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First Industrial Realty Trust Inc
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Ladies and gentlemen, thank you for standing by and welcome to the First Industrial Fourth Quarter Earnings Results Conference Call. [Operator Instructions] Please be advised that today’s conference call is being recorded. Thank you. At this time I will turn the call over to Art Harmon, Vice President of Investor Relations. Sir, you may begin.
Thank you very much Valerie. Hello, everybody and welcome to our call. Before we discuss our fourth quarter and full year 2021 results and our guidance for 2022, 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 maybe time-sensitive and accurate-only as of today’s date, February 10, 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 will 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.
Thank you Art, and thank you all for joining us today. Our outstanding fourth quarter results capped another excellent year as shown in our year end occupancy rate of 98.1%. And record cash revenue growth up 16.2%. Thanks to every member of the First Industrial team for your commitment and many contributions to our success in 2021. We enter 2022 with great momentum, and strong enthusiasm for our cash flow growth and value creation opportunities. Those opportunities are embedded within our portfolio, and our sizable and highly profitable development pipeline, along with our well located land positions that will be the source of significant future growth. I will touch on each of these areas shortly. But before I do, let me update you on the strength of the U.S. industrial market.
Logistics real estate continued to enjoy very strong demand from users representing a wide range of businesses, as they remain focused on expanding their competitive positions and optimizing supply chains. CBRE econometric advisors reported that net absorption for the fourth quarter was 121 million square feet, compared to 81 million square feet of completions. For the year net absorption was 433 million square feet, a new record well in excess of completions, which totaled 268 million square feet. This supply demand dynamic is contributing to significant rental rate growth across all of our markets, as shown in our progress to date with our 2022 rollovers.
As of yesterday, we had taken care of 54% of our 2022 expirations at a cash rental rate increase of more than 19%. To capitalize on the many opportunities to serve tenant demand in our markets, we are announcing five more development starts this quarter, totaling 1.3 million square feet, with an estimated investment of approximately $168 million. In the Inland Empire, we will be adding to our Southern California portfolio with the 324,000 square foot first Rider logistics Center located just off the I-215 approximate to several of our other successful development we are excited to bring this project to a market which boasts a vacancy level of one half of 1%.
Total investment is 44 million with a targeted cash yield of 9.5% this outsized yield is due to our favorable basis and the rapid rent growth in Southern California. In South Florida at our first park Miami Project, where we are experiencing significant tenant activity, we are launching our fifth building a 198,000 square foot, including our planned future takedown of 59 acres on which we can develop an additional 1.3 million square feet. First Park Miami will total 2.5 million square feet when fully built out over the next several years and serve as the centrepiece of our growing South Florida portfolio. Our projected investment for this new building is $37 million. And our target cash yield is 6.2%.
In Denver, we will begin construction of our first 76 logistics center in an info location in the sought after I 76 Corridor just north of downtown. The total estimated investment for the 200,000 square footer is $34 million with a projected cash yield of 5.6%. In the Lehigh Valley, we are starting the 105,000 square foot first Lehigh Logistics Center, located adjacent to the airport and the new FedEx Ground hub. Total investment is 16 million and our projected cash yield is 5.3%.
Lastly, in Chicago, at our first Park 94 and Kenosha, we are moving forward with a 451,000 square footer that is expandable to 617,000 square feet. Estimated investment is 38 million, and our target yield is 6.3%. These newly announced development starts average a cash yield of 6.9%, and an estimated development margin of 96% to 106%.
Including these new development starts, our development and process total 7.1 million square feet, with a total investment of 802 million and are currently 32% leased. At a cash yield of 6.4%, our expected overall development margin is 75% to 85%. We are also busy in the quarter adding new development sites to capitalize on the positive industrial real estate fundamentals. We purchased a total of 294 acres for 125 million. Adjusting for our newly announced development starts, in total our balance sheet land today can support an additional 14.4 million square feet. This represents more than 1.6 billion of potential new investment. That 1.6 billion is using today's estimated construction costs and the land at our book basis. In addition, our remaining joint venture can support up to 8.9 million square feet with our share around 3.8 million square feet. So we're very well positioned for future growth.
