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spk12: Good day and welcome to the first Industrial Realty Trust Inc. fourth quarter results call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Art Harmon, Vice President of Investor Relations and Marketing. Please go ahead.
spk16: Thank you, Dave. Hello, everybody, and welcome to our call. Before we discuss our fourth quarter and full year 2022 results and our initial guidance for 2023, let me remind everyone that our call may include forward-looking statements as defined by federal securities laws. These statements are based on management's expectations, plans, and estimates of our prospects. Today's statements may be time-sensitive and accurate only as of today's date, February 9th, 2023. We assume no obligation to update our statements or the other information we provide. Actual results may differ materially from our forward-looking statements, and factors which could cause this are described in our 10-K and other SEC filings. You can find a reconciliation of non-GAAP financial measures discussed in today's call in our supplemental report, and our earnings release. The supplemental report earnings release and our SEC filings are available at firstindustrial.com under the Investors tab. Our call will begin with remarks by Peter Basile, our President and Chief Executive Officer, and Scott Musil, our Chief Financial Officer, after which we'll open it up for your questions. Also on the call today are JoJo Yap, Chief Investment Officer, Peter Schultz, Executive Vice President, Chris Schneider, Senior Vice President of Operations, and Bob Walter, Senior Vice President of Capital Markets and Asset Management. Now let me turn the call over to Peter.
spk06: Thank you, Art, and thank you all for joining us today. The FIRST Industrial team delivered another excellent performance in 2022. We ended the year with in-service occupancy of 98.8% and achieved an annual cash rental rate increase of 26.7% on our 2022 commencement. Both are first industrial records. The end result was an FR record-setting annual increase in cash same-store NOI of 10.1% that Scott will discuss further in his remarks. Fundamentals in the industrial real estate market continue to support further market rent growth in our target markets and within our portfolio. According to CBRE-EA, industrial vacancy was 3% at year end fourth quarter completion of 113 million square feet exceeded net absorption of 91 million square feet and for the full year net absorption was 412 million square feet versus completions of 370 million given this backdrop we are off to a strong start signing leases that commence in 2023 at very healthy increases as of last night we are through 50% of this year's lease expirations at a cash rental rate increase of 33%, which is already ahead of our 2022 pace. With four of the five largest remaining lease expirations by net rent in the Inland Empire, our current outlook for cash rental rate changes for the full year 2023 is 40 to 50%. Moving to our new development activity. In Orlando, at our first loop project, we signed two leases totaling 126,000 square feet to bring that project to 49% leased. At First Park Miami, we also leased the remaining 66,000 square feet at buildings 9 and 11, bringing those two buildings totaling 333,000 square feet to 100% occupied. We continue to see good activity in both of these Florida markets. During the year, we placed in service 4.1 million square feet of developments, representing a total investment of $448 million, all 100% leased at a cash yield of 6.6%. We have one new start to announce, our first Stockton Logistics Center in the Central Valley of Northern California. the prime location for large format buildings. There we are building a 1 million square foot distribution center to serve the San Francisco and East Bay markets where the supply of large buildings is constrained. Our estimated investment is 126 million with a projected cash yield of 6.3%. Including this start, our developments in process total 3.6 million square feet with an investment of $556 million. The projected cash yield for these investments is 7.3%, which represents an expected overall development margin of 75%. With respect to dispositions, in the fourth quarter, we sold a 581,000 square foot facility in Minneapolis for $54 million at a stabilized cap rate of 5.3%. As part of our continual portfolio management efforts, our sales guidance for 2023 is $50 to $150 million. The guidance range is a bit wider than in the past, which reflects the continued price discovery dynamic in the investment sales market. Before turning it over to Scott, given our performance and outlook for growth, Our Board of Directors has declared a dividend of $0.32 per share for the first quarter of 2023. This represents an 8.5% increase from the prior rate and a payout ratio of approximately 70% based on our anticipated AFFO for 2023 as defined in our supplemental. With that, I'll turn it over to Scott to provide additional details on our performance and our 2023 guidance. Thanks, Peter.
