Q4 2021 Indus Realty Trust Inc Earnings Call
Good morning, and welcome to Indra.
Realty Trust's 'twenty, 'twenty, one and fourth quarter and full year earnings conference call.
Call will be followed by a question answer session.
They add yourself into the queue for questions.
Over the course of this call.
And one on your keypad.
It is now my pleasure to turn the program over to actually plays out.
One is capital markets and Investor Relations.
Thank you and good morning, everyone welcome to our 2021 fourth quarter and full year earnings call. In addition to regularly available earnings material 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.
Sure.
I would also like to mention that this conference call will contain forward looking statements under federal Securities laws. These statements are based on current expectations.
Met them 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 as updated by our quarterly report on Form 10-Q , and subsequent quarters. Additionally, our.
Fourth quarter results press release, and supplemental presentation contain additional financial measures such as NOI SFO EBITDA for real estate that are all non-GAAP financial measures and in accordance with regulation G and item 10 E regulation S. K. We've provided a reconciliation to those measures also please note that on this call when we refer to.
Occupancy statistics square footage and NOI and same property NOI metrics. These are referring to our industrial logistics portfolio only unless otherwise specified.
This morning, we'll hear from Michael Gambon, our CEO , who will cover recent activity market conditions and updates on our pipeline and we will also hear from Jon Clark, Our CFO , who will cover the fourth quarter and full year results in detail. After their prepared remarks, we'll be opening it up to your questions with that I'll turn the call over to Michael Michael Lee. Please begin.
Yeah. Thank you Ashley good morning, everyone and thank you for your continued interest in English.
21 was a great year for our company as we achieved or exceeded a number of our major goals and initiatives.
We increased our high quality industrial logistics square footage by 23% and.
And if you include our disclosed development and acquisition pipeline, our growth would be over 70%.
This growth was achieved through acquisitions, many of which we sourced off market as well as development. The most notable being the build to suit for Amazon We placed in service during the fourth quarter.
These new properties increase our presence in the dynamic southeast region with our geographic footprint expanding from four markets at the start of 2021 to what will be seven.
Our portfolio performed well over the year, we ended 2021 with our stabilized in service portfolio at 100% leased and our only vacancy relates to a value added property in Charleston that we acquired in November .
We also divested several significant noncore assets, including some large land parcels are specialized industrial property in Connecticut, and the majority of our office Flex portfolio, We announced this morning, our intention to dispose of our remaining office flex assets.
These remaining assets are very small part of our portfolio with the intended shale we will truly be a pure play industrial logistics company in 2022.
We also greatly increased our capitalization with the completion of two equity offerings. The most recent of which took place in October and generated 153 million in net proceeds. We also put in place a $100 million credit facility with the ability to scale up along with our gross.
Lastly, we continue to build and strengthen our in house team.
These results set us up well for 2022, which is already off to a great start.
Since January one.
We have closed on an acquisition in the Charlotte market placed under contract of forward purchasing a new geographic market for us and pre leased 43% of our soon to be deliver building in Nashville, as well as 66% of our soon to be completed development in the Lehigh Valley.
As we look out into 2022 we believe we are well positioned to take advantage of the broad based tailwind in the industrial logistics sector.
Significantly grow shareholder value and remain one of the most nimble and fastest growing public industrial REIT.
We remain sharpshooters focused on high quality properties in strategic locations.
Markets that we expect to be high performing over the long term.
The vast majority of our efforts are focused on higher returning value add and development opportunities. While we remain very selective in our pursuit of course stabilized acquisitions.
And many of our investments continue to come from off market or lightly marketed opportunities.
Heading into 2022, our current acquisition and development pipelines represent 2 million square feet and over $230 million in investment.
We estimate the initial stabilized yields on this pipeline to be in the low to mid 5% range, which is meaningfully above current market cap rates, there's pipeline demonstrates the substantial future earnings power of the company with the potential additional $11 million to $12 million of cash NOI, representing 33% to 40%.
Of external growth versus our last quarter annualized cash NOI of just under $30 million.
