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spk01: Good morning and welcome to Indus Realty Trust's 2021 Second Quarter Earnings Conference Call. This call will be followed by a question and answer session. You may add yourself into the queue for questions during any time over the course of the call by dialing star 1 on your keypad. Please note also that today's event is being recorded. It is now my pleasure to turn the program over to Ashley Pizzo, Vice President of Capital Markets and Investor Relations at Indus.
spk00: Thank you and good morning everyone. Welcome to our second quarter 2021 earnings call. In addition to regularly available earnings materials, INDIS has also published a supplemental presentation which is available on our website at www.indisrt.com under the Investors tab. I would also like to mention that this conference call will contain forward-looking statements under federal securities laws. 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 our most recent 10-K filing for the fiscal year ending November 30, 2020. Additionally, our second quarter results press release and supplemental presentation contain additional financial measures such as NOI, FFO, and EBITDA for real estate that are all non-GAAP financial measures. In accordance with Regulation G and Item 10E of Regulation SK, we have provided a reconciliation to those measures. Also, please note that on this call when we refer to occupancy statistics, square footage, and NOI and same property NOI metrics, these refer to our industrial logistics portfolio only, unless otherwise specified. This morning we'll hear from Michael Gamson, our CEO, who will cover recent activity, market conditions, and updates in our pipeline. We will also hear from Anthony Galisi, our CFO, who will cover the second quarter results in detail. After their prepared remarks, we'll be opening it up to your questions. With that, I'll turn the call over to Michael. Michael, will you please begin?
spk04: Thank you, Ashley. Good morning, and thank you all for your continued interest in Indus. The industrial sector continued to perform exceptionally well during the quarter. Reports from the major brokerage firms indicate strong rent growth and absorption, national vacancy at 4%, demand exceeding new supply, and record values for industrial and logistics properties. Within this environment, we maintained our strong operating performance, increased our access to additional capital, and accelerated our growth initiatives. As a testament to tenant demand and the quality of our properties, our in-service stabilized portfolio currently is 99.4% leased. For the entire in-service portfolio, we are 95.3% leased, which reflects the addition of a 395,000 square foot 50% leased acquisition in Charlotte, which I'll speak about a bit more later. We see strong tenant demand and increasing rental rates across all of our markets. We are making very good progress on our upcoming rent roll as existing tenants realize there are few to no available options and that rents continue to go up. There are only two lease expirations remaining in 2021, a 108,000 square foot space in Charlotte and a 57,000 square foot space in Connecticut, with expirations scheduled for November and December of this year. We currently are in negotiations with both tenants in those spaces regarding lease extensions, and we have begun to address our 2022 expirations. In terms of capital, we recently entered into an agreement for a new revolving credit facility for up to $100 million with a group of new lenders, led by JPMorgan and Citigroup, who were joined by BMO, KeyBank, and Morgan Stanley. This new facility doubles the availability we previously had and provides a materially lower cost of debt for the future. We appreciate the commitment and support from our new lenders, and we see this as an important next step in transitioning our balance sheet and adding to our financial flexibility to support future growth. So far this year, we are very pleased with our efforts to execute on our investment strategy and create value by finding high-quality properties in our targeted high-growth supply-constrained markets. Since our last call, we have added three new properties to our portfolio, including one we closed on last week. In addition to announcing last night that we have a two-property portfolio in Nashville under agreement, and added a project in the Lehigh Valley to our development pipeline. Touching on the completed acquisitions first, we closed on the 127,000 square foot fully leased building in the Lehigh Valley, which I described in our last earnings call. The Lehigh Valley remains a top performing tier one industrial market, and this property, we believe, has significant long term value creation potential from the current well below market rent and excess land on the site. Our second acquisition, which closed at the very end of the quarter, is a 50% leased recently delivered 395,000 square foot warehouse in the airport sub market of Charlotte. We sourced this opportunity off market and believe we will create value through the lease up of the vacancy. This building is in a market experiencing good absorption and poised for strong rent growth as there are very few future development opportunities inside the major beltway around Charlotte. And we believe this site is an increasingly valuable location due to its essentially traffic-free access to a key highway interchange located adjacent to the Charlotte Airport. So far, we are pleased with the tenant activity on the vacant space and believe we are close to an agreement for a tenant to take the balance of the space. Under the terms of the deal, if this lease gets executed, we would exceed our initial underwriting. We closed last week on a 140,000 square foot modern fully leased building in Lakeland, Florida. This acquisition grows our presence