Q1 2021 First Industrial Realty Trust Inc Earnings Call
Good day, ladies and gentlemen, and thank you for standing by welcome to the first industrial first quarter 2021 results conference call. At this time all participants are on a listen only mode. After the Speakers' presentation. There may be a question and answer session to ask a question. During the session you will need to press Star then one on <unk>.
Telephone keypad as a reminder, this conference call is being recorded if you require any further <expletive>istance. Please press Star then zero at this time I would like to turn the conference over to Mr. Art Harmon. Thank you Sir please begin.
Thank you Howard and Hello, everybody and welcome to our call before we discuss our first quarter of 2021 results as well as updated guidance, let me remind everyone that our call 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.
These statements may be time sensitive and accurate only as of today's date Thursday April 22021, we <expletive>ume no obligation to update our 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 SEC filings you can find the reconciliation of non-GAAP financial measures discussed on today's call in our supplemental report and the earnings release supplemental report earnings release, and our SEC filings are available at first industrial.
<unk> dot com under the investors tab.
The call will begin with remarks by Peter <unk>, Our 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 Yap Chief Investment Officer, Peter Schultz Executive Vice President, Chris Schneider, Senior Vice President of operations and Bob Walter Senior Vice.
Of capital markets and <expletive>et management now, let me turn the call over to Peter.
Thanks Art and thank you all for joining us.
No. We're very pleased with our first quarter performance and we are encouraged by the continuing strong economic growth supported by improving consumer confidence and significant government economic stimulus.
Similar to our fourth quarter call. We continue the exceptionally strong fundamentals of the industrial market.
Are the recent CBRE Flash report U S. Industrial net absorption totaled 100 million square feet in the first quarter.
This marks the first time ever the demand has exceeded 100 million square feet in consecutive quarters.
Net absorption also significantly exceeded the first quarter of completions.
57 million square feet.
As you would expect in response to this demand high occupancy levels and strong rent growth. We are continuing to invest in new development projects, which I will discuss shortly.
Before I recap first quarter results and activity, let me start by updating you on a couple of items since our last call.
As we announced earlier this month, David Harker will be retiring as executive Vice president of our Central region.
At June 30.
David has been a valued member of the Fr team since 1998, when he joined the company as our regional director of Nashville.
He has served our company and our shareholders as head of our Central region since 2009, helping to shape and grow our portfolio we.
We will miss the enthusiasm tenacity in energy and wish him well on his retirement.
With the departure, we will consolidate our regional structure into the two regions with Joe Joe, Yes, and Peter shows each of <expletive>uming responsibility for portions of the EBITDA.
Also during the first quarter, we were pleased to welcome Marcus Smith as the newest member of our board, where he will serve on our investment and nominating corporate governance committees.
Marcus as a director of N CSR, Inc. And was most recently the director of equity in the portfolio manager and MFS investment management.
We also want to acknowledge Peter Sharpe, who will be retiring from our board.
Thank you Peter for your more than 10 years of value service to our company and our shareholders.
Now moving on to our portfolio of results for the quarter.
Occupancy at quarter end was 95, 7% and cash same store NOI growth was two 2%.
For the quarter, we grew cash rental rates 10, 4%.
And as of today, we have renewed approximately 72% of our 2021 exploration well the cash rental rate increase of 12, 7%.
Moving on to sales during the quarter, we sold three properties and two condo units for 67 million and an in place cap rate of approximately eight 4%.
The vast majority of the sales total related to two larger properties leased at significantly above market rents to tenants, we expect to move out.
Thus far in the second quarter, we sold the land parcel for $11 million, bringing our year to date total to $78 million well on our way to our sales guidance of one hundreds of $150 million.
Turning now to new investments as we continue to seek out of profitable opportunities developed remains our primary means of new investment to drive future cash flow growth.
As most of you are aware as part of our underwriting process and to manage risk we operate with the self imposed speculative leasing cap.
Based on the strong fundamentals.
And bind with the growth of our company our balance sheet strength of.
The portfolio performance and our significant future growth opportunities. We believe it is prudent to increase our speculative leasing cap by $150 million to $625 million.
When we first initiated the leasing cap nine years ago. It represented approximately 9% of or the total market cap.
