First Industrial Realty Trust, Inc. Aktie

Welcome, everyone, to the first industrial session. I'm Nick Thillman, Senior Analyst at Baird covering office and industrial REITs. And today, I'm joined by Peter Baccile, President and CEO of FR, along with Scott Musil, CFO; and Peter Schultz, EVP of the East region. I'm going to hand it over to Peter for some remarks, and then we can proceed with the Q&A after.

Okay. Thanks. For those of you who aren't familiar with us, we're a U.S.-only-focused industrial developer, owner and manager. We've got about 70 million square feet, plus or minus $12 billion or $13 billion of total value. Our primary growth engine is speculative development. We do acquire as well, but not on a volume basis, not as much. Over the last 10 years, we've created $1.3 billion in value through our development pipeline, generating 7% cash yields and about 50% margins. I'll turn it back over to you, Nick.

Yes. So feel free to come up to the mics if you have, like, specific questions, but I'll kick off with a couple of them for you, Peter. Has there been any noticeable impact on tenant activity due to the recent conflict in Iran and/or rise in oil prices or interest rates?

So we -- when we first saw that at the end of February, we thought, here we go again. Last year, it was tariffs and that cooled demand for our space and now this. But I have to say that we've seen no discernible impact on tenant activity or tenant demand since the beginning of the war back in the end of February. Maybe the input prices for most of our customers, transportation and labor are the highest, and those have grown the most over the last 20 years or so.

Interestingly enough, I did a little math this morning. A gallon of gas 20 years ago on average was $2.63. Today, it's $4.31. I know it's much higher in some places. But that's about a 2.5% CAGR on gas prices, which is exactly equal to inflation over that same time period. So that might explain why it's kind of been a yawner for all of the tenants that are prospects for our space.

And then maybe dovetailing that a little bit to the leasing demand for some of your developments and your larger vacancies, including the 700,000 square foot vacancy in Pennsylvania, I guess demand seems as though it have to be a little bit of stop start post Liberation Day, and it started to pick up some volume and some -- we saw some momentum in the fourth quarter into the first quarter. But maybe what you're seeing from that element on those.

The last 6 months, we've seen a big pickup in tenant activity and traffic. In fact, the last 6 to 8 weeks, it's gotten even better. That traffic is around much larger spaces as well as the smaller spaces. In many markets, there are still, let's just say, several alternatives for tenants in the kind of 250 to 750 range.

Activity. Peter Schultz is our East region head and is responsible for our 708,000-foot in PA. Why don't you talk about what's going on there?

Sure. Pennsylvania is probably the most active market we have in the country today, together with our Texas markets. But Nick, to your question on our largest vacancy, the 708,000 square foot building in Central PA, we have a couple of active prospects we're in discussions with for the full building as well as some interest from a couple of other tenants. Our recently completed project, our first 33 project in Lehigh Valley, just in the first quarter, which is 2 buildings of 150,000 and 211,000 square feet, we've seen really great demand for that 50 to 200 range. And in fact, we already signed a lease for 54,000 square feet in that building within just a couple of months of completion.

But activity, as Peter said, is good across the country and a lot of the prospects we're seeing today, including the couple that we're actively working with, weren't even on our radar screen at the beginning of the year. So that's giving us some more encouragement about the pace and cadence of demand and some tenants making decisions with more urgency.

And you maybe just touched a little bit on it from Pennsylvania standpoint, but from overall best markets today and most challenged as you look at the portfolio?

So look, best markets in Nashville is still one of the best markets. Certain submarkets in Dallas, Houston, South Florida. SoCal, we would say, is stable -- stabilized. So rents will be flattish, we think, this year there. Again, there are still some alternatives in terms of lease up there, more alternatives than we'd like to see. Denver remains a market that's behind in this recovery. It is the one market in our 15 markets where new starts didn't stop -- starts didn't stop for probably 3 or 4 quarters behind when the rest of the markets around the country did.

So there's a little bit more alternative there for tenants as well. So weaker, call it, Denver, stable SoCal and then those bigger Eastern markets are doing pretty well, including, as Peter said, Central PA very well.

Maybe outlining some of the embedded growth within the portfolio and cash leasing spreads overall. You guys are guiding to 30% to 40% for 2026. And what are your thoughts on 2027 and beyond just for rental spreads given the embedded run-up we've had since COVID?

Sure. So we don't forecast the leasing spreads. What I can say is a couple of things. First, we've got a lot of development leases that we signed pre the peak. That's one of the good things about our strategy through this cycle as we have assets that we leased pre-peak because we built them new. And so you can see that rent growth should have some legs at least for a while.

Secondly, our mix for rollovers in 2027 is approximately the same as the representation of those markets in our portfolio with a slight overweight in Dallas and Atlanta, and those 2 markets have done very well, did not have quite the same amount of rent run-up and therefore, rent fall or rent decline as, say, the West Coast markets did. So again, that's another tailwind, if you will, to our cash rents in the future.

That's helpful. And then maybe on the capital deployment and priorities today, you guys put in the buyback recently. Just ranking and what you're seeing between new development starts, acquisitions and repurchases today?

So it's all about economics. As I've said in the past, we're a profit shop and not a volume shop. So we take the precious capital that we do have and consistently evaluate where best to use it. Our growth engine, as you know, over the last decade or more has been through speculative development. That will still be the case. We have land holdings today that are about 75% entitled where we can invest about $2 billion at about a 6.9% yield. So very, very healthy yields and returns. Of course, we're not going to build into markets where there are already too many alternatives. So we need to see some sustained leasing for developments in these markets before we're going to get going in some of them.

We have had new starts, as you've seen in Pennsylvania, in South Florida. We've built out our land in Nashville. We're looking for more land in Nashville. We continue to love that market. And as far as the -- you mentioned the stock buyback. So over time, our Board has considered that topic many times.

We have always had great opportunity and continue to invest dollars in high-growing real estate assets, but as we looked at some of the market dislocations over time, and we thought, well, gee, we have a very strong conviction on our stock over the long term. When the markets swoon by 10%, 25%, maybe we should think about taking some shares off the table. So that's what we're going to do with that allocation, that $250 million to be very opportunistic. We don't really have a target. It's just about when we see an inflection point that we think just ignores the value of our long-term portfolio.

And as a reminder, if anyone has any questions, feel free. There's a mic over there. But maybe touching on rents a little bit. And just you talked a little bit on Denver and the starts there. As you look at the competitive landscape for starts today, are you seeing any markets where you're starting to see ramping up starts? And I guess from a just overall bet standpoint, like where you've mentioned Nashville, where do you feel like you have the land to develop in today's market?

So in terms of starts, there will be more starts for us this year. We're not going to quantify that. It will be in some of the stronger markets that I highlighted earlier. We are looking for land, as I said, in Nashville, hopefully, we will tie some down soon. It's a very, very, very competitive market. We compete not really necessarily with the other public industrial REITs. It's more with private capital, where the capital is priced very -- in our opinion, very thinly. So what we do is we leverage our platform. We have about a dozen offices around the country. We have people in these offices that have been around for 15, 20 years or even 30 years in these markets and have great relationships.

They're making hundreds of unsolicited offers a quarter. We have to have a lot of balls in the air because by definition, the success rate is not super high. We're trying to find those opportunities that come few and far between where we can make a lot of money for shareholders and not get caught up in any kind of broadly distributed bid process.

And that process can take a while. But once we get to know those landowners who might be reluctant sellers at the beginning and they get to know us, they have a level of comfort with us, and therefore, we're able to tie up those deals perhaps with minimal competition, there's always some competition, but perhaps with minimal competition. In many occasions, our teams are able to tie up land and have it get entitled while the seller still owns it. So that means we're not -- our capital is not burning while that process is going on. So it's a pretty involved process.

It allows us to have a very, very low basis relative to most of our peers. We also build a different product than the private market tends to build. We don't overbuild the sites, maybe we cover 36% or 37% or 38%, whereas others are in the high 40s. We make sure we have ring roads, our ability to secure truck courts, 180-foot truck courts we go. We spend the extra $1.5 and build taller buildings. So not only is our basis in a very good place, that allows us to offer the best product, the most competitive product in the marketplace.

