Q3 2022 Plymouth Industrial REIT Inc Earnings Call
Good morning, and welcome to the Plymouth Industrial REIT third quarter 2022 earnings Conference call.
All participants will be in listen only mode.
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After todays presentation, there will be an opportunity to ask questions.
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I would now like to turn the conference over to Tripp Sullivan of SCR partners. Please go ahead.
Thank you good morning, welcome to the Plymouth Industrial REIT Conference call to review the company's results for the third quarter of 2022.
On the call today will be Jeff Witherell, Chairman and Chief Executive Officer, Anne White, President and Chief Investment Officer.
They sell the Deno executive Vice President and Chief Financial Officer, Jim Connolly Executive Vice President of asset management, and Anne Hayward 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 followed with the S E T.
A replay of this call will be available shortly after the conclusion of the call through November 10 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 November three 2022 and 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 security ball <unk>.
Including statements related to the future performance of our portfolio.
Pipeline of potential acquisitions, and other investments future dividends.
Anything activities.
All forward looking statements represent plymouth's judgment as of the date of this conference call in August .
Subject to risks and uncertainties that could cause actual results to differ materially from our current expectation.
Yours are urged to carefully review various disclosures made by the company, including the risks and other information disclosed in the company's filings with the SEC.
We will also discuss certain non-GAAP measures, including but not limited to core assets.
Handset, though 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.
Now I'll turn the call over to Jeff Witherell. Please go ahead.
Yeah.
Thanks, Tripp and good morning, everyone and thank you for joining us today.
The story up limits continues to be more of the same our portfolio is nearly fully leased the vertical integration strategy continues with another regional office opened.
We're exceeding the mark to market with our leasing efforts in the first phase of our development program is nearing completion.
What we're seeing and hearing on the ground in our markets still doesn't line up with the distortion in the capital markets. Nearly every conversation lately starts with what we're seeing in our markets as.
As of today, we remain extremely positive as we continue to engage with our tenants regarding their need for additional space in the relative health of their businesses.
As Jim will highlight here in a few minutes, our property management and asset management teams are also busy responding to the large number of rfps for our space.
As Penn will note later, the conversations with brokers and sellers are starting to change for the smaller deals.
The expectations that started to be more reasonable, but without any larger transactions occurring there really isn't a real read through on cap rates yet.
I mentioned this earlier in passing but it's an important point.
During the quarter, we opened a regional office in Atlanta. This is our fourth regional office, joining Columbus Jacksonville in Memphis.
With the two new developments nearing completion in this market, we will be over 2 million square feet in Atlanta.
This brings a percentage of our portfolio that is internally managed to about 70%.
This is a critical component of our vertical integration strategy and creates a distinct competitive advantage for us in our markets. In addition to delivering better service to our customers. We are saving millions of dollars a year in third party fees.
Now, let's turn to the key operating stats for the quarter, which continue to highlight our strong internal growth.
Occupancy was 98, 8%.
Cash releasing spreads were 17, 6%.
Same store NOI on a cash basis was up 11%.
Rent collections were well over 99%.
Core <unk> per share was up 7% and <unk> per share was up 29%.
Yes.
In addition to the internal growth from same store NOI. We have added some growth for next year with the first phase of our development program.
The total investment of nearly $49 million do you expect it to generate initial yields in the 7% to 9% range.
Pages, five and 12 of our supplemental have more detail on the program and the pipeline.
I'll briefly bring you up to speed on the first phase.
In Portland, Maine, we have completed construction at our $9 3 million dollar 70000 square foot building.
We are now 50% leased with occupancy of a new 10 year lease commencing this quarter nearing execution of a lease for the balance of the space with a Q1 2023 start date.
In Atlanta, we're under construction with a new 237000 square foot industrial building that is delivering in the fourth quarter and a 180000 square foot building adjacent to it that is delivering this quarter as well.
Total investment for these two projects is approximately $26 7 million.
