LXP Industrial Trust (LXP) Q1 2022 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the LXP Industrial Trust First Quarter 2022 Earnings Call and Webcast. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session [Operator Instructions] Please be advised that today’s conference is being record. [Operator Instructions] I would now like to hand the conference over to Heather Gentry. Please go ahead.

Thank you operator. Welcome to LXP Industrial Trust first quarter 2022 conference call and webcast. The earnings release was distributed this morning and both the release and quarterly supplemental are available on our website in the Investors section and will be furnished to the SEC on a Form 8-K. Certain statements made during this conference call regarding future events and expected results may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. LXP believes that these statements are based on reasonable assumptions. However, certain factors and risks including those included in today's earnings press release and those described in reports that LXP files with the SEC from time to time could cause LXP's actual results to differ materially from those expressed or implied by such statements. Except as required by law LXP does not undertake a duty to update any forward-looking statements. In the earnings press release and quarterly supplemental disclosure package, LXP has reconciled all non-GAAP financial measures to the most directly comparable GAAP measure. Any references in these documents to adjusted company FFO refer to adjusted company funds from operations available to all equity holders and unit holders on a fully diluted basis. Operating performance measures of an individual investment are not intended to be viewed as presenting a numerical measure of LXP's historical or future financial performance, financial position or cash flows. On today's call, Will Eglin, Chairman and CEO; Beth Boulerice, CFO; Brendan Mullinix CIO; and Executive Vice President, James Dudley will provide a recent business update and commentary on first quarter results. I will now turn the call over to Will.

Thanks Heather. Good morning everyone. Before I get into our first quarter update, I want to provide some additional color on the Board's strategic alternatives review process. There has been quite a bit of misinformation in the market about the Board's decision on April 8th to suspend the process. We feel it is important to ensure that shareholders have a clear understanding of the facts, including the factors that went into the Board's decision. First I want to reiterate that the Board has been focused on transforming LXP over the last several years, including the announced $550 million joint venture with Davidson Kempner last December that further enhance the value of our company. Throughout this transformation, the Board has been open-minded and committed to regularly reviewing LXP's strategy against other alternatives to ensure we are pursuing the best path to maximize shareholder value. The Board has also evaluated the potential merits of running a private process, but determined to publicly announce the strategic review process in the spirit of transparency with shareholders. Since launching the review in February, we conducted a comprehensive process with three independent financial advisors incentivized to execute a transaction. We engaged and signed NDAs with a broad universe of buyers both strategic and financial. However, as the process progressed, financial markets became increasingly volatile due to rapidly changing inflation forecasts and rising interest rates. This resulted in a sharp increase in borrowing costs of over 100 basis points, which had a disproportionate near-term impact on the private market interest in our portfolio given its longer weighted average lease term. Parties cited these factors and that any proposal would be contingent on significant improvements in financing markets as the main reasons why they ultimately chose not to submit actionable indications of interest for the whole company. Therefore the Board unanimously determined that the best path forward at this time was for LXP to suspend our process and continue to execute our strategy, while completing the final stages of our portfolio transformation and capitalizing on the mark to market opportunity embedded in our portfolio. It is important to note that, while we decided to suspend the process, the Board and management remain open to all opportunities to maximize value for our shareholders and we expect there to be inherent value creation opportunities, as we execute on our development pipeline enduring 2024 to 2027 as leases roll. We hope this additional context is helpful and that it provides clarity regarding the misinformation that we've heard over the last several weeks. Beyond the information we've just provided, we do not intend to provide further details on the process and we ask that you keep your questions to our results and prospects going forward. Turning to our first quarter performance, it's clear we began 2022 with strong portfolio performance, reflecting the benefits of owning industrial real estate that is producing growing rents. With over 2.3 million square feet leased in our warehouse/distribution portfolio during the quarter, we increased base and cash base rents 28% and 18% on average, respectively, and we successfully negotiated average annual escalators of 3.3%, well above our historical results. Last quarter we began providing a forecast of the mark to market opportunity in our industrial portfolio, based on estimates provided by independent brokers. Currently the warehouse/distribution leases in our portfolio are approximately 16% below market. The mark to market opportunity, which considers our rent today compared to estimated market rent at lease expiration through 2027, is forecasted to grow to an average of approximately 42% during this time period. The weighted average lease term of our warehouse/distribution portfolio is 6.8 years and we are approaching a heavy period of lease rollover from 2024 to 2027, when 45% of our ABR expires. We believe our average annual industrial rental escalations of 2.5% should increase, as many new leases in our markets are being signed with 3% or higher annual escalators, further improving our internal growth prospects. On the investment front, we acquired approximately $72 million of industrial assets during the quarter and funded $69 million towards executing on our ongoing development pipeline. At quarter end, we had five development projects underway, comprised of eight buildings, in target markets of Phoenix, Greenville-Spartanburg, Indianapolis, Columbus and Central Florida. Deliveries are expected starting in the third quarter through the second quarter of 2023. Spec development continues to provide us the best opportunity to obtain favorable returns for new Class A industrial assets, with stabilized asset purchases used more as a vehicle to fill 1031 exchange need. As we deliver and stabilize our development pipeline, net debt to adjusted EBITDA is expected to range from 6 to 7 times, as we execute on these opportunities. Subsequent to quarter end, we sold approximately $55 million of assets, including one office property for $7.8 million and two industrial properties in Shreveport, Louisiana, which were outside of our target markets. All of our remaining office assets, apart from our Palo Alto office building, are in the market for sale. Also, subsequent to quarter end, we took two important actions in keeping with our commitment to positioning LXP to deliver enhanced shareholder value. First, following the suspension of our strategic review process on April 8, we began repurchasing shares under our existing repurchase authorization, as part of our ongoing commitment to returning capital and driving value creation for shareholders. We repurchased approximately 1.2 million shares for an average price of $13.41 per share before our earnings blackout period. There are 7.7 million shares remaining under our existing repurchase authorization and we expect to continue repurchasing shares as market conditions warrant. Second, as part of our ongoing Board refreshment process, in April we announced the appointment of Arun Gupta, who will serve as an Independent Trustee on our Board. We're pleased to welcome Arun formerly to our Board. Arun brings over two decades of Venture Capital experience with extensive investing cyber security and technology expertise, all focus skills we were interested in adding to our current Board. We will continue our ongoing Board refreshment process and expect to appoint another candidate by the end of 2022. On a personal note Lara Johnson, one of our Executive Vice Presidents has informed us of her intention to resign at the end of this month to spend more time with their family. Lara has been an important part of our transition, handling the majority of our disposition activity. I along with the rest of the management team and the Board want to thank Lara for her consistent hard work and many accomplishments during her years at LXP. We are well-staffed with a deep bench of talent to step in and fill her shoes as she transitions out of her role. Our goal is to fill her position from within the organization. In summary with our portfolio transformation substantially complete, we will continue to enhance our portfolio primarily through the acquisition of partially stabilized assets that afford us attractive leasing and releasing prospects, developing high quality warehouse distribution assets in our target markets and capitalizing on opportunities to increase rents. We are focused on maximizing value for shareholders and remain open to all opportunities to do so. With that, I will turn the call over to Brendan to discuss investments in more detail.

