Q3 2022 Indus Realty Trust Inc Earnings Call
Good morning, and welcome to induce Realty Trust 2022 third quarter earnings Conference call.
This call will be followed by a question and answer session you.
You may ask yourself into the queue for questions during any time over the course of this call by dialing star one on your keypad.
It is now my pleasure to turn the program over to Ashley Pizzo, Vice President of capital markets and Investor Relations at <unk>. Please go ahead.
Thank you and good morning, everyone welcome to our 2022 third quarter earnings call.
It isn't a regularly available earnings material and this is also published a supplemental presentation, which is available on its website at www dot in this Archie dot com under the investors tab.
This call will contain forward looking statements under federal Securities laws, including statements regarding future financial results. These statements are based on current expectations estimates and projections as well as management's beliefs and assumptions.
Forward looking statements are not guarantees of performance and actual operating results may be affected by a variety of factors for a list of those factors. Please refer to the risks listed in the company's most recent 10-K filing as updated by its quarterly report on Form 10-Q and subsequent quarters.
Additionally, the second quarter, sorry, third quarter results press release, and supplemental presentation contain additional financial measures such as NOI F. F. O course F. L. I F a fold in EBITDA.
These are all non-GAAP financial measures.
He has provided a reconciliation to those measures in accordance with regulation G and item 10 E of regulation S. K.
Thanks, Ashley good morning, everyone and thank you for joining us today.
Tenants are active in our markets and supply remains relatively in check due to strong absorption and the continuing delays in the delivery of new buildings.
Within this backdrop, we believe in this is well positioned and prepared for a changing market environment.
We effectively have pre funded the majority of our upcoming acquisition and development pipelines, which includes having all fixed rate debt at well below current market rates.
Also we'll continue to look to recycle capital, notably undeveloped land.
We're focused on maintaining high occupancy and actively leasing upcoming deliveries.
And we generate cash flow from our portfolio, which we expect to grow significantly as recent and upcoming developments and acquisitions roll into our NOI.
Speaking to our current results in the third quarter, we continued to deliver strong internal and external growth.
Our portfolio is well leased at 97, 6% with the only vacancy in the recently delivered two building development in Orlando.
We have no bad debt expense in 2022 to date and all of our leases are triple net.
We have effectively addressed most of our lease rollover through the end of 'twenty to 'twenty three with leases accounting for only approximately 2% of our total portfolio square footage expiring before 2024.
Of the upcoming role we do have one vacancy expected in the near term.
Turning to at least start 234000 square foot delivery in Connecticut.
But to get fully operational in the new space quicker than expected and therefore be vacating to existing 70 373000 square feet in short order.
Since last quarter, we successfully re tenanted property in Charlotte that we acquired earlier this year.
This new lease to an investment grade rated retailer was that was that a rent 39% above the previous about paid by the short term in place tenants and resulted in a yield 50 basis points above what we had originally forecasted we would achieve at the time of the acquisition earlier this year.
We also completed a renewal and extension in Hartford with a global delivery company.
This company exercised the last of its existing one year fixed renewal rates in September and during that process. They sought to secure their access to the space for longer term as.
As a result, a few weeks ago, we executed an additional two year extension with this tenant with a 16% increase in starting rental rate over the recent renewal rent.
We're making good progress on leasing up the recent Orlando delivery and feel good about the current tenant activity and the very strong rental rates and recent recent proposals, which we believe will result in us exceeding our most current underwriting.
We continued to experience strong rent growth across our markets and we currently estimate the mark to market rent in our portfolio at 26% on a cash basis and 31% on a GAAP basis.
We believe we are conservative in our estimates typically using known lease comps rather than quoted rates or the levels on current proposals Adair.
Additionally, our portfolio is relatively young and has grown significantly this quarter as mark to market calculation was impacted by an unusually large number of newly added developments in signed leases amounting to nearly one sixth of our estimated rent on a go forward basis.
