Q1 2021 Duke Realty Corp Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the Duke Realty Earnings Conference call. At this time all participants are in a listen only mode. Later, there will be time for questions instructions will be given at that time. If you should require assistance during the call. Please press Star then zero as a reminder of this conference.
Is being recorded I would now like to turn the conference over to our host Ron Hubbard. Please go ahead.
Thank you Don and good afternoon, everyone and welcome to our first quarter earnings call. Joining me today are Jim Connor Chairman and CEO.
Mark the knee.
Chief Financial Officer.
Steve Schnur, Chief operating officer, and the GAAP and a chief investment officer.
Before we make our prepared remarks, let me remind you that certain statements made during this conference call may be forward looking statements subject to risks and uncertainties that could cause actual results to differ materially from expectations.
These risks and other factors could adversely affect our business in the future results.
For more information about those risk factors motor freight to our 10-K, our 10-Q that we have on file with the SEC and the Companys. Other SEC filings all forward looking statements speak only as of today April 29, 2021, and we assume no obligation to update or revise any forward looking statements the reconciliation to GAAP.
Of the non-GAAP financial measures that we provide on this call is included in our earnings release.
Our earnings release and supplemental package were distributed last night after the market close if you did not.
Obviously of a copy of these documents are available in the Investor Relations section of our website at Duke Realty Dot Com.
You can also find the earnings release supplemental package SEC reports and an audio webcast of this call in the Investor Relations sections of the website as well now for our prepared statement I'll turn it over to Jim Connor.
Thanks, Ron and good afternoon, everyone.
I will open by saying as always we hope you and your families are safe and healthy on that you've had the opportunity to be vaccinated.
The fundamentals of our business continue to be as good as ever we have now had two successive quarters of demand breaking all time records. Our development platform had a record first quarter of starts in our core portfolio continues to perform at the top of the class our liquidity position and sources of capital are very attractively price to capture opportunities.
These including our execution of two green debt transactions.
All of these drivers resulted in us raising key components of our 2021 guidance that roll up to double digit growth and expected core <unk> at <unk> at the mid points now, let me turn it over to Steve to cover our operations.
Thanks, Jim I'll first cover overall market fundamentals and review of our operational results.
Industrial net absorption of the first quarter. According to CBRE retrofits registered an impressive 100 million square feet, marking the first time the demand has exceeded 100 million square feet in the consecutive quarters.
This was more than enough to offset new supply as completions depth of 57 million square feet from about 70 million square feet on the fourth quarter of 2020.
Of this positive net absorption over deliveries for the quarter reduced vacancy down to four 4%, which is back down near the record levels. We saw throughout most of the 2019, the strong mix and fundamentals increased asking rents by over 7% compared to the previous year.
CBRE now projects demand for the full year of surpassed 300 million square feet, perhaps even breaking the 2016 record of 327 million square feet.
The projected deliveries to be about 300 million square feet as well the.
The overall sector continues to remain very much in balance, which will produce another year of growth in asking rents of high single digits nationally.
On the macroeconomic front, the increasing pace of vaccinations, the stimulus being pumped into the U S economy and the arrival of spring weather has generated some significant recent data points indicative of a very strong year on our business.
The recent March consumer confidence rating is back near the range of 2018 in 2019 on the GDP GDP growth is projected to be in the 6% to 7% range.
Bodes very well for demand and logistics real estate.
And in addition, we of the secular drivers in our business that remains firmly intact and stronger than the <unk> pre pandemic.
To that point the growth in retail sales of E. Commerce sales across the two months of February and March period were up 12% and 28%, respectively, and perhaps more notably when measured against the 2019 non pandemic timeframe. The recent February and March figures were up 15% of 43% respectively.
In addition to the experience of the supply chain bottlenecks in response for greater of business inventory of redundancy is expected to push the retail inventory to sales ratio to above historic levels get it now sits near record low levels of <unk>.
Manned by Occupier type remains broad based and very active with pure E Commerce Omni channel retailers, three pls healthcare supply firms in food and beverage companies, leading the way.
On the GAAP base.
