Q2 2021 Indus Realty Trust Inc Earnings Call
Good morning, and welcome to Index Realty Trust's 2021 second quarter earnings Conference call. This call will be followed by a question and answer session. You may add yourself into the queue for questions during anytime over the course of the call by dialing star 1 on your keypad. Please note also that today's event is being.
Recorded it is now my pleasure to turn the program over to Ashley Pizzo, Vice President of capital markets and Investor Relations at Index.
Thank you and good morning, everyone welcome to our second quarter 2021 earnings call.
In addition to regularly available earnings materials and this has also published a supplemental presentation, which is available on our website at Www Dot index, Archie Dot com under the investors tab.
I'd also like to mention that this conference call will contain forward looking statements under federal Securities laws. These statements are based on current expectations estimates and projections as well as management's beliefs and assumptions forward looking statements are not guarantees of performance and actual operating results may be affected by a variety of factors.
Are those factors free please refer to the risks listed in our most recent 10-K filing for the fiscal year ending November 32020.
Additionally, our second quarter results press release, and supplemental presentation contain additional financial measures such as N O I F. F. L. On EBITDA for real estate that are all non-GAAP financial measures in.
In accordance with regulation G and item 10 E of regulation S. K, we have provided a reconciliation to those measures.
Also please note that on this call when we refer to occupancy statistics square footage and NOI and same property NOI metrics. These are afraid of our industrial logistics portfolio only unless otherwise specified.
This morning, we'll hear from Michael games on our CEO, who will cover recent activity market conditions and updates on our pipeline. We will also hear from Anthony <unk>, Our CFO, who will cover the second quarter results in detail. After their prepared remarks, we'll be opening it up to your questions with that I'll turn the call over to Michael Michael will you. Please begin.
Thank you Ashley good morning, and thank you all for your continued interest in Indias the.
The industrial sector continued to perform exceptionally well during the quarter reports from the major brokerage firms indicates strong rent growth and absorption national vacancy at 4% demand exceeding new supply and record values for industrial and logistics properties within this environment, we maintained our strong operating performance.
<unk> increased our access to additional capital and accelerated our growth initiatives.
As a testament to tenant demand and the quality of our properties are in service stabilized portfolio. Currently is $99.4 per cent leased.
For the entire in service portfolio, we are 95, 3% leased which which reflects the addition of mm 395000 square foot, 50% leased acquisition in Charlotte, which I'll speak about a bit more later.
We see strong tenant demand and increasing rental rates across all of our markets. We are making very good progress on our upcoming rent roll as existing tenants realize that there are a few to no available options and that rents continue to go up.
There are only 2 lease expirations remaining in 2021.108000 square foot space in Charlotte and a 57000 square foot space in Connecticut with exploration scheduled for November and December of this year.
We currently are in negotiations with both tenants in those spaces regarding lease extensions and we have begun to address our 2022 explorations.
In terms of capital, we recently entered into an agreement for a new revolving credit facility for up to $100 million with a group of new lenders led by J P. Morgan and Citigroup, who are joined by BMO Keybanc at Morgan Stanley.
This new facility doubles the availability, we previously had and provides a materially lower cost of debt for the future.
We appreciate the commitment and support from our new lenders and we see this as an important next step in transitioning our balance sheet and adding to our financial flexibility to support future growth.
So far this year, we're very pleased with our efforts to execute on our investment strategy and create value by finding high quality properties in our targeted high growth supply constrained markets.
Since our last call we've added 3 new properties to our portfolio, including 1 we closed on last week. In addition to announcing last night that we have a 2 property portfolio in Nashville under agreement and added a project in the Lehigh Valley to our development pipeline.
Touching on the completed acquisitions first we closed on the 127000 square foot fully leased building in the Lehigh Valley, which I described on our last earnings call.
The Lehigh Valley remains a top performing tier 1 industrial market and this property. We believe has significant long term value creation potential from the current well below market rent and excess land on the site.
Our second acquisition, which closed at the very end of the quarter is it 50 per cent leased recently delivered 3 on.
95000 square foot warehouse in the airport Submarket of Charlotte.
We source this opportunity off market and believe we will create value through the lease up on the vacancy.
