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Duke Realty Corp  (NYSE:DRE)
Q4 2019 Earnings Call
Jan. 30, 2020, 3:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Duke Realty Quarterly Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to our host, Mr. Ron Hubbard. Please go ahead.

Ron Hubbard -- Vice President, Investor Relations

Thanks, Alisha. Good afternoon, everyone and welcome to our fourth quarter and year end 2019 earnings call. Joining me today are Jim Connor, Chairman and CEO, Mark Denien, CFO and Nick Anthony, Chief Investment Officer, Steve Schnur, Chief Operating Officer.

Before we make our prepared remarks, let me remind you that statements we make today are somebody to certain risks and uncertainties that could cause actual results to differ materially from expectations. For more information about those risk factors we would refer you to our December 31, 2018-10-K that we have on file with the SEC.

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

James B. (Jim) Connor -- Chairman and Chief Executive Officer

Thanks, Ron, and good afternoon, everyone. Let me start by saying that 2019 was another outstanding year for Duke Realty. We met or exceeded all of our 2019 goals, including our revised guidance throughout the year. We also capped off the year with an excellent fourth quarter from an operational and financial perspective that sets us up for a great start to 2020 and beyond.

Let me just recap some of the highlights from our outstanding year. We signed nearly 26 million square feet of leases, we maintained our stabilized portfolio at about 98% leased on an average throughout the year and our in-service portfolio at about 96% leased on average. We renewed 77% of our leases and attained 29% GAAP growth -- GAAP rent growth, 12% cash rent growth on second generation leases for the full year respectively. We grew same property NOI of 4.7%, which exceeded our revised guidance expectations. We commenced $1.1 billion of new development starts that we're 55% pre-leased, 73% of which were in coastal Tier 1 markets. We placed $715 million of developments in service that are now 70% leased.

We completed $494 million of property dispositions and $270 million of acquisitions. We raised $575 million of debt at an average yield of 2.85% including the first US-issued green bond offering by an industrial REIT and raised $266 million of equity.

We grew FFO per share and AFFO on an adjusted basis by 8.3% and 10.2% respectively and increased our regular quarterly common dividend by 9.3%. And finally, we continue to run our company with the most responsible manner in an ESG culture with numerous ESG achievements.

Now, let me turn it over to Steve Schnur to cover our cover the fourth quarter and touch base on the market fundamentals.

Steven W. Schnur -- Executive Vice President and Chief Operating Officer

Thanks, Jim. I'll first touch based on the overall market fundamentals. Supply exceeded demand for the quarter by about 7 million square feet and for the full year by about 35 million square feet, which nudged up national vacancy rates from about 4.2% earlier in the year to 4.4% at the end of 2019. We anticipate this happening, and I think it's important to note that vacancy at 4.4% is still about 200 basis points below long-term average.

Market rents continued to grow across the country at about 4% during 2019 over the prior year. The under construction pipeline at year end was about 310 million square feet or about 2.1% of the US stock. As we discussed the last few quarters, there are a handful of submarkets currently out of balance, if we add up the five mentioned last quarter and now add North Houston into that watch list. Our total NOI exposure to these submarkets is approximately 4.3% and the tenant roll over the next two years, in these submarkets for us as less than 1% of our total revenue. So, we have modest manageable exposure to these high supply submarkets and obviously they are not the focus of our expected 2020 development activities. Moreover, demand in the US remained very solid nationwide an exceptionally strong in the submarkets we're focused into grow.

In fact, we had our strongest quarter of the year as Jim mentioned with 8.3 million square feet of leases executed which finished the string of three consecutive quarters of leasing over 7 million square feet, which was a record for us. We signed 20 leases in excess of 100,000 square feet and six leases over 500,000 feet with an average of all leases signed of 139,000 feet. Demonstrated a continued strong demand for well-located spaces across the entire size spectrum. In addition, the average lease term, we signed during the quarter was 9.2 years.

A few of the more notable lease transaction this quarter were repeat business transaction with customers, including Samsung, Home Depot, Amazon, US Foods and Crate & Barrel. I'll also highlight an instance in Northern New Jersey where our team got in front of a known late 2020 lease expiration. We signed a new lease to backfill a 650,000 square foot facility when it expired in the third quarter of 2020. The new lease as a term of 15 years, had a GAAP rent growth of in excess of 50%.

We also had a tremendous quarter on the first generation leasing side, when excluding build-to-suits, we signed 2.3 million square feet of space and recently completed are still under development spec projects, all of which outperformed our original underwriting projections by about three months on the lease-up and roughly 25% on rental rate. One of these was a million square feet spec project in Southern California that some of you may have seen in our NAREIT property tour in November. It was up nine parcel land assemblage and took three years to entitle, we broke ground in early '19 and by November before the building was completed, we signed a lease for the entire building with a major e-commerce retailer.

The second example is in the New Jersey Meadowland submarket, where we delivered a 660,000-foot spec facility in the fourth quarter and immediately upon completion sign a lease with a major e-commerce user for the entire building. We believe this is yet another example of the e-commerce demand for mid to large-size facilities as well as our development expertise in densely populated and infill markets.

At quarter end, our stabilized in-service portfolio was 97.8% leased. The lease activity for the quarter combined with strong fundamentals led to another great quarter rent growth for us with 12% cash and 32% GAAP. And looking at the GAAP rent growth by size. For the full year in 2019, we realized 24% growth for deals under 250,000 feet and 32% for deals over 150,000 feet. We expect rent growth in 2020 to be relatively similar to 2019 by capturing rent upside on our lease expirations over the next 18 months, which continue to be supported by mid-to-single digit market level rent growth and a general a mark-to-market in the 14% to 18% range in our portfolio.