And that's really why we benefited during this cycle, 10 years ago, we said we're going to build a portfolio that outperformed through the cycle. You've probably seen if you paid attention, our cash rental rate growth for the last few years has been really large, 58%, 50%, 35%. So that we attribute to the way we do business and that portfolio that we wanted to build that would outperform through the cycle.

Maybe touching a little bit on market cap rates. What are you seeing for market cap rates in your markets today?

So cap rates vary. For Class A space, new space, 5 to 5.5 would be the range. It doesn't mean you won't see some transactions take place in the 4s, you will, but the bulk of the capital is in that 5 to 5.5 range.

And I know you guys have been evaluating some of your land purposes and even some of your operating portfolio for data center-related uses. You completed a large data center sale this quarter. Are there -- are there any other opportunities you've identified in the portfolio or seeking out on your land bank today?

So we've been very pleased with what we've been able to do in Phoenix. We had 2 joint ventures there. We bought, combined between the 2 JVs, about 1,100 acres. We ended up -- it wasn't part of the initial plan, but those -- both of those JVs are wrapped -- now wrapped up. We ended up selling 500 acres for data center use. And we got 3x industrial value. So not 3x our cost, 3x industrial value for those sites. We could have developed those sites, lease the buildings and not made as much money as we did selling the land for data center use. So we're -- we've taken a very detailed look at the rest of our portfolio, land and cash flowing properties. We boiled it down to -- as you can imagine, it's not an easy process.

First and foremost, power. If you're in jurisdictions where power is not available, those assets aren't going to work. So you got to -- you have to be able to get power. Number two, you have to be able to get power in a reasonable period of time. 2030 is reasonable. Beyond that, it's not so reasonable. Number three, if the building or the land is tied up by tenant for the next 10, 15, 20 years, take that off the list. So we've narrowed it down to about a handful of potential opportunities on one in particular, we're going to put a full court press on trying to get power soon.

Probably if something happens, you're not going to see that happen between -- before 2027 in terms of monetizing those opportunities. The upside, you already heard on the land is kind of 3x industrial value. With cash flowing buildings, it can be -- it's a very wide range for a lot of different reasons. It can be 50% to 100% higher than industrial value. So that's a process that we're going through, and we're hopeful that we're able to monetize some of those assets that way.

Scott, maybe touch on a little bit on what you're seeing on the overall tenant credit and the health of just overall tenant base today, you did have something with a 3PL tenant. But overall, credit within the portfolio, what are you seeing there?

Very healthy. Our bad debt expense in the first quarter was only $100,000. That's about 10 basis points of total revenues, lowest in our sector. As far as tenants on the watch list, these are the couple of tenants we've been discussing over the last year, a tenant called Boohoo. They leased 1 million square feet. They're paying timely. We also have a letter of credit that covers about a year's worth of rent. The 3PL tenant, we entered into an agreement right before our first quarter earnings call, they paid back 60% of their arrearage. They're required to pay the rest back by the end of the year and they're current on their plan as well. Nothing else material on the watch list. So from a credit point of view, looking pretty good in it.

And one more thing to add on the data center opportunity. So the data center business, which we are not in and don't want to be is also providing a bit of a tailwind for demand for our space. So the entity that we sold 300 acres to in Phoenix ended up leasing half of a 940,000 square foot building we have there because they intend to build 14 data centers over time. That's a very -- going to be a very long-term tenant. They use that space for staging and storage of equipment. And so the more manufacturing that happens in the data center business, the power business, as you know, everyone is trying to figure out how to generate more power. That is also a tailwind for demand in our space.

Together, these aren't as strong as e-commerce as we know, e-commerce has been a huge tailwind for our space for a long time and will be for a long time to come. But for now and probably for the next 10 years or so, it will be a nice tailwind.

And then for some that aren't as familiar with the story, the broader rotation from the Midwest markets to the coast and these core population hubs from a distribution side, you're mostly wound down with that. But what percentage of the portfolio do you view as somewhat non-core in the recycling of that capital? And is that program mostly complete? And where do we go? What's the next 5 to 10 years look like?

So over the last dozen years or so, we have sold about $2.5 billion. Now remember, 10 years ago, our total market cap was about $4 billion. So we sold 2/3s of what we had at the time. Today, 2/3s of what we have is new, newish since 2010, and then the other 1/3 is what I call legacy. So we're -- and that's the best of the best of what we had. So we're pretty much through that -- we are through that transformation. And again, you've seen the results in our great cash leasing spreads and our growth trajectory, same-store, et cetera.

We will continue and we'll always be looking to maximize the value of our dollar invested. And if we see an asset or certain assets in a certain market that aren't going to -- that don't have the growth future that we want to see, we will continue to, of course, to pair off that bottom of the portfolio. But the transformation was completed really at the end of '23, and it's been quite dramatic.

And you'd say growth into other markets. As you look at the portfolio today, do you feel that you've got enough capacity to develop and/or acquire in your existing footprint? Or do you think there's new markets that you look to evaluate longer term?

Nashville is a market that I would say is "new". Now we've always had space there, but very, very small percentage of the portfolio. And about 10 years ago, we said, "Hey, let's go bigger in Nashville. The demographics look really good, and it's been a great move." We did the same thing in South Florida. We had 1.2% of our portfolio there. It's up to a little over 6% today and maybe heading to a top 3 or 4 market for us soon. That's been a great move.

You talk about high barriers. It's 21 miles from the Atlantic Ocean to the Everglades and about 115 miles from Homestead to Jupiter. So not a lot of room there. And it's very, very tough to buy land there, and that's a market we continue to love. So that will be the focus going forward.

Peter, how much of -- of that is your responsibility then going forward?

Most of that.

Joe is not here to defend himself. So I figured I'd have to chime in. Scott, maybe going back to -- you guys did your first bond issuance last year a while back. As we look at like funding needs and going forward, I guess, what are your preferred sources of capital to fund the continued development.

The next 3 quarters of remainder of the year development expenditures projected are about $90 million. We generate about $85 million of excess cash flow a year. So that's number one on the list. We also disclosed in our first quarter call a sale -- land sale in Phoenix, which actually closed, I think, last week. So that's a source. And if we need other funds, we can obviously tap the bond market as well.

And what's pricing today for?

I would say it's about probably about 100 basis points for a 5-year and around 120 basis points for a 10-year. Those are the spreads, yes.

And then as we're just thinking about the balance of the year, I guess, what keeps you up at night, Peter, from a demand standpoint? It seems as though conditions are still humming along despite some geopolitical uncertainty and some macro headlines and maybe a potential weakening consumer. I guess what are you monitoring most straight right now to see?

It's always leasing. That's our lifeblood. In good times and in bad, you lose sleep over that. Everything else creates volatility. We're in the forever ownership business. That's why we pursue the business the way we do, why we're focused on the 15 high barrier markets where it's more difficult to build rents are going to grow the fastest. Doesn't mean you can't make money in other markets in other ways. But in our view, they require market timing. And we think over the long term, you're probably going to lose if maybe come out 50-50 at best. So we like to be in the forever market, and we think that's going to lead to the greatest appreciation in the share price.

And maybe just lastly, on just upside you think on rents here relative to maybe when you're rolling your second-gen leases relative to where replacement rents are for new deals, I guess, how much room is there on that?

So there's -- I mean, we can build in a lot of markets, I would say, even some of our land in SoCal pencils today, but if there are already alternatives, they're not going to build. Rent growth, we think, is going to be 0% to 5%. SoCal probably flat. You could have markets like Nashville and Dallas grow higher than that, maybe as much as 8%. So these markets are beginning to get better. That loss to lease factor is going to go to 0 in a lot of places where it isn't right now. I can't really project when you're going to get there for SoCal.

Not for you guys? Not you or the market? Like do you have -- it seems like '27 is still a pretty good setup?

'27 is a good setup. I think. Here's the thing. I think I said this earlier, we're now in a more predictable, stable growth trajectory in this sector, one that goes back to pre-2000 -- pre the Great Recession. Since then, I mean, it's 20 years. But you've had the Great Recession. Nothing was built in this space for 3 years. You had a big run-up to '19 and then when COVID, everybody brought out the hockey sticks, everything grew like crazy.

Now we've come down the back side of that. So we've had these big volatility creating events for 20 years. But if you go back to the 2002 to '06 period, this business grew at a pretty steady decent rate and a reliable rate. And I think we're about to enter into that part of the cycle again and that's good for business.

