Q3 2021 Indus Realty Trust Inc Earnings Call
Good morning, and welcome to induce Realty Trust 2021 third 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 this call by dialing star one on your keypad. It is now my pleasure.
You did turn the program over to Ashley Pizzo, Vice President of capital markets and Investor Relations.
Thank you and good morning, everyone welcome to our third quarter 2021 earnings call. In addition to regularly available earnings materials and this is also published a supplemental presentation, which is available on our website at www dot in this Archie dot com under the investors tab I would also like to mention.
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 for a list of those factors. Please refer to the risks listed.
In our most recent 10-K filing for the fiscal year ending November 32020, as updated by our quarterly report on Form 10-Q in subsequent quarters.
Additionally, our third quarter results press release, and supplemental presentation contain additional financial measures such as <unk> NOI SFO EBITDA for real estate among others that are non-GAAP financial measures.
In accordance with regulation G and item 10 E regulation S. K, we've provided a reconciliation to those measures.
So please note that on this call when we refer to occupancy statistics square footage and NOI and same property NOI metrics.
Please refer to our industrial logistics portfolio, only unless otherwise specified.
This morning, we'll hear from Michael games, and our CEO, who will cover our recent activity market conditions and updates on our pipeline will also hear from Anthony Caliche, Our CFO, who will cover the third quarter results in detail and this will be Anthony his last earnings call within this after a long and accomplished career. We also have John Clarke on the line who is currently an executive Vice President at this.
And then and will become our CFO upon anthonys retirement at the end of this year. 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 into the.
The strong momentum in the industrial sector continued in the third quarter.
Widely reported supply chain disruptions have led to an increased emphasis on delivery networks and on the logistics properties that support the more efficient distribution of goods.
This in turn continues to result in strong demand for warehouse properties in nearly all regions, which is driving rent growth very low vacancy rates and demand outpacing new supply.
We are well positioned to take advantage of these current tailwind to significantly grow shareholder value and remain one of the fastest growing public industrial REIT.
First coming from a smaller base of properties within a very fragmented industry.
Most potential is significant.
Every transaction moves the needle in terms of N O Y N a V and earnings growth.
Second is that we are sharpshooters with a very specific and selective approach to growing our business focus he done high quality assets and strongly performing high potential logistics markets. We look not only at the initial cap rates on investments, but on the potential growth in market rents and values to drive long term returns.
Actually we have an experienced team in the platform in place to execute on the full range of opportunities developments, which are at our core all the way through stabilized buildings. All of this with the goal of building a strong portfolio of properties that when blended together will drive our returns on investment.
With that in mind, we believe we delivered on the strategy during the third quarter, we continued to execute on our growth initiatives strengthened their balance sheet and maintained our strong operating performance.
Since the start of the third quarter, we closed on our added over 1.1 million square feet to our acquisition and development pipeline, including one property under LOI.
Importantly, the vast majority of our investment effort is focused on higher returning value add and development opportunities. While we remain very selective in our pursuit of course stabilized acquisitions.
Upon closing of these acquisitions and completing our current development pipeline, we would have $6 7 million square feet, which is growth of 66% from where we started 2020.
Completing all of these acquisitions and development will take us through the end of next year and into 2023. When these projects do deliver and stabilize they will provide a significant growth in our earnings and a strong base to support our future growth.
These new opportunities include our entry into two additional markets Nashville, which I spoke about on last quarter's call and Charleston, South Carolina.
The Charleston logistics market is experiencing several strong tailwind, including a significant increase in its population and a growing manufacturing base large manufacturers, including Boeing which has its dreamliner production there Mercedes with it a large sprinter van factory and Volvo, which also establish a large automotive plant.
Which is slated to become the site for its electric vehicle production.
On top of this Charleston is one of the larger container ports on the East coast.
This board has undergone a recent expansion and we expect it to be a real driver of increased warehouse demand. As an example, Walmart is under construction for a 3 million square foot import distribution facility in the market.
In Charleston, we have two well located properties under contract for a total purchase price of $56 million.
One is a recently constructed building that we expect to close on in the near term the second property, which we sourced off market is a forward purchase is expected to be completed in the fourth quarter of 2022 at which time, we'll pay the majority of the purchase price.