We also had a tremendous quarter on development starts in the fourth quarter. Breaking ground on five projects totaling over $300 million. These include a 665,000-foot build-to-suit for Home Depot in Atlanta near the Hartsfield Airport as well as spec projects in Northern New Jersey and Southern California. Our development pipeline at year end totaled $1 billion was 74% allocated to coastal Tier 1 markets. The pipeline was 56% pre-leased and is expected to generate margins in excess of 33%.

One last note on development. As you saw from our recent press release earlier this month. We've established a policy to develop all future facilities to attain LEED certification, not only will this initiative enhance our own corporate responsibility goals, but it will help to meet the needs of a growing universe of our customers with sustainability objectives. We also believe over the long-term it will improve the desirability and operating efficiency of our own portfolio.

And with that, I'll turn it over to Nick Anthony to cover the acquisitions and disposition activity for the quarter.

Nick Anthony -- Executive Vice President and Chief Investment Officer

Thanks, Steve. We had an active quarter on both -- both dispositions and acquisitions. Consistent with our strategy to increase our exposure to coastal Tier 1 markets, we sold $110 million of assets in the fourth quarter, comprised of two facilities in Indianapolis, and one facility in Columbus, Ohio. In turn, we used a portion of these proceeds to acquire two projects totaling $68 million. One of the investments was 240,000 square foot newly completed asset in South Florida, at our Caroline Park [Phonetic] in the Medley submarket, a transaction I mentioned on last quarter's call.

The second investment was 220,000 square foot facility in the East Bay submarket of Northern California. While there will be some minor dilution from these asset trades initially we anticipate long-term accretion given the higher growth profile of the assets we are acquiring. We expect this recycling to continue in 2020 with dispositions, mostly in our Midwest market and potentially a few buildings outside the Midwest to manage tenant exposure.

I'll now turn it over to Mark to cover earnings results in the balance sheet activities.

Mark A. Denien -- Executive Vice President and Chief Financial Officer

Thanks, Nick. Good afternoon, everyone. I'm pleased to report the core FFO for the quarter was $0.38 per share compared to core FFO of $0.37 per share in the third quarter and represented an 8.6% increase over the $0.35 per share reported in the fourth quarter of 2018. Core FFO was $1.44 per share for the full year 2019, compared to $1.33 per share for 2018, which represents an 8.3% annual increase. The increased core FFO for both the year and the quarter compared to 2018 was the result of our continued investment in and lease up of new developments as well as rent growth on second generation leases and increased occupancy.

FFO as defined by NAREIT was $1.40 per share for the full year 2019, compared to $1.34 per share for 2018. AFFO totaled $476 million for the full year 2019 and $115 million for the fourth quarter. Our annual results represented a 10.2% increase to AFFO on a share adjusted basis. Same property NOI growth on a cash basis for the three months and 12 months ended December 31, 2019 was 3.7% and 4.7% respectively. Same property growth for the quarter was driven by continued strong rent growth, which offset a 40 basis point decline in average commencement occupancy within our same property portfolio from the fourth quarter of 2018.

We anticipate net operating income from non-same-store properties which was 18.5% of total net operating income for the quarter, will continue to be a source of growth as we lease up recently developed properties and keep up a robust pace of new development starts. Same property NOI growth on a GAAP basis was 2.7% for the fourth quarter and 3.3% for the full year 2019. During the fourth quarter, we issued $400 million of green bonds. The first such issuance by an industrial REIT in the US at a face rate of 2.875%. We also redeemed $250 million of unsecured notes, which were set to mature in early 2021. We now have no significant debt maturities until 2022 and finished 2019 with no borrowings on a $1.2 billion line of credit.

We intend to fund growth in 2020 and beyond with $111 million of cash on hand at the end of 2019, $110 million that we received earlier this month for the final payment on the seller financing from our medical office portfolio sell, annual funds available for reinvestment after dividends, which are expected to exceed $150 million in 2020 as well as proceeds from expected 2020 asset sales. With these sources of funding and potentially opportunistic ATM equity issuance, we expect to be able to finance continued growth with a moderate increase in leverage levels.

I'll turn it back over to Jim to provide a micro, macro outlook before I get into our guidance components.

James B. (Jim) Connor -- Chairman and Chief Executive Officer

Thanks, Mark. From a macro outlook perspective, we expect the economic environment in 2020 to be relatively steady compared to 2019 with GDP forecast currently around 2% with some potential upside from the recent easing of trade tensions continued strong labor markets and consumer confidence as evidenced by news earlier this week.

Regarding real estate fundamentals, the supply pipeline today is a bit elevated, but not a material concern as Steve alluded to earlier. In fact, I'll share a downside statistic that I've done before. If the estimated on leased segment of the 300 million square feet in the national pipeline, which remain vacant once complete, they can see rates would only rise to about 5.5% which is still 200 basis points below US historical averages.

Our view is that if we can maintain a steady macro environment is just depicted and the majority of our submarkets remained supply constrained. The overall for the metals picture is quite supportive of continued market growth and thus sets up a positive year for pricing power and new development starts.

With that, let me turn it back over to Mark to discuss our 2020 guidance metrics.

