Q1 2021 WPT Industrial Real Estate Investment Trust Earnings Call
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Before we begin let me remind everyone that during this conference call management may make statements containing forward looking information. That's forward looking information is based on a number of assumptions and is subject to a number of known and unknown risks and uncertainties that could cause actual results to differ materially from those disclosed or implied.
We direct you to the company's earning release MD&A and other security filings for additional information about these assumptions risks and uncertainties.
I would now like to turn the meeting over to Mr. Scott Fredrik <unk>.
He's executive Officer. Please go ahead.
Thank you Betsy.
Morning, and thank you for joining us with me today on the Reid CEO and John <unk> CFO.
We dive into our detailed results I want it for about a few high level comments on the quarter in the U S industrial market more generally.
W. P. D produced solid quarterly results driven by robust operating activity meaningful progress on our capital recycling initiatives on our strengthened balance sheet.
The formation of our new stabilized joint venture demonstrates the reach ability to attract and expand our relationships with strong institutional capital partners and diversify our capital resources.
Read also continues to enhance its integrity and competitiveness of its business through expanded ESG initiatives. During the first quarter of the REIT established an ESG leadership team.
Continuing to integrate ESG into our investment and development strategies, including the pursuit of a LEED certification for.
For 2 million square feet of recently developed projects in California, Minnesota.
Texas, New Jersey and Arizona.
Fundamentals in the U S index industrial sector remain very strong and with our deepening global institutional capital partnerships and a growing pipeline of well located development projects, we're focused on leveraging the strength and experience of our platform for both long term value for our unit holders.
With that preview on I'll turn things over to Matt to discuss the real operating results from private capital activity.
Thanks, Scott and good morning, everyone I'll start with a quick update on rent collections Chew on rent collection rates were 99, 8% and we received over 99, 9% of contractual rents for April and 96, 9% So far for me.
This collection rates are consistent with last quarter and overall, our collection rates have remained virtually unchanged versus pre pandemic levels.
Instantly exceeding 99%.
Occupancy as of quarter end was 97, 6% with a portfolio weighted average remaining lease term of four one years.
Including recent leasing activity leased occupancy has increased to 99, 1% as of today.
And on the leasing front, the REIT had 67000 square feet of new leases and 553000 square feet of lease renewals commenced on the first quarter.
At least for Knowles commencing in the quarter had weighted average cash and straight line rent re leasing spreads of seven 1% and 14, 7% respectively.
We also signed 994000 square feet of lease renewals in the first quarter with weighted average cash on straight line rent re leasing spreads of five 3% and 11, 4% respectively.
Excluding tenants exercising fixed rate renewal options. The remaining 137000 square feet on lease renewals signed in the quarter had a weighted average cash on straight line rent re leasing spread of 10, 9% and 24% respectively.
Subsequent to quarter end, we signed another 412000 square feet of new leases and 38000 square feet on lease renewals at a weighted average cash on straight line rent re leasing spread of 28, 3% and 28, 2% respectively.
As of today, we have 596000 square feet of remaining 2021 explorations, which accounts for about two 2% on portfolio GLA.
On March 29th Street contributed 13 stabilized properties with a value of approximately 370 million into a newly established joint venture now Scott mentioned previously this new joint venture represents a meaningful expansion to our private capital assets under management and facilitates capital recycling out of select markets and Lara.
On single tenant properties, well, maintaining our existing operational scale.
Judd will touch on in more detail on a moment the transaction also strengthens our balance sheet by reducing leverage and bolstering liquidity, providing additional capacity to fund our growing development pipeline.
And as for the development pipeline, we have 13 projects at various stages on the development process totaling approximately $6 9 million square feet.
We're also currently in exclusive negotiations on three additional projects, representing approximately three and a half million square feet of future development.
Yeah.
We've also recently entered into full building leases.
For our private capital development projects, and Paris, California, Houston, Texas.
<unk>, New Jersey, and Eagan, Minnesota.
These new leases are comprised of over 1 million square feet of gross leasable area at least to a mix of high quality tenants with a weighted average lease term of eight years.
I'll now turn things over to John to provide more details on our financial results and capital recycling initiatives.
