Thank you for standing by. Welcome to the First Industrial 3Q results call. At this time, all participants are in a listen-only mode. After the speakers' presentations, there will be a question and answer session. To ask a question during the session, you'll need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Art Harmon, Vice President of Investor Relations. Please go ahead.
Thanks, Jesse. Hello, everyone, and welcome to our call. I apologize for any delays for folks trying to get on. Hopefully you're getting in here, and we're starting with the call now. Before we discuss our third quarter 2019 results and guidance, 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, Thursday, October 24, 2019. 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 10K 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 Baccile, our President and Chief Executive Officer, and Scott Musil, our Chief Financial Officer, after which we will open it up for your questions. Also on the call today are Johannson Yap, our Chief Investment Officer, Peter Schultz, Executive Vice President, Christopher Schneider, Senior Vice President of Operations, and Robert Walter, Senior Vice President of Capital Markets and Asset Management. Now let me turn the call over to Peter.
Thank you, Art, and welcome everyone to our third quarter call. Let me start by saying thank you to the entire FR team for all of your efforts towards another strong quarter. The national industrial market continues to favor the landlord. Given low vacancy and broad-based demand, we continue to see strong rent growth and high levels of occupancy. We're pushing rents on new and renewal leasing as demonstrated in our results, which I will touch upon shortly. From a supply standpoint, the overall market is more or less in equilibrium, with the exception of a few submarkets that are currently oversupplied, primarily in larger format buildings. CBRE Econometric Advisors recently reported preliminary third quarter net absorption of 45 million square feet and new completions of 56 million.
That brings the totals for the first three quarters of the year to 124 million sq ft of net absorption and 155 million sq ft of completions. Our portfolio continues to produce strong results. Occupancy at quarter end was 97.7%, and cash rental rate growth for third quarter commencements was up 31.9%, eclipsing the record result we reported in the second quarter. For the full year 2019, we expect our increase in cash rental rates on new and renewal leasing to be approximately 13%-15%. As we have in years past, let me update you on our 2020 rollovers. As of today, we have signed approximately 32% of our 2020 rollovers at a cash rental rate increase of 6%. Our 2020 signings to date are from a broad geographic distribution and include just three small leases in the high rent growth market of Southern California.
To provide you some context, in 2019, Southern California will represent about 23% of our rollover by net rent. For 2020, we anticipate it to be ±20%. We're currently going through our 2020 budget process, and we'll update you on our expectations for rental rate growth for 2020 on our fourth quarter call. Turning to our development program, the FR team continues to deliver profitable growth in the form of high-quality buildings that fit their respective markets and serve the supply chain needs of our customers. In the third quarter, we placed in service four developments totaling 1.9 million square feet with a total investment of $129 million. These were comprised of projects in Houston, Central Pennsylvania, Chicago, and our build to suit in Atlanta. Combined occupancy for these projects is 92%, and the development margin is approximately 40%.
In the third quarter, we continued to make progress on the lease up of our development portfolio. We signed a tenant for 100% of our 120,000 sq ft First Park at Central Crossing 3 in Central New Jersey, which will now be generating income immediately upon completion in the fourth quarter. We also signed a 21,000 sq ft lease at our First Glacier Logistics Center in Seattle to bring that building to 100% leased. Regarding new starts, in the third quarter, we commenced construction on a 100,000 sq ft building in Philadelphia. This project is in a great infill location and will be a rare option for tenants in this submarket looking for efficient modern space. Our estimated investment is $12.3 million, and our targeted cash yield is 6.1%.
Thus far in the fourth quarter, we have commenced construction on First Redwood II Logistics Center, a 72,000 sq ft facility near our buildings under construction in Fontana in the Inland Empire West. Estimated total investment is $12.6 million with a cash yield of 5.2%. Completion is set for the third quarter of 2020. In the fourth quarter, we expect to break ground on a 435,000 sq ft building in Northwest Dallas at the second phase of our First Park 121 development. We're off to a good start as we've already pre-leased 77% of the building. Estimated investment is $31.2 million, with a target first-year cash yield of 6.7%. Summing up our development pipeline at September 30th, we had a total of $337 million of developments under construction or in lease-up, comprised of 4.2 million sq ft, which is 50% leased as of today.