Moving on to dispositions, in the fourth quarter, we sold 1.2 million square feet for 125 million, which included our last two buildings in the Milwaukee market. Our sales for the year totaled 243 million, which was 43 million higher than the sales guidance midpoint discussed on our third quarter call. For 2022, we expect to sell a total of 100 million to 150 million, with the majority expected to close in the latter part of the year.
Before turning it over to Scott, let me conclude by saying that through the efforts of our team, combined with the underlying strength of our portfolio, and the future growth opportunities we highlighted for you, our board of directors has declared a dividend of $0.295 per share for the first quarter of 2022. This represents a 9.3% increase from the prior rate and a pay-out ratio of approximately 69% based on our anticipated AFFO for 2022 as defined in our supplemental.
With that, I'll turn it over to Scott.
Thanks Peter. Let me recap our results for the quarter. NAREIT funds from operations were $0.52 per fully diluted share compared to $0.44 per share in 4Q 2020. For the year, FFO per share was $1.97 versus $1.80 in 2020, which excluded income related to two insurance settlements, partially offset by a restructuring charge and accelerated retirement compensation related costs, Our cash same-store NOI growth for the quarter, excluding termination fees was 8.6%, which contributed to a same-store growth rate of 5.3% for all of 2021.
Fourth quarter same-store growth was helped by higher average occupancy, increases and rental rates on new and renewal leasing, rental rate bumps embedded in our leases and lower free rent. We finished the year strong with occupancy of 98.1% up 100 basis points compared to 3Q 2021 and up 240 basis points from a year ago.
Summarizing our leasing activity during the quarter, approximately 2.5 billion square feet of leases commenced. Of these 800,000 were new, 1.2 million were renewals and 600,000 were for developments in acquisitions with lease up. Tenant retention by square footage was 65%. Fourth quarter cash rental rates were up 17.7% overall, with renewals of 10.6% and new leasing 29.8% and on a straight line basis, overall rental rates were up 32.2% with renewals increasing 25% and new leasing up 44.3%. For the full year 2021 as Peter noted, cash rental rates were up 16.2% and on a straight line basis rents are up 29.3%.
Moving on to the capital side. During the quarter, we issued 1.4 million shares via our ATM program at an average price of $60.99 per share, generating net proceeds of $86.8 million to help fund our very profitable development pipeline.
In terms of upcoming maturities, we have a $260 million term loan and a $67 million mortgage loan that both come due in September. We are currently evaluating our options to refinance this debt, which include a new term loan or an unsecured bond offering. We will also continue to evaluate our additional capital needs throughout the year as we execute our in our investments for growth.
Moving on to our initial 2022 guidance per our earnings release last evening. Our guidance range for NARIET FFO per share is $2.09 to $2.19 with a midpoint of $2.14 per share. Key assumptions for guidance are as follows: Quarter end average and service occupancy of 97.25% to 98.25%. Same-store NOI growth on a cash basis before termination fees of 7.25% to 8.25%, which reflects a $1 million bad debt assumption for full year 2022.
Guidance includes the anticipated 2022 costs related to our completed and under construction developments at December 31. Plus the expected first quarter ground breakings Peter discussed earlier. For the full year 2022, we expect to capitalize about $0.08 per share of interest. And our G&A expense guidance range is $33.5 million to $34.5 million. Other than previously discussed, our guidance does not reflect the impact of any other future sales, acquisitions or new development starts after this call. The impact of any other future debt issuances, debt repurchases or repayments after this call, and guidance also excludes the potential issuance of equity.
Let me turn it back over to Peter.
Thanks, Scott. After another successful year, our team is excited to execute on the internal and external growth opportunities ahead. We continue to allocate additional capital to high margin development opportunities in our target markets, while growing cash flow across our portfolio. Our industry fundamentals remain exceptionally strong, supporting substantial rent growth, and the continued evolution of e-commerce and the global supply chain are catalysts for incremental logistics demand today, and for the foreseeable future.
