Good day, and welcome to the First Industrial Second Quarter Results Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Art Harmon, VP of Investor Relations and Marketing. Please go ahead.
Thank you, Samara. Hello everyone, and welcome to our call. Before we discuss our second quarter 2022 results and our updated guidance for the year, 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, July 21st, 2022. 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 Baccile, 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 Johannson Yap, 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 thank you all for joining us today. Our team delivered another great quarter, which included several significant leasing successes and a large land sale in our Phoenix joint venture, which have culminated in an increase in our FFO per share guidance, which Scott will discuss shortly. The U.S. industrial market continues to exhibit strong fundamentals. CBRE EA reported second quarter national vacancy at 2.8%, a new all-time low. Net absorption was 57 million sq ft, in line with new completions of 61 million sq ft. New construction has been increasing to meet tenant demand, but at levels that are generally measured, especially in the coastal supply-constrained submarkets where we are focused. In our portfolio, we finished the quarter with an occupancy rate of 98.4%. Since our last earnings call, we signed a few key rollovers.
We backfilled our largest remaining 2022 expiration, a 341,000 sq ft in the Lehigh Valley, where we captured a 40% cash rental rate increase with only a few days of downtime. We also continued to achieve strong overall rental rate increases on our new and renewal leasing. Through yesterday, we had taken care of 89% of our 2022 rollovers. Currently, our overall cash rental rate change on new and renewal leasing is 23%. For the full year, we now expect cash rental rates to be up 22%-25%, two percentage points higher at the midpoint than our expectations last quarter. I'll also note that the GAAP change for this population is 39%. Looking at 2023, we've already taken care of our two largest lease expirations.
The first is a 627,000-sq ft building in the Kenosha submarket of Chicago. We renewed this lease seven months in advance of expiration at a cash rental rate increase of 29%. The second is a 581,000-sq ft tenant located in Minneapolis that we inked at a cash rental rate change of 15%. As of today, our largest expiration for 2023 is 366,000 sq ft in the first quarter, located in the Inland Empire, which is one of the strongest markets in the United States. The in-place rent on this property is well below market. Moving on to development. I would like to highlight a few major successes since our last call. We leased our 1.1 million sq ft at First Park 283 in Central Pennsylvania to an e-commerce retailer.
The building will be complete soon, and the tenant is taking occupancy in September. We also leased our 208,000 sq ft building in New Jersey with commencement upon completion in October. The rental rates achieved exceeded our initial underwriting by approximately 20%. We also signed another lease at First Park Miami, bringing the 592,000 sq ft first phase of that project to 89% leased. Moving on to new development starts. In addition to the 83,000 sq ft facility in the Inland Empire that we spoke about on our last call, we started three more buildings. Our largest is the 699,000 sq ft sister building at First Park 283 in Central Pennsylvania. Our estimated investment is $96 million, with a projected yield of 5.4%.
At First Park Miami, we will expand our investment there with a new 56,000 sq ft building with an estimated investment of $16 million and projected yield of 5.5%. Lastly, we started a 37,000 sq ft project in the infill I-80 corridor of Northern California with an estimated investment of $20 million and a targeted yield of 4.7%. Including these second quarter development starts, our developments in process total 5.8 million sq ft with an investment of $776 million, which are 24% leased as of yesterday. The projected cash yield for these investments is 6.8%, which represents an expected overall development margin of approximately 75%. This margin calculation reflects an upward adjustment of 50 basis points on average in the assumed market cap rate compared to last quarter.
We were also busy on the acquisition front during the quarter, investing a total of $99 million in a handful of buildings and a few land sites. All were in coastal markets, including Southern and Northern California, Miami, and Seattle. Thus far in the third quarter, we acquired two buildings comprised of 96,000 sq ft in South Florida and Southern California, plus a small site in the Inland Empire for a total of $35 million. Overall, we continue to be well positioned to support future growth with balance sheet land today that can accommodate an additional 14 million sq ft. This represents approximately $1.9 billion of potential new investment based on today's estimated construction costs and the land at our book basis. Lastly, we've been active with our Camelback 303 joint venture in Phoenix.
