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spk08: Good morning and welcome to Indus Realty Trust's 2021 Third 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 this call by dialing star 1 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 Indus.
spk00: Thank you and good morning, everyone. Welcome to our third 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, as updated by our quarterly report on Form 10-Q in subsequent quarters. Additionally, our third quarter results press release and supplemental presentation contain additional financial measures such as NOI, FFO, EBITDA for real estate, among others that are non-GAAP financial measures. In accordance with Regulation G and Item 10e of Regulation SK, we've 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 pipelines. We'll also hear from Anthony Gallici, our CFO, who will cover the third quarter results in detail. As this will be Anthony's last earnings call with Indus after a long and accomplished career, we also have John Clark on the line, who is currently an executive vice president at Indus and will become our CFO upon Anthony's retirement at the end of this year. After the 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?
spk03: Thank you, Ashley. Good morning, and thank you all for your continued interest in Indus. The strong momentum in the industrial sector continued in the third quarter. Widely reported supply chain disruptions have led to an increased emphasis on delivery networks and on the logistics properties that support the more efficient distribution of goods. This, in turn, continues to result in strong demand for warehouse properties in nearly all regions, which is driving rent growth, very low vacancy rates, and demand outpacing new supply. We are well positioned to take advantage of these current tailwinds to significantly grow shareholder value and remain one of the fastest growing public industrial REITs. First, coming from a smaller base of properties within a very fragmented industry, our growth potential is significant. Every transaction moves the needle in terms of NOI, NAV, and earnings growth. Second is that we are sharpshooters. with a very specific and selective approach to growing our business, focusing on high-quality assets and strongly performing high-potential logistics markets. We look not only at the initial cap rates on investments, but on the potential growth in market rents and value to drive long-term returns. Lastly, we have an experienced team and a platform in place to execute on the full range of opportunities, developments which are at our core all the way through stabilized buildings. All of this with the goal of building a strong portfolio of properties that, when blended together, will drive our returns on investment. With that in mind, we believe we delivered on the strategy during the third quarter. We continued to execute on our growth initiatives, strengthened their balance sheet, and maintained our strong operating performance. Since the start of the third quarter, we closed on or added over 1.1 million square feet to our acquisition and development pipelines. including one property under LOI. Importantly, the vast majority of our investment effort is focused on higher returning value add and development opportunities, while we remain very selective in our pursuit of core stabilized acquisitions. Upon closing of these acquisitions and completing our current development pipeline, we would have 6.7 million square feet, which is growth of 66% from where we started 2020. Completing all of these acquisitions and developments will take us through the end of next year and into 2023. When these projects do deliver and stabilize, they will provide a significant growth in our earnings and a strong base to support our future growth. These new opportunities include our entry into two additional markets, Nashville, which I spoke about on last quarter's call, and Charleston, South Carolina. The Charleston logistics market is experiencing several strong tailwinds, including a significant increase in its population and a growing manufacturing base. Large manufacturers include Boeing, which has its streamliner production there, Mercedes with a large sprinter van factory, and Volvo, which also established a large automotive plant, which is slated to become the site for its electric vehicle production. On top of this, Charleston is one of the larger container ports on the East Coast. This port has undergone a recent expansion, and we expect it to be a real driver of increased warehouse demand. As an example, Walmart is under construction for a 3 million square foot import distribution facility in the market. In Charleston, we have two well-located properties under contract for a total purchase price of $56 million. One is a recently constructed building that we expect to close on in the near term. The second property, which we sourced off market, is a forward purchase that is expected to be completed in the fourth quarter of 2022, at which time we'll pay the majority of the purchase price. I'll take a minute to talk about forward purchases, which we view as a value-add alternative to self-development. We believe forwards provide an attractive opportunity to leverage our development mindset and generate stabilized yields that we expect to be higher than the yields on acquisitions of existing buildings. Under a forward, a third-party developer constructs a warehouse on