This just includes the properties and developments, we currently have under contract or closed as of year end.
Completion of this pipeline will occur throughout 2022 and through 2023 with dates noted in our supplement.
In terms of recent acquisition and development activity.
In November we closed on the 197000 square foot property in Charleston that its 57% leased to a global investment grade industrial manufacturer.
In January we closed on the acquisition of Georgia, and 17000 square foot warehouse in the Charlotte market, which we sourced off market.
We were especially attracted to this opportunity because the existing tenant had a short term lease that expires in the middle of this year at a rate below market. There are limited availabilities to compete with this building and we know what the current challenges and permitting and procuring certain construction inputs and warehouse equipment that can continue to delay tenant move ins.
As a result, we believe having this property, which is move in ready and certainty on an availability date significantly valuable in the current market.
We also are pleased to have entered into a forward purchase of an approximate 280000 square foot warehouse in the Greenville Spartanburg market.
We're very bullish on the I 85 corridor, which runs from Georgia, the Carolinas and represents the third largest economic region. The U S. After the Boston, Washington Corridor in the greater Chicago area.
This region's population, which makes up 12% of the U S is growing at two times the national average Greenville, Spartanburg sits between Atlanta, and Charlotte and is very well located for regional distribution with 50% of the country's population within a one day drive.
Key part of this market successes at inland Port our intermodal rail yard, which gets overnight shipments from the port of Charleston. In addition, the region has a very strong manufacturing base, including BMW Michelin and a G. G E aerospace amongst others the.
The industrial market is over 200 million square feet, which is in line with Nashville, Central Pennsylvania, Orlando in terms of size.
<unk> has experienced absorption of over 10 million square feet in the last year.
The property, we plan to acquire it's extremely well located close to the inland port and Bmw's major manufacturing facility.
Great access to I 85, we are pleased to add this market to our portfolio and expect this property to deliver in the first quarter of 2023.
I'll finish up acquisitions, noting that we expect to close on the two building 184000 square foot property in Nashville later in the second quarter.
This project isn't it true infill location with the first building of 79000 square feet being pre leased and we're seeing very good tenant interest in the second building, we continue to be choosy and selective tenets and given strong rent growth or stabilized yields continue to benefit from this approach.
Switching to development as I mentioned earlier challenges remain and the availability of construction inputs and even in getting permits and we also are aware of the impact of current geopolitical events on the price of oil and on supply chains. We.
We continue to proactively address this by preordering key items at the earliest possible date pre purchasing certain excess components, we can use across our projects.
Making our spec development is moving radius possible pause until delivery.
In the supplement there's a schedule that reflects our updated estimates of construction cost yields and delivery dates which shows that we have maintained our strong development yields and margins.
We expect to complete our 103000 square foot Lehigh Valley project in the second quarter.
The Lehigh Valley market remains very strong and tight we pre leased 66% of the building at a rate above our initial underwriting and the asking rate on the remaining space is now more than 15% above the rate on that pre lease.
Given the strength of this market. We are excited to have closed on the land to support our previously announced 206000 square foot building, we expect to commence construction on that project shortly.
We also have made good progress on our two building 195000 square foot development in Charlotte and Orlando.
Which which we expect to be ready for occupancy sometime in the third quarter of this year.
Switching to dispositions, we had a very productive fourth quarter.
And as I mentioned earlier intent to sell the remaining office flex portfolio.
We do continue to have non core undeveloped land holdings in Connecticut that we intend to actively market and sell over time.
These remaining landholdings generate no income and provide a cheap source of capital to help fund our acquisitions and developments I'm also pleased to note that some of our recent as well as several past land dispositions had been to conservation of agricultural preservation groups as well as for the development of large scale solar farms.
Moving on to leasing we only have 340000 square feet of leases expiring in 2022, the most significant of which is a 228000 square foot lease in the Lehigh Valley.
In addition, the Charlotte building that we acquired in January will add to our 2022 lease rollover schedule in the next reporting period.
We completed a couple of renewals in the fourth quarter with tenants that had a fixed renewal rate.