This building is in a market experiencing good absorption and poised for strong rent growth is there are very few future development opportunities inside the major beltway around Charlotte.
And we believe this site is an increasingly valuable location due to its essentially traffic free access to key highway interchange located adjacent to the Charlotte Airport.
So far we are pleased with the tenant activity on the vacant space and believe we are close to an agreement for a tenant to take the balance of this space on.
On the terms of the deal if this lease gets executed we would exceed our initial underwriting.
We closed last week on a 140000 square foot modern fully leased building in Lakeland, Florida.
Acquisition grows our presence in central Florida and is located along the important I 4 corridor that connects Tampa and Orlando.
We remain very bullish on the demographic and economic trends in Central Florida, and believe this building's location size fit well with market demand.
The existing leases for both tenants the largest of which was executed 8 years ago, where stroke is fairly cheap as is deals with no tenant improvements funded by the landlord.
As a result, the current tenants are paying below market rents. We expect there will be significant mark to market rent adjustments from both tenant's lease expirations, which have a weighted average lease term of about 2 and a half years.
Additionally, the tenant in more than 75 per cent of the building is very sticky given their large investment in the space and the property is mission critical use for its customers.
Lastly, we're very excited to enter the Nashville market with a forward purchase of 2 under construction buildings totaling 184000 square feet.
Nashville fits squarely within our strategy of high demographic and economic growth markets with significant barriers to new development and that can serve as local regional multimarket distribution needs.
The development is located close to major U P S and Fedex facilities and it is 1 of the few new infill facilities located in close proximity to downtown Nashville with excellent connectivity to the major regional interest interstates.
The buildings, which we sourced off market or being developed on spec and I expect it to be completed by year end, we feel very good about the future opportunities to lease them, noting the very strong absorption and rent growth at the national market has recently experienced.
And all these acquisitions will utilize the $103 million of capital into what we believe are great buildings in great locations and in markets with strong long term fundamentals.
We also added 1 new project to our development pipeline with an agreement to purchase a 10.6 acre parcel of land in the Lehigh Valley that will support the development of a 90000 square foot building.
This land site, which was not widely marketed is located close to the similarly sized chatman drove building we have under construction.
Chapman's remains about 4 months from completion, we have seen strong tenant interest and meaningful increases in market asking rents, giving us further confidence in the success of this new project, assuming we satisfactorily complete our due diligence and receive the necessary entitlements.
We are very excited by the prospect of growing our presence in the Lehigh Valley, which continues to be a high performing logistics market.
I think these acquisitions, along with our development pipeline showcase our ability to invest and add value across the spectrum of acquisitions raw land forward purchases value add properties and traditional core stabilized buildings.
I'll keep my remarks on the balance of the development pipeline brief but in terms of construction as has been widely reported there remains continued challenges with the availability of certain key construction inputs, notably steel bar choice, where lead times are now up to 8 to 10 months versus 3 to 4 months during normal conditions.
If certain other components also remain elevated.
Or market rents have continued to increase and cap rates have compressed materially which results in our estimated development yields remaining relatively stable and development margin is increasing.
The development pipeline table on the supplement is updated to reflect our best estimates of these impacts.
In terms of specific projects or build to suit for Amazon in Charlotte remains on track to deliver by the end of the third quarter.
We have a construction loan in place at a favorable interest rate for this project and we began our initial draw down subsequent to the end of the second quarter.
The other projects, we have under construction on the chat Metro project I mentioned earlier and the 234000 square foot 67 per cent pre leased warehouse in Connecticut, which is expected to deliver by the end of the second quarter of 2022.
We currently are waiting for a building permit for 195000 square foot 2 building spec development in Orlando, formerly known as Jetport, but now called Landstar Logistics Center, which we hope to commence in the near future to take advantage of the strong demand in that market.
I would note that has been reported by brokers that a developer put a nearby land site under agreement in Orlando at a price, 75% higher per buildable square foot than what we paid for the land for Landstar project, which we tied up just 1 year ago on closed on this past quarter.
All in our development pipeline, the recently closed acquisition and Lakeland and the forward Nashville portfolio mentioned, a moment ago will add over 1.1 million square feet towards June 30th existing square footage. This.
