Q1 2022 Plymouth Industrial REIT Inc Earnings Call
Good day and welcome to the Plymouth Industrial REIT first quarter 2022 conference call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please.
Please note this event is being recorded.
I would now like to turn the conference over to Tripp Sullivan of Investor Relations. Please go ahead.
Thank you good morning, welcome to the Plymouth Industrial REIT Conference call to review the company's results for the first quarter of 2022.
On the call today will be Jeff Witherell, Chairman and Chief Executive Officer Pen White, President and Chief Investment Officer, Anthony Salad, Deno Executive Vice President and Chief Financial Officer, Jim Connolly Executive Vice President of asset management, and Anne Hayward, Our general counsel.
Our results were released this morning in our earnings press release, which can be found on the Investor Relations section of our website, along with our Form 10-Q and supplemental filed with the SEC.
A replay of this call will be available shortly after the conclusion of the call through may 11th 2022.
The numbers to access the replay are provided in the earnings press release for those who listen to the replay of this call. We remind you that the remarks made herein are as of today may 4th 2022, it will not be updated subsequent to this call.
During this call certain comments and statements we make may be deemed forward looking statements within the meaning prescribed by the securities laws, including statements related to the future performance of our portfolio, our pipeline of potential acquisitions, and other investments future dividends and financing activities all four.
Looking statements represent plymouth's judgment as of the date of this conference call and are subject to risk and uncertainties that can cause actual results to differ materially from our current expectations.
<unk> are urged to carefully review various disclosures made by the company, including the risk and other information disclosed in the company's filings with the SEC.
We also will discuss certain non-GAAP measures, including but not limited to core F. F O F F O and adjusted EBITDA.
Definitions of these non-GAAP measures and reconciliations to the most comparable GAAP measures are included in our filings with the SEC I'll now turn the call over to Jeff Witherell. Please go ahead.
Thanks, Trevor good morning, everyone and thank you for joining us today.
Our team here in Boston, and our people in Columbus, and Memphis, and Jacksonville are providing great results and positive momentum and I want to thank them again for all their hard work and dedication.
We continue to participate in the strong fundamentals that are driving the industrial market, allowing us to expand in our markets drive double digit rent increases grow our development program and simplify our balance sheet.
Turning to our key operating stats for the quarter, we had a strong start to the year occupancy was 97% cash re leasing spreads were 16, 8% same store NOI on a cash basis was up five 1% rent collections were at 99, 5%.
Core F F O per share was up 17, 5% and <unk> per share was up 25%.
As pen will describe in a moment, we were right on track with the acquisition pace, we had anticipated for Q1 and have another $74 million expected by the end of Q2.
The ATM deployment in late 2021, and again earlier. This year has helped US fund this strong pace.
We have supplemented that capital with this week's recast of our unsecured credit facilities that increased our borrowing capacity up to $800 million from $500 million.
We have nine buildings that we are active on in our development program.
All of these projects are class a industrial buildings being built on excess land, we acquired as part of our initial acquisition of the existing buildings.
These properties are located in very active markets and our adjacent buildings are fully leased.
In Cincinnati at our Fisher Industrial Park, we have one existing building containing 1.25 million square feet and recently broke ground on a new 150000 square foot building.
We are in planning on a second new building there at 180000 square feet and that should break ground in the next few months.
In Portland Me, we have completed construction at our $8 2.070 million square foot building and we are now 50% leased with proposals out for the balance of the space.
In Atlanta, we're under construction with a new 237000 square foot industrial building and recently broke ground on another building at 180000 square feet adjacent to it.
We expect to deliver both projects in the third quarter of this year.
In Jacksonville, we submitted plans to the city for four separate buildings in our two business parks in the market for a total of 187000 square feet. We expect construction to start in the next few months and deliver those projects in the first quarter of 2023.
As a sign of strength in our parks in the Jacksonville market, we have leases out for signing for one building a 50000 square feet and another for half of a building at 20000 square feet and several more rfps were received last week.
All told our projects currently under construction represent a total investment of $37 million with returns projected in the high single digit range.
We have another one 3 million square feet that can be developed on land that we already own.