spec that we agree to purchase at a fixed price upon its completion. In evaluating a forward, we use the same discipline and seek the same standards as if it were our own spec development. We only want to buy something that we would build ourselves. Plus, we benefit from not taking on entitlement risk, not needing to manage the project, and avoiding any cost overruns which are absorbed by the developer. We expect to close on the 184,000 square foot two building forward in Nashville in the first quarter of 2022 upon that project's completion. We also have under LOI an additional forward purchase for 230,000 square foot property in the Charlotte market that is expected to be delivered a year from now in the fourth quarter of 22. On the more immediate front, in October, we closed on a 128,000 square foot fully leased warehouse located in the largest industrial sub market in Charlotte. The in-place tenant has less than a year lease term, but it has a fixed renewal right. This property, which we sourced off market from a private owner, has excess land suitable for additional parking or outdoor storage, and is in a sub-market with very limited future development opportunities. These two Charlotte properties, in addition to our recently completed Amazon built-to-suit, will bring our holdings in that market to over 1.4 million square feet. Overall, we're very excited to have these high-quality acquisitions in strongly performing markets, and note that more than half of our transactions this year came through off-marketed or lightly marketed transactions. Turning to our development pipeline, in October, we completed our build to suit for Amazon and Charlotte that I mentioned earlier. Our total cost for this development was nearly $41 million, including land, and the initial yield was within that 5.8% to 6.3% range we reported for our total development pipeline. As a reminder, we have a construction loan on this property with a very attractive interest rate of 140 basis points over one month LIBOR. We expect this loan to be fully funded at $28 million during the fourth quarter as compared to the balance of $14.7 million shown at the end of the third quarter. This project will generate significant returns and value creation given the low market cap rates for comparable assets. Looking at our projects under construction, we expect to deliver our 103,000 square foot spec development in the Lehigh Valley in early 2022. This property is well located with excellent access to both major east-west highways running through the valley. And as a testament to the strength of this market, the brokers keep increasing our asking rent, which is now more than 25 percent above our initial underwriting. We also are underway on our 234,000 square foot, 67 percent pre-leased warehouse in Connecticut, and are pleased to report that we commenced construction on our two-building, 195,000 square foot development in Orlando. which we now refer to as Landstar Logistics. Speaking of development, construction cost inputs have continued to increase. Structural steel prices have remained elevated, and more recently, with the rise in oil prices, petroleum-related products, including roofing insulation, PVC pipes, and asphalt, also have increased. Fortunately, market rent growth continues to increase, which is offsetting these costs. Additionally, as has been widely reported, availability of inputs has increasingly become a challenge. This has pushed off certain building delivery times, as well as delayed completion of tenant improvement work, which can then impact the rent commencement dates. In the supplement, there's a schedule that reflects our updated estimates of construction costs, yields, and delivery dates. Overall, these impacts have been manageable, and we've taken steps, such as the early ordering of steel, to mitigate these effects and keep most of our new developments relatively on track. Our pipeline is still expected to generate development yields between 5.8 and 6.3 percent, which we believe results in development margins of between 45 and 60 percent. Overall, our current acquisition and development pipelines represent 1.8 million square feet and over $220 million in investment. We estimate the initial stabilized yields on this pipeline to be in the low to mid 5 percent range. or conservatively a more than 20% margin to current market cap rates. This pipeline demonstrates the substantial future earnings power of the company, just including the properties we currently have under our control. Completion of this pipeline will occur throughout 2022 and into 2023. We typically take a conservative view and assume 12 months of lease up upon a project's completion or closing on a value-add acquisition. and we assume no leases in place upon the delivery of our speculative developments. As such, we expect lease commencements and stabilization to be back in weight into 22 and into early part of 2023 for some of these projects. Switching to dispositions, we remain focused on our efforts to monetize our non-core assets and close on $7.4 million in land sales during the third quarter. These properties generated no income and provided a cheap source of capital to help fund our acquisitions and developments. We have additional properties totaling $40.5 million under agreements for sale, most of which we expect to close in the fourth quarter. While our typical dispositions are undeveloped land holdings, several of the upcoming