The new cash level represents a similar percentage.
Further we are pleased to announce two new development projects scheduled to break ground in the second quarter.
These are in addition to the three first quarter starts in the inland Empire Nashville, and Phoenix, We told you of that on our February earnings call.
The first project is that our first park 121 in Dallas comprised of two buildings totaling 375000 square feet with an estimated investment of $30 million and of targeted cash yield of 7%.
This is the third and final phase of our park in Lewisville, adding to the three previously completed buildings, then totaled 779000 square feet.
We pre leased the 125000 square foot building. So we're 33% leased on the new phase prior to groundbreaking.
The other start as the second building on our first of our of Commerce Center project in the airport Submarket of Denver.
It's a 588000 square footer adjacent to the 556000 square foot building, we completed in the third quarter of 2019, which was 100% leased within a couple of months of completion.
Estimated investment of 53 million with a targeted cash yield of 6%.
This new building positions us well to serve the significant demand for larger spaces. We are seeing in that market and we look forward to future growth of at that park on our remaining land on which we can develop three additional buildings totaling approximately 700000 square feet.
Including these two new development starts our developments in process today totaled $3 3 million square feet with a total estimated investment of $318 million.
On a cash yield of six 2% our expected overall development margin on these projects is the healthy 45% to 55%.
Moving on to acquisitions during the quarter, we bought one building in three land sites for the total purchase price of $24 million.
The existing <expletive>et is at 62000 square foot distribution facility in the Oakland Submarket.
The total purchase price was $12 million and the expected stabilized cash yield is four 8%.
The three new land sites totaled $16 six acres and are located in Lehigh Valley in Pennsylvania the.
The inland Empire East in the Oakland market of Northern California.
Total purchase price was $12 million in the sites can accommodate up to 275000 square feet of future development.
In total our balance sheet land today can support more than 10 million square feet of new investments and our two joint ventures can support of 11 million square feet, where the.
Our share of around 5 million, so we're well positioned for future growth.
As always we continue to utilize the strength of our platform to secure profitable new investments.
Our team is working around the clock to execute on our capital deployment plan, where the focus on growth with the.
Let me turn it over to Scott. Thanks, Peter Let me recap our results for the quarter ne.
NAREIT funds from operations were 46 cents per fully diluted share compared to 45 cents per share in <unk> 2020.
And our cash same store NOI growth for the quarter, excluding termination fees and a gain from an insurance settlement was 2.2% primarily due to an increase in rental rates on new and renewal leasing.
In rental rate bumps embedded in our releases, partially offset by lower average occupancy.
Summarizing our outstanding leasing activity during the quarter, we commenced approximately 3.3 million square feet of leases.
Of these 600000, where new 2.3 million were renewals and 500000 were for developments and acquisitions with lease up.
Tenant retention by square footage was 76, 5%.
Cash rental rates for the quarter were up 10, 4% overall with renewals up eight 3% and new leasing 17, 8% and on a straight line basis overall rental rates were up 21, 4% with renewals, increasing 17, 6% and new <unk>.
Leasing up 35, 5%.
Now I want to a few balance sheet metrics.
At March 31st our net debt plus preferred stock to adjusted EBITDA is four eight times and the weighted average maturity of our unsecured notes.
Term loans and secured financings was six one years with the weighted average interest rate of 3.6%.
Moving on to our updated 2021 guidance per our earnings release last evening.
Our guidance range for NAREIT F. F O remains $1 85 to $1 95 per share with the midpoint of $1.90.
Key <expletive>umptions for guidance are as follows.
Quarter end average in service occupancy of 95.75% to 96.75% an increase of 25 basis points at the midpoint helped by property sales in the first quarter.
Same store NOI growth on a cash basis before termination fees of three 5% to 4.5% an increase of 50 basis points at the midpoint due to first quarter performance and property sales in the first quarter.
Please note that our same store guidance excludes the impact of approximately $1 million from the gain from an insurance settlement.
Our G&A expense guidance remains unchanged at $33 million to $34 million.
Guidance includes the anticipated 2021 costs related to our completed and under construction developments at March 31st.
Plus the expected second quarter Groundbreakings first park 121 buildings C and D and first Aurora Commerce Center building E.