in Central Florida and is located along the important I-4 corridor that connects Tampa and Orlando. We remain very bullish on the demographic and economic trends in Central Florida and believe this building's location and size fit well with market demand. The existing leases for both tenants, the largest of which was executed eight years ago, were struck as fairly cheap, as is deals, with no tenant improvements funded by the landlord. As a result, the current tenants are paying below market rent. We expect there will be significant mark-to-market rent adjustments upon both tenants' lease expirations, which have a weighted average lease term of about two and a half years. Additionally, the tenant in more than 75 percent of the building is very sticky, given their large investment in the space and the property's mission-critical use for its customers. Lastly, we're very excited to enter the Nashville market with the forward purchase of two under-construction buildings totaling 184,000 square feet. Nashville fits squarely within our strategy of high demographic and economic growth markets with significant barriers to new development and that can serve as local, regional, and multi-market distribution needs. The development is located close to major UPS and FedEx facilities, and it is one of the few new infill facilities located in close proximity to downtown Nashville with excellent connectivity to the major regional interstates. The buildings, which we sourced off-market, are being developed on spec and are expected to be completed by year-end. We feel very good about the future opportunities to lease them, noting the very strong absorption and rent growth that the Nashville market has recently experienced. In all, these acquisitions will utilize $103 million of capital into what we believe are great buildings in great locations and in markets with strong long-term fundamentals. We also added one new project to our development pipeline with an agreement to purchase a 10.6 acre parcel of land in the Lehigh Valley that will support the development of a 90,000 square foot building. This land site, which was not widely marketed, is located close to the similarly sized Chapman's Road building we have under construction. While Chapman's remains about four months from completion, We have seen strong tenant interest and meaningful increases in market asking rents, giving us further confidence in the success of this new project, assuming we satisfactorily complete our due diligence and receive the necessary entitlements. We are very excited by the prospect of growing our presence in Lehigh Valley, which continues to be a high-performing logistics market. I think these acquisitions, along with our development pipeline, showcase our ability to invest and add value across the spectrum of acquisitions. raw land, forward purchases, value-add properties, and traditional core stabilized buildings. I'll keep my remarks on the balance of the development pipeline brief, but in terms of construction, as has been widely reported, there remains continued challenges with the availability of certain key construction inputs, notably steel bar joists where lead times are now up to 8 to 10 months versus 3 to 4 months during normal conditions. Pricing of certain other components also remain elevated. However, market rents have continued to increase and cap rates have compressed materially, which results in our estimated development yields remaining relatively stable and development margins increasing. The development pipeline table in the supplement is updated to reflect our best estimates of these impacts. In terms of specific projects, our bill to suit for Amazon and Charlotte remains on track to deliver by the end of the third quarter. We have a construction loan in place at a favorable interest rate for this project, and we began our initial drawdown subsequent to the end of the second quarter. The other projects we have under construction are the Chapman's Road project I mentioned earlier, and the 234,000 square foot, 67% pre-lease warehouse in Connecticut, which is expected to deliver by the end of the second quarter of 2022. We currently are waiting for a building permit for our 195,000 square foot, two building spec development in Orlando. formerly known as Jetport, but now called Landstar Logistics Center, which we hope to commence in the near future to take advantage of the strong demand in that market. I would note that it's been reported by brokers that a developer put a nearby land site under agreement in Orlando at a price 75% higher per buildable square foot than what we paid for our Landstar project, which we tied up just one year ago and closed on this past quarter. All in, our development pipeline, the recently closed acquisition in Lakeland, and the forward Nashville portfolio mentioned a moment ago, will add over 1.1 million square feet to our June 30th existing square footage. This will bring our portfolio to over 5.8 million square feet, which is a growth rate of nearly 40% from where we ended fiscal 2020. Switching to dispositions, we remain focused on our efforts to monetize our non-core assets. and are pleased to have $41 million in dispositions under agreement today. As can happen during due diligence, a couple of deals dropped off our disposition list. As an offset, we added the disposition of our Connecticut nursery farm, which is currently leased to a nursery operator, to our pipeline. This sale is expected to generate proceeds of $10.3 million by year end. Lastly, I wanted to mention that we have updated the corporate governance section of our website to include several new policies and initiatives we've implemented on the ESG front. We have a number of additional projects in the works, and we look forward to sharing our progress with you. With that, I'll turn it over to Anthony for the financial review.