This will bring our portfolio to over $5.8 million square feet, which is a growth rate of nearly 40% from where we ended fiscal 2020.
Switching to dispositions, we remain focused on our efforts to monetize our noncore assets.
Pleased to have 41 million in dispositions under agreement today.
As can happen during due diligence a couple of deals dropped off our disposition list.
As an offset we added the disposition of our Connecticut nursery farm, which is currently leased to a nursery operator to our pipeline.
Vishal is expected to generate proceeds of $10.3 million by year end.
Lastly, I wanted to mention that we have updated the corporate governance section of our website to include several new policies and initiatives we've implemented on the ESG front.
We have a number of additional projects in the works and we look forward to sharing our progress with you.
With that I'll turn it over to Anthony for the financial review.
Thanks, Michael.
Our cash NOI was $6.1 million for the second quarter up 12, 2% from last year's second quarter cash.
Cash NOI benefited from lease up over the past year, a first and generate second generation space increases in rental rates and to a lesser extent. The buildings acquired this quarter, we expect more significant growth on our NOI and cash NOI in the second half of this year as a number of new leases, our first generation space signed late last year.
Early this year and the Charlotte build to suit from Amazon will commence over the next 2 quarters and we will receive full quarters of benefits from the acquisitions that have already closed this year.
Yeah.
Now turning to the same 2 cash same property NOI, the 2021 second quarter and 6 month period.
Growth in cash same property NOI was 10, 7% and 11, 5% respectively versus the fiscal 2022nd quarter and 6 month period.
Our cash same property NOI for the 2020, 1 second quarter benefited most from the leasing activity and burn off of free rent on first generation space at previously delivered spec buildings in Lehigh Valley in Charlotte that entered the same store pool this period.
We also benefited to a lesser extent from the leasing and burn off of free rent periods, and second quarter and second generation space as well as from annual rent Escalations in the portfolio.
I would also note that between Q1.2021 in Q2.2021, we have changed the same store pool to include 160 on 180 International. These assets were not included in the pool during the first quarter reporting and I provided some incremental benefit in this quarters same property NOI growth percentages.
For comparability purposes.
If we were to strip those assets out in the quarter and 6 months ending June 30th.
Our June 30 period, our cash same property NOI growth would have been.
6.8% from Q2.2021 over Q2.2020 as compared to 10, 7% reported with the inclusion of these properties and 7.2% for the 6 months ending June 32021, while the June 30th 2020, as compared to 11, 5% with the inclusion on these properties.
Looking forward, we note the potential for Lumpiness in our quarterly same property NOI metrics and strong occupancy levels. We reported for the past few quarters will lead to tough comparisons later this year and next.
Next I want to mentioned core <unk>, which was up $243000 in the second quarter of 2021 over 2020 at Threep at 3.3 million as the growth in NOI was partially offset by increases in G&A expenses, which I'll describe.
More on a minute.
Cash car, Epiphone, which removes the impact of noncash items, such as non cash rents and non cash compensation was $3.3 million in the second quarter of 2021 as compared to $2.9 million in the same period in 2020.
As it relates to a F F O on maintenance capital expenditures on leasing costs for second generation space with $450000 on the quarter, which is somewhat low due to the fact that excluding first generation space or recent acquisitions. There have been few new leases as our existing portfolio.
Have you made nearly fully occupied for a few quarters.
Maintenance Capex is back end weighted this year and we expect this number to increase as we undertake certain projects, including $1.3 million in roof replacements at 2 of our warehouses.
Overtime, we expect the combination of our second generation leasing cost and maintenance capex to be in line. The degree C averages of approximately 15% of NOI.
Don't want to G&A.
General and administrative expenses increased to approximately $2.7 million into fiscal 2021 second quarter up from $2.4 million in the 2022nd quarter.
The biggest increases were in cash compensation expenses.
Tied to additional 2 types of adding new head count since last year public company expenses and holding costs on undeveloped land, which reflected a 1 time expense for the rule of bonds on on certain passes on that land.
These increases were partially offset by a decrease in REIT conversion costs.