I'd point out that most of our renewals are tied to market for most of our leases, but we sometimes inherit a lease with a fixed renewal renewal term is part of an acquisition.
In terms of our portfolio, we only have three leases representing less than 5% of rent, but if fixed renewal rates going forward.
While our near term lease rollover schedule is modest we have significant embedded internal growth in our portfolio that we expect to capture over the next several years are in place annual rent Escalations average just under 3%.
In the current environment, we're pushing in least negotiations to get Escalations at a premium above this previously standard of 3%.
Additionally, rent growth has been strong in all of our markets and even with our relatively young portfolio with lots of new leases with conservative conservatively estimate the mark to market rents in our portfolio is in excess of 20% on a cash basis.
For this step we exclude any mark to market growth for the Amazon built to suit.
Overall, we expect our mark to market rents to continue to grow given the strength of our industrial markets and quality of our portfolio.
Lastly, I just wanted to discuss our team, which performed extremely well this past year.
I appreciate their efforts and their loyalty to in this as we continue to experience very low turnover.
Make great additions this past year, including in acquisitions as well as in finance legal and operations.
You can of finance, John Clarke officially assume the CFO role at the start of this year.
John has been working with us for over six months and we have benefited from his deep REIT experience as well as his efforts in managing our recent accounting and property system conversion, which has gone smoothly.
With that I'll turn it over to John for the financial review.
Thanks, Michael.
Happy to be part of the industry and engaging with both some familiar a new analysts and stakeholders.
Well I'll just start with a quick review of our financial results core <unk> for the fourth quarter was $3 8, million% to 29% increase over the comparable quarter of the prior year.
For the year core <unk> was $13 7 million, a 19% increase over the prior year.
<unk> for the fourth quarter and for the full year was $1 7 million and $3 9 million respectfully.
The difference between <unk> and core is our maintenance and capital expenditures and leasing costs for a second generation space.
It was $1 7 million in the fourth quarter and that includes two warehouse roof repair and replacement projects with an aggregate cost of about 800000.
For the year of maintenance Capex and leasing costs for second generation space was $3 5 million.
The other large driver of difference between the two metrics as of course noncash rental revenue adjustments such as straight line rent.
Which is one point, which was $1 million in Q4, and $2 6 million for the full year.
Our core F. L benefited the most from the growth in NOI, which was up 25% to $8 9 million in Q4.
Over Q4 of 2020 and up 14% to $31 million for the 2021 full year over last year.
Contributing to the increase in NOI. This quarter was the Charlotte build to suit for Amazon that was placed in service in October 2021.
A full quarter of rental revenue from properties acquired earlier in the year and lease up over the past year have both first and second generation space.
Now turning to cash same property NOI for the industrial logistics properties.
For the 2021 fourth quarter and full year periods.
Cash same property NOI was nine 2% and eight 3% respectfully.
The comparable 2020 period.
Our same cash property NOI for the 2021 fourth 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 about 7% of the total.
S P NOI pool.
I'd point out that for the most part of this year, our same property pool is 100% leased.
And we expect to have very few new leases in the same property pool in 2022.
Oh this is going to make for some tough comparisons this year at the same time the same property pool represented about 76% of our total cash NOI from industrial logistics properties for the 2021 and fourth quarter.
As our acquisitions and development activities ramps up a larger and larger percentage of our total portfolio is not going to be captured in this metric.
Wrapping up just a few things on the income statement.
Interest expense decreased slightly reflecting an increase in capitalized interest, which correspond to an increase in development activity.
Offsetting that slightly was interest from the new construction loan related to the Charlotte build to suit.
General and administrative expenses were $3 8 million in the 2021 fourth quarter and $11 8 million for the 2021 full year.
Excluding the noncash mark to market charge related to the nonqualified deferred compensation plan G&A expenses were $3 5 million in the 2021 and fourth quarter and $11 1 million for the year.
The fourth quarter numbers were higher than the first three quarters, reflecting the growth in compensation and recruitment expenses from increased head count as.
As well as the increase in the incentive compensation related to the company's strong performance.
