Q4 2021 First Industrial Realty Trust Inc Earnings Call

[music], ladies and gentlemen, thank you for standing by and welcome to the <unk>.

Speaker 1: And to welcome to the first industrial fourth quarter INSTRUMENTS.

The first industrial fourth quarter earnings results Conference call. At this time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question during that time. Please press star one on your telephone keypad to withdraw the question. Please.

Speaker 1: At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during that time, please press star 1.

The pound key.

Speaker 1: be advised that today's conference call is being recorded. Thank you. At this time, I'll turn the call over to Art Harmon, Vice President of Investor Relations.

So today's conference call is being recorded. Thank you at this time I will turn the call over to art Harmon.

Nice President of Investor Relations, Sir you may begin.

Speaker 2: Thank you very much, Valerie. Hello, everybody, and welcome to our call. Before we discuss our fourth quarter in full year 2021 results and our guidance for 2022, let me remind everyone that our call may include forward-looking statements as defined by federal securities laws. These statements are based on management's expectations, plans, and estimates of our prospects.

Thank you very much Valerie Hello, everybody and welcome to our call before we discuss our fourth quarter and full year 2021 results and our guidance for 2022, let me remind everyone that our call may include forward looking statements as defined by Federal Securities laws. These statements are based on management's expectations plans and estimates of our prospects.

Speaker 2: Today's statements may be time sensitive and accurate only as of today's date, February 10, 2022. We assume no obligation to update our statements or the other information we provide.

Today's statements may be time sensitive and accurate only as of todays date February 10 2022.

Assume no obligation to update our statements or the other information we provide.

Speaker 2: Actual results may differ materially from forward-looking statements, and factors which could cause this are described in our 10-K and other SEC filings. You can find a reconciliation of non-GAAP financial measures discussed in today's call in our Supplemental Report and our earnings.

Actual results may differ materially from forward looking statements and factors, which could cause. This are described in our 10-K and other SEC filings you can find a reconciliation of non-GAAP financial measures discussed in today's call in our supplemental report and our earnings release.

Speaker 2: The supplemental report, earnings release, and our SEC filings are available at FirstIndustrial.com under the investors.

<unk> mineral report earnings release, and our SEC filings are available at first industrial Dot com under the investors tab.

Speaker 2: Our call will begin with remarks by Peter Basile, our President and Chief Executive Officer, and Scott Musel, our Chief Financial Officer. After which, we'll open it up for your questions.

Our call will begin with remarks by Peter <unk>, Our President and Chief Executive Officer, and Scott Musil, Our Chief Financial Officer, After which we'll open it up for your questions also on the call today are Jojo Yap Chief Investment Officer, Peter Schultz Executive Vice President, Chris Schneider, Senior Vice President of operations and Bob Walter Senior.

Speaker 2: Also on the call today are Joe Doyap, Chief Investment Officer, Peter Schultz, Executive Vice President, Chris Schneider, Senior Vice President of Operations, and Bob Walter, Senior Vice President of Capital Markets and Asset Management. Now let me turn the call over to Peter.

Vice President of capital markets and asset management now, let me turn the call over to Peter.

Speaker 3: Thank you Art and thank you all for joining us today. Our outstanding fourth quarter results capped another excellent year as shown in our year-end occupancy rate of 98.1% and record cash rental rate growth of 16.2%.

Thank you art and thank you all for joining us today.

Outstanding fourth quarter results capped another excellent year as shown in our year end occupancy rate of 98, 1% and record cash rental rate growth of 16, 2%.

Speaker 3: Thanks to every member of the FIRST Industrial team for your commitment and many contributions to our success in 2021.

Thanks to every member of the first industrial team for your commitment and many contributions to our success in 2021.

Speaker 3: We enter 2022 with great momentum and strong enthusiasm for our cash flow growth and value creation opportunities.

We enter 2022 with great momentum and strong enthusiasm for our cash flow growth and value creation opportunity.

Speaker 3: Those opportunities are embedded within our portfolio and our sizable and highly profitable development pipeline along with our well-located land positions that will be the source of significant future growth.

Those opportunities are embedded within our portfolio.

And our sizeable and highly profitable development pipeline, along with our well located land positions that will be the source of significant future growth.

Speaker 3: I will touch on each of these areas shortly, but before I do, let me update you on the strength of the U.S. Industrial Mark.

I will touch on each of these areas shortly but before I do let me update you on the strength of the U S industrial market.

Speaker 3: Logistics real estate continues to enjoy very strong demands from users representing a wide range of businesses as they remain focused on expanding their competitive positions and optimizing supply chain.

Logistics real estate continued to enjoy very strong demand from users representing a wide range of businesses as they remain focused on expanding their competitive positions and optimizing supply chains.

CBRE Econometric advisors reported that net absorption for the fourth quarter was 121 million square feet compared to 81 million square feet of completions.

Speaker 3: For the year, net absorption was 433 million square feet, a new record, well in excess of completions which totals 268 million square feet.

For the year net absorption was 433 million square feet, a new record well in excess of completions, which totaled 268 million square feet.

Speaker 3: This supply-demand dynamic is contributing to significant rental rate growth across all of our markets, as shown in our progress to date with our 2022 rollover.

This supply demand dynamic is contributing to significant rental rate growth across all of our markets as shown in our progress to date with our 2022 rollovers.

Speaker 3: As of yesterday, we have taken care of 54% of our 2022 expirations at a cash rental rate increase of more than 19%.

As of yesterday, we had taken care of 54% of our 2022 explorations at a cash rental rate increase of more than 19%.

Yes.

Speaker 3: To capitalize on the many opportunities to serve tenant demand in our markets, we are announcing five more development starts this quarter totaling 1.3 million square feet with an estimated investment of approximately 168 million dollars.

To capitalize on the many opportunities to serve tenant demand in our markets. We are announcing five more development starts this quarter totaling one 3 million square feet with an estimated investment of approximately $168 million.

Speaker 3: In the Inland Empire, we will be adding to our Southern California portfolio with the 324,000 square foot First Rider Logistics Center.

In the inland Empire, we will be adding to our southern California portfolio with the 324000 square foot first rider Logistics Center.

Speaker 3: Located just off the I-215, approximate to several of our other successful developments, we are excited to bring this project to a market which boasts a vacancy level of one half of one percent.

Located just off the $2 15 proximate to several of our other successful development. We are excited to bring this project to a market, which is both the vacancy level of one half of 1%.

Speaker 3: Total investment is $44 million with a targeted cash yield of 9.5%.

Total investment is 44 million with a targeted cash yield of nine 5%.

Speaker 3: This outsized yield is due to our favorable basis and the rapid rent growth in Southern California.

This outsized yield is due to our favorable basis and the rapid rent growth in southern California.

Speaker 3: In South Florida, at our first Park Miami project, where we are experiencing significant tenant activity, we are launching our fifth building, a 198,000 square footer.

In South Florida at our first Park Miami project, where we are experiencing significant tenant activity. We are launching our fifth building a 198000 square footer.

Speaker 3: including our planned future takedown of 59 acres, on which we can develop an additional 1.3 million square feet. First Park Miami will total 2.5 million square feet when fully built out over the next several years and serve as the centerpiece of our growing South Florida portfolio.

Including our planned future takedown of 59 acres on which we can develop an additional one 3 million square feet.

First park, Miami will totaled $2 5 million square feet when fully built out over the next several years and serve as the centerpiece of our growing South Florida portfolio.

Speaker 3: Our projected investment for this new building is $37 million, and our targeted cash yield is 6.2%.

Our projected investment for this new building is $37 million and our targeted cash yield is six 2%.

Speaker 3: In Denver, we will begin construction of our first 76 logistics center in an infill location in the sought after I-76 corridor just north of downtown.

In Denver, we will begin construction of our first 76 logistic center in an infill location and the sought after I 76 quarter, just north of downtown.

Speaker 3: The total estimated investment for the 200,000 square footer is $34 million with a projected cash yield of 5.6%.

The total estimated investment for the 200000 square footer is $34 million with a projected cash yield of five 6%.

Speaker 3: In the Lehigh Valley, we are starting the 105,000 square foot first Lehigh Logistics Center, located adjacent to the airport and the new FedEx Ground Hub.

Sure.

In the Lehigh Valley, we are starting the 105000 square foot first Lehigh Logistics center located adjacent to the airport and the new Fedex ground hub.

Speaker 3: Total investment is $16 million and our projected cash yield is 5.3 percent.

Total investment is $16 million and our projected cash yield is five 3%.

