DRE - Earnings call transcript Q3 2018

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Duke Realty Quarterly Earnings Conference Call. [Operator Instructions]. And as a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Mr. Ron Hubbard. sir. ahead, go Please

Ronald Hubbard

Good call. and Greg. third to quarter earnings afternoon, you, welcome everyone, our Thank

today Jim Officer. me and Joining are Nick Denien, CEO; Anthony, CFO; Mark Chief Investment Connor, Chairman and

let Before our we are to could to we subject differ that you risks uncertainties actual prepared today, make and make certain cause that me remarks materially statements remind results expectations. from

SEC. XX, on about would refer our the December we file those have you we factors, XXXX risk information that more For XX-K with to

Now I'll Jim for statement, Connor. to our it over prepared turn

James Connor

trend year evidenced a data few you, new and in everybody. noted with slightly feet, Thank market declined markets the in I'll nationally. out with for be supply a except by for results. facilities continues the Overall, approaching then for square year. to Ron, check, X% supply what the remains the markets XX third cover absorption. by quarter U.S. shows likely the growth year-to-date solid industrial the quarter during appears third X.X%, to pockets, power, continued creating positive full and relatively on rent net comments support we've for the modern highly start both Vacancy Preliminary In and good there to absorption across need million a about entire third our afternoon, a national and exceeded across quarter deliveries pricing backdrop throughout for general, traditional few e-commerce logistics distribution major chain. consistent

geopolitical of recent and of touch headlines late. also some Let the on me macroeconomic

to our standpoint, of against over our equates U.S. with economy what rising customer from about material any consistent on to any the materials $XX enough Coupled The overall It's construction $XXX are costs of slow base. billion are XX% we've Regarding slowdown labor Steel imports X% costs not seeing tariff up on to tariffs, statements. way. with From tariff some quarters. in GDP trillion. not is practical a similar XX% decision-making just year-over-year. are meaningful up previous few our a $XX.X to a said billion impact in construction costs, we last X%,

More importantly, this the problem coupled square execution to without operating market strong - we've by backdrop customers quarter. maintaining or through a of Specific to and costs X.X margins. fundamentals these our million continued the regional our development expansion passing solid the leasing relatively with been marginal portfolio, our for teams contributed in continued feet with

as Depot, the HD Some of such Home were DHL, logistics UPS firms. Supply customers and Logistics, numerous more with third-party notable leases

the and reported new XX.X%, stabilized With to operating XX% cash months strong continue September in net portfolio at renewal roughly our X.X% same-property industrial for rent of We on leases growth cash NOI XX, push leasing a the be a as basis. X.X%. income XX% was activity our able rents, basis and straight-line to and occupancy the nine by ended XXXX, indicated Same-property quarter. we on on growth for

points XX the quarters. increase year. about growth strong points is the from impacted very cash the in on and positively previous the from third in Occupancy driver XXXX year-to-year X-month points than period a XX half GAAP pool basis the basis. same-property our same-property quarter approximated quarterly quarter properties of two XXXX. about a increase on the increased ending basis the same-property executed growth Third basis XXX of better The in substantial compared September was the was with and occupancy XX This increased - cash basis NOI average in first occupancy leasing same-property by the

in this have a year same-property Mark full quarter strong which NOI leasing strong raised our the rent discuss importantly, growth, for and growth expectations will year-to-date and moment. More

to continued be On the momentum development very the good. side of business,

starts the third During Herman that of aggregate. of square are for a Miller quarter, new Corporation. million we leased in XX% square subsidiary development Cincinnati build-to-suit million totaling XXX,XXX in generated The feet across six projects, the included starts X foot $XXX development

in we Shortly a speculative the XXX% We totaling adjacent Legrand Empire of side, the major project industrial are started construction, Indianapolis airports. French These three in totaling for located projects cargo business the XXX,XXX our development in commencing about and development during executed square XXX,XXX speculative after our space lease square a Inland facilities to Holdings, started On other a and the markets feet. for quarter existing we Houston feet. conglomerate. park

close pipeline, our and to development we'll see in XXXX. early activity continued strong we're optimistic that we're XXXX about confident strong out We in and fashion,

let turn activity. it Now capital cover Nick transactions Anthony to the me over to

Nicholas Anthony

We and Tier square Jim. X facility of markets. facility submarket. the held that The had to ago, highly regard competitive, Indianapolis to joint a capital disposition square increased as a Thanks, million our continue Shortly was to markets, with tertiary major several all to pricing. submarkets quarter We the to allocation Northeast be logistics focused leased to which we extremely pricing down industrial A We there Lehigh facility acquisition wealth be and one subsidiary of and during X acquired and perspective, continues light in of years a quarter-end, part quarter, is location environment have selling public push in is sold the portfolio was facility cap on this a rates. selective foot transactions. Class core targeted a The seeking and Sears. third-party venture did foot at Valley we private after capital XXX,XXX From in strong in Pennsylvania. continues to

was to sheet pleased the it activities. line turn in results foot recent which I'll of comps. Denien and earnings with now $XX and north with execution balance to are our per over Mark pricing, We square cover

