Q3 2019 Earnings Call
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Hi, Thanks, Jessica Hello, everyone welcome to our call apologize brain delays to folks trying to get on so hopefully you're getting in here and we're going we're starting with the coal now so before we discuss our third quarter 2019 results and guidance, let me remind everyone that our coal may include forward looking statements as defined by federal Securities laws. These statements are.
Based on management's expectations plans and estimates of our prospects today's statements may be time sensitive and accurate only as of today's date Thursday October 24, 2019, we assume no obligation to update or statements or the other information we provide.
Actual results may differ materially from our forward looking statements and factors, which could cause. This are described in our 10-K and other SCC filings you can find a reconciliation of non-GAAP financial matters discussed in today's call in our supplemental report and our earnings release. The supplemental report earnings release interest Cc filings are available at first industry.
Real dotcom under the investors tab, our coal will begin with remarks by Peter but still we are president and Chief Executive Officer, and Scott Musil, Our Chief Financial Officer, After which we will open it up for your questions also on the call today are Jojo you ever Chief Investment Officer, Peter Schultz Executive Vice President, Chris Schneider Senior Vice President of operations.
And Bob Walters Senior Vice President of capital markets and asset management now, let me turn the call over to Peter.
Thank you are and welcome everyone to our third quarter call.
Let me start by saying thank you to the entire fr team for all of your efforts towards another strong quarter.
The national industrial market continues to favor the landlord given low vacancy and broad based demand. We continue to see strong rent growth at high levels of occupancy, we're pushing rents on new and renewal leasing as demonstrated in our results, which I will touch upon shortly.
From a supply standpoint, the overall market is more or less an equilibrium with the exception of a few submarkets that are currently oversupplied primarily in larger format buildings.
TB area Econometric Advisors recently reported preliminary third quarter net absorption of 45 million square feet and new completions, a 56 million.
That brings the totals for the first three quarters of the year to 124 million square feet of net absorption at 155 million square feet of completions.
Our portfolio continues to produce strong results occupancy at quarter end was 97.7% and cash rental rate growth for third quarter commencement was up 31.9% eclipsing the record results we reported in the second quarter.
For the full year 2019, we expect our increase in cash rental rates on new and renewal leasing to be approximately 13% to 15%.
As we haven't Pat in years past, let me update you on our 2020 rollovers.
As of today, we have signed approximately 32% of our 2020 rollovers at a cash rental rate increase of 6%.
Our 2020 signings to date or from a broad geographic distribution and include just three small leases in the high rent growth market of southern California.
To provide you some context in 2019, southern California will represent about 23% of our rollover by net rent.
For 2020, we anticipated to be plus or minus 20%.
We're currently going through our 2020 budget process.
Update you on our expectations for rental rate growth for 2020 on our fourth quarter call.
Turning to our development program. The F. our team continues to deliver profitable growth in the form of high quality buildings that fit their respective markets and service supply chain needs of our customers.
In the third quarter, we placed in service for developments totaling 1.9 million square feet with a total investment of 129 million.
These were comprised of projects in Houston, Central, Pennsylvania, Chicago, and our build to suit Atlanta.
Combined occupancy for these projects is 92% and the development margin is approximately 40%.
In the third quarter, we continued to make progress on the lease up of our development portfolio.
We signed a tenant for 100% of our 120000 square foot first park Central crossing three in Central New Jersey, which will now be generating income immediately upon completion in the fourth quarter.
We also signed a 21000 square foot lease and our first Glacier logistics center in Seattle to bring that building to 100% leased.
Regarding new starts in the third quarter, we commenced construction on a 100000 square foot building in Philadelphia.
This project is in a great infill location and will be a rare option for tentativeness submarket looking for efficient modern space.
Our estimated investment is 12.3 million and our targeted cash yield is 6.1%.
Thus far in the fourth quarter, we've commenced construction on first Redwood to logistics Center, a 72000 square foot facility near our buildings under construction in fund had a in the inland Empire West.
Estimated total investment is $12.6 million, where the cash yield of 5.2%.
Completion is set for the third quarter of 2020.