Speaker 3: Lastly, in Chicago, at our first part 94 in Kenosha, we are moving forward with a 451,000 square footer that is expandable to 617,000 square feet. Estimated investment is 38 million and our target yield is 6.3 percent.

Lastly in Chicago at our first park 94 in Kenosha, we are moving forward with a 451000 square footer that is expandable to 617000 square feet estimated investment is $38 million and our target yield is six.

3%.

Speaker 3: These newly announced development starts average a cash yield of 6.9% and an estimated development margin of 96% to 106%.

These newly announced development starts averaged a cash yield of six 9% and an estimated development margin of 96% to 106%.

Speaker 3: Including these new development starts, our developments in process total 7.1 million square feet with a total investment of 802 million and are currently 32% leased.

Including these new development starts our developments in process totaled $7 1 million square feet with a total investment of $802 million and are currently 32% leased.

Speaker 3: At a cash yield of 6.4%, our expected overall development margin is 75 to 85 percent.

At a cash yield of six 4% our expected overall development margin is 75% to 85%.

Speaker 3: We were also busy in the corridor adding new development sites to capitalize on the positive industrial real estate fund.

We are also busy in the quarter, adding new development sites to capitalize on the positive industrial real estate fundamentals.

Speaker 3: We purchased a total of 294 acres for $125 million.

We purchased a total of 294 acres for $125 million.

Speaker 3: Adjusting for our newly announced development starts, in total, our balance sheet land today can support an additional 14.4 million square feet.

Adjusting for our newly announced development starts in total.

Our balance sheet land today can support an additional $14 4 million square feet.

Speaker 3: This represents more than $1.6 billion of potential new investments.

This represents more than $1 6 billion of potential new investments.

Speaker 3: That $1.6 billion is using today's estimated construction costs and the land at our book in is nearly $OTA thousand dollarMW KO

That $1 6 billion is using today's estimated construction costs and the land at our book basis.

Speaker 3: In addition, our remaining joint venture can support up to 8.9 million square feet with our share around 3.8 million square feet. So we're very well positioned for future growth.

In addition, our remaining joint venture can support up to $8 9 million square feet with our share around $3 8 million square feet. So, we're very well positioned for future growth.

Speaker 3: Moving on to dispositions. In the fourth quarter, we sold 1.2 million square feet for 125 million, which included our last two buildings in the Milwaukee market.

Moving on to dispositions in the fourth quarter, we sold one 2 million square feet for 125 million, which included our last two buildings in the Milwaukee market.

Speaker 3: our sales for the year totaled $243 million, which was $43 million higher than the sales guidance midpoint discussed on our third quarter call.

Our sales for the year totaled $243 million, which was $43 million higher than the sales guidance midpoint discussed on our third quarter call.

Speaker 3: For 2022, we expect to sell a total of 100 to 150 million, with the majority expected to close in the latter part of the year.

For 2022, we expect to sell a total of $100 million to $150 million with the majority expected to close in the latter part of the year.

Speaker 3: Before turning it over to Scott, let me conclude by saying that through the efforts of our team, combined with the underlying strength of our portfolio and the future growth opportunities we highlighted for you, our Board of Directors has declared a dividend of $0.29.5 per share for the first quarter of 2022.

Before turning it over to Scott, Let me conclude by saying that through the efforts of our team.

Combined with the underlying strength of our portfolio and the future growth opportunities. We highlighted for you are.

Our board of directors has declared a dividend of $29 five per share for the first quarter of 2022.

Speaker 3: This represents a 9.3% increase from the prior rate and a payout ratio of approximately 69% based on our anticipated AFFO for 2022 as defined in our supplemental. With that, I'll turn it over to Scott. Thanks, Peter. Let me recap our results for the quarter.

This represents a nine 3% increase from the prior rate and a payout ratio of approximately 69% based on our anticipated <unk> for 2022 as defined in our supplemental.

I'll turn it over to Scott.

Peter Let me recap our results for the quarter Nate.

Speaker 2: NARIG funds from operations were 52 cents per fully diluted share, compared to 44 cents per share in 4 Q2 020.

<unk> funds from operations were <unk> 52 per fully diluted share compared to <unk> 44 per share in <unk> 2020.

Speaker 2: For the year, FFO per share was $1.97 versus $1.80 in 2020, which excluded income related to two insurance settlements, partially offset by a restructuring charge, and accelerated retirement compensation related costs.

For the year <unk> per share was $1 97.

Versus $1 80 sets in 2020, which excluded income related to two insurance settlements.

Partially offset by a restructuring charge and accelerated retirement compensation related costs.

Speaker 2: Our cash same store NOI growth for the quarter, excluding termination fees, was 8.6%, which contributed to a same store growth rate of 5.3% for all of 2021.

Our cash same store NOI growth for the quarter, excluding termination fees was eight 6%, which contributed to a same store growth rate of five 3% for all of 2021.

Fourth quarter same store growth was helped by higher average occupancy increases in rental rates on new and renewal leasing.

Speaker 2: Fourth quarter same store growth was helped by higher average occupancy, increases in rental rates on new and renewal leasing, rental rate bumps embedded in our leases, and lower pre-Louis sow MS Tory.

Rental rate bumps embedded in our leases and lower free rent.

Speaker 2: We finished the year strong with occupancy of 98.1%, up 100 basis points compared to 3 Q2 021, and up 240 basis points from a year ago. Summarizing our leasing

We finished the year strong with occupancy of 98, 1% up 100 basis points compared to three Q2 thousand 21, and up 240 basis points from a year ago.

Summarizing our leasing activity during the quarter.

Speaker 2: Approximately 2.5 million square feet of leases commenced.

Proximately, two 5 billion square feet of leases commenced.

Speaker 2: Of these, 800,000 were new, 1.2 million were renewals, and 600,000 were for developments in acquisitions with LISA.

Of these 800000, where new $1 2 million were renewals and 600000 were for developments and acquisitions with lease up.

Speaker 2: Tenant retention by square footage with 65%.

Tenant retention by square footage was 65%.

Speaker 2: Fourth quarter cash rental rates were up 17.7% overall with renewals up 10.6% and new leasing 29.8% and on a straight line basis overall rental rates were up 32.2% with renewals increasing 25% and new leasing up 44.3%.

Fourth quarter cash rental rates were up 17, 7% overall with renewals up 10, 6% and new leasing 29, 8% and on a straight line basis overall rental rates were up 32, 2% with renewals, increasing 25% and new lease.

<unk> up 44, 3%.

Speaker 2: For the full year 2021, as Peter noted, cash rental rates were up 16.2%, and on a straight line basis, rents were up 29.3%.

For the full year 2021, as Peter noted.

Cash rental rates were up 16, 2% and on a straight line basis rents were up 29, 3%.

Moving onto the capital side.

Speaker 2: During the quarter, we issued 1.4 million shares via our ATM program at an average price of $60.99 per share, generating net proceeds of $86.8 million to help fund our very profitable development pipeline.

During the quarter, we issued one 4 million shares via our ATM program at an average price of $60 99 per share generating net proceeds of $86 8 million.

To help fund our very profitable development pipeline.

Speaker 2: In terms of upcoming maturities, we have a $260 million term loan and a $67 million mortgage loan that both come due in September .

In terms of upcoming maturities, we have a $260 million term loan and a $67 million mortgage loan debt both come due in September .

Speaker 2: We are currently evaluating our options to refinance this debt, which include a new term loan or an unsecured bond offer.

We are currently evaluating our options to refinance this debt, which include a new term loan or an unsecured bond offering.

Speaker 2: We will also continue to evaluate our additional capital needs throughout the year as we execute our investments for growth.

We will also continue to evaluate our additional capital needs throughout the year as we execute our.

Our investments for growth.

Speaker 2: Moving on to our initial 2022 guidance per our earnings release last evening.

Moving onto our initial 2022 guidance per our earnings release last evening.

Speaker 2: Our guidance range for NAIRI FFO per share is $2.09 to $2.19 with a midpoint of $2.14 per share. Key assumptions for NAIRI FFO is $2.14 per share.

Our guidance range for NAREIT <unk> per share is $2 nine.

The $2 19.

With a midpoint of $2 14 per share.

Key assumptions for guidance are as follows.

Speaker 2: Quarter-end average in service occupancy of 97.25% to 98.25%.

Quarter end average in service occupancy of 97, 5% to 98, 5%.

Speaker 2: same store NOI growth on a cash basis before termination fees of 7.25%.

Same store NOI growth on a cash basis before termination fees of seven 5%.

Speaker 2: to 8.25%, which reflects a $1 million bad debt assumption for full year 2022.