Given how recent these leases are they have a lower mark to market mark to market opportunity.
Also had very little impact on our third quarter cash NOI.
We estimate that this group of leases lowered our our mark to market calculation this quarter by several hundred basis points.
With respect to our pipeline, we have leased 60% of the remaining vacancy at Nashville, leaving this project with one vacant space of 42000 square feet for which we have good tenant interest.
We have pushed the closing on this acquisition to the latter half of the first quarter of 'twenty to 'twenty three the buildings are essentially complete but theres been a delay in completing the connection to public sewer, which we required to close on this acquisition.
Since the start of the year, we have added over 900000 square feet, representing an 18% increase to our in service portfolio.
We expect our three most recent developments chatman driving the Lehigh Valley 110, Shreveport in Connecticut, and Landstar logistics in Orlando to generate an initial stabilized yield of around 7% using the actual in place rent that Chad mentioned trade port and our current estimates for Landstar at a 95% occupancy level. This.
Is well above our initial underwriting at the time, we put the land sites under agreement or even when we commence construction.
As we continue to evaluate land for future development opportunities. We believe we believe we remain conservative in our budgeting.
Our initial underwriting assumes our view of today's market rents and construction costs.
Even if the deliveries two or more years away and we initially see him a 95% occupancy at stabilization.
Our current development pipeline includes one project of 206000 square feet in the Lehigh Valley, which we expect to complete late in the second quarter of 2023.
The Lehigh Valley market remains very tight with asking rents above $10 per square foot and supply in core locations remaining in check given few remaining development opportunities we.
We have a very well located project at an attractive basis that we feel will deliver a strong return.
Since we do not have construction commencement dates for several of our other land sites, where now listen these as land for potential future development, rather than them rather than including them in our active development pipeline. This.
This quarter, we disclose one new land site under agreement in the Charlotte market, where we expect we can build four buildings totaling just under 600000 square feet. The.
The necessary approvals for the site and create an army corps permit which extends the time to complete the entitlements.
Therefore, we do not expect to close on the purchase of this land until later in 2023, so any significant investment remains a bit far off.
Overall construction is continuing to experience certain challenges, including ongoing permitting delays by understaffed municipalities.
Shortages of key certain key materials, which are somewhat exacerbated by hurricane in.
That said, we are starting to see improvements both in cost and lead times in some areas such as structural steel and we expect these trends to continue to improve.
We have a number of first generation leases signed or expected in our pipeline and we expect some of these near term construction matters to continue to push out the lease and rent commencement dates.
And what we've typically experienced.
We continue to proactively order materials building more improvements into the base development designs and work with our tenants earlier in the process on their needs to try to mitigate all of these impacts.
We continue to believe the long term outlook for logistics properties remains strong and we will continue a very targeted pursuit of land and building acquisitions.
The current uncertain environment, we believe will produce good opportunities as an example, we already are seeing a slowdown in certain proposed development starts as developers they rely heavily on debt financing are reevaluating opportunities and dropping some land sites.
Have the financial flexibility to pursue select opportunities, while maintaining conservative leverage ratios using the capital on our balance sheet undrawn lines of credit and asset recycling.
On that last point, we have our small flex office portfolio under contract for $11 million and the closing is expected later this quarter as.
As a reminder, this portfolio is carried in discontinued operations. So it was not included in our reported NOI or core F. F. L metrics and the sale remains subject to typical closing conditions.
Additionally, we have several undeveloped land sites under agreement for a total of approximately 25 million, which we had put out a schedule in our supplement.
The largest is a $15 5 million dollar potential sale of 48 acres of industrial land.
Good one drive in Connecticut.
Buyer intends to build a 450000 square foot manufacturing facility for its own use on the site.
The other parcels.
The sale of non industrial land in Connecticut in Southern Massachusetts.
All of these sales.
And could India office flex portfolio are subject to a number of contingencies, including receipt of necessary approvals for the buyers intended uses.