In the fourth quarter, we expect to break ground on a 435000 square foot building and northwest Dallas at the second phase of our first part 121 development.
We're off to a good start as we've already preleased, 77% of the building.
Estimated investment is 31.2 million within targeted first year cash yield of 6.7%.
Summing up our development pipeline at September Thirtyth, we had a total of $337 million of developments under construction or and Lisa comprised of 4.2 million square feet, which is 50% leased as of today.
With a projected cash yield of 6.5%.
Rejected average margin on this batch of development is approximately 41% when compared the prevailing market cap rates for similar leased assets.
In the third quarter, we also replenished our development pipeline by adding some well located sites in high barrier to entry markets.
We acquired three sites in the inland Empire totaling 42 acres for a cost of $19 million.
These sites can accommodate up to 774000 square feet of new space upon entitlement.
We also entered into a 50 year ground lease in South Florida for the future development, a first Cyprus Commerce Center, a three building par totaling 374000 square feet.
We expect to break ground within the next few months our estimated total investment for the buildings is 35 point sixmillion within targeted cash yield of 7.1%.
In the fourth quarter to date, we've acquired a 19.6 acre site in South Florida for $19.8 million. This is a covered land investment with three below market ground leases that are currently yielding 3.5%.
The site is earmarked for future redevelopment of up to 294000 square feet.
Well the property acquisition market remains ultra competitive during the third quarter, we closed on four buildings totaling 229000 square feet at a cost of 30 point 4.4 million.
These properties when Orlando, San Diego and the inland Empire. He estimated stabilized yield on these acquisition is 5.2%.
Moving to dispositions, we were very active in the quarter in Q3, we sold 1.6 million square feet plus several land parcels for a total of $94 million.
Note that for accounting purposes, we had to recognize the sale of a 54.5 million dollar property in Phoenix in which the tenant exercise its purchase option.
Sales expected to close in the third quarter of 2020, Scott will walk you through more of the details during his remarks.
Thus far in the fourth quarter, we sold an additional 84000 square feet in Minneapolis for $4 million. This brings our year to date sales total to $110 million.
Given the brought appetite for industrial properties and our ongoing portfolio management efforts to continue to refine the portfolio. We are increasing full year sales guidance by $75 million at the midpoint for a new guidance range of $200 million to $250 million.
Please note that this guidance range excludes the sales price of the building in Phoenix that I just discussed.
These expected additional sales proceeds will be primarily invested in future speculative development opportunities and strong rental growth markets as such we would expect some temporary cash flow dilution and 2020 from these additional sales.
With that let me turn it over to Scott to walk you through some additional details on the corridor and guide thanks.
Thanks, Peter in the third quarter diluted EPS was 62 cents versus 24 cents one year ago.
They read [noise] funds from operations for 44 cents per fully diluted share compared to 41 cents per share in Threeq Q2 thousand 18.
Excluding the approximately a penny per share gain from land sales Threeq Q2 thousand 18, FFO was 40 cents.
It's Peter noted occupancy was 97.7% up 40 basis points from the prior quarter.
We commenced approximately 3.3 million square feet of leases in the third quarter.
387000 square feet were new 1.1 billion were renewals and 1.8 million square feet were for developments and acquisitions with lease up.
Tenant retention by square footage was 82.3%.
Same store NOI growth on a cash basis, excluding termination fees was 2.9%.
This was driven by rental rate bumps and an increase in rental rates on leasing.
Partially offset by a slight decrease in average occupancy and real estate tax true ups from markets Pena rears predominantly in Denver.
Lease termination fees totaled $246000 and including termination fees cash same store NOI growth was 3.1%.
Cash when rates were up 31.9% overall, a record quarter for the company.
Our results were led by strong growth in Southern California, and we're also helped by a few larger renewals in markets like Minneapolis in Dallas.
Taking it down renewals were up 37.2% and new leasing was up 14.6%.
On a straight line basis overall rental rates were up 50.4% with renewals increasing 57%.
In new leasing up 28.6%.
As Peter mentioned in his remarks, we had to recognize for accounting purposes.