To eight 5%, which reflects a $1 million bad debt assumption for full year of 2022.

Speaker 2: Guidance includes the anticipated 2022 costs related to our completed and under construction developments at December 31st.

Guidance includes the anticipated 2022 costs related to our completed and under construction developments at December 31.

Speaker 2: plus the expected first quarter groundbreakings Peter discussed earlier.

Plus the expected first quarter ground Breakings Peter discussed earlier.

Speaker 2: For the full year 2022, we expect to capitalize about 8 cents per share of interest.

For the full year 2022, we expect to capitalize about <unk> eight per share of interest.

Speaker 2: And our G&A expense guidance range is $33.5 million to $34.5 million.

And our G&A expense guidance range is $33 5 million to $34 $5 million.

Speaker 2: Other than previously discussed, our guidance does not reflect.

Other than previously discussed our guidance does not reflect.

Speaker 2: the impact of any other future sales, acquisitions, or new development starts after this call.

The impact of any other future sales acquisitions or new development starts after this call.

Speaker 2: the impact of any other future debt issuances, debt repurchases, or repayments after this call.

The impact of any other future debt issuances debt repurchases or repayments. After this call.

Speaker 2: And guidance also excludes the potential issuance of equity. Let me turn it back over to.

And guidance also excludes the potential issuance of equity.

Let me turn it back over to Peter.

Thanks Scott.

Speaker 3: After another successful year, our team is excited to execute on the internal and external growth opportunities ahead.

After another successful year, our team is excited to execute on the internal and external growth opportunities ahead.

Speaker 3: We continue to allocate additional capital to high-margin development opportunities in our target markets while growing cash flow across our portfolio.

We continue to allocate additional capital to high margin development opportunities in our target markets, while growing cash flow across our portfolio.

Speaker 3: Our industry fundamentals remain exceptionally strong supporting substantial rent growth and the continued evolution of e-commerce and the global supply chain are catalysts for incremental logistics demand today and for the foreseeable future.

Our industry fundamentals remain exceptionally strong supporting substantial rent growth and the continued evolution of e-commerce and the global supply chain are catalysts for incremental logistics demand today and for the foreseeable future.

Speaker 3: Operator, with that, we're ready to open it up for questions.

Operator with that we're ready to open it up for questions. Thank.

Speaker 1: Thank you so much, sir. At this time, as a reminder, please press star 1 on your telephone keypad for questions at this time.

Thank you so much Sir at this time as a reminder, please press star one on your telephone keypad for questions at this time.

And our first question comes from the line of Craig Melman Keybanc capital markets.

Hey, guys.

Just a quick question do you guys noted in the release that 54% of the 22 role.

Speaker 4: Quick question, you guys noted in the release that on 54% of the 22 roll, you already achieved kind of a 19% cash mark.

You already achieved kind of a 19% cash mark to market is there anything unique in the 54% that you guys re sign that that would make those spreads higher than potentially what you would get on the balance of the two.

Speaker 4: Is there anything unique in the 54% that you guys resigned that would make those spreads higher than...

Speaker 4: potentially what you would get on the balance of the 2022 expiration or pull forward.

2022 exploration or pull forward of 23, Chris.

Speaker 3: Chris, you want to take that? Yeah, Craig, yeah. There's really nothing unique there. If you look at the full year, we're expecting to be on renewals between 18% and 21%, so very similar for the rest of the year, too.

Chris you want to take that Craig, Yes, Theres really nothing unique there if you look at the.

Full year, we're expecting to be on renewals between 18% and 21% so very similar to the rest of the year or two.

Okay.

Speaker 4: And then, Scott, as it pertains to 500 Old Post Road, kind of what's in guidance there for same store and or FFO in terms of timing?

And then Scott is it.

Pertains to 500, all post road kind of what's in guidance there for same store <unk> in terms of timing.

Speaker 2: Sure, Craig. It's late second quarter, so we'll call it June 1st as the lease update. So seven months of FFO at about $300,000 per month. The lease assumption assumes three months of free rent, so about four months of cash for same store, so about $1.2 million. And I think that's about 40 basis points of impact.

Sure Craig.

Late second quarter, so call it June versus the lease update so seven months.

Bo at about 300000 per month.

The lease assumption assumes three months of free rent. So about four months of cash for same stores, so about $1 $2 million.

That's about.

About 40 basis points of impact from that.

Okay.

Speaker 4: guys have, like, where are you on that process? Any LOIs or, or, uh...

And do you guys have.

Where are you on that process on the LOI or more.

More serious prospects.

Speaker 5: Yeah, good morning, Craig. It's Peter. So we are one of two buildings of that size range in that sub market.

Peter Good morning, Craig It's Peter So we are one of two buildings of that size range in that sub market. The other being a recently completed 860000 square foot building.

Speaker 5: The other being a recently completed 860,000-square-foot building. We have seen an increase in fresh activity in that size range since the beginning of the year. There's very little in the supply pipeline behind that. And in fact, the adjacent county to the north.

We have seen an increase in fresh activity.

In that size range since the beginning of the year.

There is very little in the supply pipeline behind that.

And in fact, the adjacent accounting to the North has imposed a moratorium on new industrial development. So we continue to feel good about our opportunity to make the right decision for the asset we will keep you posted.

Speaker 5: has imposed a moratorium on new industrial development. So we continue to feel good about our opportunity to make the right decision for the asset. We'll keep you posted. Great, thank you.

Great. Thank you.

Thank you and the next question will come from the line of Keybanc.

<unk>.

Thanks, Good morning.

Speaker 2: There you're assuming a sense of capitalized interest, you know, I thought that would have been a higher number just given the ramp up in your development pipeline So he's helped me better understand

You are assuming a sense of capitalized interest.

I've been a higher number just given the ramp up in your development pipeline. So can you help me better understand how you can point to 8% expectations are eight equity, yes, Hey, <unk> its Scott the <unk> just on the developments we have in process and the handful of starts that we announced on the call.

Speaker 2: or eight cents? Yeah. Hey, a few minutes, Scott. The $0.08 is just on the developments we have in process and the handful of starts that we announced on the call. That's what the guidance assumes. So it doesn't assume any other new development starts throughout the year. We're going to start new developments throughout the year. And as we do so, we will capitalize interest on those new development starts. So I expect that number to ratchet up as the year goes by and as we announce new development starts.

That's what the guidance assumes so it doesn't assume any other new development starts throughout the year, we're going to start new developments throughout the year and as we do so we will capitalize interest on those new development starts. So I expect that number to ratchet up as the year goes by and as we announce new development starts.

Speaker 2: Got it. And this past quarter, it was interesting to see you guys sell $125 million of cash flowing real estate and buying non-cash flowing land. If you normalize through some of these

Got it and.

This past quarter. It was interesting to see you guys sell a $125 million of cash flowing real estate and buying noncash going land.

Sure.

If you normalize for some of these things.

Speaker 2: What do you think your FFO guidance would have been just as a mentor exercise? Because I would look at your fundamentals that suggest better than 240.

What do you think your <unk> guidance would have been.

Just as a mentor exercise.

Look at your fundamentals that suggest alright.

I suggest a better than 2014 <unk> number.

Speaker 2: So, Keevin, you're asking what the flip-flop is between just the sales and the fourth quarter?

So keeping you're asking what the flip flop is between.

The sales in the fourth quarter.

Speaker 2: All right, so the sales in...

Hey, Brian .

Yes, we yes, alright, so the sales in.

Speaker 2: So the 125 million is at, cap rate at sale is on 4.6.

So the $125 million is at <unk>.

Cap rate sale is four six.

Speaker 2: So that's about 5.7, about six million bucks. So that's probably like four plus cents a share. And then reinvesting it in land at 125 million, obviously that's gonna be non-cash flowing. So I think that's probably your beta is plus or minus four cents if you looked at that transaction like that. Okay, thank you.

So that's about five seven.

6 million Bucks, so that's probably like four plus cents a share and then reinvesting it and landed a $125 million, obviously, that's going to be noncash flowing so I think thats, probably your beta is plus or minus <unk> <unk>.

If you looked at that transaction like that.

Okay. Thank you.

Okay.

And the next question comes from the line of Rob Stevenson of Janney.

Speaker 5: Good morning, guys. Although things have seemed to have gotten a little bit better, has there been any change in customers' incremental demand for Southern Cal location, given the continued issues at L.A. and Long Beach ports?

Hey, good morning, guys, although things I'll see if <unk> gotten a little bit better has there been any change in customers incremental demand for southern Cal location, given the continued issues at la and long Beach ports.