While new development isn't at the scale of the acquisitions, we have completed so far it does provide another way to unlock value within the portfolio and take advantage of strong rent growth.
Our balance sheet priorities remain unchanged as we've been able to increase the dividend again with strong core F. F O N E S F O coverage.
With the conversion last week of exactly half of Madison series B preferred shares into common stock. We've also taken another step in simplifying the balance sheet and increased our equity base. They remain one of our top 10 holders.
Yeah.
We see no signs of the industrial fundamentals slowing down in our markets. The same factors driving the exceptional rent growth on the coast, having a similar impact on our markets.
Penn why don't you walk us through our acquisition activity.
Yeah.
Thanks, Jeff Good morning, everyone.
In the first quarter, we closed on $188 $3 million of acquisitions totaling $3 5 million square feet across 38 buildings.
The weighted average initial yield of the acquisitions completed was six 2%.
Weighted average cost of $61 per square foot well below replacement cost.
To date in the second quarter, we have completed the acquisition of two industrial buildings totaling 155000 square feet for $15 $8 million.
Our weighted average cost of $102 per square foot and a weighted average initial projected yield of five 9%.
We have another $74 million of acquisitions expected to close.
The end of Q2.
Our acquisitions expanded our growing presences in Memphis, Jacksonville, St. Louis and Chicago with one new entry in Augusta, Georgia.
I will highlight a couple of days.
The largest steel were completed during this period was the acquisition of our 80%.
Interest in our joint venture with Madison for total consideration of $102 $6 million.
We created this JV with Madison in late 2020 to acquire 28 industrial properties in Memphis.
That time, we do not believe a portfolio of this size that required substantial capex to improve the properties to drive future lease up.
It's a good fit for the REIT.
We were substantially smaller in scale at that point.
And it would have had an outsized impact on our results.
Since acquiring these properties and the JV, we invested a new roof and other improvements for the benefit of the JV as well as greatly enhanced overall management.
Furthermore, the in place NOI has also improved significantly and will accelerate over the next two years as the new leasing we have completed this year will take occupancy.
The JV certainly lived up to its purpose and was mutually beneficial to both parties, we were able to accelerate our footprint in the key market and create a platform for leveraging our leasing expertise while generating strong returns that will now benefit from future NOI growth.
While this acquisition and this particular JV with medicine, we are actively exploring other potential opportunities with them in other markets.
We also acquired an off market deal in Augusta, Georgia for 12 $35 million leased to two tenants with a weighted lease term of approximately four years at an ingoing yield of five 3%.
Both tenants are paying rents that are currently 15% to 20% below today's market rates and an added benefit to this deal is that it comes with an additional nine acres of developable land that will enable us to add on to the existing 200000 square foot structure.
We continue to source a number of new opportunities in our markets with several possibilities for entering new markets such as the Carolinas within our near term pipeline.
The competition for deals remains fierce, but we have remained disciplined on our pricing.
As I've noted before cap rates for our preferred properties in our markets remained compressed compared to historical norms, especially as they apply to the larger portfolios where deals trading in the four to four 5% range are not uncommon.
The reason why we are continuing to stick to our bread and butter with one off transactions, what I call hitting singles and doubles, where we're seeing ingoing cap rates, averaging in the mid fives to low sixes.
The record low vacancy rates strong rental growth in our markets.
Tenants reevaluating their supply chain infrastructures and our ability to secure a double digit rental increases open up a number of opportunities to source deals with initial yields in this range, but also the ability to drive higher stabilized yields at a much lower price per pound.
We are always looking for the right mix of utilitarian industrial buildings in markets exhibiting positive absorption strong rent growth limited institutional competition.
That have the ability for us to efficiently use our original property management teams to aggressively asset management the properties.
We talked last quarter about upwardly adjusting our underlying rental growth on underwriting new deals from low single digits to mid to high single digit rent growth.
We believe that as the new conservative assumption and we've seen it come to fruition with double digit rent growth in our leasing results. The last few quarters and expect that trend will continue through the balance of the year.
We continue to pursue new portfolio opportunities, but as they are transacting at the mid 4% range or lower we have passed on one or two that would have been a great strategic fit for us in our markets.