After adjusting for REIT conversion costs and noncash compensation expense, the majority of which relates to our nonqualified deferred comp plan, which I described on the call last quarter.
Justice cash G&A this quarter was approximately $2.1 million.
Through the first quarter of this year adjusted cash.
G&A declined approximately $240000 from $2.4 million.
This decrease was driven by lower public company expenses in Q2 versus Q1 due to timing of audit fees and tax preparation charges in Q1, and lower leasing legal expense in Q2 versus Q1, which falls on their other G&A.
Partially offsetting this increase was a sequential increase in additional compensation expense related to the hiring of a general counsel in April, which I, which as I described last quarter, we believe will lower our legal cost versus using outside firms, noting that we could previously capitalized those third party costs.
Actually this quarter, we incurred the 1 time costs under your belt on the undeveloped land that I mentioned before.
Looking ahead as I mentioned last quarter, we are undertaking an upgrade of our accounting and now your systems to better prepare us for growth in the future.
We have just begun on work unexpected cost on the implementation to be approximately $800000 spread over the next few quarters.
We expect a significant portion of these costs to be capitalized those some of the costs will throw will flow through our G&A line.
Additionally, we expect to hire a few more employees over the next couple of quarters in the acquisitions and finance areas, though these hires likely will be any more junior levels in recent hires.
Overall, we expect our G&A and adjusted cash G&A expense for the balance of 2021.2 on slightly above the 2021 first half level.
As we described last quarter, the nonqualified deferred comp plan is tied to stock market performance and it's difficult to forecast.
Moving on to dispositions as Michael mentioned, we have the Connecticut nursery from under agreement for approximately $10.3 million.
Unlike most other land sales. This property has a lease in place with a nursery operate now.
This lease generates approximately $700000 on annual GAAP and cash on Hawaii, which is not included in the industrial logistics NOI I mentioned that I touched on earlier.
This nursery farm sale combined with our previously announced sale of the Connecticut Industrial building at 1985, Lulu Avenue, which remains a due diligence will generate over $28 million on proceeds if both are completed.
These sales will reduce our GAAP and cash NOI by $1.8 million and $2 million respectively.
As a reminder, the Blue Hills Avenue building has a mortgage of approximately $5 million at a 5 point O 9% interest rate that will get repaid at closing.
Lastly, subsequent to the end of the second quarter the potential buyer of a 3 office.
3 office properties that we had under agreement decided not to proceed we're continuing to seek to sell all or a portion of these assets.
I'll now trying to on balance sheet.
As Michael touched on earlier last year, we entered into an agreement for a new revolving credit facility from.
The 100 million, which doubles the availability, we had under our previous facilities.
The new facility is priced using a pricing, which based on our current leverage would be at LIBOR, plus 120 basis points, which is a decrease of 1 day 30 basis points from the cheaper of our 2 previous revolving credit facilities.
The new credit facility will mature on August 2024, with 2.1 year extensions at our option that could take the facility out to August 2026.
The facility also has an accordion feature which will allow us to increase the borrowing capacity up to $250 million if needed.
In the second quarter, we also entered into a $28 million construction loans with J P. Morgan.
The development of the Amazon built to suit from Charlotte.
We began to draw down on the loans subsequent to the end of the second quarter and expect it to be fully utilized upon the project's completion later this year.
Lastly, I'll wrap up by just briefly touching on our leverage at the end of the second quarter. Our debt net of cash was approximately $94 million. Our net debt to total enterprise value is approximately 16% and total debt to debt plus equity market capitalization was 24% as of the end of the quarter.
As he mentioned in the past, we expect to continue to deploy our cash into developments and acquisitions to help grow our EBITDA and unencumbered asset pool and target traditional leverage metrics to get closer to a peer levels over time.
In terms of liquidity as of June 32021, we had approximately $66.2 million.
And assuming the full borrowing amount available on the new credit facility offset by cash spend on the Lakeland acquisition, and excluding construction loans, which will fund the balance of the Amazon on build to suit who would have nearly a $150 million of liquidity.
This amount on approaches from distributions just under agreement.
However, our liquidity we used to fund the Nashville acquisition, Michael described I'm going spec development projects and future acquisitions with that I'll now turn it back over to Michael.