Any questions from the audience?

[indiscernible] What you're seeing in construction across the any impacts from [indiscernible].

Construction costs and impacts from what else?

[indiscernible].

Yes. So construction costs -- okay. Sorry, construction costs since -- from the peak have come down, at the peak, we like to bid to 3 GC -- potential GC and we got to the point at the peak where they would refuse. They wouldn't do it. That's changed 180 degrees now. So people are asking for business, costs have come down. There's been no real impact from the conflict in the Middle East. We haven't seen a rise in the cost of anything really, steel, concrete, nothing. So it's been pretty stable, though the last couple of years. So that drop happened. That drop in expenses -- cost happened '24, '25.

The other thing I'd add to that is with less development and construction underway. Subcontractors and labor has gotten a lot more competitive because they're chasing work now compared to what Peter said where they were refused to bid previously.

Maybe a follow-up on that. Just are you guys seeing competition when it comes to just data center development, like bidding for a new start?

We're not having any difficulty getting multiple general contractors in highly qualified subs to bid our projects. Certainly, data centers are absorbing more land, which is reducing the supply of land available for industrial development as good as an owner of assets. But we've not had any difficulty at all getting people to bid our projects competitively.

[indiscernible] South or this year prediction was for maybe looking out how you make prediction to [indiscernible].

Yes. So that completely depends on the pace of take-up of the existing inventory. We said a couple of years ago that decision-making was taking a long time. And everybody wants to know why it takes a long time. It continues to be somewhat slow in that market because there's no cost to waiting.

What's the cost to waiting? Cost of waiting is you can't get the building you want or you can't get it at the rent that you want or competitively, you're not investing in growth like your peers are and you're going to fall behind. Those dynamics need to be in place for rents to start to really grow. And in particular size range in SoCal, there are 80 buildings available.

Now it's a 2 billion square foot market. So it's not -- it sounds like more than it is. But 80 is still 80. And we need those buildings absorbed. And it's happening. That number was a lot higher a couple of years ago. And the new starts in that market are literally, so the Inland Empire is about a 700 million square foot market. New starts are in the single-digit millions. So there's almost no new starts.

So I can't put a time frame on when you're going to see real rent growth there, but it's certainly not that far away.

I'll conclude. Thanks, everyone, for showing up. And feel free to reach out if you have any follow-ups with the team.

Thank you, everyone. Thank you.

Good day, and welcome to the First Industrial Realty Trust, Inc. First Quarter 2026 Results Call. [Operator Instructions]. I would now like to turn the conference over to Art Harmon, SVP, Investor Relations and Marketing. Please go ahead.

Thanks very much, Dave. Hello, everybody, and welcome to our call. Before we discuss our first quarter 2026 results and our updated guidance for 2026, please note that our call may include forward-looking statements as defined by federal securities laws. These statements are based on management's expectations, plans and estimates of our prospects.

Today's statements may be time sensitive and accurate only as of today's date, April 23, 2026. We assume no obligation to update our statements or the other information we provide. Actual results may differ materially from our forward-looking statements and factors which could cause this are described in our 10-K and other SEC filings.

You can find a reconciliation of non-GAAP financial measures discussed in today's call in our supplemental report and our earnings release. The supplemental report, earnings release and our SEC filings are available at firstindustrial.com under the Investors tab. Our call will begin with remarks by Peter Baccile, our President and Chief Executive Officer; and Scott Musil, our Chief Financial Officer, after which we'll open it up for your questions.

Also with us today are Jojo Yap, Chief Investment Officer; Peter Schultz, Executive Vice President; Chris Schneider, Executive Vice President of Operations; and Bob Walter, Executive Vice President of Capital Markets and Asset Management. Now let me turn the call over to Peter.

Thank you, Art, and thank you all for joining us today. I'd like to express my congratulations and gratitude to our team for their efforts in getting 2026 off to an excellent start. We delivered some significant development leasing wins and signed a key renewal in Southern California for our largest remaining 2026 expiration. .

We're also capturing significant value creation via a pending $131 million land sale that I'll detail shortly. Turning to the overall market. Industry fundamentals continue to steady. According to CBRE, national vacancy was stable at 6.7% at the end of the first quarter.

Net absorption was a solid 43 million square feet modestly below new deliveries of 55 million square feet. New supply nationally continued to be disciplined with starts remaining muted at 39 million square feet. The national construction pipeline is 237 million square feet and highly pre-leased at 39%.

In our portfolio, overall touring activity has increased for our availabilities with decision-making accelerating for space sizes under 200,000 square feet within our development portfolio. With respect to potential economic and demand consequences from the conflict in the Middle East, thus far, we've seen no discernible impact to leasing activity, but this is a risk we'll continue to monitor.

From a portfolio standpoint, our in-service occupancy at quarter end was 94.3%, in line with our expectations. Since our last earnings call, we made further progress on our 2026 rollovers.

We've now taken care of 61% by square footage and our overall cash rental rate increase for new and renewal leasing is 41%. This includes our largest remaining 2026 expiration, the 556,000 square footer in Southern California for which we achieved a cash run rate change that significantly exceeded the top end of our annual guidance range of 40%.

Moving now to development leasing. We saw some broad-based success across several markets, inking 383,000 square feet in total. These included a full building lease for our 155,000 square foot first Wilson 2 project in the Inland Empire. We also signed several sub-100,000 square foot leases in the markets of Chicago, South Florida, Central Florida as well as Central Pennsylvania. There, we leased a 54,000 square foot space at the recently completed first phase of First Park 33 in the Lehigh Valley.

As I noted in my opening comments, we're pleased to share with you that the ground lessee of 100 acres of land in the 303 quarter in the Phoenix market exercised its option to purchase the site for a sales price of $131 million. The proceeds are approximately $30 per land square foot, which is more than 3x industrial land values in that market.

We expect this transaction to close in June. Before I turn it over to Scott, I would like to remind you of two upcoming property tours we will be hosting. On May 12, we will tour our Inland Empire portfolio, and on June 4, we'll be touring our Central New Jersey assets. Please reach out to Art Harmon to register or for more information.

With that, I'll turn it over to Scott.

Thank you, Peter. First quarter 2026 NAREIT funds from operations were $0.68 per fully diluted share compared to $0.68 per share in the first quarter of 2025. The first quarter 2026 FFO per share was negatively impacted by $0.04 per share of advisory costs related to the contested proxy campaign that was initiated by landed buildings. .

Excluding these costs, our FFO per share was $0.72. As we noted on our fourth quarter earnings call, FFO in the first quarter was impacted by higher G&A costs due to accelerated expense related to an accounting rule that requires us to fully expense the value of granted equity-based compensation for certain tenured employees.

Our cash same-store NOI growth for the quarter, excluding termination fees, was 8.7%. The results in the quarter were primarily driven by increases in rental rates on new and renewal leasing, lower free rent and contractual rent bumps, partially offset by lower average occupancy.

Summarizing our leasing activity during the quarter, approximately 2.4 million square feet of leases commenced. Of these, 300,000 renew, 2 million were renewals and $100,000 were for developments and acquisitions with lease.

Before I discuss guidance, let me update you on the 3PL tenant on our credit watch list. If you recall, we were collecting rent directly from a subtenant while working through the collection process. We are pleased to announce that we signed an agreement with the 3PL that required a lump sum payment of approximately 60% of the balance Otis at December 31, 2025, which we received in March.

In addition, the agreement calls for scheduled payments to pay off the remaining past due rent by the end of 2026. Now moving on to our guidance. Our guidance range for 200 NAREIT FFO is down $3.05 to $3.15 per share, reflecting $0.04 per share of incremental advisory costs relating to the land and buildings contested proxy campaign.

2026 FFO guidance range, absent these advisory costs is $3.09 to $3.19 per share, which is unchanged compared to our last call. Our other major operating metric guidance assumptions are as follows: average quarter-end in-service occupancy of 94% to 95%. This range now reflects approximately 1.3 million square feet of incremental development leasing and the 708,000 square footer in Central Pennsylvania, all to occur in the second half of the year.

Cash same-store NOI growth before termination fees of 5% to 6%. Guidance includes the anticipated 2026 costs related to our completed and under construction developments at March 31, for the full year 2026, we expect to capitalize about $0.08 per share of interest.