Until that pricing improves we will focus more of our attention on our smaller portfolios that can transact in the 5% to 6% range as well as the singles and doubles that offer a range of possibilities from stabilized initial yields to more value add components that utilize our leasing and asset management.
Expertise.
We've added significant embedded growth to our portfolio in the last two quarters with more expected in Q2.
Or the right price the right market.
Opportunity to deploy our real estate operating experience, we can create value on a much lower cost base for our tenants in this environment.
That's something that gets overlooked in the rush to the coast and we will continue to focus on what we do best at Plymouth.
Now I'd like to turn it over to Jim Connolly to walk.
Walk through the leasing activity and portfolio of operations.
Thanks, Ken good morning.
Leases commenced during the first quarter of 2022 totaled an aggregate of $1 3 million square feet.
These leases included 950000 square feet associated with renewal leases and 350000 square feet.
For leases with new tenants the renewal rate for Q1 was 68, 1%.
These leases were all <unk>.
All for terms greater than six months and had a weighted average lease term of four years.
Rental rates associated with these leases increased 16, 8% over prior lease rates on a cash basis.
Through the end of April .
We have leased a total of $3 7 million square feet related to leases scheduled to expire during 2022.
Which represents 55, 4% of the $6 7 million square feet of totaled 2022 explorations. This amount includes adjustments for acquisitions in early terminations.
The renewal rate for these transactions was 75, 3% with a weighted average lease term of four two years. Furthermore, we leased 273000 square feet of space that had been vacant at the start of 2022.
And I've had 245000 square feet go vacant during the year.
Rental rates associated with all executed leases commencing during 2022 is 16, 1% over prior lease rates on a cash basis.
These transactions include five leases of at least 10 years on 469000 square feet, including half of the newly developed Portland, Maine facility.
We have also leased the roof of that building for solar panels, which will be operational during 2023.
Yeah.
Additionally, there was 900000 square feet.
Lease with space expiring after 2022 at rates eight 4% above expiring rents. These weights are partially tempered by fixed rate renewals.
There are leasing prospects for Atlanta, Florida, Cincinnati and main development projects that we are actively working.
Additional solar leasing is also in the works with loose space totaling $4 2 million square feet being awarded to two solar vendors.
The solar panels should be operational during the first half of 2023 generating approximately 42 megawatts of power.
Portfolio wide occupancy at the end of Q1, 2022 was 97% down 40 basis points from the end of 2021.
This decrease was driven by the inclusion of the Madison JV space into the wheat numbers.
Of the 987000 square feet of vacancy within our portfolio 149000 square feet has been leased with Tennessee, starting later in 2022, and another 432000 square feet.
Categorized as being repositioned at five locations.
In total there are 10 buildings with $1 million 266000 square feet classified as being repositioned during 2022 due to rollover and planned renovations.
Excluding all the reposition square footage occupancy rate would be 98, 2%.
Efforts at these locations are showing results through April 739000 square feet or 58, 4% of the reposition space is leased and Theyre active prospects for most of the balance.
Finally through April we collected 99, 5% of our rents billed during Q1, 2022, and 97, 4% of the rent for April .
Currently no active rent deferrals.
The asset and property management teams continue to deliver at a high performance level.
Buildings remained leased at a high occupancy level.
The rates continue to increase 10 installations are high and our buildings are well looked after.
At this point I'd like to turn it over to Anthony to discuss our financial results.
Thank you Jim.
Good morning, everyone.
Our first quarter results were better than we anticipated with the contributions from acquisitions and same store NOI, leading to a 17, 5% year over year increase in core <unk> per share and unit and a 25% increase in <unk> per share and unit.
Breaking down that performance, let's first focus on the acquisitions.
$188 3 million completed in the first quarter was on track with the total amount and yields we expected to complete in the first quarter.
But we were able to complete them earlier than projected which provided an incremental benefit to the quarter of approximately $320000.
G&A was in line with our expectations for Q1 at eight 3% of revenue.
And so it was interest expense as we were able to match fund our acquisitions with the use of the ATM.