The mark to market on our portfolio of leases is at 17% below market rental rates, which is supportive of continued strong rent growth.
We also had an exceptional quarter development starts as initially as reflected in our press release last month.
On top of the $373 million.
Of starts we reported in the press release at quarter end, we signed another $39 million project in the Tampa market.
Which was the build to suit for e-commerce retailer.
In total we started 11 projects during the quarter totaling $3 8 million square feet and $412 million on cost.
These projects were 60% pre leased with value creation creation of estimated near 40%.
We're very we're also very proud of the three of the four build to suits, we signed during the quarter with four with repeat customers.
Our development pipeline at quarter end totaled $1 $4 billion was 68% allocated to our coastal tier one markets the.
The pipeline this pipeline was 65% per leased as of March 31.
Looking forward and consistent with the strong fundamentals I discussed on our best in class local operating teams our outlook for new development starts is the strongest it's ever been as reflected by our revised guidance of up over 30% from our original midpoint I'll also note.
We do expect our pipeline pre leasing percentage of the potentially drop a bit in future quarters as we put fully leased assets in service and start more speculative development projects in high barrier tier one submarkets, where fundamentals are very strong I'll now turn it over to Nick Anthony to cover acquisitions of debt.
Thanks, Steve for the quarter, we sold $94 million of assets comprised of two facilities in Houston as well as of two facilities in Indianapolis on getting 50 50 joint venture.
In turn we used part of these proceeds of acquired three buildings totaling 680000 square feet for $51 million, including one asset in southern California is ie West Submarket and one in northern New Jersey mentally and sub market the.
The third facility acquired was in the Indianapolis Airport Submarket and was part of the joint venture liquidation of an asset swap.
These buildings were all of 100% leased within markets, where we expect strong market rent growth that will contribute to long term IRR well in excess of the assets we sold.
From a strategic positioning standpoint, the net effect of our development disposition and acquisition activity. This quarter moves are coastal tier one exposure to over 42% of JV.
We began marketing a few midwestern assets leased to Amazon prime rate sale, while certain assets leased to Amazon and other non coastal tier one markets made the re sold outright or contributed to a joint venture.
In addition, the more recent news on disposition and light.
In last Night's press release that we are now margin per sale, our entire $5 2 million square foot St. Louis portfolio.
The rationale on the sale is threefold.
We are taking advantage of increased investor demand for logistics assets too.
Two the portfolio accelerates our strategic objective to increase our exposure in the coastal tier one markets and three it will provide a source of funds of our increasing development pipeline.
As a result, we have raised the midpoint of our full year expected dispositions by $400 million.
Altogether, we expect our planned 2021 disposition activity to be weighted towards the middle of the year I will now turn our call over to Mark to discuss our financial results and guidance update. Thanks, Nick Good afternoon, everyone core <unk> for the quarter was 39 cents per share, which represents 18% growth over the first quarter of 2020.
We've been saying for the last few quarters that we expected our core F of full growth rates to accelerate and begin to approach our already strong <unk> growth rates the re.
Results from the current quarter and our revised guidance certainly reflects this.
<unk> totaled $140 million from the quarter are best in class low level of capital expenditures along with the strong NOI growth continues to generate significant <unk> growth to reinvest into our business. Our best in sector rent collections continued in the first quarter of 2021 with more than 99 nine <unk>.
<unk> of rents collected we have also collected more than 99, 9% of April rents and we now only have $52000 under deferral arrangements remaining to be collected and had effectively no bad debt expense from the first quarter.
Same property NOI growth on a cash basis for the first quarter of 2021 compared to the first quarter 2020 was six 3%. The gross in the same property NOI was due to increased occupancy and rent growth as well as the burn off of free rent compared to the first quarter of 2020, we do expect this growth to moderate for the remainder of the year.
Based on tougher occupancy comps and less free rent burn off but to remains strong nonetheless.
We finished the quarter with no outstanding borrowings on our unsecured line of credit, which we renewed in March and extended through March of 2026, including our extension options, we reduced our borrowing rate by 10 basis points compared to the previous facility as part of our commitment to corporate responsibility. The credit facility also includes an incremental reduction in borrowings.