Thanks Will. We purchased a portfolio of two adjacent recently completed Class A warehouse distribution facilities totaling 777,000 square feet during the first quarter in the Northern Kentucky sub-market of Cincinnati. The smaller of the two buildings, a 233,000 square foot warehouse was acquired vacant and fully leased within 21 days of closing on the acquisition. We achieved a weighted average GAAP and cash stabilized cap rate of 4.9% and 4.5%, respectively and secured an average lease term of 9.8 years with 2.75% average annual escalations. The properties are situated two miles east of I-75 just south of I-75, I-71 split offering immediate highway access and a short drive to CVG International Airport. Subsequent to quarter end we closed on a fully stabilized 269,000 square foot Class A warehouse distribution facility in Phoenix, a second closing of a newly developed two building project in Tulsa. During the quarter we fully leased the remaining 334,000 square feet of vacancy in the first building that we closed on in December. Also subsequent to quarter end, we commenced development on a two building 271,000 square foot warehouse distribution project in the Tampa, Florida market. The project is located in Ruskin along the I-75 corridor of Hillsborough County and expands our presence in Central Florida. We have begun some initial plans on the large Phoenix land parcel we acquired in December. We should have more to discuss on this in the coming months as plans for that project start to materialize. With that, I'll turn the call over to James to discuss leasing.