Thank you Anthony.
I'm excited about what we've accomplished on the first half of this year and we are already off to a great start for the second half we have a high quality portfolio located strongly performing market in the industry with long term secular tailwind.
Despite this we believe our current stock price is well below our net asset value and we are committed to continue to work to close that gap and ensure that we deliver a strong return to shareholders.
Moving onto questions I want to thank the team at index for their continued efforts and contributions to our success.
I also wanted to take a moment to speak about 1 employee in particular.
Anthony it's been our CFO since our spin off in 1997, and I want to thank him for his exceptional leadership and dedication to the company during his tenure.
Anthony who will be retiring as and this is CFO at the end of this year and we recently announced that John Clark the former CFO of Gramercy property Trust will be joining our team in September to assist with the transition but form it before assuming the CFO role in January of 'twenty 'twenty 2.
Well no 1 can replace Anthony and his contributions to our company. We are confident that John brings a wealth of financial and operational experience to our executive leadership team and look forward to having him join us.
With that I'll turn it back over to the operator to take your questions.
We will now begin the question and answer session to.
To ask a question you May press Star then 1 on day Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then 2.
And the first question comes from Manny Korchman with Citi. Please go ahead.
Hey, good morning, everyone I'm, Michael obviously, the AR acquisition markets are competitive how did you think about that as you enter new market and paid what seems like a pretty full cap rate and a lot of the deals you did.
Yeah, I think it's it's a good question and clearly markets are competitive, but I think.
We think about this as tying it to our strategy and.
With our strategy, we're very focused on selective.
Yeah, we seek markets like Nashville.
Where we do supply in good locations are going to be very limited and population and economic growth are expected to be above national national averages and then within that we seek buildings, where we see potential for upside like for example, 1 of the acquisitions, we did in Lakeland, where we can see below market rents or flexible site plans, where we can add.
With expansions are improvements over time like in the Lehigh Valley acquisition. We think these factors help lead to better yields and returns over time and.
And as we've talked about our strategy of owning a portfolio of assets in a market, which can include a variety of core value add and development opportunities and that's the strategy executed.
Right value.
I think when you look at returns it's more than just the initial cap rate that's kind of the easy quick calculation.
But we look out over a long term longer term horizon and really focus on what yields and returns we expect over say 10 years.
And so with that we look at locations, where we do think theres going to be meaningful rent growth and limited new competition, that's going to lead to better returns and higher in place cap rates, creating more value.
And secondly, what we look for is as you know good quality kind of traditional warehouse buildings, not specialized footprint et cetera, but at the same time, we look for opportunities where tenants have invested a lot of money in their own space and so it becomes irreplaceable to them or to their customers and with that you get a really strong.
<unk> tenant.
Reduces the likelihood of future costs for tenant improvements and downtime and we factor that into how we buy buildings and so we think we're buying these buildings at what we think are attractive cap rates at margins.
You know that are above kind of creating good margins at or above the market cap rates and what's that we throw in all the development, we're doing which is a significant part of our growth in those yields are typically above.
We're where we are.
Thanks, and just can you remind us how many markets do you like to be in on what those target markets are and maybe in that same vein, how big could we expect a market like Nashville to get for you guys.
Yeah, I think what we've said in the past is our goal as you know we're in 4 and that will be in 5 and we've kind of lump central Florida together as 1 market I think our goal is to be say in 8 over the next couple of years. We think that's a really good number does it grow a little more is it a little less and then when we look at a market and to enter a market the goal.
It is that we can grow to at least a million square feet.
Buying the types of assets, we want which are that 75000 to 400000 square foot built buildings. So as we looked at Nashville. The thinking was we can start with 1 acquisition that hopefully has done in the past for us lead to other opportunities both land for development and acquisitions and grow that to over a million square feet at a mill.
Hmm.
And maybe 1 last 1 from me.
I can't remember, which 1 of you, but someone mentioned the big discount to NAV.
How does that influence your decision to make or tissue equity going forward you filed a shelf likely to file on the ATM I would assume at some point.
So if you're trading at a big discount or you still interest in issuing equity here.
Or if not how do you fund the growth that you see on the horizon.