sales include income-producing non-core buildings or properties. Details on these amounts are in the supplement. In addition to disposition proceeds, we have the capital structure in place to fund our investment and development program. In early October, we completed a follow-on equity offering that raised $153 million in net proceeds. In addition to funding future acquisitions and developments, we believe this capital raise has helped diversify our shareholder base and improve our stock's daily trading volume. We welcome the new shareholders in our company and thank them, as well as our existing shareholders, for their support. To complement this equity, in August, we put in place a $100 million credit facility led by JPMorgan and Citigroup, which has an accordion for up to $250 million. Between the equity offering the credit facility and our ongoing non-core asset disposition program, we have significant liquidity to complete the acquisition development pipeline, as well as fund additional investments in our growth. Moving on to our operating performance, as a testament to tenant demand and the quality of our properties, Our in-service stabilized portfolio remained 99.4% leased, and our entire in-service portfolio was 95.4% leased. The largest vacancy we have is just under 200,000 feet in the Charlotte property we acquired in late June. We are seeing very good tenant activity on our currently vacant space, as well as on our properties coming into service in the next few months. We also note the strength of our tenancy as we continue to have essentially no collection or credit issues. Maintaining these very high occupancy levels into the future could prove challenging, but fortunately we've made strong progress on renewals. We have no material lease expirations until the end of June, 2022. And that lease is actually for the tenant in the 128,000 square foot Charlotte warehouse we just acquired subsequent to quarter end. And we believe this tenant likely renews. The bulk of the other 22 expirations are in September of next year or later. with over 350,000 square feet between two properties in the Lehigh Valley, where both tenants have a fixed renewal. Given the strength of the market, both of these renewals, if exercised by the existing tenants, would be at below market rents. As it relates to renewal terms, I'll note that since we announced our transformation to a REIT 20 months ago, we have increased our efforts for our new leases to have renewals tied to market rates and to push rents where possible, given the strength of the market and limited alternatives for tenants. Lastly, I'll comment on overhead. Since the start of this year, we made a senior acquisitions hire, brought our general counsel in-house, and hired John Clark, the former CFO of Gramercy Property Trust, to become our CFO at the start of next year. This CFO transition is already underway, as John started in early September to overlap with Anthony, who's retiring after 24 years as our CFO. We also commenced implementation of a new accounting and property management software platform. Going forward, we plan to make additional investments in people and systems, though in total we expect the growth in our overhead to be significantly slower than the growth we expect in our portfolio square footage and in our NOI. Additions to our team likely include one or two senior acquisitions hires, as well as bringing in some additional staff and finance in a couple of other areas. With that, I'll turn it over to Anthony for the financial review.
spk01: Thanks, Michael. Our cash NOI was $6.4 million for the third quarter, up 14.7% from the prior year's third quarter. Cash NOI this quarter benefited from acquisitions completed during the year, lease up over the past year of both first and second generation space, and increases in rental rates. We expect our cash NOI in the fourth quarter to benefit from the October lease commencement of the Charlotte Built-A-Suit for Amazon and from additional acquisitions that have or are expected to be completed before the end of the year. Now turning to cash same property NOI. For the 2021 third quarter and nine month period, growth in cash same property NOI was 7.5% and 7.4% respectively versus the comparable fiscal 2020 periods. Our cash same property NOI for the 2021 third quarter benefited most from the burn off of free rent on first generation space at previously delivered spec buildings offset by free rent this quarter on a 280,000 square foot renewal which represented 7% of the total same property NOI pool square footage. Looking forward, I would point out that for most of this past year, our same property pool was 100% leased, and we expect to have very few new leases in the same property pool for next year. This will make for tougher comparisons in the fourth quarter and most of next year. In the same vein, as our acquisition and development activity ramps up, A larger and larger percentage of our total portfolio is not going to be captured by these same property NOI metrics. Next, I'll discuss core FFO. We have modified the definition of core FFO to exclude the impacts of our non-qualified deferred compensation plan, which is a non-cash item. The amounts related to this plan really reflect the change in our retirement liability rather than a near-term compensation payment. Additionally, it is an amount that is not readily predictable as it moves up and down with the performance of the