And note the potential closings will take place over the course of 2023.
In aggregate if all these sales were to close we generate over 35 million in proceeds or about $3 50 per share with no impact to our existing NOI, while providing dry powder for future investment.
I'll conclude with thanking the <unk> for their continued hard work and exceptional performance, we take great pride in our very low employee turnover and it is through our team's effort that we achieve our strong results and are in a position for future future success with that I'll turn it over to Jon for a financial review.
Thanks, Michael.
We're pleased to report strong performance again this quarter.
Core <unk> for the 2022 third quarter was $5 7 million or 52% increase over the comparable quarter of the prior year and up.
15% from the second quarter of this year.
Core <unk> benefited the most from the growth in NOI.
<unk> from continuing operations was $10 2 million for the third quarter, that's up 34% from the prior year's third quarter.
The largest contributor of the growth was the net addition of one 2 million square feet to our portfolio over that time period.
Growth was also driven to a lesser extent by leasing activity and Escalations.
Additionally, the 2022 third quarter included a onetime lease termination fee of just under 400000, which we mentioned last quarter and that was included in our prior guidance provided.
<unk> for the 2022 third quarter was $3 8 million compared to $3 million for the prior year period.
Maintenance capital expenditures were 810000, this quarter, which were primarily related to seasonal repaving projects.
We also incurred 513000 in second generation leasing cost mostly related to Ti work on recent renewals and new leases.
Cash same property NOI for the 2022 third quarter was up 13, 7% versus the comparable 2021 period.
About 8% of this increase in same property NOI as it related to the burn off of free rent on tenant leases comprising about 348000 square feet there.
The remainder of the increase is related to the commencement of leases on previously vacant first generation space.
Standard lease Escalations.
Our same property portfolio of about 100% leased for the last several quarters and while our leasing spreads have been strong we have only had a few leases expire. This year are expected next year, all of which may impact same property NOI growth in future quarters.
Wrapping up just a few things on the income statement interest expenses $1 5 million for the third quarter. This is net of 430000 of capitalized interest, which was largely unchanged from the second quarter's numbers.
We'd expect that capitalized interest for Q4 will be lower given the recent deliveries of 110 trade port and Landstar.
General and administrative expenses were $2 9 million in the third quarter or 3 million. If you exclude the benefit of the noncash mark to market charge related to the nonqualified deferred compensation plan.
One item to add for future consideration on G&A is the sale of the office flex portfolio that Michael mentioned includes office space that we occupy in Connecticut the <unk>.
<unk> forward. Our G&A will include approximately 200000 annually for occupancy costs related to leasing that space from the new owner of the portfolio.
Finishing up here on liquidity and debt at the end of August we repaid our $226 3 million floating rate construction loan with cash on hand, reducing our outstanding debt balance to be $141 3 million.
Right now 100% of our debt is fixed rate or swapped to fixed at an overall weighted average interest rate of 4.13%.
That's a third quarter annualized EBITDA was four six times or three eight times net of cash.
Our $150 million delayed draw term loan, which we completed and swapped into a fixed rate in early April was well timed as we believe the term loan market has become more difficult to access.
Many of the larger banks have pulled back on financing due to their own capital requirements and rates have moved considerably since then.
With our current facility our liquidity at the end of the third quarter was $216 million, which reflects $26 million of cash $90 million of available draws on the term loan and a $100 million of borrowing capacity under the revolving credit facility, which is undrawn.
We expect to draw approximately $30 million on the term loan in the fourth quarter with an expectation that the balance will be drawn in the first half of 2023.
Again, all of which has been hedged at an effective rate of 4.15%.
With the term loan fully drawn we expect to remain a conservative debt to enterprise value ratios.
Further we effectively have no debt outstanding that matures before 2027.
With our current credit facilities cash position income from the portfolio and capital recycling that Michael discussed, we're well positioned to complete our pipeline and pursue select opportunities.