Our G&A expense guidance range is $42 million to $43 million which excludes the $5.6 million of incremental advisory costs related to the content proxy campaign. And our guidance assumes that the aforementioned forecasted land sale in Phoenix will close in June.

Let me turn it back over to Peter.

We are optimistic about the activity levels we are seeing across our availabilities. As always, our team is focused on taking care of our customers gaining new ones and sourcing and executing on profitable investments to drive long-term cash flow and value for shareholders. .

Operator, with that, we're ready to open it up for questions.

[Operator Instructions]

The first question comes from Craig Mailman with Citi. .

Peter, you mentioned that touring activities improved, velocity in the 200,000 square feet has improved. Could you talk about other of your peers have talked about the data center adjacent demand. Could you talk about how much of this improvement is that segment of demand versus just either e-commerce or other broader industrial demand?

I mean, from what we're seeing, most of it is just broader industrial demand, 3PLs continue to be very active. Manufacturing has picked up, and that includes data center tech aerospace, et cetera. So that's picked up but it looks more like broader demand for industrial than completely data center-driven. .

And then -- sorry, Scott, I know you had mentioned the Central PA is now second half. Could you just talk about kind of the activity you're seeing at Denver and Central PA and kind of the prospects today versus maybe on the fourth quarter call?

Craig, it's Scott. I think you mentioned that we pushed it to the second half, the 708,000 square footer. That's always been in the second half of the year for our 4Q guidance call.

So I wanted to clarify that -- and then I'll turn it over to Peter for an update on that vacancy in the Denver development.

Craig, it's Peter. So in Denver, we continue to have interested prospects for our large vacancy there. Activity or decision-making, I would say, for larger users has been slow.

Limited competitive supply. There were just 2 buildings that came back that will compete with us 1 from a business failure from another landlord and another from a lease expiration.

But we continue to have prospects. They're just very slow in their decision-making. Smaller midsized tenants in Denver continue to be pretty active. Moving to Pennsylvania. To the second part of your question, Pennsylvania probably is our most active or certainly one of our most active markets across the country in terms of prospect activity across a range of sizes in the industries, including Peter's comments about 3PLs being very active.

We have several prospects for our 708,000 square foot building in Central Pennsylvania . All but one of which are full building users and all of those continue to be engaged in discussions with us.

The next question comes from Nick Thillman with Baird.

Maybe touching a little bit, Peter, just thought process on starting some new projects here given the land bank is a little bit more heavy concentrated in, say, the i.e., you did sign a lease there. But just how you're viewing the landscape and just thought process on overall activity and if that would warrant some starts here in the back half of the year?

Sure. We continue to evaluate opportunities for new starts. We're not going to guide on volume, of course. -- and the markets that we're focused on continue to be markets like Dallas, Delaware, which is really the South Philly submarket. Lehigh Valley PA, we have opportunity, South Florida -- and of course, we're continuing to try to acquire additional opportunity in the way of land and some of the other markets that we've been in and most active recently.

So -- that's -- those are the markets we're focused on. Yes, we do have very good sites in Southern California, but those markets still have a number of availabilities. So they are markets where we're going to be starting projects anytime soon.

And then, Scott, maybe just on the 3PL tenant. What was the lift in same-store from that within first quarter? And then can you just provide an update on what the bad debt expectations are for the full year? And I know boohoo, from the standpoint of just the credit agreement that you're covered for the full year, but just any updates on that kind of as well.

Okay. So the 3PL tenant, no impact to same-store -- we never reserve that tenant back in 2025 when we discussed it being on our watch list. We just made you guys aware of it. We always thought it was collectible. .

We updated you on this call with the big payment we received and the agreement we reached with the tenant. So again, there's no impact to FFO or same-store related to that. On boohoo, they continue to be current on their rent.

They pay right at the end of the month, every month. And Peter, I'll turn it over to you to update them on the sublease potential in this space.

Thanks, Scott. Boohoo continues to market the building for sublet. There are a declining number of available 1 million square foot plus buildings in Pennsylvania activity. As I mentioned a few minutes ago, continues to be very good at that level as well. .

Amazon is about to ink 2 more million square foot plus buildings in Pennsylvania as of today. So that's in process. And there are relatively few options. There likely will be some more starts in that size range given the strength of demand, but boohoo continues to market the building for sublet.

And Nick, you had one other part of the question, our bad debt expense was $100,000 in the first quarter compared to our guidance of $250,000, and we kept our guidance the same in 2Q, 3Q and 4Q at $250,000 per quarter.

And the next question comes from Nicholas Yulico with Scotiabank. .

This is ViKtor Fed on with Nick. So you posted really strong Q1, and it seems like year-to-date activity is also solid. So just trying to understand what's driving your decision to maintain your full year FFO and same-store NOI guidance instead of raising it?

Okay. So Nick, this is Scott. We did lease up 400,000 square feet of development leasing. It did have slightly positive impact on our FFO compared to guidance.

That's being offset by a couple of things. One is we have in our guidance, the land sale that's expected to close in June. That's the lease piece of land. So there's slight dilution from that sale because we're assuming the funds are used to pay on the line of credit.

And the other piece of it is like what we do every quarter when we update guidance. We look at all of our leasing assumptions and guidance and we update them accordingly, and we make adjustments as we see fit. So that's the reconciliation.

Got it. And then a quick follow-up on the disposition of land, -- so how does this transaction kind of inform the time line and strategy for unlocking like similar higher and better use value for the rest of your land bank? Just how many similar opportunities you might have within your portfolio?

Yes. As you know, we have taken a pretty close look at every asset that we own, land and income-producing real estate properties. And -- we've narrowed it down now to about a handful of opportunities where we think we might be able to push forward and create significant value.

We're in the process now of trying to secure power. That's a very lengthy process. And so we'll see where that goes. If we're successful with that, that would add significant value above and beyond the value of the industrial value for those particular assets.

And the next question comes from Todd Thomas with KeyBanc.

First, I just wanted to follow up on the Central PA vacancy. I was just curious where things stand with the tenants that you're engaged with the regarding a lease or a sale is a sale still a potential outcome that's being contemplated?

Todd, it's Peter. All the prospects we're engaged with or for lease only today.

Okay. And then you talked about the increase in demand from tenants looking for space 200,000 square feet or less, that generally aligns with some of the more recent development starts.

And I'm just wondering what the holdback is from increasing starts here a little bit more meaningfully. What are you sort of looking for in order to increase development start a bit further?

Yes, that's a market-by-market question. For example, as you know, we've got a number of availabilities in South Florida. We also have a number of opportunities to -- for new starts there.

We want to make sure that we're not too concentrated with development in any one market at 1 time. And we just completed the project in the first phase of the project. in Central Pennsylvania.

And that we've signed a small lease, a 54,000 square foot lease there. We'd like to see a little bit more leasing there before we begin Phase II. So it's really more of a concentration question.

And the next question comes from Michael Carroll with RBC Capital Markets. .

Scott, I wanted to circle back on your comments regarding the land sale. I mean how much rent is the JV paying on that land today? I mean just given the sale is 3x the industrial land value, I think that the corresponding cap rate would be pretty low and not dilutive to earnings.

Well, it's not in the JV. This is on balance sheet. And in the supplemental Mike, if you look, we disclosed the cap rate, it's about a 5.3% cap rate. We got a great rent from the tenant when we leased the land to them back a couple of years ago.

Okay. And then I just wanted to confirm, too, that you didn't change the expected timing of the 1.3 million square feet remaining development leasing in the PA space. Those are still the same timing as it was in the prior guidance that you provided in 4Q? I believe it was, but I just wanted to confirm that.

That's correct. The only difference is the development leasing in the fourth quarter was $1.7 million. Now it's $1.3 million, and the decline has to do with the 400,000 square foot of development leases that we signed. .

The next question comes from Rich Anderson with Cantor Fitzgerald. .

So on the release 556, Kay, can you go through the economics of that transaction? I don't know if that's been provided some place, if I missed it, I apologize. .

So John, do you want to cover that? .

We can really go through the lease rate or the economics. But I can tell you, it's long term, we're very happy about the long-term renewal -- the space is very critical to the tenant, and it significantly exceeds the high end of our rent change guidance of 40%. .