Speaker 5: Joe, do you want to take that? Sure. There hasn't been. Demand continues to be strong. I mean, if you look at net absorption, it's significantly more than supply.

Tony do you want to take that sure.

And Ben demand continues to be strong I mean, if you look at net absorption is significantly.

More than supply.

Speaker 6: The, again, the demand for goods continues, not much change in goods.

Again, the demand for goods continues.

Not much change in goods.

Speaker 6: The, you know, we would have expected more net absorption in fact if the throughput was more efficient. You know, if you track the throughput year over year, containerized loaded only throughput was up about 11 to 12 percent, but in December it dropped a bit and, you know, so basically what happened was that we could have even more absorption and right now we're about one at one half at one percent vacancy.

<unk>.

We would have expected more than absorbed and in fact, if the.

The throughput was more efficient if you track the throughput year over year containerized loaded only throughput was up about 11% to 12%, but in December it dropped a bit.

Basically what happened was that we could have even more absorption and right now we're about one and one half of 1% vacancy in la.

Speaker 6: in LA, just like Peter mentioned. So the market could have been better if it was more efficient.

And so that might be it could have been better if it was more efficient.

Speaker 5: Are any markets really benefiting from that that you can tell in terms of having excess capability where people are sending the container ships to market X rather than LA and Long Beach and wait in that queue?

And are any markets really benefiting from that that you can tell in terms of having.

Excess capability, where people are sending the container ships to market ex rather than la long beach and wait in the queue.

Speaker 6: No, no, we haven't seen that. I mean, a lot of throughput, I mean, the throughput change for the whole U.S. has not changed significantly. Port of New York and New Jersey continues to do well. The Gulf Coast continues to do well. But overall, by and large, all the ports reported increase.

No no we haven't seen that I mean, a lot of throughput I mean, the throughput changed for the whole U S has not changed significantly.

Florida, New York and.

And he's really continues to do well the Gulf Coast continues to do well, but overall by and large all of the parts reported increases.

Speaker 6: And by the way, I just want to mention, Porto Belé is still by far the largest port. So it has the largest market share and it continues to get containers. N peaceful Yo constructedBananaminutement tomorrow

And by the way I, just want to mention that or are they really love, which is still by far the largest.

The largest.

Court so.

It has the largest market share and it continues to well get containers.

Not much change.

Thank you and our next question will come from the line of Caitlin Burrows of Goldman Sachs.

Speaker 7: Hi, good morning. Maybe just starting on the strong leasing side of things and pricing to get an idea for how long that could last, could you just go through what's the current spread between your portfolios in place rents and market rents and what you think that should tell us about strong demand and how long it lasts?

Hi, good morning.

Maybe just starting on this John .

Got it thanks and pricing to get an idea for how long that could last could you. Just go through what is the current spread between your portfolios in place rents and market rents and what you think that should tell us about strong demand and how long it last quarter.

Speaker 3: Yeah, I guess that's two separate questions. First, you're asking a mark-to-market question. As we've said many times, we don't track that mark-to-market. Our average lease term at signing is seven years. A lot can happen over long time frames like that. We think a better measure is what we're achieving in cash rental rate growth on new and renewal leasing in the current period. And you've heard those statistics. They're quite robust. In terms of how long.

Yes, I guess, that's two separate questions first youre asking on Mark to market question. We don't as we've said many times, we don't track that Mark to market. Our average lease term at signing of seven years.

What can happen over a long timeframe like that we think a better measure of what is what we're achieving and cash rental rate growth on new and renewal leasing in the current period and <unk> heard those statistics are quite robust.

In terms of how long can this last.

Speaker 3: I mean, we've never been in a market this robust and industrial. If you look at the mass and you look at the national vacancy right now that's ticked down to 3.2 percent, obviously it's a very, very strong landlord's market. If you then go into the more postal markets where we are most active.

I mean, we've never been in a market this robust and industrial if you look at the math and you look at the National vacancy rate now that's ticked down to three 2%, obviously, it's a very very strong landlords market. If you then go into the more coastal markets, where we are most active.

Speaker 3: The vacancy rates are lower there. JoJo mentioned Inland Empire is one half of one percent. And then you factor in functionality and use and the vacancy factor there is even lower.

The vacancy rates are lower there Joe Joe mentioned inland Empire is one half of 1% and then you factor in functionality and use in the vacancy factor there is even lower so we think it's going to be a strong landlord market for some time to come.

Speaker 3: We think it's going to be a strong landlord's market for some time to come.

Speaker 7: Okay, got it. And then just following that on occupancy realize you can't get above 100% occupancy. So given where you ended the year, it does look like that could come down some this year, which is fair. Could you give some more commentary on the occupancy guidance this year, maybe what's known move ins and outs and what's the more general expectation or buffer?

Okay got it and then just following that on occupancy realized.

Can't get above 100% occupancy so given where you ended the year. It does look like that could come down. Some this year, which is Eric could you give some more commentary on the occupancy guidance. This year, maybe what's known move outs and what the more general expectation your buffer.

Speaker 5: So Kaitlyn, it's Peter Schultz, I would say. There are really only two significant rollovers.

So Caitlin, it's Peter Schultz I would say there are really only two significant rollovers remaining for the year. One is in Chicago and the I $80 55 sub market about 393000 square feet. The other is in the Lehigh Valley in Pennsylvania 304.

Speaker 5: remaining for the year. One is in Chicago in the I-80 55 submarket, about 393,000 square feet.

Speaker 5: The other is in the Lehigh Valley in Pennsylvania, 341,000 feet. We're seeing good activity on both of those. The Chicago asset is in our guidance for Q3. The Lehigh Valley is in our guidance for Q4. So to Peter's point, demand continues to be robust.

1000 feet, we're seeing good activity on both of those the Chicago asset is in our guidance for Q3, the Lehigh Valley is in our guidance for Q4, so to Peter's point demand continues to be robust.

Speaker 5: and very broad-based and we feel good about the activity that we're seeing across the country in our portfolio and our development project.

And very broad based and we feel good about the activity that we're seeing across the country in our portfolio and our development projects.

Speaker 2: And Caitlin, this is Scott. If you look at our guidance, we expect to be plus or minus 98% occupied by the end of the year.

And Caitlin this is Scott if you look at our guidance, we expect to be plus or minus 98% occupied by the end of the year.

Just to give you further context.

Speaker 7: Got it. And maybe just a quick follow up on those. So for one that you mentioned one is the 3Q turnover expectation and one's the 4Q. Just considering the strong demand that is out there. What do you think the reasonable amount of time today realized longer term? Maybe it's like 12 months. But today for thinking of how long it could take spaces like those to get that filled in cash.

Got it and maybe just a quick follow up on the go for one that you mentioned one is <unk>.

Turnover.

Expectation and ones that <unk>, just considering the strong demand that is out there what do you think a reasonable amount of time today realize longer term, maybe it's like 12 months, but today for thinking of how long it could take.

Okay.

That cash flow again.

So our guidance assumes.

Speaker 5: So our guidance assumes only three to four months generally on the turnover of those faces so that should give you an indication of how we feel about the demand.

Only three to four months generally on the turnover of those spaces. So that should give you an indication how we feel about the demand.

Got it thanks.

Speaker 1: Thank you. And the next question will come from the line of Michael Carroll of RBC Capital Marcus.

Thank you and the next question will come from the line of Michael Carroll of RBC capital markets.

Okay.

So to ask a question at this time additional please press star one on your telephone keypad.

Speaker 2: Yeah, thanks. I wanted to touch on the development land purchase this quarter. It looks like you acquired these sites at a pretty good basis in top tier markets. I mean, where are these sites positioned in the metro areas? I guess what type of sub markets is in the core sub markets that everybody wants to be in? And could you break it down and are these projects entitled or do you need to do entitlement work?

Yes, Thanks, I wanted to touch on the development land purchase this quarter. It looks like you acquired these sites at a pretty good basis in top tier markets. I mean, where are these sites positioned in the metro areas I guess what type of Submarkets.

The core Submarkets that everybody wants to be in and could you break it down in <unk>.

Are these projects entitled or do you need to do with travel network.

Speaker 6: Jojo, you want to start with that? Sure, sure, absolutely. These are all for a tight-top market. 100% of these fields were off-market. So, you know, we're thank you for noting that these are very favorable basis and we're excited about these projects.

Jojo you want to start with that Jeremy can add fair absolutely. These are all core types out Mark gets 100% of these deals were off market.

So thank.

Thank you for noting that these are very favorable basis and we're excited about these projects.