Mark A. Denien -- Executive Vice President and Chief Financial Officer

Thanks, Jim. Yesterday, we announced a range 2020 core FFO per share of $1.48 to $1.54 per share with the midpoint of $1.51. We also announced growth in AFFO on a share adjusted basis to range between 3.1% and 7.7% with the midpoint of 5.4%. Our average in-service portfolio occupancy range is expected to be 95.1% to 97.1%. Same property NOI growth is projected in the range of 3.6% to 4.4%. Same property growth will largely be driven by rent growth as we actually expect a slight decrease to occupancy and our same property portfolio as we focus on maximizing rent growth when leases roll which at times may result in temporary periods of vacancy.

In addition, we continue to expect strong rental rate increases from a releasing efforts on the approximately 5% of our total portfolio as it expires during the year. This low level of exploration is a result of our leasing teams being able to accelerate early renewals at very favorably new rental rates. Similarly, we expect to be able to pull some 2020 lease expirations in the 2020, pull some 2021 lease expirations into 2020 to take advantage of the current environment, similar to what we did in 2019.

On the capital recycling front, we expect proceeds from building dispositions in the range of $300 million to $500 million. The majority of dispositions are expected to come from certain Midwest sub-markets as well as some modest pruning related to managing tenant exposures Nick alluded. Acquisitions are projected in a range of $100 million to $300 million with a continued focus on coastal Tier 1 markets. Development starts projected in the range of $675 million to $875 million with a continuing target to maintain the pipeline at about 50% pre-lease.

Our pipeline of build-to-suit prospects continues to be to remain robust and our 2020 guidance is higher than the initial development guidance we provided for 2019. A range of G&A expenses $55 million to $59 million [Technical Issues] $7 million [Phonetic]. These G&A levels are slightly lower than 2019, which was impacted by the implementation of a new ERP system.

On the balance sheet side, we expect net debt to EBITDA to be in the range of 5.2 to 4.8 times and fixed charge coverage to be in a range of 5.0 to 5.4 times. These leverage metrics are comparable to 2019 levels and with the embedded sources of capital mentioned earlier, we expect to be able to finance continued growth while staying well within the parameters of our current credit rating. More specific assumptions and components of our 2020 guidance are available in the 2020 range of estimates document on the investor relations website.

Now, I'll turn it back to Jim for final comments.

James B. (Jim) Connor -- Chairman and Chief Executive Officer

Thanks, Mark. In closing, I'd like to reiterate what a great year 2019 was for Duke Realty with many all-time first and record highs. As we look ahead into 2020, we remain very optimistic about our ability to replicate the type of results we've been able to achieve since becoming a pure play industrial logistics company in 2017.

With best-in-class operating teams on the ground in all of our markets. Our balance sheet this market just alluded to is as good as it's ever been and positioned to fund our growth well into the future. The value creation of our development pipeline will create strong earnings growth beyond 2020 at exceptionally high margins. We have developed our ability, we've demonstrated our ability to grow in the coastal Tier 1 markets, and we'll continue to do so.

Finally, I'd be remiss if I didn't thank all of my colleagues at Duke Realty for all their hard work and dedication. That has allowed us to achieve the level of success we have. I also want to thank our investors for their continued support and the recognition of our good stewardship of their invested capital.

Now, we'll open it up for questions. We would ask that you limit yourself to one question or perhaps two short questions. And of course, you are always welcome to get back in the queue.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Manny Korchman [Phonetic] with Citi. Please go ahead.

Emmanuel Korchman -- Citigroup -- Analyst

That's a new one. Hey, guys, good afternoon. Nick, I think you mentioned this first and then Mark repeated, but you talked about selling assets to manage tenant exposure is that managing tenant exposure on weak side, where you want to trim term those exposures where you think there could be tenant issues or is it tenant exposure, just from the fact that you've gotten too big with some of your larger tenants?

Nick Anthony -- Executive Vice President and Chief Investment Officer

It's the latter Manny. We've -- obviously we have a large tenant that we continue to do a lot of business with and we have consistently done this over the years is prune some of those assets as we continue to do more business with them. And then in terms of managing the relationship between retention and occupancy and rental rate growth. Do you guys have a revenue management system in place. Are you building revenue management system to sort of control that or is it more touch and feel and using your market teams to determine what's appropriate or not?

James B. (Jim) Connor -- Chairman and Chief Executive Officer

Yeah. Manny. We've got part of our budgeting, forecasting system. We do have basically downloads that we get with market data and can compare projected deals with what we believe this market rental rate deals to make sure we're getting fair pricing. So, we do have that capability.

Emmanuel Korchman -- Citigroup -- Analyst

That's it from me. Thank you.

Operator

Our next question comes from the line of Rick Anderson with in BC. Please go ahead.

Richard C. Anderson -- SMBC Nikko Securities -- Analyst

Thanks, I couldn't figure out the 1, 0 queue, so sorry for that. Anyway, maybe a question for Jim. In the age of e-commerce, there has not been a condition damaging oversupply. I think that's correct because obviously things have ramped from an e-commerce perspective over the past several years. Do you guys have any sense of what that might look like because even in a situation of national oversupply, now, you're still getting some fairly substantial market rent growth. I just wonder what your vision would be of when this trees do stop growing to the sky here, what is it going to look like. Do you think it could be a substantial sort of drop-off or more of a sort of an easing type of an event?

