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First Industrial Realty Trust Inc (FR) Q1 2021 Earnings Call Transcript

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First Industrial Realty Trust Inc (NYSE: FR)
Q1 2021 Earnings Call
Apr 22, 2021, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen and thank you for standing by. Welcome to the First Industrial First Quarter 2021 Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Art Harmon. Thank you. Sir, please begin.

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Arthur Harmon -- Vice President, Investor Relations & Marketing

Thank you, Howard. Hello, everybody, and welcome to our call. Before we discuss our first quarter 2021 results as well as updated guidance, let me remind everyone that our call may include forward-looking statements as defined by federal securities laws. These statements are based on management's expectations plans and estimates of our prospects. Today's statements may be time sensitive and accurate only as of today's date, Thursday, April 22, 2021. 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.

Peter E. Baccile -- President and Chief Executive Officer

Thanks, Art, and thank you, all, for joining us. We're very pleased with our first quarter performance and we're encouraged by the continuing strong economic growth supported by improving consumer confidence and significant government economic stimulus. Similar to our fourth quarter call, we continue to see exceptionally strong fundamentals in the industrial market. For the recent CBRE flash report, U.S. industrial net absorption totaled 100 million square feet in the first quarter. This marks the first time ever that demand has exceeded 100 million square feet in consecutive quarters. Net absorption also significantly exceeded first quarter completions of 57 million square feet.

As you would expect, in response to this demand, high-occupancy levels and strong rent growth, we are continuing to invest in new development projects, which I will discuss shortly. Before I recap first quarter results and activity, let me start by updating you in a couple of items since our last call. As we announced earlier this month, David Harker will be retiring as Executive Vice President of our Central Region effective June 30. David has been a valued member of the FR team since 1998 when he joined the company as our Regional Director in Nashville. He has served our company and our shareholders as Head of our Central region since 2009 helping to shape and grow our portfolio. We will miss Dave's enthusiasm, tenacity, and energy, and wish him well in his retirement.

With David's departure, we will consolidate our regional structure into two regions with Jojo Yap and Peter Schultz each assuming responsibility, proportions of David's region. Also during the first quarter, we were pleased to welcome Marcus Smith as the newest member of our board, where he will serve on our investment and nominating corporate governance committees. Marcus is a director MCSI, Inc. and was most recently the Director of Equity and the Portfolio Manager at MFS Investment Management. We also want to acknowledge Peter Sharpe, who will be retiring from our board. Thank you, Peter, for your more than 10 years of valued service to our company and our shareholders. Now moving on to our portfolio results for the quarter. Occupancy at quarter-end was 95.7% and cash same-store NOI growth was 2.2%. For the quarter, we grew cash rental rates 10.4%. And as of today, we have renewed approximately 72% of our 2021 expirations, with a cash flow rate increase of 12.7%.

Moving on to sales; during the quarter, we sold three properties and two condo units for $67 million at an in-place cap rate of approximately 8.4%. The vast majority of the sales total related to two larger properties leased at significantly above market rents to tenants we expect to move out. Thus far in the second quarter, we sold the land parcel for $11 million, bringing our year-to-date total to $78 million, well on our way to our sales guidance of $100 million to $150 million. Turning now to new investments, as we continue to seek out profitable opportunities, development remains our primary means of new investment to drive future cash flow growth. As most of you are aware, as part of our underwriting process and to manage risk, we operate with a self-imposed speculative leasing cap.

Based on the strong fundamentals, combined with the growth of our company, our balance sheet strength, portfolio performance and our significant future growth opportunities, we believe it is prudent to increase our speculative leasing cap by $150 million to $625 million. When we first initiated this leasing cap nine years ago, it represented approximately 9% of our total market cap. The new cap level represents a similar percentage. Further, we are pleased to announce two new development projects scheduled to break ground in the second quarter. These are in addition to the three first quarter starts in the Inland Empire, Nashville and Phoenix we told you about on our February earnings call.

The first project is at our First Park 121 in Dallas comprised of two buildings totaling 375,000 square feet with an estimated investment of $30 million and a targeted cash yield of 7%. This is the third and final phase of our park in Lewisville, adding to the three previously completed buildings that totaled 779,000 square feet. We pre-leased the 125,000 square foot building, so we're 33% leased on the new phase prior to groundbreaking. The other start is the second building in our First Aurora Commerce Center project in the airport submarket of Denver. It's a 588,000 square footer adjacent to the 556,000 square foot building we completed in the third quarter of 2019 which was 100% leased within a couple months of completion.