stock market. We intend to freeze this plan at the end of this year, which will eliminate any future elections into the plan. As a result, while the existing plan amounts will remain and be subject to quarterly variation, as we grow, we expect that this component will have a small impact on our results. With that noted, core FFO was 4.8%. was $4 million, or up 12.8% in the third quarter of 2021 over the 2020 third quarter. Core FFO benefited most from the growth in NOI, partially as well as from lower interest expense due to higher capitalized interest and higher investment income, offset by an increase in G&A expenses compared to last year. As it relates to AFFO, our maintenance capital expenditures and leasing costs for second-generation space was $750,000 in the quarter, which is somewhat low due to the fact that excluding first generation space and recent acquisitions, there were few new leases. Maintenance CapEx is back end weighted this year and into the first half of next year as we undertake certain projects, including roof replacements at two of our warehouses that will likely cost us approximately $200,000 in the fourth quarter and $700,000 in the first half of 2022. 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 on an annual basis. Now on to G&A. Reported general and administrative expenses decreased to approximately $2.3 million in the 2021 third quarter, down $400,000 when compared sequentially to the 2021 second quarter. The third quarter G&A number was lower than recent quarter's as it was favorably impacted by lower non-qualified deferred comp plan expense and lower costs on undeveloped land, as well as other timing-related expenses, several of which should reverse before the end of this year. Going forward, it might be most helpful to think about G&A expense excluding the non-qualified deferred compensation plan, which I described earlier. If we look at our year-to-date G&A expense, we're at $7.6 million, excluding the non-qualified plan, which equates to a quarterly run rate of just over 2.5 million. Looking to the fourth quarter, we expect growth in the fourth quarter G&A, excluding the non-qualified plan, to be in the low to mid-20% range when compared to the year-to-date 2.5 million run rate. This increase is primarily due to the growth in compensation and recruitment expenses from increased headcount, which is back-end weighted this year, costs related to our accounting and project management system implementation, and the reversal of some of the timing-related expenses in the third quarter that I previously mentioned. With ongoing investments in people and processes, as Michael described, we expect our 2022 G&A will grow in the mid single digits on a percentage basis over this annualized Q4 2021 number. This growth in G&A is still expected to be substantially below the growth rate in our square footage and NOI in the coming year as we further leverage the platform. I will wrap up discussing our liquidity. At the end of the third quarter, we had $137 million in liquidity that reflected $37 million in cash, plus the undrawn capacity of the new credit facility. We ended the quarter with $173 million in debt, and our current net debt to total enterprise value is approximately 16%. Subsequent to the end of the quarter, we completed an equity offering of over 2.4 million shares, including the over-allotment option, which netted proceeds of over $150 million. We also closed on the Charlotte acquisition, requiring $14.6 million in cash. We have the full borrowing amount available on our credit facility, as well as potential proceeds from our dispositions under agreement. Portions of our liquidity will be used to fund our acquisitions and development pipeline, as well as future opportunities to support our growth. I'll lastly mention that we intend to pay off the mortgage debt upon the disposition of the associated buildings that we have on the contract. This amount currently totals $12.2 million across three mortgages, and these mortgages were amongst our most expensive with an average interest rate of approximately 5%. With that, I will now turn it back over to Michael.
spk03: Thank you, Anthony. We have great momentum in our business and the capital structure in place to fund our growth. At the same time, we continue to remain very focused on providing strong returns on investment and to increasing shareholder value. I am very excited by what we've accomplished thus far this year and am very encouraged by Indus' future. Before moving on to questions, I want to thank the team at Indus for their continued efforts and contributions to our success. I'll also note that this will be Anthony's last earnings call before his retirement. I want to thank Anthony for his exceptional leadership and dedication to the company during his tenure. As I mentioned before, the CFO transition is well underway with John, having started in September. We are confident that this will be a smooth transition, and already we are tapping into John's extensive financial and operational REIT experience. That concludes the prepared remarks, and I'll turn it back over to the operator to take your questions.
spk08: We will now begin the question and answer session. To ask a question, press star then one on a touch-tone phone. If you are in the question queue and would like to withdraw your question, press star then two. And the first question comes from Tom Catherwood with BTIG. Please go ahead.