Okay. So okay. up more than 40%. Is that right? .

Yes. Yes. .

Okay. Second, I asked this question on EastGroup, I kind of buttered the question and see if I could do it better here. On the -- on the data center demand that you're seeing, I'm wondering how siloed that is in the confines of your broader business.

I mean, to what degree is the data center demand sort of informing your core tenants, your kind of consumption-oriented tenants. -- and telling them I better act now because space is getting taken by this other way of using industrial space.

And from your point of view, how does it change your strategy from a development point of view? Does it does First Industrial have to go about things differently depending on the customer, whether it's a supplier or it's a consumption-oriented or e-commerce or whatever, like I'm curious how this is disruptive in any way or it's just pure new demand, and that's -- it's as simple as that.

We've talked in the past about what would be a catalyst for tenants to begin to make decisions faster. The decision-making now for a couple of years has been fairly slow, especially on the kind of larger spaces.

And that -- the topic that you're discussing does create a cost to waiting. So it does help on the margin. The other topic, of course, is power. And while data centers need a lot of power, warehouses need their fair share as well. So that's also a topic.

So these are both helpful on the margin to get tenants to make decisions sooner. But it hasn't really created a wave of new lease signings. Peter and Joe, do you want to add anything to that? .

The only other thing I'd add to that, Rich, is there is a little bit of incremental demand as we commented earlier, from tenants that are supporting the construction of data centers and infrastructure. So we are seeing a little bit of that, but I wouldn't call it material to the overall demand profile.

Just to add just a little bit more detail there. If you look at the data center development, there's a lot of infrastructure-related switch gear, semiconductor, hikes, electrical supply, a lot of that and that has to be manufactured and distributed.

And data center involved businesses need space to either distribute that equipment start at equipment and fulfill that equipment in or out of place in the U.S. So at the end of the day, they need warehouses where they can store these goods or do some light assembly.

So that is the incremental demand that both Peter have mentioned. But if you look at the Q1, '26 they are not the biggest users. In fact, I think they're growing, but that didn't even make the top 10. The biggest ones are the 3PLs, consumer goods, like Peter mentioned, broad-based construction and food and beverage.

I guess just to finish the question. From your point of view, when do you need -- if you're building something spec, when do you need to know that you're going to have an alternative user in the building?

And how does that inform your development process? Or can you just -- or do you not need to know necessarily any specific time frame? .

That's not going to change our process or our philosophy around the quality location features and functionality that we build. .

And the next question comes from Caitlin Burrows with Goldman Sachs. .

Maybe it lines up with the markets you mentioned you'd be most interested in building. But can you go through which markets maybe three are strongest versus weakest today on demand and rents and what's driving that difference?

Do you want to talk about PA? .

Sure. Caitlin, it's Peter. I would say, as I mentioned a couple of minutes ago, Pennsylvania is probably our most active market from a tenant perspective across really all size ranges reflective of the deal we signed in our just completed project in the Lehigh Valley.

The activity we have on the 708, the activity from market participants for large buildings over 1 million square feet. Very, very active. We're seeing good activity in South Florida.

We're seeing a little less activity in Nashville than we've seen in the last couple of years, but pretty tight from a supply standpoint. And as I mentioned, in Denver, slower decision-making from larger tenants.

But overall, markets are performing well. along the East Coast, rents are stable and still trending up a little bit? So pretty good shape there. Jojo, you want to talk about the West.

Yes. Thank you, Peter. If you look at gross leasing, Dallas, Houston and Phoenix have exhibited significant gross leasing. And that's been really continuing since the second half of '25 through Q1 of '26. What's most interesting is that gross leasing actually in the IE has been positive from Q-to-Q.

And if you look at just activity from the large spaces over there, that's been pretty good in IE. But at the same time, in i.e., you have space ranges from 200,000 to 400,000 square feet is abundant in the market today that the -- basically the market has to digest antennas in that size range, 200 to 400 has quite a bit of choices.

Got it. Okay. And then maybe to talk about SoCal a little bit more. So you mentioned that other leases you guys did with the rent spreads meaningfully above 40%.

I guess, can you go through what you're seeing more broadly from a leasing spread perspective in SoCal, I imagine some are up, some are down. Is it mostly a function of lease vintage certain building space types act 1 way versus another. Just what's the range you're seeing there?

Sure, sure. In terms of rent spreads, we will continue to see rent change, positive rent change in SoCal because when you look at it, it has come down from the high of Q1 2023.

But the growth from recolte coal significantly still exceeds that. So over the next couple of years, we will still see positive rent change. In terms of actual Q-to-Q -- quarter-to-quarter in terms of rent growth, it's been flat. There are some deals that actually have shown some growth, but overall, it's been flattish.

The next question comes from Jason Belcher with Wells Fargo.

Wondering if you could talk a little bit about your investment or capital allocation preferences in the current environment and how you're thinking about deploying capital for, say, acquisitions versus development versus share repurchase?

Sure. Look, we're going to -- the primary driver of our growth will continue to be speculative development. We're also always in the market, making offers for opportunities to acquire cash flowing buildings in the past that you've seen the majority of our capital go into development.

So maybe 20% -- 25% cash flowing buildings. And with respect to the share purchase opportunity, the share authorization Look, again, the primary use of our capital is going to be to support the growth of development and acquisitions.

But there have been several market disruptions in the recent past where our stock price has been pretty negatively impacted to levels that belie fundamentals and our long-term prospects. And we have a very strong belief in the long-term value of our shares.

So in those periods of dislocation we've concluded that would be value-enhancing to shareholders to opportunistically acquire shares. You can figure out, I suppose, on your own, what that means in terms of allocation to that versus the other 2 categories.

Great. And then just as a follow-up. Can you give us an update on how your embedded rent increases are trending and what you're incorporating into newly signed leases. And if you can touch on any shifts you've seen there in recent quarters?

Yes. If you look at where we're at on the completed 2026 deals that we've signed the overall bumps are about 3.6%. And if you look at the entire portfolio as far as in-place funds in 2026, we're at about 3.4%. So we're still holding pretty strong.

And if you're asking about the rental increase side of it, we're still consistent with our cash run rate change guidance of 30% to 40% for 2026 is I think we -- as Peter mentioned in the script, I think we're at about 41% for the leases that we've signed already in 2026.

The reason that's a little bit higher is that 556,000 square foot renewal that Jojo spoke about that was significantly higher than the top end of our 40% range.

Our next question comes from Vince Tibone with Green Street Advisors. .

Some of the development leasing this quarter was for smaller suites within larger buildings. Curious if that reflects any change in strategy and kind of willing to carve up some of these boxes have taken a little longer to lease into multi-tenant spaces or suites? Or was that always the business plan for those properties? .

It's Peter. Yes, that was always the plan for those buildings. So they're all designed for multi-tenant use. Certainly, over the last several years, we've been fortunate to see some full building users. .

But we always design flexibility into our buildings. As I mentioned on the question about our building in Central Pennsylvania for 708 just to contrast that size range really good activity there that we're seeing today, and there's a lot of activity for larger buildings from tenants in Pennsylvania and some of the other big markets.

So I wouldn't take that tenant demand is limited to under 200,000 we built those buildings because we felt those pockets were underserved, and we're seeing the results of that. The Lehigh Valley building that Peter mentioned, we just completed and we've seen good activity there and already have our first deal signed.

No, that's really helpful color. I appreciate that. And then maybe staying on development a bit. It seems that the 1 million square foot plus box is where you're seeing the most favorable kind of changes in supply/demand dynamics right now in most markets. .

I'm curious, are you willing to kind of go spec at that ultra-large size range? I know you've done some of that in the past, but generally have been a little smaller billing size, like if demand stays strong for this ultra large box, could you pivot or don't go a bit more larger ultra large box when you're doing more some of these new spec deals?.

Sure. I mean we're always looking to maximize value of our land. We continue to seek out new land investment opportunities and some of which would involve large-format properties -- large-format buildings. It's part of the game plan.

As you know, we do own some sites in SoCal that could accommodate very, very large format buildings. And we continue to evaluate those in light of the economic realities and leasing realities of that market.

The next question comes from Vikram Malhotra with Mizuho. .

