Q1 2025 LXP Industrial Trust Earnings Call
Earnings call and webcast.
James Dudley: So what we've seen, I guess, related to tariffs is we've seen a couple of different avenues by tenants. We've seen some that have just kind of continued on with their business plans through the tariffs. We've seen that through consolidation in some of the markets that they had planned ahead of time. We've also seen the acceleration of demand in some circumstances around bringing in additional product and trying to find room for that. Solar panels are one of the items I would call out there. And then we've seen some kind of take a step back and pause on their plans and reevaluate what they were planning to do and trying to figure out, like I think everyone else is, what this ultimately looks like so they can plan around it from a supply chain perspective.
All lines have been placed on mute to prevent any background noise and after the Speakers' remarks, there will be a question and answer session. If you'd like to ask a question during that time simply press star followed by the number one on your telephone keypad. If at any point you would like to withdraw your question simply press Star followed by the number one again.
Will Eglin: We've seen some that have just kind of continued on with their business plans through the tariffs. We've seen that through consolidation in some of the markets that they had planned ahead of time. We've also seen the acceleration of demand in some circumstances around bringing in additional product and trying to find room for that. Solar panels are one of the items I would call out there.
Aaron: Good morning, my name is Aaron and I will be your conference operator for today.
Aaron: At this time, I would like to welcome everyone to the LXP Industrial Trust first quarter 2025 earnings call and webcast. All lines have been placed on mute to prevent any background noise and after the speaker's remarks there will be a question and answer session. If you'd like to ask a question during that time simply press star followed by the number one on your telephone keypad. If at any point you would like to withdraw your question simply press star followed by the number one again.
Speaker Change: With that I'm pleased to turn the call over to Heather Gentry Executive Vice President of Investor Relations. Heather you may begin thank.
Will Eglin: And then we've seen some kind of take a step back and pause on their plans and reevaluate what they were planning to do and trying to figure out, like I think everyone else is, what this ultimately looks like so they can plan around it from a supply chain perspective.
Speaker Change: Thank you operator, welcome to Alex Industrials transparent quarter 2025 earnings conference call and webcast. The earnings release was distributed this morning, and both the release and quarterly supplemental are available on our website in the investors section and will be furnished to the SEC on a form 8-K.
Will Eglin: Okay, and then last question for me, I think a couple weeks ago, Amazon, you know, there were headlines about, you know, them wanting to accelerate investment in warehouses in the US. I mean, how, how do you think about some of the larger e commerce players or maybe what are you seeing in terms of demand there? And could that potentially be good news for your, your 3 million square foot recent developments you're trying to lease up?
Heather Gentry: With that, I'm pleased to turn our call over to Heather Gentry, Executive Vice President of Investor Relations. Heather, you may begin.
Speaker Change: Certain statements made during this conference call regarding future events and expected results may constitute forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095.
Heather Gentry: Thank you, Operator.
Heather Gentry: Welcome to LXP Industrial Trust's first quarter 2025 earnings conference call and webcast. The earnings release was distributed this morning, and both the release and quarterly supplemental are available on our website in the investor section and will be furnished to the SEC on a Form 8K.
Speaker Change: Now, let's see believes that these statements are based on reasonable assumptions, however, certain factors and risks, including those included in today's earnings press release and those described in reports that <unk> files with the SEC from time to time could cause <unk> actual results to differ materially from those expressed.
Will Eglin: They're definitely still in the market. We'll see if it plays out for us in any of our big boxes. But we've seen their activity pick up. They're definitely kicking the tires. They're not the only ones. There's some major retailers that are in the market right now looking to do some of the same things.
James Dudley: They're definitely still in the market. We'll see if it plays out for us in any of our big boxes. But we've seen their activity pick up. They're definitely kicking the tires. They're not the only ones. There's some major retailers that are in the market right now looking to do some of the same things. Okay, great. That's helpful. Thank you. Thanks, John.
Heather Gentry: Certain statements made during this conference call regarding future events and expected results may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. LXP believes that these statements are based on reasonable assumptions, however, certain factors and risks, including those included in today's earnings press release and those described in reports that LXP files with the SEC from time to time, could cause LXP's actual results to differ materially from those expressed or implied by such statements.
Speaker Change: Press or implied by such statements.
Speaker Change: Sept as required by law <unk> does not undertake a duty to update any forward looking statements.
Will Eglin: Okay, great. That's helpful. Thank you. Thanks, John.
Will Eglin: Thanks for your call.