spk02: Thank you, and good morning, everybody. Great to see the strong acquisition pace in the quarter, but there seems to be an ever-increasing amount of capital chasing industrial deals. Michael, really appreciated the commentary on future purchases. in your prepared remarks, but other than that, how have you adjusted your acquisition strategy to find deals in this environment? And is there a risk to your growth plans as competition continues to increase?
spk03: Yeah. Thanks, Tom. Appreciate the question. I think just stepping back, the acquisition environment has been competitive for quite some time. Yeah. I don't know if the next three months are going to be much different than the last three, six or nine months, either. And I think we've been successful at finding some really good acquisitions that we think really are going to add value and generate strong returns. And I think we're just going to continue the same practice, which is, one, we can look at that range of opportunities, development, forwards, value add, and to a much lesser extent, core stabilized buildings. And then how are we doing it? Just looking back over the last six months as to how we did it, It's a real mixture of working relationships that we've been working to establish for many years. So, for example, a couple of the forwards that we are working on today are with the same developer, which is one of the largest developers in the country, private developers. But we've had a relationship with them. Actually, Gordon, our chairman, also had worked with them in his past. And so that goes a long way in today's world that people just want to work with buyers that they know are going to perform and act well. And I think similarly, we've spent years working to develop relationships on developers and local brokers in the different markets we're in. So we continue to spend a lot of time in the markets, and we have a great relationship with a couple of groups in Charlotte that have really helped us uncover a number of the transactions we did this year, which mostly were off market, as we mentioned. And so I think it's just a combination of that. And we will look at marketed deals. And at times, certain of the marketed deals don't get quite the attention as others. Again, we're looking at kind of the ones and twos of the world, not multi-billion dollar portfolios, which get a different level of attention and interest. And by looking at kind of the ones or twos, there's certain opportunities that we may find or brokers may kind of indicate to us or worth looking at that might not have originally been on our radar. So it's really a combination of everything that we believe has worked really well so far and has worked well over the last six months in building our pipeline. And we think we can continue to do this going forward. We're going to add some more people, as I mentioned, on the acquisitions front to continue to have a few more feet on the street, so to speak, and continue to establish these relationships. But we still think there's opportunities out there. I think you have to remember it's still a very, very fragmented industry. There's lots of individual owners, private owners, private merchant developers that sell things one-off, two-off in small portfolios, as well as the bigger transactions you see.
spk02: I appreciate that. Thanks, Michael. Kind of building off of it, you know, the strategy has been kind of when you enter new markets, you go in with kind of a market rate acquisition, and then you look to bolt on either value-add assets or land for development assets. As you kind of expand the forward purchases, which sounds like they tend to be off-market or likely marketed deals, does it change that strategy or approach the ability to then find land and kind of expand within markets, or does that strategy kind of remain intact despite the switch in the acquisitions you're looking at?
spk03: Yeah, I think the strategy remains intact. We're just being opportunistic, and so In some of the forwards, it's been markets we've looked at. You know, we spent a lot of time looking at Nashville as an example, looking for different opportunities. And then off-market did come across the forward that we expect to close early next year. And having done a lot of research in the market, we knew it was a great location, a great project, and one we wanted to own. So in some ways, it's a little bit of a combination versus if we want just to do development right off the bat, this kind of Gives us a little bit more leveraging someone else's experience within, say, in this case, the Nashville market. Gets us very quickly involved with leasing properties and getting a better feel for day-to-day leasing dynamics. And doesn't preclude that we may find something that's a little more core at some point or hopefully more value-add in future land for development. We just think it's just a different way to get exposure to a market earlier than if we were trying to find land. And even if we found land by the time we entitle and develop it, you're pushing that out much further with forwards potentially providing an opportunity to accelerate that entry.
spk02: Got it. Got to understand. Thank you for that. And then last one from me, the Amazon delivery in Charlotte happened in early October. How does the rent
spk03: roll on from that now that they've uh taken occupancy and is there any remaining spend associated with that asset going forward um the the rent and and my cfo can correct me but i believe it started really at the beginning of october um when the lease commenced um so that's when the rent payments began and that's when they'll be captured financially as well both gap and cash rent And in terms of remaining spend, there is some left, but we're also drawing down the construction loan, so any remaining spend will be more than offset by the construction draws, which typically trail our cash flow.