Sale related to a 680000 square foot property in RPV, three or three park in Phoenix.
The tenant exercise its purchase option in the third quarter for sales price of $54.5 million.
This building is leased by U.P.S. and they made a substantial investment in the property.
Due to the high probability that this transaction is expected to close in the third quarter of 2020, the new lease accounting standard requires us to recognize the gain from future sales in the current quarter.
As such we have also removed this property from our operating statistics in our supplemental.
We will continue to generate rental income from the property up until the time to sale, which will be reflected in the lease revenue line item in our income statement.
Moving now to the capital side.
During the third quarter, we close at our private placement of $150 million of senior unsecured notes.
The notes heavy tenure maturity at an interest rate of 3.97%.
Letting the related settlement of interest rate protection agreements the effective interest rate is 4.23%.
We also paid off $40 million of mortgage loans at a weighted average interest rate of 7.3%.
So quickly moving onto a few balance sheet metrics at the end of Threeq you, our net debt plus preferred stock to adjusted EBITDA is 4.8 times.
And at September Thirtyth, the weighted average maturity of or unsecured notes term loans and secured financings was six years with a weighted average interest rate of 3.9%.
These figures exclude our credit facility.
Moving onto our updated 2019 guidance for our press release last evening.
Our neighborhood AFFO guidance is now $1.71 cents to $1.75 cents per share with a midpoint of $1.73 cents.
This is an increase of a penny per share from what we discussed in our second quarter call, primarily driven by our third quarter performance.
The key assumptions for guidance are as follows.
In service occupancy for the year in fourth quarter, 96.7% to 97.7%.
This implies a full year quarter and average in service occupancy of 97.25% to 97.5%.
Fourth quarter same store NOI growth on a cash basis before termination fees of 1.25% to 2.75%.
This implies a quarterly average same store NOI growth for the full year 2019.
2.8% to 3.2%. This is an increase of 50 basis points at the midpoint compared to our prior guidance due to our third quarter results.
Our gene a guidance range remains unchanged at $27.5 million to $28.5 million.
In guidance includes the anticipated 2019 costs related to our completed in under construction developments at October 20, Threerd and the play in fourth quarter start in Dallas.
In total for the full year 2019, we expect to capitalize about four cents per share of interest related to our developments.
Our guidance does not reflect.
The impact of any other future sales acquisitions or new development starts.
The impact of any future debt issuances debt repurchases or repayments.
The impact of any future gains related to the final settlement of two insurance claims from damage properties.
And guidance also excludes the potential issuance of equity, let me turn it back over to Peter.
Thank you Scott we continue to execute on our plan to maximize the value of each and every lease.
Our team is pushing rental rates on new and renewal leasing maintaining high levels of occupancy refining our portfolio and leveraging our platform to make profitable investments.
The industrial real estate leasing markets continue to show broad based demand supported by the ongoing buildout of supply chains, particularly those related to e-commerce .
With that operator would you please open it up for questions.
As a reminder to ask questions, we need to press star one of your telephone to withdraw your question press the pound.
Please standby, what we've compiled acuity roster.
[noise]. Your first question comes from Craig Melman Keybanc capital Your line is open.
Hi, guys apologies if I missed this but did you guys mentioned if there was anything that was skewing the rent spreads on renewals higher this quarter or was that sort of broad based.
Hey, Craig This is Chris Yes, if you look at the quarter. We had mentioned the three of our markets. We had pretty good results Southern California, Minneapolis, and Dallas, If you look a year to date.
Our cash rental rates are up 15.3% and that is very broad base. It's about 10 of our markets have experienced double digit increases in the 2019. So yes. It is very broad base.
Okay.
That's helpful.
And then Peter you mentioned kind of the potential impact here enough AFFO from ramping sales towards the back into the year, but just curious is there a common any impact positive or negative it on same store or.
Are these kind of lower growth properties that you guys are selling and it could boosted or vice versa.
You're correct.
These are lower growth properties.
These are also properties that are enjoying some very high leasing at the moment. So we have a great opportunity to take advantage of of a strong market and a strong bid for those assets.