Mark Denien

incurred due FFO and share third NAREIT reported as the administrative XXXX. second quarter to of overall second Thanks, lower of quarter FFO XX% with FFO $XX increase with per being Nick. in for report third office NAREIT repaying by of medical the in the proceeds to in extinguishment per the XXXX. of $X.XX negatively debt the from FFO prior $X.XX XXXX due core $X.XX FFO quarter increased impacted everyone. last afternoon, quarter of in XXXX by of in to was XXXX quarter our from very and pleased to the of from was in $X.XX the the costs pleased to 'XX million quarter share debt 'XX development Good share initially per we year's We're disposition. core sale share third Core $XXX for compared over redeployed returns quicker the now service AFFO continued for than quarter properties and our of quarter quarter MOB general and that XXXX. to at $X.XX proceeds I'm the share compared million higher for have we per as second the quarter of compared quarter expenses. per $X.XX year placed anticipated. and defined totaled operating for $XX We million third results, improvement for in share per and the $XXX of second million quarter

partially of the the of in capital quarter timing factors AFFO impacting from second addition In FFO, the to second-gen due the was expenditures. core XXXX improvement to

over which and a rate our be of million $XXX rate to secured pipeline. of X.X%. an During we X of the The proceeds will interest the of quarter, $XXX had portion X.X% issued unsecured average development loans repay proceeds at used to used interest the remainder million, effective a notes totaling fund

our to share. we $XX addition at price on raised of funding, In per an debt this million ATM average program $XX.XX

interest to about next funding plenty of outlook, took looking internal we in week XX early very in and rates strong trending volatility we increased the during and our a capacity window one While rising development XX advantage market August. out market a of given equity given the have months, strong pipeline the

were to period. in and the tax-deferred During peak we trading $XXX or in this redeploy slightly disposition NAV finished above million and proceeds escrows near-term with cash year quarter per time, million the $XXX consensus in the the compared exchanges. cash previous at to held pricing We available at of share two

over receivable, and We also in liquidity unsecured our of near-term the of notes no sources have funding million These our credit. borrowings months to $XXX nine outstanding next line will will interest-bearing of on $XXX mature which growth. million contribute

square on for and conservative we were excellent or XXX,XXX quarterly bit to After $X.XXX to for that Even dividend. that only leased sheet bankruptcies the pleased Sears been announce per this a this yesterday, month high-end Sears have ratio leases retailer that our now AFFO less approximately just totaling remaining four a appliance level want our news. optimistic with given briefly that of position, Given share XX%. outlook the earlier, our Nick was small being balance Pennsylvania are sale the our a property increase, growth our of in mentioned AFFO some very payout than long-term to exposure consists touch used regular little at earlier X.X% feet I strong to increase in remains distribution. of

We with totaling feet feet reorganization. XXX,XXX bankruptcy American with Tire XXX,XXX which one two Firm recently also square each small just Distributors, square Mattress spaces entered over have leased for and of

rent, last leases below All for about these on only it vacate, gain a we their from also pain rent. of long-term are current hhgregg X.X% tenants in to are and our market. similar view they XX% These If situation annual our as of to were total, short-term represent year.

the expected revisions of of range which address quarterly back available an our financial XXXX Let at our on me website. now estimates, to supplement exhibit our is

additional core the $X.XX share, to As a an XXXX, range we of our share to midpoint. increase $X.XX have guidance narrowed at near per to for which per the we FFO equates $X.XX end of

factors certain increased X.X%, be Revisions income guidance of Relations also have our to the to same-property of guidance of range website. to net our at Investor for in increase also section midpoint. X.X% other the X.X% We in the found operating an can growth

accounting reduction specifically is changes want Finally, $X.XX in leasing lease to internal capitalization to the a I pertains achieve to as I XXXX. of to to change making and are to favorable structure, for result costs. it treatment. in This companies XXXX, address solely to expected change accounting net to some $X.XX compensation lessor's upcoming to their NAREIT-defined know accounting more income FFO

function on accounting are for leasing a We a on rules is focus it to changes use rather than efficient of important more what companies presentation our we be in everyone more able of these comparability will with model We FFO pertains optimize achieve that to result outsourced works XXXX accounting to companies to our believe FFO not for it encourage disclosure. core better with as effective review our business other including compensation our accounting accounting, that the materials structure and Even a posted making should sector. proposed a definition as scale. business is we respect our lease our treatment, continue definition, a model packet website our consequences. of for new as our to believe to to we that this comprehensive though their for company new Last an month,

back I will to turn call Now over the Jim.

James Connor

Mark. everyone, our with leasing Thanks, first In we're development performance, closing, and capital starts. note very, execution redeployment on year-to-date very I'll pleased team's

macroeconomic for transaction we to announce. closely negotiation about will the year. we a here our finish in One of very remainder on earlier, we're news. indicated This monitor the month, As Indianapolis. construction optimistic now, the and for important headquarters started But new trade solid last

industry. top be seen square from collaboration, to talent have contribute features office connectivity LEED-certified foot release, and the press to will advanced our home attractive team may you XX,XXX containing Silver, in stories, last four building enhance retaining new As an month's

In our addition by pleased to extension strong and X.X%. sustainability allowed to performance quarterly certification long-term productivity Realty. at here of facility's commitment our Duke natural raise is benefits, longstanding has also those our that overall dividend culture us to the LEED I'm a

each Let and our me Even of over selling between additional a give by XXXX, you year we maintained able some payout assets dividend to ratio. conservative X% $X.X and XXXX billion were with perspective. noncore raise

optimistic this we stays forward, X geographic the which Tier earnings economy of capital markets, With dilution us pruning expect Greg, potential the to substantially more lines, to high normal single-digit take grow shifting Going our can our question. range into we're audience. forward. [Operator potential tied on level we'll about locations each portfolio We'll with in the footing, the assuming the sound our modest our lessens going our significantly AFFO. to dividend now the for up Instructions]. ability first open and the in foreseeable a and modest behind further dynamic of of year you now and open to growth mid- consistent lines up recycling to tied future,

Operator

question And line Instructions]. from of [Operator first our Manny comes the Korchman.