James B. (Jim) Connor -- Chairman and Chief Executive Officer

Well, let me, let me answer it in a couple of ways. I mean the one correction I would point out is, we don't think there is national oversupply, we've all spent a lot of time talking about oversupply being limited to a handful of submarkets, in what are otherwise generally pretty healthy markets and we won't digress into all the different submarkets. But more specific to your question, you have to remember the Amazon and the e-commerce industry was around that to the extent that they are today in the financial -- in the financial crisis. But I think what you're seeing today is their primary activity is their desire to get closer into major population areas and that's typically not where we're seeing the oversupply. The oversupply is greenfield development in submarkets with low barrier to entry. And I think most of the major e-commerce companies and quite candidly, the retail companies and the consumer companies already have most of those regional facilities in place that would be ideal for that. Most of what Amazon and the others are looking at today is much closer in to drive that last mile 24-hour fulfillment promise that they made starting about a year ago.

Richard C. Anderson -- SMBC Nikko Securities -- Analyst

Okay. And so with that in mind, do you see yourselves perhaps moving closer in. Obviously, you have a lot of different size categories in the portfolio, but do you have an appetite to get smaller as the e-commerce business evolves over time?

James B. (Jim) Connor -- Chairman and Chief Executive Officer

Absolutely. I would -- I would make a couple of comments. If you just touched on highlight transaction that Steve covered from the 4th quarter. Major deals with Home Depot and Amazon in the Meadowlands. I mean, you can get much closer-in in the tri-state area, a lot of our infill redevelopment in Southern California, projects that we have teed up for 2020 in the East Bay. And in the San Francisco market and the same and in Dade County down in Miami. So, you will continue to see us focus on that in those coastal Tier 1 markets, but the other comment I would make if you know lot of headlines from the million square-footers. And we all love that. But as Steve said in his comments, I think our average deal size in the fourth quarter was 139,000 feet. So, it's not a 1 million square-footers. We're doing plenty of 75,000 and 100,000 square-footers along with the other mix. We've just been trying to combat for the last couple of quarters that people think the rent growth in the performance of the smaller buildings is better than the bigger buildings and quite candidly, we just haven't seen that in our portfolio. Not that percent rent growth in the smaller buildings is bad. It just happens to be better in the bigger but you'll continue to see us take the very broad-based, focus on development. Steve is from time-to-time gone through the development pipeline with payable. And we have buildings from 75,000 square feet to 1 million square feet. So, you'll continue to see us focus on that.

Richard C. Anderson -- SMBC Nikko Securities -- Analyst

Okay, great, thanks very much.

Operator

Our next question comes from the line of Nick Thillman with Baird. Please go ahead.

Nicholas Thillman -- Baird -- Analyst

Hi guys. It's Nick here with Dave Rodgers. Looking at dispositions, you had like roughly $500 million last year and around $300 million to $500 million this year. Is that a good run rate looking into like 2021?

Nick Anthony -- Executive Vice President and Chief Investment Officer

Yeah, I would say, probably a little higher this year. But yeah, I would say that will consistently run at that those levels for the next few years.

James B. (Jim) Connor -- Chairman and Chief Executive Officer

Nick, I would add the variable to that is, it all depends. With the development pipeline looks like. Our guidance was a little lower at the start of last year, just simply because the markets did not perform particularly well at the end of 2007 -- 2018 going into 2019. But obviously, we were able to accelerate development activity over the course of the year and that's one of the levers we can pull to help fund that development activity has increased dispositions by $100 million or $150 million?

Nicholas Thillman -- Baird -- Analyst

Great, thank you.

Operator

Our next question comes from the line of Jamie Feldman with Bank of America. Please go ahead.

Jamie Feldman -- Bank of America -- Analyst

Great, thank you. I want to go back to the supply question and can you hear me. Okay, good. I want to go back to the supply discussion. So, I mean you talked about these oversupply specific submarkets, and I'm just curious like in the broader markets. When you have an oversupply submarket, how does that impact fundamentals in the not oversupply submarkets, like our people which is completely treating them as different, and you're still able to push rents and people are pushing back on concessions or anything like that. Can you just give some color on how that's playing out within the same market?

James B. (Jim) Connor -- Chairman and Chief Executive Officer

Yeah, let me start with that and then Steve can give you a little bit more color. Take any of the major metros. Take Chicago and we've talked in the past. Although I would tell you, Chicago is kind of off of our watch list, simply because they had a huge second half of the year and took vacancies in that I-80 Corridor down probably 300 basis points. But when you have softness in that market, particularly in the big box side, but you have markets in Chicago like DuPage County and O'Hare, which are probably 20 to 40 miles away and they just different customer base. So, very few people in our world are going to leave one of those markets to go to the I-80 corridor to take advantage of the softness of the market and drive the prices down and I think you'd see the same in Dallas. If you were in the DFW market. There is very few people that are going to leave that market and go 30 miles south to South Dallas to take advantage of the softer market. Now it could happen, but generally people are people are where they are because that's where they need to be.

Steven W. Schnur -- Executive Vice President and Chief Operating Officer

Yeah, Jamie. I'll add to that. I think the advantage we have with our local operating teams is no in the markets very well. There is some, obviously there is some drafting and some of the, some of the tenant Rep folks out there trying to do the best they can for their clients. But, no, no, your product known your submarkets, I think it pays dividends and cases like that.

Jamie Feldman -- Bank of America -- Analyst

So, when you think about your weak, the weaker submarkets, are there any that you have more bleed across the entire market or it's pretty consistent?

Steven W. Schnur -- Executive Vice President and Chief Operating Officer

No, I mean I think the big metros, if you're looking at. I'd like Jim mentioned south of Chicago. This does I-80 drag down a little bit in 55. Again, it depends on the kind of requirement that there is and what the, what the ultimate use of that facility is. I'd say the same with South Dallas. Again, it depends how far south what size use it is you really need to drill into that level of specificity to understand if that's going to affect you or not.