And that's why we're upping the guidance.
In terms of their impact on same store Scott you have a on that.
My guess.
Guess, Craig it's going to be dependent upon which properties we sell the four in the fourth quarter, we do have the guidance range there.
My guess is probably going to have a pretty pretty minimal impact on same store the fourth quarter sales.
Okay, but as we head into next year I know you guys are given guidance, yet, but I know there was what the 80 basis points from the taxes that kind of get reversed in the last year.
Good. These also kind of be additive to that year over year acceleration, you think or again just minimal.
I think it's I think it's going to be minimal crack the sales, but again, we have to look at what the portfolios that were going to sell because we have the guidance range here, but my guess is going to be minimal on the minimal impact on 2020 same store.
Okay, and then just one last one you know you pointed out that the oversupply is kind of submarket specific here.
You know central PA Kinda Lehigh Valley get kind of thrown into the mix as as potentially being a little bit oversupplied and just noticing one of your developments.
In 70, 81 core doors kind of coming up on a year since completion and you don't really have any leasing on it.
Can you talk about prospects, there and whether this could actually be added to the the pool kind of empty.
The stabilized pool for.
Sure Craig It's Peter Schultz.
You're right.
From a large building standpoint.
Central and Eastern Pennsylvania continues to have a fair amount of supply call. It 900000 square feet it up.
By our account there are 14 of those.
With pockets in northeast PA couple of Berks County, along 78.
And then south of Carlyle along 81.
Are we were pleased to have our larger building at 70 881.
Leases and that commenced in the third quarter, we have some interest in the 250 nothing to report today.
Disappointed that it's not already leased like some of our other assets.
But were we see a much less competitive environment and that size range. Then there is in the 900 million up.
Okay, great. Thank you.
Your next question comes from Caitlin Burrows with Goldman Sachs. Your line is open.
Hi, good morning, or good afternoon, and I guess, just a quick follow up on a similar topic I don't think you mentioned this or the first Joliet center in Illinois that seems like another one that's coming up around its one near completion anniversary. So just wondering.
What your outlook to reaching 100% lease is that that project.
Sure sure Hi, This is Joe Joe So as you know that asset is has a totaled 355000 square feet. It at 58% lease. So we'll be 207000 square foot and we've mentioned that to most of you to a threepl, we have a 149000 square foot remaining.
Again, I'm just like Peter shows as mentioned on the corridor. The large format buildings have more competition and at this point. We're disappointed just like we are on the vacancy. We just mentioned in VA, we havent leases, yet but were 30 focus too.
Nothing new to announce right now leasing that remaining hundred 49000 square foot space and Caitlin. This is Scott, we're assuming that that lease up happens now in 2020.
For guidance purposes.
Okay got it.
And I guess, maybe in terms of the development pipeline I know you mentioned that the disposition proceeds will be used for continued spec development in a strong supply demand markets.
So when we look at the size of development pipeline. This quarter. It is down a little oh into some recent completions. So I guess, how confident are you in the ability to replenish the pipeline as you go into 2020 and east side disposition proceeds accretively.
Well if you look at the land that we currently hold we can build about 12 may 12 million square feet on that.
That doesn't account for roughly 4 million square feet, we can build and our JV land in Phoenix.
Between that and the additional opportunities that are platform as find the across the country. We're pretty confident we can keep up the development program.
I guess, maybe just one other big picture related to like that ability that I replenished the development pipeline in those two other projects granted there I'll make you that you have been somewhat more disappointed on I guess, when you think bigger picture outside of those two properties are you feel pretty confident that spec developing at this point and the cycle.
Oh, it's the right thing to do and that there will be demands as once you find the right spot.
Yeah demand continues to be really broad based we really haven't seen a drop off again in certain submarkets. There is some oversupplied depending on the size of the building.
But our focus as you know is to really try to deliver the rightside property in the right submarket to meet some unmet demand and that hasn't changed our strategy hasn't changed nor has the demand for that.
Product changed.
Okay. Thank you.
Yes.