The impact of year end bonuses for new talent added to the team also contributed to the increase and it was primarily recorded in this fourth quarter.
In addition of course, the the overlap between myself and the Anthony our retiring CFO contributed to the increase.
These increases were partially offset by a reduction in legal and accounting costs of about $1 3 million that was incurred in the prior year related to the company's conversion to a REIT.
During the fourth quarter, we generated about $34 5 million in proceeds from dispositions of non core properties.
And applied the majority of that to recent acquisitions of industrial and logistics properties.
We also paid off $14 1 million of mortgage debt with an average weighted interest rate of approximately 5%.
Prior to the sale NOI generated from the disposition properties was about $2 7 million annually.
This included 1985 Blue Hills Avenue.
Five and seven waterside crossing in 'twenty, One Griffin road North.
As well as undeveloped land leased to a farm operator, all of which were sold in Q4.
Well, we finished the year with a strong balance sheet that provides significant flexibility to fund our growth initiatives.
In October we raised $153 million in net proceeds from the issuance of 2.44 million shares of common stock.
Underwritten public equity offering.
Our liquidity at year end was $253 million, reflecting $153 million in cash plus the undrawn capacity on the credit facility.
In addition, we had $10 3 million of restricted cash on our balance sheet at year end.
The majority of which was cash held in connection with a 10 31 like kind exchange and it was used in January 2022 for the purchase of the 217000 square foot building in Charlotte that Michael had mentioned.
We ended the year with approximately $172 million in mortgage and construction loan debt.
And excluding our cash balance and our current debt to total enterprise value was approximately 17%.
Net of cash, we essentially have very little debt on our balance sheet.
As Michael mentioned earlier, we announced this morning, our intention to exit the office and flex business and sell the remaining seven office properties, which comprise of the approximately 175000 square feet.
As well as the 18000 square foot store is building that primarily serves the management of those properties.
Beginning with Q1 2022.
We expect to classify this group of assets as held for sale on our balance sheet and the operations and ultimately ultimate sale will be recorded as discontinued operations in our income statement.
As a result, we will report core F. S. L. A S S O K.
Cash NOI and any other financial measures without the assets to be disposed of.
The office flex business generated NOI of approximately $2 million for the full year 2021.
But remember we sold some of these properties are the most significant of which were actually building sold in the fourth quarter.
Excluding assets sold during the year NOI from what would be the disposition portfolio of the office flex properties.
It was $1 1 million in NOI.
The disposition portfolio, including the.
18000 square foot storage facility, which is currently classified in industrial on our supplemental.
Has a net book value of approximately $6 5 million as of December 31st.
Looking forward to 2022, we wanted to help Orient some of our investors and research teams around a few financial line items.
Please note. These assumptions do not include any new acquisitions or developments other than what's already been identified and scheduled on our pipelines.
Do not assume any material capital raises of either equity or debt.
They also exclude the financial results of the office flex assets that'll be treated as a discontinued operations beginning with the first quarter's reporting.
For 2022, we estimate NOI to range between 34 and $38 million.
I would remind you that this range reflects the removal of NOI from the dispositions, we completed in the fourth quarter.
And the removal of the NOI from the expected sale of the remaining office flex assets.
Additionally, new building deliveries in several leases will be backend weighted in 2022.
As an offset we did budget for some potential downside downtime.
Among the few removal and renewals that we have this year, which generally occur in the second half of the year, particularly in the fourth quarter.
As a result, the NOI range is forecast to increase each sequential quarter through Q3.
And then with a little bit of flattening out in Q4 due to the leasing assumptions I just noted.
We estimate G&A, excluding the mark to market changes on the nonqualified deferred comp plan to range between 13 million and 13 and a half million dollars.
This growth reflects the full year compensation for new and playing talent added to the team in 2021 and 2022.
Including additional acquisition stuff.
With this amount we estimate between one five and $1 8 million of noncash stock based compensation.
Of note approximately a half million of this reflects stock grants as part of our incentive compensation plan.
