Q1 2022 First Industrial Realty Trust Inc Earnings Call
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Yeah.
Good day and thank you for standing by welcome to the first industrial first quarter earnings results call. At this time, all participants I never seen old email with I'll say the speaker's presentation. There will be a question and answer session to ask a question. During this session no need to press star one on your telephone piece that five Saturdays.
Call is being recorded if you require any further assistance. Please press star zero, what I'd like do you had a conference all parties speaker today, Mr Art Harmon, Vice President of Investor Relations and marketing you may begin Sir.
Thank you Sarah Hello, everyone and welcome to our call.
Before we discuss our first quarter 2022 results and our updated guidance for the year, 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 today's statements may be time sensitive and accurate only as of today's date.
April 21, 2022, we assume no obligation to update our statements or the other information we provide.
Actual results may differ materially from our 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, the supplemental report earnings release, and our SEC filings are available.
At first industrial Dot com under the investors tab.
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 will 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 Vice President of capital.
Markets and asset management now, let me turn the call over to Peter facility.
Thank you art and thank you all for joining us today.
'twenty two is off to an excellent start.
Our team continues to achieve strong operating results both within our in service portfolio and key development and value add leasing wins.
As you read in our press release yesterday, we also completed an important capital markets execution in the form of a new $425 million term loan, which Scott will discuss shortly.
Overall, the strong fundamentals in the industrial sector continued to drive high occupancy rates and rental rate growth.
According to CBRE a in the first quarter National vacancy remained at a record low level of 3% for the second quarter in a row.
Net absorption was 76 million square feet roughly in line with new completions of 69 million square feet.
In our portfolio, we finished the quarter with an occupancy rate of 98%.
We also successfully backfill our largest 2020 to move out of 390000 square footer in the I 55, I 80 Submarket of Chicago.
There, we achieved a cash rental rate increase of nearly 30% with no downtime.
We continue to capture strong rental rate increases on new and renewal leasing.
Through yesterday, we had taken care of 72% of our 2022 rollovers at a cash rental rate change of 20%.
For all of 2022, we anticipate that our increase in rental rates on new and renewal leasing will now be in the range of 20% to 23%.
Moving on to new development and value add activities.
Since our last earnings call, we inked a 167000 square feet of leases at first park Miami to bring buildings, 911% to 70% leased.
We also signed a 31000 square foot lease to stabilize the value add project in Northern California.
As discussed on our last earnings call, we expanded our pipeline by starting five buildings in the first quarter. These are located in southern California, Denver, The Lehigh Valley, Chicago, and Miami, where we are building. The latest addition to our first park Miami project.
These projects totaled $1 3 million square feet with an estimated investment of approximately $168 million.
In the second quarter, we expect to start another project in the city of Fontana in the inland Empire to capture tenant demand and this sought after supply constrained markets.
The vacancy rate in the inland Empire market currently stands at 0.2%.
The estimated investment for this 83000 square footer to be known as first Elm Logistics Center is $21 million with an estimated yield of nine 7%.
This projected yield is reflective of the great work by our southern California team and assembling the land at a low basis as well as outsized growth and rental rates in this market over the last couple of years.
Including the new second quarter development start our developments in process totaled $6 3 million square feet with an investment of $751 million, which are 23% leased as of yesterday.
The projected cash yield for these investments is six 8%, which represents an expected overall development margin of approximately 100%.
As we have highlighted in prior calls we are well positioned to capture additional demand and growth with our strategic land holdings.
During the first quarter, we added three sites in the inland Empire and the site in Northern California for a total of $55 million.
These new sites will support more than 700000 square feet of new development, when entitled representing $170 million of potential investment based on today's construction cost.
Including these acquisitions and adjusting for our new inland Empire start into Q in total our balance sheet land today can support an additional $14 8 million square feet.
This represents approximately $2 billion of potential new investment based on today's estimated construction cost and the land at our book basis.
These figures exclude our share of the land in our Phoenix joint venture.
With that I'll turn it over to Scott.
Thanks, Peter let me recap our results for the quarter NAREIT.
<unk> funds from operations were 53 per fully diluted share compared to <unk> 46 per share in <unk> 2021.
Our cash same store NOI growth for the quarter, excluding termination fees was 14, 4%.
And by higher average occupancy increases in rental rates on new and renewal leasing.