We successfully completed the sale of 391 acres to a data center user for proceeds of $255 million. Our share of the gain and promote before tax was approximately $104 million. Our share of JV contributions to date totaled just $33 million, and the venture still owns 219 acres of land, all of which features desirable highway frontage. I'll conclude with a hearty thank you to the entire First Industrial team for all of your hard work and many successes as you continue to drive significant long-term shareholder value. With that, I'll turn it over to Scott.
Thanks, Peter. Let me recap our results for the quarter. NAREIT funds from operations were $0.56 per fully diluted share compared to $0.48 per share in 2Q 2021. Our cash same-store NOI growth for the quarter, excluding termination fees, was 9.4%, primarily driven by higher average occupancy, increases in rental rates on new and renewal leasing, rental rate bumps embedded in our leases, and slightly lower free rent. As Peter noted, we finished the quarter with in-service occupancy of 98.4%, up 180 basis points compared to 2Q 2021. Summarizing our leasing activity during the quarter, approximately 4.3 million sq ft of leases commenced. Of these, 800,000 were new, 1.5 million were renewals, and 1.9 million were for developments and acquisitions with lease up.
Tenant retention by square footage was 69.6%. Moving on to the capital side. As we announced on our last earnings call, we closed on a $425 million term loan in April with a tenor of five and a half years. Proceeds were primarily used to refinance our $260 million term loan and pay off a $68 million, 4.03% mortgage loan. As of the end of the second quarter, our portfolio is 99.3% unencumbered. The new term loan has an interest rate of SOFR, plus a SOFR adjustment of 10 basis points, plus a credit spread of 85 basis points. In the second quarter, we entered into interest rate swaps to effectively fix the interest rate on the entire $425 million loan at 3.64%.
The new fixed rate is effective in October of this year, once our existing swaps from the prior term loan expire. Moving on to our updated 2022 guidance per our earnings release last evening. Our guidance range for NAREIT FFO per share is now $2.15 to $2.23, with a midpoint of $2.19, which is an increase of $0.04 per share at the midpoint. The increase in our guidance is primarily due to earlier lease up in our developments and in-service portfolio and an increase in capitalized interest due to our newly announced development starts. Key assumptions for guidance are as follows. Quarter end in-service occupancy of 98% to 98.75%, a 37.5 basis point increase compared to our prior earnings call.
This assumes the lease up of the 644,000 sq ft Old Post Road building in Baltimore will occur in the fourth quarter. Same store NOI growth on a cash basis before termination fees of 8.25%-9.25%, an increase of 50 basis points at the midpoint compared to our prior earnings call. Guidance includes the anticipated 2022 costs related to our completed and under construction developments at June thirtieth. For the full year 2022, we expect to capitalize about $0.10 per share of interest, $0.01 higher than last quarter. Our G&A guidance range is now $34 million-$35 million, an increase of $500,000 at the midpoint.
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 turn it back over to Peter.
Thanks, Scott. We continue to focus on executing our development plan. The leasing markets are strong, and we're seeing good prospect activity at our properties under construction. In addition, as I mentioned earlier, we are well-positioned to serve additional customer demand through our on-balance sheet land holdings. As we move forward in these unsettled capital markets, we will continue to emphasize proper risk management and remain prudent in allocating capital in the pursuit of profitable growth. Operator, with that, please open it up for questions.
Thank you. If you would like to ask the question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. A voice prompt on the phone line will indicate when your line is open. Please state your name and company name before posing your question. Again, press star one to ask a question, and we'll pause for just a moment to allow everyone an opportunity to signal for questions. We'll take our first question. Please go ahead.
Hey, good morning. This is Greg McGinniss with Scotiabank. Just two quick questions from me. First is on the development margins falling to 75% from 100%. Is that just the 50 basis point increase in assumed cap rate?
Yeah, that's the change in calculation. While there aren't a lot of data points, there are very few trades. We felt like to be intellectually honest and conservative in our estimations of our margins, it was prudent to bump the cap rate on average across the markets about 50 basis points.
When is that 50 basis point kept factored into the calculation? Is that upon completion of the development, or is that at, like, a five-year timeline or something?
That's our estimate of cap rates for cash flowing assets in each of the markets where we have these new developments.
Okay. On the disposition, the JV disposition, you know, was that kind of always the plan with that land, was to look for, you know, another user for it? What is the expectation with the rest of the land you still have?
Our plan for Camelback was the same and is the same as our plan that we have executed now at PV 303, which has always been to identify sales to potential users, to do build to suits, to go ahead and do speculative development. All of the above, and we're very, very pleased with the execution on the sale of that 391 acres.