Our new term loan includes an accordion feature that could grow this bank facility from its current $250 million up to $500 million.
We also will continue to look for diverse and attractive sources of capital to fund future growth.
But importantly, we are well capitalized to fund our current activities, which will add another one 2 million square feet.
Nearly 20% of the portfolio in 2023.
Okay.
Lastly in this quarter's release, we provided some additional earnings guidance information for the fourth quarter.
We estimate NOI from continuing ops of between 10 million and $10 3 million for the fourth quarter.
Results in our full year NOI estimate of $38 1 million to $38 4 million.
This is up from our prior guidance of $36 5 million to 38.0 million last quarter.
This forecast reflects our expectations that no new additions to our portfolio and no significant new lease commencements will occur in the fourth quarter.
We estimate G&A for the fourth quarter, excluding the mark to market charge for the nonqualified deferred comp plan to be 3.1 to $3 3 million.
This will bring the full year G&A forecast to between 11, three and $11 5 million, which is down slightly from last quarter's full year guidance.
The full year forecast includes the benefit.
Year to date from the noncash mark to market of our nonqualified deferred compensation plan, which overall has lower G&A for 2022.
Without this benefit our G&A for the nine month period would have been about $9 1 million as opposed to $8 2 million.
As a reminder, we typically typically forecast this amount of zero and exclude the amount from a core at that calculation.
Finally, we estimate interest expense to be one seven to $1 8 million for the fourth quarter net interest expense reflects the benefit of the pay down from the construction loan in August .
And it's partially offset by the scheduled draw on our term loan a little later this quarter.
<unk> also assumes a lower level of capitalized interest in the fourth quarter as compared to a year to date levels due to the completion of several projects in the third quarter.
Michael that's all I have with that.
Oh, Thanks, John I want to thank all of you today on today all of you here today on today's call and all of our stockholders for their continued support.
Our business is performing well and we are optimistic that despite the current macroeconomic and capital market environments that we are well positioned to grow our cash flow net asset value.
Importantly shareholder value over the long term.
That concludes our prepared remarks, and I'll turn it back over to the operator for your questions.
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 were 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.
Our first question is from Dave Rodgers with Baird. Please go ahead.
Yeah. Good morning, everybody I'm, Michael wanted to go back to the acquisitions that you've got under contract the forward purchases that you've done a while ago maybe.
Maybe give us your comfort level with those today I know that you quote a five 1% to five five average underwritten yield I'm wondering what that might be on today's rents, but also kind of your comfort with stepping more into land acquisitions or forward purchases, just kind of given where the capital markets are.
Yeah, Thanks, Dave for the question.
I think as we disclose the underwritten yields kind of in that low to mid five range at 95% occupancy and that's using our estimate of of rent as of today Dawn upon delivery. So we're just using our our best guess of market rents I mean, a couple of those are.
I expect it to deliver and in the first quarter. A couple of them are a little bit later towards the second or third quarter. Yeah. We're seeing really good activity on the on the two obviously the Nashville one is.
The bulk of it is least the one in Charleston, we're seeing very good tenant activity.
At rates right in line with where our.
Our most recent forecasts are or better.
So we still think really like all of those projects. We think there's really well located really good quality buildings are really perfect for the markets. They are in so we're excited to have those deliver.
I think we'll be really successful leasing them up.
And generating good returns.
Well in terms of future forward you know, there's there's still are out there I think today, we're probably a little more focused on trying to find land land opportunities ourselves.
Yes, I think as I mentioned earlier in the call. We are starting to see a number of deals sort of fall apart that others have.
Have have land sites under control I think that's a mixture of capital availability, both on the equity and debt side cost of debt.
And probably some more uncertainty as to where exit cap rates are for merchant builders.
But we think that creates really good opportunity on land land sellers typically are a little bit sticky I'm price, principally because often they don't really have any debt and maybe farmland they've owned forever.