With a projected cash yield of 6.5%, our projected average margin on this batch of developments is approximately 41% when compared to prevailing market cap rate for similar leased assets. In the third quarter, we also replenished our development pipeline by adding some well-located sites in high barrier to entry markets. We acquired three sites in the Inland Empire, totaling 42 acres for a cost of $19 million. These sites can accommodate up to 774,000 square feet of new space upon entitlement. We also entered into a 50-year ground lease in South Florida for the future development of First Cypress Commerce Center, a three-building park totaling 374,000 square feet. We expect to break ground within the next few months. Our estimated total investment for the buildings is $35.6 million, with a targeted cash yield of 7.1%.
In the fourth quarter to date, we've acquired a 19.6 acres site in South Florida for $19.8 million. This is a covered land investment with three below market ground leases that are currently yielding 3.5%. The site is earmarked for future redevelopment of up to 294,000 square feet. While the property acquisition market remains ultra-competitive, during the third quarter, we closed on four buildings totaling 229,000 square feet at a cost of $34.4 million. These properties were in Orlando, San Diego, and the Inland Empire. The estimated stabilized yield on these acquisitions is 5.2%. Moving to dispositions, we were very active in the quarter. In Q3, we sold 1.6 million square feet plus several land parcels for a total of $94 million. Note that for accounting purposes, we had to recognize the sale of a $54.5 million property in Phoenix, in which the tenant exercised its purchase option.
The sale is expected to close in the third quarter of 2020. Scott will walk you through more of the details during his remarks. Thus far in the fourth quarter, we sold an additional 84,000 sq ft in Minneapolis for $4 million. This brings our year-to-date sales total to $110 million. Given the broad appetite for industrial properties and our ongoing portfolio management efforts to continue to refine the portfolio, we are increasing full year sales guidance by $75 million at the midpoint for a new guidance range of $200 million-$250 million. Please note that this guidance range excludes the sales price of the building in Phoenix that I just discussed. These expected additional sales proceeds will be primarily invested in future speculative development opportunities in strong rental growth markets. As such, we would expect some temporary cash flow dilution in 2020 from these additional sales.
With that, let me turn it over to Scott to walk you through some additional details on the quarter and guidance.
Thanks, Peter. In the third quarter, diluted EPS was $0.62 versus $0.24 one year ago. Nareit funds from operations were $0.44 per fully diluted share, compared to $0.41 per share in 3Q 2018. Excluding the approximately $0.01 per share gain from land sales, 3Q 2018 FFO was $0.40. As Peter noted, occupancy was 97.7%, up 40 basis points from the prior quarter. We commenced approximately 3.3 million sq ft of leases in the third quarter. 387,000 sq ft were new, 1.1 million were renewals, and 1.8 million sq ft were for developments and acquisitions with lease up. Tenant retention by square footage was 82.3%. Same-store NOI growth on a cash basis, excluding termination fees, was 2.9%.
This was driven by rental rate bumps and an increase in rental rates on leasing, partially offset by a slight decrease in average occupancy and real estate tax true-ups for markets paid in arrears, predominantly in Denver. Lease termination fees totaled $246,000. Including termination fees, cash same-store NOI growth was 3.1%. Cash rental rates were up 31.9% overall, a record quarter for the company. Our results were led by strong growth in Southern California and were also helped by a few larger renewals in markets like Minneapolis and Dallas. Breaking it down, renewals were up 37.2% and new leasing was up 14.6%. On a straight line basis, overall rental rates were up 50.4%, with renewals increasing 57% and new leasing up 28.6%.