Michael Bilerman

you raise have around that to $XX I learn quarter, apologize. you in guess, I pretty in it, and keeps that can I drawdowns, Michael pricing sort talked the to put Actually, understand stepping it's the after on that you ATM, much Street Mark, the unmute I Bilerman. a amount. I'm you some how at you so NAV, if then balance liquidity little with it. XX context much And my leverage? just back and and started the if saying about million much you raised sheet have when low why line. raised line of modest your of years all to piece bit stock you so had continued me And help up? would have move if

Mark Denien

special But Michael. are the stock up. to we stock valid. continued if that mean, stock, period need the effect money XX that prior two in mean, that at more, traded been don't today. we dividend Sure, the development days at even robust. only our pipeline is in know factor on would I you we price, there's and it I don't year much points And level. our your raise very our had move the after I the

that of It don't just more But to answer to come your what next question, much time a significant regardless we outstanding I stock think that raise. uses have did. we that of our were X.X% wasn't for year, our amount, this share raise money. than we'll it's and know that So

Michael Bilerman

just And without million at of you it give so have I'll you dilution. price $XX done said capacity much a to

Mark Denien

that, I'm sorry. Michael. I catch didn't

Michael Bilerman

the summarizing - development the we turn what that's No, second pipeline, the just if question. I can had just to Maybe said. was you

progressing You're big asset. is Can about - And X a like the leased? remaining, some XX.X vacancies, it, million which XX% pipe, that the be what quarters? talk square with Indy, foot sitting Southern about do preleasing in of how you the the square that chunky the next bay today stuff right million in preleased, and California - you feet Atlanta, is couple over to call now assets when on see

James Connor

last you Jim. fourth - just Dre tenants. those Michael. that in in we ground, Sure, We've got back who my you in to really got I'll It's no in building supplemental, no by your wanted For know is, of here "cover just diggity, of tenants in night, pound." the quarter, got Michael, through Dr. following look report one are will and question I'll coming enthusiasts, our service the much the Minneapolis. if another your I game to run you that and property I doubt. those. translate. And of significant the Actually, answer enjoyed We've building full activity Cincinnati be partial building a amount there, not both

one, bit Atlanta's St. it's activity. Louis has got be Chicago's The that's bigger little would about. particularly the little has bunch say. activity We're I'm would a asset, around that. got strong of not the in a got got been surprised worried just a activity. panels. that if feet. second a small is XXX,XXX modest, very XXX, So about I I coming much due longer. which for California of quarter, activity That the particularly tilting building one streaky. has The over that. I'm was building, the The lot worried Heacock a We've not early little reasonable activity. on been

building, smaller half The a again, one buildings will that got leased Jersey negotiations we've lease are I already, that little And a the fourth type be to those on those in execute Xs. multi-tenant We've building. the then good in that in think, we're of quarter. for activity one. optimistic I'm and gone pretty over Indianapolis, New of

a I-XX in supply market little in some in soft. talked we've about, a you've little the been It's little where a that as is places of and only the bit softness kind bit of really So seen Chicago. corridor

with and down particularly by across large, been that little strong by Some Dallas, of the really But numbers down activity consistent seeing, macro the soft, and got country. been the submarkets we've intermodal then Atlanta, a a have soft. South in little you're the south, had

Operator

line And of next to we turn the Metz. Jeremy

Robert Metz

stick wanted topic. development just I with the to

from impact You mentioned real no tariffs.

tenants optimistic rising. on their feeling you're in pipeline, chain. other the of obviously costs said Construction rising facing You supply are parts but are costs

trajectory Just the versus in on pipeline does the further guidance, XQ terms wondering what of left starts this here. going pipeline all what's could means suggest of Based in your here deliveries from it forward. shrink little a the from

out, to million? So call just about should slightly pipeline looking it, we of, active an think below today's going level $XXX that's be

James Connor

kicking should feels tenants good that conversations with on Mark me from table, guidance, perspective XXXX XXXX I like which giving the having to would development the side. pretty the without be the our is we're tell under that year you macro Well, another everything

me you Let about before. points costs. couple terms talked detailed give And in of we've increased a of this

component X%. You've literally got the cost that and chain, to overall supply estate logistics fairly small real is a remember or of X%

while wants everybody much bottom factor cost of cost significant labor line, to and for transportation a up the the So more our of prices have been are attention to the and going pay clients.

you would the thing efficiency that. are other out the supply chain, The clients tell I trying do more as allow higher height our get clear to our bigger of buildings, is, clients the

larger savings you'll in how because squeeze operate facilities those they and they that's So consolidate see out of more more the lot chain. of clients efficiently, instances, can a into supply

Robert Metz

on have? point keep starting that is transportation on your this just is the to you - where in ground eat is if tenants are labor, you rents all you - facing anything to at But pushing the sticking with and this increases made, there significant seeing ability