We are fully leased 180000 square foot building for five years with occupancy in early January 2023, and we have several proposals out for consideration for the second building.
In Cincinnati at our Fisher Industrial Park, our New 156000 square foot building is delivering this quarter for a total investment of $13 million. There was an LOI with a full building user being negotiated for February 2023 commencement date.
These four buildings comprise the first phase while they have exceeded our expectations and we have demand in place for our other projects in the pipeline in Jacksonville, and Cincinnati, we're going to pause for now on that second phase to prioritize our capital elsewhere in 2023.
Anthony will provide the details on our capital position, but I did want to reaffirm that we know where we need to be in terms of leverage we will get there gradually and prudently.
But the series B preferred stock conversion occurring well ahead of when we expected 2023 can be an opportunity for us to continue to simplify the balance sheet.
And why don't you take it from here.
Yeah.
Yeah.
Thanks, Jeff.
Morning, everyone.
As noted previously we have paused our acquisition efforts for the time being.
Our pipeline remains robust.
We're working through a period of price discovery, among both buyers and sellers.
We've seen a significant number of deals come back to us due to re trading or buyers walking on refundable contracts, where sellers just deciding to pull properties from the market for the time being.
Which further reinforces our decision to <unk>.
Stay on the sidelines until we see some additional clarity.
On various sized transactions.
Sales of our store closings or not at the same philosophy as the first half of this year.
Continue to see portfolios of assets that are similar to ours trade at a premium to the one off our smaller portfolio transactions.
These types of industrial assets with diversified kind of an exposure to the same markets, where we have a presence are hard to find us scale.
So there is still a pricing premium for portfolios of scale.
The underlying cap rate premium is not as wide as it was a year ago.
We have always had a clear line of sight on what we believe our assets are worth and have worked to acquire the singles and doubles over the past several years at both and going and stabilized cap rates with substantial spreads to what our platform is worth.
Any future transactions that pricing discipline will continue to be in place.
While we continue to prioritize at the right price or opportunities that are accretive on a cash flow basis, allowing us to secure above market rental increases leverage our local and regional property management and asset management teams and focus on markets with low vacancy rates.
Strong rental growth and high tenant demand for our preferred product type and size.
Last quarter, we introduced some new data and research on our markets that we've talked about quite a bit with the investment community during our meetings in the past several months.
We expect that within the next several months the concept of the Golden Triangle, which many of you know is the area in the middle of the country.
Roughly triangulates to the great lakes to Texas than East, Florida, and back up to the shock in the Chicago area, which has become the epicenter.
<unk> logistics infrastructure.
Triangle now contains over 70% of the U S population.
Half of the U S GDP.
More ports than any other region in the country and.
And five of the seven.
One railroads.
Thus the Golden triangle will become justice familiar.
Inland Empire or long Beach.
Because since you would see that doesn't need much help in understanding the appeal of the markets within the Golden triangle or the economic development teams for these cities and states and the large corporations locating or expanding in these markets with billions of dollars of new investment.
In addition to afford motor company's decision to locate their blue Oval city near Memphis, with nearly 10000 jobs and Intel's decision to locate semiconductor plants near Columbus, Ohio, with 3000 jobs, we've seen announcements by Honda and LG to invest $3 $5 billion in southern Ohio to build.
Battery plants.
Fact, according to the re shoring initiative, Ohio, Georgia, North Carolina, and Kentucky are the top four markets in the U S for adding new jobs in 2022 due to re shoring and foreign direct investment.
The takeaway from all of this activity is that Theres still isn't that enough space in our markets to meet this demand.
Even in markets, where there is new product coming online, it's not competing with our product and tenant base, it's not addressing the most liquid sides of space and it's not easing space for smaller tenants.
Now I'd like to turn it over to Jim Connolly to walk through the leasing activity and portfolio operations.
Thanks, Pat Good morning, Lisa.