spk02: Thanks, Michael. Our cash NOI was $6.1 million for the second quarter, up 12.2% from last year's second quarter. Cash NOI benefited from lease-up over the past year of first and second generation space, increases in rental rates, and to a lesser extent, the buildings acquired this quarter. We expect more significant growth on our NOI and cash NOI in the second half of this year, as a number of new leases of first-generation space signed late last year and early this year, and the Charlotte Build-A-Suit for Amazon will commence over the next two quarters, and we will receive full quarters of benefits from the acquisitions that have already closed this year. Now turning to same to cash-saved property NOI. For the 2021 second quarter and six-month period, growth in cash-saved property NOI was 10.7% and 11.5%, respectively, versus the fiscal 2020 second quarter and six-month period. Our cash-saved property NOI for the 2021 second quarter benefited most from the leasing activity and burn-off of free rent on first-generation space at previously delivered spec buildings in the Lehigh Valley and Charlotte, that entered the same store pool this period. We also benefited to a lesser extent from the leasing and burn off of free rent periods in second generation space, as well as from annual rent escalations in the portfolio. I would also note that between Q1 2021 and Q2 2021, we have changed the same store pool to include 160 and 180 international. These assets were not included in the pool during the first quarter's reporting and have provided some incremental benefit in this quarter's same property NOI growth percentages. For comparability purposes, if we were to strip those assets out in the quarter at six months ending June 30 periods, our cash same property NOI growth would have been 6.8% for Q2 2021 over Q2 2020, as compared to 10.7% reported with the inclusion of these properties. and 7.2% for the six months ending June 30th, 2021 over June 30th, 2020, as compared to 11.5% with the inclusion of these properties. Looking forward, we note the potential for lumpiness in our quarterly same property NOI metrics, and the strong occupancy levels we reported for the past few quarters will lead to tough comparisons later this year and next. Next, I want to mention core FFO. which was up $243,000 in the second quarter of 2021 over 2020 at $3 million, as the growth in NOI was partially offset by increases in G&A expenses, which I'll describe a bit more in a minute. Cash Core FFO, which removes the impact of non-cash items such as non-cash rents and non-cash compensation, was $3.3 million in the second quarter of 2021 as compared to $2.9 million in the same period in 2020. As it relates to AFFO, our maintenance capital expenditures and leasing costs for second generation space were $450,000 in the quarter, which is somewhat low due to the fact that excluding first generation space or recent acquisitions, there have been few new leases as our existing portfolio has remained nearly fully occupied for a few quarters. Maintenance capex is back end weighted this year, and we expect this number to increase as we undertake certain projects. including $1.3 million in roof replacements at two of our warehouses. Over time, we expect the combination of our second-generation leasing costs and maintenance capex to be in line with the Green Street averages of approximately 15% of NOI. Now on to G&A. General administrative expenses increased to approximately $2.7 million in the fiscal 2021 second quarter, up from $2.4 million in the 2020 second quarter. The biggest increases were in cash compensation expenses tied to adding new headcount since last year, public company expenses, and holding costs on undeveloped land, which reflected a one-time expense for the removal of barns on certain parcels of that land. These increases were partially offset by a decrease in re-conversion costs. After adjusting for re-conversion costs and non-cash compensation expense, the majority of which relates to our non-qualified deferred comp plan, which I described on the call last quarter, adjusted cash G&A this quarter was approximately $2.1 million. When compared to the first quarter of this year, adjusted cash G&A declined approximately $240,000 from $2.4 million. The decrease was driven by lower public company expenses in Q2 versus Q1 due to timing of audit fees and tax preparation charges in Q1, and lower leasing legal expense in Q2 versus Q1, which falls under other G&A. Partially offsetting this increase was a sequential increase