I'll take a minute to talk about forward purchases, which we view as a value added alternative to self development.
We believe forward provide an attractive opportunity to leverage our development mindset and generate stabilized yields that we expect to be higher than the yields on acquisitions of existing buildings.
Under our forward a third party developer construction warehouse on spec that we agree to purchase at a fixed price upon its completion.
In evaluating our forward we use the same discipline and seek the same standards as if it were our own spec development we.
Only want to buy something that we would build ourselves plus we benefit from not taking on entitlement risk not needing to manage the project and avoiding any cost overruns, which are absorbed by the developer.
We expect to close on the 184000 square foot two building forward in Nashville, and the first quarter of 2022 upon that project completion.
We also have under LOI and additional forward purchase for 230000 square foot property in the Charlotte market that is expected to be delivered a year from now in the fourth quarter of 'twenty two.
On the more immediate front in October we closed on a 128000 square foot fully leased warehouse located in the largest industrial submarket in Charlotte.
The in place tenant has less than a year of lease term, but it has a fixed renewal rate.
This property, which we sourced off market from a private owner has excess land suitable for additional parking or outdoor storage and it isn't a submarket with very limited future development opportunities.
These two Charlotte properties. In addition to our recently completed Amazon built to suit will bring our holdings in that market to over one 4 million square feet.
Overall, we're very excited to have these high quality acquisitions and strongly performing markets and note that more than half of our transactions. This year it came through off market or lightly marketed.
Transactions.
Turning to our development pipeline in October we completed our built to suit for Amazon in Charlotte that I mentioned earlier, our total cost for this development was nearly $41 million, including land and the initial yield was within that five 8% to six 3% range, we reported for our total development pipeline.
As a reminder, we have a construction loan on this property with a very attractive interest rate of 140 basis points over one month LIBOR.
We expect this loan to be fully funded at $28 million during the fourth quarter as compared to the balance of $14 7 million shown at the end of the third quarter.
This project will generate significant returns and value creation, given the low market cap rates for comparable assets.
Looking at our projects under construction, we expect to deliver 103000 square foot spec development in the Lehigh Valley in early 2022.
This property is well located with excellent access to both major east West highways running through the valley.
And as a testament to the strength of this market the brokers keep increasing our asking rent, which is now more than 25% above our initial underwriting.
We also are underway on a 234000 square foot, 67% pre leased warehouses in Connecticut and are pleased to report that we commenced construction on our two building 195000 square foot development in Orlando, which we now referred to as Landstar logistics.
Okay.
Speaking of development construction cost inputs have continued to increase structural steel prices have remained elevated and more recently with the rise in oil prices petroleum related products, including roofing insulation PVC pipes in asphalt also have increased.
Fortunately market rent growth continues to increase which is offsetting these costs. Additionally, as has been widely reported availability of inputs has increasingly become a challenge.
This has pushed off certain building delivery times as well as delayed completion of tenant improvement work, which can then impact the rent commencement dates in the supplement there's a schedule that reflects our updated estimates of construction cost yields and delivery dates overall.
Overall these impacts have been manageable and we've taken steps such as the early ordering of steel to mitigate these if these assets these effects and keep most of our new developments relatively on track our pipeline is still expected to generate development yields between five eight and six 3%, which we believe results in development margins of between.
45 and 60%.
Overall, our current acquisition and development pipelines represent 1.8 million square feet and over $220 million in investment.
We estimate the initial stabilized yields on this pipeline to be in the low to mid 5% range, but conservatively more there are more than 20% margin to current market cap rates.
This pipeline demonstrates the substantial future earnings power of the company just including the properties. We currently have under our control.
Completion of this pipeline will occur throughout 'twenty, two into 2020 three.
We typically take a conservative view and assume 12 months of lease up upon our projects completion of closing on a value add acquisition.
And we assume no leases in place upon the delivery of our speculative developments.
Such we expect lease commencements and stabilization to be backend weighted into into 'twenty, two and into early.
Early part of 'twenty 'twenty three for these some of these projects.
Switching to dispositions, we remain focused on our efforts to monetize our noncore assets and closed on $7 4 million in land sales during the third quarter.