Cost of certain sustainability linked metrics are achieved each year, our future debt maturities are well sequenced with less than 3% of our total outstanding debt being scheduled to mature prior to the end of 2023.
As the result of our strong start to 2021, we announced revised core <unk> guidance for 2021 to a range of $1 65 to $1 71 per share compared to the previous range of $1 62 to $1 68 per share.
The $1 68 per share midpoint of our revised <unk> guidance represents over 10% increase over 2020 results. We also announced revised guidance for growth in <unk> on a share of adjusted basis to range between 8% and 12, 3% with a midpoint of 10 one.
Compared to the previous range of five 8% to 10, 1%. This increased earnings growth expectation is impressive when considering we are increasing current your disposition expectations by $400 million.
The fund development projects that will not contribute to earnings until 2022 and beyond.
For the same property NOI growth on a cash basis, we've increased our guidance to a range of four 1% to four 9% from the previous range of three six to four 4%.
We continue to outperform on underwriting assumptions for speculative developments, both on the timing of lease up and rental rates achieved and continue to maintain a solid list of build to suit projects.
Based on this our revised guidance for development starts is between $950 million and $1 1 billion compared to the previous range of $700 million to $900 million.
This increase in development starts will provide a key source of growth in 2022 and beyond as Nick mentioned, we intend to take advantage of the investment sales market pricing to pre fund a significant portion of our development pipeline with an increase in dispositions our guidance for dispositions has been revised of between $900 million and $1 one.
$1 billion.
Compared to the initial range of $500 million to $700 million.
We've updated a couple of other components of our guidance based on a more optimistic outlook as detailed on a range of estimates exhibit including our supplemental information on our website I'll now turn it back to Jim for a few closing remarks. Thank.
Thank you Mark in closing the strong economic recovery is unfolding at numerous secular drivers are continuing to create unparalleled opportunities for our platform to capture growth from rising rental rates high margin development opportunities and from raising capital at a very low cost low.
We're very pleased with our team's execution in the first quarter and now with our expected double digit growth in core <unk>.
As long as these multiple <unk> can sustain and as long as the economy continues to recover.
We're optimistic we can achieve similar levels of growth for the foreseeable future.
Hopeful it should lead to corresponding increases in our annual quarterly dividend.
Thank you for your interest and your support and we will now open it up for questions.
We would ask that you limit your questions to Walter perhaps two short questions. You are of course welcome to get back in the queue.
So please remember the prompt for Q&A is 1010, Don you can open up the lives of will now take questions.
The.
First we go on to the line of Blaine Heck. Please go ahead.
Great good afternoon.
Start with Nick as you mentioned that you guys.
This guidance pretty significantly this quarter.
Side of St. Louis are you guys selling any other portfolios or will the recipe more kind of one off and the sale of the Amazon facilities, and then can you give us any sense of how much pricing has actually changed this year, especially in those kind of secondary markets, where I'm, assuming most of the dispositions will be.
Yes Blayne.
So most of the other assets are sort of one offs.
On a couple of class b, but mostly long term credit deals a lot of them leased to Amazon.
So that makes up the breadth of it theres really no portfolios in that guidance number outside of the St. Louis portfolio.
As far as pricing goes.
We continue to see cap rate compression.
It's the secondary markets have compressed more recently than the coastal markets.
By the especially some of these Amazon assets, we've been very pleased with the pricing that we're seeing on the on those transactions as well.
So I would say over the last 90 days tied on another 25 bps on.
Compression.
Great.
It's really helpful and then maybe for Jim.
Several of your competitors have talked about the rising cost of construction now not just from the increasing land costs, but also the raw materials.
Can you just talk about how you guys are dealing with that increase in cost and whether you think rents are rising fast enough to keep yield steady or maybe should we expect the temporary dip in yields as the.
The material costs are temporarily elevated.
Yes, Thanks, Blayne I'll start and then Steve could give you a little color.
We've been dealing with land price.
The land prices escalating for a number of years now so that's not anything out of the ordinary steel is the latest one.