Rental rate bumps embedded in our leases and lower free rent.
As Peter noted we finished the quarter with in service occupancy of 98% up 230 basis points compared to <unk> 2021.
Summarizing our leasing activity during the quarter, approximately three 5 million square feet of leases commenced.
Of these 800000, where new 2 million were renewals and 700000 were for developments and acquisitions with lease up.
Tenant retention by square footage was 72, 3%.
Moving on to the capital side.
Peter mentioned, we have closed on a new $425 million term loan with a tenure of five five years.
This new loan refinances are $260 million term loan, which was scheduled to mature this September .
The remaining $165 million of proceeds of $67 million will be used to retire a 4.03% mortgage loan, which we plan to pay off in the second quarter and the remaining $98 million will be used to pay down our line of credit.
The new term loan has an interest rate of sulfur.
Plus the sulfur adjustment of 10 basis points.
That's a credit spread of 85 basis points.
The credit spread is a 25 basis point improvement compared to the expiring low.
We would like to thank our banking partners for their many years of strong support of first industrial.
We will also continue to evaluate our needs for additional capital throughout the year as we execute on our investments for growth.
Moving on to our updated 2022 guidance from our earnings release last evening.
Our guidance range for NAREIT <unk> is now $2 10.
To $2 20 per share with a midpoint of $2 15 per share, which is a penny per share increase at the midpoint, reflecting our first quarter performance and an increase in capitalized interest.
Key assumptions for guidance are as follows.
Quarter end average in service occupancy of 97, 5% to 98, 5%, a 25 basis point increase compared to our prior earnings call.
Please note that our occupancy guidance now assumes that the lease up of the 644000 square foot All post road space in Baltimore will occur in the fourth quarter for which we expect to more than offset the impact with incremental leasing in the remainder of our portfolio.
Same store NOI growth on a cash basis before termination fees of 775% to 875% an increase of 50 basis points at the midpoint compared to our prior earnings call, reflecting our increased occupancy guidance.
Guidance includes the anticipated 2022 cost related to our completed and under construction developments at March 31.
Plus the expected second quarter groundbreaking Peter discussed earlier.
For the full year 2022, we expect to capitalize about <unk> <unk> per share of interest.
And our G&A expense guidance range is unchanged at $33 5 million to $34 5 billion.
Other than previously discussed our guidance does not reflect the impact of any other future sales acquisitions or new development starts. After this call the impact of any other future debt issuances debt repurchases or repayments other than those previously discussed and guidance.
Also excludes the potential issuance of equity, let me turn it back over to Peter.
Thanks Scott.
As we said 22 is off to a great start we're excited about the developments, we're ready to serve tenants supply chain needs, while creating significant shareholder value. We also look forward to capitalizing on the opportunities ahead and are well positioned landholdings.
Operator with that we're ready to open it up for questions.
Thank you Sir reminder, to ask a question you will need to press star one on your telephone do we draw your question <unk>.
We would like to ask a question press Star then number one on your telephone keypad.
Steinbaugh will be compile the Q&A roster.
First question comes from the line of Keybank came from <unk>. Your line is open.
Thanks, and good morning.
On the $425 million loan.
What are your thoughts on swapping it and if you did.
What would the impact be to a couple of pressure this year.
Hey, Kevin its Scott.
$260 million of the $425 million of the loan are already swaps to September from existing swaps that we have.
I had outstanding we do plan to swap to fixed rate either a portion or all of the loan.
Something thats that we planned to do.
As far as the impact on <unk> guidance. If you look at where you could swap today, we have that rate built into our guidance range.
So that's the impact.
Okay got it and.
I realize.
Leasing on your development pipeline can jump around quarter to quarter, so I fully get that but.
Can you just give some insight into the activity youre seeing for leasing of development pipeline, whether that'd be.
Number of visits.
Visits or proposals metrics like that.
Sure I'll take a crack at this and then Jojo Peter can jump in as well to add some more color.
As you know, we're 98% leased and the in service.
All of our developments that are completed with the exception of two small spaces and first park Miami are also leased.
With respect to the projects underway, we have significant pre leasing already the activity around that space is significant.
We're having activity in discussions I would say just about every project except for the ones that are going to deliver next year. So the projects that are going to deliver this year.