Thanks Brendan. Stabilized portfolio occupancy at quarter end was 99.4% with leasing volume of 2.3 million square feet during the quarter as Will mentioned. We addressed all of our 2022 industrial lease expirations during the first quarter. I'm pleased to report, we outperformed our expectations, increasing the industrial rents 39% compared to the 32% we initially forecasted. These lease renewals included our two adjacent facilities in Hebron, Ohio whose tenants lease is expired in March of this year, in which we executed leases to two full building users with staggered expirations. We experienced no downtime risk and raise these rents approximately 33% and 50%, respectively. The larger of the two facilities has 3% annual escalations and the smaller facilities rent bumps by 32% after three years after, which it escalates 3% annually. We also were able to immediately fill 23000 square feet that expired in February in our multi-tenanted industrial facility in Chillicothe, Ohio with our existing majority tenant. As part of this transaction, we leased the remaining vacancy in the property to the tenant and extended their existing lease by five years, increasing the rental rate by 6% with 2.75% annual bumps. We extend two other industrial leases during the quarter. This included an extension with our new tenant in Lakeland, Florida for five years in connection with their request for an HVAC system, allowing us to further raise the rental rate, which increased over 13% with the new extension. Finally, our tenant in one of our newer Cincinnati, Ohio facilities requested a one-year extension which we granted at an increase of almost 6% with an option to extend for an additional two years at a 4% increase each year. We also had some great successes during the quarter and leasing vacant space of partially stabilized assets we purchased in 2021. In Atlanta we leased 124000 square feet of vacancy we purchased when we acquired the property in December. The rental rate came in slightly higher than where we underwroted with 3.5% annual bumps. Moving to Phoenix, we executed a 334,000 square foot lease for five years at an initial rental rate of $7.44 per square foot 9% above our underwriting assumptions with 3.5% annual escalations. Both the Atlanta and Phoenix facilities are now fully stabilized. Lastly in Central Florida, we leased a substantial portion of our 510,000 square foot shell building at an initial rate of $5.65 per square foot approximately 9% above our underwriting assumptions with 3.5% annual bumps. To close, we now expect 2023 expiring rents to increase approximately 49% based on current negotiations and third-party broker estimates. Market rents in our target markets grew on average approximately 15% year-over-year as of quarter end. With that I'll turn the call over to Beth to discuss financial results.

Thanks, James. We generated revenues of approximately $80 million during the quarter with property operating expenses of roughly $15 million of which 85% was attributable to tenant reimbursement. Adjusted company FFO for the quarter was $0.16 per diluted common share totaling approximately $48 million. Our same-store industrial portfolio was 99.8% leased at quarter end increasing 130 basis points when compared to the same time period a year ago and our same-store industrial NOI grew 5.1%. We are still projecting that our industrial same-store NOI growth in 2022 will be within a range of 4% to 5%. At quarter end, approximately 96% of our industrial portfolio leases had escalations with an average annual rate of 2.5%. Moving to the balance sheet nearly all of our office portfolio is held for sale as of March 31, 2022 with the aggregate market value for these properties estimated to be within a range of $115 million to $150 million with forecasted 2022 NOI of approximately $11.6 million. At quarter end, net debt to adjusted EBITDA was 6.3 times and our unencumbered NOI was approximately 93% of our total NOI. Additionally, we have $49 million of cash at quarter end and currently have $520 million borrowing capacity available under our unsecured revolving credit facility. Consolidated debt outstanding at the end of the first quarter was approximately $1.5 billion. Over 91% of our consolidated debt is fixed with a weighted average interest rate of 2.85% and a weighted average term to maturity of 7.3 years keeping us well-protected against rising rates. On the capital markets front in the first quarter, we issued 3.65 million common shares for net proceeds of $38.5 million, which previously were sold on a forward basis under our ATM program. As of March 31, 2022 we had an aggregate of $185.3 million or 16 million common shares under unsettled forward common share contracts. All of these contracts mature in May of this year. Finally, turning to guidance our 2022 adjusted company FFO guidance continues to be within a range of $0.64 to $0.68 per diluted common share. This guidance reflects no additional acquisition volume beyond our forecasted 1031 exchange needs and several office sales in our office joint venture as well as approximately $250 million of other office and opportunistic industrial sales. We intend to use disposition proceeds line borrowings and forward equity to fund commitments in our development pipeline. We are currently forecasting approximately $400 million of capital for development activity in 2022 some of which is for projects that have not yet commenced. Additionally, G&A for 2022 is forecasted to be within a range of $35 million to $37 million and no advisory or strategic alternative costs are included in this guidance range. We continue to expect 2022 to be our earnings trough year and we anticipate financial performance to improve as we move into 2023 driven by the ongoing development projects coming online and the strong mark to market opportunity in our leases as they mature. With that I'll turn the call back over to Will.