in additional compensation expense related to the hiring of a general counsel in April, which, as I described last quarter, we believe will lower our legal costs versus using outside firms, noting that we could previously capitalize those third-party costs. Additionally, this quarter we incurred the one-time cost on the undeveloped land that I mentioned before. Looking ahead, as I mentioned last quarter, we are undertaking an upgrade of our accounting and technology systems to better prepare us for growth in the future. We have just begun our work and expect the cost of the implementation to be approximately $800,000 spread over the next three quarters. We expect a significant portion of these costs to be capitalized though some of the costs will flow through our G&A line. Additionally, we expect to hire a few more employees over the next couple of quarters in the acquisitions and finance areas, though these hires likely will be at a more junior level than recent hires. Overall, we expect our G&A and adjusted cash G&A expense for the balance of 2021 to end slightly above the 2021 first half level. As we described last quarter, the non-qualified deferred comp plan is tied to stock market performance and is difficult to forecast. Moving on to dispositions, as Michael mentioned, we have the Connecticut Nursery Farm under agreement for approximately $10.3 million. Unlike most other land sales, this property has a lease in place with a nursery operator. This lease generates approximately $700,000 in annual GAAP and cash NOI, which is not included in the industrial logistics NOI mentioned that I touched on earlier. This nursery farm sale, combined with our previously announced sale of the Connecticut Industrial Building at 1985 Blue Hills Avenue, which remains in due diligence, will generate over $28 million in proceeds if both are completed. These sales will reduce our gap and cash NOI by $1.8 million and $2 million, respectively. As a reminder, the Blue Hills Avenue building has a mortgage of approximately $5 million at a 5.09% interest rate that will get repaid at closing. Lastly, subsequent to the end of the second quarter, the potential buyer of three office properties that we had under agreement decided not to proceed. We are continuing to seek to sell all or a portion of these assets. I'll now turn to our balance sheet. As Michael touched on earlier, last week we entered into an agreement for a new revolving credit facility for up to $100 million, which doubles the availability we had under our previous facilities. The new facility is priced using a pricing grid which, based on our current leverage, would be at LIBOR plus 120 basis points, which is a decrease of 130 basis points from the cheaper of our two previous revolving credit facilities. The new credit facility will mature in August 2024 with two one-year extensions at our option that could take the facility out through August 2026. The facility also has an accordion feature which will allow us to increase the borrowing capacity up to 250 million if needed. In the second quarter, we also entered into a $28 million construction loan with J.P. Morgan to support the development of the Amazon Build-A-Suit in Charlotte. We began to draw down on the loan subsequent to the end of the second quarter and expect it to be fully utilized upon the project's completion later this year. Lastly, I will wrap up by just briefly touching on our leverage. At the end of the second quarter, our debt, net of cash, was approximately $94 million. Our net debt to total enterprise value is approximately 16%, and total debt to debt plus equity market capitalization was 24% as of the end of the quarter. As we've mentioned in the past, we expect to continue to deploy our cash into developments and acquisitions to help grow our EBITDA and unencumbered asset pool and target traditional leverage metrics to get closer to our peer levels over time. In terms of liquidity, as of June 30th, 2021, we had approximately $66.2 million in hand. Assuming the full borrowing amount available on the new credit facility offset by cash spent on the Lakeland acquisition and excluding the construction loan, which will fund the balance of the Amazon builder suit, we would have nearly $150 million of liquidity. On top of this amount, our proceeds from our disposition is under agreement. Portions of our liquidity were used to fund the Nashville acquisition Michael described our ongoing spec development projects, and future acquisitions. With that, I will now turn it back over to Michael.