Leases commenced during the third quarter of 2022 total of an aggregate of $2 6 million square feet for leases greater than six months.
These leases included $1 5 million square feet associated with renewal leases and $1 1 billion square feet four leases with new tenants.
The weighted average lease term for these leases was four one years and rental rates associated with these leases increased 17, 6% over prior lease rates on a cash basis.
The renewal rate for Q3 was 57% for.
For the year to Q3, the weighted average.
Lease term commencing leases was for three years with an 18.8 cash rental rate increase.
We don't wait for the first three quarters of 2022 was 54%.
Through the end of October we have leased a total of $6 9 million square feet related to leases scheduled to expire during 2022, which represents 97, 2% of the $7 1 million square feet.
Of total 2022 explorations this amount includes adjustments for acquisitions.
Early terminations.
The renewal rate for these transactions was 68% with a weighted average lease term of four years. Furthermore, we leased 664000 square feet of space had been vacant at the start of 2022.
215000 square feet of new development space.
Yeah.
Well also.
So at the end of October we have leased one 5 million square feet.
For space expiring during 2023 at rates of 11, 5% above expiring cash rents.
Approximately 93% of this amount is associated with renewables. This compares favorably with the 11% increase on expiring cash rents we had received through Q3.
On this year's renewables.
As Jeff noted earlier.
There are several leasing prospects for our remaining Atlanta, Cincinnati and main development projects that we are actively working and nearing lease execution.
We have advanced our solar program considerably over the last year, including our initial feasibility with.
With the identification of over $4 2 million square feet of rooftop that will accommodate solar arrays capable of generating approximately 42 megawatts of power.
The first phase of the solar program, which is comprised of $2 2 million square feet that have leases across 10 rooftops is expected to be operational by 2024.
Okay.
Portfolio wide occupancy at the end of Q3 2022 was 98, 8%.
150 basis points from the end of Q2 due to the commencement of the vacant space leasing previously mentioned.
Of the 417000 square feet of vacancy within our portfolio at the end of Q3.
61000 square feet has been leased with Tennessee, starting later in 2022 with another 52000 square feet categorized as being repositioned at four locations.
In total you're right.
10 buildings with 1.266 million square feet classified as being repositioned during 2022.
Due to rollover.
Planned renovations most.
Of this space approximately 75% of it is currently leased long term and we're achieving we tried some of approximately nine 5% on a stabilized NOI for these repositioning.
Finally through November 1st we had collected 99, 7%, although orange billed during Q3 2022 and there are currently no active rent deferrals.
It was a strong quarter operationally due to the high level of performance by our asset and property management teams have.
Buildings remain at least at a high occupancy level at which continued to increase tenant relations are high and that buildings are well looked after.
This point I'll turn it over to Anthony to discuss our financial results.
Thank you Jim we.
We were pleased to report another strong quarter across the board.
There are a number of aspects of our results that I will briefly highlight and then I will discuss the tightening of our 2022 guidance range.
Same store NOI on a GAAP basis was up eight 4% and.
And up 11% on a cash basis.
Same store performance exceeded our expectations this quarter due to sequential growth in revenue from our new and renewal leasing in the portfolio supported by improved expense reimbursement.
As we convert expiring rollover to triple net lease structures.
Triple net leases now account for nearly 77% of same store ABR as of quarter end up from approximately 74%. This time last year.
G&A was down sequentially to eight 5% of revenues as we continue to rein in expenses.
Interest expense was a headwind once again as it relates to borrowings on our credit facility, which remains the only debt that is not hedged or fixed.
With respect to capital markets activity are only deployment of the a T. M was a block trade at $21 35 per share that generated proceeds to settle a portion of the remaining series B preferred stock with cash.
The conversion of Madison to remaining shares of the series B was one of the biggest moving parts in our Q3 results and for that matter in our guidance.
As disclosed in August Madison notified us that they had elected to convert the remaining $2 2 million shares of the series B.
Based on the liquidation preference.