Yeah. So I think for today, we have significant excess capital our dry powder to fund what's in our pipeline and future acquisitions, I think Anthony called out that you know $150 million of availability and.
And liquidity.
As you mentioned, we do have this credit line that provides a fairly cheap cost of debt and we're going to continue to sell the non nonindustrial assets non core assets and redeploy those which also provide us good capital for investment on assets that are typically not value at the same way industrial assets are yeah, we do recognize our stock trade significantly below N V and 1 day.
Look at today's cap rates across the markets.
That we're in and what I'd say to that is look we have a number of significant stakeholders, including management, who are very focused on creating shareholder value. We.
We believe our stock is trading creates the opportunity for outsized returns for investors.
We don't see any long term reasons for why this discount should persist given the quality of our properties in the markets. We're in and I think we and our major shareholders are aligned and that we're determined to really close this gap over time.
And we think if we execute on the strategy, we have outlined and gain scale in in this highly valued industry through acquisitions development and other things we're doing that we're going to create a lot of value in that GAAP is going to close.
Thanks, everyone.
The next question comes from Tom Catherine Wood with BTG. Please go ahead.
Thanks, and good morning, everyone I'm, Michael just wanted to go back to the natural acquisition. Thanks for providing some details on it but when we think about it you guys at least say you wouldn't buy a building that you wouldn't book.
And in this case, it's a merchant builder spec project.
So how did you get comfortable with the quality and kind of the physicality of the building matching and this is requirements given that the prices roughly 171 on a square foot or are there any unique features that could really drive lease up on rents for you.
Yeah happy to answer on that thanks, Tom.
1 this is a merchant builder, that's that's a fairly sizable 1 that has a terrific reputation for building really high quality.
Industrial properties, Yeah that said, we don't obviously just diligence the reputation of the build there. So as you noted anything we buy something we feel something we would've built ourselves and so the site plan. We think is a great site plan for this location within the Nashville market and importantly, you know where.
I mean through the building specs, how they built the building.
The flow of ratings the type of.
Caulking and finishes, they're using or are the details our construction and development team go into.
So we're going to be very confident if we're going to buy a building that someone else is building that it's it's as of the quality and type that we would want otherwise we just wouldn't do it.
In terms of this building on the price I think this is what we've tried to express in the releases. This we think is a really uniquely positioned and located asset within the Nashville market, you're stepping back for a second on Nashville, I think on that.
The brokers reports have noted the Nashville experienced 15% rent growth over the past year.
It's a market where supply close into Nashville, new supply is almost nonexistent. There just isn't anything to develop you know Nashville is the city is doing really well.
And therefore, both office and residential growth keeps creeping outside of downtown which is actually usurping former industrial infill and close in industrial as an example on Oracle the Big Tech Company is building a very big campus on the northern side of downtown Nashville, as part of what they're doing is.
They actually bought land, where there's 800000 square feet of infill industrial that's gonna get demolished to say, we the building. We're looking we're seeking to buy is located 5 miles north of that so it's very close to Nashville.
Very close infill, there's nothing else at the moment being developed in that area on entitlements are very hard to get there. So it's a it's a unique we think high barrier location with an infill type location, that's going to generate well above market rents you know the location is right next to a big EPS and another Fedex facility it's right.
Off the main ring road that goes around Nashville, but also has great access to the highways and as I mentioned 4 to 5 miles to downtown. We just think this is location, it's gonna be hard for anyone to get again, and we think the rent growth rent rental rates on rent growth is going to be quite strong in this location.
Thanks, Michael appreciate that.
You also mentioned the exploration is the 2 left from 2021 and it sounds like you're on top of those as we look into 2022.
It's a kind of above average year on the industrial side, you know nearly 15% of industrial ABR Rolling though it does look like the average rent is kind of below below market.
I know, it's early but do you have a general sense or where some general expectations on renewals next year or mark to market next year on are there any kind of large move outs that you are already aware of.
Yeah, and I think I'll comment generally and then I'll talk about the specifics, but what's interesting in the market as I mentioned in my comments.
Is a lot of tenants come up for renewal and they seem to get on.
Combination of a little bit of sticker shock is relative obviously moved up in lots of markets.
