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Edited Transcript of FR earnings conference call or presentation 14-Feb-19 4:00pm GMT

Q4 2018 First Industrial Realty Trust Inc Earnings Call

CHICAGO Feb 21, 2019 (Thomson StreetEvents) -- Edited Transcript of First Industrial Realty Trust Inc earnings conference call or presentation Thursday, February 14, 2019 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Arthur J. Harmon

First Industrial Realty Trust, Inc. - VP of IR & Marketing

* Christopher Schneider

First Industrial Realty Trust, Inc. - Chief Information Officer and SVP of Operations

* Johannson L. Yap

First Industrial Realty Trust, Inc. - Co-Founder, CIO & Executive VP of West Region

* Peter E. Baccile

First Industrial Realty Trust, Inc. - President, CEO & Director

* Peter O. Schultz

First Industrial Realty Trust, Inc. - EVP of East Region

* Scott A. Musil

First Industrial Realty Trust, Inc. - CFO

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Conference Call Participants

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* Craig Allen Mailman

KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst

* David Bryan Rodgers

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

* Eric Joel Frankel

Green Street Advisors, LLC, Research Division - Senior Analyst

* John William Guinee

Stifel, Nicolaus & Company, Incorporated, Research Division - MD

* Robert Chapman Stevenson

Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst

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Presentation

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Operator [1]

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Good morning. My name is Nicole and I will be your conference operator today. At this time, I would like to welcome everyone to the First Industrial fourth quarter results call. (Operator Instructions)

It is now my pleasure to hand the conference over to Mr. Art Hartman, Vice President of Investor Relations.

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Arthur J. Harmon, First Industrial Realty Trust, Inc. - VP of IR & Marketing [2]

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Thanks a lot, Nicole. Hello everybody and welcome to our call. Before we discuss our fourth quarter and full year 2018 results and 2019 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, February 14, 2019. 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, our 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.

Let me turn the call now over to Peter.

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Peter E. Baccile, First Industrial Realty Trust, Inc. - President, CEO & Director [3]

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Thank you, Art, and good morning, everyone. 2018 was another fantastic year for First Industrial and all our stakeholders. The combination of the hard work of our talented teammates across the country with continued strong fundamentals in the industrial real estate sector, a vibrant economy, and further growth in e-commerce resulted in a very active fourth quarter and highly successful year.

I want to give a hearty thank you to all of team FR for their dedication to our mission of serving our customers and generating long-term cash flow growth and value creation for our shareholders. Their focus and commitment culminated in a record year-end occupancy of 98.5%, an increase of 120 basis points from the end of 2017.

We're also off to a great start for 2019 as evidenced by strong rental rate growth and rollovers. As of today, we signed over 64% of 2019 expiring leases with an average cash rental rate change of 12.6%. Scott will walk you through the rest of our operating metrics shortly.

I'd like to turn now to some big winds on the development side, namely the lease up of the largest development project in our pipeline and 2 new build-to-suits. In the fourth quarter, we signed the largest lease in our company's history for 100% of our 1.4 million square foot First Nandina Logistics Center in Southern California. In December, we completed the building and commenced the long-term lease with an investment grade tenant. Our total investment was $83.4 million and our first year stabilized cash yield was 8.4%.

Now let me move to our 2 new build-to-suit projects. As you know, we primarily built spec over the past several years, choosing to start projects where we can meet pockets of unreserved demand and are in superior risk-adjusted returns. We've had great success with this strategy generating market-leading margins and creating significant shareholder value. That said, we're excited to have put 2 of our larger site into production in the fourth quarter to meet the current logistics needs of 2 customers and both are expandable in the future.

We're building the 703,000 square foot First Park Fairburn in Atlanta for post holdings, a publicly traded consumer package goods company focused on food, food service and nutrition. The lease at Fairburn is expected to commence in the third quarter. We also started the 863,000 square foot First Mountain Creek Distribution Center in Dallas leased long term to a leading industrial supply company with more than $1 billion in annual sales. That lease is expected to commence in the fourth quarter. Total combined investment for these buildings is estimated at $92.9 million, and our cash yield is 5.8%.

Summing up our 2018 developments, we placed in service 3.5 million square feet at a weighted average cash yield of 7.9%, with the fourth quarter lease up of the remaining 50% of our 602,000 square footer at First Park 94 in Chicago. These buildings are 100% leased with margins north of 70%. Note that approximately 2/3 of the stabilized NOI from this 2018 graduating class is in Southern California.

