First Industrial Realty Trust Inc

NYSE:FR

Earnings Call Transcript 2022-Q2

[Operator]

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.

[Arthur Harmon, VP, IR & Marketing]

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 21, 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 filing 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 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.

[Peter Baccile, President, CEO & Director]

Thank you, Art, and thank you all for joining us today. Our team delivered another great quarter, which included several significant leasing successes and the 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 square feet, in line with new completions of 61 million square feet. 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%. And since our last earnings call, we signed a few key rollovers. We backfilled our largest remaining 2022 expiration, a 341,000 square footer 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% to 25%, 2 percentage points higher at the midpoint than our expectations last quarter. I'll also note that the gap change for this population is 39%.

Looking at 2023, we've already taken care of our 2 largest lease expirations. The first is a 627,000 square foot building in the Kenosha submarket of Chicago. We renewed this lease 7 months in advance of expiration and a cash run rate increase of 29%.

The second is a 581,000 square foot 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 square feet 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 square footer at First Park 283 in Central Pennsylvania to an e-commerce retailer. The building will be completed soon, and the tenant is taking occupancy in September. We also leased our 208,000 square footer 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 square foot first phase of that project to 89% leased.

Moving on to new development starts. In addition to the 83,000 square foot facility in the Inland Empire that we spoke about on our last call, we started 3 more buildings. Our largest is the 699,000 square foot 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 square foot building with an estimated investment of $16 million and projected yield of 5.5%.

Lastly, we started a 37,000 square foot project in the Infill 880 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 totaled 5.8 million square feet 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 2 buildings comprised of 96,000 square feet 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 square feet. 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. And with that, I'll turn it over to Scott.

[Scott Musil, CFO, SVP, Treasurer & Assistant Secretary]

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 square feet 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 tenure of 5.5 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 the 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 square foot 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% to 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 30. For the full year 2022, we expect to capitalize about $0.10 per share of interest, $0.01 higher than last quarter. And our G&A guidance range is now $34 million to $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.

[Peter Baccile, President, CEO & Director]

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.

[Operator]

[Operator Instructions]. And we'll take our first question.

[Greg McGinniss, Scotiabank]

This is Greg McGinniss at Scotiabank. Just two quick questions for me. First one is on development margins falling to 75% from 100%. Is that just the 50 basis point increase in assumed cap rate?

[Peter Baccile, President, CEO & Director]

Yes. 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.

[Greg McGinniss, Scotiabank]

And when is that 50 basis point factored into the calculation, is that upon completion of the development? Or is that like a 5-year time line or something?

[Peter Baccile, President, CEO & Director]

That's our estimate of cap rates for cash flowing assets in each of the markets where we have these new developments.

[Greg McGinniss, Scotiabank]

Okay. And then on the disposition, the JV disposition, was that kind of always the plan with that land, was to look for another user for it? And then what is the expectation with the rest of the land you still have?

[Peter Baccile, President, CEO & Director]

So our plan for Camelback was the same and is the same as our plans that we have executed now in PV-303, which has always been to identify sales to potential users, to do build-to-suits, to go ahead and do speculative development. So all of the above, and we're very, very pleased with the execution on the sale of that 391 acres.

[Greg McGinniss, Scotiabank]

So is this just too good of an opportunity to pass up instead of developing yourself?

[Peter Baccile, President, CEO & Director]

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.

[Operator]

And we'll take our next question.

[Michael Carroll, RBC Capital Markets]

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 going to receive on any of these properties, I guess, higher or lower?

[Peter Baccile, President, CEO & Director]

Jojo, do you want to cover that?

[Johannson Yap, Co-Founder, CIO & EVP, West Region]

Sure, sure. Mike, a couple of things. The primary change was the exit cap based on pro forma on our developments, pro forma terms on 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%. And there was a slight -- very slight increase in NOI, because rents have increased, but the total offset is what's reflected in the margin. So the primary driver again was the change in exit cap.

[Michael Carroll, RBC Capital Markets]

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 kind of narrow that down to the near-term completions? I know there's about 3 buildings that are expected to be completed in the third quarter that are still vacant. I mean what's the process -- progress on those specific assets?