Is this just too good of a opportunity to pass up instead of developing yourself?
We never really intended to develop the entire site ourselves. We always intended to sell to some other users at least a portion of the site.
Okay, thank you.
We'll take our next question. Please go ahead.
Hi. Yes, this is Mike Carroll from RBC. Pete, can you describe, I guess, any other changes that you did to the development margin calculation? Was it just the exit cap? I mean, did you adjust the assumed rents that you're gonna receive on any of these properties, I guess, higher or lower?
Jojo, do you wanna cover that?
Sure. Mike, a couple of things. The primary change was the exit cap, based on pro forma on our developments, pro forma in terms of our developments. That was the primary driver. There was very little change in construction costs. In fact, from the same pool from last quarter to this quarter, less than 1%. There was a slight, very slight increase in NOI because rents have increased, but the total offset is what's reflected in the margin. The primary driver again was the change in exit cap.
Okay, great. I know that in the prepared remarks, you guys highlighted that the leasing activity on the in-process developments are pretty strong. I mean, can you kinda narrow that down to the near-term completions?
I know there's about three buildings that are expected to be completed in the third quarter that are still vacant. I mean, what's the progress on those specific assets?
Yeah, Mike, good morning. It's Peter Schultz. Two of the three, the first is in Nashville, where we continue to see decent activity from full building users.
The other one is in Denver. That market, we typically see an uptick in activity as the building's near completion, which is what we're seeing now, interest from both full buildings and partial building users. Both of those buildings will be done in the third quarter. We continue to feel good about that as tenants continue to have very limited choices, and the rents continue to go up. Jojo?
Yes. For our First Steele, which is in Seattle, we have multiple inquiries for both full building and half building users. We have proposals out, but no lease to report yet. That building is scheduled to be completed in the third quarter of this year as well.
Okay, great. Just last for me, can you give us an update on Old Post Road? I guess, what's the update there?
Sure, Mike, it's Peter Schultz again. We're in discussions with several prospects. We're trading lease comments with two. They're all full building users. The two that we're trading lease comments with, the anticipated commencement date is in the fourth quarter, consistent with our guidance. Similar to my earlier comments, tenants continue to have limited choices, and rents in that market continue to go up as well.
Great. Thank you.
We'll take our next question. Please go ahead.
Hi. Thanks. Good morning. This is Ki Bin Kim from Truist Securities. Just wanted to go back to some of those topics. Can you talk about any changes you may have noticed, if any, in terms of tenant interest or activity for leasing new space, what it looks like today versus maybe a couple quarters ago?
KI Bin
Yeah.
Yes. Peter Schultz, Ki Bin. Good morning. Activity across the country, across space sizes continues to be solid, particularly on our new buildings. You know, as you heard in our remarks, in New Jersey and Pennsylvania, we leased both of those developments ahead of completion, well ahead of pro forma. Our largest rollover in Lehigh Valley, we backfilled with downtime measured in days, and that's consistent with the level of activity that we're seeing across the country. It continues to be broad-based across industry types, and there's been no slowdown over the last several months in terms of any demand. Jojo Yap, anything you wanna add?
Yes. That's reflective of our rent growth that we've achieved. You know, one of the reasons we've continued to achieve, you know, good rent growth is that, you know, our properties are well located. At the same time, we have multiple prospects on each of every space that actually we have. That just shows the strength of the market.
Just to stick with that, when you say multiple prospects, does that mean, for example, last year, if there were five or six prospects, it's still five or six prospects on any given space? Or has that, you know, ticked down to maybe, you know, two to three ?
It's pretty much the same. In fact, if you look at, you know, market reports on, you know, on the activity, Q1 of last year is pretty much the same as Q1 and Q2 of first half last year is pretty much the same as the first half of this year.
Okay. Thank you.
We'll take our next question. Please go ahead.
Yeah. Good morning, everybody. It's Dave Rodgers at Baird. Hope you're all well. Wanted to ask maybe on dispositions for the second half of the year, capital raising, fundraising activity. It seems like there's obviously a lot of price discovery going on, and I understand the exit cap, and that's a good conservative call. In terms of actually going out and executing in the market, do you have plans to do that? On the flip side, are you ready to get more aggressive with both the balance sheet and new investments if the opportunity presents itself, and are you seeing those opportunities?