spk02: Let me recap our results for the quarter. NARIC funds from operations were $0.60 per fully diluted share compared to $0.52 per share in the fourth quarter of 2021. For the full year, NARIC FFO per share was $2.28 versus $1.97 in 2021. Our fourth quarter and full year 2022 results include income related to the final settlement of insurance claims for damaged properties. Excluding the approximate one cent per share impact related to these claims, fourth quarter and full year 2022 FFO per share was 59 cents and $2.27 respectively. As Peter noted, we finished the quarter with in-service occupancy of 98.8%, up 70 basis points compared to the year-ago quarter. Our cash same-story LI growth for the quarter, excluding termination fees and the income related to the final settlement of insurance claims that I previously discussed, was 7.6 percent. This was driven by higher average occupancy, increases in rental rates and rental rate bumps, slightly offset by an increase in free rent. As Peter mentioned, our 10.1% cash same-store NLI growth for the full year, calculated under the same methodology, was a company record. Summarizing our leasing activity during the fourth quarter, approximately 2.1 million square feet of leases commenced. Of these, 700,000 were new, 1.2 million were renewals, and 300,000 were for developments and acquisitions with lease-ups. Tenant retention by square footage was 81%. Moving on to the capital side. On November 1st, we drew down all $300 million of the term loan that we closed in August. We were successful in putting in place swaps to fix the all-in interest rate at 4.88% beginning in December. So once again, our only variable rate debt is our line of credit. Before I move on to our initial 2023 FFO guidance, I would like to comment on a topic that we've been asked about recently by the investor and analyst communities. The parent company of one of our tenants has been in the news recently. As of the fourth quarter, Odessa, a leading auto auction and related services provider, accounted for 1.8% of our rental income. Odessa was acquired by Carvana last year, and Carvana has been facing some challenges in its retail segment. For those newer to the FR story, we did a sale-leaseback transaction with Edessa about 14 years ago for seven valuable locations critical to their operations. These are leased until 2028, after which they have two additional 10-year renewal options. Let me also add that Edessa is current on its rent obligations. It is helpful for you to know that we believe that our basis in this land and current rents are both well below market and that the majority of these sites could be developed at significantly high margins. Moving on to our initial 2023 guidance for our earnings relief last evening. Our guidance range for name read FFO per share is $2.29 to $2.39 with a midpoint of $2.34. Our 2023 FFO guidance is impacted by an additional two cents per share in real estate taxes in one of our markets that we will accrue in 2023, but will not be recoverable from our tenants until the taxes are paid in 2024. Without the impact of this item, our FFO midpoint guidance would be $2.36 per share. Key assumptions for guidance are as follows. Average quarter-end in-service occupancy of 97.75% to 98.75%. Cash same-store NOI growth before termination fees of 7.5% to 8.5%. Please note our cash same-store guidance excludes $1.4 million of income for 2022 related to the final settlement of insurance claims for damaged properties I discussed earlier. Annual bad debt expense of $1 million, which assumes that ADESA stays current on its rent obligation. Guidance includes the anticipated 2023 costs related to our completed and under construction developments at December 31st. For these projects, we expect to capitalize about $0.08 per share of interest. Our G&A expense guidance range is $34 million to $35 million. Other than previously discussed, our guidance does not reflect the impact of any other future sales, acquisitions, or new development starts, the impact of any future debt issuances, debt repurchases, or repayments, and guidance also excludes the potential issuance of equity. Let me now turn it back over to Peter.
spk06: Thank you, Scott. And thank you again to the FIRST industrial team for a job well done. Our sector continues to exhibit the best fundamentals in memory. However, we, like all of you, are keeping a watchful eye on the economic and geopolitical landscape, and we are prepared for whatever challenges or opportunities the immediate future may bring. As you've heard us say, we operate, acquire, build, and fund ourselves to outperform through the cycle. Our portfolio, land holdings, and balance sheet are well positioned for cash flow and value generation across a range of operating environments. Operator, with that, please open it up for questions.
spk12: We will now begin the question and answer session. To ask a question, you may press star, then one on your touch-tone phone. If you're using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question comes from Key Bin Kim with Truist Securities. Please go ahead. Thanks. Good morning.
spk13: I guess, can we first start off with the development pipeline? Can you provide some just high-level commentary on what this total pipeline could look like in 23 in terms of starts and maybe reasons why the capitalized interest is coming down?