Last year, we began issuing stock compensation with a three year vesting period. So we'll accordingly have increasing noncash stock compensation costs for one more year.
And then after that increases are expected to moderate.
Additionally included in our G&A. This year, it's approximately $400000 of cost tied to the second half implementation of our new accounting laws.
Getting in project management system.
And some related ongoing consulting fees.
200000 of this expense is expected to be incurred in the first quarter.
Finally, I'd just like to note that we currently have sufficient liquidity to fund nearly all of the investments required in 2022 for our existing properties as well as developments and forwards and our pipeline with just our existing cash on hand.
Note that some of the spending will bleed into 2023, which is not addressing the assumptions I just walked through.
As we had stated in the past our current low levels of debt utilizing a conservative debt to asset value ratio. We believe we have the capacity for additional debt to fund future acquisitions and developments. In addition to any potential equity win that race.
With that I'll turn it back over to Michael.
Thank you John we have great momentum in our business and remain focused on our strategy for growing cash flow net asset value and most importantly shareholder value.
Very excited about what we accomplished in 2021 and I'm encouraged by indices future.
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.
I ask a question.
And along your telephone keypad.
Speakerphone, please pick up your handset before pressing the keys.
To withdraw your question who's supposed to starting to.
Our first question comes from Connor Seversky.
Aaron Berg you May now go ahead.
Good morning, everybody. Thank you for taking the questions.
To start I appreciate the color on the acquisition pipeline I'm wondering if you can provide any perspective as to what competition is looking like in these current markets, whether you're seeing any cap rate movement and kind of in a real time since were emerging into this somewhat extraordinary environment.
Do you are you changing your expectations for the end of the year or are things relatively consistent on that.
Yeah. Thanks, Scott good good to hear from you yeah at this point cap rates seem to be about where they are they've been we really havent seen major changes in the markets were looking at.
You know I think good high quality properties that are well located continue to be a half low cap rate expectations.
And I think as we look forward to it it's obviously hard to predict the future you know the 10 year.
It had gone up for quite a while and now it's kind of settled back in obviously, there's a lot of uncertainty on the geopolitical front.
But the underlying demand in industrial remains really strong rent growth remains really strong so that asset class and properties remained really attractive.
And continues to do well so.
It's sort of I think status quo for the moment on where we think cap rates are and where they're going.
Got it thanks for the color and then second for me on the development pipeline and seeing the $31 million has already been spent can.
Can you clarify at all just how to spread out that funding between the five projects in the supplemental.
Yeah.
You know if I have to get back to you with that I think you know if you affect it if you look at the dates where the projects are delivering yeah typically spend it gets fairly backend weighted just between timing of paying bills. The vertical construction is usually the biggest.
The biggest chunk of that and that's kind of the last several months of the project. So it's kind of.
If you think about each project kind of backend weighted towards when their delivery dates are that's probably the best approximation I can give you.
Got it that makes sense and then just in aggregate can you give a sense of what the cost per square foot is looking like.
Okay.
I don't have that off the top of my head what we're seeing in general is kind of building shell costs are in that.
Have driven up to that about $60 a foot range.
The biggest change you know the biggest variable amongst our different projects is really land costs and a little bit of the site cost depending on the situation building costs have been fairly fairly consistent across that.
We can get back with that calculation on an average per foot unless you know actually John have it have it handy.
Got it I appreciate the color as well and just last thing I apologies if I missed this in the prepared remarks, but on the sale of the office and flex portfolio any any idea of timing on those dispositions.
We didn't give any timing, but but we're launching marketing any at any minute and hopefully we'll be able to sell those as quickly as the process takes but yeah, it's going to be several months of of marketing and due diligence and any in any respect our goal.
Is to have that done by the end before the end of the year, but we'll have to see how the process goes.
Hey, you got it exactly.
Conor I'm the development costs are for that.
The buildings that we've just got in the pipeline.
The supplement is that roughly around Huntington com. Thanks, a lot Pat.
Okay. Okay. Okay.
That's just one of them.
Follow up on the office, we are as John indicated the intention to put those into discontinued operations or the financial results won't be reported for the next four quarters.