We have also completed 1.8 million square feet of new developments located in Southern California, Chicago, Houston and Pennsylvania with a projected cash yield of 6.9%. We still have work to do to lease these up, but by meeting pro forma, we can deliver margins in excess of 40%. At year-end, including 2 previously mentioned build-to-suits as well as projects in Denver, Dallas, Southern California and Seattle, our developments in process total 2.8 million square feet.

Given the build-to-suits and pre-leasing of 63,000 square feet in our First Park 121 project in Dallas, this group is now 59% leased. Our estimated investment is $189 million with a projected yield of 6.3% and an estimated margin of approximately 35%. I would like to point out that through our successful development program along with select acquisitions, we've grown our position in the dynamic Southern California market substantially over the past several years and there is more growth on their horizon.

As our largest market by more than 50%, Southern California represented 16.7% of our rental income as of the fourth quarter of 2018. Pro forma adding the full impact of our newly set First Nandina and assuming lease up of our other projects under construction or in lease up in that market and elsewhere, Southern California will grow to approximately 19% of rental income, all other things being equal.

A couple of other development items of note. In the first quarter, we have started 2 additional projects. The first is our 199,000 square foot Fossil Creek development in Dallas with an estimated investment and stabilized cash yield of $12.4 million and 7% respectively. The second is a 50,000 square foot build-to-suit in Phoenix for a repeat corporate customer on a site we acquired in the first quarter. Our total estimated investment is $7.7 million with a stabilized cash yield of 5.7%.

Turning now to acquisitions. In the fourth quarter, we closed on 4 buildings totaling 511,000 square feet and 2 land parcels for a total of $65.6 million. These were comprised of a 120,000 square foot facility in New Jersey for $12.9 million as well as 2 newly constructed building in Southeast Houston totaling 344,000 square feet for $32.2 million. The Houston buildings are located in a park in which we already have a position and were 92% leased at acquisition. We also acquired a 56,000 square foot building in Seattle for $8.1 million. Our weighted average combined cap rate for the 4 buildings was 6.1%.

The land sites we acquired are in the high barrier markets of New Jersey and Miami, and we can build a total of approximately 260,000 square feet on them. For the year, building acquisitions totaled 1 million square feet and $124.9 million at a weighted average cap rate of 5.7%. We also acquired $42.6 million of land, some of which is already in production. In the first quarter, we closed on a development forward, our First Orchard 88 Logistic Center. This is a 173,000 square foot facility that is in lease up and is located in the I-88 corridor of Chicago, proximate to some of our other properties in that submarket. Our purchase price was $12.3 million and our projected stabilized yield is 6.3%.

2018 was also a successful year for our ongoing portfolio management efforts. Dispositions totaled $71.5 million in the fourth quarter, comprised of 18 buildings and 2 land parcels. These were largely smaller, capital and tenant intensive properties primarily located in St. Louis, Tampa and Denver. For the year, we sold 52 buildings totaling 2.6 million square feet and 6 land parcels for $192 million. We exceeded the $125 million midpoint of our 2018 sales guidance by more than $65 million. For 2019, we are targeting sales in the range of $125 million to $175 million. We will continue to reallocate capital into markets and properties that we believe offer greater opportunities for rental rate and cash flow growth.

On the strength of our 2018 performance and our outlook, which Scott will discuss, our Board of Directors has declared a dividend of $0.23 per share for the first quarter of 2019. That's $0.92 annualized, which represents a 5.7% increase from 2018. Importantly, this represents a payout ratio of approximately 64% of our anticipated AFFO for 2019 as defined in our supplemental. We intend to deploy the additional retained cash flow into new developments and acquisitions.

Before I turn it over to Scott, I'll comment briefly on the industrial environment. While there has been a lot of volatility in the marketplace, particularly in the stock market, the underlying fundamentals in our sector continue to be strong. 2018 was the sixth consecutive year of more than 200 million square feet of net absorption. E-commerce is driving significant demand for logistics space today and for the foreseeable future. And the economy continues to grow, as does consumption.

New supply in the best market has been held in check through scarcity of developable sites and longer and longer entitlement periods. Overall the industrial markets are in balance, but we're mindful that trees don't grow to the sky and we will continue to adhere to strict investment discipline, expense management and a conservative balance sheet.

With that, Scott will walk you through some of the additional details on the quarter and our 2019 outlook.