Your next question comes in is gone Guy me with Stifel. Your line is open.
Right. Thank you.
I think you said that Peter dispose of but 200 to 250 million up depreciable assets.
Most of that going into development, how whats your a taxable income look like and what's your thoughts on your dividend given.
Usually you cannot 10 31 exchange I'd appreciate it acid into development.
Hey, John It's Scott.
You can't do Tenthirty wanted into land, though so we have the we can't do that we've been very successful in utilizing tenthirty when exchanges to offset gains on.
Sales.
But keep in mind, John if we're not able to successfully do that we still do have $46 million event of wells, we can use to help us offset that.
As far as the dividend is concerned in 2020, it's been the company in the Board's philosophy that.
Dividend growth is going to be based on a.
Growth of cash flow in the company, but we will evaluate it against what our taxable income is doing.
Great. Thank you.
Well.
Again.
Question. Please press Star one your next question comes from Rob.
Your line is open.
Hi, Good afternoon, guys. Peter you identified I guess around $70 million of fourth quarter development starts in your prepared remarks, the roughly 160 million of completion scheduled for the fourth quarter I. Appreciate there's probably a few starts in there there are smaller end or that you're not ready to talk about on the call today, but when you look at your expected starts over the next.
Next few quarters, any timing or entitlement issues that may cause the aggregate under construction pipeline to move materially up or down.
You know the core so the next four to six quarters are we likely to be consistently in that 250 to 300 million level. It's just a bunch of projects that are smaller and don't meet those sort of 30 540 million dollar threshold that you were talking about in the the two starts that you have for the fourth quarter.
I'll give you my thoughts and then turn it over to judge of for his we factor in the fact that it is taking a little bit longer to get entitlement et cetera into.
The way, we manage our development pipeline and so that's in there. So in terms of our pace and our ability to continue to grow that's already factored into the mass and then and the projects that you mentioned roughly about $80 million between that 71000 floater in a fund panna and that ground leases solid.
Florida and the pre lease 77 pre leased in the Dallas, all those are fully entitled and approved.
Okay, and then on that subject Oh development, what's happening to construction costs and availability of labor in your markets. These guys. It seems like could you guys have you know some good benchmarks and that you're about to start construction of a second or third or even fourth phases in communities, where do you have just done it recently.
How is that sort of trending any slowdown and construction labor cost stores, it's still going up at a measured pace.
Sure sure. Good question the range of total will be anywhere from 4% to 7% and a 4% would be basically the Midwest. Some markets. This non coastal markets the hired and 7% would be more on southern California. If you look if you break down the component.
This material costs increase have been growing more.
In the inflationary rate of two to two and half percent. So thats not the major driver the major driver of their costs increases really on labor and ability to leave and availability of labor and so that result in higher little bit higher labor costs, and increasing subcontractor margins.
Okay, and then last one from me are you guys see any significant demand from clients to go to longer leases I assume that the seven year average lease term in the third quarter was driven by one or two outliers, but curious of tenants are the plan to be in the space. A friend lets period of time are starting to realize it longer leases might benefit them.
And maybe you guys are more willing to do longer leases the longer this cycle gets.
Sure Roberts, Peter Schultz I would say as you look at our stats you asked the lease terms were up.
And to us that communicating or conveying from our customers.
Continued confidence in their business.
And growth.
And general business activity, despite all of the noise.
We all see in the headline so.
We're we're always focused on optimizing all of the least metrics including rate term.
T.I.s and rental increases, but we continue to view.
Elongated lease terms as a positive sign for business.
Okay. Thanks, guys.
[laughter] what comes of Richard Anderson.
Your line is open.
Thanks good.
Morning.
Morning.
So oh.
Got a draft off the previous question a couple questions ago on the speculative nature of your development.
Effort and you said nothing really has changed right markets right product all that but you know how are you what would trigger points are you looking for to consider more in a way of build to suit activity into 2020 or whatever 2021, I mean is there.
What order or what are some of the you know sort of a observations that you're on the look out for where you have to say well. We know you we need to be a little bit more careful about starting this or that prop project.