As Peter mentioned in his remarks, we had to recognize for accounting purposes a sale related to a 618,000 sq ft property in our First Park @ PV 303 in Phoenix. The tenant exercised its purchase option in the third quarter for a sales price of $54.5 million. This building is leased by UPS, and they made a substantial investment in the property. Due to the high probability that this transaction is expected to close in the third quarter of 2020, the new lease accounting standard requires us to recognize the gain from future sale in the current quarter. As such, we have also removed this property from our operating statistics in our supplemental. We will continue to generate rental income from the property up until the time of sale, which will be reflected in a lease revenue line item in our income statement. Moving now to the capital side.
During the third quarter, we closed on our private placement of $150 million of senior unsecured notes. The notes have a 10-year maturity at an interest rate of 3.97%. Reflecting the related settlement of interest rate protection agreements, the effective interest rate is 4.23%. We also paid off $40 million of mortgage loans at a weighted average interest rate of 7.3%. Quickly moving on to a few balance sheet metrics. At the end of three Q, our net debt plus preferred stock to adjusted EBITDA is 4.8 times. At September 30th, the weighted average maturity of our unsecured notes, term loans, and secured financings was six years with a weighted average interest rate of 3.9%. These figures exclude our credit facility. Moving on to our updated 2019 guidance per our press release last evening.
Our NAREIT FFO guidance is now $1.71-$1.75 per share, with a midpoint of $1.73. This is an increase of $0.01 per share from what we discussed in our second quarter call, primarily driven by our third quarter performance. The key assumptions for guidance are as follows. In-service occupancy for the year-end fourth quarter of 96.7%-97.7%. This implies a full-year quarter-end average in-service occupancy of 97.25%-97.5%. Fourth quarter same-store NOI growth on a cash basis before termination fees of 1.25%-2.75%. This implies a quarterly average same-store NOI growth for the full year 2019 of 2.8%-3.2%. This is an increase of 50 basis points at the midpoint compared to our prior guidance due to our third quarter results.
Our G&A guidance range remains unchanged at $27.5 million-$28.5 million. Guidance includes the anticipated 2019 costs related to our completed and under-construction developments at October 23rd and the planned fourth quarter start in Dallas. In total, for the full year 2019, we expect to capitalize about $0.04 per share of interest related to our developments. 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, the impact of any future gains related to the final settlement of two insurance claims from damaged properties. Guidance also excludes the potential issuance of equity. Let me turn it back over to Peter.
Thank you, Scott. We continue to execute on our plan to maximize the value of each and every lease. Our team is pushing rental rates on new and renewal leasing, maintaining high levels of occupancy, refining our portfolio, and leveraging our platform to make profitable investments. The industrial real estate leasing markets continue to show broad-based demand, supported by the ongoing build-out of supply chains, particularly those related to e-commerce. With that, operator, would you please open it up for questions?
As a reminder, to ask a question, you need to press star one on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Your first question comes from Craig Mailman with KeyBanc Capital Markets. Your line is open.
Hey, guys. Apologies if I missed this, but did you guys mention if there was anything that was skewing the rent spreads on renewals higher this quarter, or was that sort of broad based?
Craig, this is Chris. Yeah, if you look at the quarter, we had mentioned three of our markets we had pretty good results, Southern California, Minneapolis, and Dallas. If you look year to date
Our cash rental rates are up by 15.3%. That is very broad-based. It's about 10 of our markets have experienced double-digit increases in 2019. Yes, it is very broad-based.
Okay. That's helpful. Peter, you mentioned the potential impact here on FFO from ramping sales towards the back end of the year. Just curious, is there any impact, positive or negative, on same store, or are these kind of lower growth properties that you guys are selling and it could boost it or vice versa?
You're correct. These are lower growth properties. These are also properties that are enjoying some very high leasing at the moment. We have a great opportunity to take advantage of a strong market and a strong bid for those assets. That's why we're upping the guidance. In terms of their impact on same store, Scott, do you have a thought on that?