You know going forward said 'twenty, two will be a clean industrial P&L numbers.
Okay. Good luck for the end of the year things out of me on the call.
Yep.
Our next question comes from Dave Rodgers with Baird You May now go ahead.
Yeah. Good morning, everybody. Thanks for the continued improvement in disclosure that all the information that you are providing it's very helpful. Michael maybe wanted to start on the lease expirations for the year. It sounds like you're you're down to four after the two fixed rate renewals in the fourth quarter. If ive got that right maybe talk about what you expect on on the spreads and then I didn't hear it.
Downtime in the guidance commentary and so maybe you kind of tell us where the downtime is and where you would expect that to kind of come out.
Understood that correctly.
Yeah sure David.
Thanks for the questions as.
As you mentioned kind of the biggest renewal that's kind of scheduled is a building in Lehigh Valley you know that's a market that's seen really strong.
Rent growth so we.
Our expectation is we'll have a good leasing spread on that I mean in general if you think about our mark to market rents.
Think about our different markets. The Lehigh Valley has the highest mark to market potential in the portfolio.
So we feel good about the opportunities there.
The other roles that kind of one of the one of the tenants that roll in is actually moving into the building and Connecticut are they're taking two thirds of that building in Connecticut, given the timing of that there's actually a chance they would probably stay in overlapping that building potentially through the end of the year, so that might not.
Ended up being a.
New lease at <unk> this year.
And one other that we mentioned is the building in Charlotte that we bought.
Was that in the Q4 rent roll, but that lease comes up over the summer.
And so that's what also we expect to see a good growth in that we bought it with the value add.
In terms of the downtime you know, we just always assume not every tenant is going to renew we have that Charlotte building I mentioned, the Lehigh Valley building. So we just bake into our estimate some downtime it's not based on our belief that a tenant may leave or not lithium some assumption that someone might leave at some point, but does he have.
Sally market's extremely strong theres lots of interest in the space. So we feel really good about releasing that if the current tenant doesn't stay and fame and in Charlotte, which again, we've assumed some downtime if that tenant doesn't stay with their lease coming up in the summer.
But we feel really good that that tenant, possibly could stay or that there's really good demand in the market.
I appreciate that that's helpful. Maybe second on the acquisition pipeline that you've provided in the supplement I know for the developments you you gave a weighted average stabilized yield expectation I didn't see a number related to the acquisitions and if I missed the comment I apologize do you have an updated kind of cap rate.
<unk> for the acquisitions in the pipeline and maybe just a derivative question to that do you see any upside with the seller them beyond what you pay them upfront.
So I mean.
Acquisition pipeline part of the reason, we don't disclose is typically the sellers ask us not to until we we've closed on it and typically I think for most of our acquisitions, even not ones that have kind of a longer tail to it we typically just bring it out at the end.
Yeah, I think what we said if you combine the acquisitions with the development, it's a low to mid fives.
Since we give you the the developing one back into the acquisitions one minute.
Yeah actually that's a number handy.
In terms of the way the forward work there, they're generally a fixed price. So if lease rates go up a lot that's gonna be to our benefit.
No there really isn't.
Yield premium or anything else on the way the forward your written so are.
Our prices X dollars and that's what we pay at the end if there's cost overruns. It again the developer incurs those and if rents continue to grow nicely, which we expected most of these markets that yield upside goes to us.
Got you. Thank you that's very helpful. I'll go back and do the math.
Hey, Dave This is Ashley I did want to point out to you today and given that the city conference. This week, we just published a new investor deck. This morning, as well and there's a little bit more detail on them.
Acquisitions, and yelled at and kind of NOI bridge, and a jacket and helpful and happy to connect after the call.
I'm sure it'll be helpful. Thanks, we'll take a look at that last question from me you've created a good liquidity position of $160 million of cash roughly on the balance sheet at the end of the year that ties out pretty equally to the your acquisition and your development pipeline. So as you go forward do you anticipate continuing to pre fund. These announcements will you use more aggressively and ATM.