Jim Kammert: Thanks for your call. Our next question is from the line of Jim Kammert with Evercore. Your line is live. Thank you, good morning. I know it's a way out there and maybe you can't speak to it, but you've got the two big lease expirations potentially with Nissan in early 27, and kind of thematically with the line of questioning on the call, you know, they've been kind of a struggling operator. Could you just talk a little bit about what sort of notice they need to provide you or where are you talking about those renewals and kind of how they're doing in those facilities, just kind of get a sense of what your expectation is for those two leases.
Speaker Change: In the earnings press release, and quarterly supplemental disclosure package Alexey has reconciled all non-GAAP financial measures to the most directly comparable GAAP measure.
Jim Kammert: Our next question is from the line of Jim Kammert with Evercore. Your line is live. Thank you, good morning. I know it's a way out there and maybe you can't speak to it, but you've got the two big lease expirations potentially with Nissan in early 27, and kind of thematically with the line of questioning on the call, you know, they've been kind of a struggling operator. Could you just talk a little bit about what sort of notice they need to provide you or where are you talking about those renewals and kind of how they're doing in those facilities, just kind of get a sense of what your expectation is for those two leases.
Speaker Change: Any references in these documents to adjusted company <unk> refer to adjusted company funds from operations available to all equity holders on a fully diluted basis.
Heather Gentry: Except as required by law, LXP does not undertake a duty to update any forward-looking statement.
Speaker Change: Operating performance measures of an individual investment are not intended to be viewed as presenting a numerical measure of <unk>.
Heather Gentry: In the Earnings Press Release and Quarterly Supplemental Disclosure Package, LXP has reconciled all non-GAAP financial measures to the most directly comparable GAAP measures. Any references in these documents to adjusted company FFO refer to adjusted company funds from operations available to all equity holders on a fully diluted basis.
Alex Pease: Alex Pease historical or future financial performance financial position or cash flows.
Speaker Change: On today's call will Eglin, chairman and CEO and Nathan Brunner CFO will provide a recent business update and commentary on first quarter results Brendan.
Jim Kammert: Thank you.
Jim Kammert: Thank you.
Will Eglin: Maybe before James, you know, specifically addresses, you know, how the renewal discussions might play out, just with regard to Nissan, you're right, we have the two facilities, Leased to Nissan in Jackson and Nashville, you know, the U.S. market is critical to Nissan. It's about 40% of their total sales. And although, you know, we've seen the Global Efficiency Program that's been announced, you know, all of the recent public commentary has really focused on reconfirming their commitment to the U.S. plants. And very, very recently, they've come out and said that they're actually intending to max production in these U.S.
Will Eglin: Maybe before James, you know, specifically addresses, you know, how the renewal discussions might play out, just with regard to Nissan, you're right, we have the two facilities, Leased to Nissan in Jackson and Nashville, you know, the U.S. market is critical to Nissan, it's about 40% of their total sales. And although, you know, we've seen the Global Efficiency Program that's been announced, you know, all of the recent public commentary has really focused on reconfirming their commitment to the U.S. plants, and very, very recently, they've come out and said that they're actually intending to max production in these U.S.
Heather Gentry: Operating performance measures of an individual investment are not intended to be viewed as presenting a numerical measure of LXP's historical or future financial performance, financial position, or cash flow.
Brendan: Brendan Mullinix, CIO and James Dudley Executive Vice President and director of asset management will be available for the Q&A portion of this call.
Speaker Change: I will now turn the call over to will.
Speaker Change: Thanks, Heather and good morning, everyone.
Heather Gentry: On today's call, Will Eglin, Chairman and CEO, and Nathan Brunner, CFO, will provide a recent business update and commentary on first quarter results.
Speaker Change: Our 2025 is off to a good start as we produced solid same store NOI growth backed by strong leasing outcomes in the first quarter.
Aaron: Brendan Mullinix, CIO, and James Dudley, Executive Vice President and Director of Asset Management, will be available for the Q&A portion of this call.
Speaker Change: We remain focused on increasing occupancy enhancing returns in our portfolio and executing on our 12 market investment strategy in the sunbelt and lower Midwest.
Will Eglin: I will now turn the call over to Will. Thanks, Heather. Good morning, everyone. Our 2025 is off to a good start as we produced solid same store NOI growth backed by strong leasing outcomes in the first quarter. We remain focused on increasing occupancy, enhancing returns in our portfolio and executing on our 12-market investment strategy in the Sun Belt and Lower Midwest. In the first quarter, industrial fundamentals held relatively steady despite tariff uncertainty. While it is too early to know the full impact of the tariff announcements, our markets have continued to experience healthier industrial fundamentals when compared to select coastal markets.