Estimated investment is $53 million with a targeted cash yield of 6%. This new building position us well to serve a significant demand for larger spaces we are seeing in that market and we look forward to future growth at that park on our remaining land on which we can develop three additional buildings totaling approximately 700,000 square feet. Including these two new developments starts, our developments in process today total 3.3 million square feet with a total estimated investment of $318 million. At a cash yield of 6.2%, our expected overall development margin on these projects is a healthy 45% to 55%. Moving on to acquisitions, during the quarter, we bought one building and three land sites for a total purchase price of $24 million.

The existing asset is a 62,000 square foot distribution facility in the Oakland submarket. The total purchase price was $12 million and the expected stabilized cash yield is 4.8%. The three new land sites total 16.6 acres and are located in the Lehigh Valley in Pennsylvania, the Inland Empire East and the Oakland market of Northern California. Total purchase price was $12 million and these sites can accommodate up to 275,000 square feet of future development. In total, our balance sheet land today can support more than 10 million square feet of new investments and our two joint ventures can support 11 million square feet with our share of around 5 million. So, we're well-positioned for future growth. As always we continue to utilize the strength of our platform to secure profitable new investments. Our team is working around the clock to execute our capital deployment plan with a focus on growth.

With that, let me turn it over to Scott.

Scott Musil -- Chief Financial Officer

Thanks Peter. Let me recap our results for the quarter. Net refunds from operations were $0.46 per fully diluted share compared to $0.45 per share in 1Q 2020. And our cash same-store NOYI growth for the quarter, excluding termination fees and a gain from an insurance settlement, was 2.2% primarily due to an increase in rental rates on new and renewal leasing, and rental rate bumps embedded in our leases partially offset by lower average occupancy. Summarizing our outstanding leasing activity during the quarter, we commenced approximately 3.3 million square feet of leases. Of these, 600,000 were new; 2.3 million were renewals and 500,000 were for developments in acquisitions with lease-up.

Tenant retention by square footage was 76.5%. Cash rental rates for the quarter were up 10.4% overall, with renewals up 8.3%, and new leasing, 17.8%. And on a straight-line basis, overall rental rates were up 21.4% with renewals increasing 17.6% and new leasing up 35.5%. Now on to a few balance sheet metrics; in March 31, our net debt plus preferred stock to adjusted EBITDA is 4.8 times and the weighted average maturity of our unsecured notes, term loans, and secured financings was 6.1 years, with a weighted average interest rate of 3.6%. Moving on to our updated 2021 guidance for our earnings release last evening, our guidance range for NAREIT FFO remains $1.85 to $1.95 per share, with a midpoint of $1.90.

Key assumptions for guidance are as follows: quarter-end average in-service occupancy of 95.75% to 96.75%, an increase of 25 basis points at the midpoint, helped by property sales in the first quarter; same-store NOI growth on a cash basis before termination fees of 3.5% to 4.5%, an increase of 50 basis points at the midpoint to the first quarter performance and property sales in the first quarter. Please note that our same-store guidance excludes the impact of approximately $1 million from the gain from an insurance settlement. Our G&A expense guidance remains unchanged at $33 million to $34 million. Guidance includes the anticipated 2021 costs related to our completed and under-construction developments at March 31st, plus the expected second quarter groundbreakings of First Park 121 Buildings C and D, and First Aurora Commerce Center Building E.

In total, for the full year 2021, we expect to capitalize about $0.05 per share of interest. And lastly, guidance also reflects the expected payoff of $58 million of secured debt in the third quarter, with an interest rate of 4.85%. Other than previously discussed our guidance does not reflect the impact of any 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.

Peter E. Baccile -- President and Chief Executive Officer

Thanks, Scott. We're off to an excellent start in 2021. Our team's focused on capitalizing on the positive momentum generated by the recovering economy and the continuing evolution and growth in the supply chain.

And with that, operator, would you please open it up for questions?

Questions and Answers:

Operator

[Operator Instructions] Our first question or comment comes from the line of Michael Carroll from RBC Capital Markets. Your line is open.

Michael Carroll -- RBC Capital Markets -- Analyst

Yeah, thanks. Can you guys talk a little bit about your near-term, I guess, development starts? You've been pretty aggressive at the beginning of this year and you just mentioned that you're increasing your speculative development cap. I mean, can we assume that FR will continue to break ground on, I mean, the $80 million to $100 million of development starts as we move into the back half of this year to kind of continue this pace you started at the beginning of the year?

Peter E. Baccile -- President and Chief Executive Officer

So, yeah, the cap is now $625 million and we've got about $225 million of capacity under the cap. So, that's $400 million under way. About $318 million is currently under construction and the rest have been completed. So, we've got some room there. We're evaluating new opportunities and you can expect us to announce some additional starts in the second and third quarter.

