where it doesn't really impact prices.

30:34 Okay. And then maybe just the last question for me with regard to acquisitions. Have you seen a change in pricing? It looks like your cap rate expectations are largely similar to what they were before, but wondering if the product you're looking at today that's coming to market is less risky, and that's keeping prices a little bit tighter, or if you've seen any, again, diminution in pricing in terms of the bid-ask spread for what you're looking to acquire here in the second half of the year.

31:02 Yeah, David, I mean, the bid-ask spread is pretty narrow in industrial. The two deals we closed in June, we were able to get some price deducts from pre-COVID pricing, one of them as much as 2.6%. But we're expecting very similar pricings with a slight maybe discount. I think your question as to risk, I think the assets that continue to track along during the early parts of the pandemic are probably the lower risk assets.

31:37 Those things sort of sailed through and didn't have a whole lot of price adjustment. The assets we expect to come to market in August and September, probably are Profiles and browsers he saw in April and March and May.

31:59 In your appetite then for those riskier assets at this point, it seems like that would be a good use of capital for you guys to put your thoughts. Yeah, I mean, you know, to not to beat the, I mean, we're looking for overlays.

32:10 We're looking to be paid, overpaid for the risks that we take. So we're, we have guardrails in there, so we're not taking, you know, too much risk, but we're certainly looking to be paid for risk. I mean, we're happy to buy a 10-year Amazon lease in Ontario, California, but we'd want a six-gap. Well, probably not a six cap, but we certainly want to be paying more than what the market is for an asset like that.

32:37 All right, sir, make time. Thank you. Our next question comes from the line of Mike Muller with J.P. Morgan. Please proceed with your question.

32:47 Oh, hi. Just a quick one. I was wondering, can you give us a little color on the negative leasing spread on the new leases during the quarter?

32:56 Sure. I guess overall the theme is that the new leases are about 11 1⁄2 years in term and the comparable prior leases were about 3 1⁄2 years. So in the tradeoff between term and rate, we've chosen the term and taken a bit of a hit on rate. And then in one instance, we had effectively an overmarket deal that benefited from a tax abatement that rolled off as anticipated and as we underwrote. and that accounts for about half of the delta in the lower new rest.

33:34 Got it. Okay. That was it. Thank you.

33:37 Thank you. Our next question comes from the line of John Misogo with Ladenburg-Bellman. Please proceed with your question.

33:46 Good morning. Hi, John. Just touching on acquisitions, And just given that you guys didn't close anything subsequent to quarter end as of this point, I mean, how should we kind of think about cadence over the remainder of the year? Should it be – I know 4Q is always your most robust quarter in terms of acquisitions, but it should be almost all weighted towards 4Q, or would you kind of expect the kind of – the pipeline you've been able to put in place and things reopened to kind of come to fruition here in the next, you know, two months or so? Yeah, expect some acquisitions to fruition here in the next, you know, two months or so.

34:24 We expect some acquisitions to close at the end of Q3 and the bulk of the remaining acquisitions under either price agreement or contract. And we put those deals on hold through middle of May. And then we revisited those deals in the middle of May and were able to close those in June. So as more transactions started to come to market in May, we started underwrite, evaluate, and it takes at least 60 days to close those. So end of Q3 and into Q4.

34:56 Okay, understood. And then, sorry if I missed this in the prepared remarks, but assuming there's no resumption of rent from the six leases that went to cash accounting, what kind of recovery are you expecting there?

35:09 That's all based into our credit loss guidance, our FFO guidance, and our same-store guidance for the year.

35:16 But in terms of just either recovery on cost or, you know, new leases, what kind of, you know,

35:25 Right now, it's close to zero for this year.

35:28 John, it's just a matter of getting those tenants, whether they vacate the space, and we can get those spaces back and release those. But for the remainder of the year, it's close to zero.

35:41 Okay. That's it for me. Thank you very much. You're welcome. Our next question comes from the line of Bill Crow with Raymond James. Please proceed with your question.

35:53 Hey, good morning. Ben, stepping outside Stagg for a second and looking big picture, how vital is new absorption from Amazon? And how much attention do you pay to the second derivative of their leasing activity annually?

36:11 Amazon obviously has been a huge, huge event. and a number of other people. Thank you, Bill. As a reminder, if you would like to ask a question, press star 1 on your telephone keypad.

37:19 Our next question comes from the line of Chris Lucas with Capo 1. Please receive your question.

37:26 Hey, good morning, guys. Hey, Bill, just a couple of housekeeping questions for you. On the lease termination fee income, what was that specifically for the quarter? The cash or the gap side of it? The total termination income was $1,000,000, of which $740,000 was cash. Okay. And then you kind of lumped a couple of topics together in the just to be the thought page.

38:02 The solar income, is that a recurring stream or is that a one-off stream?

38:08 That's a recurring for GAAP purposes. It's amortized over the life of the contract. And then for cash, it's one time. So for CAD purposes, there's about $400,000 included in CAD this quarter related to solar income and about $18,000 included in core FFO. So you can see how long those leases are amortizing that income over. We have no further questions at this time. Mr. Butcher, I would now like to turn the floor back over to you for closing comments.

38:49 Thank you, Aubrey. So, thank you all for joining us this morning. Stagg Smith in a really good place. As we've talked about, our balance sheet has been great. Our employees are engaged and they're looking at a lot of opportunity. Our asset managers are accomplishing great things on the leasing front. Despite the fact that we've been in pretty unsettled times, both from the pandemic and the political turmoil, The industrial sector is well positioned. Its value is extremely well positioned within the industrial sector. We're looking forward to a great second half of the year and to success beyond that. Thank you again. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time.

39:34 Thank you for your participation and have a wonderful day.