INDUS Realty Trust, Inc.

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.

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?

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.