Michael Carroll -- RBC Capital Markets -- Analyst

Look, are there specific markets you're willing to pursue, spec projects? I mean, are you really focused on the Tier-1 markets to do spec projects or are you willing to go on some of the smaller markets, too?

Peter E. Baccile -- President and Chief Executive Officer

Well, as you know, we're pretty focused on the higher-barrier markets now with not only our new development projects but also any acquisitions. And so, that's where we'll continue to focus our new investment dollars. That's not really size-related. It's really more growth opportunity-related.

Michael Carroll -- RBC Capital Markets -- Analyst

Okay, great. And the last one for me, can you talk a little bit about the activity you're seeing at the former one or former Pier 1 space? Is there interest in that site right now? And I guess, what's the timing of being able to release that block?

Peter Schultz -- Executive Vice President, East

Sure, Mike. It's Peter Schultz. Activity in that market continues to be very good. A number of large lease signings in the first quarter. We've had some interest in our building. Nothing to report on today. Our assumption is that it releases on October 1. And given the high level of demand and a few choices the tenants have, we're optimistic about outperforming on our rental rate there.

Peter E. Baccile -- President and Chief Executive Officer

Mike?

Michael Carroll -- RBC Capital Markets -- Analyst

Okay, great. Thanks.

Operator

Thank you. Our next question comes from the line of Craig Mailman from KeyBanc Capital Markets. Your line is open.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

Hey, Peter. Just a clarification to the previous question. You said there was $225 million in capacity left under the cap or used under the new cap?

Peter E. Baccile -- President and Chief Executive Officer

We have $225 million of the $625 million is available. Of the $400 million that is used, $318 million is under way. And the difference are three projects that we have completed but not yet leased.

Scott Musil -- Chief Financial Officer

And that already includes the projects that we just announced that's going to start.

Peter E. Baccile -- President and Chief Executive Officer

Yes.

Scott Musil -- Chief Financial Officer

Q2.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

Got you.

Peter E. Baccile -- President and Chief Executive Officer

So that $225 million is pure capacity for news starts for the rest of the year, unless we lease things quicker.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

Okay. And then one of your larger peers was talking about replacement costs going higher and the difficulty getting materials. Kind of where are you guys on purchasing, buying new projects? You back for the land bank a little bit here. But as we look out to the balance of the year, I mean do you have the steel and other materials to continue to keep pace with starts or is that going to be a little bit of a hindrance as we move to the balance of the year unless supply chains ease up a bit here material side?

Peter E. Baccile -- President and Chief Executive Officer

So, on the topic of steel, it's certainly more expensive than it was. This isn't an issue that just popped up. This has been evolving for the better part of nine months to a year. And so, we've been on top of this, anticipating longer lead times to get steel. We're not having any trouble getting steel. It's not holding up our new projects. The projects are, as I said, again are a little bit more expensive. Jojo, do you want to go through kind of the expense increase for -- I mean, how's the expense increase land appreciation to start with it?

Johannson Yap -- Chief Investment Officer

Absolutely. Due the increase in construction cost and primarily with steel, if you count the land static, basically the increase contributed to 5% to 7% increase in total investment including land. And then you factor the land increase, then that's another probably 5% to 7%. So, that's -- and so, basically half and half, half on land and half on the construction cost increase.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

All right. That's helpful. And then just, Scott, one quick one. It seems like the sales this quarter kind of really helped to boost some of the occupancy and same-store lift. And did it also drag enough on earnings and that's why you guys kind of kept guidance here flat?

Scott Musil -- Chief Financial Officer

Yes. So, here, I'll walk through the math, Craig, with you. You're going to love this stack because I know you love bad debt expense. But our bad debt expense was zero for the first quarter compared to our guidance of $500,000. So, that obviously is a benefit to FFO. And then, you're correct, some of the sales in the first quarter caused some dilution that offset that, which is the reason why we kept our FFO guidance the same, the midpoint. Keep in mind, those sales proceeds will be part of the funding source that we use to fund the two new starts that we discussed in the script. And when those are completed and leased up, obviously, we'll see an increase in NOI from that activity.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

Great. Thank you.

Operator

Thank you. Our next question or comment comes from the line of Rob Stevenson from Janney. Your line is open.

Robert Stevenson -- Janney Montgomery Scott -- Analyst

Good morning, guys. Thanks. Scott, what drove the 15% same-store expense growth in the quarter? And is any of that carrying over in the back half of the year?