These properties generated no income and provided a cheap source of capital to help fund our acquisitions and development.
We have additional properties totaling $45 million under agreement for sale most of which we expect to close in the fourth quarter.
Well, our typical disposition dispositions, our undeveloped land holdings several of the upcoming sales include income producing noncore buildings or properties details on these amounts are in the supplement.
In addition to disposition proceeds we have the capital structure in place to fund our investment and development program.
Early October we completed a follow on equity offering that raised 153 million in net proceeds in addition to funding future acquisitions and development. We believe this capital raise has helped diversify our shareholder base and improve our stocks daily trading volume, we welcome the new shareholders in our company and thank them as well as our existing shareholders for their.
Support.
To complement this equity in August we put in place a $100 million credit facility led by JP, Morgan and Citigroup, which has an accordion for up to $250 million.
Between the equity offering and the credit facility and our ongoing noncore asset disposition program, we have significant liquidity to complete the acquisition and development pipeline as well as fund additional investments in our growth.
Moving onto our operating performance is a testament to tenant demand and the quality of our properties are in service stabilized portfolio remain 99, 4% leased and our entire in service portfolio was 95, 4% leased.
The largest vacancy we have is just under 200000 feet in the Charlotte property. We acquired in late June we are seeing very good tenant activity and are currently vacant space as well as in our properties coming into service in the next few months.
We also note the strength of our tendency is we continue to have essentially no collection or credit issues.
Maintaining these very high occupancy levels into the future could prove challenging but fortunately we've made strong progress on renewals, we have no material lease expirations until the end of June 2022 and that lease is actually for the tenant and the 128000 square foot Charlotte warehouse, we just acquired subsequent to quarter.
And and we believe this tenant likely more news.
The bulk of the other 22 explorations are in September of next year or later with over 350000 square feet between two properties in the Lehigh Valley, where both tenants have a fixed renewal given the strength of the market. Both of these renewals if exercised by the existing tenants would be at below market rents.
As it relates to renewal terms I'll note that since we announced our transformation to a REIT 20 months ago. We have increased our efforts for our new leases have renewals tied to market rates and to push rents where possible given the strength of the market and limited alternatives for tenants.
Lastly, I'll comment on overhead since it started this year, we made a senior acquisitions higher brought it brought our general counsel in house and hired Jon Clark the former CFO of Gramercy property Trust to become our CFO at the start of next year.
This CFO transition is already underway as John started in early September to overlap with Anthony who is retiring after 24 years as our CFO.
We also commenced implementation of a new accounting and property management software platform.
Going forward, we plan to make additional investments in people and systems. So in total we expect the growth in our overhead to be significantly slower than the growth, we expect in our portfolio square footage and in our NOI.
Additions to our team likely to include one or two senior acquisitions hires as well as bringing in some additional staff and finance in a couple of other areas.
With that I'll turn it over to Anthony for the financial review.
Thanks, Michael.
Our cash NOI was $6 4 million for the third quarter up 14, 7% from the prior year's third quarter.
On a Hawaii this quarter benefited from acquisitions completed during the year lease up over the past year of both first and second generation space and increases in rental rates, we expect our cash NOI in the fourth quarter to benefit from the October lease commencement of the Charlotte build to suit for Amazon and from additional aggregate acquisitions that have or expected to be completed.
At the end of the year.
Now turning to cash same property NOI for the 2020, one third quarter and nine month period growth in cash same property NOI was seven 5% and seven 4% respectively versus the comparable fiscal 2020 periods.
Cash same property NOI for the 2020, one third quarter benefited most from the burn off of free rent on first generation space at previously delivered spec buildings offset by free rent this quarter on a 280000 square foot renewal, which represented 7% of the total same property NOI pool square footage.
Looking forward I would point out that for most of this past year. Our same property pool was 100% leased and we expect to have very few new leases in the same property pool for next year.
This will make for tougher comparisons in the fourth quarter and most of them next year.
In the same vein as our acquisition and development activity ramps up a larger and larger percentage of our total portfolio is not going to be captured by the same property NOI metrics.
Next I'll discuss core F L.
We have modified the definition of core <unk> to exclude the impacts of our nonqualified deferred compensation plan, which is a noncash item.