They actually would have been entitled to receive $2 7 million in common shares.
Under the terms of the agreement we have the right to settle the conversion in stock or cash or a combination of both stock and cash.
We funded a 15 million cash portion with block trade on our ETF and settle the balance with $1 9 million common shares.
And the and that saved us approximately 85000 common shares and allowed us to add one large institutional holder.
Turning to our balance sheet.
We continued to show sequential improvement in our debt metrics with net debt to EBITDA, improving slightly to seven three times net debt plus preferred to EBITDA, improving 60 basis points to seven seven times.
That's a 110 basis point improvement since Q1.
As of September 30, 93% of our total debt carries a fixed rate or was fixed through interest rate swaps with a total weighted average cost of debt of $3 74 per cent.
With 57% of the total debt on an unsecured basis.
Our only floating rate debt continues to be the unsecured credit facility.
Which has been primarily used to fund our development program.
We are currently carrying approximately $37 million of investments on the balance sheet as of September 30 related to construction in progress.
The first phase is nearing completion at year end. These projects will contribute to earnings as well as NAV creation as lease up occurs over the next two quarters.
Our liquidity position remains strong as presently we have $13 7 million of cash on hand.
Plus an additional $9 5 million in operating expense us gross and.
$272 $5 million of capacity on the revolving line of credit.
Now to our 2022 guidance.
We tightened the range of both the low and high ends leaving us at.
$1 83 at the midpoint.
The contribution from previous acquisitions, the raising our annual same store NOI range by 200 basis points and further refinement in G&A.
Offset the higher interest expense on our credit facility and the higher share count from the earlier than expected conversion of the remaining series B preferred shares into common shares.
With.
Expect the same store performance.
Low end of the new same store NOI growth range still assumes the potential for some minor and transitory vacancy and additional real estate taxes insurance and utility impacts some of which may not be fully recoverable from tenants for the terms of their respective leases.
Based on these inputs that would imply same store NOI growth in Q4 of eight 5% to 10, 5%.
We're also assuming G&A expense controls will continue with an incremental $200000 benefit from what we projected last quarter.
We continue to plan for the only debt incurred through the balance of the year to be related to our development program.
As of September 30, we only have approximately $12 million yet to fund by yearend to bring the first phase online.
With a continued rise in silver we've raised our full year guidance on interest expense by 375000 at the midpoint.
The only use of our ATM during the quarter was a transaction. We described earlier to partially fund the remaining conversion of the series B preferred shares.
We don't anticipate using the ATM at these levels.
We've made a lot of progress this quarter on simplifying our balance sheet and as Jeff said earlier, we have an opportunity to build on this improvement to gradually delever through internal growth as we bring our new development projects online.
Rise higher annual embedded rent steps throughout our entire portfolio.
We continue to capture mark to market on expiring leases.
Operator, we're now ready to take questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
Youre using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
And our first question will come from John Kim of BMO capital markets. Please go ahead.
Thanks, Good morning all.
On your <unk> guidance.
Likely implies fourth quarter at 44 point.
Which is down from this quarter I realize that interest rates and higher share count or headwind.
I want to ask what are the other.
Puts and takes to get us to that to that.
40%.
Yeah. Thanks for the question John the deceleration from Q3 to Q4.
Is driven by three factors.
The timing of real estate tax impacts, which we've discussed previously specifically in Chicago, and Ohio, and then to a lesser extent theres other opex, such as insurance and other usage related impacts you.
You mentioned the increase in interest expense certainly that.
A drag specifically as it relates to the uplift in rates and then the other.
Principal factor is the impact related to the second half conversion of the series B.
Okay.
You provided it.
Have you provided that mark to market.
Now for your portfolio I was wondering if you could update us on that.
And does your conversion to net lease and does that impact at all or mitigate.
Leasing spreads that you are able to achieve going forward.
The mark to market.
Coming years about 18%.
Portfolio.
Triple net.