For same store NOI, we experienced a five 3% year over year increase on a GAAP basis and a <unk>.
Five 1% increase on a cash basis.
That's one of our stronger Q1 performances in some time and it benefited from favorability in our re leasing spreads coupled.
Coupled with accelerated lease up of the additional square footage created by filling in the pits at our Fisher Park project in Ohio.
While that's indicative of what we can expect from our portfolio of long term Youll note from our guidance that the run rate, we will adjust as the year progresses due to some one time items I will discuss in a moment.
A couple of last items to call out on the P&L that will go away in future quarters or the unconsolidated JV.
And the realized unrealized depreciation appreciation awards.
With the acquisition of the remaining interest in the JV and the conversion of the warrants leftover from the IPO of this quarter those adjustments and other income are eliminated prospectively.
Looking at our balance sheet.
We continue to improve our cost of capital through the use of the ATM.
Paying off one of our secured mortgages and utilizing our unsecured credit facility.
As planned our total debt to total market capitalization moved to 42, 6% at quarter end.
And net debt to EBITDA was seven five times.
Recall that our year end metrics were below where we anticipated we would be due to the timing of acquisitions and the execution of the ATM.
Our leverage in this range is more realistic for us this year with net debt and net debt plus preferred converging over the next year with the conversion of the series B preferred shares to common.
One point to note is that 80% of our debt as of March 31.
Carried a fixed rate or was fixed through interest rate swaps with a total weighted average cost of debt of 354% with 54, 2% of this debt on an unsecured basis.
Our current leverage is also reflecting the fact that we are carrying approximately $18 million in investments on the balance sheet as of.
March 31.
Related to the development activity for the project as Jeff outlined earlier.
These projects will be contributors to earnings as well as to NAV creation when they come online over the course of this year and next.
Our liquidity position remains strong.
Presently we have $24 2 million of cash on hand, plus an additional 4 million and operating S grows.
And $115 million of availability on the revolving line of credit.
Subsequent to quarter end, we recast our unsecured credit facility.
Adding five new banks to the facility and increasing it to $800 million in total from $500 million.
The increase was comprised of an additional $150 million to our unsecured revolving line of credit which brings it to $350 million.
A new $150 million five year term loan, which brings us to $450 million in term loans.
Turning to our 2022 guidance.
You'll note that our core <unk> per share and unit range remains unchanged. Despite the 17, 5% increase in Q1.
There are a number of moving parts for the balance of the year.
I don't want to talk through so you can better understand how strong the underlying performances.
Mainly related to our same store NOI.
The impact of the series B share conversions.
Our expected leverage.
The impact from acquisitions is fairly straightforward as we are anticipating another 74 million to close by the end of Q2.
And with yields consistent with our past ranges.
I want to bridge the same store NOI for you as noted earlier Q1 was strong but for the balance of the year, we need to incorporate that approximately $1 1 million square feet is coming up for renewal.
And while we anticipate renewal rates to be in line with our year to date results our.
Our guidance reflects the incurrence of some downtime and free rent associated with new tenants.
With respect to expense growth were in line with our prior projections and.
And anticipate some pressures on real estate taxes, primarily in our Chicago, Ohio, and India markets.
Insurance and.
And utilities.
Some of which may not be fully recoverable from tenants for the terms of their respective leases.
We continue to convert our leases to triple net.
Triple net leases now account for nearly 76% of ABR as of period end, representing an increase of one 5% over December 31 2021.
We have been expecting that net debt to EBITDA and net debt plus preferred would converge as the series b shares convert into common stock.
That implies a higher leverage as the year progresses, but at a lower cost as we are swapping the series B paper for more conventional debt that can be paid off much easier and carries materially lower face rates over the term.
We are expecting to be very judicious with the use of debt.
And our ability to continue to source higher relative initial yields and capture significant mark to market in our portfolio on a lower cost basis allows us to chip away at this leverage overtime.
As noted in our earnings release on April 29, 50.
<unk>, 50% of Madison series, B shares or roughly $2 2 million shares were converted into common stock.
When we originally issued our 2022 guidance. We did not include the conversion and the higher share count in those numbers.