Jamie Feldman -- Bank of America -- Analyst

Okay. And then finally from me, if you think about your guidance last year. I think you came out at a much lower same-store NOI growth rate than you, I think you came out at 45 and you're ending ended much higher than that, I think you initially guided to like $700 million of starts and you're now finishing the year at 1.1. Can you just talk through kind of how you got how you're getting to your initial numbers for this year and what the what would take it a lot higher even lower, just how much conservative is baked into your current estimates?

James B. (Jim) Connor -- Chairman and Chief Executive Officer

Yeah, Jamie, I'll start and then and then, Mark can chime in. We start our budget process, literally in August and build it up from there. We think the budget today and our guidance has, what I would tell you is the appropriate amount of conservatism in it, it's not overly we don't think, given everything that we're seeing in the world. It's a time to put an overly aggressive budget out there. What would lead us to be able to outperform like we did last year and the last couple of years since we've become pure play. Steve alluded to, it's build-to-suit activity to keeping that development pipeline above 50% pre-leased. It's leasing our first generation spec space as it comes into service or before keeping that second generation occupancy up as well with our continued focus on rent growth. So we can continue to do that, which we did last year that will give us the ability to outperform. The other thing, which we've talked about earlier is, you got to remember that even if we outperform on the new development starts by pick a number of several hundred million dollars, that's not going to fall to the bottom-line in 2020, that's future growth beyond because those are buildings that we're starting this year. Even if there build-to-suits. There is very, very little income that's going to, that's going to come in from those in 2020. So, what we're doing is building and growth for 2021 and 2022. But leasing, keep in the pipeline occupied and continue to focus on rent growth will allow us to continue to outperform it all the metrics.

Mark A. Denien -- Executive Vice President and Chief Financial Officer

And Jamie is only thing I would add to that from a same property perspective, we had virtually no bad debt of tenant default issues in our same property portfolio need of '19 or '18. We believe from a budget or a guidance perspective, it is prudent to build a little bit more of a normalized amount in there. If it doesn't happen, and we have another successful year of not having any issues like that. That would certainly be some upside based on that.

Jamie Feldman -- Bank of America -- Analyst

Okay. So how much, how many basis points of your same-store growth is, is that a drag?

Mark A. Denien -- Executive Vice President and Chief Financial Officer

If you look at go to occupancy bad debt, whatever you want to call it, which sometimes are one and the same, it's about 50 basis points.

Jamie Feldman -- Bank of America -- Analyst

50, there. Okay, all right, thank you for the color, very helpful.

Operator

Our next question comes from the line of Vikram Malhotra with Morgan Stanley. Please go ahead.

Vikram Malhotra -- Morgan Stanley -- Analyst

Thanks for taking the questions. Just so on just the big box, small box numbers you alluded to. I just wanted to clarify the rent numbers that you were giving the 14% to 18% overall. I'm assuming those were cash rent spreads and can you give us a sense, kind of how that may look across the property. The property sizes and just related to that, one of your peers alluded to the fact that smaller retailers and now sort of starting to retool their supply chains may be lagging, some of the larger ones. And so, there is a pickup in big box demand is that, is that what you're seeing as well?

James B. (Jim) Connor -- Chairman and Chief Executive Officer

Well, that's one of the things we alluded to in earlier calls is e-commerce has been a great tailwind for us. But the other one that doesn't get nearly as much credit is as you alluded to retailers and consumer products reengineering their supply chain because effectively Amazon has set consumer expectations that at overnight 24-hour delivery. So, if you want to compete, you have to have a supply chain in place that can allow you to do that. So, there's been a lot of that repositioning and that's been obviously another big benefit for us. And then I'll let Steve give you some of the details.

Steven W. Schnur -- Executive Vice President and Chief Operating Officer

I guess I'd add one thing before I get into the rent growth side. Just from a demand standpoint. I mentioned in my comments, it's pretty broad and widespread. I think the category is leading that demand or 3PL, e-commerce, retail food and beverage and we saw some auto deals as well this past year.

So, back to your question on rent growth by size. I'll give you a breakdown for deals under 100,000 feet. For 2019, our cash rent growth was 10.6 and our GAAP was 25 between 100 and 250 was 10% cash, 24% GAAP. 250 to 500 was 14% cash and 29% GAAP and over 500 was percent cash and 44% GAAP. So again, I think, as Jim made a comment very good across the board in particular to the assets we own quite opposite of some of the big box headlines that have been out there in the past.

Vikram Malhotra -- Morgan Stanley -- Analyst

Okay, great. And then just last one from me, some of your, some of the, the 3PLs have cited maybe slowing down or hesitating to go into certain submarkets of market not because of supply or just the absolute level of rents, but more because of labor and the challenges to find labor. Are there any markets that I don't know if you want to, if you call it a watch list, but any markets where you're seeing tenants to sort of step back and say, hey, how do I, how do I get this fully operational because of labor issues.

James B. (Jim) Connor -- Chairman and Chief Executive Officer

Yeah, I mean, I guess I think two things, one, I think the labor issue and the oversupply issue. There's not surprisingly, there is a little bit overlap there. Labor is a big issue for our tenants. It is something that we take very serious on our side. And we do labor studies on every major parcel of land and we look at as well as well as any big exposures we have, so that we're prepared and how to address that and whether we want to make that investment as it relates to land, but yes labor is a concern. And I'd say, if you're looking for specific markets or submarkets, it it's actually overlays pretty well with the once you mentioned, what we've talked about from an oversupply standpoint.