My guess, Craig, it's going to be dependent upon which properties we sell in the fourth quarter. We do have a guidance range there. My guess, it's probably going to have a pretty minimal impact on same store, the fourth quarter sales.
Okay. As we head into next year, I know you guys aren't giving guidance yet, but I know there was what, the 80 basis points from the taxes that kind of get reversed next year.
Right.
Could these also be additive to that year-over-year acceleration, you think, or again, just minimal?
I think it's going to be minimal, Craig, the sales. Again, we have to look at what the portfolios that we're going to sell because we have the guidance range there, but my guess it's going to be minimal impact on 2020 same store.
Okay. Just one last one. You pointed out that the oversupply is kind of sub-market specific here. Central P.A., Lehigh Valley get kind of thrown into the mix as potentially being a little bit oversupplied and just noticing one of your developments in the 78-81 corridor is kind of coming up on one year since completion, and you don't really have any leasing on it. Can you talk about prospects there and whether this could actually be added to the pool, kind of empty, a stabilized pool?
Sure, Craig. It's Peter Schultz. You're right. From a large building standpoint, Central and Eastern Pennsylvania continues to have a fair amount of supply, call it 900,000 square feet and up. By our count, there are 14 of those with pockets in Northeast PA, couple in Berks County along 78, and then south of Carlisle along 81. We were pleased to have our larger building at 7881 leased, and that commenced in the third quarter. We have some interest in the 250, nothing to report today. Disappointed that it's not already leased like some of our other assets. We see a much less competitive environment in that size range than there is in the $900 million and up.
Okay, great. Thank you.
Your next question comes from Caitlin Burrows with Goldman Sachs. Your line's open.
Hi, good morning or good afternoon. I guess just a quick follow-up on a similar topic. I don't think you mentioned this for the First Joliet Center in Illinois. That seems like another one that's coming up around its one-year completion anniversary. Just wondering what your outlook to reaching 100% lease is at that project.
Sure, Caitlin. Hi, this is Jojo. As you know, that asset has a total of 355,000 square feet. It has 58% lease, we leased 207,000 square foot, we've mentioned that to most of you to a 3PL. We have 149,000 square foot remaining. Again, just like Peter Schultz had mentioned, on the corridor, the large format buildings have more competition. At this point, we're disappointed just like we are on the vacancy we just mentioned in PA that we haven't leased yet, we're pretty focused to nothing new to announce right now, leasing that remaining 149,000 square foot space.
Caitlin, this is Scott. We're assuming that that lease up happens now in 2020 for guidance purposes.
Okay. Got it. I guess maybe in terms of the development pipeline, I know you mentioned that the disposition proceeds will be used for continued spec development in strong supply-demand markets. When we look at the size of the development pipeline this quarter, it is down a little, owing to some recent completions. I guess how confident are you in the ability to replenish the pipeline as you go into 2020 and use those disposition proceeds accretively?
Well, if you look at the land that we currently hold, we can build about 12 million sq ft on that. That doesn't count the roughly 4 million sq ft we can build in our JV land in Phoenix. Between that and the additional opportunities that our platform is finding across the country, we're pretty confident we can keep up the development program.
I guess maybe just one other big picture related to the ability to replenish the development pipeline and those two other projects, granted they're only two, that you have been somewhat more disappointed on. I guess when you think bigger picture outside of those two properties, are you still pretty confident that spec developing at this point in the cycle is the right thing to do and that there will be demand as long as you find the right spot?
Yeah. Demand continues to be really broad-based. We really haven't seen a drop-off. Again, in certain sub-markets, there is some oversupply depending on the size of the building. Our focus, as you know, is to really try to deliver the right size property in the right sub-market to meet some unmet demand and that hasn't changed. Our strategy hasn't changed, nor has the demand for that product changed.
Okay. Thank you.
Your next question comes from John Guinee with Stifel. Your line is open.
Great. Thank you. I think you said, Peter, dispose of $200 million-$250 million of depreciable assets, most of that going into development. What's your taxable income look like, and what's your thoughts on your dividend, given usually you cannot 1031 exchange a depreciated asset into development?