Operator, with that, we're ready to open it up for questions.
[Operator Instructions] And our first question comes from the line of Craig Mailman of KeyBanc Capital Markets.
Hey guys, just a quick question, you guys note in the release that on the 54% of the 22, roll, you already achieved kind of a 19% cash mark-to-market. Is there anything unique in the 54% that you guys resigned that that would make those spreads higher than potentially what you would get on the balance of the 2022 expiration or pull forward of 23%?
Chris, you want to take that?
Yes, Craig. Yes, there's really nothing unique there. If you look at the full year, we're expecting to be on renewals between 18% and 21%. So very similar for the rest of the year too.
Okay. And then, Scott, as it pertains to 500, Old Post Road, kind of what's in guidance there for same-store and/or FFO, in terms of timing?
Sure, Craig, it's late second quarter. So College, June 1 is the lease update. So seven months, that that fall, what about 300,000 per month, the lease assumption assumes three months of free rent? So about four months of cash for same-store, so about $1.2 million. And I think that's about 40 basis points of impact from that.
Do you guys have, like, where are you on that process and the NOI is or, or serious prospects.
Hey, good morning Craig it’s Peter. So we are one of two buildings of that size range in that sub market. The other being a recently completed 860,000 square foot building, we have seen an increase in fresh activity. And that ties range since the beginning of the year. There is very little in the supply pipeline behind that. And in fact, the adjacent county to the north has imposed a moratorium on new industrial development. So we continue to feel good about our opportunity to make the right decision for the asset. We'll keep you posted.
Great, thank you.
Thank you. And the next question will come from the line of Ki Bin Kim of Truist.
Thanks, good morning. You're assuming a sense of capitalized interest. I thought that would have been a higher number, just given the ramp up in your development pipeline. So can you help me better understand how you came to that 8% expectation, or expertise?
Yes, hey Kim it’s Scott. The $0.08 is just on the developments we had in process and the handful of starts that we announced on the call. If that's what the guidance is, so it doesn't assume any other new development starts throughout the year, we're going to start new developments throughout the year. And as we do so, we will capitalize interest on those new development starts. So I expect that number to ratchet up as the year goes by. And as we announced new development stars.
Got it. And this past quarter, it was interesting to see you guys sell 125 million of cash flowing real estate and buying non-cash flowing land. If you normalize for some of these things, what do you think your FFO guidance would have been just as a mental exercise, because that would look at your fundamentals that suggest I suggest it better than 214 FFO number.
So Kim you're asking what the flip flop is between just the sales in the fourth quarter in the end?
Yes, yes.
All right. So the sales in so the 125 million is at cap rate at sale is 4.6. So that's about 5.7, about 6 million bucks. So that's probably like four plus cents a share, and then reinvesting in land at 125 million, obviously that's going to be non-cash flowing. So I think that's probably your beta is plus or minus $.04, if you looked at that transaction like that.
Okay, thank you.
And the next question comes from the line of Rob Stevenson of Janney.
Good morning guys. Although things have seemed to gotten a little bit better, has there been any change in customers incremental demand for Southern Cal location given the continued issues in LA and Long Beach Ports?
Jojo, you want to take that?
Sure. There hasn't been demand continues to be strong. I mean, if you look at net absorption is significantly, offset more than supply. The, again, the demand for goods continues to not much change in goods, the -- we would have expected more than absorption. In fact, if the throughput was more efficient. If you track the throughput, year-over-year container is loaded, only throughput was up about 11% to 12%. But in December it dropped a bit and so basically what happened was that we get to even more absorption. And right now we're about one at one half of 1% that you can see in LA, as Peter mentioned, so the market could have been better if it was more efficient.
That or any markets really benefiting from that, that you can tell in terms of having excess capability where people are sending the container ships to market x rather than LA Long Beach and wait in that queue?