Yes, a couple of thoughts on that first of all as you know we have this self imposed speculative leasing cap that means anything that we build that doesn't have a tenant right. If we do a forward that this 100% or 50% empty anything that we do like that that has a quote leasing opportunity. It goes into that cap, so our managing that risk.
That way.
Other signs to look for in the market. So.
When markets get tough you see tenants changing buildings, just because they can as opposed to because they want more space call that musical chairs, we haven't seen any of that in bad markets I can imagine in south Dallas for a million footers. Some of the landlords are probably taking lower rents and they'd like to get we haven't.
Seen that on a broad basis at all so there are things that they are indicate indicative of perhaps a softening and we haven't seen any of that and those are really the measurements to look for okay.
Obviously cost of capital come a you know way down this year.
Funding development primarily.
When you look to 2020, if you do acquire are you more inclined to go the value add route or or or core or is it just not a big you know consideration right now given their development heavy sort of mindset.
Well I think when we look at acquisitions first of all were not typically a player and broadly auctioned assets. Those are situations, where we really don't believe we're going to be able to add value for our shareholders.
Typically we're making unsolicited offers and all of our offices on a regular basis and from time to time, we annoys somebody enough so that they end up.
Going ahead, and selling the building I kind of say that tongue in cheek, but it's actually happen. So that's why you see our acquisition volume is fairly measure again, we're always trying to make sure that we can do profitable transactions. We've said this before or a profit shop and not a volume shop.
But we think we can continue to achieve some good returns for shareholders on making the occasional acquisition in high growth and high barrier markets. Okay and last question for me.
Paul I, just talked a little bit about the duration to build a concept and you know how it's been extended or lately are you seeing that in your development effort or in the competition away from you and any common color on that topic would be interesting. Thanks.
Yes, yes, we're definitely seeing that if you're looking that entitlement period entitlement has become tougher.
So wherever it parts of the country, where.
It depends a dollar process takes so Cal is has gotten in longer in terms of just.
Time to build yes, hey, that's also going longer we're talking about maybe additional three months premier six to nine months typically would be nine to 12 month, and that's primarily because of a again a contractor availability.
Some municipalities, we have changes or say plans because they are most of them are under staff. They get back to you in a slow fashion slower fashion and lastly, even a utility companies are.
Pushing back their installation dates of power and other utilities that affect the completion of the building.
Right are you able to beat that market. It. Although I mean are you able to move faster than your competition or are you sort of in the same boat as everybody else.
My view is that the everybody sable, especially we are due to be dealing with municipalities with it and how that process or contractors are fair to say, okay. That's all I got it thanks very much.
Well.
Your next question comes from Eric Frankel with Green Street Advisors. Your line is open.
Thank you just wanted to drill into those Htwo 2020 early we see signs can you just confirm what percentage of square footage basis, what does that.
Did that comprise southern California, I think it's a three leases I just wanted to from what the actual square footage total was.
Yeah, Eric you on a percent basis, it's less than one or 2%. So very solid number okay that as that is quite small okay. I think both of my questions have been answered I think I'm only kind of minor ones are the the ground lease or development that you're under going into the South Florida.
You just talk about that deal a little bit sometimes ground leases can be a little bit of they a complicated subject.
Sure sure Aerie tights, Georgia. So these are premium sites that do want to do acquired three sites, where we can build multi tenant buildings and we wanted to bite of FY est. The city does not want to sell the via state Odd City full board daughter, numerous of cases will only do ground leases and they're pretty water.
In terms of 50 or ground leases. So all we did is to compensate us for different ownership structure. We then sold four and structured the deal and development that would yield a 7.1% no way we got to that is Ted we think properties and excess gas would trade for an acquired important three quarters and then.
Basically the spread we wanted a bigger spread than our send 100 250. So we basically our underwriting they've got to 135 to one at 85 basis point spread.
We that we intend to hold those properties long term and at the same time, we have a cap Eric we put a cap on the ground lease.
Rent that is.
At or below that they reset inflation.