And to still post kind of Covid and in all of last year company's plans are a little bit influx on meet a lot more space than they thought they did some might need less space or they're adding locations elsewhere.
Volume with a very tight market for supply on what's happened is a number of tenants and frankly, but you know 1 of the ones that's coming up at the end of this year.
They initially delayed their renewal decision.
Because it couldn't figure out exactly what they needed and so therefore, they were sort of out of whatever contractual renewal right they had and.
And frankly, if they go search the market 1 of the case of the tenants for this year. For example, they actually came back initially wanted to shrink their space wanted it fairly short term deal and wanted you know not to pay a big increase in rent.
A table that deal.
They went out to the market and I should add that tenant here its a large global company, which lot with lots of industrial space around the country and around the world. So not just a small tenant.
They basically came back and asked.
Asked us if they if if what deal they could do and frankly, we ended up with higher rent.
Effectively no downtime no free rent and minimal Ti and that's a deal we think we have in.
In place today, so it's kind of worked against tenants to delay their renewals, but frankly as a landlord given the strength of the market. It's actually been helpful. As rents have continued to go up.
As we look to next year, there's a couple of different sort of chunkier renewals I, probably on let's start with the last 1 which is we announced we bought that building on Lehigh Valley, you know that added 130000 square feet to the 'twenty 'twenty 2 plan that 1 comes up at the end of the year I think as we expressed when we bought the building.
The tenant has significant investment in the space and they're paying extremely below market rent.
Yeah, so and they have kind of a set renewal schedule. So we think it's very likely for example that they're going to renew because it's very sticky tenant.
What are the other renewals is the tenant we're doing the build to suit I mean, the pre leasing, Connecticut for they're going to need to overlap in that space for quite a wireless they bring the other building up to speed. So we do think they're going to leave but probably pushing out potentially that renewal.
We do have a larger 1 in the Lehigh Valley.
Again that once towards the end of the year, yeah that tenant similar to the 1 I described at the beginning was look is looking for potentially a shorter term renewal. It's 1 again, we're sort of.
Let them play out a little longer frankly, because of the strong absorption and rent growth in that market and the lack of availability of other options, we think that'll turn out in our favor.
We have 1 kind of 90000 foot renewal, we think is out for signature and next year and then 1 that I'll show you a 127000 feet that comes up in the first part of next year. The tenant has 6 months to give us notice so that hasn't happened yet.
Early indications are they kind of do a renewal they have a renewal right for kind of a 1 year renewal based on our historical deal. We had said a couple.
Several years ago, they've been in the building for quite a long time.
And that kind of covers the spectrum of renewals. So nothing we know of yet that's going to move out other than a very small.
1 or 2 very small tenants that possibly move out in the early part of next year.
But in all the markets as we expressed we're seeing good rent growth and good demand in tight markets that we feel pretty optimistic about next year is our rent roll.
Understood. Thank you so much Michael that's it from me.
Okay.
Again, if you would like to ask a question Press Star then 1 to join the queue. The next question comes from Dave Rodgers with Baird. Please go ahead.
Yeah. Good morning, everybody. Thanks for all the color Michael I wanted to ask you about maybe the backlog of more acquisition or pipeline activity, you've clearly built that nicely since the recapitalization, but I guess is what you're seeing today continue to build strength is there a pipeline beyond the large number of deals that you've announced and give us some color on how and what.
That looks like.
Yeah. So we're you know we're always in the market and the markets. We're in are markets you want to be in looking at opportunities. We're bolstering our our team to do that.
Yeah, we haven't really given out specific pipeline numbers per se I mean, we have talked about as we kind of mature and and grow as a company is something we'll start to produce.
We remain active but as I said, we're very focused in and and you know again I think our goal is when we look at something and our goal is to kind of on it and win it.
If it's a process or seek it off market and what we're seeing is a good blend of some off market opportunities to just our certain unique opportunities with certain sellers and certain relationships, where they don't want to go through a process and so in our current markets, we're seeing a number of opportunities there.
On both for buildings and for land I think as we've described in the past land sellers tip.
Typically.
<unk> will be a little bit more focused on who they're selling to you as opposed to just getting the highest price given theres an entitlement another process and that's where we think we've we've done really well.