Speaker 6: If you look at the NorCal, they're basically in the 880 corridor and that's our focus. So we're very excited as you all know 880 corridor is the best corridor in East Bay and these have great access to 880. And if you look at the IE, these are all, you know, within very, very close to our successful portfolio.

If you look at thank you.

We look at our north how they are basically in the 80 to 80 corridor and Thats. Our focus. So we're very excited as you. All know 80 corridor is the best Corridor East Bay and these have great access to $8 80, and if you look at.

I.

These are all.

Within very very close to our successful portfolio. If you look at for example, first Wilson that E. One half of 1% vacancy. If you look at that time or is this actually bore during east I E and website E again very close to your major corridors, we just the 60 and the 10 and the two.

Speaker 6: If you look at it for example, First Wilson, that's East IE, 1.5% or 1% vacancy.

Speaker 6: If you look at the Tamarit that's actually bordering East IE and West IE, again very close to your major corridors which is the 60 and the 10 and the 215.

15.

And then.

Speaker 6: Moving on, I would just turn it over to the two other locations, to Central New Jersey and to Central Florida to Peter.

Moving on I would just turn it over to the two other locations with Central New Jersey, and two central Florida to Peter Some Ike in Central New Jersey that site exit seven on the New Jersey Turnpike its approximate two.

Speaker 5: So Mike, in central New Jersey, that site is at exit 7 on the New Jersey Turnpike. It's proximate to several other assets that we've had in successful development. Vacancy rate consistent with JoJo's comments about the West Coast, very, very low product in that market continues to lead at or near completion.

Several other assets that we've had and successful development.

Vacancy rates consistent with Joe's comments about the west coast very very low.

Product and that market continues to lease at or near completion.

Speaker 5: The largest deal is in Central Florida and Orlando, so this site is very proximate to the Orlando airport.

Largest deal is in central Florida in Orlando. So this site is very proximate to the Orlando Airport, obviously, great labor profile great.

Speaker 5: Obviously great labor profile, great highway access and frontage. And uniquely this site gives us the opportunity to do some larger format buildings of 500 to 900,000 square feet plus or minus.

Great Highway access and frontage and uniquely this site gives us the opportunity to do some larger format buildings of 500.

Two 900000 square feet, plus or minus total of about $2 8 million square feet and Thats a product.

Speaker 5: total of about 2.8 million square feet and that's a product type that's really hard to use.

It's really hard to find.

Speaker 5: In that market with a limited pipeline you have to really go out to Lakeland along the I-4 to find something of size, so We're excited about our opportunity there. That site is entitled to your question, but we do have to go through a number of other

That market with a limited pipeline you have to really go out to Lakeland, along the I four to find something of size. So we're excited about our opportunity there that site is entitled to your question, but we do have to go through.

A number of permits.

Speaker 5: and so forth. So that's probably a 2023 start there after we finish that as the permitting process as we all know is slow and taking longer.

And so forth. So that's probably a 2023 start thereafter, we finished that is the permitting process as we all know is slow in taking longer. These days and then just to add all of the California assets.

Speaker 6: And then just to add, all of the California assets are unentitled and we're basically batting 100% in terms of entitlement since we started acquiring sites in California. Give them an idea for how long those entitlements might be. Entitled right now for California is about two years.

And entitled and we're basically batting a 100% in terms of entitlement since.

We started.

Acquiring sites in California to give them an idea for how long those entitlements entitlements right now for California is about two years.

Speaker 2: Okay, great. And then just to, and that was great detail, thank you for that. And then just a clarification on the spec leasing cap that you have. Is all of the 1-2-22 plan development starts included in the cap that's in the stuff?

Okay, Great and then just.

That's great detail. Thank you for that and then just a clarification on the spec leasing Capex you have is all of the <unk> Q2, two planned development starts included in the cap that's been this up.

Speaker 3: Yeah, so the balance of the cap, the available balance of the cap today is 154 million and that is net of the new start.

So the balance of the cap the available balance of the cap today is 154 million and that that is net of the new starts.

Speaker 8: Okay, great. And then just last one for me on the expected asset sales in 2022. I mean, have you identified those assets? And if so, are those mostly coming from the non-core markets that you guys have identified that you plan on slowly exiting from?

Okay, Great and then just last one for me on the expected asset sales in 2022, I mean have you identified those assets.

So are those mostly coming from the non core markets that you guys have identified that you plan to slowly exiting from.

Speaker 3: So we've got a number of assets that we're considering. It all depends on the execution, so I can't be too specific on what exactly, but yes, they will all come from the non-coastal markets, primarily in the Midwest, the lower growing assets in the portfolio.

We've got a number of assets that we're considering it all depends on the execution. So I can't be too specific on what exactly but yes. They will all come from the non coastal markets primarily in the Midwest the lower growing assets in the portfolio.

Okay, great. Thank you.

Speaker 1: The next question will come from the line of Nick Ulico of.

And the next question will come from the line.

Thank you Julie <unk> of Scotiabank.

Speaker 9: Thanks. Good morning, Peter. I just wanted to go back to when you were talking about earlier the the balance sheet land and the 1.6 billion of potential investment Just give us a feel for you know what you think that would pencil for a you know Yield standpoint if you were to start that all today based on you know current cost current rents or or even a expected profit margin

Thanks, Good morning, Peter I, just wanted to go back to when you were talking about earlier.

Balance sheet land in the one 6 billion of potential investment.

Can you just give us a feel for.

What you think that would pencil for yield.

Yield standpoint, if you were to start that all today based on current cost current rents or even a expected profit margin.

Speaker 3: Yeah, that's difficult to do. I think the important thing about that capacity.

Yes, that's difficult to do I think the important thing about that capacity and the reason I, specifically pointed out that hits at today's cost because.

Speaker 3: And the reason I specifically pointed out that it's at today's cost is because

Speaker 3: that land, as Jojo just mentioned, a bunch of the land we just bought is going to take two years to entitle. Over that time frame, we expect those costs to go up. So the actual investment dollars will be higher than that 1.6.

That land.

As Joe just mentioned a bunch of the languages, but can it take two years to entitle over that timeframe, we expect those costs to go up.

The actual investment dollars will be higher than that one six and then if you factor in <unk>.

Speaker 3: And then if you factor in and if we've been continually generating pretty significant margins for the last half a dozen years as competitive as the markets are because rent growth has exceeded everyone's expectations and been faster than the appreciation in land.

We've been continually generating pretty significant margins.

For the last half a dozen years as competitive as the markets are.

Because rent growth has exceeded.

Everyone's expectations, and then faster than the appreciation in land so.

Speaker 3: If you factor in, you can pick the range, just look at the margins we've been generating over the last half a dozen years. If you add that to the total inflated cost of that, you're looking at a very, very large number in terms of additional gross value to the FR balance.

If you factor in you can you can pick the range just look at the margins we've been generating over the last half a dozen years. If you add that to the total inflated cost or that you are looking at a very very large number in terms of additional gross value.

To the <unk> balance sheet.

Speaker 9: Okay, and in terms of the NAV page where you give the developer land inventory number, roughly $716 million, just a reminder, is that a fair market value number? Right, that's fair value.

Okay.

And in terms of the NAV page, where you give the developable land inventory number roughly $760 million. Just reminder, is that a fair market value number correct Thats fair value.

Speaker 9: Okay, and then maybe you just talk about why that, you know, that number went up from the third quarter. Looks like it was $500 million in the third quarter. You bought $125 million of land.

Okay and then maybe you can just talk about why that number went up from the third quarter. It looks like it was $500 million in the third quarter, you bought $125 million of land I guess.

Speaker 2: I guess some of that land would have gotten removed probably put into development. So, I mean, is that just the rest of that increase is just higher land values flowing through that number? It's good. It's definitely a mix. It's gonna be the acquisitions we made in the quarter and it's gonna be increases in fair value land, southern and northern California, coastal markets, Miami as well. So that's gonna be the other piece. Okay. All right. Thanks guys.

Some of that land would've gone removed probably.

According to development. So I mean is that just.

The rest of that increase is just higher land values flowing through that number.

It's definitely a mix its going to be the acquisitions, we made in the quarter and it's going to be increases in fair value of land, southern and northern California coastal markets Miami as well so.

That's going to be the other piece in it.

Okay, Alright, thanks, guys.

Yes.

Thank you. The next question will come from the line of Dave Rodgers of Baird.

Speaker 8: Good morning everybody. Thanks for the additional details in the stuff on the development cap. I think it helped with regard to sources and uses. With the development pipeline kind of pushing that $800 million spending probably starts to push 5600 million a year given the time to complete at some point soon, but you're only selling about 100 to 150. Is that all equity to plug that gap in the talk about kind of that source and use as you look at it?