We did note that we were anticipating a more gradual conversion of those shares and that it could result in a 4% to six headwind to core <unk> for the year.
With a quicker pace, we get the benefit of the higher equity base with $40 6 million shares and units currently outstanding.
Based on the conversion that has already occurred the impact equated to approximately $2 five annualized on <unk>.
The fact that we've kept our 2022 guidance intact speaks to how well the portfolio is performing to more than compensate for eliminating this debt.
And simplifying our balance sheet by year end.
That's the tradeoff, we considered to be net beneficial to the company and.
And shareholders.
Operator, we're now ready to take questions.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad. If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
The first question today will be from John Kim with BMO capital markets. Please go ahead.
Thank you.
I wanted to ask about the series B conversion.
It was a negotiation that you have with Madison just given your stock has been trading below the conversion price.
Hey, John its Jeff.
Actually it's not trading below the conversion price.
So.
I'd, probably start there with the answer but.
<unk>.
Furthermore, it is not a negotiation now.
As we've said all along.
It's a contractual conversion.
And as we mentioned in the last call we thought they would be converting this year and.
The proofs in the pudding there it is they just converted half.
Okay.
My misunderstanding I thought the conversion price was about 26.
So looking at it.
Just to be clear on this.
We can convert we can take them out for cash over 26.
I think it's 26 30, we can take them out for cash so.
We can put that to them in cash as I said.
Starting next year.
We can take them out half for cash.
And then the following year as well, but it's a much much lower return profile. If we do that which is why they are going to convert this year.
So for the remaining 50% do you expect to redeem it next year.
Okay.
Or is there.
The potential for it to be converted.
As I said last quarter.
I would expect they would of 99, 9% certain that they will convert this year.
Contractually makes sense to do so.
Okay.
Okay.
Jeff.
I wanted to ask you about Amazon I know theyre not a big tenant for you.
At 10 tenants, but just given their pullback on expansion plans for warehouse.
What do you think that has as far as impact few markets. There have been a big clinical better than many of your markets.
We don't really see it as an issue from our side I mean.
They are doing.
They've done a lot of build to suits and things like that we've seen them come to us when they when they need some space desperately.
<unk>.
But we don't see much of a pullback any type of pullback from our markets for our type of space for the most part but they have come to look at class B space in the past I mean, they do it they don't do all new built to suit.
Quite frankly, it seems like the pullback was going to be a lot of these build to suits. These build big new class a facility. So if anything we might see a kind of a positive rebound in kind of the class b existing space from Amazon.
Got it thank you.
Okay.
And the next question is from Todd Thomas from Keybanc Capital markets. Please go ahead.
Hi, Thanks, good morning.
First question can you talk about cap rate and asset pricing trends.
As the pipeline builds a little bit for future investments in the second half of the year for assets that you're targeting and then has your appetite changed at all around investments and are you changing your return hurdles at all as the year progresses.
Hey, Todd it's Kent here.
Couple of questions there I guess the last one.
We're not really changing our return hurdles they maintain.
Pretty much the same.
Our pipeline has deepened as wide as it is.
It ever has been.
Where we're seeing.
Some some minor variance in cap rates, but nothing that you could really.
Generalize about I think.
We'll see what happens.
Throughout the year here as the fed begins to or continues to.
Pick up interest rates, but.
Theres still silicon paired with market, there's still plenty of capital on the sidelines waiting to invest in industrial assets in the U S.
So the competition is there we compete every day with.
Local and regional buyers as well as as well as nationals. So.
But are.
We're excited about continuing.
Our acquisitions as I mentioned our <unk>.
Pipeline is full we're busier than ever and I think we're going to see us continue.
Acquiring assets at the same return metrics as we have been.
Most recently.
Okay, and then you commented that Youre looking for.
Additional deals with with Madison and joint venture opportunities.
Are you actively exploring and talking to any other potential partners and capital sources and now that your your larger what would you like to accomplish or what would you look to target.
With future partnerships.
Yes, it's kind of a case by case situation, where we.
We're always talking to potential partners and it gets down to who who is the right fit.
So that's probably all I can say about that where obviously you have a great relationship with Madison were continuing discussions in trading ideas about.