In total for the full year 2021, we expect to capitalize about five cents per share of interest in.
And lastly guidance also reflects the expected pay off of $58 million of secured debt in the third quarter with an interest rate of 4.85%.
Other than previously discussed our guidance does not reflect the impact of any future sales acquisitions or new development starts after this call.
The impact of any other future debt issuances debt repurchases of repayments. After this call.
And guidance also excludes the potential issuance of equity, let me turn it back over to Peter.
Thanks, Scott we are off to an excellent start in 2021.
Our team's focus on capitalizing on the positive momentum generated by the recovering economy and the continuing evolution and growth from the supply chain and with that operator would you. Please open it up for questions.
Ladies and gentlemen, if you have a question or comment at this time. Please press Star then one on the telephone keypad.
If your question has been answered or you wish to remove yourself from the queue simply press the pound key.
Again, if you have a question of our comment at this time. Please press Star then one on the telephone keypad.
Our first question of our comment comes from the line of Michael Carroll from RBC capital markets. Your line is open.
Yeah. Thanks can you guys talk a little bit about your near term I guess development starts you've been pretty aggressive at the beginning of this year.
And you just mentioned that you're increasing your speculative development cap I mean can we <expletive>ume the that far will continue to break ground on the $80 million to $100 million of development starts as we move into the back half of this year. The kind of continue the space you started the beginning of the year.
So.
The capsule of 625 and we've got.
About $225 million of capacity on.
On the cat, so that's $400 million.
Underway of 318 million is currently under construction on the rest of the been completed so we've got some room there we're evaluating new opportunities and you can expect us to announce some additional starts in the second and third quarter.
Okay. The other specific markets, you're willing to pursue spec projects. Many of you really focused on the tier one markets do spec projects or are you willing to go on some of the smaller markets too.
Well as you know, we're pretty focused on the higher barrier markets now of not only our new development projects, but also any acquisitions and so that's what we'll continue to focus on new investment dollars.
That's not really size really that its really more growth opportunity related.
Okay, Great and then the last one from me can you talk a little bit of balance the activity Youre seeing at the former one our former pier one space.
Is there interest in that site right now on I guess, what's the timing of being able to release the block.
Sure Mike, It's Peter Schultz activity in that market continues to be very good a number of large lease signings in the first quarter. We've had some interest in our building nothing to report on today, our <expletive>umption is that it releases on October 1st and <unk>.
Given the the high.
A high level of demand and the few choices. The tenants have we're optimistic about outperforming on a rental rate there.
Mike.
Okay great.
Thank you.
Our next question comes from the line of Craig Mailman from Keybanc capital markets. Your line is open.
Hey, Peter just a clarification to the previous question. You said there was 225 million of capacity left under the cap or used under the new cap of 225 of the 625 is available.
Of the 400 that is used.
$3 18 is underway and the difference are three projects that we have completed but not yet leased.
And that is already includes the of project that we just announced is going to start yes Q2.
Gotcha.
Your capacity for new starts for the rest of the year.
Unless we at least things quicker.
And then.
You know one of your larger peers was talking about replacement costs going higher and the difficulty getting materials kind of where are you guys on on purchasing buying new projects you know you've back from the land.
The bank a little bit here, but as we look out a cause of the balance of the year. I mean do you have the steel and other materials to continue to keep pace with starch or is that gonna be a little bit of a hindrance as we move to the balance of the year of less supply chains ease up a bit here on the material side.
So on the topic of steel.
Certainly more expensive than it was the system.
On an issue that just popped up this has been evolving for the.
The better part of the nine months two a year and so we've been on top of the anticipating.
Longer lead times to get you know, we're not having any trouble of getting steel, it's not holding up our new projects. The projects as I said again arm a little bit more expensive chose the do you want to go through kind of on the expense increase from <unk>.
I mean half of the expense increase of land appreciation of the start with the absolutely.
Due to the increase in construction costs.
With the deal.
If you cancel land static on basically the increase contributed to a modified the five 7% increase and the total investment including land and then the factor of land increase net promoter.
Probably by two 7%.
That's all.
Basically half an hour at the land in half one of the.
Greece.