Thanks, Matt and good morning, everyone before I begin let me remind everyone that all figures today. All figures discussed today are stated in U S dollars.
Total investment property revenue for the quarter increased 46% year over year, primarily due to acquisitions additional contributions from increases in base rent.
The real also earn management fee revenue of approximately $8 $5 million due in court and we realized gross promote fees for $8 million.
Same property NOI growth was up two 5% for the quarter driven mainly by favorable re leasing spreads and contractual rent increases along with a <unk>, 8% decrease from same property occupancy.
G&A expenses for the quarter, excluding fair value adjustments and come on expense were approximately $3 eight.
Oh for unit was $29 eight up 62% compared to the same period in 2020.
<unk> per unit was $25 six that's up 87% over the same period last year on.
F F on Africa, all per unit for mainly impacted by 'twenty 'twenty acquisitions increases in base range and fee revenue and offset by a slight decrease in G&A.
At March 31, our balance sheet and liquidity position remains strong with cash on hand of $23 million remaining availability on the credit facility of approximately $149 million.
Since year end on debt to asset ratio decreased 400 basis points to 43, 1% for.
45, 1%, including our proportionate share of debt from our equity accounting for joint ventures.
As a result of a $370 million stabilized joint venture the REIT generated approximately $255 million from net proceeds which was used to delever the balance sheet upon closing.
We paid down $61 million in mortgages and $190 million on the revolving facility.
The REIT has no mortgages maturing in 2021, only $124 million on mortgage maturing in 2022.
Moving into the back half for the year free will continue to focus on capital recycling to further strengthen our balance sheet and create additional flexibility to allocate capital to higher return on investment opportunities to that end, we expect to close on an additional disposition prior to the end of the second quarter with expected proceeds from approximately 23 million.
Yeah.
With that I'll now turn things back to Scott to wrap up thanks, Chuck with our growing pipeline of opportunities in the rapidly accelerating fundamentals on U S. Industrial market, we remain optimistic about the long term success on outlook for our business.
Thanks for your time and attention. This morning, we'd now be pleased to answer any questions you may have.
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At this time, we will pause momentarily to assemble our roster.
Yeah.
The first question comes from Lorne Kalmar with TD Securities. Please go ahead.
Thanks, Good morning, everyone.
Just firstly on the developments on the on the new leases you guys were able to close in the quarter could.
Could you guys give a little color, maybe on rental rates and sort of where they were in relation to a pro forma rents.
Sure.
I'd say generally they exceeded pro forma gross and keep in mind on those on those for leases. We signed you know not all of those buildings or even complete yet the only one that's really a 100% complete today as the Paris, California asset and we've had debt and lease up for a while now but although it took a little longer than we anticipated originally to lease that building we ended up being.
Hit by a pitch of rapidly rising rates in that market. So we did quite a bit better on rent there.
On the Jordan Ranch in the Eagle facilities, we also exceeded where we expect it to be on a pro forma basis, but keep in mind those assets aren't going to be fully complete until Q3, and then the Mansfield asset that wont even be done until Q1 of 2022, but I think it's a testament to that market that we were able to lease that before we even started.
Vertical construction there, but in all cases to answer your question Barton, we exceeded pro forma growth.
Okay. That's good to hear and maybe just sticking with the theme here so with the Paris asset now leased and stabilized do you guys expect to bring that in sort of on the next couple of quarters and maybe just to add onto that with the other two being completed in Q3 should we expect those sort of into the towards the end of the year to be a blended in.
Yeah, Hey, Lorne I think we still.
First of I guess, the first part of that conversation for US really is to have the partner or partners affirmatively decided to exit and we're not there yet really on any of those projects. So I think that that becomes the first conversation and then the second one will become you know whether we want.
I want to bring in an incremental investment on those properties some of which we already have a co investment and so so it's early I think to the affirmatively signal when and if those will come in but certainly it's on on strategy for us to bring in incremental interest in those assets or outright.
Outright interest in those assets, if our partners are willing and interested in exiting.
And just following up would that be something that the emco core JV would be interested in that.