Good morning, everybody. Thanks for the additional details in the stuff on the development cap I think it would help.

With regard to sources and uses.

With the development pipeline kind of pushing that $800 million spending probably starts to push by $600 million a year given the time to complete at some point soon but you are only selling about 100 to 150 is that all equity to plug that gap.

Talk about kind of that source and use as you look forward without additional asset sales.

Speaker 2: Yeah, David, you know, first is excess cash flow, as you well know, at $70 or $80 million.

Yes, David.

First as excess cash flow as you well know at $70 $80 million, we're guiding to $125 million of sales that will help.

Speaker 2: We're guiding to $125 million of sales that will help. We can issue more indebtedness. Our leverage is at 4.9 times, so we have some room there. And then the issuance of equity is going to be a piece of that as well. And when you look at the margins that we're getting in our in-place developments right now, 75%, 85%, we think the issuance of equity is a very good use to fund those developments due to the profitability. So it's going to be a mix of all four of those days.

We can issue more indebtedness our leverages at four nine times. So we have some room there and then.

The issuance of equity is going to be a piece of that as well and when you look at the margins that we're getting in our in place developments right now 75% to 85%. We think the issuance of equity is a very good use to fund those developments due to the profitability. So it's going to be a mix of all four of those states.

Speaker 8: Okay, thanks, that's helpful. And then maybe on kind of that sustainability of margin, and maybe this is Jojo or Peter, but can you talk about kind of growth in separately land values, labor costs and hard costs and kind of what that's doing, obviously overall? And then any markets are outliers for you guys where margins might be coming down or margins are expanding dramatically, go more, if you don't mind. political stock forspe ove composing

Okay. Thanks, that's helpful. And then maybe on kind of that sustainability of margin and maybe this is jojo or Peter but can you talk about kind of growth.

Separately land values labor costs on hard cost and kind of what that is doing obviously overall and then any markets are outliers for you guys where margins might be coming down or margins are expanding dramatically obviously related to rent growth.

Speaker 6: Sure, sure. In terms of margins, kind of just looking forward, the good thing is that we've got a really good land inventory. We've bought that land inventory significantly now below market. So that will, for example, when Peter announces 9.5%.

Sure sure in terms of.

Our margins kind of just looking forward a good thing is that we've got a really good land inventory.

But that bandwidth inventory significantly now below market so that it will.

For example, when Peter announced a nine 5%.

Speaker 6: in IE, that is a function of both things. One is the basis in the land I just mentioned, plus going forward, our view is that in the markets we're developing, rental rate growth, and it has done in the past, rental rate growth rate will exceed construction cost increase.

And.

And I E that is a function of both things one is the.

The basis in Atlanta, I, just mentioned plus.

Going forward, our view is that in our markets, we're developing rental rate growth and it has done in the past rental rate growth rate will exceed construction cost increases.

Speaker 6: So if you put together our basis plus the assumption that rental rate increases will go past construction cost increases, that's a formula for increasing margins. Now, you know, Ken comments, Hardie commented in terms of cap rates, but that's another key. You know, overall cap rates came down this year, and it's actually not, you know, moving at all given even, you know, site increases, long-term interest rates, because investors are depending on Liz's view of trust, theforthsome, and other systems in order to set up the latest to keep pricing at that level. This is stil a couple- latter- GH AG abs

If you put together our basis plus the assumption of rental rate increases slowly will go past construction cost increases that's a formula for increasing market now.

Okay comment hard to comment in terms of cap rates, but thats. Another key overall cap rates came down this year and it's actually not moving at all given even slight increases in long term interest rates because investors are so at the end.

Speaker 6: are so plenty and then they're coming in a big way and then their expectation for you know real rate goes far as he increases in the cause of capital so you know it's looking good

And then they are coming in a big way and then your expectation for.

Run rate growth far exceeds the increases in our cost of capital. So it's looking good.

Speaker 5: David Peter, you asked about labor and materials to

David Peter you asked about labor and materials to so materials are up more than labor.

Speaker 5: So materials are up more than labor and I would.

And I would say.

Speaker 5: It's really across a variety of components. The related matter to that is it's having a little bit of an impact on our delivery schedules because the timing and receipt of materials continues to be a challenge. So it's added a couple of...

It's really across a variety of components the related matter to that is is having a little bit of an impact on our delivery schedules because the timing and receipt of materials continues to be a challenge. So it's added a couple of months, depending upon where in the country. We're building to.

Speaker 5: depending upon where in the country we're building to our schedule. And we're keeping a close eye on that because we think there's still risk to the delivery of certain components throughout the year on our schedules, which everybody in our industry is seeing, despite the fact that we continue to work with our construction partners and material providers. For more information, visit www.fema.gov

Our schedule.

And we're keeping a close eye on that because we think there's still risk to the delivery of certain components throughout the year.

On our schedules, which everybody in our industry is seeing.

Despite the fact that we continue to work with our construction partners a material providers on forward commitments and managing that that continues to be a challenge.

Speaker 5: forward commitments and managing that, that continues to be a challenge.

Alright, I appreciate it everyone. Thanks.

Speaker 1: Thank you. The next question comes from the line of Anthony Powell of Bar-

Thank you. The next question comes from the line of Anthony Powell of Barclays.

Speaker 10: Hi, good morning. Just a question on the margins that are very impressive for development starts in the first quarter. Is there any incremental market rank growth in those margins or are those current market?

Hi, Good morning, just a question on the margins that are very impressive for development starts in the first quarter is there any incremental market rent growth, assuming those margins or are those kind of at current market rents.

Speaker 3: That's based on our underwriting as against current market cap rates.

That's based on our underwriting.

As against current market cap rates.

Speaker 10: Cash on current. What about current market rents versus current markets rent?

Cash on growth.

What about market rents versus market rents on cap rates.

Speaker 6: Those are based on risk that are achievable based on our projections.

So those are those are based on the rents that are achievable based on our projections right now.

Speaker 6: And they are, if you look back actually a couple years and actually even last year, our underwriting winds have far lagged the actual red growth in all of the markets.

They are.

If you look back.

Is it a couple of years and actually even last year, our underwriting with our legs.

Rent growth in all of the Marcus brand, so basically we've been our renters.

Speaker 6: So basically, our radar rate projections have been conservative.

To reiterate great predict projections have been conservative.

Speaker 10: Got it, thanks. And maybe just one more on the speculative cap that we talked about a few times last quarter. Given the strength of the...

Okay.

Got it thanks, and then maybe just one more unexpected.

Capex, we talked about a few times, even last quarter given the strength of the.

Speaker 10: the strength of the market, strength of demand, and any revisiting or thoughts of revisiting the cap.

Given the strength of the market trying to demand and any revisiting your father revisiting the cap may be increasingly given kind of what youre, saying.

Speaker 3: Yeah, the value in the cap is not having a level of the cap necessarily be. Remember, it's a cap and not a target, first of all.

Yes.

That.

The value in the cap is not having a level of the cap nessus.

<unk> necessarily because remember, it's a cap and not a target first of all.

But.

Speaker 3: The value in the cap is not having it be sensitive to a market that's incredibly strong, meaning it's a formula, it's based on the size of the company, and that is what helps us.

The value and the cap is not having it be sensitive to a market that's incredibly strong meaning it's a formula that's based on the size of the company and that is what helps us with our risked check given that the vast majority of our new investments are.

Speaker 3: with a risk check, given that the vast majority of our new investment is through speculative development. So yes, the answer is yes, we will continue to more regularly revisit the level of the cap. And that, of course, is a discussion with our board. Historically, it's been a three-year look.

Lots of development. So yes. The answer is yes, we will continue to more regularly revisit the level of the cap and.

Of course in a discussion with our board.

Historically, it's been a three year look.

Speaker 3: And going forward, we anticipate it will be more like an annual discussion. Great. Thank you.

And going forward, we anticipate it'll be more like an annual discussion.

Alright, thank you.

Thank you and the next question will come from the line of Vince <unk> of Green Street.

Speaker 11: Hi, good morning. I'm hoping you could provide some additional color on the components of same property are same store and why growth guidance. So based on the leasing spread and oxy trends, there would appear to be some other light.

Hi, good morning.

I'm, hoping you could provide some additional color on the components of same property, our same store NOI growth guidance. So based on the leasing spread in occupancy trends there appear to be some other line items that are contributing to our growth in 'twenty, two maybe bad debt or free rent is there any commentary or clarification that you could share there.