No, no, we haven't seen that. I mean a lot of throughput. I mean, the throughput change for the whole U.S. has not changed significantly. For New York, and New Jersey continues to do well, the Gulf Coast continues to do well. But overall, by large all the ports reported increases. And by the way, just want to mention the [Indiscernible], which still by far the largest, the largest port. So I mean it has the largest market share, and it continues to well get containers, not much change.
Thank you. Our next question will come from the line of Caitlin Burrows of Goldman Sachs.
Hi, good morning, maybe just starting on the strong leasing side of things and pricing to get an idea for how long that could last? Could you just go through what's the current spread between your portfolio's in place rents and market rents? And what you think that should tell us about strong demand and how long it lasts for?
Yes, I guess that's two separate questions. First, you're asking a mark-to-market question. We don't, as we've said many times, we don't track that mark-to-market, our average lease term at finding is seven years, a lot can happen over long time frames like that. We think a better measure of what would is what we're achieving in cash rental rate growth on new and renewal leasing in the current period. And you've heard those statistics, they're quite robust.
In terms of how long can this last? I mean, we've never been in a market this robust and industrial. If you look at the math, and you look at the National vacancy rate, now, that's ticked down to 3.2%. Obviously, it's a very, very strong landlords market. If you then go into the more coastal markets where we are most active, the vacancy rates are lower, there Jojo mentioned Inland Empire is one half of 1%. And then you factor in functionality and use and the vacancy factor there is even lower. So we think it's going to be a strong landlords market for some time to come.
Okay, got it. And then just following that on occupancy, realize you can't get above 100% occupancy. So given where you ended the year does look like that could come down some this year, which is fair, could you give some more commentary on the occupancy guidance this year, maybe what's known move ins and outs, and what's the more general expectation or buffer.
So Caitlin, it’s Peter Schultz. I would say there are really only two significant rollovers remaining for the year. One is in Chicago and the I-80 at 55 sub market, about 393,000 square feet. The other is in the Lehigh Valley in Pennsylvania, 341,000 feet; we're seeing good activity on both of those. The Chicago asset is in our guidance for Q3. The Lehigh Valley is in our guidance for Q4. So to Peter's point, demand continues to be robust. And, and very broad based and we feel good about the activity that we're seeing across the country in our portfolio and our development projects.
And Caitlin, this is Scott. If you look at our guidance, we expect to be plus or minus 98% occupied by the end of the year. Just to give further context.
Got it. And maybe just a quick follow up on those. So for one that you mentioned, one is the 3Q turnover expectation and one that 4Q just considering the strong demand that is out there. What do you think the reasonable amount of time today realize longer term maybe it's like 12 months but today for thinking of how long it could take bases like those to get that filled in cash flow again.
So our guidance assumes only three to four months generally on the turnover of those faces. So that should give you an indication of how we feel about the demand.
Got to. Thanks.
Thank you. And the next question will come from the line of Michael Carroll of RBC Capital Markets. [Operator Instructions]
Yes, thanks. I wanted to touch on the development land purchase this quarter. It looks like you acquired these sites that are pretty good basis and top tier markets. I mean, where are these sites positioned in the metro areas? I guess what type of sub markets is in the core sub markets that everyone wants to be in? And could you break it down? And as is that, are these projects entitled? Or do you need to do entitlement work?
Jojo you want to start with that?
Absolutely. These are all core type [ph] markets 100% of these deals were off market. So we thank you for noting that these are very favorable basis. And we're excited about these projects. If you if you look at like you look at a North Cal, they are basically in the 880 corridor. And that's our focus. So we're very excited, as you all know, 880 corridor in the best corridor in East Bay, and these have great access to 880. And if you look at the i.e. these are all within very, very close to our successful portfolio. If you look at for example, First Wilson, that's East IE one apple 1% vacancy. If you look at that, Tamra [ph] that's actually bordering East IE and West IE, again very close to your major corridors which is the 60 and the 10 and the 215. And then moving on, I would just turn it over to the two other locations to Central New Jersey and to Central Florida to Peter.