The amounts related to this plan really reflect the change in our retirement liability rather than near term compensation payment initiatives.
Additionally, it is the amount that is not readily predictable as it moves up and down with the performance of the stock market.
We intend to freeze this plan at the end of this year, which will eliminate any future elections into the plan as a result, while the existing plan amounts will remain and be subject to quarterly variation as we grow we expect that this component will have a small impact on our results.
With that noted core F. O was $4.4 million are up 12, 8% in the third quarter of 2021 over the 2023rd quarter.
Core <unk> benefited most of the growth and in Hawaii.
Partially as well as from lower interest expense due to higher capitalized interest and higher investment income offset by an increase in G&A expenses compared to last year.
As it relates to a S F O our maintenance capital expenditures and leasing costs for second generation space with $750000 in the quarter, which is somewhat low due to the fact that excluding first generation space and recent acquisitions there were a few new leases.
Maintenance Capex is back end weighted this year and into the first half of next year as you undertake certain projects, including roof replacements at two of our warehouses that will likely cost us approximately $200000 in the fourth quarter and $700000 in the first half of 2022.
Over time, we expect the combination of our second generation leasing cost and maintenance capex to be in line with greenstreet aggregated approximately 15% of NOI on an annual basis.
Now I want to G&A.
Appointed general and administrative expenses decreased to approximately $2 3 million into 2021 third quarter down $400000 when compared sequentially to the 2021 second quarter.
Third quarter G&A number was lower than recent quarters as it was favorably impacted by lower nonqualified deferred comp plan expense and lower costs on undeveloped land as well as other timing related expenses several of which should be bearish before the end of this year.
Going forward it might be most helpful to think about G&A expense, excluding the nonqualified deferred compensation plan, which I described earlier.
If we look at our year to date G&A expense, we're at $7 6 million, excluding the nonqualified plan, which equates to a quarterly run rate of just over $2 5 million.
Looking to the fourth quarter, we expect growth in the fourth quarter G&A, excluding the nonqualified plan to be in the low to mid 20% range when compared to the year to date $2.5 million run rate.
This increase was primarily due to the growth in compensation and recruitment expenses from increased head count, which is back end weighted this year cost related to our accounting and project management system implementation and the result in the reversal of some of the timing related expenses in the third quarter that I previously mentioned.
With ongoing investments in people and processes as Michael described we expect our 'twenty to 2022 G&A will grow in the mid single digits on a percentage basis over this annualized Q4 2021 number.
This growth in G&A, you still expect it to be substantially below the growth rate in our square footage and NOI in the coming year as we further leverage the platform.
I'll wrap up discussing our liquidity at the end of the third quarter, we had $137 million in liquidity that reflected $37 million.
And cash plus the undrawn capacity of the new credit facility, we ended the quarter with $173 million in debt.
Our current net debt total net debt to total enterprise value is approximately 16%.
Subsequent to the end of the quarter, we completed an equity offering of over two 4 million shares, including the over allotment option, which netted proceeds of over $150 million.
We also closed on the Charlotte acquisition, requiring $14 6 million in cash we have the full borrowing amount available on our credit facility as well as potential proceeds from dispositions on the agreement.
Portions of our liquidity to be used to be.
One, they're acquisitions and development pipeline as well as future opportunities to support our growth.
Last we mentioned that we intend to pay off the mortgage debt upon the disposition of the associated buildings that we have under contract.
This amount currently totaled $12 2 million of course three mortgages. These mortgages are amongst our most expensive with an average interest rate of approximately 5%.
With that I'll now turn it back over to Michael.
Thank you Anthony we have great momentum in our business and the capital structure in place to fund our growth at the same time, we continue to remain very focused on providing strong returns on investment and to increasing shareholder value I'm very excited.
Cited by what we've accomplished thus far this year and I'm very encouraged by industry's future.
Before moving onto questions I want to thank the team at <unk> for their continued efforts and contributions to our success.
I'll also note that this will be Anthony his last earnings call before his retirement I want to thank Anthony for his exceptional leadership and dedication to the company during his tenure.
As I mentioned before the CFO transition is well underway with John having started in September.
We are confident that this will be a smooth transition and already we are tapping into John's extensive financial and operational REIT experience.