Speaker 2: contributing to growth in 22, maybe bad debt or free rent, is there any commentary or clarifications you could share there? Sure, Vince. It's Scott. About five percentage points of the 7.75% midpoint is due to rental rate bumps and increasing rental rates on new and renewal leasing.

Sure Vince it's Scott about five percentage points of the 775% midpoint is due to rental rate bumps and increase <unk>.

Creasing rental rates on new and renewal leasing.

Speaker 2: The lion's share to get to the 7.75% are due to two other items, an increase in same store occupancy of the portfolio, the old post road asset has to do with that, and lower free rent in the portfolio as well. So those are the main components.

The lions share to get to the 775% are due to two other items an increase in same store occupancy of the portfolio. The old post road asset has to do with that and lower free rent in the portfolio as well. So those are the main components.

Speaker 11: No, that's really helpful. Are you able to isolate just the free rent component? I'm sure I can do the math, but if you're able to...

That's really helpful are you able to isolate just the free rent component I mean sure I can do the math, but if you are able to get.

Speaker 6: give a number that would be helpful. Yeah, Vince, that number is about 90 basis points for the freeway.

Give a number that'd be helpful.

Vince that number is about 90 basis points for the period.

Perfect. Thank you.

Speaker 1: The next question will come from the line of Mike Mueller of JP Morgan.

And the next question will come from the line of Mike Mueller of J P. Morgan.

Speaker 4: Yeah. Hi. I guess first, Scott, is the disposition guidance of one to 150 based on the current development pipeline or does it contemplate additional starts throughout

Yeah, Hi, I guess first.

Scott is the disposition guidance of one to $1 50 based on the current development pipeline or does it contemplate additional starts throughout the year.

Speaker 3: The sales number is based on our objectives for disposing of some of the lower growing assets in the lower growth markets. It's not really tied to funding the development pipeline. So those are two separate decisions, we think, from a corporate finance standpoint.

The sales number is based on our objectives for disposing of some of the lower growing assets in a lower growth markets, it's not really tied to funding the development pipeline.

So those are two separate decisions, we think from a corporate finance standpoint.

Speaker 9: Okay. And then in terms of acquisitions, are you working on or are you anticipating buying any operating properties this year or should we think of acquisitions as really...

Got it okay.

Then in terms of acquisitions.

Are you working on or are you anticipating buying any operating properties. This year or should we think of acquisitions is really just being.

Speaker 9: you know, refilling the land bank and maybe buying vacancy where you can lease it up.

Refilling, the land bank and maybe buying vacancy where you can lease it up.

Speaker 3: Yeah, we're actively pursuing leased cash flowing acquisitions.

Yes, we are actively pursuing least cash flowing acquisitions.

Speaker 3: You'll notice we don't do a whole lot every year based on where we want to invest and what we want to own. That limits...

You'll notice we don't do a whole lot every year based on where we want to invest and what we want to own that limits the opportunities because we're kind of choosy, but the pricing is also at a point now in most of these markets, where we can add significantly more value as you have heard thus far this morning.

Speaker 3: the opportunities because we're kind of choosy, but the pricing is also at a point now in most of these markets where we can add significantly more value as you've heard.

Speaker 3: thus far this morning with our yields and margins, we can add much more value for shareholders developing than we can buying.

With our yields and margins, we can add much more value for shareholders developing them, we can buying and but again.

Speaker 3: But again, we're absolutely pushing hard to make more acquisitions. It's just very, very competitive.

Absolutely.

<unk> hard to make some more acquisitions, it's just very very competitive and at the end of the day, we have to take a look at how we're allocating capital and as I said with the pricing that's in the market today, our development program makes more money for our shareholders.

Speaker 3: And at the end of the day, we have to take a look at how we're allocating capital. And as I said, with the pricing that's in the market today, our development program makes more money for our shareholders.

Got it okay. Thank you.

And the next question will come from the line of John Peterson of Jefferies.

Speaker 1: The next question will come from the line of John Peterson of JF.

Speaker 12: Okay, thanks. Um, I guess I wanted to ask about all the supply chain disruption. You guys have a lot of concentration in Southern California in the inland empire. And you know, everything we read, it indicates that, you know, one of the problems, one of the problems with the backup of, you know, ships and moving goods is just getting the truckers, I guess, to move the goods out of Southern California to the rest of the country. And I'm sure this is true at most ports. And so I guess my question is, you know, I'm curious how much

Great. Thanks.

I guess I wanted to ask about all of the supply chain disruption you guys have a lot of concentration in southern California, and the inland Empire and everything we read it indicates that one of the problem was one of the problems with the backup of ships and moving good. This is just getting the truckers I.

I guess to move the goods out of southern California to the rest of the country I am sorry. This is true in most ports and so I guess my question is I'm curious how much demand do you think there is in southern California, and maybe particularly the inland Empire just from goods that are probably sitting there for longer than they need to be and so I guess another way to ask it is.

Speaker 12: demand do you think there is in southern california and maybe particularly the inland empire just from goods that are probably sitting there for longer than they need

Speaker 12: And so I guess another way to ask it is like, if the supply chain eases up and we have kind of a more free flowing, you know, flow of goods, it does that, I guess, decrease the demand in that market or is that a net positive in terms of warehouse?

If the supply chain eases up and we have kind of a more free flowing flow of goods.

It does that I guess decrease the demand in that market or is that a net positive in terms of warehouse demand.

Speaker 6: I think our thinking is a net positive because right now, I mean, the ports are not working properly and there's actually more goods to be received. I mean, at any one point, I mean, as there was a point about a month ago where there's about a total of a hundred.

Thank you.

If there is a net positive because right now on these airports are not working properly.

And they decided to be more goods to be rich.

See I mean at any one point.

And then there was a point in about a month ago, where there's about a total of 100.

Speaker 6: container ships and waiting and some near the port and you know the Port of LA and Long Beach over 8 demanded that they stay about 40 to 50 miles away if you count all that and if you assume they're anywhere from 10,000 to 15,000 CEUs just imagine the amount of stuff waiting.

Container ships and.

Waiting and some near the port and the Port of La Long Beach, a very demanded that they stay about 40% to 50 miles away because all of that and if you assume they're anywhere from 10000 to 15000 Teus just imagine the amount of stuff waiting. So our general view is that the ports are working well that is really really good.

Speaker 6: So our general view is that the ports are working well, they're really, really good for the market, they're really good for the economy.

The market and really good predict economy.

Speaker 6: You were right that if you can remove containers as quickly as you can, then you'll improve it. But that's only one variable. Everything has to be in sync. The ocean freight lines, the actual manufacture in Asia, the warehouses, landlords have to build more space because we're at one half of one percent vacancy.

You are right that yes, what.

Can remove containers as quickly as he can then it will improve it but that's only one variable.

<unk> has to be in sync the ocean freight lines the actual manufacture in Asia.

Warehouses.

The warehouses landlords have to build more space because we're at one half of 1% vacancy.

Speaker 6: The truckers have to come in and move those container tile reports.

Truckers have to come in and move those contacts out of course.

Speaker 6: I could come in and basically give you 12 other variables that affect the supply chain. So we don't think it's going to let up pretty soon.

I could come in and basically give you total other valuables that affect the supply chain. So we don't think its going to let up resume.

Okay, Alright, I appreciate that color. Thank you.

Speaker 1: The next question will come from the line of Bikru Mahaltra of Mizzouho.

The next question will come from the line of Vikram Malhotra of Mizuho.

Speaker 13: Just a couple of clarifications. So I think last week or the week before, Amazon sort of talked about potentially just slowing the growth across their portfolio. I'm just wondering if you can sort of.

Questions.

A couple of clarification, so I think last week or the week before.

Amazon sort of talked about potentially just slowing the growth across their portfolio.

Just wondering if you can sort of.

Speaker 13: maybe elaborate on two points. One, do you see or hear the potential for Amazon to be more discerning on the types of leases where they grow and where they may not or may not renew? And then second, just if you can talk about what you're seeing in terms of other retailers catching up and building out their supply chain. Is there any anecdotal...

Maybe elaborate on two points one do you see.

Here the potential for Amazon to be more discerning on the types of leases, where they grow and where they may not or may not renew and then second just if you can talk about what youre seeing in on.

In terms of other retailers catching up and building out their supply chain, if any anecdotal any examples would be great.

Speaker 3: Yeah, I mean we saw the what they said on the earnings call a little bit difficult to interpret as they said that they were going to slow or reduce their investment.