Vikram Malhotra -- Morgan Stanley -- Analyst

Great, thank you.

Operator

Our next question comes from the line of Eric Frankel with Green Street Advisors. Please go ahead.

Eric Frankel -- Green Street Advisors -- Analyst

Thank you. Just for your same-property NOI growth guidance, can you just provide the explanation of what drives a different between your GAAP and cash same-store NOI growth? Thank you.

Mark A. Denien -- Executive Vice President and Chief Financial Officer

Yeah, Eric. Probably the biggest thing is, if you look at 2020 same property, we added 34 properties to the pool. So, these are properties that got stabilized kind of at the end of 2018. So now, if you go to 2020 is the first time you've got two full years. So, you add those 4 properties in most, all of which were already leased on 1.1 of '19. So, the GAAP rent growth is exactly zero, but you do have some cash rent growth either through some free rent burn off and or you get the rent bumps at least. So, that's probably the biggest factor that's driving that, maybe a little bit bigger than normal gap between the cash and the GAAP number.

Eric Frankel -- Green Street Advisors -- Analyst

Okay, thank you. And then just for your investments this quarter. Nick, I think you, we say that the yields you get on acquisitions a bit lower than your then your disposition cap rates, but it actually looks somewhat narrow this quarter on a relative basis. Maybe you can provide. Just some color on the deals you've struck and what kind of yield you expect in a couple of years on your acquisitions because actually 4.8% actually looks fairly high. Thank you.

Nick Anthony -- Executive Vice President and Chief Investment Officer

Yeah, It was a little narrow this quarter, partially because it was bit more of a pure quarter from terms we are trading industrial for industrial, some of the other quarters we may have had some flex assets or some other assets in there that made this spread a little bit, a little bit wider, and it's also just the mix. We actually sold a couple of Class A facilities in our Midwest markets that got very good pricing. So, I think going forward it dependent on the mix, you should see, you should see a similar results on this on spreads.

Eric Frankel -- Green Street Advisors -- Analyst

Okay. I'll queue back in. Thank you.

Operator

Our next question comes from the line of Frank Lee [Phonetic] with BMO. Please go ahead.

Frank Lee -- BMO Capital Markets -- Analyst

Hi, guys. You mentioned earlier, you're able to complete a decent amount of early renewals with only 5% of the portfolio expiring this year. Just want to get a sense of how do you balanced decisions on early renewals versus holding off a bit potentially for higher rents.

James B. (Jim) Connor -- Chairman and Chief Executive Officer

I'll start and then maybe Steve can chime in a little bit, if you look at 2019, we actually kind of double the amount of leasing we did on a renewal basis from what was going to expire. So, if you look in the forecast that that would happen again in 2020 that 5% that's expiring. I think we can actually roll closer to 10% of those leases. The only thing and I'll let Steve talk about the economics how we look at it, but just keep in mind that when we talked about early renewals, for the most part, we're talking a couple of quarters. Early. We're not talking a couple of years early, by the time the lease comes to the lease maturity date comps. If you haven't already got a renewed a quarter earlier, you're going to lose that tenant. So, a lot of the deals that are going to be expiring in the second and third quarter. We're doing those deals now in the early renewals will be talking about in 2020 will likely be the first half of '21. So, they're not extremely early and I'll let Steve comment on how we look at it from an economic perspective.

Steven W. Schnur -- Executive Vice President and Chief Operating Officer

Yeah, I think from a from a -- from an operations perspective, it's an asset management focus in terms of getting out in front of where our exposure is, but as Mark mentioned, it's, this is still a landlords market. So, many times these what we'll call early renewal discussions happen from the other side of the table where if the tenant team's facility is mission critical and they want to make an investment in their facility. They want to lock tied up longer term and we welcome those discussions.

Frank Lee -- BMO Capital Markets -- Analyst

Okay. Also and then you mentioned in your prepared remarks that you expect a similar level of rent spreads this year. Are you able to break that down your rent growth expectations between Tier 1 versus non-Tier 1 markets?

Steven W. Schnur -- Executive Vice President and Chief Operating Officer

You know it's actually pretty consistent across all of our markets and a lot of that has to do with lease term because obviously the rents in the coastal Tier 1 markets are growing a lot faster than they are in the coastal markets. But we've got a lot of longer-term leases they have several years embedded rent growth in them. So, we're really seeing pretty consistent rent growth across all more markets.

Frank Lee -- BMO Capital Markets -- Analyst

Okay, thank you.

Operator

Our next question comes from the line of Michael Carroll with RBC Capital Markets. Please go ahead.

Jason -- RBC Capital Markets -- Analyst

Thanks, this is Jason [Phonetic] on for Mike. Just a follow-up on Nick and Mark's comments around dispositions. I'm wondering what level of concentration with single tenant, you're comfortable with before you begin looking to trim that exposure?

Mark A. Denien -- Executive Vice President and Chief Financial Officer

Well, we've always, we've always said, we would start getting concerned when somebody approach 10%. Last year our largest single tenant from an NOI perspective was 6% going to of 7.5% I think and what we're seeing, simply because of the amount of business that we have going with that tenant is that number approaching 10%. So, we're just trying to be proactive and manage that look at our portfolio look at lease expirations with that tenant, try and select the most appropriate targets to peel out of the portfolio and hopefully get the best pricing up.