Scott Musil -- Chief Financial Officer

Sure. If anyone on the call lived north during this winter, it was snow removal costs being in Chicago we definitely felt there, and I'm sure many of the folks in the north felt it. So, it was an increase in snow removal costs was the primary driver and again, the vast, vast majority of our leases or net leases, so that's recoverable. And again, with our high occupancy rate, we're recovering most of that and the leakage is pretty small. So, that's it as far as whether or not we'll experience that later in the year, I guess you'd have to look at the Farmer's Almanac and see whether we're going to have a bad fourth quarter or winter or not. But again, I think the main point is, is when we see expenses increase in the portfolio with a high net lease exposure and a high occupancy rate, the vast majority of it is going to be recoverable.

Robert Stevenson -- Janney Montgomery Scott -- Analyst

Okay. And then any known move-out to size over the remainder of 2021 and in the 2022 leases and where are you guys expecting the retention rate to sort of fall out for the year? It was low this quarter relative to previous quarters. But I don't know whether or not this just got some of the move-outs out of the way.

Christopher Schneider -- Senior Vice President, Operations and Chief Information Officer

Yeah. This is Chris. As far as remaining rollovers for the year, as you've seen we've taken care of 72% of them so far. The remaining rollovers averaged about 27,000 square feet, so pretty good shape from that standpoint. As far as where we're going to end up for the year for retention, we should be somewhere in between that 70% and 80% rate. And we're looking forward all to 2022. It's pretty granular pretty across all markets there, so no big surprises there.

Robert Stevenson -- Janney Montgomery Scott -- Analyst

Okay. And then last one for me, the three land sites you bought in the quarter supporting 275,000 square feet, is there anything in particular? I assume the Oakland is probably a smaller asset, but the average of that is all three assets over 275,000 square feet, sub-100,000 square foot. Are you combining that with additional land sites to build bigger or are these all going to be relatively small developments once you get to them?

Christopher Schneider -- Senior Vice President, Operations and Chief Information Officer

Yeah. You're dead on correct in terms of the three assets, the Oakland assets are lower coverage building because we were getting significantly higher rent growth on surface parking and surface use. So the design there right now and we select to get it all approved, the design right now is a bit lower in terms of FAR and it's a stand-alone project. Peter?

Peter Schultz -- Executive Vice President, East

And then, Rob, in the Lehigh Valley, that site is adjacent to one of our existing properties and is going to share some infrastructure. And we're excited about that size given the difficulty in finding sites and serving demand for that size in that submarket.

Robert Stevenson -- Janney Montgomery Scott -- Analyst

Okay. Thanks, guys. Appreciate it.

Operator

Thank you. [Operator Instructions] Our next question comes from the line of Caitlin Burrows from Goldman Sachs. Your line is open.

Caitlin Burrows -- Goldman Sachs & Co. -- Analyst

Hi. Good morning. Maybe just following up on that land acquisition topic. I think this is the first time in recent history that you acquired lands in Northern California and the cost was pretty high versus 2020 land acquisition. So, could you just go through what drove the decision to acquire the land given the economics and how quickly do you expect to build there and what kind of you could expect?

Peter E. Baccile -- President and Chief Executive Officer

Sure. Yes, Caitlin. Thanks for your question. We're highly focused on the 884 in East Bay. We expect significant rent growth from East Bay. It's one of the most infill markets in the U.S. and both in the Peninsula which the East Bay industrial market continues to grow. So that's the overall strategy. If you look last year, we actually acquired some properties in the I-80 corridor, specifically Fremont. They sell land sites in Hayward. We're just at the epicenter of the industrial market in East Bay. And you will see us, going forward, acquire and develop more products all the way north from Richmond, down to San Jose, with the epicenter being Oakland and Hayward.

So, that's our overall strategy. And we expect to develop this site that we acquired. And in terms of our acquisition, Burroughs Avenue, we expect a whole lot of 4K [Phonetic] yield there. And if the market stabilize right now that property should trade on a sub-4. And in that property, we expect significant rental rate growth there. It will be matching -- East Bay will be matching -- the rent growth we'll be matching with the experience in South Bay, LA, and IE.

Caitlin Burrows -- Goldman Sachs & Co. -- Analyst

Got it. Okay. And then maybe just more broadly on acquisitions of land. Can you talk about the competition that you're seeing in the target market? I imagine it's high, but just how often you're being priced out or what the opportunity is there.

Peter E. Baccile -- President and Chief Executive Officer

Well, most of what we're doing -- our teams on the ground spend a lot of time making unsolicited offers and hounding the owners of these land sites until they basically cry uncle and agree to sell. And so, typically, when we're successful or where we're most successful, that's one of the reasons that we're able to develop to such high margins is we only have limited competition. Obviously, they're going to talk to just more than just us. But typically, these opportunities are not being widely marketed by brokers. So, that's kind of the way we're after. It's literally hundreds of unsolicited offers a week around the country. And some of the land sites are smaller. And every now and then, we're able to get 80 acres or 90 acres at a pop. So -- and we're focused, as you know, on the higher barrier markets. So by definition, large land sites are going to be tougher to come by.