Yes, I mean, we saw the what they said on the earnings call a little bit difficult to interpret as they said that they were going to.

Slower reduced their investment.

Speaker 3: As you know, they lease and they buy and they own their own warehouses. As far as market activity goes,

As you know they lease and they buy and they own their own warehouses.

As far as market activity goes we have not seen any drop off.

Speaker 3: We have not seen any drop off and the demand today is very, very broad based and you can say that their competitors are trying to catch up. They're certainly looking to improve their competitive positions. JoJo, do you want to...

And the demand today is very very broad based and you can say that their competitors are trying to catch up there is certainly looking to improve their competitive positions Joe Jay do you want to add some color to this sure absolutely if you look at.

Speaker 6: color to this? Sure, absolutely. You know, if you look at, you know, year over year market change in terms of competition of net absorption, the 3PLs led the charge in 2021, meaning that, you know, 3PLs does.

Year over year market changed in terms of competition of net absorption. The three pls led the charge in 2021, meaning that the three pls.

Speaker 6: you know, non-Amazon. I mean, this is not Amazon. These are third-party business providers, you know, so just like Peter says, very broad-based. In addition to that, I mean, other competitors, you know, anecdotally, you know, I mean, there are a number of companies out there who are...

Non Amazon I mean, this is not Amazon is our third party <unk> providers.

So just by theaters is very broad base. In addition to that I mean the.

Other competitors anecdotally.

There are a number of companies out there.

Speaker 6: not even close to where Amazon and they want to be where Amazon footprint is, I guess.

Not even close to what Amazon and they want to be where I was flipping sits I guess target.

Speaker 6: growing, for example, Home Depot is still growing.

Growing for example, home depot slow growing Lowe's those area.

Speaker 6: Lowe's, those are big companies. Walmart definitely doesn't have the fulfillment footprint that they have to announce they want to be. So, yeah, you're right. I mean, there are other, your speculation is right. There are other retailers who really want to grow and catch up.

Big companies.

Walmart definitely doesn't have the fulfillment footprint that they have to now if they want to be so yes, youre right. I mean, there are other your expectations right. There are other retailers, who really want to grow and catch up.

We've long and we've long anticipated every business at some point begins to rationalize their space, we've long anticipated Amazon doing that and Thats why we have not chased them to the secondary and tertiary markets and Thats why we don't own any of their seven stories of Mezz.

Speaker 3: every business at some point begins to rationalize their space. We've long anticipated Amazon doing that and that's why we have not chased them to the secondary and tertiary markets and that's why we don't own any of their seven stories of meds full of robotics, the special purpose properties we've stuck.

Full of robotics, the special purpose properties, we've stuck to our on our disciplined.

Speaker 3: our disciplined focus on the coastal market.

Focus on the coastal markets and delivering property that appeals to a much more broad.

Speaker 3: and delivering property that appeals to a much more broad...

Speaker 6: set up to potential tenants. And there are still, the final point I want to make, there are a number of businesses where the SKUs, the companies that have SKUs, are significantly more like Amazon, like fast foods. Everybody probably knows Chewy, they're killing it in that.

Set of potential tenants and there are still the final point I want to make there are a number of businesses where the skus.

<unk> Skus are significantly more like Amazon, that's food, everybody probably knows chewy.

Killing and killing it in that space in terms of furniture.

Speaker 6: In terms of furniture, there are a number of companies like Wayfair that has a much, much more wider excuse than Amazon. So they're gaining share there. So there are some specialized products that I think are going to help compete Amazon unless they get bought.

There are a number of companies like on a weight there that has a much much more wider skus than Amazon. So theyre gaining share there. So there are some specialized products that.

I think again at the beat Amazon.

<unk>.

That's helpful and then just in terms of.

Speaker 13: That's helpful. And just in terms of risk or potential markets where we talked about a lot of development, there's a lot of opportunity, your margins are great. But are there any sub-markets or markets where you're just sort of maybe pausing and rethinking, given maybe the entirety of supply that's underway or potentially yet to come? Any watch-list markets you'd call out?

Risk or potential markets, where you are.

We talked about a lot of development, there's a lot of opportunity your margins the grid, but are there any submarkets or markets, where you would just sort of maybe pausing and rethinking given maybe the entirety of supply that's still that's underway or potentially yet to come any any watch list market you'd call out.

Speaker 3: Well again, we're very focused on allocating the vast majority of our new investment capital to the coastal market.

Well again, we're very focused on allocating the vast majority of our new investment capital to the coastal markets.

Speaker 3: And right now they are all very, very strong. In fact, in all of the markets that we're in, including the markets that we don't intend to invest in anymore.

And right now they are all.

Very very strong in fact in all of the markets that we're in including the markets that we don't intend to invest in anymore.

Speaker 3: Vacancies are coming down and net absorption exceeds new supply. So we don't see weaknesses across our market.

Vacancies are coming down and net absorption exceed new supply. So we don't we don't see a weaknesses.

Across our markets.

Speaker 13: Okay, great. And then if I can clarify, sorry if I missed this, your mark to market is clearly very strong and will continue to be so as you outlined on your same store. But can you just give us a sense of like, if you took the portfolio today, what is the entirety of the mark to market opportunity as it stands today? Where's the portfolio versus mark?

Okay, Great and then if I can clarify sorry, if I missed this.

Mark to market is clearly very strong and will continue to be so have you outlined on your same store, but can you just give us a sense of like if you took the portfolio today, what is the entirety of the mark to market opportunity as it stands today.

Whereas the portfolio versus market.

Speaker 3: We answered that question a little bit earlier this morning. We don't track that statistic. We can catch up with you offline on the rest of that answer. Okay, okay.

To that question a little bit earlier. This morning, we don't track that statistic, we can catch up with you offline on the rest of that answer.

Okay, sorry about that thanks, so much.

Speaker 1: Thank you and again ladies and gentlemen to ask questions please press star 1 on your pad at this time.

Thank you and again, ladies and gentlemen to ask questions. Please press star one on your pad at this time.

And again that is star one.

Speaker 1: And we do have a question from the line of Rob Stevenson.

And we do have a question from the line of Rob Stevenson of Janney.

Speaker 8: Hey guys, just a quick one. Scott, the GNA guidance looks to be down year over year. What's driving that? And then where are you seeing upward and downward pressure on expenses just in general in 2022?

Hey, guys just a quick one Scott.

G&A guidance looks to be down year over year, what's driving that and then where are you seeing upward or downward pressure on expenses just in general in 2022.

Speaker 2: So, Robert Scott, so it is down our midpoint GNA guidance is down. I think about six hundred thousand dollars compared to 2021 actual in the main driver that of that is incentive compensation. So in our 2022 GNA guidance we're assuming target incentive compensation.

So Rob it's Scott so it is down our midpoint G&A guidance is down I think about $600000 compared to 2021 actual and the main driver of that is incentive compensation. So when our 2022 G&A guidance, we're assuming target incentive compensation.

Speaker 2: in 2021, we earned higher than Target due to the fact of how the company did in 2021. So that's going to be the main driver in that. And I would say that the larger increase in costs are going to be just people costs.

In 2021.

We earned higher than target due to the fact in public company did in 2021, so that's going to be the main driver of that and I would say that the larger increase in costs are going to be just.

People costs, it's a very competitive market for talent, so thats going to be probably the biggest driver of the increase in G&A costs now and in the future.

Speaker 2: It's a very competitive market for talent, so that's going to be probably the biggest driver of the increase of gene A costs.

Speaker 8: And the same store NOI guidance, what type of expense growth are you anticipating driving that number?

And the NOI guidance, the same store NOI guidance, what type of expense.

Growth are you anticipating driving that number.

Speaker 9: I'll go ahead Chris. You know Rob, certainly the one area that real estate taxes, just because of the increasing values of the property, there's some upward pressure in that, but that's almost 100% recoverable. So not much impact on the NOI.

I'll go ahead, Chris.

Certainly the one area that.

Real estate taxes, just because of the increase in values of the property. There is some upward pressure on that but that's almost 100% recoverable so not much impact on the NOI.

Okay. Thanks, guys.

Speaker 3: All right, well, thank you everybody. That's the last question for this morning. We very much appreciate you joining our call. Thank you, operator, and we look forward to connecting with many of you throughout the year. Be well.

Alright, well. Thank you everybody. That's the last question for this morning, we very much appreciate you joining our call. Thank you operator.

We look forward to connecting with many of you throughout the year B well.

Speaker 1: Thank you so much, sir. And this concludes today's conference call. You may now.

Thank you so much and this concludes today's conference call you may now disconnect.

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