Stag Industrial Inc (STAG) Q3 2020 Earnings Call Transcript

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Stag Industrial Inc (NYSE:STAG)
Q3 2020 Earnings Call
Nov 6, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and thank you for standing by. Welcome to STAG Industrial Incorporated Third Quarter 2020 Earnings Conference Call. [Operator Instructions]

I will now turn the conference over to your host, Matts Pinard, Senior Vice President, Investor Relations for STAG Industrial. Thank you. You may begin.

Matts S. PinardSenior Vice President of Capital Markets and Investor Relations

Thank you. Welcome to STAG Industrial’s conference call covering the third quarter 2020 results. In addition to the press release distributed yesterday, we have posted an unaudited quarterly supplemental informational presentation on the Company’s website at stagindustrial.com under the Investor Relations section.

On today’s call, the Company’s prepared remarks and answers to your questions will contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today. Examples of forward-looking statements include forecast 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 our listeners to review the more detailed discussion related to these forward-looking statements contained in the Company’s filings with the SEC and the definitions and reconciliations of non-GAAP measures contained in the supplemental informational package available on the Company’s website. As a reminder, forward-looking statements represent management’s estimates as of today. STAG Industrial assumes no obligation to update any forward-looking statements.

On today’s call, you will hear from Ben Butcher, our Chief Executive Officer; and Bill Crooker, our Chief Financial Officer.

I will now turn the call over to Ben.

Benjamin S. ButcherChief Executive Officer, President and Chairman of the Board

Thank you, Matts. Good morning, everybody, and welcome to the third quarter earnings call for STAG Industrial. We’re pleased to have you join us and look forward to telling you about our third 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 Macke, our Chief Operating Officer; and Dave King, our Director of Real Estate Operations. They will be available to answer questions specific to their areas of focus.

The phrase that I have heard frequently over the past few months has been, it’s good to be an industrial and that is certainly true. Industrial management, the few favorite asset classes in commercial real estate, fundamentals are strong, and leasing demand slowed only briefly at the offset of the pandemic. It resume quickly and has continued to be strong throughout the quarter. This resilience has been seen across virtually all markets with e-commerce, supply chain build out leading the way.

Supply remains a concern, but most markets are at or near equilibrium and/or operating at occupancy levels where the levels of incremental supply are not unwelcome. Capital is readily available and acquisition opportunities are bound. Not surprisingly, our portfolio continues to perform well despite somewhat uncertain economic conditions. The demand for our space is broad based. The 5.6 million square feet leased in the third quarter represents the largest total square footage lease during a single quarter in STAG’s history. Our occupancy level remains high 96.3% at quarter-end, a reflection of solid retention and shorter downtime experience.

Included in this quarter’s leasing activity was the successful backfill of our 1 million square foot building located in Hampstead Maryland, one of the 2 million square foot facilities with tenant non-renewal expected to occur in 2020. We budgeted between 12 and 18 months of downtime prior to retenant in the facility given its size and location. Thanks to the efforts of our asset management team, we significantly outperformed our budget and successfully released the building into a single user while incurring no downtime. The building leads to a substantial credit for over five years with minimal tenant improvement work and 3% annual rental escalators.

The second 1 million square foot building we have discussed is our GSA building located at Exit 6A of the Jersey Turnpike in Burlington, New Jersey. This is one of the premier sub-markets on the East Coast and aversion in e-commerce hub. Our current budget reflect the midpoint of nine months downtime for this asset. We continue to receive interest for both potential buyers and potential usage for this building and its included 500,000 square foot potential additional development. Our guidance assumes we hold this asset for the foreseeable future. However, given the attractive returns of a potential sale, we believe there is an increased likelihood that we monetize this asset.

As expected, the acquisition market has returned to pre-pandemic levels, both in terms of investment opportunity and pricing. The fundamental strength of the industrial real estate sector going forward has not been lost on investors. As a result, investor appetite for industrial real estate continues to grow. However, our acquisition platform is well established across many markets in which we operate. Our ability to identify relative value investment opportunities is reflected in our acquisition pipeline amount of over $2.8 billion today.