So with respect to sales, yep, our guidance remains at $100 million-$150 million. It will be back-end loaded, and we are definitely in a period of price discovery. We will see how that goes as we begin to enter the market with a few offerings. Our expectations are that we will continue to field some pretty good offers. But again, we are in this period of price discovery, so we'll see. In terms of being aggressive, more aggressive or less aggressive on developments and new opportunities, I don't think our stance has really changed a whole lot. There is a big disconnect between what's happening in the capital markets and what's happening on the ground in our business. The business hasn't really changed. Again, it's early.
We're a month or two or three months into kind of the post-news from Amazon, and so far, that has not really factored. We'll see, you know, we're gonna remain prudent as we go in terms of taking risk, Dave. Our stance today is not any different than it was at the beginning of the year.
Great. Thanks for that, Peter. Maybe, Jojo, a follow-up on the construction. I think you mentioned no real increase in construction costs, you know, sequentially. Can you talk about some of the components for construction? I mean, there's some big under construction and planned builds out there in terms of the numbers from the brokerage houses. Last year, there seemed to be some supply constraints in terms of steel and components. How are those, you know, component shortages changing? Can we really start to see this big level of supply that's in the projection start to finally hit, you know, given the current state of the environment?
Sure, sure. Good question. We've been following that very closely. As you know, we're in the market for development too. You know, a lot of components affect the delivery period. One thing I can tell you is that steel came down a little bit. When I say pulled back a little bit, in terms of they were at about 10-12 months, 12-14 months in advance. You know, right now they're pulling back about two to three months, so it is good for us. Conversely, that was offset by some material components that actually increased. For example, switchgear and transformers and dock levelers and RTUs or, you know, in our industry, it's called rooftop units, HVAC. They've actually extended. In some cases, some markets, they've extended to about a year.
Whatever offset that we got on steel delivery, we kinda lost it in other of the materials. You know, that's gonna affect the whole industry, you know. As for industrial, we just you know actively talk to our contractors. We do you know purchase commitments. In terms of our own development, we do forward purchase commitments if it's appropriate, and we just you know work with the municipalities as hard as we can. That's how we manage our deliveries. Construction deliveries have not changed. You know, I gave you the components there. In terms of the whole construction deliveries or under construction, the whole market, yeah, have increased a little bit, but there's also quite a bit of re-leasing going on in a lot of those.
I think whatever is announced today is gonna be delayed. You know, whoever announced developments out there, I think it's gonna be delayed a little bit. Some are experiencing significant delays.
All right. That's helpful. Last one for me. Sorry. Peter Baccile, going back to you made some comments about two big leases you had, inked already for 2023. Do you have a kind of a macro number of what percentage you're done with 2023 and where that takes you?
Chris will cover that for you.
Yeah. As you know, we look at 2023. Right now we've taken care of about 24% of the leases, and that's at a cash rental increase of 20%.
Great. Thank you all.
As a reminder, it's star one to ask a question. We'll take our next question. Please go ahead.
Hi, it's Todd Thomas, KeyBanc Capital Markets. First, I wanted to just follow up again on the 50 basis point increase in exit cap rates across the development pipeline. Sounded like that was a blended average, and I'm just curious if you can discuss whether there were any differences in markets or geographies as you went through that exercise of raising cap rates across the pipeline.
Yeah, it is a blended average. Clearly, in the highest barrier markets, the coastal markets, it's closer to zero than 50. But that's you know, the range is probably 10-60 or 70 basis points, averaging right around 50.
Okay. It sounds like that was just a prudent decision right now. You know, are you seeing any change at all in market pricing? You know, can you just comment maybe a little bit more broadly on price trends for assets that you're seeing today?
Jojo, do you wanna give your thoughts on what's going on?
Sure. Yeah, yeah. There's a lag, so much difference in decline in trades, lack of trades, that it's very difficult to pinpoint, you know, our current market cap rates right now. What I will tell you for the transactions that have closed so far in the last couple of weeks, it actually we're closing at cap rates like of a quarter to two quarters ago, so not much change. You know, there's been a lot of talk about retrace in the marketplace. A lot of the times it hasn't happened. Sellers have not, you know, changed their, you know, expectations or walked from deals. There's a lot of talk of that. But you know what?