spk01: Yeah, that's correct.
spk02: Cool. So just to clarify, so cash and gap rent have both commenced on that asset?
spk01: Yes.
spk02: Excellent. That's it for me. Thanks, everyone.
spk08: The next question comes from Manny Korchman with Citi.
spk04: Please go ahead. Hey, good morning, everyone. Michael, or maybe it's a question for John. I'm going to keep Anthony out of it for a second. But given sort of the law of small numbers in your business and also seemingly a lot of moving pieces and pieces that keep getting maybe new moving pieces added, what are your thoughts on giving guidance to the street and, I know you've provided this run rate FFO number that's not really guidance. Not exactly sure how to even use that as a forward look at this point, given the moving pieces. So should the street expect you to give guidance, or are you waiting for something to happen in the business before you do that?
spk03: Thanks, Manny. I think our plan is certainly on the call today. We gave, I think, a little bit more indication of where we think Q&A is going to be in the fourth quarter and into next year. And I think our plan probably is in next year's, starting next year or the fourth quarter call, so next calendar year, to provide a little bit more information to really help identify where we think some of, as you called it, moving pieces sort of will land to help with your modeling and projections. I don't know if we'll get into the exact guidance per se at that point. Again, given the same challenges you have, there's a lot of things that can move the needle fairly meaningfully that are a little bit hard to predict, whether it's timing of a certain acquisition or not or completion of a building. So we just want to be careful that we're providing good information that will be helpful but not get too far out there with with numbers that then are a little bit hard to exactly get right on the head. So I think you'll get more from us going forward, but I don't know if we'll give exact guidance yet. But I think as our business continues to grow, a number of these acquisitions come into our base, it'll be a lot easier for us to give more robust and accurate guidance.
spk04: Right, and then in your prepared remarks, you described yourselves as a sharpshooter, and you've been going into new markets. So I guess what are the filters that you're putting into those new markets using that approach as a sharpshooter? So you mentioned growing populations, which are sort of active for a lot of markets outside of where you are now. You mentioned a little bit of transportation access, whether it be port or otherwise. Again, that describes a lot of markets today, and so – What filters are you applying when you're looking at the growth of this company in the next markets you go into?
spk03: Yeah, so I think it is – there's a question of a lot of markets show population growth. Obviously, the southeast, kind of southwest, are seeing outsized population growth. So what we're looking for is outsized population growth, outsized housing starts, outsized new business relocations, which are really seen in Charlotte, Florida – Nashville, our market's seeing tremendous business growth, which is somewhat different than what's driving some of the growth in certain other markets. And then it's what's the industrial market look like? So it's not just a market that may have a lot of population growth, but isn't necessarily a great place to distribute or have logistics from. There's a local population to serve, so there's need for last mile facilities, but is it necessarily a market where it's a good regional distribution location. So we typically look for markets that have that other leg to the story of both regional and local distribution. And we also look to see how hard is it to develop and add new properties to the market. So there are certain markets we've looked at in the southeast that are experiencing strong population growth, have a good manufacturing base, and we haven't entered because we've seen what just seems to be a fairly significant pipeline of new development with Every mile you go down the highway, there's more development you can do, and that's the types of markets we want to avoid. So it's a combination of all those factors, and maybe on the surface it seems there's a lot, but as we filter it, we don't get to huge numbers of markets, and we focus on the ones we think that meet all those criteria and where we can build up to a critical mass and have a portfolio that makes a difference. Great. Thanks very much.
spk08: The next question comes from Aaron Hecht with J&P Securities.
spk07: Please go ahead. Good morning, guys. Thanks for taking my questions. I wanted to piggyback a bit on the acquisition or capital appointment conversation. Is there a goal around timeframe to put the money to work that you raised and leverage that? Additionally, is there a mix of acquisitions? I know you have different buckets there, but acquisition versus development that would be prudent to think about.