spk04: Thank you, Anthony. I'm excited by what we've accomplished in the first half of this year, and we already are off to a great start for the second half. We have a high-quality portfolio located in strongly performing markets, an industry with long-term secular tailwinds. Despite this, we believe our current stock price is well below our net asset value. and we are committed to continue to work to close that gap and ensure that we deliver a strong return to shareholders. Before moving on to questions, I want to thank the team at Indus for their continued efforts and contributions to our success. I also want to take a moment to speak about one employee in particular. Anthony has been our CFO since our spinoff in 1997, and I want to thank him for his exceptional leadership and dedication to the company during his tenure. Anthony will be retiring Indus' CFO at the end of this year, and we recently announced that John Clark, the former CFO of Gramercy Property Trust, will be joining our team in September to assist with the transition before assuming the CFO role in January of 2022. While no one can replace Anthony and his contributions to our company, we are confident that John brings a wealth of financial and operational experience to our executive leadership team and look forward to having him join us. With that, I'll turn it back over to the operator to take your questions.
spk01: We will now begin the question and answer session. To ask a question, you may press star then one on a touch tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. First question comes from Manny Corchman with Citi. Please go ahead.
spk06: Hey, good morning, everyone. Michael, obviously the acquisition markets are competitive. How did you think about that as you entered a new market and paid what seems like a pretty full cap rate in a lot of the deals you did?
spk04: Yeah, I think it's a good question. Clearly, markets are competitive. But I think we think about this as tying it to our strategy. And with our strategy, we're very focused and selective. We seek markets like Nashville where we think new supply and good locations are going to be very limited and population economic growth are expected to be above national averages. And then within that we seek buildings where we see potential for upside. For example, one of the acquisitions we did in Lakeland where we can see below market rents or flexible site plans where we can add value with expansions or improvements over time like in the Lehigh Valley acquisition. We think these factors help lead to better yields and returns over time. And as we've talked about our strategy of owning a portfolio of assets in a market, which can include a variety of core value-added development opportunities, and that's the strategy we've executed to create value. I also think when you look at returns, it's more than just the initial cap rate. That's kind of the easy, quick calculation. But we look out over a longer-term horizon and really focus on what yields and returns we expect over, say, 10 years. And so with that, we look at locations where we do think there's going to be meaningful rent growth and limited new competition. That's going to lead to better returns and higher in-place cap rates, creating more value. And secondly, we look for, as you know, good quality, kind of traditional warehouse buildings, not specialized footprints, et cetera. But at the same time, we look – for opportunities where tenants have invested a lot of money in their own space. And so it becomes irreplaceable to them or to their customers. And with that, you get a really sticky tenant, which reduces the likelihood of future costs for tenant improvements and downtime. And we factor that into how we buy buildings. And so we think we're buying these buildings at what we think are attractive cap rates and margins that are above, creating good margins and above the market cap rates. And with that, we throw in all the development we're doing, which is a significant part of our growth, and those yields are typically above where we are.
spk06: Thanks. And just can you remind us how many markets you'd like to be in and what those target markets are? And maybe in that same vein, how big could we expect a market like Nashville to get for you guys?
spk04: Yeah, I think what we've said in the past is our goal is, you know, we're in four, now we'll be in five, and we've kind of lumped Central Florida together as one market. I think our goal is to be, say, in eight over the next couple years. You know, we think that's a really good number. Does it grow a little more? Is it a little less? And then when we look at a market and to enter a market, the goal is that we can grow to at least a million square feet, buying the types of assets we want, which are that 75,000 to 400,000 square foot buildings. So as we looked at Nashville, the thinking was we can start with one acquisition that hopefully, as it's done in the past for us, lead to other opportunities, both land for development and acquisitions, and grow that to over a million square feet at a minimum.
spk06: And maybe one last one for me. I can't remember which one of you, but someone mentioned the big discount, too. NAV, how does that influence your decision to make or to issue equity going forward? You filed a shelf, likely to file an ATM, I would assume, at some point. So if you're trading at a big discount, are you still interested in issuing equity here? Or if not, how do you fund the growth that you see on the horizon?