We recently completed our fourth annual tenant survey. Not surprisingly, there are more and less fortunate industries during the pandemic. The more fortunate include third-party logistics providers and the home improvement industry, and of course, anything e-commerce related. Less fortunate include tenants in the trade show industry and certain small automobile tenants. E-commerce remains a dominant theme. Approximately 40% of our respondents across our portfolio utilize a portion of their space to conduct e-commerce activity and approximately 15% of our buildings are solely dedicated e-commerce. Our tenants reported an increase in the percentage of their warehouse footprint focused on e-commerce activity, an increase from 30% in 2018 to almost 40% in 2020. STAG is in enviable position as we approach the end of the year. Our balance sheet is defensively positioned and our liquidity is high. The STAG team is working effectively and efficiently in the current work from home environment, the strong engagement across the organization and a resilient culture.

With that, I’ll turn it over to Bill, who will discuss our third quarter operation results and updates to our 2020 guidance.

William R. CrookerChief Financial Officer, Executive Vice President and Treasurer

Thank you, Ben. Good morning, everyone. Core FFO was $0.46 for the quarter and leverage remains at the low end of our guidance range. Net debt to run rate adjusted EBITDA was 4.4 times prior to factoring in the outstanding forward equity proceeds related to our January equity offering and 4.0 times when those proceeds are included. Acquisition volume for the third quarter totaled $64.7 million with stabilized cash and straight-line cap rates of 6.3% and 6.8%, respectively. Subsequent to quarter-end, we have acquired an additional nine buildings for $258 million. This brings 2020 closed acquisition volume to $454 million through today. Additionally, we have acquisitions totaling $216 million currently under contract or subject to letter of intent scheduled to close by year-end, bringing 2020 total acquisition volume to $670 million as of today.

For the quarter, 5.6 million square feet of leases commenced with cash and straight-line releasing spreads of 1.3% and4. 7% respectively. New leasing spreads were negative 4.7% this quarter, which was driven by two leases, the new lease related to the one million square foot asset located in Hampstead, Maryland, as discussed by Ben, resulted in a roll down of 2.2%. Note, this lease was an average transaction and required minimal tenant improvement or other capital work. The second lease reflects the phase negotiation of a long-term lease with the tenant initially agreeing to one year lease at below market rent, while simultaneously negotiating the market rate long-term lease. Excluding these two leases, new leasing spreads increased to 12.4% on a cash basis and 21.5% on a straight-line basis for the quarter.

Additionally, we leased 82,000 square feet of value add buildings during the quarter. Retention was 72.1% for the quarter and an 81.4% for the year, both of which include the impact of the 1 million square foot Solo Cup non-renewal, which is backfilled with zero downtime. Retention was equal to 88.6% for the quarter and 91.5% for the year when excluding the impact of the Solo Cup non-retention. Same store cash NOI increased 0.8% for the quarter and 1% — 1.8% year-to-date.

For the third quarter, we collected 98.2% of our base rental billings. Of the remaining 1.8%, 60 basis points has been deferred with repayment generally expected by year-end. As of November 5th, we have collected 96.9% of our October base rental billings. An additional 60 basis points of October base rental billings yet to be received relates to investment grade tenants and tenants who pay in arrears. We expect these tenants to remit payment within the next two weeks, bringing the total to 97.5%. The timing of these expected payments is consistent with past practices. Of the remaining 2.5% of uncollected base rental billings, 1% has been deferred and 1.5% is associated with smaller tenants that have been impacted by the pandemic. We have not received any new rent deferral increase in the third quarter. We incurred a total of $1.8 million of credit loss in the third quarter, approximately $850,000 of loss related to the write-off of straight-line rent and approximately $950,000 of that loss related to cash credit loss.