Having some pretty active dialogue so the market is very robust we're.
We're excited about it we're very happy with where we are in charge of our period you want to add anything else. Yeah. One of the earlier projects that will be completed but not not until the end of the second quarter is a project in Seattle and we have responded to multiple inquiries and we had we already have multiple showings. There. So we're getting good activity.
There is no lease to announce yet.
Hey, Stephen it's Peter Schultz, So the only thing I would add is we've seen an acceleration of interest from prospects.
In the last couple of months, so to Peter's point to George's point, we're now seeing multiple prospects on those spaces, which is really reflective of the fact that there's more demand than there is supply in the markets that we are building in for the most part. These are traditionally pretty early conversations relative to the past where typically those conversations wouldn't.
Until the buildings were completed.
Okay. Thank you.
Your next question comes from the line of Greg Mcginniss from Scotiabank. Your line is open.
Hey, good morning.
Just given the strength of leasing and expected increase in full year same store growth I guess, we were somewhat surprised by the limited.
Per share guidance.
Is that just reflect the higher capitalized interest essentially.
Originally thought that may be due to payroll increases, but it sounds like that's largely swap.
So is this just some conservatism on your end or are there other items limiting any oh for sure.
No. This is Scott no there is not as we mentioned in the in the tranche.
Mark's basically the penny increases due to slight increase in capitalized interest in same store increase which is driven by our mid point occupancy increase in guidance.
And again don't forget we're all pretty leased up so the opportunity to improve on that number depends a lot on how quickly we can lease up new development when they are completed.
They are going to be completed between the <unk>.
End of this quarter through the second quarter of next year So were.
That's really the upside.
Okay. Thanks, and then I have been looking at that $2 billion of potential development.
Can you give us any sense in terms of what expected yield or profit margin might be achievable. If we think about the strength today.
Well.
Look.
The best indicator I suppose is where we are now this is land we have in house, so our basis relative to market is strong.
We expect yields to be strong on that going forward I'm not going to speculate on margin cap.
Cap rates move.
And this land will be built out over three years or four years. So that that's something that we really can't comment on but we feel confident that we're going to add significant value to that pipeline you have.
Seen what we've been able to achieve in the way of margin. The last handful of years they've been very very robust. We don't have any reason to think that that will continue and the only thing I'll add to what Peter said is that it gives us a composition of the developer or the future land position is assuming we can divulge it allows.
In coastal markets and the predominance.
As you have seen and we project higher rent growth in coastal markets. So.
We feel good about that capital allocation.
Okay. Thank you very much.
Your next question comes from the line of Rob Stevenson from Janney. Your line is open.
Good morning, guys Scot.
Scott just a question on the debt side. If you guys had wanted to do five or 10 year fixed rate debt unsecured notes instead, where would pricing have been for you guys relative to where you were at year end before the interest rates started to pop, but it seems like over the last five years every time rates went up.
The spread for you guys and the rest of the regroup compressed and so the actual rate didn't really go up very much or are you seeing anything different this time.
Yes, Rob, but I can tell you the spreads since the end of the year.
Gapped out between 30 to 50 basis points depending upon.
What timeframe you are looking into so that was one of the reasons why we pick the five year term loan spreads in that market have not capped out at all we locked into an 85 basis points spread which was the same deal that we locked into last July . So the bank market has been very very steady on spreads the public market the private placement market.
Is definitely gapped out quite a bit since the end of the year.
Okay. That's helpful. And then what are you guys seeing in terms of the rate of increase in terms of material and labor cost for construction, that's still accelerating or you're seeing some stability there or are you seeing any deceleration in the rate of growth there and what about availability issues are you having problems there or is that.
Is that okay for you guys at this point.
Sure Rob It's Peter Schultz I would say, we're seeing really two dimensions. One is cost continued to go up and it depends on the component and where it is in the country.
But the other leg is that delivery dates and availability of materials continue to extend as an example, a steel order today is probably 12 months out roofing is longer than that so it's definitely impacting.
Our construction schedule, probably overall by three months or so.
And getting components continues to be a challenge, whether it's dock levelers or switch gear, our roofing materials. As an example, so we continue to be challenged by that.
And work with our general contractor partners and ordering materials in advance to Derisk that and we have had and continue to have pretty good success, there, but it remains a challenge Joe do you have anything you want to add.