spk04: Yeah, so I think for today, we have significant excess capital or dry powder to fund what's in our pipeline and future acquisitions. I think Anthony called out that $150 million of availability in liquidity. As you mentioned, we do have this credit line that provides a fairly cheap cost of debt, and we're going to continue to sell the non-industrial assets, non-core assets, and redeploy those, which also provide us good capital for investment on assets that are typically not valued the same way industrial assets are. We do recognize our stock trades significantly below NAV, and when you look at today's cap rates across the markets that we're in. And what I'd say to that is, look, we have a number of significant stakeholders, including management, who are very focused on creating shareholder value. We believe where our stock is trading creates the opportunity for outsized returns for investors. We don't see any long-term reasons for why this discount should persist, given the quality of our properties and the markets we're in. And I think we and our major shareholders are aligned in that we're determined to really close this gap over time. And we think if we execute on the strategy we have outlined and gain scale in this highly valued industry through acquisitions, development, and other things we're doing, that we're going to create a lot of value and that gap's going to close.
spk06: Thanks, everyone.
spk01: The next question comes from Tom Catherwood with BTIG. Please go ahead.
spk05: Thanks, and good morning, everyone. Mike, I just wanted to go back to the natural acquisition. Thanks for providing some details on it. But when we think about it, you guys always say you wouldn't buy a building that you wouldn't build. And in this case, it's a merchant builder's spec project. So how did you get comfortable with the quality and kind of physicality of the building matching Indus' requirements, given that the price is roughly $171 a square foot? Are there any unique features that could really drive lease up and rents for you?
spk04: Yeah, happy to answer that. Thanks, Tom. You know, one, this is a merchant builder that's a fairly sizable one that has a terrific reputation for building really high quality industrial properties. You know, that said, we don't obviously just, you know, diligence the reputation of the builder. So as you noted, anything we buy is something we feel is something we would have built ourselves. And so the site plan we think is a great site plan for this location within the Nashville market. And importantly, we're combing through the building specs, how they built the building, the floor ratings, the type of caulking and finishes they're using, or the details our construction and development team go into. So we're going to be very confident if we're going to buy a building that's someone else's building that it's as of the quality and type that we would want. Otherwise, we just wouldn't do it. In terms of this building and the price, I think this is what we've tried to express in the releases. This, we think, is a really uniquely positioned and located asset within the Nashville market. Stepping back for a second on Nashville, I think a number of the brokerage reports have noted that Nashville experienced 15% rent growth over the past year. It's a market where supply close into Nashville, new supply is almost non-existent. There just isn't anything to develop. Nashville as a city is doing really well, and therefore both office and residential growth keeps creeping outside of downtown, which is actually usurping former industrial infill and close-in industrial. As an example, Oracle, the big tech company, is building a very big campus on the northern side of downtown Nashville. As part of what they're doing is they actually bought land where there's 800,000 square feet of infill industrial that's going to get demolished. The building we're seeking to buy is located five miles north of that, so it's very close to Nashville, very close infill. There's nothing else at the moment being developed in that area, and entitlements are very hard to get there. So it's a unique, we think, high-barrier location with an infill-type location that's going to generate well above market rents. The location's right next to a big UPS and another FedEx facility located It's right off the main ring road that goes around Nashville, but also has great access to the highways, and as I mentioned, four to five miles to downtown. We just think this location, it's going to be hard for anyone to get again, and we think the rental rates and rent growth are going to be quite strong in this location.
spk05: Thanks, Michael. Appreciate that. You also mentioned the expirations, the two left in 2021, and it Sounds like you're on top of those. As we look into 2022, it's a kind of above average year on the industrial side, nearly 15% of industrial ABR rolling, though it does look like the average rent is kind of below market. I know it's early, but do you have a general sense or some general expectations on renewals next year or mark to market next year? And are there any kind of large move outs that you're already aware of.