We have updated guidance for the remainder of 2020. We acknowledge the continued uncertainty related to the health of the economy and we will continue to update the market as warranted. Components of our updated 2020 guidance are as follows. We have increased our expected acquisition volume range now projecting between $650 million and $750 million with an expected cash cap rate range of 6% to 6.25% and we expected straight-line cap rate range of 6.5% to 6.75%. We have increased our 2020 disposition volume range, now projecting between $150 million and $200 million. We have increased our expected retention range, now projected between 70% and 75% for the year, which includes 2 million square feet of non-retention associated with the Solo Cup and GSA facilities.

We have increased our expected annual cash same store range now projecting 2020 annual same store pools cash NOI growth to be between 75 and 125 basis points for the year. This range includes the reduction in our annual credit loss guidance to a range of 75 to 125 basis points. We continue to expect G&A to be between $39 million and $41 million for the year. We expect to run leverage between 4.5 and 5.25 times for the year. Capital expenditures per average square foot is still expected to be between $0.27 and $0.31 for the year. We have increased the expected range of core FFO per share to be between $1.86 and $1.88 for the year, representing a midpoint increase of $0.03.

With that, I will now turn it back over to Ben.

Benjamin S. ButcherChief Executive Officer, President and Chairman of the Board

Thanks, Bill. These remain challenging times as we head toward the end of an unprecedented year. Challenging, but not unworkable. After a pause for most of the second quarter, the industrial acquisition market has found some footing. Tenant demand for industrial space is broadly healthy and appears to have substantial legs. We are bullish on the opportunities for STAG that lie ahead. As a reminder, we will provide granular 2020 guidance during our fourth quarter call. In closing, let me mention that as part of our continuing focus on various ESG initiatives, we have recently set up the STAG Industrial charitable action fund. The fund is a way to formalize and channel our corporate given. This was done in recognition of and in concert with our augmented commitment to providing substantial financial support to causes and organizations we believe in.

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

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question is from Danny [Phonetic] Korchman with Citi.

Manny KorchmanCitigroup — Analyst

Hey, guys, good morning. Maybe just…

Benjamin S. ButcherChief Executive Officer, President and Chairman of the Board

Good morning, Manny.

Manny KorchmanCitigroup — Analyst

Disposition plans, have you changed the composition of what you might sell or where you might sell given sort of the way that the market has shifted?

Benjamin S. ButcherChief Executive Officer, President and Chairman of the Board

I think, and I acknowledge that it’s Manny, not Danny. I’ll — I think that we maintain our general philosophy that we’ll sell assets when somebody else thinks they worth more than we do as a part of our portfolio. That having been said, we are getting opportunistically people reaching out to us to acquire individual assets. We do not have plans for a portfolio sale. We certainly when we sign new leases on buildings that extend the term and they may become more attractive to the people that are looking for that kind of asset, we may look at selling things. Certainly, the asset — the GSA asset is an asset that we’re looking at at all times on a buy or sell because of the relative attractiveness and the number of people are interested in that asset. We’re also interested in that asset and we’ll do what’s best for our shareholders.

William R. CrookerChief Financial Officer, Executive Vice President and Treasurer

Hey, Manny. It’s Bill. We also increased our disposition guidance going into the fourth quarter, primarily related to an asset that we had a reverse inquiry on and we expect strong results from that transaction.

Manny KorchmanCitigroup — Analyst

And just, could you give us any — what you think that the spread difference might be in cap rates between what you’re selling and what you’re buying?

Benjamin S. ButcherChief Executive Officer, President and Chairman of the Board

I think it varies. But I will say, it varies obviously on the asset, the market etc. What it will say is on these — to the investments we have experienced double-digit IRR return — unlevered IRR returns. And so that doesn’t mean it’s necessarily a — so we tend to compare the return on the asset to where we’re redeploying the equity. But having said that, the asset, the Bill was just talking about, is a — we will be able to redeploy that — those proceeds accretively.

William R. CrookerChief Financial Officer, Executive Vice President and Treasurer

And just a reminder that the assets that we sold in the first quarter were also a sub-five cap. So those as those proceeds we redeployed accretively as well.