I guess just first one to clarify, you're ahead on your development lease-up. You've got good rent growth, like rent spreads that you cited and good visibility. .

So I'm wondering two things that you can maybe be more specific, like one, why not move up the occupancy guide specifically like what's the offset to not moving that up given the leasing? And then can you be more granular on like why the guide didn't go up because even what you described, it would still suggest you should be trending at least $0.01 or $0.02 higher.

Vikram, this is Scott. And -- so the answer is, yes, we did pick up a little bit of FFO due to the 400,000 square feet of development leasing we announced -- that was offset by two items. One had to do with the projected land sale that we have in our guidance, that's a lease parcel.

So when we sell that land parcel, we lose the NOI and we're paying down the line of credit. So there's a little bit of dilution there. And then the other item has to do with just our normal process of going through our lease availabilities and our leasing assumptions on a quarterly basis when we update guidance. We made assumptions to some of those -- we did not make changes, though, to the 1.3 million square feet of development and the 700,000 square feet that we have in our guidance. So it's more some changes in some of the quarter leases. So those are the pieces.

But just to clarify, the occupancy piece, I don't think the land would sale would impact that, right? Like what offset the occupant? Is it just you've assumed lower real .

We made some slight adjustments to some core lease-up assumptions as well. And also keep in mind that occupancy, we provide a range to it and we're comfortable with that occupancy range.

Got it. Okay. And then just maybe stepping back, you announced the buyback, you're doing use property tours. There's a change in sort of the Board as well. I'm just trying to understand, like can you walk through kind of each of these actions, like what are you sort of aiming for? There's obviously in the background, the quasi, I guess, activist that's pushing I'm just trying to understand like all these different actions, like are they related?

Are they independent? What are driving those three things?

A lot of topics in one question. Okay. So the whole topic around the new director, as you may know, we unexpectedly lost a director last year who passed away. Again, unexpectedly. At that point, we determined it would be prudent to go ahead and start a process for a new one.

That process was extended on two occasions. First, to consider the candidacy of the LNB nominee, Pass nominee and then again to consider the canadacy of the two individuals that the L&B nominee suggested we talked to.

So that whole process was well underway long before those conversations began. With respect to the share buyback, Look, we took a look at what happened to our stock in certain periods, okay, such as COVID, such as when Amazon announced they were pulling back in April of '22.

The tariffs impact on the shares, less so the war in the Middle East. And when you look at those time periods, you see significant falloff in share price when the fundamentals and long-term prospects for our shares did not.

And those are times that will continue to happen with the volatility that we have experienced and will continue to experience. And so it just simply makes sense to be in the market supporting the long-term value of our shares during those time periods.

That, again, is a conversation that we have had with the Board for a long time. I've now forgotten the rest of your question.

Property tour .

Property tours. I would say, look, yes, we want to do whatever we can to get the word out on not only the transformation that we have completed, but also what's going on right now in some of our markets, we want you guys to be able to get to know our market leaders it just makes sense to take the opportunity to enhance shareholder engagement. .

The next question comes from Brendan Lynch with Barclays.

You mentioned winning concessions contributed to the strong cash NOI growth in the quarter. Can you provide some more additional color on the current trends that you're seeing with concessions and what we should expect going forward? .

Yes, Brendan, it's Peter. Generally speaking, we're seeing rent concessions at half of 1 month to 1 month of rent per year of term. And I would say that's drifted upward a little bit, which is more of a market by market and in some cases, asset by asset, and that's on new leases.

TIs have been roughly the same, just depends upon the specific requirements of the tenant.

And renewals have been pretty steady, still very low renewals and TIs -- in over renewals. .

Okay. Great. And another question. We've seen a lot of discussion recently about how brokers are going to be disintermediated by AI or at least the broker fees are going to be pressured lower -- what is your view on how that cost dynamic will evolve for First Industrial and for the industry in general going forward?.

View on that, Joe.

Yes. There's -- we don't see material impact right now on AI in terms of brokerage services. Again, when we hire brokers, I mean, we feel we hire the best.

They bring value to the table in terms of our leasing efforts. We've seen more very quick flow, efficient flow of information back and forth in the industry. but brokers play a key role in the industrial leasing business.

Yes. AI is going to provide a lot of data maybe these transactions happen more quickly for that reason, but intermediaries do bring value. And those negotiations, it always helps to have some distance.

And we don't see the value of that community lessening over time because of AI.

[Operator Instructions]

Our next question comes from Michael Mueller with JPMorgan.

I guess first, are the light assembly data center users that you've referenced -- are they generally shorter-term lease takers of space? Or are you seeing long-term leases there? And I guess at the completion of the data center, are they expected to kind of stick around or just that's the end of the lease may go away and space goes to a different type of user?

Let me give you some color there, Michael. The light assembly, usually, they're long -- midterm to longer-term leases because the assembly of the equipment -- it depends on how much data center development, a particular tenant is fulfilling.

And if you have a multi-facet for example, development going on that the tenant is falling, that would take anywhere for a couple of years to long term as much as 10 years. So it really depends on what they're fulfilling.

It also depends on how many regions that particular prospect will be serving. As you know, data center development and data center buildings take a longer time than industrial buildings.

So that's another piece of color there. But yes, so in terms of data center development, we cannot predict. You know as much as we do, if you look at the industry news and how much the hyperscalers 1 we will put out in the marketplace, and that's pretty -- it seems like a pretty long term, pretty huge dollars.

Got it. Okay. And then just a quick second one. Are there any notable disposition expectations beyond the Phoenix sale that's expected to close this year or just expected to be nominal.

No, there's really nothing else in the hopper that looks like that. .

This concludes our question-and-answer session. I would like to turn the conference back over to Peter Bacilli for any closing remarks.

Thank you, operator, and thanks to everyone for participating on our call today. You've got -- if you have any follow-ups from our call, please reach out to our Scott or me, and have a great day. .

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and welcome to the First Industrial Realty Trust, Inc. Fourth Quarter 2025 Results Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Art Harmon, Senior Vice President, Investor Relations and Marketing. Please go ahead.

Thanks very much, Dave. Hello, everybody, and welcome to our call. Before we discuss our fourth quarter and full year 2025 results and our initial guidance for 2026, please note that our call may include forward-looking statements as defined by federal securities laws. These statements are based on management's expectations, plans and estimates of our prospects. Today's statements may be time sensitive and accurate only as of today's date, February 5, 2026. We assume no obligation to update our statements or the other information we provide. Actual results may differ materially from our forward-looking statements and factors, which could cause this are described in our 10-K and other SEC filings. You can find a reconciliation of non-GAAP financial measures discussed in today's call in our supplemental report and our earnings release. The supplemental report, earnings release and our SEC filings are available at firstindustrial.com under the Investors tab.

Our call will begin with remarks by Peter Baccile, our President and Chief Executive Officer; and Scott Musil, our Chief Financial Officer, after which we'll open it up for your questions. Also with us today are Jojo Yap, Chief Investment Officer; Peter Schultz, Executive Vice President; Chris Schneider, Executive Vice President of Operations; and Bob Walter, Executive Vice President of Capital Markets and Asset Management.

Now let me turn the call over to Pete.

Thank you, Art, and thank you all for joining us today. I'm proud of how our team performed in 2025. For the third straight year, we competed well in a volatile and evolving economy in the challenging environment for tenants investing in new growth. The only thing that is certain in this operating environment is uncertainty. We're well prepared for more of the same. We're positioned with a resilient portfolio and significant growth opportunity ahead. From an operational standpoint, our team remained focused and generated strong cash rental rate cash same-store NOI and FFO growth and continue to sign new development leases. We also executed two recent term loan refinancings, which Scott will address in his remarks.

The overall leasing market showed significant activity in the fourth quarter with a record 226 million square feet of leasing according to CBRE, which was 22% higher than a year ago. Total leasing was 941 million square feet for the year, making it the second highest year on record, second only to 2021 and more than 12% higher than 2024. 3PLs continue to be very active, representing 36% of total leasing with retail and manufacturing occupiers rounding out the top 3. According to CBRE, vacancy in the fourth quarter was 6.7%, reflecting net absorption of 58 million square feet, with completions at $78 million. For the year, net absorption was 149 million square feet and completions were $282 million.