A lot of people are talking about that one of the advantages of being a national developer.
Is that a the number of relationships that we have the leverage that we have and our team's ability to go out and.
The accelerate some of the design and procurement so sitting here today, we can comfortably tell you that we have the steel we need to finish everything thats in the development pipeline for the balance of the year and I think Steve could you give a little more color on.
Some of the local teams are doing.
Sure Blaine I would just tell you.
Steel is gaining a lot of headlines lumbers another one.
The land is obviously as Jim indicated has been up significantly for number of years.
Rents are certainly keeping pace cap rates are helping I think the bigger the bigger concern I guess are cautious thing that we pay attention to is the timeframes steels push from 10 to 12 weeks, the probably 24 to 26 weeks so.
More upfront.
Cooperation with architects incentives to get the to get projects started to make sure you can you can deliver on time.
Yeah.
That makes sense thanks, guys.
Thank you.
The Knicks.
We go on through the line of John Kim. Please go ahead.
Thank you.
On your spec developments are you sensing that there is also increasing spec.
On your markets from public and private developers.
And are there any markets, where youre concerned that the spec development the escalating quickly.
Sure Keith and I will tell you I think.
There is competition everywhere I do think.
I do think the private the private players, particularly the larger private players have been active on the merchant development front.
Our focus on where we've got our land holdings and the high barrier markets I think we indicated in our release that 88% of our land is now in the coastal tier one markets.
The competition there the vacancy rates there many times are less than 2%. So I think we're comfortable with that I would tell you in terms of markets. We're concerned about are monitoring supply.
There is always going to be a handful of submarkets scattered around but Houston is the one that we.
We have no intentions of started any projects in Houston.
The market needs to need the short itself up a bit.
And I know you gave you of excuses on why Youre exiting St. Louis, but why not go to the joint venture out in that market.
Seems to be the strategy with some of the other markets.
This is net the question was why do not Jamie the St. Louis assets.
Generally we have kept the more we tried to keep our model more simplistic.
On.
And we don't think strategically of joint venture there would make as much sense of maybe in some other instances where you can grow it I just don't know how you what you do with it going forward.
Got it thank you.
Thank you Nick.
We go on to the line of Manny Korchman. Please go ahead.
Hey, everyone.
Maybe this one from Mark just thinking about using dispositions per capital funding from the developments versus.
The common stock here whats sort of more attractive about selling the assets of exiting those markets then.
Interest growing through an equity raise.
Okay.
Well I guess were you.
Using a little bit of everything Manny I mean, we did issue a little bit on our ATM on the first quarter.
I guess, what I would say of Nick can follow up on this the St. Louis exit his sort of been on our list for a while it's really more of an acceleration of something we were probably going to do down the road anyway, and as our development pipeline opportunities ramped up we just kind of pulled forward some things that we're going to do anyway, but low.
We'll continue to use a little bit of everything.
As long as our capital is attractively priced.
What I would add is this was an opportunity to.
Basically improve our geography going forward and also improve our growth profile going forward just to make to help improve performance in the future.
And Nick I don't know if we've talked about this a little while but just.
Can you talk to the pricing differential between <unk>.
Single assets or larger single assets and portfolios.
Is there of pricing difference.
So are you looking at one of more more than the other.
Well there is certainly it's sort of a mixed bag.
It's not as black and white as you might think.
Obviously, the the long term credit deals are garnering very low cap rates of lot of them are brand new new development.
On a lot of the portfolio of deals that you see out there are a blend blend of class a and class b assets and a lot of it depends on where the rents are in relation to market. So they generally trade at higher cap rates.
On the buyer pool is not necessarily as deep on those because they are a little harder to underwrite and get your hands around.
But it is it is sort of comparing apples and oranges there on those two different types.
And then the second part of the question are you more interested right now on buying some some single assets and prior to the markets versus picking up the portfolio.
Typically on the acquisition side, we focused on one the three assets at a time, because we want to focus on buying what we want where we want it so of complements our strategy.
Typically when we've done larger portfolios, we got lucky with the bridge transaction several years ago, because of all where we wanted it but typically what happens on some of these portfolios as you get a lot of assets.