Thanks, Beth. I will now turn the call over to the operator, who will conduct a question-and-answer portion of this call.

[Operator Instructions] Your first question comes from the line of Sheila McGrath from Evercore.

Yes, good morning. Will, Beth outlined the sources and uses pretty clearly, but I was wondering if you could help us triangulate sources and uses for 2022 and your target leverage and do you think you'll have room for additional stock buyback potentially?

Hi, Sheila. Good morning, it's Beth. Yeah I did outline a bunch of it on the call but yes we have our forward equity like I mentioned we have about $185 million of forward equity there that we're going to utilize as well as our line that $600 million that we can utilize and we do have some sale proceeds that we're going to use as well. But our leverage came in at 6.3 times and we during this time we're ramping up our development and getting it online. We're comfortable operating in a six to seven times range, and you will see us depending on market conditions utilizing the buyback as well.

Okay. That’s great. And then my second question is on the projects that are presented that are going to deliver this year but aren't leased yet just if you could give us some detail on how leasing discussions are going on those projects.

Sure. Sheila, this is James. So we've had a recent RFP activity on every one of our projects. We're actually pretty close to having one of the two buildings in Phoenix leased. Knock on wood hopefully we'll have a deal done there soon. And we're also attracting significant demand in all the markets. So we're very bullish on being able to lease those buildings.

Great. And my last question is Will just on cap rates with debt costs going higher just your view on cap rates in your underwriting and any changes given this new dynamic.

Yes. It's not unusual Sheila after a period where rates have changed a lot for buyers and sellers to be struggling to sort of find market equilibrium. So I would say and generally speaking the longer the lease the more of the cap rates need to move higher to reflect that encumbrance. So in our case, we've seen our 10-year cost of financing move to about 5%. So if we had an appetite for long-term leases in the purchase market, we would need to see cap rates move above that cost of financing. On the shorter end, where you're still looking at very strong market rent growth, arguably there hasn't been much of a move at all

Okay. Thank you.

Next question comes from Todd Thomas from KeyBanc Capital. Your line is now open.

Good morning. This is Arti Cameron [ph] on for Todd. Just a follow-up to an earlier question but can you guys walk us through your thought process on buybacks versus development here kind of if you were to rank them or prioritize your uses of capital with the stock at a high 4% implied cap rate versus where you guys are developing today.

Yeah, I would say we're very happy with the development pipeline that we've got and we're being cautious about making new commitments there just watching where rents and costs go. So that development pipeline as I said, very pleased with the position and its prospects and we have room to buy in stock as well. Obviously, the development spend is likely bigger than the buyback opportunity but we'll have to see what the share price is as we move forward but we certainly have the capital capacity to execute on the balance of what's left on the buyback plan and fund the development pipeline

Okay. Got it. And then, I guess bigger picture here. How should we think about the appetite from institutional players for your asset type, given sort of the discrepancies between how your process resulted and what we've seen in the M&A markets since you guys suspended the process? Have you guys seen any major pull back from these institutional players even if not for the larger portfolio deals sort of back away from your asset type in the recent months?

Well, what I would say about our asset type is that our portfolio is characterized by longer weighted average lease term than some other industrial portfolios. So, for us we have a very large mark-to-market window between 2024 and 2028. Between now and then, obviously, we don't have the opportunities that some others have, but to the extent weighted average lease term is an encumbrance on value that should sort of dissipate as we approach that mark-to-market opportunity. So, long story short, I think that large institutions that have the capacity to write a sizable check and there are fewer of those today, because many have backed off the market and are just waiting to see how things settle out. I think there is an interest in assets that are extremely, extremely sensitive to inflation and our portfolio is better positioned for growth it ever has been as reflected in the annual escalations, structure of our leases, how we're doing on new leases with respect to escalations where we're marketing rents and the implied mark-to-market, but in our case it just takes a little bit more time.

Got it. And then, one last one if I could. I mean based on your commentary and your answer just now it sounds like the most institutional players are obviously backing off a little bit. I mean I guess how should we reconcile that with your guys as commence on increasing your leverage target by seemingly a turn? How are you guys thinking about leverage? And can you talk a little bit about the thought process there, given what's going on with the macro and what's going on with the rates.