Operator

Our next question comes from the line of John Guinee with Stifel. Please go ahead.

John Guinee -- Stifel -- Analyst

Thank you. Hey Jim, there might be a typo, in your, in your financial statements, but it looks like you've reduce your land held for development down by about $95 million in the last 12 months and you're down around $240 million. If that's correct and I'm not sure it is and then you assume say $20 per buildable square foot you're only down to, say, 12 million square feet of development capacity. If those numbers are right and correct me if they're wrong. Where do you have your land inventory?

James B. (Jim) Connor -- Chairman and Chief Executive Officer

Well John, I assure you the numbers are correct. And that's actually, we finished the year a little lower than we had anticipated. I would have told you 60 days ago that we thought that number would probably be a little bit closer to $300 million, but robust development activity in the fourth quarter and our ability to push some land closings into the first quarter of 2020, gave us a somewhat more favorable balance. You also have to remember we control land that is under contract that's not on the books yet, or that's under option agreement. So, we do have access to more land or just the $240 million that's referenced there. And I would tell you and we've all talked about this, land is one of our biggest challenges, we are out every day pursuing a lot of different sites and particularly as we've talked about in the coastal Tier 1 markets in the infill markets and that's an area where we've been able to differentiate ourselves quite candidly, the more complicated the site, the better the opportunity for us. So, you will continue to see us be very active on the land acquisition side with the one caveat that given where we are in the cycle, we're probably not interested in making really huge land bets. They're going to take three or four years to entitle are put into the development pipeline. I just think that's probably a little bit careless at this point in the cycle. But we monetized $360 million for the land. Last year, due $1 billion of development.

As I said, answering some earlier questions. We keep the build-to-suit pipeline going, we can keep our occupancies up, we'd certainly like to replicate that. And that will have us out buying another $300 million to $350 million for the land.

John Guinee -- Stifel -- Analyst

Okay. And then Nick or arm Mark, what was your most recent dividend increase. And where are you up against your dividend payout ratios relative to taxable income and how much of any gains and the disposition pipeline can be sheltered versus a need to 1031 exchange them?

Mark A. Denien -- Executive Vice President and Chief Financial Officer

Yeah, John, we are -- our last increase was in October, we raised our dividend -- our quarterly dividend $0.02 in October. We are pretty much up against it quite frankly. But we've been able to show through all the gains through 1031, most of those 1031 have been development, because you know we can 1031 are development, it's somewhat complicated, but we've been able to do that. So, we've been able to shelter those the gains that Nick is creating through 1031.

Through 2020 is the last year, we have taxable income coming in from the medical office sale. I mentioned in my prepared remarks that we collected the final instalment on our note there of $110 million. So that will trigger another gain in 2020 as well, but long-winded answer. I don't think we have to have to raise our dividend to meet our requirement, but we're pretty close.

John Guinee -- Stifel -- Analyst

Great. Okay, thanks a lot.

Operator

Our next question comes from the line of Jamie Feldman with Bank of America. Please go ahead.

Jamie Feldman -- Bank of America -- Analyst

Thank I'm sorry if I missed it. Did you guys say what you think rent growth could be this year across your markets -- market rent growth?

Mark A. Denien -- Executive Vice President and Chief Financial Officer

Yeah, Jamie. I think we said that generally for the next 12 to 18 months, we think rent growth there look pretty similar to what it was in '19, kind of that low double-digit kind of around 10% or maybe a little better on the cash and mid to upper '20s on a GAAP basis.

Jamie Feldman -- Bank of America -- Analyst

This is your leasing spread or actual, I'm talking about market rent growth?

James B. (Jim) Connor -- Chairman and Chief Executive Officer

I'm sorry. Yeah, I think we said in my comments. Jamie, I think we'll see US market rent growth similar to what we had '19 which is sort of probably mid-single digits and in the middle part of the country and you'll see some higher single digits to double-digits on the coast.

Jamie Feldman -- Bank of America -- Analyst

Okay, all right, thanks. Sorry about that.

Operator

And we do have a follow-up question from the line of Eric Frankel with Green Street Advisors. Please go ahead.

Eric Frankel -- Green Street Advisors -- Analyst

Thank you. Can you just let me understand, how much of your development starts expectations for '20 is kind of already call form or accounted for. Excuse me.

James B. (Jim) Connor -- Chairman and Chief Executive Officer

For 2020 our development starts. I mean I would tell you, sort of the build-to-suit side of the house. Obviously, we've got the spec projects identified with land that we either own or control. Our build-to-suit pipeline today looks good, but that's, that's the variable component. If that answers your question.

So, that mix is 50/50. We did 25 projects this year, in 2019, I should say in '13 were spec and 12 were build buses.

Eric Frankel -- Green Street Advisors -- Analyst

Okay, thanks. And then just your timing of some of your Midwest sales this year. Is that going to be toward the beginning of the year, end of the year or is that just kind of dependent on your, on your investment activity generally?

Nick Anthony -- Executive Vice President and Chief Investment Officer

Yeah, it depends on our investment activity, but it will be spread pretty evenly throughout the years. That's sort of how we stage it out, I think we've closed one asset this so far this quarter, I think maybe the first quarter might be a little wider and the second, third quarter will be a little heavier.

Operator

[Operator Instructions] And we do have a question from the line of Michael Mueller with J.P. Morgan. Please go ahead.

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

Thanks. Hi, I was wondering is the mix of building sizes or would you consider to be infill when it comes to your 2020 development starts, is that any different than what you saw over the past few years.