That's exactly right yeah that day, they really on many of them starting back from 2018 on the strategies remained relatively consistent I think we expect to have partners in two phases of these projects. The first phase being the development phase and then we expect to have one or more partners sticking around for a longer term hold the the core joined <unk>.
For the stabilized joint venture is really just an acceleration of that second phase of that JV partnerships.
Okay and then just one last quick one for me, let's say for you guys had kind of taken care of most of the 2021 expiries any updates on the 'twenty 'twenty two.
Expiries.
Yeah, we've made headway there as well on where we're chipping we've chipped away at a couple percent. There. So as we look at what remains I would say of the 20% or so that remains where in what we'll call active documentation with about 25% of that and that those are the ones that are.
Loaded towards the front end of the year. So the things that are a little later in the year. There's each day, we're in preliminary discussions and conversations with with those tenants in particular, the ones for bigger spaces, but nothing to really reported there other than conversations are commencing.
Okay. That's that's great to hear I'll turn it back thank you.
Yeah.
The next question comes from Gillian Chan with BMO. Please go ahead.
Hi, good morning.
With respect to the very strong leasing spreads are you know during the quarter and such as credit, particularly subsequent to quarter end could you maybe provide some additional color on that 20% are the primary driver of that and whether it's specific to a certain market or asset class sorry on naphtha.
Yeah, Yeah. So the private a couple of drivers bond there were just some big spreads from some smaller spaces, where we were able to push rents and that the cash spreads were just bigger and then the other phenomenon I think that it influences that is the biggest space in that cohort of renewals with a shorter term deal so kind of the.
Inverse of what we talked about last quarter in terms of conceding some some rent in favor of term in this case, we were pushing rents and conceding term.
On that that's really what's affecting that.
Those numbers and then with respect to the activity inside the quarter I think we tried to strip away. Then I think we alluded to this last quarter. We've got a few spaces on fixed renewal options that we don't really have an opportunity to reset rents or negotiate ran into that if you strip out that that's really the honeywell space that we've alluded.
Two in prior quarters, and if you strip that out that kind of gives you a sense of where where we were on the on the rest of those renewables, where we were actually negotiating right.
And that's just those are the numbers obviously.
Yes release that that's more of a turn in 'twenty.
Got it and I guess, yeah with respect to.
So I guess the rest of the remainder of the year finally kind of expect.
So very positive momentum with respect to leasing activity.
Yeah, we don't have I mean on what for what's left in 2021, I mean, we're really now down to less than 2% predominantly smaller spaces.
We don't have anything real material there theres two spaces of any real size. So and are in excess of 100000 square feet. We've got 150000 square feet in Los Angeles, and I think it's fair to say, we expect very strong momentum in that market and just based on where we're out quoting rates I think we expect to achieve.
Achieved significant growth there and the only other real large spaces of central Florida space on which is.
A december expiration and so we're just beginning to have discussions there. So a little early to report on exactly what the outcome will be there, but we're down to such a small denominator at this point theres nothing not much will move the dial.
Got it.
And I guess, just circling back touched upon the capital recycling I'm, sorry, I might have missed a day you mentioned about that about 23 million could you talk about that potentially further opportunity for years I E.
Identify within your portfolio right now.
Yeah. So this is so when we guided to capital recycling efforts for 2020 one day.
We were talking about $100 million to $200 million and we really checked that box with the Gorgon joint venture that we announced.
I think what you would expect the rest of the areas first of all that they'd be asset that we're selling that we expect to close this quarter is basically an exit from the Detroit market. So it's our only asset in Detroit, So we'll be completely out of that market and don't expect to reenter it going forward and then what would see the rest of the year might be some incremental pruning like that but are you at.
Point, no major capital recycling be on I'll call it layer and pruning as expected.
Got it.
And I guess what changed on the acquisition side of things are is it would it be fair to say that most of the activity will likely continue to do.
Watch for a development pipeline.
For for sure I mean.
Yeah, I mean, as we've said the U S. Industrial market has been pretty frothy and challenging for a couple of years now and notwithstanding that of course, we think we'd been scrappy and be able to source them off market and compelling opportunities and will continue to do that going forward, but.