Well between six and seven times leverage it's not unusual if we're borrowing short-term money to fund development before it's stabilized. It's not unusual to have leverage tick up in the context of net debt to EBITDA. It's still relatively low loan to value in relation to the whole portfolio, obviously, with the process that we've gone through and the work before that leading up to it. We were not considering being in the equity market and we're not considering that at the moment. So, we've run the company with relatively low leverage and have kept pretty much all of our line capacity available for a moment like this. So, I think we're still well capitalized to execute on the opportunities that we see in our development pipeline.

Great. Thank you.

[Operator Instructions] Your next question comes from the line of Jamie Feldman from Bank of America. Your line is now open.

Great. Thank you and good morning. Amazon, as your largest tenant at 7% of portfolio or 6.7% I guess rents. Can you talk at all about any conversations you've had with them about giving back space or subleasing or just what your view is of them as a tenant going forward.

Sure. James, you want to talk about that.

So I certainly don't want to downplay the news. Amazon was really a huge factor in 2020 from a leasing perspective percentage wise across the country, reduced down to about 5% last year of overall leasing and so far this year has been about 3.5% of the leasing. And our portfolio, in particular, we've got a weighted average lease term of 8.5 years and we were also very cognizant of the fact that we didn't want to get above market rates and we wanted warehouse space that was leased to Amazon that was very functional. So we're also below market by about 23% right now in those assets. Specifically to your question, with the news that came out we did go and have conversations with our local Amazon contacts. Every one of our buildings is at full capacity right now. There has been no conversation about subleasing. So we really -- we feel good about our use with Amazon, but also just the assets that we have in the prospect of releasing if we ever had to do it.

Okay. Is there anything else you can share from those conversations about maybe the headline versus reality about what we're likely to see in your markets?

Well, they were just very specific to the use that we have. So no, there is really nothing about that.

Okay. What are their uses in your portfolio?

So five of the six buildings are just prototypical warehouse not overly robotics warehouse. A lot of it is handpicking, with some small robotics but not again not overly automated. And then we have one facility in Chandler Arizona, which is a van facility.

Okay. And the game play or they give you the indication that these are important to their network.

I mean the indication with them continuing to fully utilize them in the plans that we heard from the local folks, to say they're continuing to fully utilize them. I mean speaks to me that they are important.

Yeah. And then can you just talk about outside of Amazon. I mean what is the demand pipeline look like for your assets, the markets that you're in? You said 5% like -- can you talk about the rest of the demand that's out there.

Yeah sure. I mean in pretty much every one of our markets I mean the supply story is clearly a big one right now. There's quite a bit supply across the country coming online, but we're seeing equal if not greater than demand tracking in pretty much every one of our markets and the tenant pool is very diverse.

Okay. Are there any markets that you're more concerned than others?

Well, I mean we're almost 100% leased. So we're not actively in leasing in every market. If you just kind of look at the high level headlines on supply, I mean Dallas sticks out like a sore thumb I mean with over 60 million square feet being developed. But it's also every time that development has happened over the last few years the demand has ticked up right along with it. So I figure that Dallas is, probably going to have the same results this time around just given the socioeconomic dynamics of that market with population growth. Atlanta is another big one, similar story there. And then India, as well has quite a bit of supply coming on but in every case the demand seems to be keeping up with supply.

Thank you. That’s helpful. And then the mark to market you guys laid out. So I think you said, 16% and then growing to 42%. Can you is that the right way to think about like one is the cash and one is the GAAP number or maybe if you could clarify that a little bit more, how you get to those numbers. And then also, it looks like they've come up since last quarter so can you talk about the change since last quarter?

Sure there's other cash numbers so it's just comparing the in-place rent today to what the market rent is that we get from the brokers and then the ending is the same way. We're basically escalating it based on market escalations that have been provided by third-party brokers from their forecasting teams. So it's just a -- it's a cash equation. And we've just seen -- we've continued to see, movement in market rates across the markets. I mean yes, there is supply coming online. But I would say right now, markets are supply constrained. So you're continuing to see increases in rates really across the board.

Okay Thank you. So but you're saying that 42% seems market rent growth that's not like a current number.

Correct. No 16% is a current number.

Do you have that on a GAAP basis? I think a lot of the other REITs are quoting it on GAAP just curious if you guys have that.

No.

Okay. And then when you think about the development land bank it's pretty heavily concentrated in a couple of markets. How do you think about your future development starts versus your land bank? Do you think, we'll just see it in those markets or you have to buy more land or are you thinking about buying more land?