But that said there are some motivated sellers out there there are people who had land under agreement.
That's getting dropped and if we can find the right parcels. We think that's a good opportunity yeah. We we think you know.
It takes a while to entitle it took us some time to work through the land evaluate the costs.
And make a good judgment going forward. So we're focused on land do you have the right forward opportunity came along we certainly still look at that and we.
We continue to look at acquisitions and again, we don't typically do long term single net stabilized so everything almost falls into the value by bucket and we think we will increasingly see some opportunities there.
Neither is that needs to get refinanced as people adjust to the new normal in the capital markets or what have you. So kind of looking at looking at everything but that's that's how we think about what we have today and where we're looking.
I appreciate all that color Michael and then maybe just one more for me on the leasing front, obviously, maybe it focuses on the same kind of bucket of assets under acquisition are under contract but.
Are you seeing any slowdown in terms of the conversations that you're having with tenants taking longer fewer tenants kind of coming to the assets putting things on hold is that part of what's happening or is it you just have the time to complete just a little more conversations or color on the conversations around leasing would be helpful as well.
Sure you know Theres always said our portfolio is growing but it's still not huge and we'd certainly other than typically on the new properties. We've either developed or are buying we're not yeah. We're not leasing doing 10 leases a month, but we are leasing properties and obviously were.
Speaking to brokers and all of the markets. We're in weekly if not more and give me a sense of the environment. So overall activity still remains really good.
We're actively leasing such as Florida, Nashville, Charleston in particular.
Yeah, I'd say tender activities really good in terms of tenant decision, making.
I think it's always been a mixed bag typically when you deal with big multinationals, they're slower if they just had many levels of approval to go through and that's still consistent is there a little bit less urgency maybe on some some part because five months ago. When they were looking for space or eight months ago.
If they didn't agree to it within the first week it was gone or the price went up 50 cents a foot and it was leased ahead of them.
Maybe but in all honesty in Florida, we're seeing tenants moved very quickly because suddenly they realize they need the space. Additionally, I think tenants are realized it just takes longer and longer to get their permits and approvals to build out their space. So some are eager to sign space up earlier when they need it. So I'd say, it's a mixed bag I don't think.
I can say, we've really seen from our view a real trend that things have slowed in any material way or companies have become a lot more cautious or a lot slower.
They are a company that pushes off their plan for six months, but then two more.
Proposals come in from other companies that need the space immediately so.
Feels like it's likely going to start slowing just based on headlines and everything you read and I read in the press but.
Our leasing activity and in certainly at all the markets. We're active in still feels really good to us.
Thanks, Michael.
Thanks, Dave.
The next question is from Christy Mcelroy with Citi. Please go ahead.
Risk mitigation return differences that you would need.
A company for 25 years, we have a lot of experience doing it it's something more.
Get it your comment about balance sheet and using capital and to land. That's still for a lot of these transactions land cost is a fairly small amount of the purchase price and you typically our history has been we've entitled land and we've pretty much put into production fairly quickly after being entitled It could be something like the Charlotte project, which is up to four.
Instead, we would build that in phases.
On the land so we try to get returns on it as quickly as we can that said, we do like that land gives us some flexibility that if we find a great land site entitled late in a year.
A year from now the market conditions aren't great. It's not a huge amount of capital tied up in something that isn't generating income and.
We think in todays market, having really good land sites and I mentioned potentially you know the market is getting more conducive to finding that in the near term is really valuable right in certain markets. It's just very very difficult to find well located land sites.
Development keeps getting pushed further and further away from from where it would be ideal locations are so we think there's incremental value over time to having those as we ride through whatever cycle or cycles may happen. So we think that's an important part of the business I think all of that said we are recognizing we don't want to have a lot of capital tied up.
It assets that are not going to produce income for an extended period of time. So we're just gonna balance where our capital goes into we find you know.
