Earnings Call Transcript
MACH NATURAL RESOURCES LP (MNR)
Earnings Call Transcript - MNR Q4 2020
Operator, Operator
Good morning and welcome to the Monmouth Real Estate Investment Corporation's Fourth Quarter and Fiscal Year-End 2020 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. It is now my pleasure to introduce your host, Ms. Becky Coleridge, Vice President of Investor Relations. Thank you. Ms. Coleridge, you may begin.
Becky Coleridge, Vice President of Investor Relations
Thank you very much, operator. In addition to the 10-K that we filed with the SEC yesterday, we have filed an unaudited annual and fourth quarter supplemental information presentation. This supplemental information presentation along with our 10-K are available on the company's website at www.mreic.reit. I would like to remind everyone that certain statements made during this conference call, which are not historical facts may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking statements that we make on this call are based on our current expectations and involve various risks and uncertainties. Although the company believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, the company can provide no assurance that its expectations will be achieved. The risks and uncertainties that could cause actual results to differ materially from expectations are detailed in the company's annual 2020 earnings release and filings with the Securities and Exchange Commission. The company disclaims any obligation to update its forward-looking statements. I would now like to introduce management with us today: Eugene Landy, Chairman; Michael Landy, President and Chief Executive Officer; Kevin Miller, Chief Financial Officer; and Richard Molke, Vice President of Asset Management. It is now my pleasure to turn the call over to Monmouth's President and Chief Executive Officer, Michael Landy.
Michael Landy, President and CEO
Thanks, Becky. Good morning, everyone, and thank you for joining us. We are pleased to report our results for the fiscal year ended September 30. Fiscal 2020 was a successful year for Monmouth. During the year, we acquired five brand new, highly automated Class A built-to-suit industrial properties containing 1.2 million square feet for a total cost of $175.1 million. In keeping with our business model, all five properties are leased long-term to investment-grade tenants. These acquisitions will generate annualized rental revenue of $10.9 million and have a weighted average lease term of 13.9 years. During the fourth quarter, we acquired one property for $15.2 million, consisting of a newly constructed 121,000 square foot distribution center. This distribution center is situated on 22 acres in Oklahoma City, Oklahoma, and is leased to Amazon for 10 years. This 22-acre site has ample expansion capacity and is ideally located immediately north of the Will Rogers World Airport.
Richard Molke, Vice President of Asset Management
Thanks, Mike. With respect to our total property portfolio, our occupancy rate stood at 99.4% at year-end, representing a 50 basis point increase from a year ago and unchanged sequentially. Subsequent to fiscal year-end, we entered into a lease termination agreement with Cardinal Health for a 75,000 square foot facility located in the Albany, New York, MSA. We received a termination fee of $377,000, which represented approximately 50% of the then remaining rent due under the lease, which was due to expire in November 2021. We simultaneously entered into a new 10.4-year lease agreement with United Parcel Service effective November 1, 2020.
Kevin Miller, Chief Financial Officer
Thank you, Rich. I will start off by discussing some of our key financial indicators for the fourth quarter and then move into some of our key financial indicators for the full fiscal year. Funds from operations or FFO, which excludes unrealized securities gains or losses for the three months ended September 30, 2020 were $19.2 million or $0.20 per diluted share, as compared to $20.3 million or $0.21 per diluted share for the same period a year ago, representing a decrease in FFO per share of $0.01. Adjusted funds from operations or AFFO were $18.2 million or $0.19 per diluted share for the recent quarter, as compared to $20.1 million or $0.21 per diluted share a year ago, representing a decrease in AFFO per share of $0.02. We expect the combination of our $338.4 million acquisition pipeline and our several ongoing parking expansions to positively contribute to our per share earnings and cash flow going forward. Rental and reimbursement revenues for the quarter were $42.6 million compared to $39.7 million or an increase of 7.5% from the prior year. Net operating income increased $2.4 million to $36 million for the quarter, reflecting a 7.2% increase from the comparable period a year ago. This increase was due to the additional income related to the five properties purchased during fiscal 2020 and the three properties purchased in fiscal 2019. As mentioned earlier, during the quarter, we acquired one brand new property leased to Amazon for 10 years containing 121,000 square feet for $15.2 million. Same property NOI for the three months ended September 30, 2020 remained relatively unchanged with a slight decrease of 0.3% on a GAAP basis and a slight increase of 0.3% on a cash basis. Net loss attributable to common shareholders was $3.9 million for the quarter, as compared to net income attributable to common shareholders of $22.7 million in the previous year, representing a $26.6 million decrease. This decrease in our net loss attributable to common shareholders was mostly due to an accounting rule change in which unrealized gains and losses on our securities investments are now reflected on our income statement. Prior to the adoption of this accounting rule change, unrealized gains and losses reflected as a change in shareholders' equity. Excluding the effect of this accounting rule change related to the $10.3 million in unrealized losses on our securities portfolio during our fourth quarter, net income attributable to common shareholders would have been $6.4 million for the current quarter compared to $8.7 million for the prior year quarter, representing a 26.9% decrease.