That concludes the prepared remarks, and I'll turn it back over to the operator to take your questions.
We will now begin the question and answer session to ask a question Press Star then one on a touchtone phone if youre in the question queue and would like to withdraw your question Press Star then two.
And the first question comes from Tom Kathryn with with BTG. Please go ahead.
Thank you and good morning, everybody.
Great to see the strong acquisition pace in the quarter, but there seems to be an ever increasing amount of capital chasing industrial deals Michael really appreciated the commentary on on future purchases in your prepared remarks, but other than that how have you adjusted your acquisition strategy to find deal.
In this environment and is there a risk to your growth plans as competition continues to increase.
Yeah. Thanks, Tom I appreciate the question.
I think just stepping back the acquisition environment has been competitive for quite some time, yeah. I don't know if the next three months are going to be much different than the last three six or nine months, either and I think we've been successful at finding.
Some really good acquisitions that we think really are going to add value and generate strong returns.
And I think we're just going to continue the same practice, which is.
One we can look at that range of opportunities development.
Forward value add and to a much lesser extent core stabilized buildings.
And then how are we doing it you know just looking back over the last six months as to how how we did it it's a it's a real mixture of.
Working relationships that we've been working to establish for for many years. So for example, a couple of the forward. So we are working on today with the same developer, which is one of the largest Ah you know developers in the country private developers, but we've had a relationship with them actually Gordon our chairman also had worked with him in his past.
And so that goes a long way in today's in today's world that people just want to work with our buyers that they know are going to perform and act well and I think similarly, we've spent years working to develop relationships on developers and local brokers in the different markets. We're in so we can see.
You need to.
Spend a lot of time in the markets and we have a great relationship with with a couple of groups in Charlotte.
Really helped us uncover a number of the transactions. We did this year, which mostly were off market as we mentioned.
And so I think that's just a combination of that and we will look at marketed deals and at times turned the marketed deals don't get quite the attention as others again, we're looking at kind of the ones and twos of the world not multibillion dollar portfolios, which which get a different level of attention and interest and by looking at kind of the ones or twos, there's certain opportunities.
That we may find our brokers may kind of indicate indicate to us are worth looking at that might not have originally been on our radar.
So it's really a combination of everything that we believe has worked really well so far and it's worked well for the last six months and the bill.
In our pipeline and we think we can continue to do this going forward, we're going to add some more people as I mentioned on the acquisitions front to continue to have a few more feet on the street so to speak and continue to establish these relationships, but we still think there's opportunities out there I think you have to remember it's still a very very fragmented into.
Street, there's lots of individual owners private owners private merchant developers that sell things one off two off and a small portfolios as well as the bigger transactions you see.
I appreciate that thanks, Thanks, Michael kind of building off of it.
You know the strategy has been a kind of when you enter new markets. You go in with kind of a market rate acquisition, and then you look to bolt on either value add assets or land for development.
As you kind of expand the forward purchases, which sounds like they tend to be off market or likely marketed deals does it change.
That strategy or approach the ability to then find land and kind of expand within markets or does it does that tried to kind of remain intact. Despite the switch in the acquisitions, you're looking at yes.
Yeah, I think the strategy means intact, we're just being opportunistic and so in some of the forward. It's been markets. We've looked at you know we spent a lot of time looking at Nashville. As an example are looking for different opportunities and then off market did did come across the forward that we expect to close early next year.
And we thought we havent done a lot of research in the market. We knew it was a great location a great project and one we wanted to own so in some ways, it's a little bit of a combination versus if we want just to do development right off the bat. This kind of gives us a little bit more leveraging someone else's experience within say in this case the Nashville market.
Get us very quickly involved with leasing properties and getting a better feel for day to day leasing dynamics and doesn't preclude that we may find something that's a little more core at some point or hopefully more value add and future land for development. We just think it's just a different way to get exposure to.
The market earlier than if we were trying to find land and if we found land by the time, we entitle and develop it you're pushing that out much further with forward potentially providing an opportunity to accelerate that entry.
Got it got understand thank you for that and then last one for me.
The Amazon delivery in Charlotte happening in early October how does the rent roll on from that now that they've.