Recycling, our our noncore land holdings in Connecticut, which effectively are zero income sitting kind of in our balance sheet at a very low basis and putting that into other land for development in markets. We plan to develop it as a good use of recycling those proceeds for.
Also cognizant of trying to build up our cash flow as well, so well well look for the right opportunities, we really want to allocate capital to where we can get the best returns with some recognition of you're obviously taking into account risk and some recognition of when cash flow is going to start so hopefully that answered your questions.
No no no that was that was helpful Hum.
And I'm just from a capital perspective.
Guys have the $216 million of liquidity of the other 35 million of assets that are under contract and will eventually be sold so you're somewhere in the range of 250 million of liquidity you know of that I guess, you could if you strip out the line.
The balance is kind of locked in.
Cause your swapped out and then you have the cash and then the proceeds.
Got it.
What do you guys view your.
Cap on near term capacity to stay within your leverage targets.
Yeah, I don't think we've kind of formulated that out publicly but yeah.
We think you kind of roll forward.
Our development pipeline our capital we ended up at a pretty conservative debt to EBITA number kind of once we stabilize those assets and fully fund them.
As you mentioned, we have the capital recycling, we generate cash from the business itself.
So I think as we look at leverage we really think about where the peer ranges and we don't want to be too far out of line on the pier and the peer group, but we still see incremental capacity there for us to add some additional leverage as the capital recycling.
Cash flow.
And you know, we'll see what other opportunities present themselves as John alluded to in his remarks I think our goal is to keep the business. Yeah. So much simple from a balance sheet point of view, but if we get down the road.
No, we don't think equity capitals, and appealing Avenue somewhere down the road, we wanted to be mindful of our leverage we've put our capital recycling to use you know we'll have to think about potential other structures, whether it's a JV or something else, but today, we feel really good about our balance sheet.
Good, though we do have some dry powder to take advantage of land or our existing building opportunity as they come but we'll keep things in mind. The other thing we think about when we think about our our leverage ratios as just.
We look at both debt to EBITA and a little bit of a kind of debt to N O Y just recognize that small company our G&A.
Which we continue to leverage as we grow our NOI does take up a little bit bigger chunk.
That our peers, but that said, we still want to keep that debt to EBITDA measure pretty close and inline with our peers.
As well as we'll look at other metrics as well, but where we're focused on being pretty reasonable here.
Okay, and then the accordion feature on the term loan what would be the pricing. If you guys were to.
Kind of exercise the incremental 250 million.
Yeah, John or actually you guys want to fill in on that.
Yeah, Michael I can take that one hi, Craig.
The pricing would be whatever pricing would be prevalent at the time.
It basically lines up syndicate to be.
All of that provide us the term loan but.
But we didn't we didn't set pricing.
Still our spread of sulfur.
It is what it is and we would hope to be able to achieve something similar.
And in the Sydney could definitely there right. If you want to take it down there's no way for them to get out of that commitment.
Yeah, you know.
The syndicate, a decent sized group you could always have one bank or our two banks in the syndicate that decide they don't want to do term loans at any given time I think that's one of the benefit of frankly, having a really strong group of supportive syndicate banks.
At any given moment, a particular bank might not want to do a term loan.
But the other the others will step up so.
We also could always add another thing they can do it if we wanted to but we think we've got a really strong banking group and we really appreciate all their support and we think there'll be there for us if we wanted to increase the term loan borrowing.
Great. Thank you.
Thanks, Craig.
The next question is from Tom Catherwood with B T. I G. Please go ahead.
Thanks, and good morning, everyone, maybe sticking with co.
One of Craig's questions, Michael how much capacity do you kind of feel comfortable with.
For pursuing opportunistic investments versus kind of funding developments on owned land right now.
Yeah, I mean again I think we've given specific targets out in terms of dollars in amounts but.
I think we're looking at both we think we have capacity to do some of each you know again on development as discussed between land and future development. So there's really not significant capital for that other than finishing the one deal in our pipeline for quite a while so in some ways.