Michael Landy, President and CEO
Thanks, Kevin. Just to reiterate some key points. We have a substantial 2.4 million square foot acquisition pipeline in place with two large deals scheduled to close very soon. These acquisitions will help drive our performance going forward. We also have a sizable and growing amount of expansion projects taking place with our largest tenant, FedEx, in order to accommodate the rapid growth in e-commerce. We have strengthened our already strong balance sheet and have ample capital to fund our future growth. Our resilient occupancy, tenant retention, and rent collection results during these challenging times highlight the mission-critical nature of our portfolio and underscore the essential need for our tenants' operations. Lastly, as illustrated on slide 10 of our investor presentation, which can be found on our website, our annual dividend yield as a multiple of the yield on the 10-year treasury note is now at historic highs of over 7 times. Normally, this multiple is approximately 2.5 times. Achieving over 7 years of income from the T-note in one year of dividend income from our common stock represents compelling relative value. High-quality real estate also provides inflation protection, while fixed-income debt instruments do not. The strong financial position of our tenants, together with the long duration of our leases, has provided for high-quality, reliable income streams throughout many business cycles. Our dividend was maintained throughout the global financial crisis, and it has increased by 13% since then. As a 53-year-old public REIT, our resilience is self-evident. We would now be happy to take your questions.
Operator, Operator
We will now begin the question-and-answer session. The first question comes from Rob Stevenson of Janney. Please go ahead.
Rob Stevenson, Analyst
Good morning, everyone. I wanted to clarify the timing regarding the Cardinal Health move-out and the UPS move-in. As I understand it, Cardinal Health has paid a $377,000 termination fee in the fiscal fourth quarter, and there will be some vacancy for the next three months before UPS moves in at the start of the following year, which aligns with your second fiscal quarter. Is that the correct way to interpret this?
Richard Molke, Vice President of Asset Management
Yes, the lease termination for Cardinal Health was effective October 1. Therefore, the termination fee needs to be recognized in our fiscal first quarter, which will include October. This fee is not reflected in our recently released earnings. The lease for the new tenant, UPS, will start on November 1, resulting in one month without rent. However, the termination fee will more than compensate for that gap.
Rob Stevenson, Analyst
Okay. And essentially there is, at that point, I mean, on almost 100 million shares, it's not a meaningful impact to the first quarter FFO. Okay, great. And then Kevin, while I've got you then on a question for you with the various dividend cuts, now reinstatements and then the UMH preferred call et cetera, what's the current securities portfolio quarterly run rate? I mean it was like $1.46 for the fourth quarter, but that included some stocks that weren't paying a dividend, they are now, I think, paying a dividend, some that would cut, some that are no longer around, how should we be thinking about the run rate of the securities portfolio on a quarterly or annual basis now?
Kevin Miller, Chief Financial Officer
Yes. I'll take that one. Quarterly run rates, $1.4 million per quarter, $5.6 million annually and that's net of UMH redeeming their preferred.
Rob Stevenson, Analyst
Okay, $1.4 million per quarter. And Mike, the 3.2 years on recent renewals seems short, even if tenants are just exercising five-year options. Are there tenants trying to extend their leases by 12 to 18 months while they build something else and move in? Is that a situation typical of FedEx? How would you describe these lease renewals and their duration?