Johannson Yap -- Chief Investment Officer

And just to add to what Peter said that we do -- we have done and we've been very successful at land assemblages, which is one of the most complex land acquisition you can do where you need to tie up multiple sellers and close simultaneously, but we've been able to successfully do that. The net effect of that is a lower base.

Caitlin Burrows -- Goldman Sachs & Co. -- Analyst

Got it. And then maybe just the last one on the maintenance capex, the non-incremental building improvements and non-incremental leasing costs were higher again in the first quarter year-over-year or if you look over the trailing four quarters, crushing the AFFO. So, I know last year you had talked about pull-forward of some capex. Just wondering how long that's going to continue for and is that still what's causing the higher maintenance capex. Thanks.

Scott Musil -- Chief Financial Officer

Yeah, Caitlin. It's Scott. I think that's probably more of a timing difference quarter-to-quarter capexes, sort of you have to look at that on an annual basis. But we expect our capex for this year to be plus or minus $38 million, which is going to be a savings compared to our capex in 2020 and we feel that that number, again, if we keep the portfolio the same size, will go down a couple of million dollars over the next couple of years.

Caitlin Burrows -- Goldman Sachs & Co. -- Analyst

Okay, got it. Thanks.

Operator

Thank you. Our next question or comment comes from the line. I'm sorry. Our next question comes from the line of Dave Rodgers from Baird. Your line is open.

David Rodgers -- Robert W. Baird & Co. -- Analyst

Dave Harker, congratulations on the retirement, well deserved. Peter Schultz and Jojo, congratulations on the added work.

Peter Schultz -- Executive Vice President, East

Let's go on. Let's take our pick.

David Rodgers -- Robert W. Baird & Co. -- Analyst

Going back to the comments, I looked at your development pipeline, what's under construction today is about 20% larger than what you delivered last year. And I know some of that can just be changes in mix and all that. But if we look at then the two weakest areas of occupancy in the portfolio, it's kind of Seattle and South Florida, both kind of smaller tenant markets, typically. So, I guess maybe talk about, do you have a bent toward building bigger assets, notwithstanding your recent comments that you just made in the last couple of questions? But I guess then broadly, can you talk about the activity in the small spaces and what you're seeing and how that part of the portfolio is recovering?

Peter E. Baccile -- President and Chief Executive Officer

Sure. Let me start with that. And then Jojo and Peter can jump in. The weakening or weaker occupancy that you referred to in some of these markets is really one property. So, for example, in South Florida, we've got a 96,000 square-foot vacancy in Broward County. In Seattle we've got 62,000 square-foot vacancy there. We don't have a huge portfolio. We're working on it but it's still not large in Seattle so that factors into that vacancy that you referred to. Grand Parkway in Houston, other than Grand Parkway, we're pretty fall into Houston. So, there's really no issue there. In terms of demand, the largest rent increases are coming from the tenants in the building side, 100,000 to 200,000 square feet. Peter and Jojo, I don't know if you want to add to that?

Peter Schultz -- Executive Vice President, East

Sure Dave, it's Peter. I would say in terms of building size, we're building to what we view as the strength of demand on a submarket basis. So, in Pennsylvania as an example, bigger is better and demand is strongest for larger buildings. In some of the other submarkets, it might be a mid-sized building. But remember, we're always focused on the flexibility to accommodate single tenant or multitenant in these buildings and we've been surprised in a couple of cases where buildings that we've built for multiple tenants we've ended with a single tenant. Jojo?

Johannson Yap -- Chief Investment Officer

Yeah. So, you know, just to add an example to Peter. So, this -- we lease this building for example, First Redwood Logistics I Building B. That's a 44,000- square-foot asset basically in the IE and very, very successful. Leases very, very quickly after completion. You look at some like -- we have this build-to-suit First Nandina. This is only 221,000 square feet in East IE. This is considered a small building but there's significant demand there. And that's why it became a build-to-suit because we were going to go spec and tenant came in and acquired. Another building we said that we could start with a 303,000 square foot again in IE called First Wilson.

So, again it shows you the breadth of the demand in [Indecipherable]. But like Peter said, we will continue to build to what suits the market. And you know just like Caitlin just asked on this call and the other gentleman asked about this asset in East Bay. In East Bay, a number of our assets are going to be a little bit the smaller size because that's where the demand is. But we'd be buying a bigger site as well. We'll build it because there's lack of a larger building there and so on. I hope that answers your questions, Dave.