John, it's Scott. You can 1031 it into land, though, so we can do that. We've been very successful in utilizing 1031 exchanges to offset gains on sales. Keep in mind, John, if we're not able to successfully do that, we still do have $46 million of NOLs we can use to help us offset that. As far as the dividend is concerned in 2020, it's been the company and the board's philosophy that dividend growth is going to be based on growth of cash flow in the company, but we will evaluate it against what our taxable income is doing.
Great. Thank you.
Again, if you would like to ask a question, please press star 1. Your next question comes from Rob Stevenson with Janney. Your line is open.
Hi. Good afternoon, guys. Peter, you identified, I guess, around $70 million of fourth quarter development starts in your prepared remarks. The roughly $160 million of completions scheduled for the fourth quarter. I appreciate there's probably a few starts in there that are smaller and/or that you're not ready to talk about on the call today. When you look at your expected starts over the next few quarters, any timing or entitlement issues that may cause the aggregate under construction pipeline to move materially up or down over the course of the next four to six quarters? Are we likely to be consistently in that $250 million-$300 million level? It's just a bunch of projects that are smaller and don't meet the sort of $35 million, $40 million threshold that you were talking about in the two starts that you have for the fourth quarter.
I'll give you my thoughts and then turn it over to Jojo for his. We factor in the fact that it is taking a little bit longer to get entitlement, et cetera, into the way we manage our development pipeline. That's in there. In terms of our pace and our ability to continue to grow, that's already factored into the math.
The projects that you mentioned, roughly about $80 million between that 71,000 footer in Fontana and that ground lease in South Florida and the pre-lease, 77 pre-lease in Dallas. All of those are fully entitled and approved.
Okay. On the subject of development, what's happening to construction costs and availability of labor in your markets these days? It seems like that you guys have some good benchmarks in that you're about to start construction of second or third or even fourth phases in communities where you've just done it recently. How is that sort of trending? Any slowdown in construction and labor cost, or is it still going up at a measured pace?
Sure. Good question. The range of total would be anywhere from 4% to 7%. 4% would be basically the Midwest, some markets, non-coastal markets. The higher end, 7%, would be more on Southern California. If you break down the components, material cost increase have been growing more in the inflationary rate of 2%-2.5%, so that's not the major driver. The major driver of the cost increase is really on labor and availability of labor. That results in a little bit higher labor cost and increasing subcontractor margins.
Okay. Last one from me. Are you guys seeing any significant demand from clients to go to longer leases? I assume that the seven-year average lease term in the third quarter was driven by one or two outliers. Be curious if tenants that plan to be in the space for any length of period of time are starting to realize that longer leases might benefit them. Maybe you guys are more willing to do longer leases the longer this cycle gets.
Sure, Rob, it's Peter Schultz. I would say if you look at our stats, yes, the lease terms were up. To us, that's communicating or conveying from our customers continued confidence in their business and growth and general business activity despite all of the noise that we all see in the headlines. We're always focused on optimizing all of the lease metrics, including rate, term, TIs, and rental increases. We continue to view elongated lease terms as a positive sign for business.
Okay. Thanks, guys.
Your next question comes from Richard Anderson with SMBC. Your line is open. Thanks. Good morning.
Good morning.
Morning.
I'm going to draft off the previous question a couple questions ago on the speculative nature of your development effort. You said nothing really has changed, right markets, right product, all that. How are you?
What trigger points are you looking for to consider more in the way of build-to-suit activity into 2020 or whatever, 2021? What are some of the observations that you're on the lookout for, where you have to say, "Well, we need to be a little bit more careful about starting this or that project?