Michael Landy, President and CEO
Overall, our WAULT was 7.2 years a year ago and is currently at 7.1 years, but pro forma, it's really more than 7.1. Our portfolio, which is about 15% of our total size, has a WAULT of 15.3 years. Some of those acquisitions include 20-year leases and many are 15-year leases. As we finalize our acquisition pipeline, the WAULT will increase. We have 17 parking expansions planned, and that number is expected to rise. While it’s difficult to estimate the total plateau for FedEx parking expansions, it will certainly exceed the current 17. Each of these additions will contribute significantly to extending the WAULT beyond 7.1 years. Regarding renewals, Rich, our renewal weighted average lease term was 3.2 years; what was the reason for that?
Richard Molke, Vice President of Asset Management
We had two tenants renew for two years, which is just postponing the decision. For the rest of the year, I don't expect many more renewals under five years. These two are notable as the shorter terms for this fiscal year.
Rob Stevenson, Analyst
Where are the two tenants with two-year leases regarding their space utilization? Are they expanding their space and likely to need something larger, whether it’s owned by us or someone else? Are they located in areas that are part of the weaker economic segments, and how would you describe their situation?
Richard Molke, Vice President of Asset Management
No, I wouldn't say that. Both of those buildings are strong, and the tenants could experience a lot of changes in two years. So, I wouldn't put too much emphasis on those two-year renewals.
Rob Stevenson, Analyst
Okay. Thanks, guys. I appreciate it.
Michael Landy, President and CEO
Thank you.
Operator, Operator
The next question comes from Frank Lee of BMO. Please go ahead.
Frank Lee, Analyst
Hi. Good morning, everyone. Just wanted to touch on the parking expansion projects. How are these projects typically sourced or identified? Are you proactively approaching FedEx, and are there opportunities for a similar type of parking expansions that you're actively working on beyond FedEx?
Michael Landy, President and CEO
Our portfolio's average building age is under 10 years, and the FedEx portfolio, which makes up about half of our 24 million square foot portfolio, is even younger. These buildings are designed for the digital economy and feature more land compared to older analog distribution facilities, which primarily relied on racks and forklifts for traditional retail supply chains. We are focused on home delivery and omnichannel distribution. The pandemic significantly accelerated online shopping, which was already growing at a 15% annual rate and has now increased to 30%. As we approach peak season, FedEx, UPS, and Amazon are struggling to keep up with the holiday demand. The US has the capacity to ship 80 million packages daily, but demand has surpassed 90 million. FedEx is expanding parking for home delivery at 18 of our properties, representing 15% of our portfolio, and that number will grow. Our assets have plenty of land for expansion, and when land is limited, we proactively purchase adjacent land to accommodate future tenant requests. We've previously experienced a surge of expansion requests, including an $80 million expansion over two years about four or five years ago, and we're now seeing similar requests coming in again.
Richard Molke, Vice President of Asset Management
And I'll just add one thing regarding our new UPS lease; they have already approached us about expanding their parking. This illustrates how much parking these tenants need for home delivery.
Frank Lee, Analyst
Okay, great. And then you mentioned the vacant Hartford property, is this property still being marketed for sale? So how is activity so far? And are there any other potential sale candidates within your portfolio?
Michael Landy, President and CEO
That one is most likely not going to be sold. It's out for signature with an investment-grade tenant. We're hopeful we'll have good news on that front soon.
Frank Lee, Analyst
Okay, great. And then, for my last question, Mike, you mentioned that two larger acquisitions are expected to close soon. Can you provide a breakdown by quarter on when you anticipate the remaining acquisitions in the pipeline to close over the next year?
Michael Landy, President and CEO
Sure, Frank. Our two largest deals, which is FedEx in Columbus and Home Depot in Atlanta representing about 50% of our $338.4 million pipeline are supposed to close before the end of the calendar year. So that's 50% of the pipeline, right. They are closing in December ideally. And that's $10 million in revenue and that will really move the needle of earnings and put us in a really good position with regards to our AFFO dividend payout ratio. So we're looking forward to announcements as those deals close. Then the other 15% nothing slated for the second quarter about 16% and this is in dollar volume is supposed to close in Q3, and then 19% in Q4, and then the remaining 50% sometime in the first half of fiscal '22.