Manny KorchmanCitigroup — Analyst

Right. And then thinking about your acquisition pipeline that increased meaningfully in the quarter. Have you changed anything there in terms of the types of assets in the market you are looking at and maybe widened the target a little?

Benjamin S. ButcherChief Executive Officer, President and Chairman of the Board

No, it’s really — we’ve talked about this before and it’s certainly met our expectations is that one of the impacts of a downturn in light of the — the dramatic downturn we had with the onset of COVID is people are reluctant to bring assets to market so they — still they have a better understanding of where the market might clear. So you had a big pullback from sellers and brokers advising sellers during the second quarter. But the expectation was again we’re hearing anecdotally from brokers and to some extent sellers that toward the end of the summer and going into the fall, you would have that pent-up supply of assets to be traded come to market indeed that has happened and from talking to the broker, you mean it will continue to happen. There was perhaps it dissipated a little now, some belief that assets need to be sold before year-end coming tax law changes, perhaps that’s dissipated a little with the results to date on the election. But again, the pipeline is reflective of the same kind of filters we’ve always used for what get on — gets on to the pipeline. It’s just expanded because there’re more assets in the market.

Manny KorchmanCitigroup — Analyst

Great. Thanks, everyone.

Benjamin S. ButcherChief Executive Officer, President and Chairman of the Board

Thank you, Manny.

William R. CrookerChief Financial Officer, Executive Vice President and Treasurer

Thanks, Manny.

Operator

Our next question is from Sheila McGrath with Evercore.

Sheila McGrathEvercore — Analyst

Yes. Good morning. Ben, the new acquisition guidance implies a very active fourth quarter, maybe even a record for STAG. Can you give us some insight, do you have additional assets under contract right now? And then also you guided on the cap rate a little lower and I’m wondering is that’s cap rate compression in the market or is that the mix of assets you’re acquiring?

Benjamin S. ButcherChief Executive Officer, President and Chairman of the Board

So as Bill alluded to during our prepared remarks, the — we have 200-plus million under contract or LOI and we are still evaluating assets that might close this year, reflective of the increased pipeline, number of assets came in the market, etc. So we’re — we indeed are looking at our fourth quarter that is — could be the same as last year’s fourth quarter, even larger. It depends on how assets shake out in terms of whether things close, not only on the contract that was close or certainly letter of intent that was close, but we have a high degree of probability that the — that we will get into those kinds of volumes. The cap rate — cap rates have moved south a little bit, but they move south because of mix change, longer leases, less CapEx. In particular, when we buy build-to-suit transactions, these are very clean from a capital required perspective, the longer lease terms, etc. So the one thing I will say is that we’ve maintained our goal on buying accretive transactions and indeed these transactions are again the modestly accretive on both core FFO and a cad basis.

Sheila McGrathEvercore — Analyst

Okay. And sorry if I missed this, but you did increase your disposition guidance, what kind of assets are you selling and what’s the motivation for increasing sales right now?

Benjamin S. ButcherChief Executive Officer, President and Chairman of the Board

I’m going to let Bill handle this.

William R. CrookerChief Financial Officer, Executive Vice President and Treasurer

Hey, Shiela. Yeah, there is — the increase in disposition guidance relates to one asset that we’re not expecting to sell, but we got a reverse inquiry on. And that asset will be an accretive redeployment of proceeds once we sell that and redeploy it. So it’s a — and it’s an attractive return for us and that’s the primary reason why we increased disposition proceeds for the fourth quarter.

Benjamin S. ButcherChief Executive Officer, President and Chairman of the Board

Yeah. Sheila, as you know, we have three reasons to sell assets. One is opportunistically which this is Bill is just referring to is reflective of. Two is sort of the color of the herd our ongoing sale of our relatively de minimis office flex portfolio. I don’t believe we have any assets that will be in the remainder of 2020 will fall into that bucket. And the last bucket is when we aren’t happy with our cost of capital from regular common or preferred equity issuance we would sell assets, none of that is planned. Obviously, capital is attractive — the other sources of capital are attractive today.