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Scott A. Musil, First Industrial Realty Trust, Inc. - CFO [4]

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Thanks, Peter. Let me start with the overall results for the quarter. In the fourth quarter, diluted EPS was $0.40 versus $0.81 one year ago reflecting lower gains from property sales compared to the fourth quarter of 2017. NAREIT FFO was $0.42 per fully diluted share compared to $0.41 per share in 4Q 2017. In both the fourth quarter of 2018 and 2017, we recognized $0.01 of income related to insurance payments received for damaged properties. Excluding this income, fourth quarter 2018 FFO was $0.41 per share compared to $0.40 per share in 4Q 2017. Full year 2018 NAREIT FFO per share was $1.60 versus $1.57 in 2017.

As Peter noted, we finished the year at an occupancy rate of 98.5%, up 90 basis points from the prior quarter and up 120 basis points from a year ago, which reflects the strong leasing volume we captured in the fourth quarter. During the quarter, approximately 4.5 million square feet of long-term leases commenced. Of these, 714,000 square feet were for new leases, 1.2 million square feet were for renewals, and 2.6 million square feet were for development and acquisitions. Tenant retention by square footage was 82%. For the year, we commenced a total of 13.2 million square feet of leases and tenant retention was 83%.

For the quarter, same-store NOI growth on a cash basis excluding termination fees was 6% driven by higher average occupancy, rent bumps and increase in rental rates on leasing, and lower free rent. Lease termination fees totaled $952,000 and including termination fees, cash same-store NOI growth was 7.3%. For the year, same-store NOI growth on a cash basis excluding termination fees was 5.8% and including termination fees was 6%. In the fourth quarter, cash rental rates were up 6.5% overall with renewals up 7% and new leasing up 5.7%. On a straight-line basis, overall rental rates were up 17.3% with renewals increasing 16.6% and new leasing up 18.4%. For the full year 2018, overall cash rental rates were up 8.1% and on a straight-line basis they were up 20.6%.

Quickly moving on to a few balance sheet metrics. At the end of the fourth quarter, our net debt plus preferred stock to adjusted EBITDA is 4.7x, which gives us dry powder for new investments. Please note that the adjusted EBITDA excludes income related to an insurance settlement. At December 31, the weighted average maturity of our unsecured notes, term loans and secured financings was 5.8 years with the weighted average interest rate of 4.25%. These figures exclude our credit facility.

Now moving on to our initial 2019 guidance. Our NAREIT FFO guidance range is $1.64 to $1.74 per share with the midpoint of $1.69, which represents a 5.6% growth rate. The key assumptions for guidance are as follows. In average in service quarter end occupancy of 96.75% to 97.75%. Based on our first quarter move outs, we anticipate first quarter occupancy will have a typical seasonal dip, which could approximate up to a 100 basis points. Our guidance for same-store NOI growth on a cash basis is 1.5% to 3%. Note that this range reflects a bad debt assumption of $2 million compared to our actual total of $350,000 in 2018.

In addition, same-store guidance reflects an estimated 80 basis point impact from tax true-ups for markets paid in arrears predominantly in Denver, which we also saw in 2017. Our G&A guidance range is $27.5 million to $28.5 million. Guidance includes the anticipated 2019 costs related to our completed and under construction developments at December 31 as well as the 2 first quarter starts we announced in Dallas and Phoenix. For the full year 2019, we expect to capitalize about $0.02 per share of interest related to these developments.

Note that 2019 guidance also reflects an approximately $0.01 per share impact related to the new lease accounting rules. Our guidance does not reflect the impact of any future sales, acquisitions or new developments starts after this earnings call, the impact of any future debt issuances, debt repurchases or repayments other than the expected payoff of $72 million of secured debt in the first quarter and $35 million of secured debt in the third quarter. These pay offs carry an average interest rate of approximately 7.74%.

Guidance does not reflect the impact of any future gains related to the final settlement of 2 insurance claims from damaged properties and guidance also excludes the potential issuance of equity.

With that, I'll turn it back to Peter.

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Peter E. Baccile, First Industrial Realty Trust, Inc. - President, CEO & Director [5]

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Thanks, Scott. With 2018 in the books, we're focused on delivering another successful year in 2019. Cash flow growth will continue to be driven by embedded lease bumps capturing higher market rents in our new and renewal leasing, executing on lease up of our new investments and a few opportunities to lower our debt costs. The fundamentals for logistics real estate remain favorable, helped by continued growth in the economy and the long-term driver of e-commerce related demand.