Alright, that's helpful and then just.
Scott one one quick one it seems like the sales this quarter kind of really helped to boost some of the on.
Occupancy and same store with and it does it also drag enough on earnings and that's why you guys.
Kind of kept guidance here flat.
Yeah. So here I'll walk through the math, Craig with you or do you hear the love the stack because I know you lot of bad debt expense, but our bad debt expense was zero for the first quarter compared to our guidance of $500000. So that obviously is a benefit to SFO and then youre correct. Some of the sales in the first quarter caused some <unk>.
Dilution that offset debt, which is the reason why we kept our <unk> guidance the same the midpoint.
Keep in mind those sales proceeds will be part of the funding source that we use to fund the two new starts that we discussed in the script and when those are completed and leased up obviously, we will see an increase in NOI from that activity.
Great. Thank you.
Thank you. Our next question of comment comes from the line of Rob Stevenson from Janney. Your line is open.
Hi, Good morning, guys. Thanks, Scott what drove the 15% same store expense growth of the quarter.
And is any of that carrying over in the back half of the year.
Sure. It is of anyone on the call live north during this winter it was snow removal costs being in Chicago, We definitely felt there and I'm sure. Many of the folks of the north felt it. So it was an increase in snow removal cost was the primary driver and again the vast vast majority of our leases are net leases. So that's recoverable and again with.
Our high occupancy rate, we're recovering most of that in the leakage is pretty small so that said as far as whether or not we will experience that later in the year I guess you'd have to look at the farmer's almanac and see whether we're gonna have a bad fourth quarter of winter or not but again I think the main point is is when we see expenses increase in the portfolio with the <unk>.
Hi, net lease ex.
<unk> and of high occupancy rate the vast majority of it is going to be recoverable.
Okay and then.
The known move outs of size over the remainder of 2021 and into the.
2022 leases and you know where do you guys expecting the the retention rate to sort of fallout for the year. It was low this quarter relative to previous quarters, but I don't know whether or not this has just got some of the the move outs out of the way.
Yeah. This is Chris you know as far as our remaining rollovers for the year as you've seen we've taken care of the 72% of on them. So far you know the remaining rollovers average about 27000 square feet. So pretty good shape from that standpoint, as far as where we're going to end up for the year for retention, we should be somewhere in between that.
<unk> 70, and 80% of rates and are.
Looking forward to 2022, it's pretty pretty granular of pretty across all markets. There. So no big surprises there.
Okay, and then last one from me the three land sites you bought.
In the quarter.
On supporting 275000 square feet is there anything in particular I <expletive>ume the Oakland is probably a smaller <expletive>et but the average of that is all you know three <expletive>ets over 275000 square feet sub 100000 square foot are you combining that with additional land sites to build bigger are these all going to be relatively.
Small developments once you get to them.
Sure.
The dead on.
Correct in terms of the <expletive>et.
The old line as.
The lower coverage build the because we've been getting.
Of the higher mix of higher rent growth on surface parking and surface use sort of designed in right now and now he's still after you get it all through the design right now is a beauty of.
A bit lower.
It's a standalone project Peter.
And then Robyn in the Lehigh Valley that site is adjacent to one of our existing properties and who's going to share some infrastructure.
And we're excited about that size.
Given the difficulty in finding sites and serving demand for that size in that sub market.
Okay. Thanks, guys I appreciate it.
Thank you again, ladies and gentlemen, if you have a question. Please press Star then one on your telephone keypad.
Our next question comes from the line of Caitlin Burrows from Goldman Sachs. Your line is open.
Hi, Good morning, maybe just following up on that land acquisition topic.
The first time in recent history that you acquired land in northern.
California and the.
Pretty high percentage of 2020 land acquisition. So could you just go through.
The decision to acquire the land given the economics and how quickly do you expect to build there what kind of yield you could expect.
Sure.
Thank you for the question.
Of the <unk>.
Any space.
We expect significant rent growth from the East Bay is one of the walls.
Markets in the U S.
And both of the independents.
Which of the East Bay industrial market shares because they just the growth. So that's the overall strategy. If you look last year, we added to the acquired some properties in.
In the I 80 corridor of specifically Fremont.
The day sell land sites at Hayward.