spk03: Yeah, I appreciate the question. I think taking the second one first in terms of balance between acquisitions and development, we like both. Our goal is to find more of both. Developments today, if we're bringing new land into our development pipeline between entitlements and then commencing construction and delivery. Typically entitlements are six to 18 months depending on where it's located. Construction times are 12 months, maybe a little longer given some availability issues. So as we look for developments today, it's probably more like a two plus year impact in terms of being delivered. So I'd say In the near term, additional square footage is likely going to be more biased towards acquisitions versus developments over and above what's in our development pipeline today. It just will take time to put those into service. But we're eager to find more development. We have a really good track record on development. It's driven really strong returns for us. But at the same time, we're looking for good acquisitions. So in terms of timing of capital, I think if we find great opportunities, we're going to put it to work. um and so we're not sort of saying we don't want to sort of husband this capital and kind of parcel it out you know quarter over quarter um on the other hand we think we have between the capital we raised over and above the pipeline we've identified we have a good amount of capital still we can put to work over time and as we noted even what we have today in our pipeline a series of forwards that are going to deliver in the fourth quarter of 22 as a chunk of that capital, as well as the development pipeline that bleeds into 2023, you know, we think we have a lot of capital available for the next, you know, 12 months or beyond, including if we, once we deploy all the, quote, cash on our balance sheet, we certainly would be fairly, very lowly leveraged, so could add incremental debt to that as well. So it's not a rush to put it to work, but on the other hand, if we find great opportunities, we know we have the capital to put it to work, but we don't see, you know, that we're going to put it all to work in the next three to six months. But if we find great opportunities, we will.
spk07: Okay. Understood. And then in terms of markets, well, South Carolina, do you guys consider the Carolinas as one market or is that separate? And then with the new markets you're entering, do you want to scale those first before looking for additional markets after that? Is there a limit to how many markets you want to try to be scaling at any one time?
spk03: Yeah, so, I mean, North and South Carolina, I guess Charleston is a different market, and we would look at that very differently than Charlotte, if you take the two markets we're in. Charlotte is right on the border of South Carolina, so there are properties that are in South Carolina that effectively are the Charlotte market. I think they're different. We're not in the market, but Greenville-Spartanburg is a fairly large market in South Carolina. That's a different market than Charlotte, and it's different than Charleston. Same with Raleigh-Durham in North Carolina. It's a very different market than Charlotte. I do think they're different. York County, which is just south of Charlotte, we would lump into Charlotte, even though that's in South Carolina, because it's really driven by that market, if that answers that question. On Scaling, it's probably more opportunistic. I think we've said in the past our goal is to be in seven to nine markets. We effectively are in six today. So before we add more in Charleston or Nashville, if we found something great in one of the other markets we're targeting, we go ahead and do it. But as we've said, our goal is really to get to a million square feet in all the markets we enter. We'd like to get every market up to at least a million square feet as quickly as we can, and we think it's To have a more balanced portfolio across our markets is better. We just can't necessarily control that. We are looking actively in all the markets we're in, and we're hopeful we're going to add more sooner rather than later in the newer markets, but we're going to remain opportunistic as to where we're finding the best opportunities for our capital.
spk07: Understood. And then last one, 2022 lease expirations, and obviously the new lease and renewal growth is Outstanding. Any insight you can give us on the space that's turning over in 22 and maybe where it stands compared to where you see market?
spk03: Yeah. So in 2022, we sort of a little bit of a situation where a couple of the tenants have fixed renewal rights. And as I alluded to in the comments, our goal is really to get rid of these fixed renewal rights and all our new leases. One was a deal we bought, which we described earlier in the year. where the tenant did have a fixed renewal. So that's a pretty large chunk of the renewals. If those tenants don't renew, we think there's pretty material mark-to-market on both those deals in Pennsylvania. One might be as much as 10% above the renewal rate. The smaller of the two buildings, which we described when we bought it, is probably 25% below market. So that's a future large opportunity if they don't renew. And so I think those are really where the bigger opportunities are. One of the other lease expirations in 22 that's relatively big is the tenant we have in Connecticut that's moving to the building we're currently under construction. They're doubling their size and pre-leasing two-thirds of that building. They need quite a long overlap, so given a little bit of the push-out of delivery of that building, it's likely that that renewal may actually end, that lease expiration may move into 2023 as well. So we do think there's a good mark-to-market in our portfolio overall. Probably in 2022, given, again, the nature of what's happening with tenancy, probably not going to see huge jumps in rent if these tenants renew, but if they don't, we'll be able to capture a lot of that.