spk06: Kevin, Peter, with respect to the development pipeline for 23, clearly given that we are operating essentially at the cap, it's going to be heavily dependent upon our new development lease up. Just as a reminder, we do assume in our underwriting 12 months of downtime. And yes, over the past few years we've done better than that. We certainly hope we'll continue on that pace. So I can't really give you, and we don't guide on starts anyway, but we do expect to have additional starts this year. And we expect those starts would be certainly in high barrier markets on the east and west coast. Scott, you want to talk about the capitalized interest?
spk02: Yeah, a few minutes, Scott. I think Peter hit it right on the head. Our guidance just seems 12-month lease up on our spec developments. We've been doing better than that. I think we've been six months or better. To the extent we can do better than that and we have new starts, our capitalized interest number will go up. But again, I think it's just a function of how we guide and that we don't include any new development starts in our guidance. So that number could increase as the year goes on if we lease up the portfolio quicker than six months and we start new developments.
spk13: And on the first Stockton development, how are you thinking about, I guess, the total project? Is it a single user you're going after? Is it multi-tenant? What does the demand profile look like as of today?
spk14: Sure. Yes, thank you. There is significant demand for large users. That is the tightest sub-market right now. You know, stuff that is like the IE to LA, you know, it serves the Bay Area and the 880 East Bay Corridor. So the demand right now is for large format buildings. And, you know, this is just right out of the interchange.
spk12: Okay. Thank you, guys. The next question comes from Rob Stevenson with Jannie. Please go ahead.
spk04: Good morning, guys. Scott, how much pressure are you seeing on the same store expense side? And what are you factoring into your 23 guidance?
spk11: Yeah, Rob, we're not really seeing much pressure on there. Expenses, I know, in the fourth quarter in the same store were up a little bit, but that was really seasonal. That was snow removal and some utility costs. And all those costs are recoverable 100%.
spk02: But actually, Rob, in 23, you're seeing increases in taxes. We touched upon one of our markets, which was Denver, and seeing increase of taxes. That's more of a timing difference. But keep in mind the vast, vast majority of our leases are net leases, so our expenses are recoverable. And when you're at a 98.5%, 98.8% interest rate, even if expenses do rise, the leakage is pretty minimal at that occupancy rate.
spk04: Okay. All right. And then you guys did about 60 million of acquisitions in the second half of the year, right around a three cap rate, including this fourth quarter one in the Inland Empire. Is there something incremental that you plan on doing there? Or what's the rationale of spending, you know, a three cap rate on that type of money versus land or incremental development at this point?
spk14: Sure. Yeah, let me address the, you know, the acquisition of the 47,000 square foot building. That's a 5.5-acre parcel that's adjacent to roughly a 14-acre site that we own that has a building on it. So our plan here is actually more land-focused and building-focused. We're going to basically join those two parcels and develop an over 400,000-square-foot Class A building in IE. That's the plan.
spk06: So we're getting paid to carry the land as opposed to the other way around.
spk04: Do you need to knock down the 47,000 foot building or is this going to be in addition to the 47,000 building?
spk14: No, we're going to basically knock down our plan is to knock down our existing building plus this building and develop a 400,000 square foot really class A, high clear, nice building. So right now it is under entitlement.
spk04: And what type of time frame are you looking at there for a potential start?
spk14: Again, you know what? Entitlement takes anywhere from 18 months to 24 months, but you know what? We've been doing better than that, so we'll let you know once we're ready to start that building.
spk12: Okay. Thanks, guys. Our next question comes from Nick Ulico with Scotia Bank. Please go ahead.
spk10: Hey, good morning. This is Greg McGinnis. I'm with Nick. Peter, in the opening remarks, you touched on the continued price discovery dynamic in the investment sales market. Could you expand on that a bit more? What types of trends are you seeing, cap rates, how far apart are sellers from where you want to buy, and are you starting to see land prices fall at all?
spk06: I'll give some thoughts on that, and then I'll invite Peter and JoJo to comment. Certainly, cap rates have moved Again, as you know, last year we built in about 100 basis point increase. There aren't a lot of data points. There aren't a lot of transactions to really set cap. You can't go market by market and tell you cap rates. You really don't know what you're going to get until you go to the market. Clearly, it's helpful when the buyers are motivated by 1031s or their users. And as we've said in the past, a lot of the sales that we execute on do go to users. But the availability of debt is also going to drive this, and the cost of that debt. So that's why I commented the way I did, and we gave a bit wider range. We're just not going to know until we get deep into these discussions. If we're going to like the pricing, this is good real estate. It's 100% leased. And so we're going to proceed based on what the market feedback is. Peter, do you have anything to add?