Will Eglin: plants.
Will Eglin: plants.
Speaker Change: In the first quarter industrial fundamentals held relatively steady despite tariff uncertainty.
James Dudley: And I'll hand it off to James just to address the specifics around the renewal. So our two big warehouses are directly tied to the manufacturing plants. The one in Nashville is tied to the plant via a private road. They also invested a significant amount of capital to bring suppliers in-house so that they can get things just in time to the manufacturing plant. Similarly, in Canton, which is outside of Jackson, we've been talking to them about potentially having some additional investment, probably of their own dollars, but just investment of doing something similar to what they did in Nashville.
James Dudley: And I'll hand it off to James just to address the specifics around the renewables. So our two big warehouses are directly tied to the manufacturing plants. The one in Nashville is tied to the plant via a private road. They also invested a significant amount of capital to bring suppliers in-house so that they can get things just in time to the manufacturing plant. Similarly, in Canton, which is outside of Jackson, we've been talking to them about potentially having some additional investment, probably of their own dollars, but just investment of doing something similar to what they did in Nashville.
Speaker Change: While it is too early to know the full impact of the tariff announcements our markets have continued to experience healthier industrial fundamentals when compared to select coastal markets.
Speaker Change: And we believe strong long term demand trends remain in place.
Speaker Change: Overall U S. Net absorption was 23 million square feet in the first COVID-19 million square feet of which was in our 12 target markets.
Speaker Change: On the supply side, new starts remained low and the construction pipeline in our 12 target markets is approximately 87 million square feet down almost 75% from the 2022 peak of approximately 330 million square feet.
James Dudley: So investing millions of dollars into bringing suppliers in. They've also both facilities have low rent. You know, Nashville has been a really tight market. So if something were to happen, which I don't anticipate, we do have a really strong facility there in Nashville that would be functionally available to someone else. But they have preferential renewal options as well. So I think we have a really high probability of keeping them with all those different factors.
James Dudley: So investing millions of dollars into bringing suppliers in. They've also both facilities have low rent. You know, Nashville's been a really tight market. So if something were to happen, which I don't anticipate, we do have a really strong facility there in Nashville that would be functionally available to someone else. But they have preferential renewal options as well. So I think we have a really high probability of keeping them with all those different factors. Very good. They put like incremental of their own investment inside your building as well. Obviously, I guess I just want to understand kind of these aren't just just four walls in a box.
Will Eglin: and we believe strong long-term demand trends remain in place. Overall, U.S. net absorption was 23 million square feet in the first quarter, 19 million square feet of which was in our 12 target markets. On the supply side, new starts remain low, and the construction pipeline in our 12 target markets is approximately 87 million square feet, down almost 75% from the 2022 peak of approximately 330 million square feet. In terms of product mix, new Class A facilities continued to be favored by many users, evidenced by higher net occupancy gains for new product compared to older facilities, which saw an increase in move-outs during the quarter.
Speaker Change: In terms of product mix, new class a facilities continued to be favored by many users evidenced by higher net occupancy gains for new product compared to older facilities, which saw an increase in move outs during the quarter.
James Dudley: Very good. They put like incremental of their own investment inside your building as well. Obviously, I guess I just want to understand kind of these aren't just just four walls in a box. They put some money. They have.
Speaker Change: We believe our portfolio, which is comprised of 91% class a industrial facilities with an average age of nine five years stands to outperform in a market environment where quality matters.
James Dudley: They put some money. They have. So what they did in Nashville is, so there's about a million square feet that is just the warehouse piece, and they co-invested with suppliers, and they put a couple of different manufacturing operations in the balance of the space so that they would have the suppliers on site and could more quickly provide those products to the manufacturing plant. Thanks for the color. Appreciate it. Thanks, Jim.
So what they did in Nashville is, so there's about a million square feet that is just the warehouse piece, and they co-invested with suppliers, and they put a couple of different manufacturing operations in the balance of the space so that they would have the suppliers on site and could more quickly provide those products to the manufacturing plant.
Speaker Change: There has been a slower cadence in leasing transactions. This year, primarily as a result of our limited 2025 lease role, which represents less than three 5% of our ABR and secondarily due to longer decision, making times by many tenants.
Will Eglin: We believe our portfolio, which is comprised of 91% Class A industrial facilities with an average age of nine and a half stands to outperform in a market environment where quality matters. There has been a slower cadence in leasing transactions this year, primarily as a result of our limited 2025 lease roll, which represents less than 3.5% of our ABR, and secondarily, due to longer decision-making times by many tenants. We remain cautious in the near term as the current market environment, particularly as it relates to trade policy, has created further uncertainty for tenants making space use decisions.