At the center all day.
Sure Brian.
Thank you.
You will see us going forward acquired and developed world brought up all the way north from Richmond down to San Jose, where the epicenter of being open here. So that's our overall strategy and we expect the development of design that we acquired and.
In the in terms of our acquisition growth Avenue.
We expect a whole lot of $4 eight yield there.
And if on the market stabilize range right now that property I should say on a top floor and the net property, we expect significant rental rate growth. It will be matching east bay will be matching the rent growth we'd be matching with the experience in South Bay.
A N E.
Got it Okay, and then maybe just more broadly.
On the acquisitions and Ron can you talk about the competition that youre seeing in the target markets.
Hi.
How often you are being priced out or what's the.
<unk> Sir.
Well most of what we're doing our teams on the ground spend a lot of time, making unsolicited offers.
And the.
Pounding the owners of these these land sites until they basically cry uncle and agreed to sell and so typically we were successful on where were most successful on that's one of the reasons that we're able to develop the such high margins.
We only have limited competition, obviously, they're going to talk to just more than just us but typically these opportunities are not the.
Widely.
Marketed by brokers so.
That's kind of the way we're after it literally hundreds of unsolicited offers a week.
The country and.
Some of the land sites of smaller and every now and then we're able to get easier 90 acres that of pop so and we're focused as you know on the higher barrier markets. So by definition large land sites are going to be tougher to come by.
Just to add to what Peter said that we do we have done in view of your very successful of land in double digits. We just one of them will compensate for that acquisition you can do where you need to tie of multiple sellers April sales day to see but we've been able to do.
True that the net effect of that is the lower basis.
Okay.
Then maybe just the last one on the.
And capex, the non incremental building improvements and non incremental leasing costs were higher again in the first quarter year over year or if you look over the trailing four quarters.
The question you asked the first so I know last day, you talked about pull forward.
The Capex just wondering how long that's going to continue for.
Is that what's causing it.
The higher.
Yeah, Caitlin its Scott.
I think that's probably more of a timing difference quarter to quarter. Capex is sort of you have to look at that on an annual basis, but we expect our capex.
For this year to be plus or minus $38 million, which is going to be the savings compared to our capex and.
In 2000, Twenty's and we feel that that number again, if we keep the portfolio of the same size will go down a couple of million dollars over the next couple of years.
Okay got it thanks.
Thank you. Our next question of comment comes from the line I'm Sorry. Our next question comes from the line of Dave Rogers from Baird. Your line is open.
Steve Harker, congratulations on the retirement, well deserved Peter Schultz and Joe Joe Congratulations on the added work.
S going on once they got paid.
[laughter].
Going back to the comments I looked at your development pipeline, what's under construction today is about 20% larger than what you delivered last year and I know some of that can just be changes in mix on all of that but if we look at then the the two of the weakest areas of occupancy on the portfolio of kind of Seattle in South, Florida, Paul on both kind of smaller tenant market is typically so I guess, maybe talk about do you have.
On a bent towards building bigger <expletive>ets notwithstanding the recent comments that you just made in the last couple of question, but I guess, it's been broadly can you talk about the activity on the small spaces and what youre seeing on how that part of the portfolio is recovering.
Start with that and then judge on Peter.
Yeah.
The the <unk>.
Weakening of our weaker occupancy that you referred to on some of these markets is really one property.
So for example in South Florida.
The 96000 square foot vacancy in Broward County.
The 62.
With the agency then we don't have a huge portfolio, we're working on it but it's still not large.
Factors.
The agency that you referred to.
The Grand Parkway in Houston, the other than the Grand Parkway were pretty fall in Houston, So Theres really no issue there in terms of demand.
The largest rent increases are coming from the tenants in the building size of one hundreds of 200000 square feet.
Peter.
Jonathan do you want to add to that.
Sure David its Peter I would say in terms of building size, we're building to what we view as the strength of demand on the sub market basis. So in in Pennsylvania. As an example, bigger is better and demand is strongest for larger buildings.
And some of the other submarkets.
It might be of mid sized building, but remember we're always focused on the flexibility to accommodate.
The single tenant or multi tenants in these buildings and we've been surprised.