This is Brendan. Hi. We'll just simply review opportunities as they present themselves. We're -- the land bank that we have today looks very attractive to us. We're particularly excited about the opportunity in Phoenix, given how strong that market has been and the continued demand there. Our position in Columbus is also very attractive and that's a market that's been extremely tight as well. We recently exercised a couple of options adjacent to our current project in Indianapolis which allow us add a couple of buildings there. So we'll -- at the moment we're evaluating -- we're actively evaluating our first start in Phoenix, and considering expanding in Columbus and in Indianapolis. We are regularly reviewing other opportunities in other markets but right now the focus is on the current portfolio.

Okay. So thinking about Phoenix, you've got 420 acres. I mean, what's the potential square footage off of that?

Well, we're really -- it's still early to nail down a very specific number, because it of course will depend on the ultimate layout from buildings you build and I expect that there'll be some build to suit activity there, which can be in a variety of building sizes, but it could support the development of as much as around 7 million square feet of bulk warehouse if you did all large buildings. So that can vary quite a bit as you start actually building the building, but as much as seven million square feet.

Okay. All right. Great. Thank you.

Thanks, Jamie.

Next question comes from the line of Jon Petersen from Jefferies. Your line is now open.

Great. Thank you. Maybe just curious a little more on the supply side of things, like, what sort of constraints are, maybe, yourself or other developer seen in terms of acquiring building materials, getting permits. Just trying to think about where we're at in terms of supply growth. I know it's ramping up. But are there kind of physical or regulatory constraints on how high that new supply can come online or are you guys experiencing some of that yourself?

This is Brendan, again. My expectation is that the supply will moderate, because of some of those challenges that you've referenced. We're constantly monitoring the global supply chain ourselves along with our development partners, to see how it may affect our cost and our future development projects. On the supply chain issues, costs are rising, of course, and there is also just the challenge of availability as well, which will push out delivery timeframes. And then in many parts of the country, the permitting process has also elongated. So I think those factors will serve to moderate some of the supplier or at least slow the delivery of it, which should be good for our ongoing development pipeline in our existing portfolio.

Okay. That’s helpful. And then, I know you guys give a range on the value of the remaining office sales. I think the back end of the cap rate on the couple you guys did in this quarter, it was about 7.5% cap rate. I mean anything new to say in terms of pricing trends on some of these suburban office properties, especially, given the interest rate environment this year.

Generally speaking, where you have term, those assets may have declined a little bit in value. So the portfolio has gotten smaller, but there's still a handful of ones that are -- will be challenging sales to get through this year. So the combination of these higher rates make the longer lease assets a little bit less valuable and of course, in some cases the aftermath of COVID has diminished value as well.

Sure. Okay. That’s all for me. Thank you.

Thanks, Jon.

We have a follow-up from Sheila McGrath from Evercore. Your line is now open.

The JV in the quarter how did the pricing levels compared to your expectations? And then on, I think James or somebody mentioned some planned industrial sales if you can just explain why sell those industrial assets and are they already listed and the interest level in those assets?

I think we might have missed the first part of the question Sheila. Was it around office sales in the joint venture with Davidson Kempner?

Yeah. How did the pricing compare to your expectations the pricing achieved?

It was very, very good. The execution there was very strong. Those assets were under contract before rates moved a whole lot. So that was sort of like low six area from the cap rate standpoint. We thought it was really good. And I think with respect to taking advantage of some industrial sales, if you look at our footprint we really have like a Midwest lower Midwest portfolio southwest portfolio and the southeast portfolio. So we will look at opportunities to harvest some value in the portfolio that's outside of those areas really to sort of sharpen our regional and market focus. And the same observation with longer leases cap rates have probably moved a little bit there on some shorter of things not so much.

Okay. And last question, just on the – I think you mentioned a new lease with 3.5% bumps is that currently the market or are you or others trying to push for CPI-linked escalations at this point?

There really haven't been any CPI discussions, and I would say that, the escalators are market by market, but almost every market that we're in is above 3% now. 3.5% become kind of the norm but we're seeing it quickly push to 4% in some of our more supply constrained markets.

Okay. Thank you.

This concludes the Q&A portion of the call. I will now turn the call back to Will Eglin, who will make a few closing remarks.

Once again, we appreciate everyone joining us this morning. Please visit our website or contact Heather Gentry, if you would like to receive our quarterly materials. And in addition as always, you may contact me or the other members of our senior management team with any questions. Thanks again.

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