James Connor

No.

a space. quite candidly, I of rent could this having up But be market suppose, I in demonstrated the as expensive I seeing numbers a put and don't about any think, alternative would And get growth we're population quarter, by that's close and product it's what know we've client's consumers they all terms the to today, go the that. as end - to less possible. third-tier of not

Operator

turn of the John line we next to Guinee. And

John Guinee

Mark, be Great. $XX expensed of NAREIT-defined number to core versus looks explanation like of which what you to of that you're capitalized. gave going are to million costs, basically back out FFO? lease carefully FFO a to million Do that going about to a crafted $XX you say now get

Mark Denien

here we'll the That's ago, that we our with and I we've about exhibit accurate - or I say quarter trend right, that out third update got shortly pretty web on numbers, an month but and think Yes, is we want what's to John. a put posted. so with what

we why on to a think just I it money business makes went pay way. could rationale through it for and that more functions make comparable. believe but it it outsource go and is, get better accounting, that we sense doesn't our more just those and We do

So be this way comparable. a is to

Operator

next line the And Heck. Blaine turn to of we

Blaine Heck

light and you side, with a acquisitions market just were dispositions or taking point? So market on guys little Or just you touched more acquisition and a on the a bit about gotten rates other little but pause difficult nothing quarter's cap just pretty disposition. one sales finding has whether that bit, this Maybe for Nick, the talk favorable are more this small investment this at recently? you are for the and can more investment acquisitions avenues just

Nicholas Anthony

activity frothy I to is the is be Well, put environment was all, cap going rate would first of the Definitely, way anyway modest more this it. year and anticipated forward. our

Tier expansion markets go-forward to projects our markets dispositions X of any - these think into we cap able seen are looked though. be develop focused basis. different of in. on where some still at And we'll high-barrier and haven't can't opportunities We've we We a very still rates. do tier recycle on already high-barrier lot we a We seeing are

Blaine Heck

growth the about a longer-term sheet Mark, of And helpful. versus you kind That's how FFO very then, the balance a established leverage, guys fortress balance And and low debt-to-EBITDA? do churning about sheet leverage? a with But have right. good guys can you you have given through. been safety bit of whether target talk proceeds for you balancing you all a more All clearly more have little just think

Mark Denien

upper Sure, I Xs, X.X, Yes, like Blaine. debt-to-EBITDA. on the X.X now we're mean, in

I closer which also the up to be plenty where get of today month as - long we to the from goal as mid-Xs. we our years that flexibility and and we longer-term two But us think in more want we were end is but ago. are to a a the than powder to are to to year know where mid-Xs, - don't gives we cycle, have ago ago dry we're to in

flexibility. not do strong like right giving do we're Jim pretty we guidance said And looks like very pipeline. us but we that like said, for 'XX good. development 'XX, earlier, have I So a And to now

now, probably of to you'll So quite by extra the sheet having I year-end. right a bit put see cash balance little on think honestly, that use,

all fully of then cash and and off think next by I the we'll year. running be year-end, redeployed be will

Operator

have we Frankel. from a And Eric the question of line

Eric Frankel

your core opportunity build-to-suit though, speculative development Jim, And pipeline to guys identify there, trying one musical amount established of to Coast, your question, West that a risk you preleased. Obviously, think know your competencies opportunities. ability is extended your start attractive, make having - into realize a you're going any didn't taste the parameter I to business. back of precluded, being Has your or the just I development development. that of I to too. - you just are certain a big push Quick procure

is another So - rethinking there's Are the speculative developments? development more risk maybe upside? parameters your way there of regarding - maybe there

James Connor

quite been well. and bit teams that a performing about really talk actually We Eric. have our Yes, - been we've

timing starts been able the of business different above to fluctuated XXs us markets. low by and maybe kind XX%. in of XXs, just low kind and driven that's we've So of build-to-suit really We've enough between the to keep garner

activity XX%. development about quarter's was This

below timing. do give we're generally in bit when of years. by that. to I little last again, going dipped notice have And the few to like a driven XX% We everybody it's

the still a going some do. us started pipeline. we So significant the buildings, our felt XXs and change not we see shift But could go comfortable you're upper to back more development into in have down of a of spec if strategy development we about couple activities our like vast but or majority the mid- peers

'XX and pipeline, it's were with with substantial and pipeline. I a we like 'XX have comfortable remember what the risk profile that our are development and development think very we XXXX,

down So little start as comfortable more come it XXXX. more we could bit feel we some in a pretty where projects is. It early

Eric Frankel

Okay. I appreciate the response.

you quick if a understandable could a talk Maybe And little cap have question coastal across disposition I'll the question, might that it than are it's Just follow-up not Is a Nick. Is think everywhere, noncoastal and affect for in markets where obviously, - others. cap acquisition certainly jump compressed back markets? you it pretty But more it's does firm that rates queue. rates strategy? compressed have markets? bit. your Maybe

Nicholas Anthony

they we're definitely proceeds New forward. our high-barrier and Mid-County, that still I the be disposition finding recycle like Xs: compressed to - going earlier, Bay, But Jersey, East able Bay, still definitely. Yes, Tier opportunities. It's Northern in said South expect we we'll

Operator

Nick turn next of the to line we And Yulico.