For sure the the vast majority of our effort on capital will be.
Correct it toward our private capital platform in development, where we can generate outsized returns.
Yeah, Okay, and maybe just last one for me.
Oh, that's a cost inflation everywhere right now, but on the development side, then what did you say that you know that.
For the ongoing strong demand for the assets as well as on going cap rate compression out.
They're still at quite a healthy spread when it comes to here.
From their development projects.
I mean, what day clearly in some of the headlines you've been seeing or steel as you know the prices doubled and beyond the price increase in steel it's been difficult to get the good news for US is we've locked up or bought all the steel we need for everything that's in our currently being constructed portion of our private capital pipeline on the stuff that we're working on entitlements or.
Or in Preconstruction on we've built in pretty conservative assumptions on that cost line item and then of course lumber in land and in some of the other things that are driving into that increase in construction costs.
Or something everybody's contending with but I think the thing that's failing a lot of folks out is just continued cap rate compression, we're seeing on the market and in some markets. We're seeing five or 10 basis points a month of additional cap rate compression has really accelerated in 2021 and then of course for the rising rents that everybody's talking about as well. So you know so those are Michigan's too.
Those increases in construction costs on what I'm, saying.
Right Okay.
Okay. No. That's helpful. That's it for me I'll turn it back thanks.
Thanks.
The next question comes from Mike <unk> with guidance. Please go ahead.
Hi, good morning.
And Mike Congrats on the strong quarter.
Hum.
On I can't remember, what the Carson or pointed out on what you guys bought an asset it was.
Remember where.
This is will come off and that would be put into redevelopment.
For now.
The contribution to NOI this quarter and maybe have a better idea on when that comes off.
Hey, Mike, It's John it's up pretty well I don't have the number on top of my hand, but it's a pretty small number.
On the ideas that it'll probably come off my guesses in.
Either Q3 or Q4, when we get to the point, where when those leases expire and then two where we're ready to start for redevelopment.
Uh huh.
Alright, you guys went dark on me I don't know.
This call.
I can hear you can you hear us now.
I didn't hear a word dread set.
Alright.
Alright.
So no no problem I don't mind repeating myself stay the same Ah yeah. So I.
I don't have a number on the top of my head, but it's a it's a pretty small number.
The NOI contribution those leases run through some point and I believe Q3, and we will at that point, we expect to terminate them a.
And then.
And time to start for redevelopment part.
Okay, great. Thanks, and on the Detroit disposition is the $23 million is that net of debt or the asset unencumbered.
This is part of our unencumbered pool.
Okay, Great and can you give us a rough sense of the kind of free.
I mean, I guess I might be able to see it in your MD&A, but I'm not sure.
Yeah, I don't I don't have that for top my head on no matter Scott.
Yeah.
But if you stand yet, but we'll look back I'll get somebody to text me, while we're on the call on before we hang up the call day, what the Zip code.
Okay for us.
Just with respect to great success, you guys are having on the part of the capital.
On leasing in the kind of real platform.
Does that impact at all your range I didn't hear any comments on.
On the $10 million to $14 million of fee income this year or so.
So the range that we should be.
Yeah.
Based on where we are right now I think we're probably comfortable that's probably going to be towards the upper end of that range.
But well probably have more a better update next quarter. After we have some idea on.
How things progress over the next sort of 90 days.
Okay, Great and then last one for me just with respect to.
And for recent placement for years, and I guess movements in the yield curve. Your weighted average term of debt is fairly short for three years I think on both mortgage and on their side is.
Is that something you guys are looking at in terms of opportunities just from that out or just get some additional thoughts on your strategy there would be helpful.
I'm sorry.
Because I was reading the cap rate answer Mike and so sorry, you're going to have to repeat that question, but I, but I was reminded by our dispositions person that we are not going to disclose cap rate on that we've agreed between buyer and seller to not publicly disclose that and so I'm gonna have to Dodge on that one if I could get you to read our supply on the question that I'd appreciate it.
No problem no problem, but just your weighted average term on your debt.
Yeah.
It's about three years and just with the.
Inflation fears and perhaps movements, we've seen in the yield curve is there any opportunity to for them not out or is that not something you're undertaking at this point.