spk09: Sure. On land values, we've seen them come in, depending upon the sub-market location, 30%, 40%, 50% or so. JoJo?
spk14: Yes, yeah. And it's just a construct of, you know, increasing the performer returns. Of course, the variables, the land construction cost is not a variable, so land takes the hit. So we've adjusted our investment criteria to reflect that in terms of our increased return requirements.
spk10: Okay. Sorry, excuse me. And then in terms of supply chain considerations with construction and development, are you seeing alleviation there in terms of getting materials and build time? Any color would be appreciated.
spk09: Peter? Sure. So yes, we're seeing certain components improve. There's more certainty around delivery dates, and the delivery dates have come in some. The notable exceptions to that would be switch gear, electrical components, rooftop units are still taking about a year or so, and that is certainly a critical element. On the costs, the trajectory of costs is coming down from where it's been. We're seeing costs come in on a couple of components. Others are still going up a little bit.
spk10: Okay, thank you.
spk12: Our next question comes from Todd Thomas with KeyBank Capital Markets. Please go ahead.
spk07: Hi, thanks. Good morning. First question, I just wanted to see if, you know, you could talk a little bit about some of the moving pieces, I guess, you know, looking at same-store and OI growth and the FFO growth that, you know, contemplated with the guidance. which is expected to be a little bit more muted, around 2% at the midpoint, or I guess 3% excluding the insurance claims. But that compares to the 7.5% to 8.5% same-shore and high-growth forecast. You know, I realize there's some moving pieces, but just curious if you can help us bridge the gap there and talk about, you know, what else might be having an impact on Africa.
spk02: Sure, Todd. Sure, Todd. Scott, I think we're coming up with a 4% increase. We compare the 236 taking out the impact of the taxes compared to the 227 and 22 before the insurance game. But I get your point. And I would say there could be a couple of pieces there. I would say one is on the development lease upside. We talked about it earlier with Kevin's question. We're assuming 12 months lease up on our spec development. Historically, we've been six months or less over the last three years. If we were to lease up the spec portfolio that we have in place now, we can pick up about $0.08 per share. So that's a big piece of it right there. We hope we can do better. But our underwriting is 12 months, and that's what we go with on guidance. I think the other thing, Todd, you should look at is interest expense. We did incur more indebtedness last year to fund the investments, our developments. So we're getting a full year impact of that this year. And then the last thing I think you need to look at is just the impact of rising interest rates. And I'll give an example on our line of credit. That's our only floating rate debt that we have outstanding. The weighted average rate on that last year was about 2.9%. And we're modeling high fives percent in our model this year. So the interest rate is almost doubling on our line of credit borrowing. So I think those are the couple of things that would impact that. Your question.
spk07: Okay, yeah, that's helpful. And then on the, you know, with regard to the development leasing, you know, and the 2.1 million square feet that's completed not yet in service, you know, how are, you know, leasing discussions progressing and, you know, for those assets? And, you know, what are you seeing, you know, for the potential to kind of hit that six-month target today? How are those conversations?
spk06: I'll just make a comment there, and then Peter and JoJo can discuss the various projects. You look at those projects, they are just completing or have just completed. So we haven't really had much time passed in terms of leasing discussions. Having said that, we are having very active discussions across a number of those projects. And Peter, you can give a little color on what's going on with that. Sure.
spk09: So Todd, the projects in Pennsylvania, Denver, Nashville and Florida that are in that population that you mentioned, active proposals and prospects for all or a portion of all of those buildings. And I would say we've actually seen an increase in new prospects just in the last couple of weeks. So it continues to be encouraging there. And in most of these cases, tenants continue to have very few choices.
spk14: Yes, for the buildings in Seattle and Chicago, they've been complete now for six weeks, and we have active proposals and active interest from a broad range of users, 3PLs, consumer goods, and food and beverage.
spk07: Okay, great. That's helpful. Just one last one, and sorry if I missed this. But any update on Old Post Road that was previously expected to be leased in the first quarter? You know, is that buttoned up or is there any update that you can share and also, you know, talk about what's included in the guidance for that?