Thats very important to us because we think rent growth I tried to escalation us will significantly exceed the ground lease lease rent escalation plus market rent growth as well so that will give us a disproportionately positive growth on our NOI. Once we complete those buildings a great. Thank you for the for that color.
And the ground have extension options are those extension option then at market value or they're just on a on a flat rate.
No. It doesn't have extension options and Thats why we structured the deal would that kind of a yield and that kind of a cap and lease or ground lease increased cash flow alone from that is going to provide a nice return on our investment that asset sounds good. Okay. Thank you and then just switching to dispositions.
Very interesting, obviously pretty telling on investor enthusiasm that you're able to increase or dispositions guidance do you do you have a set plant. So obviously I know you don't get it the guidance you don't get didn't guide for 2020 and dispositions that really part of that anyway is there if they just don't increasing your dispositions generally is it.
Is it investor enthusiasm is it is is that you just have a better use of proceeds is there what's the main motivation.
It's a combination of a couple of things one is that a lot of these assets are enjoying historically high occupancy and when I say, historically, I mean, 98% to 100%.
Secondly, they are in lower growth markets and as you know our objective is to.
Dispose of assets and lower growth opportunities and put that money to better use and so we just have a confluence really have a strong investor demand for these assets. The assets are fully leased and cat and you know the cash flows as much as if we're going to get out of those assets and it's just the right time too.
To sell those assets.
Sounds good and that is it fair to say that your capex burden is probably going to decline overtime to just based on the vintage of the assets are selling and what's your buying and developing.
Absolutely the case that the net cash flow. These are just tend to be tenant in capital intensive asset. So the FFO. If you will out of those assets as a lot lower than the FFO, we can earn by redeploying that capital Okay. Thank you.
Again, if you like to ask your question. Please press Star One. Your next question comes from Sarah 10, with JP Morgan Your line is open.
Oh, Hey, it's Mike here.
Just a follow up on the 2020 leasing question.
Aside from the California mix issue have you seen anything in the other leases that is giving you any caution in terms of the rate you're able to CAD or demand.
Obviously, we'll give you more clarification when we.
Let's go through a 2020 budgeting, but as now we have not no.
And again very broad based and.
Overall good news.
Okay. That's it thank you.
Your next question comes from Dave Rodgers with Baird. Your line is open.
Yeah, Hey, guys, maybe first start with Joe Joe I wanted to ask it sounds like all of these parcels that you've acquired or the live the ground lease that you entered into that they're all fully entitled or are you doing the work for the entitlement and just kind of under option.
Or you just open market purchases post entitlement and I guess.
How competitive is that process I imagine that be pretty competitive. So curious on on your ability to continue to do that.
Sure sure they actually the $80 million that.
I am I referred to what the first redwood too on the ground lease and the floor adopted the the 477004 34004 in Dallas that 77% leased Thats, our all entitled the three the for basically the three line actually.
This is we do so Cal are not entitled for example, so those require 18 to 24 months in title.
And so they're very very nice sites, those where do those were obtained by off market deals Orlando assemblages and so on so those are not entitled.
And so do we you know we would expect those are more 2021 starts.
Got to that's helpful. And then I think it the 12 million square feet on the total pipeline that you can do Peter you mentioned.
How much of that is entitled versus not.
Except for the land in Stockton.
Except for led stopped and basically them.
Sites that we talked about right now most are entitled.
Okay, great require site plan approval of though but a site plan approval is not not a problem all its zone industrial and requests are used 60 days approval by the municipalities.
Okay. That's helpful. Thanks, Joe Joe and then I don't know it for Scott or Peter with regard to tenant size and leases that you've been rolling maybe not in the quarter, but as you look back maybe on a rolling four quarter basis can can you talk about the spreads that you've seen in the rent growth between you know ticket size, maybe you're under one.
1000 square feet to over and kind of the rent growth you've seen and I guess I would just allude back to your comments that those bigger boxes have been slower to lease them they've been slower to drive rent growth as well so kind of curious to see where the sizing breakdown is in terms of rent growth in your portfolio.
Chris you want to.