No I would just add in terms of labor that's embedded in terms of construction cost.
In terms of our underwriting.
Forecasting increase there and we're adding contingency as well this whole contingency in our underwriting.
Okay, and then last one from me Scott.
Scott back to the earnings guidance question is there any incremental drag from a one time or non operational aspect like debt prepayment penalties or refinance gap refinance charges or whatever that we need to be aware of on the NAREIT definition side. The reason why I ask is just similar to.
The other question you guys did 50 <unk> per share in the first quarter, which annualized to $2 12 in the bottom end of the guidance range is $2 10, So I didn't know whether or not there is some sort of nonrecurring thing that we need to be aware of to adjust for whether or not.
It's just.
Potential leasing et cetera.
Whole hodgepodge of potentials down there, yes, Rob there isn't any one time type of item. We just gave a guidance range of Titans as the year progresses.
I would say, though that there's probably some decent upside increase in the guidance, we're delivering a lot of developments in the second and third quarter. We assumed 12 months pro forma for lease up so to the extent that we can sign leases earlier than that we might be able to have a little bit of a pickup in 2022.
Okay. Thanks, guys I appreciate the time.
Your next question comes from the line of Todd Thomas from Keybanc Capital markets. Your line is open.
Hi, Thanks. Good morning first question on 500, all post road can you just provide an update there on on the leasing demand for that asset and what youre seeing in the market and I think previously you talked about an approximately 10% mark to market I was wondering if if that's changed at all just in light of the current change to that.
Timeline.
Sure Todd Good morning, It's Peter Schultz, So we're now seeing.
Interest from multiple prospects for the full building.
So we're pleased about that those requirements all have a range of outcomes in terms of timing for a lease execution and.
And occupancy so based on that we thought it prudent to push back the occupancy date for months.
In terms of the rental increase we now expect that to be plus or minus 25%.
And certainly the lease up of this building.
Be another opportunity to increase our occupancy to over 99%.
Okay. That's helpful and then.
Similarly, I guess you discussed the 22 exploration in Chicago any update on the one in the Lehigh Valley that was about 340000 square feet.
In terms of expected downtime or timeline to backfill and then and then is there anything else of size as we look out at the <unk>.
Balance of 22 or really 'twenty three in terms of explorations.
First in Crystal sure Todd, It's Peter again, so correct. The 341 in the Lehigh Valley tenant vacate at the end of the second quarter, we have it in our guidance to be released in.
In the fourth quarter activity in that sub market continues to be very very good.
We expect the rent increase to be in the 35% to 40% range on that asset Chris.
And Todd Peter just mentioned the.
The largest rollover after that there really is no significant rollover left for the balance of 2022.
Okay, Alright, great. Thank you.
Okay.
The next question comes from the line of Michael Carroll from RBC capital markets. Your line is open.
Yes, Thanks, I wanted to get a sense on how aggressive fr can be pursuing new development projects. I mean, obviously the company was very active in the first quarter, but trend slowed in the second quarter.
This just due to lumpiness and timing or is it driven by material issues and or the development leasing trends and the in process pipeline.
Yes.
It has to do with a few things.
One is in fact, what you said it has to do with when projects are going to be ready and when we're going to have full entitlements.
The other has to do with our speculative cap, we have $158 million of availability under that today, which we fully intend to utilize.
And we've got projects in various stages of being ready to come in so we'll come back to you as the year goes on on that.
Okay, and then Peter earlier in the call you kind of highlighted that development leasing is occurring earlier when the process. When the building is under construction can you provide some color.
How early do tenants start looking at projects today versus let's say pre COVID-19 or are historically I mean, how much earlier or are they starting to start looking for new deals.
While there are those that are opportunistic and realize if they wait too long they are not going to have any alternatives and those conversations are beginning to happen.
Pretty early on in the construction process as you can imagine we're not in a big hurry to put ink to paper.
At the beginning of the development of its going to take 12 months to deliver the project, but it's good to see that activity and that interest and we track that and of course get back in touch with those.
Potential prospects when we get closer to completion. So historically it was kind of a build it and then have the conversation and we're having the conversations much much earlier now.
Okay.
Is there a timeframe of when you are willing to lease it I mean do you want to lease at three months before it's completed or is it just depending on how aggressive the prospective tenant wants to be on on the rental rate side.