Well from most of our debt and disappoint like I said, we don't have anything that comes due in the next on the next year. We've got one small mortgage that comes through the year.
On the second half of 2022.
On the first big term term loans because June of 2023, that's already termed out and its hedged out we will continue to look at it we evaluate the debt strategy on a on a very regular basis seeing what we're seeing in the market.
It's something we're paying attention to but given the opportunities within our current debt portfolio I don't know if there is a.
There's not a lot we can do right now.
Given the way the way we've hedged.
Hedged everything and sort of lock things up for the next few years.
Got it okay.
Oh, that's going on there.
This is Mike.
The next question comes from him on soup Gupta from Scotiabank. Please go ahead.
Thank you and good morning.
So just wanted to 'twenty 'twenty two lease expiries are how much of them had six range, where the won the auction for.
But I'm just trying to see what could be the overall on the upside for pension on the renewals in 'twenty 'twenty two obviously it could be 'twenty one was it for me.
So on the deal.
Yeah, Yeah. It's other than you know you got call. It six on a half million feet or so I think we've got probably about a million feet of that debt would be on a fixed rate option structure and any when where and when it's this early it is a little hard to tell because it's often the case that someone wants to move outside the box of what has been established for AR.
The fixed rate option, where they want capital or where they want a modified term either longer or shorter. So oftentimes, we'll we'll break out of the box and not go the path of the fixed rate renewal, but I guess that maybe gives you a sense of what.
Could potentially go down that path and if it does I think it does trend a little more towards like what you see on Honeywell, which is looks more like an annual step than a market reset to something that's higher single digits or even low teens. It becomes more of a two or 3% type lift on that.
On the thing I'd add and Himanshu is that on Honeywell that was there last fixed rate renewal option. They have one more option to renew but it's at market. So we won't have to contend with out there.
Going forward.
Got it. Thank you thank you for that.
And then just turning to the development pipeline there.
On the other cheap on five minutes cool seats, Oh, developing pipeline all day negotiation.
So just wondering how competitive it is land acquisitions these days and any specific market share focusing on in terms of land acquisition.
Yeah, So I'd say that the land acquisition market is competitive for sure.
I'm, probably not as competitive as it is on the stabilized side because there arent as many people that have development capabilities in the organization and then there are people that have capital to deploy but it's still a competitive market and in that three and a half million square foot I'll call. It pipeline beyond what we disclosed in our deck, it's almost exclusively coastal.
It was supposed to start and then maybe the follow up is you know obviously you are looking at a coast to coast. So are you seeing continued at something like close to land acquisition. It wasn't a thing.
You know acquisition limits on towers, Nashville buckets like non coastal markets are you seeing a bit different state as well.
Well I mean every day I think I've said publicly before we're at a point in the cycle and with people being massively under allocated toward industrial than in my career I've never seen a tighter spread between a b and C quality assets on and it's probably the narrow spread I've ever seen between coastal and non coastal markets as well and so you know all.
The major markets are competitive.
But there's no question that the coastal markets are more competitive than the non coastal markets.
Oh, Okay. That's helpful.
And maybe the last question on the T Mo.
Lots of goodness in the industrial market, we looked at the.
He said on many transaction equity Commonwealth's I'm always acquisition on small amounts.
Any read through on the pricing for that portfolio versus your portfolio.
Well I don't I'm not going to comment on there was other than to say that they've got a pretty high concentration to fedex much much higher than we are but but look I think it's a testament to the strength of the industrial market when when that deal started in the activist investor put up on offer that was roughly a five cap I think most people thought that's where it would settle in.
And the idea that someone came in over the top of that and push that cap rate down meaningfully from there just shows you that there's a there's a big demand for industrial and especially industrial in scale and so that that should just be a continued a continuation on the thesis that debt just about everything in <unk>.
Australia is garnering a premium to NAV today's market.
Absolutely Kelly it on a lot of that.
Good day, it's helpful for new transactions in any.
Moving to in terms on the portfolio premiums being out there.
If you aggregate those size of portfolio is it like 50 basis points 100 basis point any sense on the books for the people.