spk04: Yeah, and I think I'll comment generally, then I'll talk about the specifics. But what's interesting in the market, as I mentioned, my comments is a lot of tenants come up for renewal. And I think they get a combination of a little bit of sticker shock as rents have obviously moved up in lots of markets. And to still post kind of COVID and all of last year, companies plans are a little bit in flux, some need a lot more space than they thought they did. Some might need less space or they're adding locations elsewhere, uh, combined with a very tight market for supply. And what's happened is a number of tenants. And frankly, that, you know, one of the ones, uh, that's coming up at the end of this year, you know, they initially delayed, uh, the renewal decision, um, because it couldn't figure out exactly what they needed. And so therefore they were sort of out of whatever contractual renewal, right. They had. And frankly, they go search the market. And one of the cases of the tenants for this year, for example, they actually came back initially, wanted to shrink their space, wanted a fairly short-term deal, and wanted not to pay a big increase in rent. We sort of tabled that deal. They went out to the market. And I should add, the tenant here is a large global company with lots of industrial space around the country and around the world, so not just a small tenant. And they basically came back and asked us what deal they could do. And frankly, we ended up with higher rent, effectively no downtime, no free rent, and minimal TI. And that's a deal we think we have in place today. So it's kind of worked against tenants to delay their renewals. But frankly, as a landlord, given the strength of the market, it's actually been helpful as rents have continued to go up. As we look to next year, there's a couple different sort of chunkier renewals. I probably almost start with the last one, which is we announced we bought that building in Lehigh Valley. That added 130,000 square feet to the 2022 plan. That one comes up at the end of the year. I think as we expressed when we bought the building, the tenant has significant investment in the space and they're paying extremely below market rent. And they have kind of a set renewal schedule. So we think it's very likely, for example, that they're going to renew because it's a very sticky tenant. One of the other renewals is the tenant we're doing the pre-lease in Connecticut for. They're going to need to overlap in that space for quite a while as they bring the other building up to speed. So we do think they're going to leave, but probably pushing out potentially that renewal. We do have a larger one in the Lehigh Valley. Again, that one's towards the end of the year. That tenant, similar to the one I described at the beginning, is looking for potentially a shorter-term renewal. It's one, again, we're sort of letting play out a little longer, frankly, because of the strong absorption and rent growth in that market and the lack of availability of other options. We think that'll turn out in our favor. We have one kind of 90,000-foot renewal we think is out for signature in next year. And then one that also 127,000 feet that comes up in the first part of next year, the tenant has six months to give us notice. So that hasn't happened yet. Early indications are they're going to do a renewal. They have a renewal right for kind of a one-year renewal based on a historical deal we had set a couple, several years ago. They've been in the building for quite a long time. And that kind of covers kind of the spectrum of renewal. So nothing we know of yet that's going to move out other than a very small one or two very small tenants that possibly move out in the early part of next year. But in all the markets, as we expressed, we're seeing good rent growth and good demand in tight markets, so we feel pretty optimistic about next year's rent roll.
spk05: Understood. Thank you so much, Michael. That's it for me.
spk01: Again, if you would like to ask a question, press star then 1 to join the queue. The next question comes from Dave Rogers with Baird. Please go ahead.
spk03: Yeah, good morning, everybody. Thanks for all the color, Michael. I wanted to ask about maybe the backlog of more acquisition or pipeline activity. You've clearly built that nicely since the recapitalization, but I guess is what you're seeing today continue to build strength? Is there a pipeline beyond the large number of deals that you've announced? And give us some color on how and what that looks like.