Graham how should we think about the financing strategy around new announcements of investment.
Yeah, I think you know I think it's a combination I think ideally we're going to more closely match fund what we need as we go forward with growth I think is in John's comments.
He mentioned.
Even using up all the cash we have we'd still be in a very low leverage position and therefore, our flexibility to draw down on the revolver and use additional debt to fund, which which we can do easily and incrementally and on the equity side.
Again, it's as once we use up our cash and have additional needs. We agree that match funding using the ATM is a efficient way to grow.
Balanced with are all the advantages of doing larger equity deals as well at the right for the right time and the right right thing. So we're open to all of those but agree. It's obviously makes financial sense. The better we can match fund against our near term needs the better.
Alright, thank you.
Thanks, Dave.
Our next question comes from Tom Catherwood with <unk> you May now go ahead.
Thanks, Good morning, everyone I'm just following up on Dave's last question. There. John Obviously, you had mentioned not doing incremental equity or debt. This year, but now that you've delivered old statesville in Charlotte what are your thoughts on terming out that construction loan and potentially accessing.
Some excess proceeds for future reinvestment.
Yeah, I just wanted to reiterate I mean, we're in a position where we wouldn't need to use any liquidity or I don't know that we would say that we wouldnt raise some debt or equity.
For this year, particularly as Michael mentioned to match fund.
And also I would say as far as doing construction financing the terms on our revolver actually pretty favorable and N and pretty unrestricted. So we likely would just basically tapped and tap into our revolver, which is unutilized right now.
Yeah, and I think more and more.
Anytime I think your question a good one about how we deal with the Amazon construction that over time as John said, we obviously just switch it and have it on a revolver or seek to do.
Other things.
To look at where interest rates are and what we could do to secure some longer term funding, but obviously, nothing we've announced or or can discuss right right here, but.
I think theres a lot of different options for that it's a great asset.
And provides great cash flow. So it's something that we'll evaluate the best way to kind of continue to finance the business.
That makes it makes a lot of sense provides a lot of flexibility.
Switching over to development for your Chapman's road asset stabilization timeline implies that you'll have the balance of the space leased up within the next few months does the tenant that did the 67% pre lease have an option on the balance of the space or you all Freda.
Go out there and lease it as you see fit.
Yeah, now, where we're free to lease the remaining call. It 35000 square feet and I think the tenant that's in the two thirds that's the space. They need so we're out marketing that that space now you know the building should complete in the next couple of months.
So were hoping you will that market remains pretty tight and strong. So we're hoping to find the right tenant for that space as.
As I mentioned, we're expecting rents to be at a premium to what we did the the the adjacent lease at and we're hoping to find that tenant and put them in as soon as soon as we can.
Yes, I appreciate that Michael and then finally on 110 trade Port It's also another.
33%.
Is there how was the demand kind of shaping up there, especially compared to a chapman's road type asset.
Yeah, I think demand. There also has been good we've gotten a series of inquiries.
For that space that deliveries a little bit later, so part of it is.
As a sort of typical maybe even getting a more so is tenants are always looking for space immediately what they're finding a lot of markets that there isn't anything immediate so they are starting to look a little bit longer ahead.
But they also recognize deliveries.
And even getting their own materials to put into their space take time.
So with that building and where it is in construction, we've seen a number of inquiries that you have.
There's always discussions ongoing, but we expect even more interest.
In the next couple of months at those panels go up and things really get moving there.
And that raises a good point just with tenants looking ahead, not able to find space is like giving you any thoughts to starting I don't think you have entitlements at one O five trade port if I'm not mistaken any thoughts on maybe starting that sooner rather than later just to meet the market or is that something where you'd be looking to do.
Substantial pre leased to start that.
Yeah, I think at the moment, we're leaning at the moment towards waiting for either a pre lease or build to suit I think we're waiting to get one time trade port.
Completed and ensure we lease that back piece again, we're seeing really good interest so that it seems to be going well.
And there's been you know a number of of other projects that have leased up in and around the Connecticut market. So we feel really really good about tenant demand tenant interest in that market.