Frank Lee, Analyst
Okay, great. Thank you.
Michael Landy, President and CEO
You're welcome.
Operator, Operator
The next question comes from Gaurav Mehta of National Securities. Please go ahead.
Gaurav Mehta, Analyst
So you guys have secured financing for three of the six acquisitions. Maybe comment on what your expectation is for the remainder of the financing. Are you expecting to use the Preferred Stock ATM to fund the remainder?
Michael Landy, President and CEO
Okay. Kevin, it's hard to hear you Gaurav, but I think, I got it. Did you get that Kevin?
Kevin Miller, Chief Financial Officer
Yes. I think he is asking how that we've locked in financing on some of the deals in the pipeline and he wanted some color on that?
Gaurav Mehta, Analyst
And about the remaining three, you've secured financing for three, and how do you plan to finance the other three?
Kevin Miller, Chief Financial Officer
We've secured financing for three of the six deals in our pipeline with long-term mortgage rate debt. These deals have an average maturity of 15.8 years and an average interest rate just under 3%, specifically 2.99%, with approximately 62% loan-to-value. For the remaining three deals, we plan to continue with the same funding approach, as this method has consistently worked for us. All loans are fully amortizing. We align the lease terms with the debt terms to ensure that our revenue matches our expenses and debt maturities. For the 30% to 35% that isn't funded by long-term debt, we have various capital sources available. We could utilize the ATM, raise funds through the DRIP, access a common ATM, or tap into our undrawn line of credit, providing us with full capacity. We have multiple options to proceed.
Michael Landy, President and CEO
Yes. And what Monmouth does, these are Monmouth deals. They are long-term leases to investment-grade tenants. They are brand new built-to-suit automated digital buildings for the digital economy. So that the financing terms that we've been successfully executing on the three deals thus far in the pipeline will be similar. It will be the same lenders. It will be similar terms, and it's easy to model.
Gaurav Mehta, Analyst
Okay. Second question, I was hoping if you could provide some color on what you guys are seeing in the acquisition market outside of the six properties that you have under contract. Maybe some comments on the product flow and the cap rates that you're seeing?
Michael Landy, President and CEO
It's very competitive in the market, as it has been. The lanes have narrowed, and all the capital allocated for commercial real estate wants exposure to our sector, which is the hottest right now. There is significant capital available, and as a long-standing company, we have strong relationships with the merchant builder community. I'm pleased to report that we have significantly increased our pipeline over the quarter with high-quality deals, which is our focus. We're not aiming for growth for its own sake, but I am confident that we can continue securing the types of deals that have built our portfolio, one quality acquisition at a time. Our partners have been with us for decades, and they come to us with opportunities. Looking at FedEx and Amazon, their future prospects are better than ever, with record revenue and shipments, leading to increased demand for distribution and fulfillment centers. The competition is tough, and we will have to keep bidding in a environment of decreasing cap rates. However, it still proves beneficial, and with lending rates dropping, the spreads remain favorable. More entities are now recognizing the value of what we do, and some newcomers in the sector seem to have presentations that mirror our own, which we see as a compliment, though it does make the market more crowded.
Gaurav Mehta, Analyst
Okay. Thank you.
Operator, Operator
Our next question comes from Michael Carroll of RBC Capital Markets. Please go ahead.
Michael Carroll, Analyst
Yes. And I'm sorry, I'm not sure if you guys mentioned this or not, but can we talk a little bit about the Cardinal lease and the UPS lease. It seems like Cardinal was paying about $7 a square foot previously. Did you say what UPS plans on paying. And if so, is there any other capital costs related to that new lease with UPS coming in?
Richard Molke, Vice President of Asset Management
So, on a GAAP and cash basis, there was a decrease, but we secured an additional 9.3 years with an investment-grade tenant, which is a positive outcome for us. Additionally, as I mentioned, they intend to expand the parking area, and this will follow our usual terms for parking expansions. Therefore, rents at that location are expected to increase.