On a couple of cases, where buildings that we built for multiple tenants. We've ended up with a single tenant Joe Joe. So just as an example, two of the theaters open.
We view these as building already for example, the first Redwood logistics one building b.
That's 844000 square foot <expletive>et.
Basically in the E and very very successful decent very very quickly after the completion.
Suddenly we have this build to suit the NDA.
First day of Gena. This is the only $221 from peak in the East I E. This is considered a small buildings more building, but there is significant demand and that's why the chemicals.
Because when it goes back the name of tenant came in.
And one of the acquired another of building B B.
We first start with as we ended 2000 square foot again, he called the first of all Seth. So again. It shows you the breadth of the the mandate might placement of thank Peter said, we will continue to build.
As soon as the market.
The state cases is asking all of this fall and the other gentleman asked about this <expletive>et in East Bay in East Bay, a number of our <expletive>ets.
<unk> been a little bit of a smaller size because that's what the demand is the final speaker side of this volatile build it because.
It's the lack of a large volume here.
Zone.
I hope that answers the question.
It does I appreciate all of the added color I think in there I heard the rent increases our biggest among the hundreds of 200000 square foot boxes, I guess as you rank, maybe the smaller and the larger component against that range. So below a 100 and above 200, how did those compare or are they are they meaningfully different.
So the the.
50 to 100.
Are pretty strong as well the growth is a little bit lower over 200 and under 50. So that's.
A broad generalization, but that's what we're seeing.
That's helpful. Thank you last from me Scott maybe for you as you increase the development cap on it makes sense. Thanks for running through the numbers I guess, how do you think about the financing part of that right. So now maybe you have got more speculative <expletive>ets that you can add to the pool, but do you think about them, having to kind of keep lower leverage using equity more aggressively or selling.
More <expletive>ets as the year progresses.
Debt, Dave I think it's the same formula we've used in the past is youre going to be going to use your sales proceeds.
Your excess cash flow after paying a dividend we.
We do have room to lever up a little bit because you're right of leverages low at four eight times.
We said before if we see great investment opportunities there.
And equity the price is attractive.
We will consider issuing equity so that that's definitely on the table.
And again, we will.
We have looked back at what we did in equity issuances in 2000, 2018, 17, and 16, we put the vast majority of that money into spec development and as we discussed on our Investor day call.
Last year in November the margins on there were.
The very strong and we thought it was of great use of capital so.
Equity as of piece, but we have to like the stock price and we have to have a on the investment pipeline.
Alright, great. Thanks, everyone.
Thank you. Our next question or comment question comes from the line of Vince <unk> from Green Street. Your line is open.
Hi, good morning, given how land and overall replacement costs are trending how much longer do you believe development profit margins can stay at the impressive levels. They are now at what point does just competitive market forces push the push these down some in your mind.
Sure.
Georgia and.
In terms of.
Mark this is the pretty much of that because of toothpaste.
The investment cost has gone up but the rents have gone up as well and the cap rates are added to the pump.
Down too.
I believe rightfully so because.
Most investors do not expect the highest rental rate growth rates that we're experiencing.
Everybody was at the speed of 5% in reality of the issue is probably going to be 5% to 10%, which submarkets.
So we're at a stage right now that I think margin biodiesel.
Continue.
There is significant.
The coming in but.
Overall, the rent that about half of them came up the last 100 comment on what is going to be the debt of you always ask the question Louise top of our customers about the.
The cost of rail reprocessed, the part of the total logistics costs is still remains small.
Under 7% and the biggest component of any of those.
The company is transportation labor and inventory management and the rest comes down and we're proud of where actually the lowest cost structure not just the weekend just go away to charge the NDP theres room to grow the net because its the lowest component of the logistics costs.
Got it that's helpful on the one a follow up on one of the comments you made just on kind of growing competition are you seeing a lot of new players enter the space, who traditionally haven't done the industrial development or it's more kind of existing players just growing their risk appetite and maybe development.
The pipeline both.
Placebo of exactly what you cited was exactly of the source of new.
Is it new increasing money from existing investors and new entrants.
<unk> from other product types were in D C. The.
Actually the tailwind is much much better on industrial.