David Rodgers -- Robert W. Baird & Co. -- Analyst

It does. I appreciate all the added color. I think in there I heard rent increases are biggest among 100,000-to-200,000-square-foot boxes. I guess as you rank maybe the smaller and the larger component against that range. So, below 100,000 and above 200,000, how do those compare? Are they meaningfully different?

Peter E. Baccile -- President and Chief Executive Officer

So, the 50,000 to 100,000 are pretty strong as well. The growth is a little bit lower over 200,000 and under 50,000. So that's and under 50,000. So that's a broad generalization but that's what we're seeing.

David Rodgers -- Robert W. Baird & Co. -- Analyst

No, that's helpful. Thank you. Last for me. Scott, maybe for you. As you increase the development cap and it makes sense. Thanks for running through the numbers. I guess how do you think about the financing part of that? Right for now, maybe you've got more speculative assets that you can add to the pool. But do you think about them having to kind of keep lower leverage using equity more aggressively or selling more assets as the year progresses?

Scott Musil -- Chief Financial Officer

Yeah. Dave, I think it's the same formula we've used in the past is you're going to be going to use your sales proceeds and your excess cash flow after paying a dividend. We do have room to lever up a little bit because you're right our leverage is low at 4.8 times. And like we said before, if we see great investment opportunities there and equity -- the price is attractive, we will consider issuing equity. So that's definitely on the table. And again, we'll -- we have look back at what we did in equity issuances in 2020, 2018, 2017, and 2016. We put the vast majority of that money into spec development. And as we discussed in our Investor Day call last year in November, the margins on there were very strong, and we thought it was a great use of capital. So, equity is a piece, but we have to like the stock price and we have to have the investment pipeline.

David Rodgers -- Robert W. Baird & Co. -- Analyst

All right guys. Thanks, everyone.

Operator

Thank you. Our next question or comment question comes from the line of Vince Tibone from Green Street. Your line is open.

Vince Tibone -- Green Street Advisors, LLC -- Analyst

Hi. Good morning. Given how land and overall replacement costs are trending, how much longer do you believe development profit margins can stay at the impressive levels they are now? At what point does that competitive market forces push these down some in your mind?

Johannson Yap -- Chief Investment Officer

Sure. This is Jojo. In terms of margin of speed, pretty much flat because of doing phase 1. Investment costs have gone up, but rent has gone up as well. And then cap rates have actually -- had come down, too. And I think I believe rightfully so because most investors did not expect the high rental rate growth rates that we're experiencing. Everyone -- everybody was in a 3% to 5% and the reality is that this year is probably going to be 5% to 10% with some market actually exceeding that. So, we're in a space right now that I think margins will continue. There is significant more competition coming in.

But overall, the rents have gone -- came up. The last one other comment I was going to make is that we always hear or asked the question as we talk to our customers about the cost of railway costs as a car pool logistics cost, it still remains small. It's really under 7%. And the biggest component of any logistics company is transportation, labor, and inventory management, and the rest comes down. And we're -- we're actually the lowest cost structure, not that we can just go away and charge anything. There's room to grow in that because it's the lowest component of logistics costs.

Vince Tibone -- Green Street Advisors, LLC -- Analyst

Got it. That's helpful. I want to follow up on one of the comments you made maybe just on kind of growing competition. Are you seeing a lot of new players enter the space who traditionally haven't done industrial development or it's more kind of existing players just growing their risk appetite and maybe development pipelines?

Johannson Yap -- Chief Investment Officer

Both. We're seeing both. Exactly, what you're saying was it's exactly the source of new competition, new increasing money from existing investors and new entrants and lots from and new entrants and lots from other product types where they see the -- actually, the tailwind is much, much better in industrial.

Vince Tibone -- Green Street Advisors, LLC -- Analyst

Does that worry you at all with some of the lower barrier markets just kind of ramping supply over the next few years? As more and more capital come into space, how do you think about overall supply risk in your various markets?

Johannson Yap -- Chief Investment Officer

We look at it very, very closely. We don't worry about it. We calibrate our investment given the demand supply of each submarket. And that's why we have a platform because we always watch supply demand. And so far, we've been really pleased and a bit surprised on the 100 million -- over 100 million square foot net absorption in the whole market just this Q1 versus a constrained supply. So that's welcome news to everybody in the industrial [Indecipherable] industry.

Peter E. Baccile -- President and Chief Executive Officer

Yeah. There are lots of new entrants as Jojo mentioned where investment managers are investors in traditional assets, apartments, retail, etcetera, want to get involved in industrial. And they're extremely aggressive and actually become really good buyers of some of the stuff that we're selling. So, from that standpoint that's a plus for us.