Speaker Change: We remain cautious in the near term as the current market environment, particularly as it relates to trade policy has created further uncertainty for tenants taking space use decisions.
Operator: Ladies and gentlemen, last call. If anyone would like to ask a question for today, remember, it's star followed by the number one on your touchtone keypad. We'll pause for just a couple seconds to see if we have any further questions. Okay.
Speaker Change: That said leasing outcomes have been favorable so far this year and our current mark to market on leases expiring through 2030.
Speaker Change: Estimated to be approximately 18% based on broker's estimates, which will contribute to our <unk> growth.
Will Eglin: With that, let's go ahead and end our Q&A session for today.
Speaker Change: As we discussed on last quarters call, we expect it could be lower tenant retention this year compared to 2024.
Will Eglin: Mr. Eglin, I'd like to turn it back over to you for any closing comments. We appreciate everyone joining our call this morning and we look forward to updating you on our progress over the balance of the year. Thanks again for joining us today. Thank you.
Will Eglin: That said, leasing outcomes have been favorable so far this year, and our current mark-to-market on leases expiring through 2030 is estimated to be approximately 18% based on brokers' estimates, which will contribute to our FFO growth. As we discussed on last quarter's call, we expect there could be lower tenant retention this year compared to 2024. In-place rents on the remaining 2025 lease expirations are approximately 30% to 35% below March. We believe any space we may get back in 2025 will be attractive to other users. With respect to other vacancy, we have activity at all three of our big box facilities.
Speaker Change: In place rents on the remaining 2025 lease expirations are approximately 30% to 35% below market.
Speaker Change: We believe any space, we may get back in 2025 will be attractive to other users.
Speaker Change: With respect to other vacancy we have activity at all three of our big box facilities leasing these facilities as an important component of <unk> growth and continues to be our top priority our.
Speaker Change: Our investment strategy is concentrated on 12 target markets situated along the sunbelt and select lower Midwest States.
Speaker Change: These markets were approximately 85% of our gross assets are located have favorable demographics with employment and population growth exceeding the national average business friendly government policies and logistics infrastructure.
Will Eglin: Leasing these facilities is an important component to FFO growth and continues to be our top priority.
Speaker Change: These markets are also benefiting from significant investment in the onshoring of advanced manufacturing.
Will Eglin: Our investment strategy is concentrated on 12 target markets situated along the Sun Belt and select lower Midwest states. These markets, where approximately 85% of our gross assets are located, have favorable demographics, with employment and population growth exceeding the national average, business-friendly government policies, and logistics infrastructure. These markets are also benefiting from significant investment in the onshoring of advanced manufacturing. Some of the current projects in our target markets include Taiwan Semiconductor in Phoenix, Hyundai's MetaPlant in Savannah, Apple Server Manufacturing Plant in Houston, Eli Lilly's investment in Indianapolis, and Andrews Drone Manufacturing Facility in Columbus. Our focused geographic strategy provides us with both investment and operational benefits, including deeper relationships with brokers, developers, and tenants, as well as enhanced market knowledge resulting in better investment and asset management decision-making.
Speaker Change: Some of the current projects in our target markets include Taiwan semiconductor in Phoenix, Hyundai's meta plant and Savannah, Apple server manufacturing plant in Houston, Eli Lilly's investment in Indianapolis, and Andrew has grown manufacturing facility in Columbus.
Speaker Change: Our focused geographic strategy provides us with both investment and operational benefits, including deeper relationships with brokers developers and tenants as well as enhance market knowledge, resulting in better investment and asset management decision, making.
Speaker Change: With that in mind year to date, we've opportunistically sold two industrial assets for approximately $75 million at an average cash capitalization rate of four 1%.
Speaker Change: We were able to maximize the value of both assets. One was sold to a user buyer and the second was sold after securing a long term lease extension that raise the rent considerably.
Speaker Change: As a result, we have a strong cash position as we manage through an uncertain market backdrop.
Will Eglin: With that in mind, year-to-date, we've opportunistically sold two industrial assets for approximately $75 million at an average cash capitalization rate of 4.1%. We were able to maximize the value of both assets. One was sold to a user buyer, and the second was sold after securing a long-term lease extension that raised the rent considerably. As a result, we have a strong cash position as we manage through an uncertain market backdrop. Going forward, and as market conditions permit, we continue to look for good uses of capital in our target markets as we selectively recycle capital from our assets in non-target markets.