When we survey the market, you know, there's not a lot of, you know, huge retraces going on too. Again, back to what Peter says, that lack of visibility right now, we felt it was prudent, you know. We thought it was imprudent to not change the cap rate. You know, we're not saying that those are right cap rates. We just thought it was prudent to adjust it to be more conservative.
You know, the rent growth opportunity remains tremendous, and so this period of price discovery may last a while. I don't think that. At some point, you're far better off keeping the asset and enjoying the rent growth over time than you are taking a haircut relative to, call it, the pricing of, you know, the first quarter. This could take some time for this to shake out.
Okay. That's helpful. Then, the land bank decreased in the quarter, you know, as development starts picked up and you had sort of minimal land acquisitions in the quarter. Should we expect to see the land bank decrease further, or was it mostly timing? Can you talk a little bit about what you're seeing on the acquisition side, just in terms of land and maybe land pricing as well?
Yeah. Our teams across the country remain active in looking for new land opportunities, so that hasn't really changed. Our return, you know, we've told everybody our return expectations are a little bit higher. We have, as we mentioned, call it three to five years of supply in the balance sheet right now. So all of that has kind of remained the same. What was the last part of your question?
Just around the appetite. Well, I guess, so your appetite for land acquisitions hasn't changed, just, I guess pricing for land and price trends.
Yeah. I think again, you know, for the most valuable, well-located land, especially if it happened to be entitled, which doesn't happen often these days, but, those land values are gonna continue to go up as rental rates continue to go up as well to support those higher prices.
Okay. Got it. Thank you.
We'll take our next question. Please go ahead.
Hi, good morning. Anthony Powell at Barclays. About the comment on the 1.1 million sq ft lease from the e-commerce retailer was pretty positive given all the headlines. Are you seeing any change in behavior or just demand from tenants in this uncertain environment? Or do you continue to see tenants continue to seek out space as they were, you know, a few quarters ago?
Yeah, Anthony, it's Peter Schultz. I would say it's the same as it was throughout the first half of the year. Most of the requirements, if not all, that we're seeing continue to be about growth and net additions of space. Nobody's moving from one 300,000 sq ft building to another. So demand, as we commented a couple of times earlier, continues to be really solid around the country. Tenants, for the most part, are in a hurry to find spaces because they have very few choices, particularly as we've said in the higher barrier markets and where we're building. So we continue to feel pretty bullish about the demand side of the business for sure.
Thanks. Maybe on Amazon, could you give us an update on anything you're seeing in terms of sublease activity or renewal activity, anything like that in the Amazon portfolio that you have currently?
We aren't having any conversations with Amazon in our spaces. In the spaces we do have with them, the rents are below market, so, you know, we might welcome some conversations if. They seem to be very happy with our spaces. In terms of the broader market, again, the headline was much bigger than what's happening on the ground. Yes, they have put a few spaces on the market for sublease. Interesting to us that they're all very short term in nature, which would lead one to believe that they believe they're gonna need that space soon enough, and that maybe they're just trying to manage costs in the short term. Other than that, I don't have a lot of data for you. Jojo or Peter, I don't know if you.
It's Peter. The only other thing I'd add is we've seen them make incremental investments in a couple of our spaces during this time, so reinforcing their commitment. We think that this, the whole Amazon discussion's a little overblown.
Yeah.
Joj o?
In the markets we focus on, we haven't really seen, you know, subleases in the markets that we're focusing on in terms of our investments. If there were any, I can tell you in some parts of the West, basically the subleasing by Amazon happened within a couple of months. It was not even on the market that long, and there was a scurry of activity and it got leased. This is a particular West Coast sub-market. It got leased within two months of announcing. That's how strong these markets are.
Yeah.
Thank you.
We'll take our next question. Please go ahead.
Hi, good morning. This is Vince Tibone with Green Street. Could you provide some color on the secured debt markets for industrial today? I understand this isn't a big part of your balance sheet, but it is important to the overall health of the transaction market. Wanted to get your views there.
This is Bob Walter. I would say the secured debt markets are pretty open for life company type executions, and the rates there are probably in the mid-fours, but albeit at lower leverage. The CMBS market right now is still very challenged. You know, I haven't really seen that market open back up.
What is the pricing on CMBS? Is there even any deals to point to on how wide that pricing might be, compared to earlier in the year?