Michael Carroll, Analyst
Okay. So how much did rents drop?
Michael Landy, President and CEO
There will be a return to capital for that investment above and beyond the figures, Rich just gave you.
Richard Molke, Vice President of Asset Management
Also if you consider the lease termination fee, then it's slightly positive on a GAAP basis.
Michael Carroll, Analyst
Yes. Where is the new rent for the UPS leases compared to the Cardinal rent, the $7.23 in the sup? Is that a GAAP rate or a cash rate?
Richard Molke, Vice President of Asset Management
That's a GAAP rate.
Michael Carroll, Analyst
And then, what's the new GAAP rate for UPS?
Michael Landy, President and CEO
The new what?
Richard Molke, Vice President of Asset Management
GAAP rate for UPS.
Michael Landy, President and CEO
That's the $7.21 on a GAAP basis.
Michael Carroll, Analyst
Okay. There are no additional TIs or LTEs related to that. The only other capital cost is for the parking lot, which you're expecting to yield around 10%.
Michael Landy, President and CEO
We haven't structured that yet. We are hopeful for a 10% return and an additional lease term, but that's still uncertain.
Michael Carroll, Analyst
Okay. So is there any other TIs or LTEs outside of that parking lot?
Michael Landy, President and CEO
We had to put in new lights for them. There were a few just tenant improvements that we did. But those were with rebates and pretty light on the TIs.
Michael Carroll, Analyst
Okay. And then Mike, can you talk a little bit about the acquisition cap rates, I guess, with the new competition coming in. I know you've been able to complete some deals in the low six cap range. I mean, should we expect those cap rates to drift below six over the next 12 plus months or so, given the competition for industrial product?
Michael Landy, President and CEO
I am not bidding on anything with a cap rate of 6% these days, and in some cases, below 5%. The next deal we're closing is for a FedEx ground facility in Columbus, which we secured an agreement on over two years ago. We locked that in before much of the continued cap rate compression, and it's a healthy cap rate above 6%. Supply and demand remains strong for industrial assets, and cap rates have continued to decline. Hopefully, our pipeline average cap rate will be in the mid-5s; it's currently at 5.96, and by our next conversation, it should drop further. The key point is that interest rates are still decreasing, allowing for favorable spreads, which remain beneficial for our common shareholders on a per share basis for closing these deals. Additionally, with tenants like FedEx undergoing numerous expansions, we expect lucrative returns that will raise our WAULT significantly above the 7.1 years we currently show. This business model is robust and can weather tough economic cycles, despite the distressing circumstances in the market. I haven't seen anyone else mention that 15% of their portfolio is being expanded at this time.
Kevin Miller, Chief Financial Officer
If I may add something, as everyone is interested in cap rates and returns for the last quarter, I keep thinking about the next seven years and whether these leases will be renewed. In seven years, the value of the dollar could change significantly, and we might face considerable inflation. The actual return on our leveraged investment could be much higher than the calculations being made now. I'm uncertain about the cap rates decreasing because, as Michael pointed out, the spreads are still present. I believe the real return is much greater than people expect, given the deficits we face and the need for low interest rates in the foreseeable future. I think inflation is on the horizon, and the total return from these investments will far exceed the figures we're currently discussing. Thank you.
Michael Carroll, Analyst
Okay. And then Mike, I just wanted to touch on, you said that you're bidding on some deals sub-5. Can you talk about those deals, are those transactions that you're looking at completing and would you be willing to go that well?
Michael Landy, President and CEO
I would consider the lease term if it's long enough and the escalations are in place, focusing on the initial year one cap rate. With a long lease and healthy increases, the average cap rate will be much higher. Therefore, that's necessary to secure a quality asset with a quality tenant. I'm confident we can obtain financing significantly below that rate. I am determined to pursue those opportunities.
Michael Carroll, Analyst
What type of bumps would you consider to reach that 5% cap? If you have to target some that align with the 5% cap, what kind of bumps would you regard as healthy?
Michael Landy, President and CEO
Well, 2% is the average these days, and Rich did an Amazon renewal with 3% bumps for 10 years; so 3% is better than 2%. In some cases, they are slightly under 2%, but it's not meaningfully under 2%. Kevin, do you want to add something?