Eric locations that you wouldn't normally want to be in and it creates a lot of friction and noise trying to reposition those portfolios actually get them.
Great. Thanks Al.
Thank you and next we go into the line of Jamie Feldman. Please go ahead.
Great. Thank you.
I think you had mentioned in your earlier comments.
About sales into the JV, if I heard that right can you talk more about the plans there and is this something that you would keep us kind of of perpetual structure and continue to sell kind of grow it or is this more one off.
Yes, I mean, we're look we're looking at all of the different levers as far as monetizing assets.
One of the things that we've talked about is managing our aim of being prudent about managing our Amazon exposure going forward because.
Because we continue to do a significant amount of business with them and.
I think the exposure at the end of the scores right around 9%.
We'd probably rather be in the 4% to 7% range going forward.
On that so there are some assets and maybe we don't want to sell outright.
Because of where they are of what type of asset. They are and we may take advantage of the JV structure in that case, and then that might be something that we can use the monetize future.
Asset similar to that going forward.
Okay any thoughts on like structure in terms of your stake versus the partner stake and the.
Magnitude.
No I think I think we're really evaluating all of that stuff.
Obviously, we need to do something a decent amount of monetization. It makes sense to manage the Amazon exposure, but we don't have any hard numbers in mind.
Okay have you started talking to partners.
Yes, we have we have had discussions but we've always had discussions with partners over the time, we talked to a lot of our existing partners about.
About this whole concept on it on a regular basis.
Okay will you consider more of a lack of fund structure.
Okay. This is now I mean.
No I think I think historically, we've used more of the JV structure.
Could it be of JV with multiple partners maybe.
But not necessarily of fund structure.
Okay.
Thank you and then.
Just as.
Here, we are kind of a unique time in the economy, where things are picking up any any anecdotes about kind of new types of tenants leasing space anything that kind of stands out from the quarter that might be different than what you've talked about in the past.
So Jamie this is Steve I don't think so I think three pls continues to be very very active.
And I think that centered around the E. Commerce. It's also centered around the theme you've been hearing about for a while.
With inventory redundancy so.
Hi.
That's probably the most active.
<unk> always been active but I think right now as they have sort of taken out of the lead by a wide margin over anyone else.
Okay. Thank you.
Thank you and next we go into the line of Nick Leeco. Please go ahead.
Thanks.
Question on <unk>.
Kind of your pricing strategy right now because.
It looks like your tenant retention has picked up.
This year versus last year, it's obviously, a good thing for occupancy range raise that guidance, but I guess I'm, just wondering how youre kind of approaching.
Pricing discussions with with renewals.
You are willing to deal with a little bit more frictional vacancy to push pricing on the portfolio.
Sure Nick this is Steve.
Yes.
It's the case by case basis, but we're certainly pushing the envelope I think.
This quarter.
We did not have.
Very much role on the coast. So our results, which we were happy with on the on the rent growth side.
I think I think there is some upward.
The trajectory to what we will do the rest of the year.
We're continuing to push rents were having difficult conversations they aren't easy conversations but.
We're willing to take some space back if we need to.
Okay. Thanks, and then just second question is on the development of land, where I know you gave the book basis, but 88% of Rod lift.
The lifting floors being in coastal tier one markets.
Maybe you can just give us some sort of perspective on how much of it we keep hearing when prices are going up substantially.
Southern California alone.
Maybe just a little bit of perspective on where you think the land is really worth on the marketplaces for.
Youre all of your land held for development.
Yes.
We just looked at that.
It's in the low forties mark to market so.
We have quite of bit upside in our in our land holdings.
You said, sorry, its about 40% higher than the book value.
The market value is yes over the over our book value of correct.
Okay perfect. Thank you very much.
Thank you and mix.
We go on to the line Caitlin Burrows. Please go ahead.
Hi, there so you're obviously very active in development now you started $800 million in 2020 in 2021 guidance is for over $1 billion at the midpoint. So just wondering.
Do you believe there is runway for the 'twenty one volume to continue and that's from both the demand perspective, and also your ability to get land and complete projects in the target markets.