spk04: Yeah, so we're always in the market, in the markets we're in or markets we want to be in, looking at opportunities. We're bolstering our team to do that. We haven't really given out specific pipeline numbers per se. We have talked about as we kind of mature and grow as a company is something we'll start to produce. But, you know, we remain active, but as I said, we're very focused. And, you know, again, I think our goal is when we look at something, our goal is to kind of own it and win it if it's a process or seek it off-market. And what we're seeing is a good blend of some off-market opportunities that just are certain unique opportunities with certain sellers and certain relationships where they don't want to go through a process. And so in our current markets, we're seeing a number of opportunities there that both for buildings and for land. I think as we've described in the past, land sellers typically often will be a little bit more focused on who they're selling to as opposed to just getting the highest price given there's an entitlement and other process, and that's where we think we've done really well. There's one or two new markets we continue to look at where we're looking at properties both on and off market. We think forward purchases like the Nashville one are a good opportunity for us. We're typically... The yields are going to be higher than buying an existing building, a little bit lower than development, but we're not dribbling out the capital over time or utilizing our resources on the development front. So we think there's a range of opportunities, both development, forward purchases, and existing buildings, both market and off-market opportunities in current and a couple of new markets. So nothing specific I would want to give out here until we start giving a real pipeline report. But I think we're active. We talked about the dry powder we have available to fund the development and future acquisitions. And, again, as we sort of do more in each market we're in, it seems to lead itself to additional opportunities. And some of these just take time to come together, you know, particularly on the land side and ones that we're doing through relationships we've built in these markets over several years. where the owners are working through their own internal decision making and hopefully leads to good outcomes for us.
spk03: I appreciate that added color, Michael. Maybe two additional questions. I wanted to talk a little bit about the Charlotte lease as well as maybe the timing that you've given yourself to lease up the Nashville spaces. I think in your prepared comments you said, Charlotte, you were close on something. How should we think about that from a modeling or a timing perspective? And then, again, what have you given yourself in Nashville in terms of timing and pro forma like that?
spk04: Sure. So assuming the Charlotte lease happens, and again, we feel we're in good discussions with the tenant. It's a large company, and we think they're very keen on the space, very active dialogue, both with our design team and with our leasing team on that. So we think it takes a little while to sign the lease, and likely commencement, probably It pushes out towards the end of this year. Again, delays in permitting and getting materials and everything to build out their space. But I think the goal would be to have the lease in place fairly soon. You know, the lease negotiations are ongoing. And then you'll likely commence towards the end of this year, we would hope. Has a little bit of free rent, but it's a little bit of a longer-term lease of seven years. And we think, as I mentioned, the rental rate's a little bit above the pro forma we had given just basically a month ago. And it's a large company with great credit, and we think will be a great tenant for that building. In Nashville, it's two buildings. Typically, I think like most of our peers, we sort of just pencil in a 12-month lease up for a building, given it's two in the same location, like we did when we built kind of two buildings in Charlotte on spec that way. We typically will push out the lease up to 18 months. I think we're hoping we'll do better than that. You know, the market activity seems really strong. As I mentioned, we think these buildings are sort of uniquely positioned. There's really nothing else getting developed new anywhere near this location because of how hard it is to find a location like that. So we think it kind of fits the theme of getting close to the customer, that last mile delivery location. combined with kind of losing that infill property, as I mentioned, due to Nashville's growth. So we're hoping that does better timing-wise, but we've conservatively kind of assumed about 18 months to lease up both buildings.
spk03: Thanks. And then last for me, the development yield that you've given on the pipeline overall, appreciate the added color there. If you exclude the Amazon build-to-suit, which I know had a larger land component to it, does that materially move that overall return expectation on the development pipeline?
spk04: Not really. I think what we've said is the Amazon building is pretty much right in line with kind of the average of these other developments, so it doesn't change things much one way or the other. It's right in line there, and The only comment I'd say other than Amazon, where it's obviously a built-to-suit or the pre-lease, building up mostly pre-leased, I think we generally take a somewhat conservative view on rents. I think we upped the development costs to reflect the things we talked about. I think we're hoping some of these costs come back in line, and obviously some of the delays start to work themselves out over the next couple months. But we took kind of a conservative view, what we think was a conservative view on costs, And we typically keep a fairly conservative view on market rents, recognizing some of these buildings aren't delivering for a year. And I think CB is already commenting that they're looking at national rent growths of almost 10% or high single digits, I think, nationally for this year. So, again, we think we're being reasonably conservative on those margins and would just say Amazon's more fixed, and that's kind of right in line with that range. All right.
spk03: Thanks, Michael.
spk01: With no more questions, this concludes Indus Realty Trust's second quarter 2021 earnings call. Thank you for joining us and enjoy your week. You may now disconnect.
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