Speaker Change: Going forward and as market conditions permit we continue to look for good uses of capital in our target markets as we selectively recycle capital from our assets and non target markets.
Speaker Change: With that Nathan will now discuss our financials leasing and balance sheet in more detail.
Nathan Brunner: Thanks will we reported adjusted company <unk> in the first quarter of <unk> 16 per diluted common share for approximately $46 million, which was consistent with our expectations.
Nathan Brunner: Our same store NOI growth was five 2% during the quarter with same store portfolio 99, 2% leased at quarter end.
Nathan Brunner: With that, Nathan will now discuss our financials, leasing, and balance sheet in more detail. Thanks Will. We reported adjusted company FFO in the first quarter of $0.16 per diluted common share for approximately $46 million, which was consistent with our expectation. Our same store NOI growth was 5.2% during the quarter, with our same store portfolio 99.2% leased at quarter end. We are maintaining our 2025 same store NOI growth range of 3% to 4% and maintaining our 2025 adjusted company FFO range of $0.61 to $0.65 per diluted common share.
Nathan Brunner: We are maintaining our 2025 same store NOI growth range of 3% to 4% and maintaining our 2025 adjusted company <unk> range of <unk> 61 to <unk> 65 per diluted common share.
Nathan Brunner: The low end of this guidance assumes we do not lease any of the big boxes in 2025 and the high end represents all three big box leases commencing in the second half of the year.
Nathan Brunner: Our expectations for 2025 G&A are unchanged at 39 to 41 billion.
Nathan Brunner: In the quarter, we leased approximately one 1 million square feet, which consisted of two lease extensions with an average annual escalator of three 6%.
Nathan Brunner: The long end of this guidance assumes we do not lease any of the big boxes in 2025 and the high end represents all three big box leases commencing in the second half of the year. Our expectations for 2025 G&A are unchanged at $39 to $41 million. In the quarter, we leased approximately 1.1 million square feet, which consisted of two lease extensions with an average annual escalator of 3.6%. We achieved great outcomes on both extensions. This included a five year renewal at our 540,000 square foot facility in Phoenix with a 59% cash rental increase over the prior in 3.25% annual rental bumps.
Nathan Brunner: We achieved great outcomes on both extensions. This included a five year renewal at 540000 square foot facility in Phoenix with a 59% cash rent will increase over the prior range.
Nathan Brunner: In 3% to 5% annual rental bumps.
Nathan Brunner: We also extended the lease with moms at our 605000 square foot facility in Atlanta for an additional two years to 2030 looking at two more use of 4% escalators. We previously signed a three year extension with Mas last night at an approximately 63% increase over the prior rent.
Nathan Brunner: Excluding ti reimbursements.
Nathan Brunner: We commenced the redevelopment of about 250000 square foot facility enrichment during the quarter, which we expect to complete in early 2026.
Nathan Brunner: We also extended our lease with Mars at our 605,000-square-foot facility in Atlanta for an additional two years to 2030, locking in two more years of 4% escalators. We previously signed a three-year extension with Mars last May at an approximately 63% increase over the prior rent, excluding TI reimbursement.
Nathan Brunner: The facility is part of an integrated full building campus and the redevelopment includes repositioning that property into a standalone facility.
Nathan Brunner: Market rent is roughly 70% over the previous rent and the building is the only one of its size currently available in the market.
Nathan Brunner: We commenced the redevelopment of our 250,000 square foot facility in Richmond during the quarter, which we expect to complete in early 2026. The facility is part of an integrated four-building campus and the redevelopment includes repositioning the property into a stand-alone facility. Market rent is roughly 70% over the previous rent, and the building is the only one of its size currently available in the market.
Nathan Brunner: On the balance sheet front in the first quarter, we repaid the $50 million on swapped portion of the 300 million term loan.
Nathan Brunner: Net debt to adjusted EBITDA was five nine times at quarter end.
Nathan Brunner: We continue to focus on reducing leverage over time, as we grow EBITDA through raising occupancy marking rents to market and increasing rents with annual escalators.
On the balance sheet front in the first quarter, we repaid the $50 million unswapped portion of the $300 million term loan. Net debt to adjusted EBITDA was 5.9 times a quarter rent. We continue to focus on reducing leverage over time as we grow EBITDA through raising occupancy, marking rents to market, and increasing rents with annual escalators. We had $71 million of cash on balance sheet at quarter end and $110 million per former for the proceeds from the Chillicothe, Ohio property sale in April.
Nathan Brunner: We had $71 million of cash on balance sheet at quarter end.