spk07: Thanks. That's great. Appreciate you catching up, Michael.
spk08: Again, if you would like to ask a question, press star then 1 to join the queue. The next question comes from Connor Sivorensky with Berenberg. Please go ahead.
spk06: Hey, everyone. Thanks for having me on the call this morning. Just one quick kind of high-level question on supply growth dynamics. Looking at Charleston and Nashville, for example, where you've got 7 million and 12 million square feet under construction, respectively, I'm just wondering how Indus will seek to kind of position or differentiate its portfolio to, you know, insulate itself or its tenant composition from this kind of oncoming supply growth in what might be a more commoditized asset.
spk03: Yeah, no, it's a good question. I think it's exactly how we look at these markets, which is getting really granular as to where the new capacity is coming in terms of which submarkets, which locations, type of buildings that are coming online, and size of buildings, as well as given construction and other delays and challenges we're having with the supply chain, when really is that supply delivering? So we've sort of, as you would expect in each of these markets, really mapped out new supply when they say it's going to deliver, when it might deliver, and see how that may or may not impact properties we're looking at or properties we own. I think one of the big differences is typically our sizes are 300,000 feet and below. No matter what market you're in, it's really hard to get to 5 or 10 million square feet of new capacity building 200s and 300s. The stats that show very high new supply coming online are typically biased where there's 3 or 4 million footers. Charles and I mentioned Walmart has a 3 million square footer. Some people put that in their supply numbers, some don't. So built-to-suits go into those supply numbers. A lot of million-foot, 500,000-foot buildings go into that. So, for example, in Nashville, our buildings are 100,000 square feet and 80,000 square feet, located really close to downtown. There's a couple other buildings near the airport that sort of compete with that type of use and design. And so we just think it's just sort of almost a different competitive set, going after different tenancy and different uses. The two buildings in Nashville we have have market rents that are going to be a decent amount above kind of the other product. And Charleston's the same way. We're looking at the products we have, which submarkets it's in and which building designs. So we look very carefully at all that and look to see how to really manage our exposures if we think there is more supply coming on than we think. But it's a factor we look at, but we think certainly in those markets and, frankly, the other markets we're looking at, it's very manageable against what we think we're competing against.
spk06: Okay. That's a very helpful color. I'll leave it there. Great. Thank you.
spk08: The next question comes from Dave Rogers with Baird. Please go ahead.
spk05: Hey, guys. It's Nick on for Dave. Just one quick question. I think, Michael, you talked about rising construction costs have kind of been offset by rent growth. Are you saying that they're about equal or that have you seen rent growth actually rise over in construction costs over this couple periods?
spk03: Over the last couple quarters, I'd say the rent growth has probably exceeded construction cost growth. It a little bit varies by market, but overall, if we look at our portfolio, it's probably more than offset the construction cost increases. Again, we'll have to see how it continues to evolve on the construction cost side. Certainly, the rent growth, if anything, feels like it's accelerating. We're seeing it even in the way our brokers are positioning our upcoming deliveries in terms of asking rent and pushing up asking rent. So in many ways, I think the fact that construction costs really have gone up and people are starting to really feel it on deliveries that are coming in the next six months, the fact that acquisition prices are high, that everyone's really pushing rent and that supply remains well in check or really below demand. So again, rents, if anything, are continuing to accelerate, which is certainly a positive and we think will continue to benefit us.
spk05: That was it for me. Thanks, guys. Thank you.
spk08: With no more questions, this concludes Indus Realty Trust's third quarter 2021 earnings call. Thank you for joining us and enjoy your weekend.
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