So Mike in Central New Jersey, that site is Exit 7, on the New Jersey Turnpike is approximate to several other assets that we've had and successful development. Vacancy rate consistent with Joe's comments about the West Coast, very, very low product in that market continues to lease at or near completion. The largest deal is in Central Florida, in Orlando. So this site is very proximate to the Orlando airport, obviously, great labor profile, great highway access and frontage. And uniquely this site gives us the opportunity to do some larger format buildings of 500 to 900,000 square feet, plus or minus total of about 2.8 million square feet. And that's a product type that's really hard to find in that market with a limited pipeline, you have to really go out to Lakeland along the I-4 to find something of size. So we're excited about our opportunity there.
That site is entitled to your question. But we do have to go through a number of permits, and so forth. So that's probably a 2023 start there after we finished that, as the permitting process, as we all know is slow and taking longer these days.
And then just to add all of the California of assets are unentitled and we're basically batting 100% in terms of entitlements on since we started acquiring sites in California.
And to give them an idea for how long those entitlements?
Entitlements right now for California is about two years.
Okay, great. And then just – that was great detail. Thank you for that. And then just a clarification on the spec leasing cap that you have is all of the 1Q 22 plan development starts included in the cap that's in this up.
Yes, so the balance of the cap, the available balance of the cap today is 154 million and that that is net of the new starts.
Okay, great. And then just last one for me on the expected asset sales in 2022. I mean, have you identified those assets? And if so, are those mostly coming from the non-core markets that you guys have identified that you plan on slowly exiting from?
So we've got a number of assets that we're considering. It all depends on the execution. So I can't be too specific on what exactly but yes, they will all come from the non-coastal markets primarily in the Midwest, the lower growing up assets in the portfolio.
Okay, great. Thank you.
And the next question will come from the line of Nick Yulico of Scotiabank.
Thanks. Good morning, Peter. I just wanted to go back to when you were talking about earlier, the balance sheet land and the 1.6 billion of potential investment. Can you just give us a feel for what you think that would pencil for a yield standpoint? If you were to start that all today, based on current costs, current rents, or even a expected profit margin?
Yes, that's difficult to do. I think the important thing about that capacity. And the reason I specifically pointed out that it's at today's cost is because that land, some as Jojo just mentioned, a bunch of the languages bought going to take two years to a title over that time frame, we expect those costs to go up. So the actual investment dollars will be higher than that 1.6. And then if you factor in, and if we've been continually generating pretty significant margins for the last half a dozen years as competitive as the markets are, because rent growth has exceeded everyone's expectations, and then faster than the appreciation in land.
So if you factor in, you can you can pick the range, just look at the margins we've been generating over the last half a dozen years. If you add that to the total inflated cost of that you're looking at a very, very large number in terms of additional gross value to the FR balance sheet.
Okay. And in terms of the, the NAV page where you get the developable land inventory number, roughly 716 million, can you remind us that's -- is that a fair market value number?
Right, that's fair value.
Okay. And then maybe just talk about why that, that number went up from the third quarter, it was 500 million in the third quarter, you bought 125 million of land, I guess some of that land would have gotten removed, probably put into development. So that just the rest of that increase is just higher land values flowing through that number.
It's good. It's definitely a mix. It's going to be the acquisitions we made in the quarter. And it's going to be increases in fair value land southern in Northern California Coastal markets, Miami as well, and so that that's going to be the other piece net.
Okay. All right. Thanks, guys.
Thank you. The next question will come from the line of Dave Rogers of Baird.
Good morning, everybody. Thanks for the additional details in the stuff on the development cap, I think it helped. With regard to sources and uses, with the development pipeline, kind of pushing that $800 million spending, probably starts to push 500 million, 600 million a year, given the time to complete at some point soon, but you're only selling about 100 to 150. Is that all equity to plug that gap and talk about kind of that source and use as you look forward without additional asset sales?