I mean, there's no question that Theres, a portfolio premium and the better of the portfolio and in the more concentrated it is I guess two high barrier markets. The bigger the portfolio premium for sure and as you know I F. R. S doesn't allow companies to put a portfolio premium on their evaluation when they value their individual assets, but but that exist in the market.
I mean, the interesting thing about real estate is that no two pieces of real estate or the same right you've got different tendency in slightly different access on location and functionality and so you know every portfolio is different I'd say, but you're in the ZIP code of the portfolio of free minutes that I think we're all see.
Got it. Thank you. Thank you I was on hold them back.
Thank you.
The next question comes from Brad Sturges with Raymond James. Please go ahead.
Yeah.
Hi, there good morning.
Maybe just a follow up on him on to your questions there.
Obviously, it's.
It could be more market specific but how would you compare.
Acquisition pricing on a price per foot versus replacement cost a day given you know the valuation increases you've been seeing of late to start the year.
Yeah.
Think that debt.
Robert will be safe to say that if you put on market cap rate on a market rent that in many cases and in many markets you're going to end up over replacement cost, which is why a lot of the sophisticated U S. Players are favoring development today, because they'd rather build their way in and began at replacement costs and pay a premium to replacement cost but of course that varies.
Based on where your in place rents are interesting story on our parents asset and when we signed the lease there and and within weeks after that at least for aside we had brokers in the market is telling us that at least was already below market and it didn't take very long to get to that point and so you've got you've got rapidly accelerating range and a lot of the coastal markets you've got.
As we've talked about earlier rising construction cost and so I guess, it's a it's a race to the top between as rents rising construction cost rise you know they they're marching in lockstep with each other.
Okay.
And maybe just to circle back on the the leasing done on the in the private capital business just for my understanding you know on the promote fees, how does that revenue or the fee streams that recognizes that based on asset sale or a is that like occupancies stabilization, how does how do the mechanics work there.
Yeah. It will typically be based on a combination of those two things actually I mean, the the trigger is really stabilization. So once once you have occupancy than that and then it will begin the crystallization of those amounts and and then typically the actual payment of those pieces tied to some sort of a recapitalization or.
As you as you describe.
Okay.
Okay. That's great. Thanks, I'll turn it back.
But.
The next question comes from Hummingbird with RBC capital markets. Please go ahead.
Thanks, and good morning.
Just coming back to just the rising brands yeah.
Has your approach to leasing changed at all on terms of how you factor in.
Rather its rent steps for just the.
Our renewal rate going forward.
No go ahead.
Yeah, Hey for me.
It has changed and it certainly has changed maybe more dramatically depending on where we are in terms of market and I think I mean tactics being as simple and coastal markets, there's not even quoting a rent.
Are we where we see growth rates accelerating our expectations or even the brokers' expectations, everyone. I think is realize that you're better to keep the cards closer to the basket. There. So I mean, those those tactics have certainly changed and then you know as it relates to other markets.
Kind of depends on what the tenants specific story is there's a stickiness there we may be willing to hold out conversations on press because we feel like we have to wind at our back in terms of where.
Or where rates are trending and in some cases that leverage pushes more of a neutral where we see a bit more supply or optionality for a specific tenant in a specific market. So we're still tailoring the approach to individual market dynamics, but generally speaking I mean everything that we've been talking about on this call on everything you're hearing from other.
Or is it in terms of where where rates are going it certainly puts us in the driver's seat in terms of feeling like we can push rents or feeling like we've got leverage.
To push individuals' tendencies on even take vacancy if we need to if it if a tenant can't get to where we think we should be I think this is you know the difference in strategy for US certainly in this market has been.
To be willing.
Willing to take vacancy if we think we can get to a better place on a net effective basis, considering downtime on all the re tenanted costs that come with that.
Got it so it sounds like you know where you do have the opportunity you push for I guess more.
It steps in the right so over the term and where maybe there's potential losses, maybe just.
Yeah.
Yeah, that's yeah and that that is really the final piece I guess for the last part of your question, we certainly seeing stats trending higher than that and that's been a tactic that we've used in deals where there's some sticker shock in terms of the left or where rents have gone to even in a course of a negotiation and particular in lease up on a development project, where we've been able to compromise.