Our team is working hard to execute on our development opportunities and to find new investments for growth, while maintaining strong capital discipline.

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Craig Mailman with KeyBanc Capital.

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Craig Allen Mailman, KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst [2]

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Scott, maybe just drilling a little bit more on the same-store. I appreciate kind of a 130 basis point drag you guys have in there, which I think gets you up to a close 3.55%, 3.6%. I'm just curious the de-sale of that relative to what you guys did this year probably is on the occupancy side given the 125 basis point drag in guidance. I mean is that consistent kind of the average quarter end for the portfolios? Is that sort of how you guys looked at same-store similar drags? I'm just kind of want to get at what the de-sale is coming from for '19 over '18 ex some of the specified things you guys laid out?

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Scott A. Musil, First Industrial Realty Trust, Inc. - CFO [3]

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Craig, it's Scott. Sure, let me run through that for you. So our build up, our same-store growth in '19 -- and this will be before the couple of items I mentioned in the script in the press release. So in 2019, we're getting about a 2% benefit in same-store for rental rate bumps, about 1.8% of a benefit due to increase in rental rates for new and renewal leasing, and then we're picking up about 0.2% for slight decrease in free rent. So that gets you to about a 4%. 2018 was at about a 5.8%. So we've got like 180 basis point difference there. And Craig, the main driver of that difference is if you look in 2018, we picked up about 1.5% of same-store due to increasing occupancies. And in 2019, we're actually losing about 0.3%, because our average occupancy is slightly declining. So the difference of those 2 is about 1.8%, which gets you -- which pretty much bridges you between the 4% and the 5.8%. Does that help?

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Craig Allen Mailman, KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst [4]

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Yes. That's very helpful. And then you guys laid out maybe 100 basis points of occupancy dip in the first quarter. I mean how much of that is known versus just regular seasonality? I mean we're halfway through the first quarters. So you guys should have some sense, right?

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Christopher Schneider, First Industrial Realty Trust, Inc. - Chief Information Officer and SVP of Operations [5]

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Craig, this is Chris. Yes, the move outs about 450,000 square feet is from short-term leasing. So that's the main reason for that drop.

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Craig Allen Mailman, KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst [6]

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If I can just sneak one more in. On the development front, you guys obviously have done a little bit more of the build-to-suits that come with a lower yield, but derisk the portfolio. And as you look out at the pipeline, how many more of those do you want to do in '19? And I apologize if I missed this, but kind of what do you think the start target could be just overall on developments?

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Peter E. Baccile, First Industrial Realty Trust, Inc. - President, CEO & Director [7]

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So Craig, it's Peter. As you know, we don't really guide on starts. Our focus is on trying to make sure that we're highly profitable in all of our investment efforts and we don't want to put volumes out there that might contradict that. So what I can say is that we're always in the game for build-to-suits. This particular call we're talking about 3 that we have won recently. Those projects are going to end up yielding us margins that are not too dissimilar from spec margins. So we always shoot for 100 to 150 basis points on our development margins and all of those projects will be north of 100. So pretty good there relative to what is typical in kind of 50 basis point margins on build-to-suits. So look, we'll continue to look to build-to-suits, but of course the primary development pipeline will be spec going forward.

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Operator [8]

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Your next question comes from the line of Rob Stevenson with Janney.

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [9]

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Can you just give a little color on the markets that you think might be in the bottom quartile of your expected performance in 2019 and any major changes to the positive or negative in your markets expected in '19 versus '18?

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Peter E. Baccile, First Industrial Realty Trust, Inc. - President, CEO & Director [10]

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Why don't I try to approach it this way? Just from an overall -- look, when we look to invest new dollars and we look in the submarket-by-submarket basis, there are some markets that have some excess leasing opportunity. Those would be South Dallas, Northeast Atlanta, the bigger box is in Central PA, I-55 quarter in certain sizes here in Chicago. So I'm not sure that we have any markets in our portfolio that we're particularly concerned about. If you go over the supplemental and look at the occupancy rates we have across the country, they're all pretty strong.

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [11]

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Okay. And then, Scott, what would -- what drove the increase in the bad debt? Was it -- and how many tenants was that?