Rent growth in that market. So, it's definitely something to consider but nothing we've announced yet.
Got it appreciate the color thanks, everyone.
Thanks again.
Alright, and then if you have a question. Please press Star then one our next question comes from Brian Holland.
With aegis capital you mean alcohol.
Yeah. Good morning, guys. Thanks for taking my questions.
Yeah.
Sure Good morning, Brian .
Maybe if you on the macro side can you talk a little bit about you know inflation, what youre seeing for materials and labor versus the third quarter and do you see these current levels of inflation continuing for the next few quarters.
Yeah. So what I'd say on that is you know in 2021 sort of the biggest piece of the cost increase was structural steel you know and I think we've talked about and others that if you think about our warehouse building kind of vertical construction.
The work the steel costs went from something in the mid single digits to the mid teens, so almost a tripling of that component.
And as I sit here I think a little earlier in the call kind of building costs are now in the $60 per square foot for vertical construction that used to be in the Forty's 45, So that was clearly a big piece of that.
You know as a fairly recently that it sort of that that growth has leveled off somewhat for structural steel.
Based on current geopolitical oil prices everything else.
We believe our construction our construction materials related to petroleum are clearly going to go up that impacts probably the biggest factor would be an asphalt for paving of.
Truck courts again asphalt is not a huge number so even a kind of a doubling of that cost us a couple of bucks a foot, it's not 10 or $12 a foot of increase so that's where we see sort of the probably the biggest increase coming along there's also roofing materials PVC piping or other things, but again costs. They are not in the order of magnitude.
Steel so as if you know kind of fairly recent information costume and going up a little but sort of manageable. This year, yeah, I think asphalt, particularly in the north North East and mid Atlantic when the asphalt plants reopen with new pricing will have to see exactly where that shakes out but again, it's not something we think is gonna be a huge step change.
All in costs overall.
Theres inflation, we all see we all read about the same news. So that's going to again continue to drive up some costs you know labor theres been some pressure on our labor cost, but not a lot a fault leasing across our our our development so far.
Thanks, that's helpful. And then just maybe switching up to interest rates do you know do you see a rising interest rate environment slowing down the build cycle where demand from tenants.
Yeah. It does.
It's hard to say exactly I mean again I think we all thought rates were going up.
Trade it back down.
Obviously inflation somewhat ties to where interest rates may or may not go.
I think in our view.
Tenant demand remains strong and we think there is just several levels of several drivers of that demand.
<unk> are a little bit maybe disassociate from interest rates.
E Commerce that everyone talks about we think a lot of it is not just e-commerce , but.
B to B needs you know, we just have tenants that are you.
Make engine parts or a replacement parts and theyre growing their footprint.
Footprint, because they each have shorter delivery times as well for their customers. It's not just you know one day Amazon deliveries, it's two day delivery to all their customers.
Dish I think with inflation.
Indicates the higher interest rates ways for companies to save money.
Frankly reduce labor costs.
Drivers are hard to get drivers are expensive for trucks fuel costs are going up one way to do that is to increase your distribution space and have more warehouses closer to where you need to be so we think that also is a driver and if the economy stays relatively strong that's definitely going to support support growth.
We feel the demand is really good in there and rents have been you know kind of going along with it it's still a challenge to get buildings delivered but beyond kind of that near term challenge. It remains a challenge to get really good quality land in really good locations where.
People want to have warehouses closer to where the people are but where the people are they don't really want warehouses nearby so with that when you can get those well located sites and.
And put up really good buildings, it's going to drive rent growth you know, there's just that underlying tailwind of demand. So we feel really good about our development and trying to find additional development opportunities and for the short medium and long term bench.
Benefits not to say, it's a cyclical business there may be some slowdown here and there, but there's just an underlying kind of nice tailwind to growing the business.
Alright, thank you.
Thank you.
Okay.
With no more questions. This concludes and that's Realty Trust fourth quarter and full year 2021 earnings call.
You for joining us and enjoy your week.
Yeah.
Yeah.