Yes, David, it's, first is excess cash flow as you well know, that $70 million or $80 million. We're guiding to $125 million of sales that will help. We can issue more indebtedness or leverages at 4.9 times, so we have some room there. And then the issuance of equity is going to be a piece of that as well. And when you look at the margins that we're getting are in place developments right now. 75% to 85%, we think the issuance of equity is a very good use to fund those developments due to the profitability. So it's going to be a mix of all four of those days.
Okay, thanks. That's helpful. And then maybe on kind of that sustainability of margin, and maybe this is Jojo, or Peter, but can you talk about kind of growth in separately, land values, labor costs and hard costs and kind of what that's doing obviously overall. And then any markets or outliers for you guys where margins might be coming down or margins are expanding dramatically, obviously, related to rent growth?
Sure. In terms of margins, kind of just looking forward, the good thing is that we've got a really good land inventory. So we've bought that land put inventory significantly now below market. So that will, for example, when Peter announced that 9.5% and IE, that is a function of both things. One is the, the basis and the land I just mentioned, plus, going forward, our view is that in markets we’re developing railroads, and they had done in the past. Runaway growth rate will exceed construction costs increases. So if you put together our basis plus assumption as rental rate increases slowly will go past construction cost increases. That's the formula for increasing margins.
Now, can’t comment hard to comment in terms of cap rates. But that's another key. Overall cap rates came down this year, and it's actually not moving at all given even slight increases, long term interest rates, because investors are so happy, and then they're coming in a big way. And then the expectation for around rate growth policies increases in the cost of capital. So, it's looking good.
David, it’s Peter. You asked about labor and materials, too. So materials are up more than labor. And I would say, it's really across a variety of components, the related matter to that is, is having a little bit of an impact on our delivery schedules, because the timing and receipt of materials continues to be a challenge. So it's added a couple of months, depending upon where in the country we're building to our schedule. And we're keeping a close eye on that, because we think there's still risk to the delivery of certain components throughout the year, on our schedules, which everybody in our industry is seeing, despite the fact that we continue to work with our construction partners and material providers on forward commitments and managing that that continues to be a challenge.
Alright, appreciate it, everyone. Thanks.
Thank you. The next question comes from the line of Anthony Powell of Barclays.
Hi, good morning. Just question on the margins that are very impressive for development starts in the first quarter. Is there any incremental market rent growth, assume those margins are those current market rents?
That's based on our underwriting as against current market cap rates cash on growth.
What a turn, what about market rents versus current market rents on cap rates?
Those are based on rents. They're achievable based on our projections right now. And they are, if you look back to a couple of years, and actually, even last year, our underwriting wins have far lagged the actual rent growth in all of the markets. So basically, we've been, our -- project projections and being conservative.
Got it. Thanks. And maybe one more on the spectrum of spec of cap that we talked about a few times in the last quarter, given the strength of the given the strength of the market, strength of demand and any revisiting or thoughts revisiting the cap may be increasingly a given, I know what you're saying.
Yes, the value in the cap is not having a level the cap, necessarily be remember, it's a cap and not a target, first of all. But the value in the cap is not having it be sensitive to a market that's incredibly strong. I -- meaning it's a formula. It's based on the size of the company. And that is what helps us with a risk check, given that the vast majority of our new investment is through speculative development.
So yes, the answer is yes, we will continue to more regularly revisit the level of the cap. And, and that is, of course, is a discussion with our board. Historically, it's been a three year look. And going forward, we anticipate it will be more like an annual discussion.
Thank you.
Thank you. And the next question will come from the line of Vince Tibone of Green Street.
Hi, good morning. I'm hoping you could provide some additional color on the components of same property or same store NOI growth guidance. So based on the leasing spread and oxy trends, there would appear to be some other line items that are contributing growth in 2022. Maybe bad debt or free rent just any commentary or clarifications you could share there.
Sure, Vince its Scott. Above five percentage points of the 7.75%. Midpoint is due to rental rate bumps and increase, increasing rental rates on new and renewal leasing. The lion's share to get to the 7.75% are due to two other items, an increase in same store occupancy of the portfolio, you'll post road asset has to do with that in lower free rent in the portfolio as well. So those are the main components.