Johannson Yap -- Chief Investment Officer

The only other thing I'd add to what Peter said is that we -- if you remember, we do have a platform wherein our construction development, asset management, property management, leasing platforms that's not all the new entrants have. And that creates competitive advantage in terms of relationship, finding new deals, getting deals with no basis.

Peter E. Baccile -- President and Chief Executive Officer

And market knowledge.

Vince Tibone -- Green Street Advisors, LLC -- Analyst

Makes sense. Thank you.

Operator

Thank you. [Operator Instructions] Our next question comes from the line of Mike Mueller from J.P. Morgan. Your line is open.

Michael Mueller -- J.P. Morgan Securities -- Analyst

Yeah. Hi. You talked a lot about new development starts, but can you talk a little bit about what you're seeing in terms of the opportunity for buying, making buildings?

Peter E. Baccile -- President and Chief Executive Officer

There's not a whole lot on the market to start with. So, we track -- we'll call it deals done away. That's an old banking term. We track all the transactions that happen. We see most of them. And over the past few years, that analysis has sent down considerably. So, first of all, there's not a lot being sold. Then, you break it down to where we want to or would consider buying and that's higher-barrier markets and that shrinks the available pool even more. We'll certainly -- we would certainly acquire a vacant building if it met all of our criteria. We do evaluate those opportunities from time to time but it's not a high value.

Michael Mueller -- J.P. Morgan Securities -- Analyst

Got it. That was it. Thank you.

Operator

Thank you. Our next question comes from the line of Rich Anderson from SMBC. Your line is open.

Rich Anderson -- SMBC Nikko Securities Inc. -- Analyst

Hey. Thanks. And just a tweak to Mike's question there, I'm wondering -- I don't know that there's much in the way of distress in industrial space these days, but I wonder if you -- if there's a way to get creative in building your land position, perhaps, I don't know, a poorly located strip center that you can get for the dirt that would be a decent location for a moderate-sized industrial building? Are you willing to take on sort of the risks and the time constraints of reentitling and all that? Is that in your crosshairs? Are you doing that at any level today or is it just not necessary at this point?

Peter E. Baccile -- President and Chief Executive Officer

Well, we absolutely think entitlement. For us, it's what we do on a regular basis.

Rich Anderson -- SMBC Nikko Securities Inc. -- Analyst

Well, I mean, I just -- let me rephrase the question. Of course, you do that. But I mean, more opportunistically, I guess I would say.

Peter E. Baccile -- President and Chief Executive Officer

Sure.

Rich Anderson -- SMBC Nikko Securities Inc. -- Analyst

In the way I'm trying to describe it.

Peter E. Baccile -- President and Chief Executive Officer

Sure. I mean, yes, we would. There are some opportunities out there. There are some hurdles to doing that as well. As you know, retail rents tend to be higher per foot than industrial rent. So, there's an economic challenge to overcome there. There's also the whole fact that most of these retail centers are surrounded by residential and the neighborhoods aren't going to want 53 trucks rolling through the neighborhoods. So, those are our challenges. We do look at these opportunities. We're looking at a couple right now. So, yeah, we're like everyone else. We're trying to find where we can create some value for shareholders. And in some cases, it may well turn out to be a reuse or redevelopment of a retail.

Rich Anderson -- SMBC Nikko Securities Inc. -- Analyst

Okay. And then my follow-up unrelated question is just looking at how the markets react to today, I don't want to get too much into a single day's worth of trading. But you reiterated your guidance from last quarter. And I guess, in the industrial space, reiterate is viewed as a cut, which is a product of your own past success and saying that tongue in cheek. But I guess what I am asking is, in 2020 is that you've evolved. You saw e-commerce demand built in that environment and hopefully an environment that's going away slowly. In 2021, what is your perspective of -- or how -- is your perspective of future growth somewhat lower because we're kind of approaching more of a normal operating environment and, hence, maybe we've kind of got a pretty good sense of what 2021 guidance will look like in future periods, or are you, call it, just as excite or more excited this year despite the fact that you won't have the sort of doubling down on demand like you had last year? Thank.

Peter E. Baccile -- President and Chief Executive Officer

Nobody knows what the growth trajectory of e-commerce is going to be except that we did see adoption of online buying by millions of new customers, if you want to call it that, last year. It tends to be sticky, so you saw this hockey stick growth in online sales probably not going to continue that trajectory. But we've had a step up, I guess, if you want to call it that, and we would expect the trajectory to be at least as good as it was pre-COVID which was still pretty strong. So we do believe e-commerce is going to continue on a very, very strong growth trajectory. Again, probably not the hockey stick we saw in 2020. And look, there's a lot of competition out there. Everybody is competing to grow their footprint and to -- and trying to maximize and optimize their supply chain. So it's not just the e-commerce guys. It is the traditional sellers of goods and products and services. And we like that competition. It's good for us and it's good for rent growth.