Construction starts nationally in the fourth quarter were 45 million square feet, in line with the third quarter and still well below 2022's peak levels. Pre-leasing on the under construction pipeline continues to be approximately 40%.

Within our own portfolio and development projects, touring activity continues to improve. Since our last call, we signed 231,000 square feet of leases in two of our developments. These leasing wins include the other half of our 425,000 square foot, Houston development, and 19,000 square feet at our first Loop project in Orlando. For 2025, our cash rental rate increase on new and renewal leasing was 32%. If you exclude the large fixed rate renewal in Central PA, we previously discussed, the cash rental rate increase was 37% and the straight line increase was 59%.

Our annual escalators for 2025 commencements, excluding fixed rate renewal -- the fixed rate renewal were 3.7% and which has remained steady since 2023 when we started to implement higher escalators in our leases. For the whole portfolio for 2026, they are 3.4%. Regarding our 2026 rollovers, we're off to an excellent start, having taken care of 45% by square footage, and our overall cash rental rate increase for new and renewal leasing is 35%. For the full year, we expect cash rental rate growth to range from 30% to 40%.

Moving now to investments. During the quarter, we acquired the 968,000 square-foot 100% leased building from our Camelback 303 Phoenix joint venture for $125 million. The purchase price is net of $18 million, which is our share of the venture's gain on sale promote and fees. The venture also sold the last remaining 71 acres it owned to a data center operator. With these transactions, we successfully concluded the joint venture, which achieved an overall IRR of 90%. We thank Diamond Realty for being an outstanding partner on this and the prior PV303 venture, through which we created significant value for them and our shareholders. And ultimately, we're able to add some high-quality properties to our portfolio. We also acquired a newly constructed 117,000 square foot facility in the Baltimore market, in the infill eastern suburbs of Washington, D.C., near Andrews Air Force Base for $31 million. The property was 2/3 leased at acquisition. The combined stabilized cash yield on the net purchase price of the Phoenix building plus the DC facility is 6.3%.

On the development front, we're breaking ground on two new buildings in the first quarter. At First Park Miami in Medley, we're starting a 220,000 square foot project as we continue to methodically build out that park. As a reminder, we've developed 1.4 million square feet across 8 buildings in this infill location, and we own additional land that will support another 859,000 square feet of projects. In Dallas, we're starting the 84,000 square foot First Arlington Commerce Center 3. This is the third project in our park in this highly sought after submarket. Total investment for these two buildings is $70 million with a combined projected cash yield of approximately 7%.

Lastly, given our performance and outlook, our Board of Directors declared a first quarter dividend of $0.50 per share. This is an increase of 12.4%, which is aligned with our anticipated cash flow growth.

With that, I'll hand it over to Scott.

Thanks, Peter. Let me start by recapping our results for the quarter. A REIT funds from operations for the fourth quarter were $0.77 per fully diluted share compared to $0.71 per share in 4Q 2024. For the full year 2025, FFO per fully diluted share was $2.96 versus $2.65 in 2024, representing a 12% increase. Our cash same-store NOI growth for the full year 2025, excluding termination fees, was 7.1%, primarily driven by increases in rental rates on new and renewal leasing and contractual rent bumps, partially offset by lower average occupancy. Please note that 2024 same-store NOI excludes $4.5 million of income related to the accelerated recognition of the tenant-improvement reimbursement associated with the tenant in Central Pennsylvania. For the fourth quarter, cash same-store NOI growth was 3.7%. We finished the quarter with in-service occupancy of 94.4%, up 40 basis points from the third quarter.

Summarizing our balance sheet leasing activity during the quarter, approximately 1.8 million square feet of leases commenced. Of these, approximately 600,000 were new, 600,000 were renewals and 500,000 worker developments and acquisitions with lease-up. On the capital front, we recently renewed two term loans. First is our $425 million unsecured term loan with an initial maturity date of January 2030 with a 1-year extension option. In addition, we renewed our $300 million unsecured term loan and increased its size by $75 million for a total $375 million. The initial maturity date is January 2029 with two 1-year extension options. Pricing for both new term loans removes the incremental 10 basis points so for adjustment.

Lastly, in conjunction with these refinancings, we also amended our $200 million unsecured term loan to eliminate the 10 basis points so for adjustment. We thank our banking partners for their continued support and commitments. Before I review our overall guidance, let me quickly update you on our bad debt expense and our credit watch list. Bad debt expense for the year was $700,000 coming in better than our original guidance of $1 million. Note that our forecast for full year 2026 is $1 million. Regarding our watch list, Devinen's Group, formerly boohoo, remains current. We also continue to work through the collection process for the 3PL tenant we added last quarter, and we've been collecting the subtenant rents since October 2025.

Now moving on to our initial guidance for 2026. Our NAREIT FFO midpoint is $3.14 per share with a range of $3.09 to $3.19 per share. Key assumptions are as follows: average quarter-end in-service occupancy for the year, 94% to 95%. At the midpoint, the major lease-up assumptions include 1.7 million square feet of development and the 708,000 square footer in Central Pennsylvania, all to occur in the second half of the year. 2026 full year average cash same-store NOI growth, 5% to 6%. Guidance includes the anticipated 2026 costs related to our completed and under construction developments and today's announced starts. For the full year 2026, we expect to capitalize about $0.08 per share of interest. And our G&A expense guidance range is $42 million to $43 million. Please note that the cadence of our G&A expense will be similar to 2025 with our 1Q expense to represent approximately 40% of full year G&A. This is due to accelerated expense related to accounting rules that require us to fully expense the value of branded equity-based compensation for certain tenured employees.

Now let me turn it back over to Peter.

Thanks again to my teammates for their contributions to a successful 2025. As we've often said, we manage your company to thrive through business cycles. This past year was a strong reminder of why we subscribe to that strategy. In 2026 and always, our team is focused on capitalizing on the opportunities we have both within our portfolio and in our new developments to drive cash flow growth and further enhance shareholder value.

Operator, we're ready to open it up for questions.

[Operator Instructions] The first question comes from Craig Mailman with Citi.

Maybe on the development leasing, that was helpful to give an update there, and I understand that second half. Just as I think through that 1.7 million square feet, how much of that is in projects that have already delivered or drag on the operating portfolio versus projects that are either under construction or lease-up that may not hit until later in the year, so the contributions more for 2027.

Craig, it's Scott. I think the way that we look at it is that we have a 2.5 million square foot development opportunity. These are properties that have been completed or will be completed in 2026, so that 1.7 million square feet that we have in our guidance could come out of any of that 2.5 million square feet.

Okay. And then just a follow-up. Can you just give us a sense of where you guys stand on Denver? I know you're kind of dual tracking it for sale and lease still. Kind of what's the update there?

Craig, it's Peter. Correct. The building is available for either lease or sale. We have a couple of active prospects that we're talking to for all of the building on a lease basis as well as a couple of inquiries on portions of the asset, and we'll keep you posted on our progress.

Maybe a quick follow-up. How is that treated in same store? Because I know it's got $4 a foot of property taxes on it. Like does that high probability in the 1.7 million square foot lease up, or is that more vacant? And how much of an uptick could that be to earnings on the same store for you guys were to sell that?

Well, like you said, Craig, if we were to sell it, then we don't have the taxes, as you said, was about $2.4 million for the year, if that was something that we leased up and again, it's -- if it did lease up, we're making the assumption back end of the year, it's going to be free rent related, so it's not going to have an impact on cash same-store. Obviously, the taxes would, I think all of that kind of comes into our 5% to 6% cash same-store range.

And the next question comes from Michael Carroll with RBC Capital Markets.

I want to circle back on the development in the PA that's included in guidance. I mean Scott, have you done an analysis, how much FFO does that increase your 2026 guidance? Or how much is that contributing to your 2020 guidance range?

Are you talking about just the 708,000 or the 1.7 million square feet, Mike?

I guess, both, assuming that those spaces get leased in the back half of the year, I mean, is it in the July time frame or the December time frame, I guess, if we just kind of neutralize those to, I guess, larger buckets of space, I mean, how much FFO contribution is assumed in your guidance range from those specific assets?

Right. So I would say it like this, if we did not lease up, any of the 1.7 million square feet of the 708,000 square footer, we would still be within our FFO guidance range.