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Scott A. Musil, First Industrial Realty Trust, Inc. - CFO [12]

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Let me go over how we determine that assumption for our 2019 guidance. And we've been doing this probably for the last 5 years. So what we've done is we had a history of our bad debt expense for the last 25 years the history of the company. That's about 50 basis points of total revenues. We apply that against our projected revenues and that's $2 million. So it's really a macro based upon our experience over the last 25 years. It's not really a specific. What I can tell you about how we're doing in 2019, we recently conducted our January 2019 bad debt expense calls. We booked 0 bad debt expense for January. When you look at tenants that we are keeping an eye out, I would say, Rob, there is probably only one. It's Pier 1. They had a tougher holiday season in 2018. They leased about 644,000 square feet and the I-95 corridor of Baltimore. So we're keeping an eye on them, but the good news for us is they were on time on their payments and they're fully utilizing their facility.

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Robert Chapman Stevenson, Janney Montgomery Scott LLC, Research Division - MD, Head of Real Estate Research & Senior Research Analyst [13]

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Okay. And so I mean none of this is -- is this all just basically accounting or is some of this your expectation that tariffs, trade wars softer going forward, operating fundamentals than previously that drives any of this or is it all just the basically the accounting?

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Scott A. Musil, First Industrial Realty Trust, Inc. - CFO [14]

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It's all a macro view for the history of the company. I'm not aware of any tenants at this point of time that would cause us to hit the $2 million. So it's more of a macro way that we establish that the bad debt expense for guidance.

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Operator [15]

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The next question comes from the line of John Guinee with Stifel.

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John William Guinee, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [16]

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Last time I heard, Johnstown, PA was a flood in late 1800s. Talk about the Eastern PA market and what you guys think about the long-term viability of that?

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Peter O. Schultz, First Industrial Realty Trust, Inc. - EVP of East Region [17]

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It's Peter Schultz. So in '18, Pennsylvania had another great year with north of 16 million square feet of net absorption which I think was the second highest. So demand there continues to be good. Your reference to Johnstown is our project at the intersection of I-78 and 81 where we finished 2 buildings in the fourth quarter of 738,000 square foot and 250,000 square foot building. And we continue to see interest in that, though nothing specific to tell you. I would say from a supply standpoint, to your question, there is a fair amount of existing and under construction million square foot plus or minus buildings, a couple in Northeast PA, a couple along 78 between the Lehigh Valley and Harrisburg and Berks County, and several along 81 South of Carlisle. So the million square foot range feels a little bit over supplied at the moment, but most other sizes including our 2 buildings, we feel pretty good about. We like Pennsylvania. As you know, it's one of our larger markets. It continues to be very active from a demand standpoint servicing that part of the country.

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John William Guinee, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [18]

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Great. And then second I guess Peter or someone there. Looks like for both 2017 and 2018, your GAAP rent, GAAP releasing spreads were around 20% and cash was 8% to 9%. Is that sustainable in '19 and '20, 2019 and 2020?

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Christopher Schneider, First Industrial Realty Trust, Inc. - Chief Information Officer and SVP of Operations [19]

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Yes. John, this is Chris. Overall, we're looking at cash rental rates in 2019 of about 9% to 13%, so 11% in the midpoint. If you look at our the gap, the numbers are typically about 900 to 1000 basis points higher. So overall our cash rental rates are looking strong as evidenced by what we [side] so far in renewals.

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Operator [20]

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(Operator Instructions) The next question comes from the line of Dave Rodgers with Baird.

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David Bryan Rodgers, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [21]

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Maybe for Peter or maybe Jojo wants to jump in on this one if he's there. I guess with regard to the build-to-suit activity, I think you said a 5-8 going in yield on those in some secondary markets, but how do you think about the margin on those and then maybe reconcile the difference between something in kind of a high 5s there versus something in the high 8s on the west coast or the mid 8s as you talked about with Nandina in terms of kind of the different in landholding market rent growth over the holding period, and the kind of the differences that would get you along that spectrum?

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Peter E. Baccile, First Industrial Realty Trust, Inc. - President, CEO & Director [22]

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Well, I'll start out and then I'll kick it over to Jojo. Those projects had a significantly different evolution and timetable, not to mention they're obviously in different markets in terms of rent growth and the velocity of rent growth. The margins that we're getting on Nandina, don't forget that project was an assemblage of 13 different sites from 12 different owners. It took about 9 months. And while we were building that building, market rents in that market continued to grow significantly. So the yield that we ended up with there was almost 100 basis points higher than our initial pro forma. So that's just the different story onto itself at Southern California. The land that we have in Atlanta, the Fairburn site, we've also had for a few years. We reworked that site to improve the value there. Rent grows in that market has not been as robust over that time period as it was in Southern California. And so we ended up with the yields that we -- that we're talking about. We like that site. We're really excited about that project and the yields, again the development margins there continue to meet our objectives. Jojo, you have...