Rich Anderson -- SMBC Nikko Securities Inc. -- Analyst

Okay, great. Thanks very much.

Operator

Thank you. Our next question comes from the line of Nick Yulico from Scotiabank. Your line is open.

Nick Yulico -- Scotiabank -- Analyst

Maybe just focus on me the Inland Empire for a minute. In the Investor Day, they give some forecasted yields on the future land pipeline there as well as construction starts and we just came off of -- I think some people were saying was a record first quarter in the first quarter for the Inland Empire. I guess, I'm just wondering there, you say the cash yield there on that pipeline of 5.6% in construction starts that were starting sort of besides what you've already announced later this year and into 2022, 2023. And I guess, I'm just wondering based on the market dynamics since then, whether there's any increase in yield that you're seeing in that market and as well for some of the future starts to speed up some of the development in the Inland Empire?

Johannson Yap -- Chief Investment Officer

Hi. This is Jojo. When I mentioned 5% to 7% increase that was in relation to increase in construction costs over total project costs, which includes land ex-spec. And that's due to a lot of steel. To your question of rents accelerating, yes, IE is a market wherein rents have actually increased at a higher rate than combined construction costs in land. And therefore, yes, if you -- if we look back in terms of our projections, we are forecasting increasing yields in the IE and that's the function of the increasing rent. So, yeah, you're -- I think that's where you -- if that was your question, yeah, that's the trend that we're seeing.

The only thing I'd like to add is that -- and the couple of reasons why, the market is one of the tightest in the U.S., usually we get IE in itself, West and East. Your sub-3% as we all know is sub-2%. This year, in terms of year-to-date, Q1 productivity, March probably shattered the record of the last 10 years. Of the top 30 ports in the U.S., there'd be increased container throughput inbound only. And if I give you example of just the top two ports, Q1 of '21 versus Q1 of 2020, the increase in throughput of 47% through the ports of LA and Long Beach. And so, the reason I mentioned that is that that has impact on -- in terms of absorption and rental rates and the continued tight market for IE because IE is the biggest repository medium of all the goods coming from Port of LA, Port of Long Beach.

Nick Yulico -- Scotiabank -- Analyst

Okay. Thank you. That's helpful. Just one other question is on the asset sales you mentioned this quarter that there were some above market rents that drove that cap rate higher on the sale. How should we think about going forward, some of the other property sales you may be doing and lining up in terms of that if there is also an above market rent impact we need to think about or should cap rates on sales be more normalized going forward?

Peter E. Baccile -- President and Chief Executive Officer

Well, just to give you a reference point, the tenants in those buildings are moving out in one building and moving out next month. When you take a look at where market rents are there, we projected stabilized cap rate on those deals is closer to low 5s. So, obviously, it is what it is today with the tenant in the building and that's why we reported the A4. But the opportunity set going forward both from a lease-up risk standpoint and a growth opportunity, was just not there and that's why we sold those buildings on a stabilized basis. So getting back to that stabilized basis, we think the sales for the balance of the year are going to be more like high 6, low 7 cap rate.

Nick Yulico -- Scotiabank -- Analyst

Okay, great. Thank you.

Operator

Thank you. I'm showing no additional questions in the queue at this time. I'd like to turn the conference back over to Mr. Peter Baccile for any closing remarks.

Peter E. Baccile -- President and Chief Executive Officer

Thank you, operator, and thanks to everyone for participating on the call today. As always, please feel free to reach out to me, Scott, or Art with any follow-up questions. And we look forward to connecting with many of you at some point either virtually or in-person this year. Take care.

Operator

[Operator Closing Remarks]

Duration: 50 minutes

Call participants:

Arthur Harmon -- Vice President, Investor Relations & Marketing

Peter E. Baccile -- President and Chief Executive Officer

Scott Musil -- Chief Financial Officer

Peter Schultz -- Executive Vice President, East

Johannson Yap -- Chief Investment Officer

Christopher Schneider -- Senior Vice President, Operations and Chief Information Officer

Michael Carroll -- RBC Capital Markets -- Analyst

Craig Mailman -- KeyBanc Capital Markets -- Analyst

Robert Stevenson -- Janney Montgomery Scott -- Analyst

Caitlin Burrows -- Goldman Sachs & Co. -- Analyst

David Rodgers -- Robert W. Baird & Co. -- Analyst

Vince Tibone -- Green Street Advisors, LLC -- Analyst

Michael Mueller -- J.P. Morgan Securities -- Analyst

Rich Anderson -- SMBC Nikko Securities Inc. -- Analyst

Nick Yulico -- Scotiabank -- Analyst

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