Sheila McGrathEvercore — Analyst

Okay, great. Thank you.

Benjamin S. ButcherChief Executive Officer, President and Chairman of the Board

Thank you, Sheila.

Operator

Our next question is from James Feldman with Bank of America.

Elvis RodriguezBank of America Merrill Lynch — Analyst

Hi, good morning. This is Elvis Rodriguez on for Jamie. Just as we think about funding the acquisition pipeline and some of the equity forward you have, the stock today is trading about a $1 above when you did that deal in January. How are you thinking about pulling down that equity this year versus potentially doing another equity deal to fund the $2.8 billion pipeline that you have laid out for us?

Benjamin S. ButcherChief Executive Officer, President and Chairman of the Board

Yeah. Elvis, obviously the pipeline historically we’ve bought something relatively small portion of what’s on that pipeline actually gets closed. The pipeline is dynamic, so assets come on and off at all the time. But we’re certainly not expected to close anything like that large number. The — I’m sorry, I just lost my way.

William R. CrookerChief Financial Officer, Executive Vice President and Treasurer

Yeah. Hey, Elvis, it’s Bill. And in terms of where we are from a leverage standpoint as noted with our forward equity proceeds were at 4 times leverage, so sufficient runway there to get to our 5.25 leverage range this year. As we noted in our investor presentation, our long-term leverage range is 4.75 to 6 times. So if you were to look at where we were today including subsequent acquisitions and the forward equity, we could acquire $850 million with all debt to get to the upper end of that long-term leverage range. So we have sufficient capacity here.

Benjamin S. ButcherChief Executive Officer, President and Chairman of the Board

And regards to taking down the forward equity component, we have until I think mid-January to do that. Obviously, given the amount of acquisitions etc. would be you could surmise that we will be using that equity.

William R. CrookerChief Financial Officer, Executive Vice President and Treasurer

That’s right.

Elvis RodriguezBank of America Merrill Lynch — Analyst

Okay. Well, my question was, would you do another deal in lieu of that deal given your stock is $1 higher today?

Benjamin S. ButcherChief Executive Officer, President and Chairman of the Board

I don’t think, but, yeah, I was — I’m sorry if we didn’t answer that question. I think they’re not necessarily related. We have capital — we have attractive capital available to us and we have capital needs that we can deploy accretively. So they’re not — it’s not either or. I think it’s, as I said, it’s highly likely we would exercise take down that equity, but that doesn’t mean that we won’t have additional equity needs that we will approach the market on.

Elvis RodriguezBank of America Merrill Lynch — Analyst

Appreciate that. And then just one more question. 21 expirations you have about 9 million square feet of leases expiring next year, any chance you can share what the mark to market on those leases are?

Benjamin S. ButcherChief Executive Officer, President and Chairman of the Board

I think that we — what we said before is that we believe our assets are at or slightly below market. I think as we’ve looked nearly at 2021, we believe that to be the case for 2021 also for those assets, in particular. The other thing I would say if there is nothing very bulky in 2021, the 2 million square foot as we had roll this year, we don’t have anything like that to be in 2021.

Elvis RodriguezBank of America Merrill Lynch — Analyst

Okay. That’s very helpful. Thanks, guys. Great quarter.

Benjamin S. ButcherChief Executive Officer, President and Chairman of the Board

Thanks, Elvis.

Operator

Our next question is from Brendan Finn with Wells Fargo.

Brendan FinnWells Fargo — Analyst

Hey, guys, good morning.

Benjamin S. ButcherChief Executive Officer, President and Chairman of the Board

Good morning.

Brendan FinnWells Fargo — Analyst

The term on new leasing this quarter was only like screaming like needles, looks like it was the lowest since 2017, was that impacted by those same leases you guys mentioned in the prepared remarks that had an impact on the spreads or you guys seeing shorter lease term just across the board?