James B. (Jim) Connor -- Chairman and Chief Executive Officer

No, I don't think so, you have to remember a lot of the infill, the size of the building is driven by the land site. We're simply trying to max out the building. So, in one case it might be a mid-size building of 150,000 feet and the next one might be 350,000 square feet. So, it's not that we're specifically trying to target one size versus the other on the infill, we're trying to maximize the value is really what we're trying to do.

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

Got it, OK. That was it. Thank you.

Operator

Our next question comes from the line of Nick Yulico with Scotiabank. Please go ahead.

Josh Brown -- Scotiabank -- Analyst

Hey. This is Josh Brown for Nick. Could you give us a breakout of your current exposure to the Tier 1 markets and if you could get to that percent goal this year given your higher development and disposition guidance. And then can you talk about the development spreads, you're getting in the Tier 1 markets and how you see that trending?

Nick Anthony -- Executive Vice President and Chief Investment Officer

Yeah, I'll start with that. Basically, on the coastal Tier 1, we moved that from 31% to 37% on a gross asset value basis by year-end of 2019. And we, because 75% of our land bank is in cost Tier 1 markets. We expect that to continue to grow. And then just overall on Tier 1 the gross asset value went from 59% to 65%. So, the non-coastal Tier ones are basically holding steady, and most of the growth is in the coastal Tier ones.

Mark A. Denien -- Executive Vice President and Chief Financial Officer

And then I would just comment on the yield, I think you had a question on the yield spreads. I would tell you, the margins are still very, very healthy. I think our whole pipelines 33% from a margin perspective, I think we expect that to continue. Our yield did come down, really came down during the year, but that's just a factor of what Nick just went through. It's because more of our development is done now these infill high barrier markets and we're creating a great deal of value, but the yield is lower on a GAAP basis, because the cap rates are lower.

Operator

Our next question comes from the line of Ki Bin Kim with SunTrust. Please go ahead.

Ki Bin Kim -- SunTrust -- Analyst

Thanks. Sorry I was pressing star one the whole time. I know you changed it up. Going back to the submarket that are prone to oversupply. I know you don't have a lot of exposure there. I'm just kind of looking at that as maybe as a lesson learned for how those markets behave when it is becoming oversupplied. Is it fairly typical to what we've seen in other cycles like higher TIs or free rent and lower rent like what are you seeing in those markets?

James B. (Jim) Connor -- Chairman and Chief Executive Officer

Yeah, I think in those submarkets that don't have the barriers to entry that we talked about, you're seeing concessions in terms of free rent starting to creep in. Obviously, you're seeing pressure on rental rates. We've seen TI's creep up. So yeah, those are the things. I mean I would tell you that the bigger concern whether it's these handful of submarkets or anything else, a lot of, a lot of headlines gets talked about relative to supply. I think you need to keep in mind, we still did a 185 million feet of absorption for the year and that's, that's better than the historical average of about $175 million as long as long as that number keeps up, we'll continue to see good economics in our space.

Ki Bin Kim -- SunTrust -- Analyst

Well, what do you think like the net effective rent declines are in those markets?

James B. (Jim) Connor -- Chairman and Chief Executive Officer

It's hard to, it's hard to say, I mean I think I think you've probably seen probably in the worst submarkets, maybe you've seen 10% declines, but I mean that's, that is, that's a nuanced for type of stat.

Ki Bin Kim -- SunTrust -- Analyst

Okay and just last question, within your Tier 1 bucket, what submarkets, are you -- I should say this way, are you pretty satisfied with the submarkets you are in within those Tier 1s or do you think there is even more kind of movement that you want to do or portfolio reshuffling within those Tier 1 buckets to go into better submarkets?

Nick Anthony -- Executive Vice President and Chief Investment Officer

Well, I mean, keeping we're always looking at our portfolio in ways that we can improve it. So, there will be times where we may have an asset or two that we either got to a portfolio acquisition or something a recap for a while and a submarket that we made prune out of one of the Tier 1s, I would say it's mostly going to be in the coastal Tier 1s that that would occur, not the coastal Tier ones. We're relatively new in those markets and we're very happy with where those portfolios are situated right now.

Ki Bin Kim -- SunTrust -- Analyst

All right, thank you.

Operator

[Operator Instructions]

James B. (Jim) Connor -- Chairman and Chief Executive Officer

Well, I'd like to thank everyone for joining the call today. We look forward to seeing many of you during the year at various industry conferences as well as hopefully getting out to our regional markets. Thanks again.

Operator

[Operator Closing Remarks]

Duration: 54 minutes

Call participants:

Ron Hubbard -- Vice President, Investor Relations

James B. (Jim) Connor -- Chairman and Chief Executive Officer

Steven W. Schnur -- Executive Vice President and Chief Operating Officer

Nick Anthony -- Executive Vice President and Chief Investment Officer

Mark A. Denien -- Executive Vice President and Chief Financial Officer

Emmanuel Korchman -- Citigroup -- Analyst

Richard C. Anderson -- SMBC Nikko Securities -- Analyst

Nicholas Thillman -- Baird -- Analyst

Jamie Feldman -- Bank of America -- Analyst

Vikram Malhotra -- Morgan Stanley -- Analyst

Eric Frankel -- Green Street Advisors -- Analyst

Frank Lee -- BMO Capital Markets -- Analyst

Jason -- RBC Capital Markets -- Analyst

John Guinee -- Stifel -- Analyst

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

Josh Brown -- Scotiabank -- Analyst

Ki Bin Kim -- SunTrust -- Analyst

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