Does that worry you at all of the some of the lower barrier markets, just kind of ramping supply over the next few years, the more and more capital wants to come into the space.
Do you think about overall supply risks.
Various markets.
We.
We look at it very very closely we don't worry about it.
We calibrate our investment given the demand supply of each sub market and Thats why we have the platform because we always watch supply and demand and so far we've been really pleased and of this.
Surprised on the $100 million over 100 millions of square foot net absorption in the up and the whole market just as Q1 versus on a constrained supply.
That's what the best welcome news to everybody in the industrial real estate industry.
Lots of new entrants of Jojo mentioned.
The investment managers are investors.
The traditional <expletive>ets of apartments retail et cetera.
Wanted to get involved in industrial and they are extremely aggressive and they actually become really good buyers of some of the stuff that we're selling so from that standpoint, that's a plus for us.
The only of everything with Peter.
Peter said of debt.
If you remember we do have a platform.
In our construction of development <expletive>et management property management leasing platform that not all of the new entrants.
That creates a competitive advantage in terms of the relationship by adding to the deals getting deals of Dolby Martin of English.
Yes.
Makes sense. Thank you.
Thank you.
Ladies and gentlemen, if you of a question at this time. Please press Star then one on the telephone keypad.
Our next question comes from the line of Mike Mueller from Jpmorgan. Your line is open.
Yes, Hi, Peter.
Talk a lot about new development starts, but can you talk a little bit about what youre seeing in terms of the opportunity for buying vacant buildings.
Sure.
There is not a whole lot on the market to start with so we track.
We'll call it deals done in a way thats the whole banking term, we track all of the transactions that happen, we see most of them.
And over the past few years that.
Analysis has thinned out considerably so the first of all of there's not a lot.
Being sold.
Of that you break it down to where we want to or would consider buying and thats higher barrier markets and that shrinks the available pool even more.
Well certainly.
We would certainly acquire a vacant building of it met all of our criteria.
We do evaluate those opportunities from time to time, but it's not the high volume.
Got it.
That was the thank you.
Thank you.
Our next question comes from the line of Rich Anderson from SMB see your line is open.
Thanks, and just a tweak to Mike's question there.
I'm wondering I don't know that theres much of the way of distress in the industrial space These days, but.
I Wonder if you if theres a way to get creative and building your land position.
Perhaps I don't know.
Poorly located strip center that you can get for the dirt debt.
It would be a decent location for a moderate sized industrial building are you willing to take on sort of the risks and the time constraints of of <unk>.
Titling and all of that is that in your in your crosshairs or youre doing that at any level today or is it just not necessary at this point.
Well, we absolutely take entitlement risk, it's what we do on a regular basis.
The rephrase the question of I of course, you do that but I mean, more opportunistically I guess I would say the way.
I'm trying to describe.
Sure I mean, yes, we would.
There are some opportunities out there.
There are some hurdles to doing that as well as you know retail rents tend to be higher per foot than the industrial red So theres an economic.
Challenge to overcome there. There's also the whole of the fact that most of the retail centers are surrounded by residential and.
And all of the neighborhoods aren't kind of 153 sort of trucks.
Trucks rolling through the knee.
So the.
Those of channel challenges, we do look at these opportunities we're looking at a couple of right now.
So yes, we're like everyone else, we're trying to find where we can create some value for shareholders and in some cases, it may well turn out to be a reuse of redevelopment of the retail site.
Okay.
And then my follow up unrelated question is just looking at how the market reacted today, you don't want to get too much into a single day's worth of <unk>.
Trading but.
You reiterated your guidance from last quarter.
And I guess on the industrial space reiterate is viewed as the cut which is a product of your own past success.
I'm, saying that tongue in cheek, but I guess, what I am.
I am asking is in 2020 of that euro evolved.
You saw on e-commerce demand built in the in that environment and hopefully on environment, it's going away slowly in 2021.
What is your perspective of.
Is your perspective of future growth.
The somewhat lower because we're kind of approaching more of a normal operating environment.
And hence maybe we've kind of.
Got a pretty good sense of what 2021 guidance will look like from future periods or call. It just as excited or more excited this year. Despite the fact that you won't have the sort of doubling down of demand like you had last year.