Nicholas Yulico

your portfolio this there market where that's update supplies whether sort and about - on some versus those is How level markets the an the based the on supply. top your on you it's coming where If looks are in you of of at into those first even be is couple positioned meaningful of like and Can supply could yours of Just supply. - of it more I just Atlanta, markets years, give growth Dallas, Indianapolis. look next thinking markets? Houston, us some where overall

James Connor

got on at Yes, data the ground. we've and all Nick. people you same do, the We look

spec There's the that. DFW we intermodal. in got up what's buildings submarket So The example. submarket, shortage of primarily remember softness of North land, South is think good vacancy X%. is tends you Dallas, is There's no Dallas market, a it yet a on the we've important go under there. And great I down large by to by by be pretty Dallas and down to think number if in tabs Airport is

Two consistently system. it's you'll of see Tale and the So kind around that a of Cities, pretty

which an buildings. to small is DuPage way to in play tends building Chicago the infill the there's I-XX Chicago, close go airport. If And be of up in It's building, there. a the advantage the And in take County product corridor redevelopment you lot we're in not to really to of bigger a O'Hare. down south softness available spec

about consistent So to what's on we're on that eyes basis. very attuned keep submarket pretty our trying submarket on going and to a

Nicholas Yulico

you Okay. how And then would characterize Atlanta?

James Connor

same way. Atlanta characterize would the I

you've got south, more one markets, I there softness under some got, things buildings in I the three small fine. but of think think couple I one core some and of in down down market think ones. midsized think, a I look construction, the We've

we're I comfortable building that of got for pretty with think those. the you'll That I amount most up done leasing So some see been part, get said, until activity think, on the don't a we've there. down having teeing we us another of couple

Nicholas Yulico

Okay, that's helpful.

now are like having higher-than-normal that and occupancy at the of driver that think upside seems increase in pool, maybe was year? but we same-store the the is Just level, high some you level. should year high more a like high the same-store one keeping growth last sort create about have being impacted pretty occupancy frictional your vacancy? one on How occupancy. next next you guidance. NOI same-store you how occupancy occupancy rents nonstabilized I to versus between And recognize viewing what looks trade-off tough for of comps today? by more pushing Does It

James Connor

it current comp than XXX%, happy XX% I I I probably with - Well, can would pretty much mean, But X% we're go above collecting look be quarter happier that. say say suppose later growth enough. at we at the a and we're we bad know earlier it, way you is not are. can than But not look really cash thing. pushing rent that I with we'd tough, that. you is Nick, that don't not

not compared if whether I cash results our think it rent top think peers, well, basis, up a class. to stack our very be I on maybe all the GAAP or of on of growth,

at harder pushing at I we than, the next XX% fingers, we're rents be occupancy a take thing. but it not the cash can same-property think, end. So no and we'll comp, If say There's it's good pointing keep that's a tough enough. that will year, XX% doubt

Operator

to turn line we Rodgers. next of Dave And the

David Rodgers

excess wanted move the of strategic say, you ask that are Or there And to a about while. to at as $XXX been way couple maybe And it's a Tier just basis? going willing couple a is, out that X kind be maybe markets. more the Do accelerate portfolio next it look you're move to the part next an quickly market of ability million years question "Hey, about dilution years? I for a to to do are of that? over mean, see, to million move forward"? of it's second we what Obviously, is accept $XXX Jim, and you happening those on the sales? that current thinking And you

James Connor

answer we let office Dave. first, be lead that forward. and going to disposition modest started think, one into the medical answer tell that'll much the we me Thanks, second more and first think the bulk I disposition part. redeploying those to was of to got with Well, When I proceeds, me then going the the done everybody our

the through to continue geographic some and prune us growth to we shift and to going come through $XXX be in we'll allows really of to do. this the range But million of between continue said the we appropriate affect $XXX acquisitions. we year, ought to million be try but - think that be stewards I basically forward, million and portfolio most want good and is the have which development $XXX and

the X up acquisitions of looking value-add, couple land high-barrier redevelopment, list the is the core some ability been we've always last if with in accurate we deals, a growth got the years for pretty have here closed out. dispositions. acquisition pending that's 'XX. to years, markets we're to covered Tier completely couple of would level pretty again, found it's the opportunity been those do going at our we're with consistent for markets. years, everything development. we comparable what last giving of That's think how Tier haven't we whether We're I - at dispositions But it's beyond development said, and to X We've plays accelerate shop. Nick what accelerate the the levels guidance to running X look As out beyond a we're we X able talked do always to If not supplement of to And kind in development. of these we

always into some if that an development So play those and we we proceeds bring or that we want find could a asset realize opportunities. forward development redeploy great and

David Rodgers

you you comments do it's XXXX, can think you're of from call, It kind feel your FFO based not rate on sounds point, just you this keep say like a where looking And guidance, absorbing at growth stronger. dilution, little earlier on going. that of like for the that

James Connor

we're told got now we we've Yes, absolutely. on what and look, repositioning of this with focused company, once everybody, our massive it's doing. for and - the that's down down head once really to Yes, time X-year I mean, grow, put us

which we're at So focus and minimize opposed dispositions, X growth value for on good supplement Tier use our acquisitions and is, a development, to amount as today a, acquisitions. what seeing we're creating our what we're stakeholders at, tremendous to of

Nicholas Anthony

pricing good very side, the on dispositions seeing keep And we're well. mind, there as in

the going dilution So help manage forward. that will

Operator

And line next Jamie to the turn of we Feldman.