Kevin Miller, Chief Financial Officer
Yes. I just wanted to add something earlier when I was talking about the deals we've locked in with the weighted average interest rate of 2.99%. Some of those deals were locked in a long time ago before interest rates dropped. So they range between 3.25% down to 2.6%. So the 2.6% is the latest one. So I feel confident that we'll be getting sub-3%, in that 2.6% range going forward. So that will help with the drop in cap rate, as Mike mentioned, the drop in interest rate as well.
Michael Carroll, Analyst
Can you discuss your current leverage metrics? I understand you mentioned the long-term debt service on secured financing for upcoming deals, but how do you plan to fund the remainder? Are you considering issuing equity at the current levels, or should we anticipate more preferred equity and continued increases in leverage?
Michael Landy, President and CEO
At the end of the year, we had $472 million in our Series C preferred, and there has been strong demand for our Preferred ATM. We raised another $35 million after year-end, so the total outstanding is approximately $507 million, with call protection lasting another 10 months. This indicates that investors on a new preferred issue would likely require a lower rate than our Series C's 6.125%. Our Series C was initially issued to redeem high coupon preferred shares on our balance sheet, which were in the high-7s range. As we approach the maturity date of the Series C, we plan to issue new preferred shares to achieve financial savings, which is crucial since there is $500 million outstanding, and this amount may even increase by then. We will use preferred equity to fund our pipeline and plan to gradually reduce it in $100 million increments with a lower cost of capital. Additionally, our securities portfolio is currently yielding about 4.5%, having appreciated roughly 20% since the fiscal year-end, now valued at about $130 million. This makes it a logical option to utilize that capital to retire some of the preferred shares. As for issuing common equity, we do not plan to do so at these prices, as our NAV is significantly above our current trading levels. Despite having a common ATM in place for two years, we have not issued any shares and do not intend to at these price levels.
Michael Carroll, Analyst
Okay. And then just real quick on, I guess, on that securities book, are you planning on selling any securities here in the near term? I guess, what would make you sell that? And what's the timing on that?
Richard Molke, Vice President of Asset Management
Well, it's improved dramatically just on the vaccine news and as COVID becomes something in our rearview mirror, I'm sure it will be even more valuable. One of our largest holdings is in UMH, manufactured housing and industrial are the only two property types that have appreciated in value post-COVID. So I'd be hesitant to sell the UMH. But yes, we certainly would harvest gains in some of our holdings. But I think as we get closer to the redemption date of the preferred that will be more of a catalyst than doing anything at this particular moment.
Michael Carroll, Analyst
Okay, great. Thanks.
Operator, Operator
The next question comes from Fred of Boston University. Please go ahead.
Unidentified Analyst, Analyst
Hi, thank you, and congratulations again on your outstanding performance. My question is a follow-up to the previous one. I'm curious about the long-term outlook for your securities portfolio. You're utilizing cash to purchase these securities, and while there are some complexities with market valuations, I'm wondering if you plan to gradually reduce that portfolio to avoid fluctuations in quarterly adjustments. What does the long-term future look like for that?
Michael Landy, President and CEO
Okay. I'm going to turn over to Gene because REITs investing in other REITs is Gene Landy's brainchild. I do agree that new accounting has definitely made it problematic, and we haven't bought any REIT securities in going on two years. So we haven't been allocating capital. The securities portfolio we've been winding it down slowly. It used to be 10% of gross assets. It's now rounding up 5% of gross assets. But Gene, please answer this question in more detail.
