INDUS Realty Trust, Inc.

Good morning and welcome to Indus Realty Trust's 2022 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. Please go ahead.

Thank you, and good morning, everyone. Welcome to our 2022 third quarter earnings call. In addition to regularly available earnings materials, Indus has also published a supplemental presentation, which is available on its website at www.indusrt.com under the Investors tab. The conference call will contain forward-looking statements under federal securities laws, including statements regarding future financial results. These statements are based on current expectations, estimates, and projections, as well as management's beliefs and assumptions. Forward-looking statements are not guarantees of performance, and actual operating results may be affected by a variety of factors. For a list of those factors, please refer to the risks listed in the company's most recent 10-K filing, as updated by its quarterly report on Form 10-Q and subsequent quarters. Additionally, the second quarter, sorry, the third quarter results, press release and supplemental presentation contain additional financial measures such as NOI, FFO, Core FFO, AFFO and EBITDA. These are all non-GAAP financial measures. The company has provided a reconciliation to those measures in accordance with Regulation G and Item 10E of Regulation SK. The company speakers this morning are Michael Gamson and is the CEO who will cover recent activity, market conditions and updates in our pipeline He will be followed by John Clark, the company's CFO, who will cover the third quarter results in detail. After the prepared remarks, the line will be opened up for your questions. With that, I'll turn the call over to Michael.