[Peter Schultz, EVP]

Mike, it's Peter Schultz. So 2 of the 3, the first is in Nashville, where we continue to see a decent activity from full building users. The other one is in Denver. That market, we typically see an uptick in activity as the building is 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. So we continue to feel good about that as tenants continue to have very limited choices and the rents continue to go up. Jojo?

[Johannson Yap, Co-Founder, CIO & EVP, West Region]

Yes. For first deal, which is in Seattle, we have multiple inquiries for both full building and half building users, and we have proposals out, but no lease to report yet. And that building is scheduled to be completed in the third quarter of this year as well.

[Michael Carroll, RBC Capital Markets]

Okay. Great. And then just last for me. Can you give us an update on Old Post Road? I guess, what's the update there?

[Peter Schultz, EVP]

Sure, Mike. It's Peter Schultz again. So we're in discussions with several prospects. We're trading lease comments with 2, they're all full building users. The 2 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.

[Operator]

We'll take our next question.

[Ki Bin Kim, Truist Securities]

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 of quarters ago?

[Peter Schultz, EVP]

Ki Bin. Yes, it's Peter Schultz, Ki Bin. So activity across the country, across space sizes continues to be solid, particularly on our new buildings. 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, anything you want to add?

[Johannson Yap, Co-Founder, CIO & EVP, West Region]

Yes. That's reflective of our rent growth that we've achieved. So one of the reasons we continue to achieve good rent growth is that our properties are well located, but at the same time, we have multiple prospects on each of every space that actually we have. And so that just shows the strength of the market.

[Ki Bin Kim, Truist Securities]

And just to stick with that, when you see multiple prospects, does that mean, for example, last year, if there were 5 or 6 prospects, is still 5 or 6 prospects on any given space? Or has that ticked down to maybe 2 to 3?

[Johannson Yap, Co-Founder, CIO & EVP, West Region]

It's pretty much the same. In fact, if you look at the market reports on the activity, Q1 of last year is pretty much the same as Q1 and Q2 or first half last year is pretty much the same as the first half of this year.

[Operator]

And we'll take our next question.

[David Rodgers, Robert W. Baird & Co.]

It's Dave Rodgers at Baird. I hope you're all well. I 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. But in terms of actually going out and executing in the market, do you have plans to do that? And 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?

[Peter Baccile, President, CEO & Director]

So with respect to sales, yes, our guidance remains at $100 million to $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 feel 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 2 or 3 months into kind of the post news from Amazon. And so far, that has not really factored. So we'll see -- we're going to remain prudent as we go in terms of taking risk, Dave. But our stance today is not any different than it was at the beginning of the year.

[David Rodgers, Robert W. Baird & Co.]

Great. And then maybe, Jojo, a follow-up on the construction. I think you mentioned no real increase in construction costs sequentially. But 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. But how are those component shortages changing? And can we really start to see this big level of supply that's in the projection start to finally hit, given the current state of the environment?

[Johannson Yap, Co-Founder, CIO & EVP, West Region]

Sure, sure. Good question. And we've been following that very closely. As you know, we're in the market for development, too. So 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 to 12 months -- 12 to 14 months in advance. Right now, they're pulling back about 2 to 3 months. So it is good for us. But conversely, that was offset by some material components that actually increased. For example, switchgear and transformers, and dot levelers and RTUs or in our industry is called rooftop units, HVAC, they've actually extended. In some cases, some markets they have extended to about a year.

So whatever offset that we got on steel delivery, we kind of lost it in other of the materials. So that's going to affect the whole industry. And First Industrial, we just actively talk to our contractors, we do prices commitments. In terms of our own development, we do forward purchase commitments, if it's appropriate, and we just work with the municipalities as hard as we can. So that's how we manage our deliveries. But construction deliveries have not changed. So I gave you the components there.