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Johannson L. Yap, First Industrial Realty Trust, Inc. - Co-Founder, CIO & Executive VP of West Region [23]

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Yes. Just a couple of things to add. Just in terms of margins, the post build-to-suit and the build-to-suit in Mountain Creek in Dallas are easily low 4s to mid 4s. So we're looking at 130 or 150 basis point spread there. Peter already talked about Nandina. But overall, we've been able to achieve significantly high spreads over exits. Our goal going forward, and we try to beat this, but our underwriting space either way we look at it is 100 to 150 basis point spread. You would expect us to do slightly smaller spread in higher barrier markets because of the higher expected rent growths we get. And you would expect us on the 100 to 150 geared towards the higher spread in medium barrier markets because they have a slightly lower rent growth and because at the end, they were a total return investor.

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David Bryan Rodgers, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [24]

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Great. And then maybe just one question for Scott as well on the balance sheet. Comment on how you feel about the balance sheet now. I know the guidance does not include equity. You tended to do some each of the last several years to further de-leveraging position for development, though although it's not in guidance kind of what your thought on balance sheet where you'd like to be?

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Scott A. Musil, First Industrial Realty Trust, Inc. - CFO [25]

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Sure, Dave. Our balance sheet is in great shape. Our debt to EBITDA is 4.7x. We only have $5 million drawn in our $725 million line of credit. So when you look at our sources and uses, really other than the debt repayments I mentioned before, we have to fund our development in process. And that's almost being 100% covered by our sales proceeds. So when it comes down to equity, Dave, like what we've mentioned in the past, it has to be an imbalance between sources and uses, and the imbalance would be caused by a large pipeline. So we have a very, very large investment pipeline. And that can't be covered by sales, retain capital which is about $60 million this year or new leverage. We may issue equity if we like the stock price, but where we stand today, everything sources and uses is in line.

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Operator [26]

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Your next question comes from the line of Eric Frankel with Green Street Advisors.

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Eric Joel Frankel, Green Street Advisors, LLC, Research Division - Senior Analyst [27]

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I know you guys don't -- obviously, you guys have stated already you don't give capital allocation guidance and that's obviously [fine]. But can you maybe just provide a sense of what your portfolio repositioning efforts are going to look like this year? I know you're kind of, your -- you have a stabilized platform now, but maybe just give a sense of what your asset sales might look like if the market stays where it is?

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Peter E. Baccile, First Industrial Realty Trust, Inc. - President, CEO & Director [28]

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Sure. The guidance again is $125 million to $175 million on that. The composition of that, a group of assets will be similar to what you've seen in the last couple of years. The stabilized cap rate on last year sales was 6.9%. The cash flow out of those assets was significantly less. And that's why we're selling those assets. So I think the profile of the portfolio will be similar. The sales portfolio will be similar. And we've given you the range.

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Eric Joel Frankel, Green Street Advisors, LLC, Research Division - Senior Analyst [29]

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Sounds good. And can you maybe give a sense, you guys have actually plowed through a lot of your land to put into development in the past year. So can you get a sense of what kind of opportunity you're seeing in terms of replenishing your development opportunities a little bit?

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Peter E. Baccile, First Industrial Realty Trust, Inc. - President, CEO & Director [30]

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Sure. On land that we currently have, we can build about 11 million square feet. We're also in the market every day looking to acquire new sites. And as you heard us say in pretty much every quarterly call when we buy a land, much of the time we're putting it to work in the same year that we buy it. So we're looking to have big picture, Eric. We're looking to have 2 to 3 years of supply of land in the portfolio.

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Operator [31]

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(Operator Instructions) And with no further questions, I'll hand it back over to Peter Baccile for final remarks.

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Peter E. Baccile, First Industrial Realty Trust, Inc. - President, CEO & Director [32]

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Thank you, operator. And thank you all for participating on our call today. Please feel free to reach out to Scott or me with any follow up questions and we look forward to seeing many of you in Florida in the next few weeks.

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Operator [33]

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This does conclude today's conference call. We thank you for your participation and ask that you please disconnect your line.