Thanks, Ashley. Good morning, everyone, and thank you for joining us today. The operating fundamentals in the industrial market remain quite good. Tenants are active in our markets and supply remains relatively in check due to strong absorption and the continuing delays in the delivery of new buildings. With that said, we recognize the overall macroeconomic environment remains uncertain, with inflation running high and interest rates significantly above the levels at the start of the year. The resulting increase in the cost and availability of capital has impacted the investment sales market, with very few transactions occurring, and also started to slow down new development starts. Within this backdrop, we believe Indus is well positioned and prepared for a changing market environment. We effectively have pre-funded the majority of our upcoming acquisition development pipelines, which includes having all fixed rate debt at well below current market rates. We also continue to look to recycle capital, notably undeveloped land. We are focused on maintaining high occupancy and actively leasing upcoming deliveries. And we generate cash flow from our portfolio, which we expect to grow significantly as recent and upcoming developments and acquisitions roll into our NOI. Speaking to our current results, in the third quarter, we continue to deliver strong internal and external growth. Our portfolio is well leased at 97.6%, with the only vacancy in the recently delivered two-building development in Orlando. We have no bad debt expense in 2022 to date, and all of our leases are triple net. We have effectively addressed most of our lease rollover through the end of 2023, with leases accounting for only approximately 2% of our total portfolio square footage expiring before 2024. Of the upcoming role, we do have one vacancy expected in the near term, as the tenant that leased our 234,000 square foot delivery in Connecticut has been able to get fully operational in the new space quicker than expected, and therefore be vacating to existing 73,000 73,000 square feet in short order. Since last quarter, we successfully re-tenanted the property in Charlotte that we acquired earlier this year. This new lease to an investment grade rated retailer was at a rent 39% above the previous amount paid by the short-term in-place tenant and resulted in a yield 50 basis points above what we had originally forecasted we'd achieve at the time of the acquisition earlier this year. We also completed a renewal and extension in Hartford with a global delivery company. This company exercised the last of its existing one-year fixed renewal rights in September, and during that process, they sought to secure their access to the space for longer term. As a result, a few weeks ago, we executed an additional two-year extension with this tenant with a 16% increase in starting rental rate over the recent renewal rent. We're making good progress on leasing up the recent Orlando delivery, and feel good about the current tenant activity and the very strong rental rates in recent proposals, which we believe will result in us exceeding our most current underwriting. We continue to experience strong rent growth across our markets, and we currently estimate the mark-to-market rent in our portfolio at 26 percent on a cash basis and 31 percent on a GAAP basis. We believe we are conservative in our estimates, typically using known lease comps rather than quoted rates or the levels on current proposals. Additionally, our portfolio is relatively young and has grown significantly. This quarter's mark-to-market calculation was impacted by an unusually large number of newly added developments in signed leases, amounting to nearly one-sixth of our estimated rent on a go-forward basis. Given how recent these leases are, they have a lower mark-to-market opportunity and also had very little impact on our third quarter cash NOI. We estimate that this group of leases lowered our mark to market calculation this quarter by several hundred basis points. With respect to our pipeline, we have leased 60% of the remaining vacancy in Nashville, leaving this project with one vacant space of 42,000 square feet for which we have good tenant interest. We have pushed the closing on this acquisition to the latter half of the first quarter of 2023. The buildings are essentially complete, but there's been a delay in completing the connection to public sewer, which we require to close on this acquisition. Since the start of the year, we have added over 900,000 square feet, representing an 18% increase to our in-service portfolio. We expect our three most recent developments, Chapman's Drive in the Lehigh Valley, 110 Trade Port in Connecticut, and Landstar Logistics in Orlando to generate an initial stabilized yield of around 7% using the actual in-place rent at Chapman's and Trade Port and our current estimates for Landstar at a 95% occupancy level. This is well above our initial underwriting at the time we put the land sites under agreement or even when we commence construction. As we continue to evaluate land for future development opportunities, we believe we remain conservative in our budgeting. Our initial underwriting assumes our view of today's market rents and construction costs, even if the delivery is two or more years away. and we initially assume a 95% occupancy at stabilization. Our current development pipeline includes one project of 206,000 square feet in the Lehigh Valley, which we expect to complete late in the second quarter of 2023. The Lehigh Valley market remains very tight with asking rents above $10 per square foot and supplying core locations remaining in check given few remaining development opportunities. We have a very well-located project at an attractive basis that we feel will deliver a strong return. Since we do not have construction commencement dates for several of our other land sites, we are now listing these as land for potential future development rather than including them in our active development pipeline. This quarter, we disclosed one new land site under agreement in the Charlotte market where we expect we can build four buildings totaling just under 600,000 square feet. The necessary approvals for this site include an Army Corps permit, which extends the time to complete the entitlements. Therefore, we do not expect to close on the purchase of this land until later in 2023, so any significant investment remains a bit far off. Overall, construction is continuing to experience certain challenges, including ongoing permitting delays by understaffed municipalities and shortages of certain key materials, which are somewhat exacerbated by Hurricane Ian. That said, we are starting to see improvements both in cost and lead times in some areas, such as structural steel, and we expect these trends to continue to improve. We have a number of first-generation leases signed or expected in our pipeline, and we expect some of these near-term construction matters to continue to push out the lease and rent commencement dates beyond what we've typically experienced. We continue to proactively order materials, build in more improvements into the base development designs, and work with our tenants earlier in the process on their needs to try to mitigate all these impacts. We continue to believe the long-term outlook for logistics properties remains strong, and we will continue a very targeted pursuit of land and building acquisitions. The current uncertain environment, we believe, will produce good opportunities. As an example, we already are seeing a slowdown in certain proposed development starts, as developers that rely heavily on debt financing are reevaluating opportunities and dropping some land sites. We have the financial flexibility to pursue select opportunities while maintaining conservative leverage ratios using the capital on our balance sheet, undrawn lines of credit, and asset recycling. On that last point, we have our small flex office portfolio under contract for $11 million, and the closing is expected later this quarter. As a reminder, this portfolio is carried in discontinued operations, so it's not included in our reported NOI or core FFO metrics. and though the sale remains subject to typical closing conditions. Additionally, we have several undeveloped land sites under agreement for a total of approximately 25 million, which we have put on a schedule in our supplement. The largest is a $15.5 million potential sale of 48 acres of industrial land on Goodwin Drive in Connecticut. The buyer intends to build a 450,000 square foot manufacturing facility for its own use on the site. The other parcels represent the sale of non-industrial land in Connecticut and southern Massachusetts. All of these sales, including the Office Flex portfolio, are subject to a number of contingencies, including receipt of necessary approvals for the buyer's intended uses, and note the potential closings will take place over the course of 2023. In aggregate, if all these sales were to close, we'd generate over $35 million in proceeds, or about $3.50 per share, with no impact to our existing NOI while providing dry powder for future investment. I'll conclude with thanking the Indus team for their continued hard work and exceptional performance. We take great pride in our very low employee turnover, and it is through our team's effort that we achieve our strong results and are in a position for future success. With that, I'll turn it over to John for a financial review.