Certain situations that might makes sense for them and for us.
So that's kind of all I can really comment on that.
Okay, and just lastly, I have two quick questions about the guidance.
I appreciate the detail there.
One can you elaborate a little bit around the downtime and free rent assumptions that are embedded.
In the guidance that you discussed and then is there a normalization at all in noncash rent.
And in fact 141 relative to the $1 $5 million in the quarter or is that the right run rate.
Yes ill take on the first part.
Yes.
When you put market.
Assumptions and for downtime in Ti.
Lee.
We beat that.
We work with the tenants early on and even if they are leaving we find tenants beforehand. So downtime.
Nothing more than a month or two usually in <unk> usually.
Well below market.
Yes, and then with respect to the there was a.
Below market rent adjustment, so that isn't a run rate that you should use to extrapolate across the balance of the year.
What's the what's the <unk>.
Normalization or the adjustment look like as we think about that noncash component for the second quarter.
Yes, we would probably provide a tight range around 500.
Okay got it alright, thank you.
Yes.
That's between the next question is from Conor Seversky from Baron Berg. Please go ahead.
Good morning out there thanks for having me on the call.
In a similar vein to John's earlier question, but perhaps in the context of just rising transportation costs in general.
I appreciate the commentary on leasing activity in April but in real time do you expect the total these conversations to shift at all perhaps as it relates to leasing spreads or demand for space in general in the near term.
The answer to that is no I mean, we're seeing rates continue to increase.
We still project that our rates are.
11% and 13% below market.
And we're seeing that in our renewals and new tenants.
A lot of the space that is scheduled.
To expire is already leased up since since the end of the quarter.
So the answer is no.
Okay I appreciate that and then I mean again similar topic, but going back to prolonged just earnings call. Some of the commentary on building safety stock and I know your tenant base is a lot of different types of businesses in it but do you continue to see any of your tenants kind of fill that need to build safety stock within those facilities.
Yes, we've had I think we've had this question last quarter as well corner.
We do see it.
We don't have numbers around it but as we talk to as I talk to Ceos of companies that are in our buildings.
That's a long term theme that really everyone's looking at re shoring onshoring.
As a long term trend that.
Most people think is going to happen and we see it on the ground every day.
We haven't seen it in the sense that we can quantify it yet but.
But we've had some tenants ask for additional space in the building are surrounding buildings, because they want to they want to have their raw material here over the last two years that got disrupted so they wanted to have the raw material here. So.
As we think the trend certainly continues.
Got it I appreciate the update on that question. Thank you guys. Okay. Thank you.
And the next question is from Dave Rodgers with Baird. Please go ahead.
Yes. Good morning, everyone wanted to follow up on the acquisition pipeline and kind of what you're tracking out there and I think in the last quarter call either during the call or maybe afterwards, you guys had talked about cap rates in the low to mid five year, clearly closing much higher than that year to date. So I know you're not changing your return threshold, but im curious if youre changing the properties you are looking.
King at I think the duration of what you closed in the in the first quarter was maybe sub three years. So is this allowing you to kind of keep cap rates higher talk about your strategy I guess with regard to acquisitions and how we should see that playing out the rest of the year.
Yes sure Dave.
Again as mentioned earlier.
No change in our strategy no change in our product type.
Where we are seeing cap rates.
Anywhere from the.
Low to mid <unk> up to the low sixes in is as you know a lot of it depends on the type of tenant or tenants how long.
Yes.
Goes for.
What type of Capex do we have to put into a property all of those all of those ingredients. If you will go into analyzing whether or not we.
We go forward and acquire specific building I would say in general that our pipeline is full of deals that are kind of in the.
10% to $15 million to $20 million range.
They are in the kind of high going in high fives or low sixes I think when we start talking about low fives were starting to talk more about portfolios. So you have a premium.
Attached if you will a cap rate premium attached to portfolios.
Looked at a number of those as you know.
But.
We believe that we're better off as I mentioned kind of buying.
One or two at a time.
And.
Leave this portfolio has got an incredible amount of competition. So that's driving the cap rates down.