Put in some healthier steps in favor of starting at a starting point that is it a debt isn't quite as high and so youre seeing steps in these leases be three and even mid threes in some cases as opposed to two years ago, where we would have seen almost all of that activity and spread.
Annual steps in the twos. So there there is certainly a trend there and I think our tactic is to push.
On that annual step alongside with the rent in every case.
Got it and then Matt just going back to your comments on unused supply.
Are there some markets out there you know within the portfolio, where you're maybe getting on one of it are you on where some of those pressures might be a little bit more than others.
Yeah, and I think that I guess, we would we generally would describe most of our markets is still relatively in balance, but there are certainly pockets of softness I think everyone's been beating up on Houston.
We're seeing some of that softness in Houston and we you know we're we've got Ikea in that market for a million square feet and I think we're feeling confident that we're going to.
Exceed our underwriting expectations in terms of turning over that space. So that's a positive anecdote that maybe is a little bit divergent from what you're hearing others talk about Houston and then of course, we had on spec development project that we've leased in that market as well. So again call. It can cut the other way on but we're certainly seeing markets, where others talk about robust fundamentals.
And supply in check where we may have a particular building size or particular tenant debt is more exposed to to that supply or small pockets of supply. So there's still there's still some softness here or there I think that if we see any of it we see it in some of the larger spaces, where there's just been a lot more development, particularly in tier two.
Two markets of larger buildings, so if you're rolling a larger space and maybe a little bit more exposed to some of that supply pressure, but it hasn't been anything that's created significant concern on on any of the space. We're rolling for net for this year for next year, It's just something we're keeping an eye on.
Okay got it just.
Maybe last one for me just you know the private capital on our platform can you talk about maybe some of the conversations that you're having with other potential partners and the opportunities to.
To continue building out some some new relationships. There clearly this is not new but demand has obviously been shipped for the terms of the investment appetite. So I'm. Just curious you know is you know what I guess the growth on the platform could look like over the next few years.
Yeah. We've we've had no we've definitely had a number of inbounds from from.
Partners are future partners looking to deploy in the U S. Industrial on a particular into development. We've tried to keep things relatively simple on it we've probably made this comment in the past I think our our desire is to spend the maximum amount of time and attention on our business and a minimal amount of time on capital raising so the idea of diverse.
<unk> our partner base makes a lot of sense to us, but I think the goal is really a simple one which is we want to make sure. We have a source of capital to fund.
Everything we want to do so that there is an investment opportunity we want to make sure. Our capital sources are diversified enough to match fund any any of the opportunities we see in our pipeline, but I, but we don't necessarily want to over complicate the platform with too many partners that require complicated conflict management scenarios and comp.
Located disclosures and the like and then we morph into more of a fund manager I don't that's not our plan, but I think you will see over time I suspect us add a partner or two as the pipeline grows and as the opportunities that growth just to diversify and make sure. We've got enough capital to keep up with the the opportunity set that the pipeline presents.
But but I don't expect it to be a dramatic change it will be on incremental out of our partner here or there but.
To get to the root of your question I think all of that does mean, we do intend to scale the business and I think we see significant growth. If you look back at what we've been able to accomplish over the last year with the addition of a new partner, even really mid year theres been a dramatic impact on the pipeline and our ability to capitalize deals and lean in on some larger opportune.
<unk>, where are the capital allocation for a larger land position or a bigger deal may be challenging for a single investor, but even with two investors and then certainly three you've just got a potentially a larger appetite for some larger transactions bigger land assemblage is things like that so we're mindful of that and I think where we're trying to grow.
The partner base in lockstep with the opportunity set.
Got it sorry.
One more just on that point are you see you know you got good success with Canadian partners I'm, just curious is it.
Is that where a lot of the inbounds are coming from.
It's a mix I think there's I don't think it I, it's not unique to Canada or the U S.
In terms of the investor appetite for exposure to U S. Industrial on a particular higher return industrial development. There was a healthy wall on demand that's coming from you know, we're seeing European interest Australian interest Asia, I mean, it's not unique to North America, I mean, certainly we have capital relationships in our home market.