Yes, Caitlin I would tell you.
As I kind of tried to reference in my closing remarks, if the economy continues to recover.
As it certainly is.
Indicating it has.
We're able to achieve the kind of the GDP growth of the second half of the year that most of the leading banks are projecting yes.
Yes, we think we think next year is going to be of very very good year.
We should have ample opportunity to.
Two of comparable level of volume.
Okay, Great and then I think just following up on one of the recent questions.
On the key assumptions that you guys have at the end of the supplement it does mention that youre willing to push rents at the expense of some occupancy, which I think makes sense given high occupancy, but we havent yet seen that play out in the leasing spreads obviously theyre high but.
Last quarter, even the year ago on that.
So just wondering do you think we should expect to see the leasing spread drive rise in the near future would that take a little bit longer to play out.
Let me start deck here on this is mark one thing we've been talking a lot about where the leases we have sort of rolling where theyre located and over 40% of our NOI now or in the coastal markets. This quarter. It just so happened that only about 10% of our roles of the coastal markets. So I think that we're still very happy with.
12%, plus or minus cash of almost 30, GAAP with 90% of that rollover of non coastal markets.
You'll see us get to the 40% roll the portfolio looks like for a few years down the road, but I think you will see us pushing closer to 20% to 25% of our role for the next year year and a half will start to be more of those coastal markets. So that does give us the opportunity to get those rates up even higher than what they were this quarter of Steve wants to add anything.
And then just a little point of where the I think it is important to aware of the role was.
About 90% of on non coastal markets, we still achieve those numbers, we're pretty happy with the.
That makes sense. Thanks.
Thank you and next we go on to the line of Tony. Please go ahead.
Hi, good afternoon could.
Could you discuss how your market rent growth expectations. This year differ between coastal market tier one non coastal markets and the remainder of your portfolio.
Sure Vince I'll take a stab I'll tell you I think.
There is clear.
Clearly the numbers that get published or on a macro basis.
We need to dig into the individual submarkets I think some of the some of the high barrier infill coastal markets are pushing.
The high single digit rent growth if that double digit.
And of the center part of the country.
You have less barriers to supply.
Youre, probably in the lower single digits.
That probably averages out to that 6% to 7% rent growth that we've been seeing from CBRE.
I don't know if that hopefully that answers your question.
There is there is obviously.
Discrepancy by by availability of.
Of supply.
That's really helpful on any differences between some of the cost the market like New Jersey vs. Socal anyone standing out or the kind of similar in this high single digit range.
I think I think the two markets you indicated are extremely active very low vacancy rates very little new supply being added.
Being absorbed quickly.
So those two markets are doing really well I think.
Seattle continues to perform well.
There was I would say northern California.
Had a bit of a slowdown I think it was more affected COVID-19 related but it seems to be coming back pretty strong what we have there.
Got it. Thanks, that's really helpful. If I could squeeze one more in can you just provide a little color on the pricing and marketing process on the Houston dispositions just curious given some of the challenge in challenges in that market, how does that differ from some of the other dispositions or marketing.
Hi, Victor snack.
You said use of dispositions.
Yes, just sort of curious of that we're seeing weaker demand there we have pricing compared to some of the other regions. So unfortunately for us they were long term leases with Amazon. So it was a great experience.
Yes, the buyer pools, the buyer pools of very deep in the pricing was very good.
Like we're seeing across the country. So.
That was obviously the reason why those whitewall force.
Got it and it's Houston, a long term hold for you or is that something you could potentially consider ex.
I think as well similar to St. Louis.
Thank you.
We're cognizant of our exposure there, but we have no plans.
Ex of Houston any in the.
The future.
So we just keep an eye on it and.
And manage it.
Yes.
Great. Thank you.
Thank you.
The next we go on through the line.
Of Mike Mueller. Please go ahead.
Yeah.
Yes, Hi, two quick ones here first.
The difference between the Amazon assets that Youre looking to sell outright versus what you would consider to put in the JV.
And then second when Youre thinking about your in process development pipeline is there is there a max level or some sort of cap that you.