You're gonna be wider than the life company market. You know, exactly where that data point is is very challenging because there just again, it hasn't been a lot of financing activity to point to.
What are buyers doing then? Like, are they using the life co? Are they using their, you know, local bank relationships? How are most financing their purchase? I'm not talking about the, you know, the massive institutions, but more of the, you know, the local players that you'll sometimes, you know, run into.
Well, again, I would say, you know, you just haven't seen a lot of deal activity. Those transactions that you have seen hit, I would say more life company, and more the local and regional bank market is where a lot of those buyers are getting their financing.
Got it. That's helpful. Thank you.
We'll take our next question. Please go ahead.
Oh, hello? Can you hear?
Mike, you're on, Mike.
Oh, hey. Yeah, sorry about that. Hey, Mike Mueller. Just a quick question. Most other things have been answered. For the remaining, I think it was 219 acres in Camelback for the JV, is the game plan there to sell that opportunistically over time or keep it and develop on it?
Sure. The plan hasn't changed. Right now, the 219 acres have freeway frontage. All of the sites have freeway frontage, which is great, on 303. It's one of, if not the closest in amalgamation of sites closest to the junction of 10 and 303, so great location. The strategy is still the same, really value creation for a joint venture, and that could involve build-to-suits, that could involve speculative buildings, and that could also mean strategic sales to users, to a highest and best use user, for example. All facets of value creation, you know, could be used there, but nothing new to announce yet, Mike.
Got it. Scott, what are the after-tax proceeds expected to be on the sale?
Mike, the taxes, let me look at the supplemental real quick. I think it's about income taxes are gonna be about $24 million haircut off those sales proceeds.
Got it. Okay. That was it. Appreciate it.
We'll take our next question. Please go ahead.
Hi, it's Rob Stevenson at Janney. How are you doing?
Hi.
Scott, where is your best source of incremental debt capital today? Where does that price net of swaps or something, if it's a term loan or other variable rate debt?
I think the best market to look at continues to be the bank market, Rob. It's still active. It's getting a little bit tighter. A lot of other companies are trying to access it like we did in April of this year. What we're hearing from our banks, spreads are holding. So for us, that would be 85 basis points at a BBB flat rating. So we think that's the attractive capital. I'd have to look at what the market is on swaps. I think a couple of days ago, I got an email from one of our banks, and I think if you swapped it five years, you were probably 2.75-2.85 at that point in time. The bank market continues to be the best source of debt capital.
Okay. Scott, if you guys don't like the pricing on the $100 million-$150 million of dispositions, how are you thinking about financing the development spend given the pullback in the stock price? At $50 or high $40s, does that still give you enough room there? Do you think about doing something else, JV-ing something? How should we be thinking about that?
Yeah. I think we're in really good shape, Rob. We've got about $200 million to spend in our developments for the rest of this year. That's gonna be taken care of with a little over $100 million of cash that we have in our balance sheet. A lot of that came from the joint venture sale. We still have excess cash flow after CapEx and dividend. We can hit the sales market. Our guidance is still $101 -$150 . Again, as I mentioned before, if we wanted to raise other capital, we can look to the bank term loan market as well. I think that would be our plan.
Okay. Thanks, guys. Appreciate the time.
We'll take our next question. Please go ahead.
Thanks. This is Ki Bin again from Truist. Just a quick question on your underwriting philosophy. I was wondering if you can just kind of share some broad thoughts on what that underwriting philosophy looks like. Should the macro picture worsen, where could the pockets of weakness lay in your portfolio?
In terms of underwriting, we have put the word out that we're gonna increase our return requirements. We have increased our return requirements. We've always been pretty conservative in our underwriting, Ki Bin. We have always had a step up in the residual cap rate from the going in. Sometimes when we lose opportunities, we lose to people who don't do that. We've been pretty conser-
Sorry to cut you off.
Sorry.
I meant tenant underwriting, tenant credit. Sorry.
Yeah, we've always been very focused on tenant credit. We have an in-house team who analyzes every new tenant that we consider taking on. That hasn't changed. The tenant quality of our portfolio is very strong. In fact, if you wanna look at a time when it was tested, I guess it would have been in 2020 when we had the lockdowns in COVID, and we still collected 100% of our 2020 rents in 2020. You know, just one more factoid out of our roughly 1,000 tenants, we only had 14 deferral agreements. Tenant credit is important to us, and I think our team does a great job. What was the last part of your question?