It's factored into that.
It would be but we do it on a like to like basis.
Okay.
One last question for me.
Given Jacky mentioned price discovery in your markets.
Developments are picking up Nielsen seen attractive are you putting acquisitions on pause for the time being.
Market pricing.
Sort of style.
Yes, I mean, I think we mentioned that in the past.
So we're on pause I mean debt markets.
Capital markets, and then just price discovery on.
On on deals.
Yeah, there are few and far between so.
All of those factors are like a lot of people were just going to be on pause for the time being.
Great. Thank you.
Thanks Scott.
The next question comes from Dave Rodgers of Baird. Please go ahead.
Hey, good morning, everybody, Jeff wanted to go back to your pause on development, which is obviously maybe a newer.
Or change for you guys given the success that you've had with these recent projects that can you talk more about whether that's a fundamental decision or just a balance sheet decision and does that tie into your comment about kind of simplifying the company in 2023.
Yes, David.
It's primarily probably driven by balance sheet.
For us to go spec.
And do that on the bad.
That is probably not a good move for us right now.
We continue to still see.
Demand in the marketplace.
Quite a few rfps.
Got a number of tours that have happened and will continue to happen on the three buildings that are that are that are built so.
I think it's primarily driven by balance sheet, but if we can get.
If we get if we get a deal that is pre leased.
That'll that'll probably make a difference.
Yeah.
Okay, that's really a combination maybe of de risking in the balance sheet I think that probably makes some sense.
Wanted to go back to some of your comments, maybe Jim on a million square feet or so that I think you called repositioned and just wanted to make sure that I understood are those assets that are kind of out of the core portfolio right now that aren't producing or just assets that might have been in transition. During this period I just wanted to make sure I was able to clarify those comments.
We were selected as the beginning of the year.
22 for.
Properties that were going to have expected.
Turnover <unk> needed a major refurbishments.
They're all performing.
Performing pretty well right now we need to have full almost a full vacancy on it sorry full occupancy on it but.
Well one of them is a temporary temporary lease.
It's going to be released.
Early next year, but other than that.
The projects at all.
Taken care of.
In line.
Alright, thanks for the clarity and then maybe last question I think it was Jeff that you mentioned and dovetailed into maybe some opinions comments, but.
Smaller deals the expectations are a little more reasonable I assumed you were talking about investment sales market versus leasing, but can you maybe clarify and give a little more color on those comments in terms of kind of what's more reasonable in your mind and kind of what size range Youre talking about where you feel like the market might start to kind of open up a little bit better.
Yeah, David I think I mentioned that I think Penn made mentioned as well.
Yes, I mean smaller transactions are actually able to get financed by local banks.
So some of the bigger transactions.
We understand that some of the bigger banks have pulled back from that so I think some of those are hard to get done.
There's an article just tell today about cash buyers seem to be rising to the top here. So.
When that when that settles down we don't know, but but most people selling today are selling it because they have to or are they believe this is where the best pricing is going to be.
I think there was one recent transaction 1 million square feet in Cleveland.
Just sold it was a sub six cap so.
Not a lot of details on the financing on that.
Versus cash but.
This is the small ones are always easier there, they're always driven usually by a variety of reasons as opposed to the big portfolios.
Alright, great. Thank you.
Thank you.
The next question comes from Todd Thomas of Keybanc Capital markets. Please go ahead.
Hi, Thanks.
Good morning, I, just wanted to follow up on that.
The conversation around.
Asset pricing and transactions, a little bit I realize there arent a lot of trades, but just curious if you could talk about the transaction environment a little bit.
You know in general how far off you know buyers and sellers are today and and I think you mentioned in your prepared remarks that deals are coming back to you what's the change in pricing.
Look like on deals that you are seeing sort of circle back.
Okay.
Hey, Todd pattern here.
Yes, I mean, it's good it's a good question I don't know if I have a great answer just because theres just so many variables out there right now.