spk09: Sure, Todd. It's Peter Schultz. So the update is this. Our primary prospect for the full building is a third-party logistics company who's servicing a long-term contract with the federal government. That lease has been fully negotiated for a while. The contract was awarded to this group and protested by the runner-up, not once, but on two separate occasions, which has delayed that moving forward. Given that this is with the federal government a little hard to handicap quite when that gets done, although it certainly feels, given it's been through a couple rounds, it's probably more when, not if. and we continue to engage with other prospects for the building. In terms of guidance, given some of the uncertainty around that process and where we are with other interests, it's forecast to lease in the third quarter of this year.
spk07: Okay, great. Thank you very much.
spk12: Again, if you have a question, please press star, then 1. Our next question comes from Anthony Powell with Barclays. Please go ahead.
spk00: Hi, good morning. I guess another question on the leasing environment. You mentioned that you're in active discussion with tenants on the development pipeline. Has the kind of the tenor of the conversation changed the past few weeks or since the last quarter? Are tenants just being a bit more cautious about taking space or do they continue to be kind of optimistic and aggressive in taking space? And any changes in the types of tenants you're seeing coming through to tour the spaces?
spk06: Yeah, hi, it's Peter. The number of prospects for new spaces is down a little bit. I would say we're looking at what I call a normalization of demand, probably back to 2019 days. You recall that 17, 18, and 19 were the best of times back then. So we're coming off of, call it some disruption in 20 and 21 from COVID from COVID and inflation, et cetera. And I think what's happening here is that those who are responsible in the C-suite are taking some time to absorb everything they're seeing, to figure out what exactly their needs are going to be. For sure, they have growth needs. They have to catch up. Many of them did not invest in their supply chains in 20 and 21. So the demand is there. We're hearing also from the brokerage community that there's going to be significant demand. So we're bullish on what's going to happen. We think it's going to be a pretty active market, but I would say in terms of sense of urgency, you're seeing more of a normalization. Peter, do you have anything else? Sure.
spk09: The other thing I would add to that is the smaller spaces continue to move a little faster to Peter's comments about some of the users being more deliberate and circumspect in their decision-making, that's where we're seeing it take a little bit longer. But we continue to see solid and broad-based demand across the country. And as I said a couple of minutes ago, activity is up in the last several weeks from where it was in the fourth quarter.
spk00: I guess on development starts, if you have some more room under the cap, if you get some of these development projects leased up, what are the sources of financing outside of the physicians? How are you looking at that inequity to fund potential new starts if you have the ability to do more?
spk02: Sure. This is Scott. We're in really good shape from a liquidity point of view. Let's just talk about what we have in process as far as development. It's about $225 million in That will be funded by excess cash flow after our dividend to $75 million. Peter talked about some sales we're going to do this year. Big point is $100 million. And then we have $600 million of liquidity on our line of credit. So we're set up pretty good. And let me say, if you give us credit for extension options in our line of credit, $300 million term loan, we don't have any maturities until 2026. So we're set up from a good standpoint there. If we start new development starts, I think the benefit that we have is we already own the land. It's not like we have to go out and buy it and expend dollars. So my take is that if we do additional development starts, most likely that's just going to be funded on the line of credit or potentially could be new sales as well.
spk06: And, you know, the new starts, just by the dynamic that we have now of needing now to lease up these newly completed assets, it's going to be largely back-ended. So the The dollars that we will have to put out this year are not that significant.
spk02: Yeah, under a development, you're probably paying over a 12-, 14-month term. Probably not paying your first draw to two to three months after the start date. So if you start, as Peter mentioned, if you put in place new starts in the back half of the year, you're probably not putting out a lot of additional cash flow. Thank you.
spk12: Our next question comes from Vikram Mahatra. with Mizuho. Please go ahead.
spk01: Morning. Thanks so much for putting the questions. Just first one, you talked about the 40% to 50% rent spreads you're anticipating, but can you just maybe walk us through your expectations of forecasts for market rent growth across the portfolio? In particular, maybe call out where you're seeing accelerating trends versus decelerating trends in market rent growth.
spk06: Jay, you want to talk about market rent growth? Yeah, thank you. Yeah.
spk14: You know, our house view right now is about 5% to 10%. That's national rent. National 5% to 10% across the nation. And the higher end towards the 10% would be the coastal markets. And then on the lower end of 5%, which is still good, is more of the Midwest markets.