Benjamin S. ButcherChief Executive Officer, President and Chairman of the Board

Well, I mean I can give this to Bill to answer, but I mean generally speaking lease renewals tend to be three to five years. So in the long run trends, that’s not an unusual number, but I’ll turn it to Bill.

William R. CrookerChief Financial Officer, Executive Vice President and Treasurer

Yeah. Hey, Brendan. That was driven by really one lease and that was one of the leases that rolled down. This was a lease that we signed for a little over one year with the expectation that we can negotiate with the tenant for a longer term lease. In the first year lease was call it a teaser rate. It rolled down 18%, but we expect markets to roll back up about 12% in a year. So it’s a little nuance with way it gets accounted for, but it was a little over a one year lease, which drove the weighted average lease term on new leases down a bit.

Benjamin S. ButcherChief Executive Officer, President and Chairman of the Board

And I’ll get — Brendan I guess these one of my favorite terms, a small sample anomaly.

Brendan FinnWells Fargo — Analyst

Sounds good, guys. And then I just wanted to clarify your comments on your plan for the GSA facility. So are planning to lease that first and then sell it or would you be open to selling it before signing a lease there? And then similarly, are you looking to potentially sell the 48 adjacent land once you get the entitlements for development there or you only going to sell the building and then just continue with developing on those adjacent parcels?

Benjamin S. ButcherChief Executive Officer, President and Chairman of the Board

I think the answer is that we’re moving forward on all fronts. We’re moving forward to permit the development and we continue to talk to people who are interested in portions of all the building, and at the same time, we’re talking to people that are interested in buying any or all in any mix as we move forward. Dave, do you have anything, unless I could.

Brendan FinnWells Fargo — Analyst

Thanks, guys.

Benjamin S. ButcherChief Executive Officer, President and Chairman of the Board

It’s just an — it’s an attractive collection of opportunities between the existing building and development potential. There is even people who are looking at buying the existing building, scraping and building a new building, we think it could put close to 1.5 million square feet I think on there and our brand new building. And although, we bought an existing structure, the value of the land in that very attractive sub-market has gotten to the point where the land value may be as much as the existing building and the development potential. So it’s a collection of very attractive opportunities.

Operator

[Operator Instructions] Our next question is from John Massocca with Ladenburg Thalmann.

John MassoccaLadenburg Thalmann & Co. — Analyst

Good morning.

Benjamin S. ButcherChief Executive Officer, President and Chairman of the Board

Good morning.

John MassoccaLadenburg Thalmann & Co. — Analyst

So if you look at the transactions that closed kind of subsequent quarter-end, they seem to me if you kind of just divide the gross numbers by the amount of assets you closed on, I think a little bit larger in both in terms of square footage and in kind of cost per asset, is there some larger assets in there that are may be skewing that or is it just slightly larger assets all around that you’re buying in October and November?

Benjamin S. ButcherChief Executive Officer, President and Chairman of the Board

Yeah. John, I’m going to give that to Bill to answer. The answer is yes larger assets, but Bill will give you some detail.

William R. CrookerChief Financial Officer, Executive Vice President and Treasurer

Yeah. That’s right. I mean, John, it’s simple math there, but there is a mix and these are assets that meet our long-term investment thresholds. As with every year, there is smaller assets and larger assets that we acquire. I mean even looking at this quarter we acquired a smaller asset of 50,000 square feet and as large as 276,000, but subsequent to quarter end, there are certainly are some larger assets in there.

John MassoccaLadenburg Thalmann & Co. — Analyst

And I guess, it’s kind of an arbitrary number, but I guess, so there are some 1 million square footers that are kind of skewing that — those numbers in there.

Benjamin S. ButcherChief Executive Officer, President and Chairman of the Board

Not 1 million square footers, but big buildings.

John MassoccaLadenburg Thalmann & Co. — Analyst

Okay, understood. And then maybe if we think about kind of the deferrals in the kind of non-cash payments that 1.5%, how is that maybe broken out between people or are you just having either a negotiation or haven’t been able to have a negotiation in tenants that are currently in default, that are in bankruptcy?