Taken occupancy yet and is there any remaining spend associated with that asset going forward.
The the rent and in my CFO can correct me, but I believe it started really at the beginning of October.
When the lease commenced.
So that's when the rent payments began.
And that's when they'll be captured financially as well, both GAAP and cash rent.
And in terms of remaining spend there there is some left but we're also drawing down the construction loan. So the any remaining spend will be more than offset by the construction draws which typically trail.
Our our cash flow.
Yeah, that's correct.
Kosta just just just to clarify so cash and GAAP rent have both commenced on that asset.
Yes.
Excellent that's it for me thanks, everyone.
The next question comes from Manny Korchman with Citi. Please go ahead.
Hey, good morning, everyone.
Sure.
Michael or maybe that's a question for John I'm going to keep Anthony out of it for a second but.
Given sort of the law of small numbers in your business and also seemingly a lot of moving pieces in pieces I keep getting maybe new moving pieces added what are your thoughts on giving guidance to the street.
I know you've provided this run rate have a phone number thats not really guidance.
Not not exactly sure how to even use that as a forward look at this point.
Given the moving pieces so.
Should the street expect you to give guidance or are you waiting for something to happen in the business before you do that.
Thanks Manny.
I think our plan is certainly on the call today, we gave I think a little bit more indication of where we think G&A is going to be in the fourth quarter and into next year and I think our plan probably is in next years, starting next year or the fourth quarter call. So next calendar year too.
Provide a little bit more information to really help.
Identify where we think some of you as you called it moving pieces sort of will land to help with your modeling and projections I don't know if we'll get into the exact guidance per say at that point.
Given the challenges you have theres a lot of things that can move the needle fairly meaningfully.
<unk> that are a little bit hard to predict whether it's a timing of a certain acquisition or not or completion of a building. So we just want to be careful that we're providing good information that will be helpful, but not not get too far out there with with numbers that then or a little bit hard to to exactly get get.
Right on the on the head.
So I think you'll get more from us going forward, but I don't know if we'll give exact guidance yet, but I think as our business continues to grow a number of these acquisitions come into our base it'll be a lot a lot easier for us to give more robust and inaccurate guidance.
Right and then in your prepared remarks, you described yourselves as a sharp shooter.
And you've been going into new markets. So I guess what are the filters are you putting into those new markets.
Using that approach is a sharpshooter. So you mentioned.
Crawling populations, which are sort of accurate for a lot a lot of markets outside of where you are now you mentioned a little bit of transportation access whether it be port or otherwise again that describes a lot of markets today and so what what filters are you applying when youre looking at the growth of this company in the next markets you go into.
Yeah. So I think it is.
There's a question of a lot of markets show population growth, obviously, the southeast southwest or are seeing outsized population growth. So what we're looking for is outsized population growth outsized housing starts outsized new business relocations, what you're really seeing in Charlotte, Florida, Nashville, our market.
Seeing tremendous business growth, which is somewhat different than what's driving some of the growth in certain other markets.
Then it's what's the industrial market look like so it's not just a market that may have a lot of population growth, but isn't necessarily a great place to distribute or have logistics from there's a local population to serve so there's need for last mile facilities, but is it necessarily a market where it's a good regional distribution location. So we we typically.
Look for markets that have that other leg to the story of both regional and local distribution and we also look to see how hard is it to develop and add new properties to the market. So there are certain markets. We've looked at in the southeast that are experiencing strong population growth have a good manufacturing base and we havent entered because we've.
Seen what just seems.
To be a fairly significant pipeline of new development with every mile. You go down the highway there's more development you can do and that's the types of markets. We wanted to avoid.
So it's it's a combination of all those factors in and it maybe on the surface. It seems theres a lot, but as we filter it we don't get too.
Huge numbers of markets and we focus on the ones we think.
That meet all those criteria and what we can build up to a critical mass and have a have a portfolio that makes a difference.
Alright, thanks very much.
Okay.
The next question comes from Aaron Hecht with JMP Securities. Please go out.
Good morning, guys. Thanks for taking my questions.
Wanted to piggyback a bit on the acquisition or capital Wyman conversation the word goal around timeframe.
But.
The money to work that you raised and leverage that and.