Nathan Brunner: <unk> hundred $10 million pro forma for the proceeds from the Chillicothe, Ohio property sale in April.
Nathan Brunner: In light of the current market uncertainty, we thought it would be helpful to highlight the quality of that tenant base approximately 47%. Although ABR is from tenants with investment grade rated parent companies.
Nathan Brunner: Its high credit quality is one of the benefits of owning larger boxes and a young portfolio as the tenants that typically high quality well capitalized large corporations.
Nathan Brunner: With that I'll turn the call back if you will.
Nathan Brunner: Thanks, Nathan in closing, we're pleased with our first quarter results.
Nathan Brunner: While the direction of tenant demand is uncertain in the near term, we believe our asset quality tenant credit strength balance sheet and portfolio footprint that aligns with onshoring initiatives positions us well.
Nathan Brunner: Our focus remains on creating value for our shareholders by increasing occupancy marking rents to market raising rents through annual escalators and concentrating on our 12 market investment strategy.
Nathan Brunner: With that I'll turn the call back over to the operator.
Nathan Brunner: Thank you ladies and gentlemen at this point if you would like to ask a question for today remember it is star followed by the number one on your telephone keypad.
Speaker Change: We will take our first question for today from the line of Anthony Powell loan with J P. Morgan.
Nathan Brunner: Your line is live.
Anthony Powell: Great. Thanks, good morning.
Anthony Powell: I guess first question is I know you don't have a lot of explorations in 2025, but it will start to look out the next few years that that ramps.
Anthony Powell: Can you identify any like known move outs, because we start to look out. The next few years and you talked a lot about the lease up that we're all working out on the three big boxes as being a driver to return to growth, but are there any headwinds we start to think about that could be offsets as you look out to the heavier X.
Anthony Powell: Operations right now.
James Dudley: Good morning, Toni it's James so.
Speaker Change: Looking at 2006 and 27, it's too early to tell.
Speaker Change: We like the tenant base, we have there and we think that we're going to be successful in renewing a lot of those tenants, but much of the 26 explorations are backend weighted so we're going to have to kind of wait and see on that we've touched on the 2025 explorations that theres some uncertainty around the tenants that we have left but.
Speaker Change: We're also excited about the fact that we have high quality property with the opportunity to mark to market. So regardless of those outcomes, we feel like we're going to be able to drive rent.
Speaker Change: Whether it's with the new tenants here through renewal.
Speaker Change: Okay, and then with regards to the three large.
Speaker Change: Boxes.
What do you yields in rents look like they're at this point like has there been any.
Speaker Change: Diminution in the market or are those held steady.
Speaker Change: <unk>.
Speaker Change: So Tony maybe I'll take the first part on the on the rent piece and then Brendan can talk about the yields but.
Speaker Change: We haven't really seen anything come that's created a lot of movement off the market rents, maybe theres been a little bit of a.
Speaker Change: A slight markdown, but for the most part what we've seen is it's been more in the free rent Ti. So we've seen on the on the big box leasing we've seen ti kind of tick up from mid single digits to low double digits in some cases, and we're back to seeing almost a month per year of free rent being offered as a concession but not as <unk>.
Speaker Change: Pressure on the phase III.
Speaker Change: And then with respect to yield we're not changing our prior guidance from.
Speaker Change: The stabilization at around six.
Speaker Change: Okay, and then just last one if I can.
Speaker Change: Anything else on the disposition side over the balance of the year that youre thinking about.
Speaker Change: Okay.
Speaker Change: None at the moment, Tony we made two really good sales.
Speaker Change: While we're in this sort of 90 day pause around <unk>.
Speaker Change: Tariff policy.
Speaker Change: We've sort of gone.
Speaker Change: Pencils down.
Speaker Change: Disposition activity, we do have a longer term strategic objective of continuing to concentrate on the 12 markets. We made some good progress there last year.
Speaker Change: We normally would have put some of that cash we freed up from the sales back back to work, but at the moment, we like cash.
Speaker Change: A lot.
Speaker Change: We'll just wait and see how things unfold in the next 60 days or so.
Speaker Change: Okay. Thank you.
Speaker Change: Thanks for your questions.
Speaker Change: Our next question comes from the line of Todd Thomas with Keybanc capital markets. Your line is live.
Speaker Change: Hi, Good morning. This is AJ on for Todd I. Appreciate you guys, taking my question.
First just wanted to ask about the redevelopment you announced this morning.
Speaker Change: Is this a change in the strategy or was this always the plan and previously included in guidance.
Speaker Change: So what we had is we had a contraction option from a tenant that had a four building campus.