If we find land that we like or really a year away from funding. The land. It then if we commenced construction you know that will fund over the following year. So we feel that gives us time to assess over time, where our capital is what capital is available and at what cost to influence that obviously, if we're looking at buildings or acquisitions in the <unk>.
Today, we obviously need that capital much more immediately.
So we think theres capacity for both again, the land and development is going to be a much more longer tailed but we think we have capacity to add incremental acquisitions today, if we find the right opportunities and again, it's kind of an interesting market theres very little trading.
From our point our point of view most of the things that we've seen that have closed.
And the markets, we track or have been.
Awarded and suppose theyre going to close in what well have to see obviously they've been in the market typically been at cap rates below where I think everyone would expect things to trade based just on the news and headlines and so we're still gonna look we're not sure we've found the right opportunities for us yet.
But we think we have capacity and and again, we have some optionality in our balance sheet and our debt capacity and continuing to recycle capital.
I appreciate that Michael and then kind of sticking with that cap rate comment that you made obviously youre in a select targeted set of markets, but you know with.
With the comment that you know the cap rates on transactions would be below kind of what the market is expecting right. Now do you have a sense of how much cap rates have moved in your specific markets.
Yeah, I think akin to that comment, it's really hard to pick a number because.
It's sort of they're so few deals they just feel almost your cherry picking.
I can give you. An example in Charlotte there was a nice portfolio located near the airport. It had three and a half years of weighted average lease term, we thought the rents yeah were kind of 25% to 30% below market about a 600000 square foot portfolio.
We've heard that's been awarded went through kind of a multiple round process and so this is real time last month, and we've heard it's kind of a 4243 cap rate.
Which I think feels pretty low I'd say at peak of the market, maybe I would've guessed that would be kind of a three eight.
So has that move 40 basis points, yeah that seems pretty tight compared to where debt spreads have widened and other things but.
But that's where that straight at you know we know theres been a closed deal in Savannah with not a lot of mark to market in five years of lease term that traded at a four and a quarter getting us out of market. We're in we've we've mentioned the past we look at it we track it a little bit.
That feels pretty low there is a deal kind of in the <unk>.
<unk> County, which is kind of the western Submarket of the Lehigh Valley, you know we feel the core the two eastern counties, but this is further west. So we think it's not as good a location typically is treated wide of the Lehigh Valley and that closed I think two months ago at four in a quarter.
So you know, it's really hard to say exactly how much things have moved some things that are going to have a very very long you know 15 or 20 year single tenant net leased with not a lot of bumps that's gonna be typically wider probably 100 to 125 basis points wider. These other deals are anywhere from call. It 25 to 75, but.
It's really hard to put a pin on it.
Really really appreciate that color Michael Thank you and then last one for me John .
On your guidance from or for NOI from continuing operations.
It seems like some of that boost was from early development stabilization in the quarter, but kind of by our back of the envelope math. It still seems like there's two cents a share so I'm kind of higher run rate.
Did your <unk> expectations.
Is that Directionally, correct, and if so kind of what's driving this higher base run rate.
That's true.
We hire a base run rate.
Part of which is related to the Paragon asset.
That we leased.
As Michael had mentioned too.
Yeah, that's a great retailer, but yeah, youre likely seeing a run rate.
A little higher than than Q2.
Got it that's it for me thanks, everyone.
Great. Thanks, Tom.
The next question is from Mitch Germain with JMP Securities. Please go ahead.
Thank you very much.
So the Paragon asset did that I know that that's leases that commenced as well at this point.
Yeah that lease has commenced.
Fast moving.
And how long was that in the quarter.
That lease commenced towards the end of the quarter, but I think in our last.
Iterate no guidance, we had been concerned but it makes backing that out you can.
And during Q4.
Okay got you and I'm just curious.
I think John's commentary you talked about same store.