And we think at a certain point in time, it doesn't doesn't make sense to pursue.
Certain portfolios, but we are our pipeline currently have some smaller class b type portfolios and we're monitoring the situation in all situations quite quite carefully.
Okay.
I appreciate that thank.
Thank you.
Maybe this is a combination Jeff for you and Anthony but I wanted to go back to Anthony your comments about leverage and kind of the plan for it.
Clearly you've made a lot of acquisitions and there is some timing differences, but I think even in your own supplement today you guys put out eight eight times debt to EBITDA, that's up from seven five a couple of quarters ago, and so you talked about merging the leverage metrics between net debt and net debt plus preferred which makes sense, but I guess I would've been under the impression that those.
We're kind of driving lower as opposed to tenant driving higher as we approach the conversion so.
Maybe you kind of refresh us on the goal for leverage here in the near term, Jeff and then maybe Anthony.
I spoke on any of that please correct me.
Well the goal is articulated around leverages to be really judicious I think.
At quarter end was seven five times net debt to EBITDA as we look out for the balance of the year.
Going to.
We're going to lever up just slightly.
But maybe maybe 20 bps on that.
On the high end and to your point when we're looking at net debt.
Preferred.
Eight eight times I mean, as we look at it across.
The year with a full conversion.
That ratchets down significantly Dave.
It Ratchets down probably 80 bps.
Okay.
And maybe I'll follow up on that as well and then lastly, I guess on the new leasing you had talked about new leases signed that have not yet commenced can you recap those numbers. It sounded like it was over 900000 square feet. Some this year some next year.
That would be the first part and the second is two big tenants in the third quarter Gol and Shanker are those the two that you would anticipate maybe having some downtime was trying to just kind of time, those new leases and renewals up a bit.
Okay. So the 900000.
Does not pertain to this year it pertains to future years.
Extra leasing we've done early.
Paul.
Roughly.
$1 1 million of the of the.
Scheduled expirations for this year is already paying.
Been leased.
And it will come on line later in the year.
The two that you mentioned.
And schenker.
They are both are renewing the leases within our signature so it's just a matter of.
They're hanging out there.
Yeah.
PL contracts so.
It's in the works.
And that 900000 that goes beyond this year, that's all vacant space for new leases.
No.
The guidance alive was a 500000 square foot tenant renewed early.
Inside of their space.
Okay. Thank you.
Yes.
The next question is from Barry, Oxford with Colliers. Please go ahead.
Great. Thanks.
Geoff I think this is a question for you when you look at your development pipeline.
Are you seeing inflation seeping into the cost and is that maybe chipping away at your original returns on the development or look not so much at this point.
Hey, Barry Yes, yes.
The inflation is certainly there.
Ordering steel and concrete seems to be the two big pieces to this.
Fortunately in and this is what.
What was really good about it before we sign this fixed contract with with a contractor.
We check in with our brokers and our team to make sure that where the rents are see if it makes sense and.
Even up until this past week, we continue to see rent driving north.
We're actually seeing the spreads increase between what we're going to what we're constructing and where we think we're going to end up on leasing.
So okay.
As of now it continues to move in sync.
We will let you know when it when it when it converges, but right now right now its really its really good.
Okay. So it is kind of a push right right now, yes, little higher costs, but I'm getting a little more on rents. So I'm getting the same returns that I anticipated correct, yes.
Now on the supply chain.
Any troubles that slowing the timing down or.
Not so much like the timings on these development projects are clipping along nicely.
You mean del Taco for construction materials and HVAC equipment.
Yes.
In other words, you thought you might deliver in October , but now it's going to be November because of <unk>.
Whenever bacterials you need that.
That exists and you kind of need to weave.
<unk> been very proactive with our team too.
Order the right materials.
As soon as we can.
In advance so instead of ordering materials, usually three months out we're ordering now six months out to make sure we get it.
Right.
I can tell you personally I've been waiting five months for garage doors. So.
Yeah.
Okay.
So there's a lot of delays out there very but yes, we're managing them.
Right right and then and then.
Last question.
Have you thought about.
Just buying raw land and having banking some raw land or look Barry I don't want to get into that business I'm just more about adjacent builder.