Speaker Change: And the rest of the campus goes out through 2030, so it could have been that they continued in and stay through 2030 or they have the option to contract, but the buildings that we acquired were always meant to be single if they needed to be so it's a good opportunity for us to redevelop this property, which basically means separating it from the others and marketing it and hopefully getting a really good.
Speaker Change: Check on the Mark to market.
Speaker Change: Okay. That's helpful and then so what impact does the redevelopment how long guidance so perhaps.
Speaker Change: Impacts around <unk> being taken out of the same store pool, so same store NOI.
Speaker Change: Yes.
Speaker Change: Anything regarding cap interest or anything else that will impact <unk>.
Nathan Brunner: It's Nathan here so.
Nathan Brunner: So we had always anticipated that this property would be taken out of the same store pool. So we put up the audiences.
Nathan Brunner: 4% same store NOI growth for the year.
Nathan Brunner: This property is excluded.
Nathan Brunner: We knew that this redevelop most part of that business plan.
James Dudley: As James described the scale of this particular project clearly puts it into the bucket of <unk>.
Nathan Brunner: A project that should be.
Nathan Brunner: The redevelopment pool.
Nathan Brunner: And then and then specifically on Q1.
Nathan Brunner: The inclusion or exclusion of this particular property really had no impact on same store.
Nathan Brunner: NOI growth because.
Nathan Brunner: This redevelopment project didn't really did not start until the end of the quarter.
Nathan Brunner: It's a fantastic time to have a building this size available in that market.
Nathan Brunner: The rent that we've had there is very inexpensive related to market. So this will be.
Nathan Brunner: Just a great outcome for us when we get the asset repositioning.
Nathan Brunner: Okay.
Nathan Brunner: That's helpful and that kind of leads to the next question on kind of what interest.
Nathan Brunner: That market and perhaps that building youre kind of expecting to see.
Nathan Brunner: Also what is the stabilized expected yield to be.
Nathan Brunner: Following that redevelopment.
Nathan Brunner: So I guess the good news is that it's the only building of its size in that market Richmond at a low vacancy rates. So we think that when we have the Boeing ready to go we're going to get a lot of good activity and so I mentioned, a strong mark to market.
Nathan Brunner: And then just just just adding on that you sort of asked about return profile.
Nathan Brunner: The way, we the way we've thought about it is the incremental win because we may achieve on.
Nathan Brunner: On getting this property back and taking the rent up to market is something like 700 grant around them and the capital investment.
Nathan Brunner: That we're expecting here in disclosing materials today is around $5 million.
Nathan Brunner: If you think about the yield on capital investment.
Nathan Brunner: It's something like mid teens yield.
Nathan Brunner: Perfect I appreciate it thanks guys.
Nathan Brunner: Thank you thanks for your questions.
Nathan Brunner: Once again, if you would like to ask a question today remember at Star followed by the number one on your telephone.
Speaker Change: Our next question is from the line of Jon Petersen with Jefferies. Your line is live.
Jon Petersen: Great. Thank you good morning, guys.
Jon Petersen: Just looking at your lease exploration maybe through the end of 2026 I was just curious if we look at the markets are there any of those markets where youre, particularly.
Jon Petersen: I guess excited in terms of upside on leasing spreads I think your three largest expirations next year in Dallas, Charlotte and Cleveland.
Jon Petersen: Anything to kind of point out and call out there if we think specifically about the markets youre in.
Jon Petersen: Yes, I mean, we.
Jon Petersen: Still like the Sunbelt markets.
Jon Petersen: That's where our best opportunity is for Mark to market, we feel like we've got some really good.
Jon Petersen: New product that's going to have.
Jon Petersen: The first generation role in Phoenix, where we're going to significantly mark those to market.
Jon Petersen: Got some really strong assets in Dallas as well so sunbelt is where we're looking for the really strong mark to market.
Jon Petersen: Okay.
Speaker Change: Are you guys seen any I know you mentioned, it's early but with tariffs and everything going on I mean are you starting to see any signs of inventory.
Speaker Change: Inventory building in the near term, maybe higher utilization I think prolonged just kind of alluded to some of that on their call and then maybe any sort of demand related to supply chain reconfiguration I guess.
Speaker Change: Thinking about auto manufacturing or is there any of that to really call out.
Speaker Change: So what we've seen I guess related to tariffs because we spent a couple of different avenues by tenants. We've seen some that have just kind of continued on with their business plans through the tariffs we've seen that through consolidation and some of the markets that they had planned ahead of time, but we've also seen the acceleration of demand in some circumstances around bringing in additional <unk>.