You know potentially some some leasing that you guys have to do next year I'm, just trying to understand the cadence of.
Occupancy obviously.
It declined from.
The delivery of the two Orlando properties, not being fully occupied but I'm just trying to understand kind of.
Cadence of occupancy as we as we kind of move forward over the next couple of quarters.
Yeah, I'll start and John or actually can chime in I think yeah I think in my remarks, I mentioned, we have the one tenant that's kind of tripled in size in our Connecticut Park.
Theyre, leaving probably earlier than we expected their existing facility I think the good news is we sort of delivered the new facility a little earlier.
Then we had sort of.
They expected and they were able to get operational quicker than than they had thought so they're moving a little bit earlier out of the other facility.
So I think we're saying that.
That likely probably doesn't get back filled in the fourth quarter.
We're seeing good tenant interest in that space as well, but just by the time you sign a lease and get things going to probably takes a little while.
And then other than that we have a little bit.
Probably not a whole lot that comes up in 'twenty 'twenty.
Three but even just having one vacancy that's less than 1% of our portfolio is still kind of impact to same property NOI. When we borrow 100% in the same property pool I think for the last.
Five quarters or four or five quarters. So I think that's there's not a lot of vacancy coming up but we think there's kind of this one that we obviously are going to work to lease.
Feel good about the opportunities there.
A couple of small leases coming up in 2023, I think that's what he was alluding to I don't know John or actually if I've missed anything there.
Okay.
No.
Michael.
Great I appreciate it and so I'm trying to understand Michael about your.
Willingness to develop.
In this market.
We've got a couple that delivered we have one underway we have some land that.
That's being trapped or or secured so is the goal.
Has that land becomes available to commence or are you likely to begin some pre leasing efforts before you put.
Any real capital behind the development here.
Yeah, I think you know as we disclosed we have one project under development in a couple of the forward is coming next year, and we feel great about that portfolio.
On the other land sites, we've disclosed and land sites, we're looking at today in the market.
Our view is we'll just going to evaluate market conditions and decide if we move forward or not.
One other lands that we currently own today that that's entitled is also in the Lehigh Valley I think our view is let's let's get the one building we have.
Further along and then consider that other build and the other thing with that land site is we're looking to see if there's.
Atlanta, that's adjacent to it that we may be able to purchase and combined to make the site plan brother, Bill being a little and changed the site plan. So we're sort of working on that as well. So every site every let's say we have that's either close to entitlements or entitle, we're going to market as a pre lease or build to suit for sure. If we haven't started.
Spec, but I think on spec.
We're just going to wait and see on future market conditions based on the current pipeline we have it in the markets we're in.
And we think land continues to be as I mentioned earlier really hard to find good land sites.
When something is built on that land site. It's a building in buildings kind of trade and it just becomes really a price question, but theres a theres buildings. In every market. You can you can buy a building you just have to pay the price that just isn't going to be land and all the markets. We're looking at and located in the locations. We likes if we can find a really good strategic land site that we think is going to.
Generate good returns over time.
Sort of motivated to try to figure out a way assuming that returns pencil out to be certainly better than if we acquired something.
We're going to look to do that.
Great last one from me and I have to apologize I had some.
Asset sales $35 million I think Craig.
You asked about.
How much of that is.
Land versus occupied properties I was just trying to understand.
Yeah. So it's it's a $11 million of that is is the office flex portfolio. That's in our discontinued operation. So.
And our NOI numbers in our core F. O numbers, that's that's been stripped out already and it's discontinued op on our balance sheet, So theres really no.
And the metrics sort of you know I think we generally sort of report and talk to.
That income is not in any of that.
Lat am.
I appreciate it thank you so much.
Perfect. Thanks Mitch.
With no more questions. This concludes <unk> Realty Trust's 2022 third quarter earnings call. Thank you for joining us and enjoy your week you may now disconnect.
Okay.
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