And probably just not enough data points to crystallize.
A real trend one way or the other.
I think the.
Environment has gotten even a little bit more murky as a result of yesterday's fed actions are more importantly, their comments after directions.
So I think.
We're still.
Obviously, you remain on the sidelines for four for the reasons that Jeff touched on.
But.
We're seeing.
We have seen deals come back to the market but.
Not necessarily priced out and their finality.
If you understand I just don't we just don't have a clear demonstrable.
Piece of evidence, if you will or a series of trends too.
Say for certain what are where our valuation is going and I think.
This price discovery period of price discovery is probably going to last longer than I originally thought so.
We're collecting as many data points as we can going forward and hopefully I'll have a better answer for you.
Next quarter.
Okay have you seen have you seen cap rates trend a little bit higher I think last quarter, you talked about sort of 25 to maybe 60 basis points I know a little bit of a range. There, but have you continued to see them widen a little bit further.
Yeah, I mean, it's probably it's hard to say.
You know there are some there we're seeing some some cap rates.
North a little bit.
If you want to cover what we call singles and doubles portfolios are they're.
Still at pricing premium again for what you know there's not a lot of portfolio transactions with a few that were seeing there.
Haven't moved a whole lot. If you will Jeff just mentioned the one the one in one of our markets in Cleveland $110 million deal debt still sub.
Sub six cap, but again, that's just one one deal.
We need to do.
We need to be monitored and we obviously are continuing to monitor the marketplace as far as deals occur or the volume of deals was off.
Significantly in the third quarter and typically.
More deals closed in the fourth quarter every year and maybe we will see more deals close but who knows.
Our crystal ball is still pretty pretty murky.
Okay, and then I think I heard in your prepared remarks.
That there was some some caution baked in for some occupancy loss.
Just hoping you could elaborate on that a little bit talk about occupancy heading into the fourth quarter and into 2023 from 98, 9%.
September 30.
See any potential move outs or known move outs in the near term or if you're just being cautious.
Todd I'll speak to the potential impacts on same store and then defer to Jim to talk more about portfolio occupancy in the outlook for.
'twenty three it is conservatism there is one or two minor tenants.
The likelihood is that theyre going to stay put.
But the guidance does reflect some transitory.
Movements.
At the end of the year again, the bigger impacts on same store.
Retention <unk> relate to the.
The non recoverable real estate taxes.
I referenced earlier.
As far as the portfolio in general I mean, we've actually picked up over 99%.
So in the fourth quarter.
Next year.
It's pretty similar to this year that might be.
A couple.
A couple of months.
But in general around where we are right now.
Okay.
And then just just lastly.
In terms of how much upside I guess do you see.
From the 77% of leases that are currently structured on a on a triple net basis, how much upside do you see to that number in 'twenty three and can you can you quantify what the conversion.
Looks like in terms of same store NOI growth, our EF all upside either.
You know what the impact has been to 'twenty, two but perhaps you know what you might expect from that from additional conversions in 'twenty three.
Todd I think sequentially, we're going to see improvement in 'twenty, three that could tick above 80%.
Don't have the information at hand.
To actually quantify the impacts, but I can get that to you.
Okay.
And just one more actually.
Any change to the current thinking around the $50 million series a redemption in early 'twenty three at this point.
No not presently there remains a positive arbitrage should we use the line to redeem the series a.
We will also have a portion of free cash flow.
After dividends that we can allocate towards the redemption.
Then when the share price becomes more constructive again, we could evaluate the use of the ATM.
Okay, great. Thank you.
Thanks Todd.
The next question comes from Mitch Germain of JMP Securities. Please go ahead.
Hi, good morning.
I know you guys at one point had been contemplating some.
Discussions about joint ventures.
Is that somewhat off the table now given the macro.
[noise].
Hey, Mitch.
Not at all I mean, I think these are the times when.
Our operating platform can really shine.
When you have got some dislocation in the market so.