That's really helpful. Are you able to isolate just the free rent component? I mean, sure, I can do the math if you're able to give a number that will be helpful.
Yes, Vince that number is about 90 basis points for the three of them.
Perfect, thank you.
And the next question will come from the line of Mike Mueller of JPMorgan.
Yes, hi. I guess first, Scott, is the disposition guidance of one to 150 based on the current development pipeline, or does it contemplate additional starts throughout the year?
The sales number is based on our objectives for disposing of some of the lower growing assets and the lower growth markets. It’s not really tied to funding the development pipeline. So those are two separate decisions, we think from a corporate finance standpoint.
Got it. Okay. And then in terms of acquisitions, are you working on, or are you anticipating buying any operating properties this year? Or should we think of acquisitions as really just being, refilling the land bank and maybe buying vacancy where you can lease it up?
Yes, we're actively pursuing leased cash flowing acquisitions. You'll notice we don't do a whole lot every year, based on where we want to invest and what we want to own. That limits the opportunity, because we're kind of choosy. But the pricing is also at a point now in most of these markets, where we can add significantly more value, as you've heard thus far this morning with our yields and margins, we can add much more value for shareholders developing than we can buy. And but again, we're absolutely pushing hard to make some more acquisitions. It's just very, very competitive. And at the end of the day, we have to take a look at how we're allocating capital. And as I said, with the pricing that's in the market today, our development program makes more money for our shareholders.
Got it. Okay. Thank you.
And the next question will come from the line of Jon Peterson of Jefferies.
Oh, great, thanks. I guess I wanted to ask about all this supply chain disruption. You guys have a lot of concentration in Southern California in the Inland Empire. And everything we read, it indicates that one of the problems, one of the problems with the backup of ships and moving goods is just getting the truckers, I guess, to move the goods out of Southern California to the rest of the country. And I'm sure this is true at most ports.
And so I guess my question is, I'm curious, how much demand do you think there is in Southern California and maybe particularly the Inland Empire, just from goods that are probably sitting there for longer than they need to be? And so I guess another way to ask it is like, if the supply chain eases up, and we have kind of a more free flowing flow of goods, it does that, I guess, decrease the demand in that market? Or is that a net positive in terms of warehouse demand?
I think our thinking is, is a net positive, because right now, these ports are not working properly. And there's actually more goods to be received. I mean, at any one point, I mean, there was a point in about a month ago, where there's about a total of 100, container ships and waiting, and some near the port. And the Port of LA Long Beach over eight demanded that they stay about 40 to 50 miles away, because all of that, and if you assume they are anywhere from 10,000, to 15,000 to us, just imagine the amount of stuff waiting.
So our general view is that the ports are working well, it’s really really good for the market and really good for the economy. You're right, that, yes, what if you can remove containers as quickly as you can, then it'll improve it. But that's only one variable.
I mean, everything has to be in sync, the ocean freight lines, the actual manufacturer in Asia, the warehouses. The warehouses, landlords have to build more space, because we're at one half of 1%, they can see the truckers have to come in and move those contents out. Of course, I could come in and basically give you 12 other variables that affect the supply chain, so we don't think it's going to lead up pretty soon.
Okay. All right. I appreciate that color. Thank you.
And the next question will come from the line of Vikram Malhotra of Mizuho.
Questions. I just got a couple of clarification. So I think last week or the week before, Amazon sort of talked about potentially just slowing the growth across their portfolio. I'm just wondering if you can sort of maybe elaborate on to two points. One, do you see or are hear the potential for Amazon to be more discerning on the types of levers where they grow and where they may not or may not renew.
And then second is, if you can talk about what you're seeing on in terms of other retailers catching up and building out their supply chain, if any anecdotal examples and examples would be great.
I mean, we saw the, what they said on the earnings call a little bit difficult to interpret, as they said that they were going to slower reduce their investment. As you know, they lease and they buy and they own their own warehouses. As far as market activity goes, we have not seen any drop off. And the demand today is very, very broad based. And you can say that their competitors are trying to catch up, they're certainly looking to improve their competitive positions. Jojo, do you want to add some color to this?