Additionally is there a mix of acquisitions I know you have different buckets, there, but acquisitions versus development would.
It would be prudent.
Think about it.
Yeah No I appreciate the question.
Taking the second one first in terms of balance between acquisitions and developments yeah. We we like both and so our goal is to find more of both developments today if were.
Bringing new new new land into our development pipeline between entitlement and then and then can mentioned construction and delivery yet.
Yeah, typically entitlements are six to 18 months, depending on where it's located construction times are 12.
12 months, maybe a little longer given some some availability issues so as.
As we look for developments today, it's probably more like a two plus year impact in terms of being delivered so I'd say in the near term additional square footage is likely going to be more biased towards acquisitions.
Versus development over and above whats in our development pipeline today. It just will take time to put those into service, but we're eager to find more development.
We have a really good track record on development of its driven really strong returns for us.
But at the same time, we're looking for good acquisitions, so in terms of timing of capital.
I think like if we find great opportunities, we're going to put it to work and so we're not sort of saying, we don't want to sort of husband, this capital and kind of parcel it out quarter over quarter.
On the other hand, we think we have between the capital we raised over.
Over and above the pipeline we've identified we have a good amount of capital still we can put to work over time.
And as we noted even what we have today in our pipeline a series of forward et cetera going to deliver in the fourth quarter of 'twenty, two as a chunk of that capital as well as the development pipeline that that bleeds into 2023.
We we think we have a lot of capital available for the next 12 months or beyond including if we once.
Once we deploy all that cash on our balance sheet, we certainly would be fairly very lowly levered show could could add incremental debt to that as well. So it's not a rush to put it to work, but on the other hand, if we find great opportunities. We know we have the capital to put it to work, but we don't see that.
We're gonna put it ought to work in the next three to six months, but.
But if we find great opportunities we will.
Okay understood and then in terms of markets.
Well South Carolina.
In the Carolinas as one market or that separate and then.
With the new markets, you're entering or do you want to scale those first before looking for additional markets after that.
Is there a limit to how many markets you wanted to try to be scaling and some one time.
Yeah, So I mean, north and South Carolina, I guess Charleston is a different market and we would look at that very differently than <unk>.
Charlotte.
If you take the two markets where in Charlotte is right on the border of South Carolina. So there are properties that are in South Carolina.
That effectively are the Charlotte market.
So I think they're different you know we're not in the market, but Greenville Spartanburg is a fairly large market in South Carolina, that's a different market than Charlotte and it's different in Charleston, and same with Raleigh Durham and in North Carolina is a very different market than Charlotte. So I do think there are different you know that.
The York County, which is just south of Charlotte, we would lump into Charlotte, even though that's in South Carolina, because it's really driven by that market.
That answers that question on.
Scaling it it's probably more opportunistic I think we've said in the past our goal is to be in seven to nine markets. We effectively earn six today. So before we add more and Charleston, Nashville, If we found something great. One of the other markets. We're targeting we'd go ahead and do it but as we've said our goal is really to get to 1 billion score.
Our feet in all the markets, we enter we'd like to get every market up to at least a million square feet is as quickly as we can and we think it's.
To have a more balanced portfolio across our markets is better we just can't necessarily control that we are looking actively and in all the markets. We're in and we're hopeful we're going to add more sooner rather than later in in the newer markets, but we're going to remain opportunistic as to where we're finding the best opportunities for our capital.
Understood and then last one 2022 lease explorations.
Obviously.
The new lease renewal growth.
Sandy and any insight you can give us on the space Thats turning over in 'twenty, two and maybe where it stands compared to where your CEO Martin.
Yeah. So.
In 2022, we sort of are a little bit of a.
Situation, where a couple of the tenants have fixed renewal rates and as I alluded to in the comments. Our goal is really to get rid of these fixed renewal rights in all our new leases. One was it was a deal we bought which which which we described earlier in the year with.
Where the tenant did have a fixed renewal so that's a pretty large chunk of the renewals. If those tenants don't renew we think theres pretty material mark to market on both those deals and in Pennsylvania.
One might be as much as you know 510% above the renewal rate are the smaller of the two buildings, which we described when we bought it it's probably 25% below market. So that's a future large opportunity if they don't renew.