Want to stay under.
Hey, Mike This is Nick I'll take the first part and I'm sure Steve will take the second part.
In terms of what we're looking to sell outright versus joint venture.
It's primarily location driven.
For the most part.
Generally it is the growth profile of the asset. So if it's an asset that has a good embedded rent growth.
And a market that has good perspective rent growth going forward, we're probably more likely to put it in the JV versus sell it outright.
So that's generally how we've looked at it.
And then the second part of your question, Yes. The second part of the question on the development opportunities obviously.
Developing at the margins we are the more we can do the better I think.
We pay attention to what our exposure is relative to the overall size of our company.
We're at roughly 9% now I think we can start to get nervous if we were.
The 12% to 13% something like that.
Got it thanks.
Thank you and next we go on through the line of day.
Dave Rodgers. Please go ahead.
Yes. Good afternoon, maybe a question on lease rate growth you talked about the.
But maybe just some color on the side.
You are seeing in terms of the rate growth across the whole portfolio last quarter per se.
Yes, Dave This is Steve Youre, a little broken out, but I think you asked about lease rates by size.
And maybe location.
I would tell you for US again, the portfolio that we operate our best performing.
Size segment. This past quarter was 100 the 250.
I think historically going back the last call it six or eight quarters.
I would tell you it's tended to be better on larger size. So I would expect that.
To be the case this year based on the demand we're seeing.
With one quarter ended the year to read much into into that but the for us. The large size segment continues to be the most active.
Great and then I think coming into and sort of idea of of bad connection, but I think coming into the year you guys had talked about losing some tenants early on that debt would rollout.
The you had a little bit of that did that all hit in the first quarter do we expect to see any of that moving into the second quarter of where you guys are successful at kind of stepping in and back filling a lot of it fairly quickly.
To start the year.
Yes, David the smart at the end of <unk>.
Last year about the January call I guess, we talked about four of 500 tenants I guess first off I'd say these were not significant tenants, but there were four of five we were basically in the process of trying to get evicted re tenant the space. So the good news is all of that space the sprint backfill.
In fact in a couple of those tenants actually got current under rent and went through some M&A transactions themselves.
<unk> got current are going to stay on the space after all.
Another couple of them the other half I would say, we've now got out of the space. We've got leases signed the backfill it there probably will be some downtime in rent here in the second quarter, but the leases are all signed and we should be back up the full run on was better rents and better credit obviously come Q3.
Great. Thank you.
Thank you and next we go into the line of Rich Anderson. Please go ahead.
Thanks, Good afternoon.
So I wanted to ask.
About the Amazon commentary, obviously selling to get your percentage down what is.
What's scary about 12% Amazon I mean, I can think of a lot worse tenants to be have a 12% exposure to.
Is that coming.
You know kind of in kind of of.
Who is driving that decision is it just the intuitive about your part of your of our participants and Duke Realty outside of you that you don't want to whether the rating agencies of I don't know who could be are sort of driving the decision to lose some of that concentration or <unk> or is it.
Just a natural observation on your part.
Well rich, it's Jim I'll start out and give you my perspective that can that can chime in I sleep very well at night with the amount of Amazon exposure, we have given there.
Credit profile of their and their growth.
But.
Part of it is is it.
Book from the rating agencies.
Managing that part of it is as Steve alluded to earlier, we are of very active development and leasing pipeline with Amazon.
The left unfettered that number is just going to continue to grow at a very very rapid.
Pace.
And what this guys are able to do is the detail to one of the earlier questions as you know.
Pull out the the.
The assets that have probably the lowest escalations.
In the markets, where we have.
The code so the least amount of upside so to speak.
And.
Select those for outright sales and some for the joint venture and some are in the infill markets. If we worked really really hard to get a hold up and those are incredibly valuable assets that we want to hold those for the long term so.
Thank you, yes, I think that's right and we're just we're trying to be prudent in our diversification of our overall portfolio in terms of assets geography and tenant exposure. So we're just trying to maintain a good balance.
Im just being debt, we're not because we're not afraid of it yes, Okay. And then the second question is perhaps a little of the somber one with the events in Indianapolis at the Fedex facility.