Sure, absolutely. If you look at year-over-year market change in terms of composition of that absorption, the three PL led the charge in 2021, meaning that three PLs, non-Amazon, I mean, this is not Amazon, these are third party providers, so just like Peter is very broad base. In addition to that, I mean, now other competitors, anecdotally you I mean there are a number of companies out there who are not even close to Amazon, and they want to be where Amazon flip basis, I guess, target growing, for example, Home Depot, still growing, Lowe's, those are big, big companies. Walmart definitely doesn't have the fulfilment footprint that they have to announce they want to be. So yes, you're you're right. I mean, there are other your speculations, right, there are other retailers who really want to grow and catch up.
We've long anticipated every business at some point begins to rationalize their space. We've long anticipated Amazon doing that. And that's why we have not chased them to the secondary and tertiary markets. And that's why we don't own any of their seven storeys of meds full of robotics, the special purpose properties. We've stuck to our, our disciplined focus on the coastal markets and delivering property that appeals to a much more broad set of potential tenants.
And there I feel the final point I want to make, there are a number of businesses where the skews, the company skews are significantly more like Amazon like pet foods, everybody probably knows, Chewy, they're killing it, they are killing it in that space. In terms of furniture, there are a number of companies like a Wayfair, that has a much, much more wider skews than Amazon. So they're gaining share there. So there are some specialized products that I think you're going to have to beat Amazon unless they get bought.
That’s helpful. And then just in terms of, risk or, potential markets where you we talked about a lot of development, there's a lot of opportunity, your margins are great. But are there any sub markets or markets where you're just sort of maybe pausing and rethinking, given maybe the entirety of supply that's still that's underway, or potentially yet to come? Any watchlist market, you'd call out?
Well again, we're very focused on allocating the vast majority of our new investment capital to the coastal markets. And right now, they are all very, very strong. In fact, in all of the markets that we're in, including the markets that we don't intend to invest in anymore. Vacancies are coming down and net absorption exceeds new supply. So we don't, we don't see a weaknesses across our markets.
Okay, great. And then if I can clarify, sorry, if I missed this, your mark-to-market is clearly very strong and will continue to be so as you outlined on your same-store, but can you just give us a sense of like, if you took the portfolio today, what is the entirety of the mark-to-market opportunity as it stands today? Where is the portfolio versus market?
We answered that question a little bit earlier this morning. We don't track that statistic. We can catch up with you offline for the rest of that answer.
Okay, okay. Sorry about that. Thanks so much.
Thank you. [Operator Instructions] And we do have a question from the line of Rob Stevenson of Janney.
Hey, guys, just a quick one. Scott, the G&A guidance looks to be down year-over-year. What's driving that? And then where are you seeing upward and downward pressure on expenses, just in general in 2022?
So Robert, Scott. So it is down, our midpoint G&A guidance is down, I think about $600,000 compared to 2021. Actual in the main driver of that is incentive compensation. So in our 2022 G&A guidance, we're assuming target incentive compensation in 2021. We earned higher than target due to the fact of how the company did in 2021. So that's going to be the main driver in that. And I would say the larger increase in costs are going to be just, people costs. It's a very competitive market for talent. So that's going to be probably the biggest driver of the increase in G&A costs, now and in the future.
And the NOI guide, the same-store NOI guidance, what type of expense growth are you anticipating driving that number?
Oh, go ahead.
Rob, certainly the one area that real estate taxes, just because of the increase in values of the property, there's some upward pressure on that. But it’s almost 100% recoverable. So not much impact on the NOI.
Okay, thanks, guys.
All right. Well thank you, everybody. That's the last question for this morning. We very much appreciate you joining our call. Thank you, operator, and we look forward to connecting with many of you throughout the year. Be well.
Thank you so much, sir. And this concludes today's conference call. You may now disconnect.