Yeah. A couple thoughts on that. First of all, as you know, we have this self-imposed speculative leasing cap. That means anything that we build that doesn't have a tenant or if we do a forward that's 100% or 50% empty, anything that we do like that has a "leasing opportunity," goes into that cap. We're managing that risk that way. Other signs to look for in the market. When markets get tough, you see tenants changing buildings just because they can, as opposed to because they want more space. We call that musical chairs. We haven't seen any of that. In bad markets, I can imagine in South Dallas for million-footers, some of the landlords are probably taking lower rents than they'd like to get. We haven't seen that on a broad basis at all.
There are things that are indicative of perhaps a softening, and we haven't seen any of that, and those are really the measurements to look for.
Okay. Obviously, cost of capital has come way down this year. Funding development primarily. When you look to 2020, if you do acquire, are you more inclined to go the value-add route or core, or is it just not a big consideration right now given your development-heavy sort of mindset?
Well, I think when we look at acquisitions, first of all, we're not typically a player in broadly auctioned assets. Those are situations where we really don't believe we're going to be able to add value for our shareholders. Typically, we're making unsolicited offers in all of our offices on a regular basis. From time to time, we annoy somebody enough so that they end up going ahead and selling the building. I kind of say that tongue in cheek, but it's actually happened. That's why you see our acquisition volume is fairly measured. Again, we're always trying to make sure that we can do profitable transactions. We've said this before, we're a profit shop and not a volume shop. We think we can continue to achieve some good returns for shareholders, making the occasional acquisition in high-growth and high-barrier markets.
Okay. Last question from me. Prologis talked a little bit about the duration to build concept and how it's been extended lately. Are you seeing that in your development effort or in the competition away from you? Any comment, color on that topic would be interesting. Thanks.
Yes. We're definitely seeing that. If you're looking at the entitlement period, the entitlement has become tougher. Wherever parts of the country where there's a significant entitlement process, like SoCal, it has gotten longer. In terms of just time to build, yes, it has also gotten longer. We're talking about maybe an additional three months from your 6-9 months, typically would be 9-12 months. That's primarily because of, again, contractor availability. Some municipalities, when you have changes to their site plans, because most of them are understaffed, they get back to you in a slower fashion. Lastly, even utility companies are pushing back their installation dates of power and other utilities that affect the completion of the building.
Right. Are you able to beat that market at all, though? Are you able to move faster than your competition, or are you sort of in the same boat as everybody else?
My view is that everybody's in the same boat, especially when you're dealing with municipalities with an entitlement process or contractors are very the same.
Okay. That's all I got. Thanks very much.
You're welcome.
Your next question comes from Eric Frankel with Green Street Advisors. Your line is open.
Thank you. Just wanted to drill into those 2020 early leases you signed. Can you just confirm what % on a square footage basis did that comprise Southern California? I think you said three leases. I just want to confirm what the actual square footage total was.
Yeah, Eric, on a percent basis, it's less than 1% or 2%, so a very small number.
Okay. That is quite small. Okay. I think both of my questions have been answered. I think, only kind of minor ones are the ground lease development that you're undergoing in South Florida. Can you just talk about that deal a little bit? Sometimes ground leases can be a little bit of a complicated subject.
Sure, Eric. Hi, it's Jojo. These are premium sites that we wanted to acquire, three sites where we can build multi-tenant buildings, and we wanted to buy the fee estate. The city does not want to sell the fee estate. The city of Fort Lauderdale, numerous occasions, will only do ground leases, and they're pretty boilerplate in terms of 50-year ground leases. What we did is to compensate us for the different ownership structure, we then sold for and structured a deal and development that would yield a 7.1%. The way we got to that is that, we think properties on exit caps would trade four and a quarter, four and three quarters. Then basically the spread, we wanted a bigger spread than our standard 100 to 150. We basically are underwriting like a 200 to 35 to the 185 basis point spread.
We intend to hold those properties long-term, at the same time, we have a cap, Eric. We put a cap on the ground lease rent that is at or below the recent inflation. That's very important to us because we think rent growth contract escalations will significantly exceed the ground lease rent escalation plus the market rent growth as well. That will give us a disproportionately positive growth on our NOI once we complete those buildings.