Speaker Change: And trying to to find room for that solar panels are one of the.
Speaker Change: Items I would call out there and then we've seen some that kind of take a step back and pause on their plans and reevaluate what they were planning to do and trying to figure out like I think everyone else is what this ultimately looks like so they can plan around it from a supply chain perspective.
Speaker Change: Okay and then last question for me I think a couple of weeks ago Amazon.
Speaker Change: We're headlines about them wanting to accelerate investment in warehouses in the U S. I mean, how do you think about some of the larger e-commerce players or maybe what are you seeing in terms of demand.
Speaker Change: There and could that potentially be good news for your 3 million square foot recent developments, you're trying to lease up.
Speaker Change: They are definitely still in the market, we will see if if it plays out for us in any of our big boxes, but we've seen their activity pickup there definitely kicking the tires. They are not the only ones. There are some major retailers that are in the market right now looking to do some of the same things.
Speaker Change: Okay, Great. That's helpful. Thank you.
Speaker Change: Thanks, John Thanks for your thoughts.
Speaker Change: Our next question is from the line of Jim Cameron with Evercore.
Speaker Change: Your line is life.
Speaker Change: Thank you good morning, I know, it's a way out there and maybe you can't speak to it but you've got the two big lease explorations potentially with Nissan and early 'twenty seven.
Speaker Change: Kind of thematically.
Speaker Change: Your line of questioning on the call.
Speaker Change: They've been kind of struggling and operator could you just talk a little bit about whats sort of noticed they need to provide you are where you still are you talking about those renewals and kind of how they are doing in those facilities just to kind of get a sense of what your expectation is for those two leases. Thank you.
Speaker Change: Maybe before James.
Speaker Change: Specifically addresses.
Speaker Change: Renewal discussions might play out.
Speaker Change: With regards to NUCYNTA ER, we have the two facilities.
Speaker Change: At least to NUCYNTA Jackson in Nashville.
Speaker Change: No.
Speaker Change: The U S market is critical to nissim thats about 40% of the two.
Speaker Change: Total sales.
Speaker Change: And although.
Speaker Change: <unk> seen the global efficiency program Thats been announced.
Speaker Change: Yes.
All of the recent public commentary is really focused on reconfirming.
Speaker Change: Their commitment to the U S plants and very very recently that have come out and said that they are actually intending to mass production.
Speaker Change: In the U S plants.
Speaker Change: Hand, it off to.
Speaker Change: John just to address the specifics around the renewal.
Speaker Change: So our two big warehouses are directly tied to the manufacturing plants. The one in Nashville is tied to the plant via a private road.
Speaker Change: They also invested a significant amount of capital to bring suppliers in house. So that they can get things just in time to the manufacturing plant Similarly in canton.
Speaker Change: Which is outside of Jackson, we've been talking to them about potentially.
Speaker Change: Having some additional investment probably have their own dollars, but just investment of doing something similar to what they did in Nashville, so investing billions of dollars into bringing suppliers and.
Speaker Change: They are also both facilities have low rent Nashville has been a really tight market. So if something were to happen, which I don't anticipate we do have a really strong facility there in Nashville.
Speaker Change: Would be functionally available to someone else, but they have a preferential renewal options as well. So I think we have a really high probability of keeping them with all of those different factors.
Speaker Change: Alright, good and definitely put like incremental or their own investment inside your building as well, obviously I guess I just want to understand kind of.
Speaker Change: Just.
Speaker Change: Just for the walls of the box if for some reason.
Speaker Change: So what they did in Nashville is so theres about 1 million square feet that is just the warehouse piece and they co invested with suppliers and they put a couple of different manufacturing operations and the balance of the space. So that they would have the suppliers onsite and can more quickly provide those products to the manufacturing.
Speaker Change: <unk>.
Speaker Change: Got it okay. Thanks for the color I appreciate it.
Jim Cameron: Thanks, Jim.
Speaker Change: Yeah.
Speaker Change: Ladies and gentlemen last call if anyone would like to ask a question for today remember at Star followed by the number one on your Touchtone keypad, we'll pause for just a couple of seconds to see if we have any further questions.
Speaker Change: Okay.
Speaker Change: With that let's go ahead and end our Q&A session for today, Mr. Eglin I would like to turn it back over to you for any closing comments.
Speaker Change: We appreciate everyone joining our call. This morning, and we look forward to updating you on our progress over the balance of the year. Thanks again for joining us today.
Mr. Eglin: Thank you.
Speaker Change: Okay.