That's a good question, particularly in the coastal markets. It seems like every new deal has a record deal in terms of rental rate and obviously, we want to continue that trend.
Look to maximize the value of all of these leases that we're signing so it really depends on how aggressive we're going to push very very aggressively if a tenant wants to meet them meet the ask three or four months before completion will certainly sign that lease.
Okay, great. Thank you.
Again, everyone. If he would like to ask a question Press Star then the number one on your telephone keypad.
Your next question comes from the line of Caitlin Burrows from Goldman Sachs. Your line is open.
Hi, everyone. Good morning, maybe just a quick follow up one of the previous questions on construction costs, you mentioned that youre, adding contingencies and underwriting I was wondering if you could just clarify what that is is it related to if there are cost increases something else happens or could you just clarify that point.
Sure sure.
So thats just a straight percentage.
Increase anywhere from 3% to 5% on hard construction costs.
In addition to our projection that total construction costs will increase.
So first of all we do is a little bit.
Today, we increased that by an escalation factor and further add that contingency and that's just the black and the things that he doesn't have to do with really our forecast that we will miss a good chunk of it because we've been on budget.
Almost every project, but it's all for the unknowns.
A lot of times, you save that to the agency.
Our estimated budgets have increased significantly to offset.
Anticipated growth in the costs and all in on top of that we added an additional cases.
Okay I might follow up with that again, thank you.
Maybe on the acquisition side, you guys acquired two properties in the quarter. The cap rate was in the low fours, so below 2020 and 21 levels.
Could you go through how those deals kind of came to be and maybe your choice to acquired in southern California versus other markets.
Sure sure.
I mean, we're very pleased with those acquisitions.
Those.
100% off market.
They were in the market today, it would probably be sub threes and theyre all below replacement cost and it never hits the market and allowed those.
Mid mid to long term leased and.
The size range, where we all we all competed private buyers who takes.
Some time in trying to get financing and we paid all cash. So we're very pleased about those projects.
Got it and maybe then going forward as you think about funding acquisitions and development over the course of the year, obviously strong cash flow growth itself contributes but how do you think maybe equity or dispositions could come into play and how do you expect it to prioritize one versus the other.
Caitlin, it's Scott further developments under process plus the new start we mentioned.
The total cost were projected for the year is about 275 billion, we could take care of that with property sales just as a reminder, our guidance is $100 million to $150 million excess cash flow and we also have some capacity in our line of credit.
We obviously plan to put more money out in the market and new investments and we will look to determine what our capital market.
Our strategy would be at that time, it could be indebtedness it could be equity as well as we like the stock price.
Your next question comes from the line of Dave Rogers from Baird. Your line is open.
Yes. Good morning, everybody wanted to ask about the leasing spreads in the quarter, you were 12% to 13% and Youre guiding obviously 'twenty to 'twenty three so some big acceleration in the back half of the year and you've given some color on some of the big leases, maybe $35, 40%. So one.
Couple of questions. One is can you kind of talk about what that looks like on a quarterly basis. As you go forward to any outliers in the first quarter that kind of made that a much lower number.
And then third maybe more general commentary about lease sizing and the spreads that you're seeing across the portfolio by by.
By at least size or property types.
Chris David This is Chris as far as.
In the quarter, we really just had a little bit higher concentration of our non coastal rollovers in the quarter.
And you've seen the numbers for the full year, we're expecting to be in the 20% to 23% range. So that works out for the final three quarters, we're averaging plus or minus 30% and cash rental rate increases. So really this is certainly is not a trend. It's more of a just kind of a quarterly fluctuation as.
As far as size ranges, maybe Jojo Peter can talk about it but it's pretty spread across all size ranges as far as what we're seeing in rental rate increase alright, correct confirmed at across all sizes.
Up to $30000 to over half of it would be.
That's helpful. And then maybe just one follow up I mean can you guys talk about if you put more thought around the idea of the total mark to market for the portfolio as you sit here today, certainly with rents growing as fast as they are in seeing spreads going to bounce around a little bit would.
It'd be helpful couple thought process as well.
Yeah. So as you know, we don't track that Dave.
We continue to think that the best indication of how we are doing is what we're signing leases for Chris just went through the math and it certainly feels like that number is going to continue to be very robust and should increase through the end of this year, especially in the coastal markets, where we're seeing significant rent.