We havent increased our joint venture discussions, but they are ongoing I mean, we talked to people.
It's one of my things in my job description and talk to people all the time. So I mean, we have these discussions all the time with potential JV partners.
And again I think the deal in Memphis that we completed and then bought out from our JV partner. This year I think it worked out really well and I think.
Not on this call, but we can get into it at a later time, where our operating platform really our property managers on the ground in Memphis made a big difference in that portfolio.
And so that generates some good returns.
Thank.
J B. This is exactly the time, we should be talking about them in.
And maybe executing on them.
That's helpful. And then obviously you talked about the four offices and the opening of a new one.
Where potentially as office number five in your mind.
You know I really don't want to say that on an open call. Because we have we've got third party property managers in those locations. So.
I am going with that.
I will tell you I would tell you probably not.
We are right now.
And for a variety of reasons and.
But again this one in Atlanta was a big move for US were close to 70% internal property management and we can talk all day about the benefits of that.
Great and then last one from me, obviously, we continue to see industrial.
Industrial development rise despite some of the backdrop.
Kind of what's your view.
On development obviously the.
Potential to gain appropriate funding and the cost of that funding rising.
Do you think that there is naturally a potential slowdown in that pipeline as we as we look ahead.
I mean, I I mean, I would think so.
Youre just seeing.
We've been approached by.
Developers with deals if you will in there.
We are saying is they can't really get all of them they can't get all the funding.
So even if they have even it was kind of a build to suit maybe multiple tenants maybe ones credit whatever the local banks not given out 60% anymore, 50% right. So.
We're going to have to use more equity in.
Equity usually cost more than that.
Let's see how that how that scenario plays out.
We would think there would be somewhat of a slowdown we are seating ceding some of the steel and concrete cost come down a little bit so.
It is interesting times as they say.
The demand on the ground for space is still there at least on a new product.
And construction costs have moderated.
<unk>.
And then just the just the financing to get these deals done. So I think there's a lot of volatility right now on the development side.
Great helpful. Thank you guys. Thank you.
Again, if you would like to ask a question. Please press Star then one.
And our next question comes from Anthony Hau of Truest. Please go ahead.
Hey, guys. Thanks for taking my question this morning.
For the assets that you guys bought last year can you guys provide some color on how they perform compare to initial underwriting in terms of like lease spreads and rent growth.
Oh no.
Given specific numbers.
Yes, actually exceeded underwriting like pretty much.
All the deals.
Can you like give us a range like is it like a 100 bps higher or like 50 bps higher.
Yeah.
As far as.
Lease rates would have been.
Probably.
10% higher than the rates are in that arena.
Gotcha.
And can you just remind us what's your target net debt to EBITDA is for next year.
We didn't articulate specific target Anthony but.
Sure.
We're looking to obviously turn that down.
We have the benefit of incremental EBITDA, including the contribution from the stabilization of development and reposition properties that will result in a half turn down on net debt plus preferred.
And then if we are in a position to.
Use a leveraged neutral source to address the redemption of the series a that metric will more meaningfully improve.
Gotcha.
And then.
I'm on the last call you guys mentioned that the solar initiative will add approximately $1 million with <unk> in 'twenty, three and it sounds like most of it will be installed by our operational by 2024, So what would that number be in 'twenty 'twenty four.
Yes.
Yes.
<unk>.
In two phases right now.
Phase, one which is about half.
The solar.
And going through regulatory.
Approvals and working on connections to the grid.
That will be online at the end of 2003 and Thats about a half a million dollars and then the other half is in.
And in the evaluation process.
Okay. Thanks, guys.
Thank you.
This concludes our question and answer session I would like to turn the conference back over to Jeff Witherell for any closing remarks.
Thank you all for joining us this morning as always we're available for follow up questions and.
We will talk to you again in about three months.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
Yes.
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Yes.
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Yes.
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Yes.
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Yeah.
Yes.
[music].
Yeah.