Great. Thank you for that color. Does the grounds have extension options? Are those extension options done at market value, or are they just on a flat rate?
No, it doesn't have extension options, and that's why we structured the deal with that kind of a yield and that kind of a cap in ground lease increase.
The cash flow alone from that's going to provide a nice return on our investment in that asset.
Sounds good. Okay. Thank you. Just switching to dispositions. They're very interesting. Obviously pretty telling on investor enthusiasm that you're able to increase your dispositions guidance. Do you have a set plan to Obviously, I know you don't get into guidance for 2020, and the disposition is not really part of that anyway. Is the discount increasing your dispositions generally? Is it investor enthusiasm? Is it that you just have a better use of proceeds? What's the main motivation?
It's a combination of a couple of things. One is that a lot of these assets are enjoying historically high occupancy. When I say historically high, I mean 98%-100%. Secondly, they are in lower growth markets, as you know, our objective is to dispose of assets in lower growth opportunities and put that money into better use. We just have a confluence, really, of strong investor demand for these assets. The assets are fully leased, the cash flow is as much as we're going to get out of those assets, it's just the right time to sell those assets.
That sounds good. Is it fair to say that your CapEx burden is probably going to decline over time too, just based on the vintage of the assets you're selling and what you're buying and developing?
It's absolutely the case that the net cash flow, these tend to be tenant and capital intensive assets. The AFFO, if you will, out of those assets is a lot lower than the AFFO we can earn by redeploying that capital.
Okay. Thank you.
Again, if you'd like to ask a question, please press star one. Your next question comes from Sarah Tan with J.P. Morgan. Your line is open.
Oh, hey, it's Mike here. Just to follow up on the 2020 leasing question. Aside from the California mix issue, have you seen anything in the other leases that has given you any caution in terms of the rates you're able to get or demand?
We'll give you more clarification when we go through our 2020 budgeting, but as of now, we have not. No. It's very broad-based and overall good news.
Okay. That was it. Thank you.
Your next question comes from Dave Rogers with Baird. Your line is open.
Yeah. Hey, guys. Maybe first start with Jojo. I wanted to ask, it sounds like all of these parcels that you've acquired or the ground lease that you entered into, you said they're all fully entitled. Are you doing the work for the entitlement and it's kind of under option? Or are you just doing full market purchases post-entitlement? I guess, how competitive is that process? I imagine that'd be pretty competitive. Curious on your ability to continue to do that.
Sure. Dave, actually, the $80 million that I referred to was the First Redwood II, the ground lease, and the 434,000 for in Dallas that are 77% leased. Those are all entitled. Basically, the three land acquisitions we did in SoCal are not entitled, for example. Those require 18 to 24 months to entitle. They're very nice sites. Those were obtained by off-market deals or land assemblages. Those are not entitled. We would expect those are more 2021 starts.
Got you. That's helpful. Then I think of the $12 million square feet in the total pipeline that you can do, Peter, you mentioned. How much of that's entitled versus not?
Except for land Stockton, and basically the sites that we talked about right now, most are entitled.
Okay.
It requires site plan approval, though, but a site plan approval is not a problem. All of it's still in industrial. It requires 30-60 days approval by the municipalities.
Okay. That's helpful. Thanks, Jojo. I don't know for Scott or Peter, with regard to tenant size and the leases that you've been rolling, maybe not in a quarter, but as you look back maybe on a rolling four-quarter basis, can you talk about the spreads that you've seen and the rent growth between pick a size, maybe your under 100,000 square feet to over, and kind of the rent growth you've seen? I guess I would just allude back to your comment that the bigger boxes have been slower to lease. I assume they've been slower to drive rent growth as well. Kind of curious to see where the sizing breakdown is in terms of rent growth in your portfolio.
Chris, do you want to take a shot?
Yeah. If you look at the overall kind of trailing four quarters, the rental rate increases have been a little bit higher for the under 200,000 square foot spaces. That's kind of generally the trend that we've seen.