Increases in the 2025% range.
Alright, thank you.
Your next question comes from the line of Mike Mueller with Jpmorgan. Your line is open.
Yeah, Hi, I guess, Peter based on your comments about the land bank and the time to go through it it seems like you're still expecting maybe five to 600 plus million dollars of development starts a year do you think youre going to need to ramp up dispositions or the higher margins kind of enable you to kind of keep dispose pretty low.
So those are different.
Decisions.
Nick.
As far as dispositions go.
We're really looking at continually managing our portfolio and disposing of the lower growth assets in the portfolio. We don't really look at that as these the funding source for our new development opportunities the new development opportunities over the long term will be funded primarily from debt. In addition.
Total equity issuance over time so.
The volumes are going to be as you pointed out much more significant going forward than they have been historically for us, especially as the overall size of our company continues to increase as rapidly as it has and again, we will fund that growth through a combination of.
Debt and equity over time.
Got it and then one one on lease spreads.
The 20% to 23% cash spread expectation for this year on a net effective or GAAP basis.
Where does that number pencil out how much higher or how much above 30% what would that be.
Yes, if you look at the side 2022 renewals that we've signed to date is a 20% cash rent increase.
Net effective or GAAP increased 36%.
Got it okay I appreciate it thank you.
Your next question comes from the line of Anthony Powell with Barclays. Your line is open.
Hi, Good morning, a question about the non coastal lease spreads.
Lower coastal but how they perform relative to your expectation.
Relative to last year and what's your outlook for I guess non coastal spreads over time.
Sure. It's Peter So I would say better than expectations, which is consistent with what we're seeing across the country, where rents continue to grow.
At a high and fast pace.
And as we've said, we're doing better in the coastal markets, but even in the non coastal we're doing better than we thought absolutely.
Non coastal markets are and the team and.
And then we expect.
Then for coastal markets.
We're in the.
20% range 2020 plus percent so so.
So everything all the markets are doing well its just maybe.
Pfizer, 10% difference.
Got it thanks, and maybe 2 billion development pipeline or potential how much of that is already entitled and are you seeing I guess more community opposition or whatnot for industrial development impacting your current developments or your thoughts about your future developments and how do you navigate that issue as it becomes a bit more prevalent.
Take the second part of that question George I'll take the first part in terms of pushback.
That's been a phenomenon that's been something that we've had to deal with for years.
I would say that our teams are doing a great job working with the local municipalities.
They have a lot of patients.
And they have great relationships that they've developed over a long period of time.
So we're really working with those that are more municipalities municipalities that are more interested in improved.
Improving in their tax base et cetera, So we're dealing with the pushback. It takes time it takes patience.
But our team is doing a great job finding opportunities and getting them approved.
In terms of the developable site inventory if you look at in terms of the develop of our square footage.
About 70%.
Entitled and roughly 30% is entitled and.
A a overview on the unintended Atlanta's primarily.
Southern California, and Northern California.
And just to add on what Peter had mentioned.
This is <unk>.
First industrial started we're batting a 100% in terms of taking on entitled Land and 38 entitled Land and part of that is kudos to our team, but we do a lot of pre due diligence even with the cities like Peter had mentioned we partner with cities early on before we take on the property. So we wanted to know it.
Need to know what the temperature is and what their view with our developments, we do a lot of upfront work before we take the risk and Thats. A result, that's why we've been batting 100% right now we're dominant.
Got it and maybe one more for me.
I hereby Amazon's pulling back some.
Eric.
I don't think development are you seeing that and if so who is replacing them in your markets in terms of generating incremental demand.
Yes.
The answer is yes.
Our pulling back.
They are there are some.
Definitely their activity in 2022 does not match our activity in 2021, which was a record but at the same time.
Amazon also has been using quite a bit more of a <unk> B L.
A third party logistics firms and outsourcing now in terms of just a comparison in terms of the composition of the market Q1, 'twenty versus Q1 'twenty one.
The major being kind of the major user to market has changed a little bit manufacturer and fluid related have increased significantly and we're talking about 30%, 40% and E. Commerce in Q1, 'twenty one was the top number three.
Q1, 2022 E. Commerce is now number five whats the biggest users of <unk>.