In terms of the whole construction, deliveries or under construction in the whole market, we have increased a little bit, but there's also quite a bit of releasing going on in a lot of those. And I think whatever is announced today, it's going to be delayed. Whatever -- whoever announced development out there, I think it's going to be delayed a little bit. And some are experiencing significant delays.

[David Rodgers, Robert W. Baird & Co.]

All right. That's helpful. Last one for me, sorry. Peter Baccile, going back to you. You made some comments about 2 big leases you had inked already for '23. Do you have a kind of a macro number of what percentage you're done with '23 and where that takes you?

[Peter Baccile, President, CEO & Director]

Chris will cover that for you.

[Christopher Schneider, SVP, Operations & Chief Information Officer]

Yes. So we look at 2023, right now, we stand, we've taken care of about 24% of the leases, and that's at a cash rental increase of 20%.

[Operator]

[Operator Instructions]. And we'll take our next question.

[Todd Thomas, KeyBanc Capital Markets]

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. It 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?

[Peter Baccile, President, CEO & Director]

Yes, it is a blended average, clearly in the highest barrier markets, the coastal markets, it's closer to 0 than 50. But that's -- the range is probably 10 to 60 or 70 basis points, averaging right around 50.

[Todd Thomas, KeyBanc Capital Markets]

Okay. And then it sounds like that was just a prudent decision right now. Are you seeing any change at all in market pricing? Can you just comment maybe a little bit more broadly on price trends for assets that you're seeing today?

[Peter Baccile, President, CEO & Director]

Jojo, do you want to give your thoughts on what's going on?

[Johannson Yap, Co-Founder, CIO & EVP, West Region]

Sure. Yes, yes. There is very -- there's so much difference in decline in trades like it trades that is very -- it's difficult to pinpoint where current market cap rates are right now. What I will tell you for the transactions that have closed so far in the last couple of weeks, it actually were closing at cap rates like of a quarter to 2 quarters ago, so not much change. So there's been a lot of talk about retrades in the marketplace, a lot of the times, it hasn't happened. Sellers have not changed their expectations or walk from deals. So there's a lot of talk of that, but when we surveyed the market, there's not a lot of huge retrades going on too.

So again, back to what Peter says, lack of visibility right now. We felt it was prudent. We thought it was imprudent to not change the cap rate. So we're not saying that those are the right cap rates. We just thought it was prudent to adjust it to be more conservative.

[Peter Baccile, President, CEO & Director]

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 the first quarter. So this could take some time for this to shake out.

[Todd Thomas, KeyBanc Capital Markets]

Okay. That's helpful. And then the land bank decreased in the quarter 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? And 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?

[Peter Baccile, President, CEO & Director]

We remain -- our teams across the country remain active in looking for new land opportunities. So that hasn't really changed. Our return -- we've told everybody our return expectations are a little bit higher. We have, as we mentioned, call it, 3 to 5 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?

[Todd Thomas, KeyBanc Capital Markets]

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.

[Peter Baccile, President, CEO & Director]

Yes. I think, again, for the most valuable, well-located land, especially if it happened to be entitled, which doesn't happen often these days. But that -- those land values are going to continue to go up as rental rates continue to go up as well to support those higher prices.

[Operator]

And we'll take our next question.

[Anthony Powell, Barclays Bank]

Anthony Powell of Barclays. About the comment on the 1.1 million square foot leased from the e-commerce retailer was pretty positive, given all the headlines. Are you seeing any change in behavior just demand from tenants in this uncertain environment? Or do you continue to see tenants continue to seek out space as they were a few quarters ago?

[Peter Schultz, EVP]

Yes, Anthony, it's Peter Schultz. I would say it's the same as it was first half -- 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 is moving from one 300,000 square foot 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.

[Anthony Powell, Barclays Bank]

Maybe on Amazon, could you give us an update on anything you're seeing in terms of sublease activity or renewal activity or anything like that in the Amazon portfolio that you have currently?

[Peter Baccile, President, CEO & Director]

We don't have any -- 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 we might welcome some conversations, but 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 be one to believe that they believe they're going to need that space soon enough and that maybe they're just trying to manage costs in the short term.