But nobody knows what the growth trajectory of E. Commerce is going to be except that we did see adoption.
Adoption of.
Online buying by millions of new customer.
Customers, if you want to call it that last year.
Tends to be sticky. So you saw this hockey stick.
Growth in.
Online sales.
Probably not going to continue that trajectory, but we've had a step up I guess, if you want to call. It that and we would expect the trajectory to be at least as good as it was pre COVID-19, which is it was still pretty strong so.
We do believe the.
E Commerce is going to continue on a very very strong growth trajectory again, probably not the hockey stick we saw in 2020 and.
Look there's a lot of competition out there everybody competing to grow their footprint.
And trying to maximize and optimize their supply chain. So it's not just the e-commerce guys of the traditional.
Sellers of goods at the products and services and we liked that competition is good for us and as of <unk>.
Good for rent growth.
Okay, great. Thanks very much.
Thank you our next question on comp.
The next question comes from the line of Nick <unk> from Scotia Bank. Your line is open.
So maybe just focus on the inland Empire for a minute.
The day you did give.
Some forecasted.
Yields on the future land pipeline, there as well as construction starts and we just came off.
I think some people were saying it was a record first quarter in the first quarter.
For N P M of the Empire I guess I'm just wondering there.
You say that the cash yield on that pipeline of five 6% in construction starts that were.
Starting sort of besides what you've already announced later this year on into 2022 2023 on I guess I'm just wondering.
Based on the market dynamics since then.
Whether there was any increase in yield.
Debt youre seeing in that market and as well for some of the future starts to speed up some of the development in the.
The inland Empire.
Hi, This is Joe Joe.
I mentioned five of 7% increase that was related to.
The increase of construction cost over total project costs, which includes land, but the landscapes day.
As do a lot of the steel.
The other question of rents accelerating yes.
He is.
I use of the market rents.
Brent.
The increase.
At a higher rate than combined the trusted cost of land and therefore, yes.
We look back in terms of our projections, we are forecasting increasing yields in the ie.
And that's the function of.
Of the increasing risks so yes.
Yes.
That was your question.
The trend that we're seeing the only of zeolite added debt.
A couple of reasons why <unk> is one of the tightest in the U S.
As we look at it.
Yourself.
West and East your sub 3%.
As we all know is tough too.
The.
This year in terms of year to date.
Q1 of port activity.
Probably shattered the record over the last eight years.
The top 13 parts of the U S. At the increased the theaters from flip.
In Basel Lee and.
If I gave you. The example of just the top two ports.
Q1 of.
The 21 versus Q1 of 2020 the increase.
On the throughput of 47% through the ports of L. A long beach and so the reason I mentioned out of debt that has impact on in terms of absorption on rental rates and the continued tight market for ie because he is the biggest repository of video of all of the goods COVID-19 growth part of it.
For the royalties.
Okay. Thank you that's helpful. Just one other question is on the.
The <expletive>et sales you mentioned this quarter that there were some.
Some of above <unk>.
Market rents that drove that cap rate higher on the sale.
How should we think about going forward some of the other property sales you may be doing and lining up.
In terms of that.
There is also on above market rent impact when you think about it.
Or should cap rates on sales be more normalized going forward.
To give you a reference point the.
Tenants in those buildings are moving out in.
In one building the moving out of next months.
When you take a look at where market rents are there.
Projected stabilized cap rate on those deals is closer to the low fives.
So obviously it is what it is today with the tenant in the building and that's why we reported the eight four but.
The opportunity set going forward, both from a lease up risk standpoint on a growth opportunity was just not there and that's why we sold those buildings on a stabilized basis of getting back to that.
<unk> basis, we think the sales for the balance of the year is going to be more of like high six low seven cap range.
Okay, great. Thank you.
Yes.
Thank you I'm showing no additional questions in the queue at this time I would like to turn the conference back over to Mr. Peter Peter but Chile for any closing remarks.
Thank you operator, and thanks to everyone for participating on the call today.
As always please feel free to reach out to me Scott art with any follow up questions and we look forward to connecting with many of you at some point either virtually or in person this year take care.
Ladies and gentlemen, thank you for participating on today's conference. This concludes the program you may now disconnect everyone have a wonderful day.
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