spk01: Okay. And then just on the bad debt that you've built in, you know, maybe two specific questions around that. One, any impacts you're seeing from, you know, housing-related tenants you may have, particularly in some of the Sunbelt markets like, you know, Phoenix? And then second, is there any other tenants on the watch list that you're monitoring? One in particular, you know, I've been reading about, I think it's, well, your top second or third tenant, Boohoo PLC, they appear to be having some operational issues. I'm not saying that means their warehouse implications, but just wondering if they're on a watch list.
spk02: Okay, this is Scott. I would say no material tenants on the watch list other than our comments regarding Adessa that we spoke about earlier. Boohoo is, you know, they're timely on their payments as well. Peter will talk a little bit about the lease structure that we entered into them in 2022.
spk09: Yeah, the Boohoo lease has been in effect since August, September of last year. They're getting ready to start operating in the building after completing their work. We did structure a credit enhancement on that deal we have, and we were comfortable with that. As Scott said, all good at the moment.
spk14: In terms of Phoenix, the economy has been doing pretty well. The absorption levels have actually been record absorption. A couple of things happening in Phoenix, you know, they got the huge investment from TSMC. You know, not that it's going to affect the whole economy there, but it's going to be a positive because that's going to generate a lot of jobs. And also, there's a lot of data center investment in the Phoenix area, one of the biggest investment in the country. So that should add more good economic growth to the market.
spk01: Great. Thanks so much.
spk12: Our next question comes from Dave Rogers with Baird. Please go ahead.
spk15: Yeah, good morning, everybody. Maybe, JoJo, for you on the rent growth, I guess I wanted to talk about new supply as well. Obviously, this is the year of new supply we've been waiting for, maybe not waiting for, depending on your perspective. But I think that, you know, you talked about 5% to 10% market rent growth. How does that trend throughout the year, and when do you get hit with the most amount of competitive supply, do you think? I guess I'm worried about market rent growth kind of really slowing maybe in third and fourth quarter when we see that supply. How do you see that playing out?
spk14: Sure, sure. Right now, you know, the whole market's about 3% vacancy and we see continued demand. So landlord still has the pricing power here. In terms of what could affect that, in terms of under construction, if you look at where we've developed, you know, most of the construction are coming into the sub-markets we're not invested in. So for example, on the developments under construction, 85% of our developments under construction are either in Florida Northern California or Southern California, which I would deem is one of the top five markets in the U.S. where we expect further rent growth because of its infill nature and kind of the lack of supply. So, you know, we feel good about in terms of our competitive positioning and our development. And, you know, we feel, like I've said, you know, because of 3% vacancy and we don't see the demand falling off, that we'd still be... us landlords being a driver in terms of rent pricing.
spk15: I appreciate that, caller. Maybe this goes to Peter next. I think you had a 550,000 square foot tenant move out end of the year. Have you commented on backfill for that, downtime, et cetera?
spk09: Dave, I'm not sure which tenant you're talking about. Nobody in that size range moved out at the end of the year.
spk15: Okay, that's fair. Last question, Scott, for you. You mentioned an answer earlier, $0.08 per share of development income, and it sounded like that that could be maybe upside to the guidance, or maybe that was what was embedded in guidance. Can you clarify that comment around the development relative to, I guess, leasing and how that could progress throughout the year?
spk02: Yeah, David, we assume 12 months lease up in the guidance, and What I was just illustrating there is if we were to cut that in half, if we were to get superior execution, and that came in at six months, just to give people an idea, that would be an additional eight cents per share. So that's not in guidance. I would say that's aspirational if we're able to do better. And again, over the last several years, we've been leasing up six months or less. Peter?
spk06: I was just going to add, Dave, of the projects we've completed, with our 12-month downtime assumption, only three of those projects would generate some revenue this year, and it wouldn't be until the fourth quarter. So there's not a lot there. So when you back that assumption from 12 to six months, which perhaps some people do, we don't, then you introduce the opportunity to generate a lot more revenue this year from those completions, and that's why you have the difference of eight cents.
spk15: That's helpful. Sorry if I misunderstood earlier. Appreciate it, Ken.
spk12: Our next question comes from Mike Mueller with JPMorgan.
spk03: Yeah, hi. Two quick ones. First, on the projected 40% to 50% leasing spreads, can you just, you know, stripping out some of the outliers, just what's the general band we should be thinking of in terms of coastal versus more of the Midwest markets, just how those spreads can range? And then on the leasing for last year, what was the average escalator that you baked into the leases?