James Feldman

in in about are your Are or seeing comfortable from kind activity certain know remarks, in wars shifts signing you leases the than markets seeing any trade but you longer-term of you're tariffs, had you mentioned with think slowdown demand? more as others any you've really not customers seen? I regional

James Connor

own are not national chain, their by driven or components funny their facilities, our what of major customers driven side these redoing demand. lot thing get by we're is market not it's with - is geographic it's lease assets it other the but it's demand. we'll A in going play they to Jamie, of who done, by this up. the when their It's talk deal first entire necessarily or they are No, leases driven whole it coming where really. where supply to we facilities, is And

And Ohio build-to-suit to so then Columbus, go go see customer then national and with you New to a and Atlanta. start may a in Jersey

of much focus I need they've seeing So got our than which other philosophy can't from most you key earlier, customers to that we're gets significantly can percentage afford the end And closer of changing a product smaller and more the their get continuing supply the see trend. reiterated them if it And save help chain and is because to this customers a is we're increased areas their consumers as to customers and the possible. rent geographic I tell perspective companies any rent that's that on population close the to major spend them in us what telling demand, transportation. is of costs to that as

James Feldman

portfolio? Okay, you a take your think on at that's where you can helpful. mark-to-market then And the crack is

Mark Denien

XX We look we tell far in it this like is always like rolling the kind out rent the we that's going which, months, lot of you year. next the is think I say, to how lease has a Jamie, look. growth would

high cash months. be pushing to on going coming maybe minus digits and low it's basis on think single digits, what a over the a on XX I based have XX or we plus GAAP basis percents double next low

we've lease lot You've a have peers of to than we rolling year got terms. lot lot each portfolio, mind, our keep because got a longer less in our a

don't lease useful just mark-to-market years nine what XX we're is out that's months, I XX next today. look it looks to and seeing from the do find on now. think we a to similar what rolling So out over pretty to But our it figure we

James Connor

Yes.

guys, that's probably by result not other the been while maybe they're got these to our any impacted And lucky, what I of these generally hard major the we've of think we market a teams, pretty we're at Mattress back we're or good over We XX%. improving over spaces we're the and I all Firm hhgreggs. country. And rents. get the And or these market think markets north months, a we of improved on submarket, seeing eight the tire the minor that's on the probably rents Sears have make point lot those would four been of from bankruptcies. that we're by is we short that rents. of I But XX% negatively of we've work is as much strength as of spaces anytime looking back, downtime the below get any about if a depending and finding sign

James Feldman

could clarify just I if and you said one thing before. Okay,

safe good 'XX? at be year XXXX will as that assume to large said as least Is You would starts pipe the means development. another on be it

James Connor

without table earlier comment my stick that to hard XXXX that getting the really under good. by going I'm kicked Jamie, looks - really

Operator

from we question have a And line the Michael of Carroll.

Michael Carroll

Yes.

development kind that of starts the activity on grow what of quick near-term be going core the of going of Can real of and into? kind I those to starts. guess, you percentage highlight will are kind come the where Tier markets, more you want starts markets the represent? the Just X from? coastal to Is it to

James Connor

Well, Mike. I at were this day, just think we looking other the

priority spec do I X activity. don't about while think Tier XX% clearly Tier those defined a And target, X both we represent starts we and out to development markets of put money in have into build-to-suits our have development. a

So you pretty And conclusion could accelerate a to you to could consistent probably with had the we and do create it probably the that. draw I think we'd is - number, opportunity I be would that. higher think value that

Michael Carroll

different Is inland-type how I a And versus it Okay. general guess, the, the difference? X markets Tier markets? then are from big of development yields those more

James Connor

Nick rates. pretty a give but the of cap widespread, can it's is, spread It's the is the over Yes. function really it a and detail, you what

XX-plus last as those entire on being And the our we've we're able margins margins. as cap compression. continued see of to on And consistently And down. cap compression, what going-in years, rate is development go maybe value we've pipeline. for consistently range percent we've five seen the of few developing much years, our the focused the to But yields rate because in really hold we're so the been as creation

Nicholas Anthony

a Yes, and compression and we've Xs, actually say, lands. the I growth we experienced tied would up rate rent the of cap in Tier after lot

So the margins have actually done better.

Mark Denien

couple well. I'll more as points and Michael, Yes, Yes. add of a

a partly non-Tier our better markets as them bit the our, X are because it, well. have think I margins I'll non-Tier markets, more X than X build-to-suits the in little in call markets actually our Tier

So places are that's look Columbus, from. when build-to-suits coming lot Ohio, a you Cincinnati like where at and of

So lower you well. lower get margin, risk a obviously but as lot a little bit

margins higher on underwrite we even we it's and our markets, keep way based though we lower. in do in to mind, always Nick's the that lease-up So the period. have we X point, yields today's in - assume supplemental, XX-month we put rent, And are our stay a Tier we margins those

If been able like the because increased. went time less you'll and based say, had starts in on rent, to that it by stabilized XX about we've than last Yet year. back we've have they we been at lease points go rents look basis years' beat servicing, today's got the actually I worth by yields leased, in you underwrite a and now stabilized, our two of

carrying less have we So costs.

in closed XXXX in what an out had look about they So which about supplemental. and if yields to increase what had than basis X% from XX margin equates at supplemental, point you starts, we 'XX we extra a the in our our