So other than that, I don't have a lot of data for you. Jojo or Peter, I don't know if you...

[Peter Schultz, EVP]

It's Peter. The only other thing I'd add is we've seen to make incremental investments in a couple of our spaces during this time. So reinforcing their commitment. We think that this the whole Amazon discussion is a little overblown. Jojo?

[Johannson Yap, Co-Founder, CIO & EVP, West Region]

And in the markets we focus on, we haven't really seen 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 a market that long. And there was a scurry of activity, and it got leased. And this is a particular West Coast submarket. It got leased within 2 months of announcing. That's how strong these markets are.

[Operator]

And we'll take our next question.

[Vince Tibone, Green Street Advisors]

This is Vince Tibone with Green Street. Could you provide some color on the secured debt markets for industrial today? I understand this is in a big part of your balance sheet, but it is important to the overall health of the transaction market. So I wanted to get your views there.

[Robert Walter, SVP]

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-4s, but albeit at lower leverage. The CMBS market right now is still very challenged, and I haven't really seen that market open back up.

[Vince Tibone, Green Street Advisors]

So what is the pricing on CMBS? Or is this even no deals to point to on how wide that pricing might be earlier in the year?

[Robert Walter, SVP]

You're going to be wider than the life company market, exactly where that data point is, is very challenging because they're just. Again, it hasn't been a lot of financing activity to point to.

[Vince Tibone, Green Street Advisors]

So what are buyers doing that? Like are they using the life codes, in their local bank relationships? How are most financing their purchase? I'm not talking about the massive institutions in more of the local players that you'll sometimes run into.

[Robert Walter, SVP]

Well, again, I would say you just haven't seen a lot of deal activity, but those transactions that you have seen hit, I would say, more life company and more of the local and regional bank market is where a lot of those buyers are getting their financing.

[Operator]

And we'll take our next question.

[Michael Mueller, JPMorgan Chase & Co.]

Sorry about that. Mike Mueller. Just quick question. Most other things have been answered. But for the remaining, I think it was 200, 219 acres at -- in Camelback for the JV. Is the game plan there to sell that opportunistically over time or keep it and develop on it?

[Johannson Yap, Co-Founder, CIO & EVP, West Region]

Sure. The plan hasn't changed. Right now, the 219 acres have freeway frontage. All of the sites have freeway frontage, which's great, on 303. And it's one-off, if not the closest, amalgamation of sites closest to the juncture of 10 and 303, so a great location. So the strategy is still the same, really value creation for a joint venture, and that could involve those pursuits, that could involve speculative buildings and that could also mean strategic sales to users -- to a higher and best use user, for example. So all facets of value creation could be used there, but nothing new to announce yet, Mike.

[Michael Mueller, JPMorgan Chase & Co.]

Got it. And then, Scott, what are the after-tax proceeds expected to be on the sale?

[Scott Musil, CFO, SVP, Treasurer & Assistant Secretary]

Mike, the taxes, let me look at the supplemental real quick, I think it's about -- income taxes are going to be about $24 million, haircut off those sales proceeds.

[Operator]

And we'll take our next question.

[Robert Stevenson, Janney Montgomery Scott]

It's Rob Stevenson of Janney. Scott, where is your best source of incremental debt capital today? And where is that price net of swaps or something if it's a term loan or other variable rate debt?

[Scott Musil, CFO, SVP, Treasurer & Assistant Secretary]

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 swap site. Last -- I think a couple of days ago, I got an e-mail from one of our banks. And I think if you swapped it 5 years, you were probably 2.75 to 2.85 at that point in time. But the bank market continues to be the best source of debt capital.

[Robert Stevenson, Janney Montgomery Scott]

Okay. And then, Scott, if you guys don't like the pricing on the $100 million to $150 million of dispositions, how are you thinking about financing the development spend given the pullback in the stock price? It's 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?

[Scott Musil, CFO, SVP, Treasurer & Assistant Secretary]

Yes. I think we're in really good shape, Rob. We've got about $200 million of spend in our development for the rest of this year. That's going to be taken care of with a little over $100 million of cash that we have on 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 1 to 150. And 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.