And in.
In terms of the Canadian market, but we're seeing in bounds and having discussions with groups that are much more diverse from a geographic standpoint.
Thanks, very much I'll turn it back.
Thank you.
As a reminder, if you have a question. Please press star then one to be joined into the queue.
The next question comes from Matt <unk> with National Bank. Please go ahead.
Hi, guys.
With regards to the supply end and underwriting assets would you say that there is a spread being incorporated into the pricing in those markets, where there is potentially more supply and then also on supply I mean I.
No there issues with infrastructure employment and a whole number of things like our are the nodes that you're in in these cities where supply is being added like connected kitchen supply being added can supply be added to those specific areas or is it being added more on the periphery at this point.
If I was gonna generalize I'd say that the titer of the market and the more barriers to entry in terms of entitlement. Some scarcity of land the tighter the spread typically is on over a stabilized cap rate for example on so if we were doing something.
As we do things in Southern California, and New Jersey in markets like that we don't expect the same spread that we do on a market that has less land constrained and there's a lot less barriers to entry.
But there's a lot less risk in some of those markets as well because of the to your question. The demand drivers are so strong I mean, you know we've got we've got markets like L. A county, where the vacancy rate is 1% and so.
The lease up lift on on stable on air and once you build on asset and stabilize it is just not as great as it could be on some of those other markets and so it's all about risk and return on.
But across the globe as you've seen I mean, we've had we had a record year of absorption last year on the in the fourth quarter. There was 116 million feet of absorption and then in Q1, we had about 100 million feet. So those are two of the best quarters in an industrial history back to back in terms of absorption and so although there is.
You know 300 plus million square feet of new supply is slated for the coming year. The absorptions really been strong and so is that the market continues to perform well, which is why we're successful in leasing a lot of our buildings that we're building on a speculative basis before the vertical construction even starts.
Sure that makes sense and then jud.
I feel like I asked this every.
Every quarter, but they'll probably continue to because it's important for our modeling but if.
If I had to run sort of G&A and other income excluding any promotes are what would be a good run rate for each of those and then also with regards to free rent and straight line rent. If you could provide some color on a run rate there as well.
For certain G&A I think we're still pretty comfortable with what we've said previously on everything you know, while there's a little bit on lumpiness from the first and fourth quarter, where they're a little higher in to Q2 and Q3, a little lower as you know on three and a half per quarter is probably a decent number excluding the promote expense and a fair value adjustment that occurred for our deferred comp plan.
<unk>.
As it relates to sort of free rent I think we're still on what we're seeing in our portfolio right now is now and.
And maybe as low as well.
100, $150000 on a corner and it may trend up to maybe 500000 point, we're seeing right now in at $300000 number three to four is probably a good number.
Right now for what we're seeing in our portfolio that we have already sort of locked up and what we think the near term is on that regard we haven't like on the P. P. A we haven't given a lot of additional guidance on that besides the sort of what the total looks like for the year. I think you can look at where we were this quarter end.
There were there was some construct for management fees, but not a lot of card JV closed towards the end of the quarter and so I mean, I think there'll be some movement in the next couple of quarters there it's not on.
Hum.
And you think debt will be toward that like I said on the top end of our overall range and so you can kind of interpolate from that if we were at 8 million eight and a half volume from the first corner on it means we've got somewhere probably at least a couple of million over the next.
Three quarters and could be as much as five to six okay.
Are you. So your comment there about the the JV for the 378000 of asset management fees. In Q1 would include a very small portion of what you'd potentially.
On that from a JV standpoint, it would would that fall into asset management fees in terms of the accounting.
Yeah, Yeah, we had I think two days for three days.
For the carpeting and wall on the full corner in in Q2, Okay.
Okay perfect. Thanks, guys I appreciate it.
It's Matt.
Okay.
This concludes our question and answer session I would like this on the conference back over to Scott Fredrickson for any closing remarks.
Thanks, Betsy and thanks again for everyone for tuning in and listening. We appreciate your interest in W. P. T industrial REIT and if you have any questions feel free to call any of us at anytime. Thanks again.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.