And so I think that's that's the those are really where the bigger opportunities are one of the other lease explorations in 'twenty two that's relatively large relatively big is the tenant.
We have in Connecticut, that's moving to the building. We're currently under construction, they're doubling their size and pre leasing two thirds of that building they need quite a lot of overlap so given a little bit of the pushout of delivery of that building, it's likely that that renewal may actually and that lease exploration may move into <unk>.
'twenty 'twenty three as well.
So we.
We do think there's a good mark to market our portfolio overall, probably in 2022 given again the nature of what's happening with tenants, you're probably not going to see huge jumps in rent. If these tenants are new but if they don't what better capture a lot of that.
Thanks, that's great.
Appreciate that you don't know.
Yeah.
Again, if he would like to ask a question press Star then one to join the queue. The next question comes from Connor Civil Henske with Baird. Please go ahead.
Hey, everyone. Thanks for having me on the call. This morning.
Just one quick kind of high level question on supply growth dynamics, So looking at Charleston, and Nashville Care example, where you've got $7 million and 12 million square feet under construction, respectively. I'm just wondering how in this will seek to kind of.
Position or differentiate its portfolio too.
Insulate itself or it or its tenant composition from this kind of oncoming supply growth and.
What might be a more commoditized asset.
Yeah, no. It's a good question I think it's it's exactly how we look at these markets, which is getting really granular as to.
Where the new capacities coming in terms of which submarkets, which locations type of buildings that are coming online.
And size of buildings as well as give him a construction and other delays and challenges people are having with the supply chain when really is that supply delivering so we we've sort of as you would expect in each of these markets really mapped out new supply when we think it might delay when they say, it's going to deliver when it might deliver and see how that may have.
Maybe not impact <unk>.
So we're looking at our properties we own.
And I think one of the big differences is typically or sizes or 300000 feet and below.
And no matter what market you're in it's really hard to get to five or 10 million square feet of new capacity building two hundreds and three hundreds so.
The stats that show very high new supply coming online that are typically biased, where there's three or 4 million footers.
And I mentioned, Walmart has a 3 million square foot or some people put that in their supply number. Some some don't so built to suits go into those supply numbers are a lot of million foot 500000 foot buildings go into that so for example in Nashville, Our buildings are 180000, and 100000 square feet 80000 square feet located really close to it.
Downtown Theres, a couple of other buildings near the airport that sort of compete with that type of use and design.
And so we just think it it just sort of a almost a different competitive set different going after different tendency and different uses yeah. The two buildings in Nashville, we have market rents that are going to be a decent amount above kind of the other product and Charles since the same way, we're looking at the products, we have which submarkets in which building.
And so we look very carefully at all of that and look to see how to really manage our exposures. If we think there is more supply coming on than we think but it but it is a factor we look at but we think and certainly in those markets and frankly, the other markets. We're looking at it it's you.
So very manageable against what we think we're competing against.
Okay. That's very helpful color I'll leave it there.
Great. Thank you.
The next question comes from Dave Rodgers with Baird. Please go ahead.
It's Nick on for Dave Just one quick question I think Michael you talked about rising construction costs have kind of been offset by rent growth are you, saying that they're about equal or that have you seen rent growth actually rise over in construction costs over this.
Couple of periods.
Yeah over the last couple of quarters I'd say the rent growth has probably exceeded construction cost growth at it a little bit varies by market, but overall, if we look at our portfolio it's probably.
More than offset the construction costs increases.
You know again, well have to see how how it continues to evolve on the construction cost side certainly the rent growth if anything feels like it's accelerating now we're seeing it.
Even in the way our brokers are positioning our upcoming.
Deliveries.
In terms of asking rents and pushing up asking rents so in many ways I think.
The fact that construction has really gone up and people are starting to really feel it on deliveries that are coming in in the next six months. The fact that acquisition prices are high that everyone's really pushing rents and that supply remains well in check or really below demand. So rents if anything are continuing to accelerate which which is certain.
A positive and we think it will continue to benefit us.
That was it for me thanks, guys.
Yeah.
Thank you.
With no more questions. This concludes the industrial team Trust third quarter 2021 earnings call. Thank you for joining us and enjoy your weekend.
Uh huh.
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