[Operator]

And we'll take our next question.

[Ki Bin Kim, Truist Securities]

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? And should the macro picture worsen, where could the pocket of weakness lay in your portfolio?

[Peter Baccile, President, CEO & Director]

In terms of underwriting, we have put the word out that we're going to 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 concerned...

[Ki Bin Kim, Truist Securities]

Sorry to cut you. I meant tenant underwriting, tenant credit, sorry.

[Peter Baccile, President, CEO & Director]

Tenant credit. Yes, we've always been very, 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. And the tenant quality of our portfolio is very strong. In fact, if you want to 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. And just one more factoid out of our roughly 1,000 tenants, we only had 14 deferral agreements. So tenant credit is important to us, and I think our team does a great job.

What was the last part of your question?

[Ki Bin Kim, Truist Securities]

Just if the macro picture should worsen, where could the pockets of weakness be, if any? Would that be retailers or?

[Peter Baccile, President, CEO & Director]

Yes. We spent the last dozen 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 and the supply side in these higher barrier markets where land is so difficult to come by. Yes, it's a good question.

[Operator]

And we'll take our next question.

[Richard Anderson, SMBC]

Rich Anderson here, SMBC. Can you hear me?

[Peter Baccile, President, CEO & Director]

Yes.

[Richard Anderson, SMBC]

Okay. So 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?

[Johannson Yap, Co-Founder, CIO & EVP, West Region]

Yes. Yes, well, when we execute, we usually go market into market to submarket. That's how we look at our investments and how to basically manage our portfolio. But broadly, I would say, it's a broad for the whole U.S., I mean, year-to-date, market rents have increased in the sub-15% range, 10% to 15% range. And of course, there are markets where you're in the like 3%, 4%, 5%, but there are markets that are significantly more than that. So the markets that are -- coastal markets are significantly more than 15%. But year-to-date, I mean, whole industrial market has been strong. It's been about 15% overall.

[Richard Anderson, SMBC]

Okay. And really no discernible change, you mentioned since the Amazon news, everything is pretty much unchanged as far as what you're seeing today?

[Johannson Yap, Co-Founder, CIO & EVP, West Region]

Yes, you're correct.

[Richard Anderson, SMBC]

Okay. And then my second question is on Amazon specifically. You have the amount saying 10 million to 30 million square feet of giveback, whatever the number ultimately will be, we're comparing that against a static Amazon. But I would argue that 2020, Amazon added, yes, I don't know the number of 100 million square feet of distribution space that we should really be talking about that is the basis of comparison and not 0. So it's not a 30 million square feet reduction, but 130 million square feet reduction as it relates to your planning and your vision of the growth of the business. So I'm curious how you think about that. And if 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 kind of thought to that, not relative to 0, but relative to what we were seeing from a growth perspective a couple of years ago and last year?

[Peter Baccile, President, CEO & Director]

Sure. In 2020, they took between 70 million and 80 million square feet, that equated to more than the next 30 most active tenants combined. So they were the player in 2020. The rest of that group that took hardly any space has been working over time to reestablish and grow their footprints and improve their competitive positions. And so 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 are 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.

So while Amazon was the most active in 2020, nobody else really was, and now they are, and that's picking that flag up. So that eats -- 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.

[Richard Anderson, SMBC]

Okay. So the Amazon news, it should not be 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 sapping up the giveback that Amazon is providing. Is that the way to think about it?

[Peter Baccile, President, CEO & Director]

More than that, they're taking up the giveback. And as you say, Amazon took 80 in 1 year, who's taken that 80 the next year, right? So they're taking up that much as well. And lastly, I mean, Amazon is going to 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. And it doesn't make a lot of sense to have your space growth growing faster than your sales forever and ever.

So clearly, once that we get through this period, Amazon will continue to grow, and they'll continue to take up more space over time.

[Operator]

And 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.

[Peter Baccile, President, CEO & Director]

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.

[Operator]

This concludes today's call. Thank you for your participation. You may now disconnect.