Eugene Landy, Chairman
You need to understand that our balance sheet has been carefully planned and has proven effective over many decades, ensuring liquidity at all costs. Currently, we have about $119 million in securities, allowing me to borrow $50 million tomorrow at 1% if necessary. I can also sell those securities, which gives us that liquidity. It's important to note that this is part of our overall financial strategy. We are paying down these amortizing mortgages over 10 to 15 years, and we have been in operation for 50 years. As the officers mentioned, we are renewing leases, and with reduced mortgages, many of our properties are mortgage-free. For the properties we do have mortgaged, we recently paid off a few million dollars and freed up $12 million in assets. We're planning to pay off $50 million, which will unlock $150 million in properties. If those properties have leases with creditworthy tenants, we could borrow against them up to $100 million. The liquidity we will gain is substantial. I understand there are concerns about our pipeline of $300 million to $400 million and where funding will come from, but we have anticipated this and are well-positioned financially. We've established our securities program specifically for liquidity, and I'm committed to maintaining multiple sources of it. We have unused lines of credit, our securities, and ATMs. Right now, we have more than enough liquidity. With $50 million or $60 million in amortizing mortgages, we can free up $150 million in assets, translating into $100 million in credit. I have no issue with selling some securities to pay down those mortgages and generating $100 million in cash, which could potentially be used next year to redeem some of the preferred shares. In terms of our capital stack, we are close to $500 million at a rate of 6.125%. If we can refinance and save two to three points, that could result in significant savings of $10 million to $15 million. Overall, as long as these leases remain solid and the economy stays strong, this company is on track for great success.
Unidentified Analyst, Analyst
Okay, thank you. Excellent response. Appreciate it.
Michael Landy, President and CEO
You're welcome.
Operator, Operator
The next question comes from Mike Mueller of JPMorgan. Please go ahead.
Mike Mueller, Analyst
Just a quick one. I was wondering, can you talk about the remaining six 2021 expirations and just what you're expecting there in terms of timing to knock those out. And what you think spreads could look like?
Michael Landy, President and CEO
Sure, sure. So all of those are in discussion now. Some of them are further along than others. And I would expect that all of our metrics will go up from our WAULT to our GAAP and our cash spread. So that's kind of what it's looking like now. Three of the big ones are back half weighted to the end of this year. So timing wise, hopefully in the next two quarters, we have most of those locked in.
Richard Molke, Vice President of Asset Management
I'll just add something, and I know Kevin wants to get in on this as well. Historically, we've had 90% tenant retention and that's important because they are credit tenants and you want to keep the cash flow secured by investment-grade tenants. And last year, we had 87% tenant retention, and I know, Rich is shooting for 100% tenant retention this year. And we've had no known move-outs and the tenants make big investments in the buildings. So it's not easy for them to move once they have made tens of millions of dollars in automation inside of these buildings. We're working on a new annual report, and we're featuring a lot of the infrastructure inside of the buildings, so you could see that even though industrial is one big bucket of everything, there's really digital assets that are so different than the analog assets, and we'll be illustrating that point in our new annual report. It comes out in a couple of months. Kevin, what did you want to say?
Kevin Miller, Chief Financial Officer
I just wanted to ask Rich, I think something came in this morning actually so there was four got renewed in our K and one came in this morning.
Richard Molke, Vice President of Asset Management
Yes. This morning we did have one of our FedEx leases renewed for five years. So that's another one out, a small one, but positive spreads.
Mike Mueller, Analyst
Got it. Okay, thank you.
Operator, Operator
The next question comes from Craig Kucera of B. Riley FBR. Please go ahead.
Craig Kucera, Analyst
Good morning, everyone. I understand you have six expansions currently underway and might announce an additional ten. If those proceed, do you expect them to be completed within 12 months, or could they possibly extend beyond that?
Michael Landy, President and CEO
Yes. So I'm going to have Rich answer that, but it's very fluid. So we have six ongoing, one completed and the ten became eleven. So it's very fluid. And like I said, it's going to be more. We don't know what the total number is going to be. But this is going to be a multiyear process.
Richard Molke, Vice President of Asset Management
Yes, Mike, you covered it well. We need to acquire land in some cases, which involves obtaining approvals and the associated time frames, but FedEx needs this completed as soon as possible. They are moving quickly, and so are we. We hope to finish several projects next year.
Michael Landy, President and CEO
But peak season is extraordinary. FedEx distribution centers will go from 50 employees to 550, and all construction will come to a standstill from October to mid-January and then start up again. Ideally, they will have additional parking capacity for next peak season, but some will go into the following year, and it will just be a multiyear process as I said.