Industrial let's say, it's still three pls in general in retail and wholesale.
That kind of gives you a little bit so it's a broad based market but.
E Commerce, which includes Amazon steak and a little bit of.
Slow that down a little bit Q1, 2022 .
Okay. Thanks.
Again, if we would like to ask a question press Star then the number one on your telephone keypad.
Your next question comes from the line of Rich Anderson with <unk>. Your line is open hey, thanks, good morning.
That last answer was was the answer partially to my first question I was going to bring up Netflix, losing subscribers and they were a big beneficiary of the pet.
<unk> and stocks down 60% today, and then you just mentioned Amazon pulling back another big beneficiary of the pandemic in E. Commerce in general is a concept declining in terms of activity in 2022 does any of that observation broadly speaking give you any pause.
Can predict the answer but any pause.
About being a speculative developer or are these sort of the early indicators of something something more sinister coming down the road as it relates to the big growth driver for the business, which is ecommerce.
So let me.
Take a crack at that and any of you guys around the table on joining and feel free.
Amazon has been growing their space faster than their sales for years and that is very atypical.
New business typically get to rationalizing their space needs much earlier.
They are now it looks like and what they tell the world beginning to rationalize their space for now that means theyre going to begin to lease and buy less space for themselves as Joe Joe pointed out we are seeing them become more active through other.
<unk> third party logistics providers now.
We don't know what their overall strategy is but if you decided that you are capital was being put to better use elsewhere and you didn't want to have to sign very long term commitments you might begin to distribute your product through a three PL, where those contracts are typically three years. So their strategy is shifting.
It doesn't give us pause at all.
E Commerce is going to continue to grow in terms of percentage of overall retail sales. That's the first thing. The second thing is the demand base is extremely broad as Joe Joe pointed out E. Commerce is now the fifth most active user.
Industrial space in the first quarter of 2022, so it's very good for the business.
The broadly based demand comes from so many different sectors and we are.
We're not concerned at all about the news on Amazon.
And just to add to our numbers there in terms of SaaS. If you compare to Q1 2022 the Q1 2021 in terms of just the gross leasing activity Q1, 2022 actually adjusting.
Despite the exceeded Q1 2021, but at a lower vacancy rate as you all know the market that's going to get better in terms of tighter because of the lack of supply going into markets that we're targeting so in essence Q1, 2022 is actually a better market than Q1, 2021 .
I can appreciate that thank you.
Next question again, more big picture thinking.
During the pandemic there was a talk with lack of truck drivers now there has been a recent decline in trucking demand again.
You have inflationary environment and consumer demand could get pinched in that in that world.
Are you hearing.
Anything at all.
As it relates to perhaps.
The direction of inventories or whatever that is.
Obviously important to your your business model that is changing for the good or better than perhaps repeating myself with this question, but I did want to get into those two sort of observations on the trucking and the consumer side.
Sure sure. Thanks for that question and obviously, we've been thinking watching that taking a look at that what we actually experienced.
The lowering of spot pricing that the demand when we look at all of our trucking clients demand is actually up but the spot pricing is down and part of the reason we're hearing the spot pricing is down is that more trucks have actually come in because it's such a profitable business last year, we had record volumes of new entrance into the trucking market.
And secondly, there's quite a movement from spot pricing to contract pricing what happened is that if you have.
More competition, rather than put your trucks on a daily basis, you sign up contracts on a monthly basis and therefore the prices.
Down a bit.
We isolate us as landlords, we actually think that <unk>.
As for data that's come in does good for us because thats more that just means more red, but we can push.
In others.
The other question on sales inventory the federal reserve just came out with a number for sales inventory to sales ratio of 117, our view here and as far as that is very very low.
If you look at even.
Pre pandemic, we were running at 105.
Fantastic shows that the 1125 doesn't even work because if you don't have supply you will lose sales. So we think theres going to be a ramp up from that extra extraordinarily low 117.
Because the model has changed from just in.
Just in time to just in case, so we feel good about the inventory we think the inventory sales rate is going to go up.
Great. Thanks very much.
There are no further question at this time I would now like to turn the conference back to Mr. Peter <unk>.
Thank you operator, and thanks to everyone for participating on our call today, we look forward to connecting with many of you in person in the coming months B well.
This concludes today's conference call. Thank you for participating you may now disconnect.
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