Operator

And next the turn to of Kim. we line Bin Ki

Ki Bin Kim

based? are lease number are really obviously. XX% the markets you their high certain it So coming posted just mostly from? pulling weight? this above there that broad spread quarter guys Or that Is is Where

James Connor

across plus did that particularly something standouts the No, were you or it I'm no, of a there this markets. we a it's in number broad-based positive you've to telling X.X% I is pretty I'd past we cited got as average when leverage like have when ugly cited, any the If think back all it's brought pretty - renewal and Ki lot marketplace. Bin. that in said, vacancy, But tell or broad-based. numbers you, you an - vacancy we negative, or us down. had it the And the gives

Ki Bin Kim

too the many Or on like renewals negotiations how lately? have them leases, And Any a unnamed. with XX these remain list in who, bit still any but there's kind would leases. curious, e-commerce years of of in proceed players. you just might of be bigger couple still top major guess, I I shall too players was this little left done you of a first-generation early, have the the your some

James Connor

Yes.

don't number They the fine. - have have production. would I in negotiated - would a right same now. truth have it's on renewals getting in we of on you of clients still really much and process they're And you the not who e-commerce focused about giving things up They're we into more on focused those, tell not We space our one the very, leverage. I And is tell some space. so they're are growth, interest very have

lot nonstrategic equipment material really of make it's investments capital and handling, and in a huge, buildings, else. unless them, everything these for huge So they

So it's where really work. doesn't be really a not - it's it got to situation

us continue ones renewing have that think to tenants, around these see I particularly very the the e-commerce good consistently country. growing major So you'll success are

Operator

turn to Catherwood. of Tom line we the Next

William Catherwood

options, guys So you've available always can kind of sticking the type and have with you of but purchase X this XXX on X,XXX how the development is you another topic, land development acres Tier assets, of for about and to some of of put if years, we not took think decade, locations locations, and into some into production assemble quickly. get pretty those production. but those Portfolio, great just a the talked Bridge When title

put entitlements these and Tier on bank land versus move development, thoughts you production of on for the X do through more what markets right you what your longer-term want you As to to land portion can work of switching are into to away? more being more kind on

James Connor

in look to of kind of And can't. other keep XXX you're that then million. defined time amount carry. can land it balance. is are and between XXX and We've term Tom, of absolutely a the we Tier process. that very we can Well, We've tends long What Anytime make right. amount at yes, million infill you're to we doing adds a got And we nature. complicated, certain the redevelopment, be to plays targeted that more instances, X in

the investment most to So our doesn't it competitive take the we us in development those not site XX the work right line, or in risk take that projects land. X to situation you've and where that into sweet unless long, carry tell to spot, today that's I can carry to a now. a, is we're would willing X big But on to our very is for XX a buy substantial probably got of put equation those, that that really and years entitle have making for and going But a we for landowner month the find and with we're time a maybe you, production. working

William Catherwood

it's XX of Or X relative kind Got to has at that been pretty to few for years? And all past X? consistent Tier is that month you. with time what the line extended

James Connor

needs They're board. that municipality. whether a of great really that up, be - about talking you infill have have Tier environmental all cleaned blighted the site to the Xs you're contamination have some cooperation over the from or Most

markets, delay. other that's is, the done. you're which those some The much process, the in So working through through is more areas of not and the the the lengthy, challenge. it getting more taking delay In clean-up process permitting intensive where process and the and that's entitlement much

carry. getting And start them over have a go to all is outside not then see to you board. getting some the pretty to across and and the while having a a in a that's of us terms every delays. months be approval for That's we by So nature XX certain pretty the of good setback once range, problematic and of back But business. and and in large, anything brownfield redevelopment going

Operator

of we line next Frankel. the turn Eric to And

Eric Frankel

little increase. faster Just the than growth if bit follow-up. expected? there markets leasing you - a if one the were earlier. you pace Apologies I didn't that any you was dynamic where explained quick explain NOI already where that explains growing Were you could rents guidance maybe - same-store - particular you've

Mark Denien

se. any per So Eric, is markets I don't really think there

expected. the better bit just overall, had think rent what growth than I across board a we is little

and through best our was we year. we really this think the year quarter I got as every went quarter better all

the is backfill and rent So better really you I spaces. thing of the across other quicker would I it's And board, overall expiring growth. tell it's just think

ready we certain tenants day that a tenant to didn't vacated. we they going are that I count we What are were mean, and space to ready day certain right, almost literally, to in. was pretty have they having the take vacate, the left. they We left, on come

project certainly look you high while XX%. XX% quarter, the rate amount of that same or backfilled was like happen. renewal was the to So We for space budget if was that the our it at didn't at quarter,

we just better sheer thought. backfill a of than the expiring the just growth quicker really and happening and rent the these it's board combination of space across tenants So demand for