Would the difference be, I mean, is it a couple of hundred basis points or not that wide?
Yeah, it's a couple of hundred basis points. Not terribly wide.
Okay. Thank you.
Your last question comes from the line of Ki Bin Kim from SunTrust. Your line is open.
Hi out there. You have a great balance sheet. Don't really need to raise equity. You're selling more assets. You have some on the come with the Phoenix asset next year. What are your kind of current thoughts on if you want to raise equity with some other activities like development or at this point, do you not need to at all?
Hey, Ki. This is Scott. We're balance sheet right. We're in a great position right now. We're at 4.8 times debt to EBITDA. We've got plenty of liquidity on our line of credit. We've got additional sales proceeds coming in. We've got excess cash flow after CapEx and dividends. We're set up pretty well. If you look back the last several years, why we raised equity, it's because our pipeline just grew too much compared to those sources I mentioned. If there's ever an imbalance like that would be the reason we would issue equity if we like the stock price. As of now, we look to be in pretty good shape.
Okay. Is there anything one time in nature that we should expect in 2020, whether it be a large lease that you don't have clarity on or things like that, or expenses?
A large lease we don't have what on, Ki Bin?
Clarity.
I would say if you look from the rollover point of view, the largest rollover we have in 2020 is a 675,000 square foot lease, central Pennsylvania. Peter's working with the tenant currently to renew that. Other than that, all the other expirations are pretty granular. As far as an expense point of view, I think you might be referring to the real estate tax issue we had in 2019 in Denver. We're not anticipating that in 2020, but we're running through our budgets right now.
Okay. In terms of what do you have left to lease, any notable geographic concentrations?
No. Once we get this 675,000 square footer done, everything else is very granular, Ki Bin.
Okay.
It's 200,000 sq ft or less. This is very granular from our portfolio point of view.
Okay. Just last question. Any guidance you can provide on the cap rate for that Phoenix asset that you're selling to UPS?
We don't provide really any cap rate information on a deal by deal basis. We'll provide you the consolidated cap rate when we provide our third quarter 2020 statistics, because that's going to happen in the third quarter of next year. I can tell you that if you look at the supplemental, we made a 19% margin on our investment there, and that was always part of the plan. We really liked what happened because, if you recall two and a half years ago when we announced this deal, we said that this is going to be a catalyst to this intersection and the park and the land that we own. Here before, two years after, we've sold basically half the land, and got more than 100% of our equity in our JV.
We were able to build and lease close to 1.3 million sq ft of class A distribution space and lease to XPO Logistics and Ferrero. A lot of good things have happened after that.
Just for my education, typically, when you have an option like that to a renter, is it typically a market price type of transaction price tag, or is it a little bit of a discount because they are a user?
First of all, it's all negotiated, and it's not typical for us to provide options. In this case, we felt that they could be a big catalyst, UPS building their biggest Southwest hub. That's why we entered into an option. At this point, it was a fixed price option based on a margin we wanted to make. Bear in mind that, I don't know if you recall, but we struck this deal when the building was a shell with no TIs. This allowed us to immediately develop the 643,000 sq ft that eventually leads to XPO.
Yeah. Ki Bin, when this first came up and they told us they wanted to buy the building, we said no. Then as the discussions wore on, and they told us they want to invest $200 million and make it their Southwest hub, the light bulb went on and we said, "Wow, that's a big magnet for other big users." We went into action, as Jojo already explained. This has really turned out to be a very successful strategy and outcome for what we went into here.
That's right. All right. Thank you, guys.
That's all the time that we have for questions. I turn the call back to Peter Baccile for any closing remarks.
Thank you, operator. Thanks to everyone for participating on our call today. Please feel free to reach out to Scott, Art, or me with any follow-up questions. We look forward to seeing some of you in Los Angeles for NAREIT in a few weeks. Have a great day.
This concludes today's conference call. You may now disconnect.