Finished yet if you look at the overall kinda trailing four quarters. The rental rate increases are you have been a little bit higher for the under 200000 square foot spaces.
So that's kind of generally the trend.
We've seen.
With the difference B. I mean is a couple of hundred basis points or not that wide.
Hi, Yes, a couple hundred basis points so.
So not not terribly terribly what.
Okay. Thank you.
Your last question come through a lot of <unk> bin Kim from Suntrust. Your line is open.
Hi out there.
So you guys.
Thank you have a great balance sheet don't really need to raise equity you're selling more assets you have some on the come with the Phoenix asset next year.
What are your non current thoughts on.
If you need to if you want to raise equity with but from my other activity like development or or at this point do not need to at all.
Hey, Ki bin its Scott, we're balance sheet right when a great position right now we're at 4.8 times debt to EBITDA, we've got plenty of liquidity or line of credit. We've got additional sales proceeds coming in we have got excess cash flow after capex and dividends. So we're set up pretty well if you look back the last several years why we re.
Raised equity, it's because or our pipeline just grew too much compared to those sources I mentioned, so if there's ever an imbalance like that that would be the reason we would issue equity if we like the stock price but.
As of now we look to be in pretty good shape.
Okay and is there anything onetime in nature that we should expect endpoint 20, whether it be a large lease that you don't have clarity on or things like that or expenses.
Okay.
A large lease we don't have what on Ki bin flurry of clarity.
I would say if you look from the rollover point of view the largest rollover. We have in 2020 is a 675000 square foot lease Central Pennsylvania, Peter is working with the tenant currently to renew that other than that all the other rexford.
Expirations are pretty granular as far as an expense point of view I think you might be referring to that real estate tax.
Issue, we had in 19 in Denver, we're not anticipating that in 2020, but we're running through our budgets right now.
Okay.
In terms of like what do you have left to lease any.
Notable geographic concentration.
No no. It's a positive once we get this 675 675000 square foot are done everything else is very granular ki bin.
Okay, and that doesn't square feet or less so it's not.
This is very granular from our portfolio point of view.
Okay and just last question any guidance you can provide on that cap rate for that Phoenix asset that you're selling to EWP, yes.
So.
No we don't provide.
Don't provide really any cap rate.
Information on a deal by deal basis will provide you the consolidated cap rate when we sell that when we provide our third quarter 2020 statistics, because that's going to have been a third quarter of next year.
But I can tell you that I view. This if you look at a supplemental we made a 19% margin on the our investment there and that was always far to plan and we really like what happened because if you recall two and half years ago. When we announced this deal. We said that this is going to be a catalyst to this.
It's actually an end apart and the land that we own and here before two years after we've sold deal.
Basically a half land and got 100%.
More than 100% or equity in our JV, plus we were able to build and lease up close to 1.3 million square feet of class a distribution space at least so ex field logistics and ferraro. So lot of good things have happened after that.
And just for my Education I typically when you have an option like that to a he.
A renter I is it typically a market price type of <unk>.
Transaction price tag or is it little bit of a discount because the our user.
Well first full ace all negotiated and it's not typical for us to provide options ended. This case, we felt that they were they could be a big catalyst.
As a building their biggest south west hub. So thats why we entered into an option and at this point. It was a fixed price option based on a margin. We wanted to make also bear in mind that I don't know if you recall, but we struck this deal wind building was a shell with.
On T.I.s. So this allowed us to me to develop the 643000 square feet that eventually lead to Expo actually even when they this first came up and they told US they wanted to buy the building. We said no and then as a discussions baran and they they told us they want to invest $200 million and make it there southwest hub.
Life. All went on we said Wow, that's a big magnet for other big users and we and we went into action as judge already explained. So this is really turned out to be very very successful strategy and outcome for for what we went into here.
That's right all right. Thank you guys.
Although we have for questions I turn the call back to Peter facility for any closing remarks.
Thank you operator, and thanks to everyone for participating on our call today, Please feel free to reach out to Scott Our me with any follow up questions. We look forward to seeing some of you in Los Angeles for name right in a few weeks have a great day.
That concludes today's conference call you may now disconnect.