Right. So as you know my pedigree as land development right. So.
I've owning land buying land it really doesn't make sense to land banking I mean, where we are building on land that we that we bought as part of deals and so we didn't pay extra for it.
So.
We're always looking at adjacent land sites, if we can find them in most of our product that we're building on is not a lot of land adjacent to it but.
We are looking at it but.
But again, it's not our core we don't we don't.
I'm personally involved in all of the development. So there's only so much bandwidth in our balance sheet only had so much bandwidth the development as well.
Got it I just don't want to we just don't we're still going to be out there on <unk>.
All of the spec development that.
It's challenging.
Well I think we still have $1 $3 billion available GLA to monetize there, yes well.
So we're looking at the next the next round.
Got it alright, thanks, guys Thats all from me. Thank you.
Hugh.
The next question is from Bryan Maher from B Riley. Please go ahead.
Yes, good morning, and maybe following up a little bit on some of Barry's comments on inflation.
Are you guys seeing anything out there that would suggest.
Any change in the supply outlook, whether it's in your markets or more generally given we've got virtually record low vacancies, but comments from Amazon interest rates pushing higher inflationary pressures.
Are you seeing anything on the supply side for new product.
That would cause you any concern.
Pat here.
Not not really any concern.
The demand is strong and there is a reason why.
You are seeing an increase in supply.
Now last quarter across the country, there is about 90 million square feet.
Finished up and construction.
And there was over 90 million square feet absorbed.
You have over 500 million square feet, that's been <unk>.
<unk> right now.
Again.
50 states, but the demand if you look at the numbers and how much is being absorbed.
430 million square feet last year, the trend is continuing.
And that's a function of e-commerce as a function of repatriation onshoring, all the things that we've talked about in the past.
So the demand is there.
And I think we.
We see that trend continuing.
All that being said.
Our properties are typically, let's say or there might be a class b and our rental rates are averaging in the low.
$4 per square foot, where the average rental rate.
Across the board is $8 90.
Sure.
There is a significant delta nice buffer between our average rents and what what are now.
Brands that are being proposed.
For new products. So we like that I think that's another reason why.
Jim Jim currently can attest thats why were able to increase our rents substantially year over year.
So hopefully that gives you gives you some color.
Perfect. Thank you.
And the next question will come from Anthony Hall from Truest. Please go ahead.
Good morning, guys.
So what's the mark to market on the portfolio today.
Sure.
Okay.
Roughly 12, 5%.
Okay.
And your same store portfolio is sitting at 98, 8% occupancy in the mid point of guidance is 97, seven I think.
Can you give us color on known move outs, that's baked into the guidance.
There is some conservatism with respect to same store Anthony.
Theres about nine leases that account for approximately 71% of the one 1 million.
That's expiring in the second half of the year.
A lot of those we have a high degree of confidence with respect to renewal.
But like I said, there is some conservatism on one or two to the extent that they don't renew when we have to confer some some free rent and absorb some downtime.
Gotcha.
And what spread would you what do you think you'll see some that will be like closer to like 16% 15%.
Yes.
Anywhere from.
12% to 16% probably.
Gotcha.
And have you raised fixed rate debt today, what the interest rate be.
Okay.
Okay.
Higher yes.
Good question, let me give you a proxy for that.
We executed some interest rate swaps at the beginning of the year.
If we were to go back into the market and execute those same swaps, we would have to pay an additional 100 bps.
For those.
So there has been significant depreciation and cost of capital with respect to that.
Gotcha.
Do you guys plan to kind of reduce that floating rate debt to 10% of the total debt or do you are you guys comfortable keeping that 20%.
Yeah.
It's a good question we're evaluating.
Possibility of.
While fixing the variable debt on the new term that we just executed.
<unk> hundred $50 million notional.
And we'll update you accordingly.
Okay. Thanks.
Thanks for.
Answering my questions.
Thank you.
There appear to be no further questions at this time, so I would like to turn the conference back over to Jeff with the rail for any closing remarks.
Great. Thanks, everyone for joining us we'll see you next quarter and we're available for follow up questions as usual. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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