William R. CrookerChief Financial Officer, Executive Vice President and Treasurer

Yeah. It’s tenants that have been impacted by the pandemic. I mean they’re not in bankruptcy, but we’re having discussions with them, some of them. We’re having discussions about potentially of deferment or payment schedule. Others, there we’re just working with them to understand their situation. So it’s just a — it’s a mix of assets. I will say and as we said before, all of this is reflected in our credit loss guidance for the year. So I think when you take a step back, that’s the focus — that’s the area you should focus on. It’s what’s in our same store, what’s our credit loss guidance, what’s our FFO guidance all factor into that. And given you called six, seven weeks left in the year, we feel really confident with our guidance we put forth.

John MassoccaLadenburg Thalmann & Co. — Analyst

I know I’m asking a bit for kind of early 2021 guidance, but do you think that kind of credit loss outlook flows into next year or do you think you can get some recovery on those smaller amounts?

William R. CrookerChief Financial Officer, Executive Vice President and Treasurer

Yeah. As Ben said, will give our guidance in February for 2021. I will say the stimulus has been probably the biggest thing we struggle to estimate and how that impacts our tenants and thus far it’s been outperforming our estimates in terms of the recovery as you can see with the guidance this year. Our credit loss guidance has continued to come down as we move through the year.

John MassoccaLadenburg Thalmann & Co. — Analyst

Okay, understand. And then on the investment front, how do you think maybe a potential kind of surge here in pandemic could impact the ability to close deals in either 4Q or maybe 1Q ’21 just given what happened earlier in the year in terms of deal volume with kind of the first phase of the pandemic?

Benjamin S. ButcherChief Executive Officer, President and Chairman of the Board

So the impact on deal volume earlier was not maybe for a very short period of time was reflective of the fact that we couldn’t get people out to see buildings or people working here I think the closing process was impacted by that. We have been able to utilize in — of the third-parties, some level of travel, Google Maps, whatever else and third-party consultants, obviously, to get a closing process that is I believe is pretty resilient to whatever happens with the pandemic sort of a total lockdown, which I don’t think anybody really expects at this point. So we’re feeling very good about our ability to transact. Again, people have gotten used to operate and particularly we have been used to operate in this environment. So we’re feeling pretty good about our ability to transact going forward. And the sellers are — the initial drawback from operating assets for the market certainly has dissipated — disappeared completely.

John MassoccaLadenburg Thalmann & Co. — Analyst

Understood. That’s it from me. Thank you all very much.

Benjamin S. ButcherChief Executive Officer, President and Chairman of the Board

Thank you, John.

William R. CrookerChief Financial Officer, Executive Vice President and Treasurer

Thanks, John.

Operator

Ladies and gentlemen, we have reached the end of the question-and-answer session. I would like to turn the call back to Ben Butcher for closing remarks.

Benjamin S. ButcherChief Executive Officer, President and Chairman of the Board

Thank you all for joining us this morning. The word unprecedented gets used a lot, but certainly, we are in unprecedented times. Generally, I think that the, as we just stated, the — our ability to operate here has been demonstrated the opportunities abound, the short-term malaise that may affect the country as we work through the end of this election I believe it would be just that short-term. We don’t expect that to have any long-term impact on our business and hopefully no long-term impact on our country. Again, we thank you for your time this morning and look forward to continue to provide good results for our shareholders.

Operator

[Operator Closing Remarks]

Duration: 31 minutes

Call participants:

Matts S. PinardSenior Vice President of Capital Markets and Investor Relations

Benjamin S. ButcherChief Executive Officer, President and Chairman of the Board

William R. CrookerChief Financial Officer, Executive Vice President and Treasurer

Manny KorchmanCitigroup — Analyst

Sheila McGrathEvercore — Analyst

Elvis RodriguezBank of America Merrill Lynch — Analyst

Brendan FinnWells Fargo — Analyst

John MassoccaLadenburg Thalmann & Co. — Analyst

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