spk11: Chris, you want to take that? Yeah. So your two questions on the 40% to 50% rental rate increase, certainly in Southern California markets, that number is higher. If you look at our remaining 2023 rollovers, about 40%. is from Southern California, so we're certainly going to get higher rental rate increases there. As far as our escalators, right now, currently an entire portfolio in place is about 2.9%. If you look at our 2023 commencements signed to date, that number is about 3.6%, so that number is certainly trending upwards.
spk03: Got it. Okay, thank you.
spk12: Again, if you have a question, please press star, then 1. Our next question comes from Rich Anderson with SMBC. Please go ahead.
spk05: Hey, thanks, and good morning. Can you hear me okay? Yeah, all good. Okay, great. My headset's been on and off. Joe, Joe, can you repeat what you said about land values being down earlier in the call? I think I misheard you, but I just want to make sure before I ask the question. Sure.
spk14: So, Peter answered a part of the question. And basically, in terms of land values, they've come down year over year. And the reason for it, you know, everyone, including us, increased our performer returns. Like Peter Basileus said, you know, it's about 100 basis points change cap rate. So, we've increased our returns 150 basis points. So, when you do that, what happens is the construction cost remains the same with escalations and the variable is land. If you look at the range of changes, they're in the 20% to 45% decline. And the decline is more in the Midwest cities because land there represents a bigger component of the total investments. And therefore, if that's the variable, it takes a bigger hit.
spk05: So how do you look at your own land bank of $1.6 billion on your balance sheet as of December? And how does that compare and how has it changed relative to market in terms of its value relative?
spk14: Sure. We've looked at it and we've actually provided FMVs for those land sites. Basically, what you've seen is there's overall very little change, but that's the function of the great basis. We've acquired a lot of our properties in the coastal cities and then offset a little bit by the adjustment of the cities in the interior, Midwest, and non-coastal markets. So when you put it all in, it's a minor adjustment.
spk06: Look, there haven't been a lot of trades to evidence this, but clearly with debt costs being up a couple of hundred basis points, construction debt in particular being very difficult to come by, that strong bid by the merchant builder is now weakened or gone away. So land values have come down for lack of that opportunity there. The land that we own, referring to values, it's in some of the best submarkets in the country, Dade County, Broward County, Lehigh Valley, Inland Empire. I can go on and on. Our holdings are very, very strongly located. So we're excited about the opportunity.
spk14: And remember, a lot of our, a big portion of land value is in the IED where we've acquired a lot of those on assemblages and unentitled land. So we've created a lot of values for entitlement. And what you have is reflected.
spk02: Let me just clarify one item. I think you said the fair value of our land was 1.6 billion, if I'm not, it's 840 million roughly. That's page 25 of the supplemental. You can get that information.
spk05: I was just looking at the balance sheet. I was back of the envelope, back of the hand look. Sorry about that. On Odessa, you mentioned your rents and land are well below market. I was curious, you mentioned land being below market. Is that an asset that if you got it back, it would be something you would redevelop or completely tear down and start over? I'm just curious with the quality of the asset.
spk14: Yeah. If we... Basically, if we got them back, we would develop on the majority of the portfolio. And we would look at developing in those assets in Seattle, in Northern California, in Tracy, in Houston, and in Atlanta. We believe, given our view of FMV, that would comprise about 86%. of our Carnes East portfolio to ADESA. Okay.
spk16: Last question. Rick, I'll just add something here. There's minimal build-out on those sites. There's no infrastructure. There's really no associated square footage in our portfolio. So they're pretty raw, ready to work. They're storing cars and running auctions on infrastructures and improvements they've made over time.
spk05: Okay. Understood. I understand better now. Last question is on Old Post. You mentioned you're expecting third quarter for it to be leased. What's the sensitivity to earnings if that gets pushed back a couple of quarters? Is there any material impact on earnings as a result of that?
spk02: One month of rent-wise is about $350,000. Okay. That's all I got. Thank you.
spk12: This concludes our question and answer session. I would like to turn the conference back over to Peter Basile for any closing remarks.
spk06: Peter Basile Thank you, operator, and thanks to everyone for participating on our call today. We look forward to connecting with many of you in person during the year. Be well.
spk12: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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