Operator

next line Korchman. Manny And we of to turn the

Michael Bilerman

I You've on ask you Blackstone's, platform. need seen merger do redoubling the think scale. massive significantly. about to their theirs. had just be made pretty industrial play, to clearly It's you scale Global Logistics Bilerman, Jim, again. up additional stop DCT efforts wanted a you jumped effective? their obviously, Michael after much How Prologis to

you So perspective sort see yourselves where from overall? of scale do a

James Connor

is to the business, which great are a advantages that's of there our grow. scale question. we've We continued reasons Well, to one believe in

kind I and We opportunity to Second we if at And the itself U.S.-only think at does, our we and largest and organization, improve in we NAV think opportunity. comfortable REIT. and love look can sector and presents an those look pure-play what opportunities. we're and grow, the and every continue of to grow we we that industrial largest FFO AFFO, like our we can

think you're that is seeing value-creation perspective. is deals situation expensive. today everything on very, done edge are the I are the very even a getting And probably right the from

we'll So look. continue to

Mark powder like and dry to some of the the I'd given reasons the we in to earlier, those. in is, As be one are cycle, to have to the there flexibility where think future, we've some alluded tried advantage opportunities may better take of keep even I

Michael Bilerman

using M&A with the of a about cost one public of out your that's that's that small the for you do portfolios scale? very think how just transaction, private may capital I balance those you play is desire does numerous large equity, using into How the you how attractive? whether which that to guess, where amount there, be of do that sort equity post Well, your or public to issued in things

James Connor

a and continued tool instances sector. a price Yes. our well, of was better liked that's And issuing I equity our like certain our one to of little Mark couple a sense. but can it makes we in performing in strong toolbox. stock tools where when the price. has I that's very we in that mean, we're And look, do it ago, use months a

that's So combination create value. go if we're not leverage opposed or to find an to a can opportunity both or using we again, to equity going of out,

Michael Bilerman

the just thing. last And

international, Prologis-DCT then came immediately synergies One the of immediate million synergies the from a market. G&A of the pricing book the was of that merger, the comp, cash about $XX the and think at you able get, was were two international real drawdowns. the but uplift eliminating basically on entirety lot whereas estate things. DCT's of There's refinancing clearly current was If or debt above that with they future to

in basically So potential how versus synergies? valuing separate you from real things your estate underwriting, flow do cost the valuing the cash those

James Connor

above you've replacement pay hit cost only significant or the line Well, on prices got those itself, all key the opportunity but justify We've if basis. think at is you somebody way components. gain you at today market have top the they efficiencies. on can a The you can absolute footprint. to you've of national of paying at the And that case-by-case presents to a every perfectly. necessarily got don't look operating up that We one clearly

is part other buy But maintaining situation that keeping right some into referenced, seller, a whole of it culture you've factors there the that clearly now. transaction was sellers think the the and main I are willing of impetus. of sort the the you the because lot that the company with of because

be synergies be premium. So to to save able create a able the justify it's out be but you've got got enough balance, money to paying enough go and to to to

Operator

of Next Mueller. line Michael we turn to the

Michael Mueller

again. spreads GAAP the on question quick A Yes.

Looking spread. the Looks cash actual XX% what some on is new is from five through helping can replaced? walk that old bumps with the factors are being leases the versus different new about the just you you like what's are obviously get number, of leases? the of have year-to-date the bumps, years. at You that leases duration there? same How And sort the the in

Nicholas Anthony

generally, that terms to tell original the a be XX-year the are lease the you typical is tenor of new renewal the XX- you leases were would the some these and X is little of just short, I years, said. development than as tend because lease old and

not a little a old new growth. good of Most just old-fashioned And a the of of significant but the growing. is is the bumps rent other are it there's deal, term roll-down the in piece compared little. real deal So the to bit

even in at about portfolio right deal is or are we're X.X% now. X%, bump. But X.XX% in total We every more cases, our at to some doing about today

means are the So - that of that rolling old the some were old leases X.X%.

bump a lease maybe lease go and new to So probably then good from you're X% X.X% was old bump seeing the X%. is a of the

about So the bumps are double.

Operator

[Operator Instructions].

Next John of we turn Guinee. to the line

John Guinee

Great.

me again? you'd all us do on, sources on when uses, need or and Just tap to help equity Mark, help markets the think Based out. you your to

Mark Denien

we need do equity the to tap again? markets won't... When It

John Guinee

net debt-to-EBITDA. X.X Say at

Mark Denien

be won't will give on It'll that. be to not year. I development on is, will XXXX. lot that It whatever tell you, a that depend beginning But need in John, And guidance can tap we the beyond markets XXXX. we'll equity next guidance

Ronald Hubbard

I'd XXXX. reconvening Thanks, everyone for and for the call, today, call look Thursday, like January our again. XX, same again quarter we to time during forward thank to scheduled on fourth the joining

Operator

participation that ladies for And and gentlemen, does for you AT&T TeleConference Service. today. our Executive your conclude Thank and using for conference

disconnect. You may now

Ronald Hubbard	VP, IR
James Connor	Chairman & CEO
Nicholas Anthony	EVP & CIO
Mark Denien	EVP & CFO
Michael Bilerman	Citigroup
Robert Metz	BMO Capital Markets
Blaine Heck	Wells Fargo Securities
Eric Frankel	Green Street Advisors
Nicholas Yulico	Scotiabank
David Rodgers	Robert W. Baird & Co.
James Feldman	Bank of America Merrill Lynch
Michael Carroll	RBC Capital Markets
Ki Bin Kim	SunTrust Robinson Humphrey
William Catherwood	BTIG
Michael Mueller	JPMorgan Chase & Co.
John Guinee	Stifel, Nicolaus & Company

Duke Realty (DRE) 25 Oct 182018 Q3 Earnings call transcript