Just if the macro picture should worsen, where could, you know, the pockets of weakness be, if any?
Well, you know, we've spent the last.
Whether that be retailers or
Yeah. We've spent the last 12 years building and reconfiguring our portfolio so that we have one now that we think will do very well through a cycle. Hard to say where pockets of weakness would be, Ki Bin. Clearly, in terms of the overall market, the bigger risk is one on the demand side than the supply side in these higher barrier markets where land is so difficult to come by. It's a good question.
Okay. Thank you, guys.
We'll take our next question. Please go ahead.
Hello. Richard Anderson here at SMBC. Can you hear me?
Yep.
Okay. Hi, good morning. First question, you ran through some national stats, vacancy, absorption, completion. Do you have an assumption, a broad assumption, on a national basis of market rent growth and how it might have changed specifically from past periods?
Well, when we execute, we usually go market to market, sub-market to sub-market. That's how we look at our investments and how to basically manage a portfolio. Broadly, I would say for the whole U.S., I mean, year to date, market rents have increased, you know, in the sub-15 range, 10%-15% range. Of course, there are markets where, you know, you're in the, you know, like 3%, 4%, 5%, but there are markets that are significantly more than that. The markets that are, you know, coastal markets are significantly more than 15%. Year-to- date, I mean, the whole industrial market has been strong. It's been about 15% overall.
Okay. Really, no discernible change. You mentioned, you know, since the Amazon news, everything is pretty much unchanged as far as what you're seeing today.
You're correct.
Okay. My second question is on Amazon specifically. You know, you have the amount saying 10-30 million sq ft of give back. Whatever the number ultimately will be, we're comparing that against a static Amazon. But I would argue that, you know, if 2020, Amazon added, yeah, I don't know the number, 100 million sq ft of distribution space, that we should really be talking about that as the basis of comparison and not zero. It's not a 30 million sq ft reduction, but a 130 million sq ft reduction as it relates to, you know, your planning and your vision of the growth of the business. I'm curious how you think about that.
If you know a decline from them relative to the big growth of the past couple of years, and them and others, is impacting your underwriting at all at this point, or have you given any thought to that? You know, not relative to zero, but relative to what we were seeing from a growth perspective a couple of years ago and last year. Thanks.
Sure. In 2020, they took between 70 and 80 million sq ft. That equated to more than the next 30 most active tenants combined.
Okay.
They were the player in 2020. The rest of that group that took hardly any space has been working overtime to reestablish and grow their footprints and improve their competitive positions. That additional space is being taken up by third-party logistics providers, for example, who are way up in their leasing, general retail and wholesale, which is next. They're way up in the leasing. Nobody in that area was taking any space in 2020. Food and bev is up big. Manufacturing has gained in market share in terms of leasing share and building materials and construction. While Amazon was the most active in 2020, nobody else really was, and now they are. That's picking that slack up. That takes care of the gap that you rightly point out.
Going forward, we look at it as a very, very broad-based demand, where tenant requirements currently exceed what the industry in the higher barrier markets can deliver, and that's why the rent growth hasn't slowed. In fact, it's accelerated.
Okay. The Amazon news is it should not be, you know, just to broaden the point, should not be extrapolated to a broader industry move. In fact, it's the opposite. You're saying they're snapping up the give back that Amazon is providing. Is that the way to think about it?
More than that. They're taking up the give back, and as you say.
Yeah.
If Amazon took 80 in one year, who's taking that 80 the next year, right? They're taking up that much as well. Lastly, I mean, Amazon's gonna continue to grow. It's been a little bit surprising that they have taken so long to begin to rationalize their space. Every company does eventually. It doesn't make a lot of sense to have your space growth growing faster than your sales forever and ever. Clearly, once that we get through this period, Amazon will continue to grow and they'll continue to take up more space over time.
Great. Thanks very much for the color.
That concludes today's question -and- answer session. At this time, I will turn the conference back to Peter Baccile for any additional or closing remarks.
Well, thank you, operator, and thanks to everyone for participating on our call today. We look forward to connecting with many of you in person in the coming months. Be well.
This concludes today's call. Thank you for your participation. You may now disconnect.