I just wonder if there is any response.
From the community of industrial real estate owners about enhanced security or anything I don't know what kind of really done but I'm just curious if there was any.
Necessary reaction on the part of not just you, but the your peers.
The average out.
I'll make a couple of high level comments I will tell you that the amount of interaction that our local operating teams have had with our tenants.
Starting well over a year ago is helping them manage COVID-19 protocols.
Enhancing.
The environment for the safety of their associates second the war.
That we've done with our own people in the development of our buildings because the number of people that we have on site. When we're building a building so those increased protocols.
And safety of general so I won't say that any of it is in reaction to horrible events like what we saw at the Fedex facility, but I will tell you the amount of interaction.
All of those subjects with our tenants has probably doubled today from what it was 18 months ago.
Okay, great. Thanks, very much everyone.
Thank you.
And once again, if you ask the question. Please press the one zero mix. We go into the line of Brian <unk>. Please go ahead.
Hey, great. Thanks, guys.
The prepared remarks, you made some comments on inventory to sales levels. So could you talk about how large of safety stock buffer might ultimately get built in.
Percent to 10% frequently thrown about just curious what you guys think.
Yes, I think well I would tell you we read the same research reports that you guys do.
The 5% to 10% seems to be what everyone talks about which translate somewhere in the neighborhood of 5 billion square feet of demand.
We see cases of it every day now we're talking to whether it's retailers ecommerce groups a lot of the <unk> activity.
Transportation costs are going to rise significantly.
With the new administration of a lot of things going on and I think youre going to see more distribution to offset transportation costs of our distribution points around the country to offset transportation costs.
We're seeing some of the production started to move back to North America, and Central America, which I think will lead to more suppliers meeting space here. So.
As Jim indicated a lot of tail winds that are that are back right now.
But I would just add.
One other point.
Even the EBIT the impact of the incident, the Suez Canal, and while that doesn't necessarily impact.
The logistics and shipping to the U S. It just reinforces the need for these major companies to have additional safety stock because of the vulnerability. We all have given the incidents that can happen anywhere in the book. So this is not of passing trend. This is something that we're going to deal with.
We're obviously very positive for our sector, but for the next two to three years.
Yes, Okay, and then just one other one on dispositions I know you already talked about pricing, but could you talk about buyer types on the market are you seeing anything interesting as far as like a shift in domestic versus international or investment firms versus peers on things like that.
Yes. This is Nick we have seen a change there obviously a lot of the normal usual SaaS backs, we see in that.
Of the bidder pools, but we've also seen a lot of.
New names pop up.
Some of them are high net worth family offices.
Several of them are sovereign based.
Spanish Latin America, or what have you.
Some of them are rotating or a lot of these of rotating out of other asset classes into our asset class. So there is there is an increased.
The Investor base, that's looking for these assets and these better pools for sure.
Okay, great. Thank you guys.
Thank you and next we go on to the line of Jason <unk>. Please go ahead.
Hey, good afternoon, guys just touching on one of the points I was just brought up so you talked about some of the repatriation of that could happen with manufacturing and production.
When people bring on some of that back of the United States. I guess is that activity picking up significantly or how has that been trending more recently.
Yes, Jason this is the theirs.
I think we're starting to see.
Starting to see some of that obviously that takes a long time. When you are talking about changing the production from from China to other locations.
But you're starting to see some headlines I know of Walmart had a recent announcement about.
Some of the production they are trying to bring back and it may not be manufactured of goods, but the way goods are assembled.
The way, they're packaged coming back re shoring, so I know northern Mexico, We don't we don't operate there, but obviously, our Texas folks on California folks deal with.
Goods coming in from there.
That activity has been pretty significant.
You talked to some of the folks in those markets on that activity starting to hit in Northern Mexico right now.
Alright. Thanks.
Yeah.
Thank you.
If there are any additional questions. Please price one zero.
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Thanks, Don I would like to thank everyone for joining the call today, we look forward of engaging with many of you throughout the rest of the year. Don you may disconnect the line.
Thank you Matt.
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