Craig Kucera, Analyst
Got it. And Mike you tripled the size of the company over the last seven years, and you've got nearly $340 million in your acquisition pipeline. Just given the growth of the company and the long-term relationships you have with a lot of your tenants, do you ever consider bringing more of a development component in-house?
Michael Landy, President and CEO
There are pros and cons to that you know, and we know some great developers that would love to fit that bill. But the problem is, you have to bank land and that's non-income producing. And when it comes to bidding on the RFPs that are out there for these digital buildings on long-term leases to investment-grade tenants, it's a multistage process. And if we have in-house development capacity, we're competing against our legacy merchant builders. And we feel for a company our size, the better mousetrap is to have multiple relationships with the merchant builder community. That's exactly why we were able to triple the size of the company. And if we had in-house development, the growth would have been much slower.
Craig Kucera, Analyst
Okay, thanks.
Michael Landy, President and CEO
You're welcome.
Operator, Operator
The next question comes from Barry Oxford of D. A. Davidson. Please go ahead.
Barry Oxford, Analyst
Hey, Mike. Quick question on the securities portfolio, would you entertain maybe switching out some of the securities to get into some more stable dividends that wouldn't be up for being cut?
Michael Landy, President and CEO
So you're talking about just reallocating…
Barry Oxford, Analyst
Yes.
Michael Landy, President and CEO
We considered shifting our investments from common stocks to preferred shares when the preferred market declined, and we're just waiting for things to stabilize around fair value. It's commonly believed that the market tends to focus on short-term movements. For example, some institutional investors took large positions in Monmouth in March but sold off during the summer. This pattern reflects more of a trading mentality rather than true investing. In contrast, we are long-term investors. Our holdings have experienced fluctuations, mostly downward recently, but we plan to maintain them until we reach a post-pandemic environment. At that point, we may consider shifting out of our securities portfolio for the reasons we've previously discussed. While I’m not ruling out changing from one type of investment to another, it won't be an active process, if it happens at all.
Barry Oxford, Analyst
Okay. And then just kind of switching gears a little bit, how much would you let the preferred become part of your capital stack?
Michael Landy, President and CEO
We've mentioned that we could take it as high as 25%. Currently, it's at 16%. Emphasizing our long-term investment strategy, we prefer long-term leases on the asset side and long-term debt maturities on the balance sheet. We have the longest debt maturity schedule in the REIT sector, exceeding 11 years. Additionally, about 16% of our capital structure consists of perpetual, permanent capital that never matures. We will continue to have significant portions in preferred equity, but it won't all be in the 6.125% Series C. We find ourselves in a low interest rate environment, with approximately $17 trillion in debt instruments yielding less than zero. As I mentioned, the demand for our Automatic Teller Machine on our Series C is very strong, so we anticipate issuing new debt at a lower cost of capital in the future. We strongly believe in permanent preferred equity, even though it is relatively expensive compared to short-term capital, for various reasons such as maintaining liquidity and having no refinancing risk. Historically, the concept of negative interest rates was never even considered over the long 5,000-year history of interest rates. Public storage is a major factor in this discussion, being the first REIT to issue perpetual preferred equity, starting at 10%, and now setting record lows in the preferred market with rates below 4%. Our initial preferred rates were 7.75%, and now they have decreased to 6.125%, with this trend likely continuing at a lower cost as our company grows.
Barry Oxford, Analyst
Perfect. I appreciate the color, Mike.
Operator, Operator
This concludes our question-and-answer session. I would like to turn the conference back over to Becky Coleridge for any closing remarks.
Becky Coleridge, Vice President of Investor Relations
Thank you, operator. I'd like to thank the participants on this call for their continued support and interest in our company. As always we are available for any follow-up questions. On behalf of Monmouth, I'd like to wish everyone a healthy and happy holiday season and a very prosperous New Year. We look forward to reporting back to you after our first quarter.
Operator, Operator
The conference has now concluded. Thank you for attending today's presentation. The teleconference replay will be available shortly after the call ends. To access this replay, please dial US toll-free 877-344-7529 or international toll 1-412-317-0088. The conference ID number is 10147191. Thank you, and please disconnect your lines.