There's 1 or 2 new markets. We continue to look at where we're looking at properties, both on and off market.
We think forward forward purchases like like the Nashville, 1 or a good opportunity for us we're typically.
The yields are going to be higher than buying an existing building you know a little bit lower than development, but we're not drilling out the capital over time or are utilizing our resources on the development front.
So we think that there's a range of opportunities both development forward purchases and existing buildings are both market and off market opportunities in current in a couple of new market. So nothing specific.
I would want to give out here until we start giving a real pipeline report, but I think it's we're active we talked about the dry powder, we have available to fund the development and future acquisitions, and we and again as we sort of do more in each market, where and it seems to lead itself to additional opportunities in some of these just take time to.
To come together, you know, particularly on the land side.
And ones that we're doing through relationships. We've built in these markets over over several years, where the owners are working through their own internal decision.
Decision, making and hopefully leads to good outcomes for us.
I appreciate that added color on Michael what maybe 2 additional questions I wanted to talk a little bit about the Charlotte lease as well as maybe the timing that you've given yourself the lease up of the Nashville spaces I think in your prepared comments you said Charlotte you were close on something how should we think about that from a modeling or a timing person.
Active and then again what are you, giving yourself in Nashville in terms of timing and.
Pro forma like that.
Sure, Yes, so assuming that Charlotte lease happens and again, we feel we're in good discussions with.
With the 10 and it's it's a large company.
And you know, we think theyre very keen on the space very active dialogue, both with our design team.
And with our leasing team on that so yeah. We think it takes a little while to sign the lease and you'll likely commencement probably.
Get pushes out towards the end of this year again delays in permitting and getting materials and everything to build out their space, but I think the goal would be to have a lease in place fairly soon.
Negotiations are ongoing.
And then you'll likely commence towards the end of this year, we would hope has a little bit of free rent, but it's a little bit of a longer term lease of 7 years, and we think as I mentioned, the rental rates a little bit above the pro forma.
We are giving just basically a month ago and it's a large company with great credit.
And we think it will be a great.
Tenant for that building.
In Nashville, you know, it's 2 buildings you typically I think like most of our peers, we sort of just pencil in a 12 month lease up for a building given it's 2 in the same location like we did in when we built 2 buildings in Charlotte on spec that way, we typically will push out the lease up to 18 months I think we're hoping we'll do better than that.
Activity seems really strong as I mentioned, we think the these buildings are sort of uniquely position, there's really nothing else getting developed new anywhere near this location because of how hard it is to find a location like that so we think it kind of fits the theme of getting close to the customer that last mile delivery location.
Combined with kind of losing that infill property as I mentioned due to nashville's growth.
We're hoping that does better timing wise, but we've conservatively kind of assume 12, you know about 18 months to lease up those buildings.
Thanks, and then last from me the development yield that you've given on the pipeline overall appreciate the added color. There. If you exclude the Amazon build to suit, which I know had a larger land component to it does that materially move that that overall return expectation on the development pipeline.
Not really you know I think what we said is the Amazon building its pretty much right in line with kind of the average of these other development. So it doesn't it doesn't change things much 1 way or the other.
You know, it's it's right in line there and the other comment I'd say other than Amazon, where it's obviously a built to suit or the pre lease buildings, mostly pre leased I think we generally take a somewhat conservative view on rents I think we upped.
The development costs.
To reflect the things we talked about I think we're hoping.
Some of these costs come back in line and obviously some of the delayed start to work themselves out over the next couple of months, but we took kind of a conservative view, but we think it was a conservative view on costs and we typically keep a fairly conservative view on on market rent, recognizing somebody's, Philippines arent delivering for a year and you know I think <unk> already commenting that they are looking at.
National rent growth of almost 10% or high single digits I think for the nationally for this year. So yeah again, we think we're being reasonably conservative on those margins and would you say you know Amazon more fixed and that's right in the kind of right in line with that with that range.
Alright, Thanks, Michael.
Yeah.
With no more questions. This concludes index Realty trusts second quarter 2021earnings call. Thank you for joining us and enjoy your week you may now disconnect.
Okay.
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