Okay. And then just related to some of the developments, I mean, can you talk about the South Florida campuses? I know this market has been pretty solid and some of the reasons why you're breaking ground on a new project. I know there is space left in Building 12 and Building 3. I know there's some space left in first Pompano 2. I mean, are you just seeing really good activity, and that's why you wanted to break ground on this project in Miami again?

Sure, Mike. So it's Peter. Yes, is the answer to your question. At Building 12, we only have 32,000 feet. At Building 3, we have some active prospect discussions going on for portions of that building. As you know, when we start a new project in Florida, it takes us about a year to deliver, so that building won't deliver until first quarter of '27. And we feel pretty good about the activity. The smaller building in Pompano. We have active prospects for that different submarket, so it's not the same calculus, but overall activity is pretty steady.

And the next question comes from Blaine Heck with Wells Fargo.

Can you talk a little bit more about the balance between preserving occupancy and pushing on rental rates? Are there any more markets in which you're kind of leaning more towards pushing on rate versus preserving occupancy and maybe on the flip side, any specific markets or size segments that you still see as more vulnerable on the rate side?

Yes. I would say on that, look, we're always trying to maximize the NPV of those leases that varies by market. We remain competitive to meet the market, and I'm not sure how else to answer that. We're really looking to maximize the value of each asset in each lease. And of course, that has different inputs, whether it's free rent or TIs or base rate, et cetera.

Blaine, it's Peter. The other thing I'd add to that is we're going to meet the market. And as Peter said, optimizing all of those economics. The assets that we have are available are high quality, and there is certainly a flight to quality in this market. lowering the rent is not going to necessarily create incremental demand. There are certainly assets in the market that are second or third gen that do not have the functionality and they're struggling. So that will be a rent challenge for them. But in general, rents are pretty stable and holding certainly concessions and TIs up a little bit. But we don't view lowering the rent on a wholesale basis as the solution.

There's also been some movement from Class B to Class A, which plays into our portfolio very, very well, given that we've built most of it now in the last 15 plus or minus years. So we're in a good position with the competitive standing of our assets.

Great. That's helpful color. Second question, Amazon remains your largest tenant about 6% of revenue, and their demand is sometimes seen as kind of the barometer for the market as a whole. So can you just talk about any recent discussions you've had with them or indications around their appetite for additional space in '26?

It's Peter again. We're seeing them active in a number of markets for additional space including a number of large format buildings in Pennsylvania as an example. They continue to be active and looking to add to their portfolio.

Also, I'd like to add that Amazon has been particularly active in Q4 in 2025, numbers that we researched totaled about 10 million feet just in Amazon. And so they've come back and lease the 1 space.

And the next question comes from Nicholas Yulico with Scotiabank.

This is Greg McGinniss on for Nick. I just want to make sure we understand on the FFO per share guidance the difference between the bottom and top end of the range is primarily related to development pipeline lease-up, or are there other key factors we should be considering as well?

That's 1 piece, the 1.7 million square feet of development lease up in the 708,000 square footer. The other piece of guidance we give you is bad debt expense. We put in $1 million for guidance. It came in at $700,000 last year. But you never know, there could be some volatility in that as well.

Okay. And with the 2026 lease expirations, it looks like you're down to 4.5 million square feet remaining. Are there any like key tenants in there or a larger spaces that you're focusing on?

We are working with a renewal in SoCal, about 555,000 square feet, and we are in discussions with the tenant.

The next question comes from Nick Thillman with Baird.

Good success on the Camelback JV. I know you guys also had been evaluating potential higher uses for just through land bank and existing assets when it comes to data center opportunity set. So just curious if you had any updates there.

Yes, we're still working on that. We're pursuing a pretty narrowly defined set of potential opportunities. It's going to take a while to play out. You have to do a lot of different studies, have a lot of discussions that take a long time. But -- so we're still evaluating that for both land holdings and existing buildings, and we'll keep you posted on any progress.

SP1 That's helpful. And then for a follow-up, Peter, you're pretty bullish. It seems a little bit on just the macro turning here. As you look at your land bank, do you view that you have the capacity to develop in the right markets as you see it today? And as we think about new starts for '26, is it more a function of you would like is understanding that you do have that leasing cap. Is it more a function of getting some leasing done before you start new projects, or is it more going to be how you're seeing the demand environment change throughout the year?

Yes. The cap is not really factored into these decisions. It's really the the economics of each project and the condition of the markets. As we've mentioned in the past, places like Texas and Florida and PA are pretty good. Nashville is great. We do -- we're looking to add to our landholdings in Nashville, in particular as well as South Florida. We do have potential opportunities for starts in some of those markets today. And of course, over time, getting into the '27, '28, '29 time frame, we think that some of the other markets, in particular, SoCal, will begin to be a place where you might start thinking again about it. So we're pretty well positioned with our holdings. We certainly do want to add to those holdings, I'll say, in the eastern half of the country, and that counts Texas.

And the next question comes from Todd Thomas with KeyBanc.

First question, I appreciate the detail around sort of the assumptions related to the development leasing and the Central PA asset, understand it's skewed towards the second half of the year. But can you provide just a little bit more detail around the pipeline today for prospects, how demand and tenant activities trending? Just trying to get a sense for sort of how much visibility you have today?

Yes. Jojo or Peter you can comment on it.

Sure. Todd, it's Peter. In general, we're seeing continuation of the pickup activity from the balance at the end of the 2025 year into the beginning of 2026. We have more inquiries, tours, RFPs engagement level from tenants is better. Still hard to predict when some of those deals, if they'll get done and when the leases will start. There's still a lot of deliberate this among tenants. But we feel better today than we did last call in terms of the overall level of activity and tenant engagement. And as we've talked about, new supply is down, sublet space is pretty much stabilized. So the environment is better.

The part of that 1.7 million square feet, as Scott mentioned, includes the two development projects in IE. I would say that IE -- in the IE, we have a bit more prospects and a bit more RFPs. We're certainly very happy to release our 159,000 square foot first hard ops in Q4 of last year in AIE. And one thing I want to point out on the supply side, under construction deliveries and starts in IE, are in a record low. I mean, significantly decline Q3 to Q4 and the sublease availability is also slightly down. So all in all, if you look at the fundamentals of surrounding those two development projects, it's pointing out to the bottoming of market and with improving supply metrics and some increasing demand activity.

Okay. That's helpful. How are concessions trending broadly? I realize it's probably market by market and asset by asset, but how should we think about sort of cash rent commencements relative to sort of the date of a lease signing?

Yes, it's Peter again. I would say concessions are flat to drifting up. And you're exactly right. It's market by market, asset by asset. Free rent is between half of 1 month and 1 month per year of term. And the TIs are really driven by specific tenant requirements, but it's up a little bit as tenants have choices.

And I just want to add that in terms of renewals, which represents the major bulk of our activity, desensitivity, they're tight, meaning that we're not seeing significant increase on free rent versus -- and the TIs are very low. So once they've committed to the space. And by the way, in terms of renewals, they've been renewing a bit earlier than 2024 or early '25.

Okay. That's helpful. If I could just sneak in one more here. In terms of the capital plan for '26, just curious how you're thinking about dispositions and additional land sales. and whether anything is contemplated for the year as sort of a source of capital, I guess, what the appetite is like in the market and sort of what's contemplated around disposition monetizations?

Sure. Look, I mean, I think the best way to describe it is we remain opportunistic. As I mentioned earlier, we are looking at everything we own to see if it's -- can be converted to higher and better use. In terms of planned sales, that number is not a very large number. But again, we're opportunistic, and we're open to maximizing value in each and every asset that we have.

The next question comes from Caitlin Burrows with Goldman Sachs.

You mentioned the progress you've made on the '26 lease expirations. I guess if we take a look back on 2025, can you comment on what sort of retention rate you achieved and what do you expect a similar result in '26 and for those that are leaving any sense why?

Yes. 2025, we are at 71% overall retention rate. We expect very similar in 2026. And as you see, we've already taken care of 45%. So we feel pretty good about that at this point.

Does that 45% mean that the other 55% is still TBD? Or are some notes included in that, too?

Yes. So most of the renewals are the rollouts we're talking to and discussions with. So they're very close to getting done in many cases.

Got it. Okay. And then maybe just on new leasing. I know you mentioned how Amazon was quite active in the industry in 4Q. Can you go through who in 4Q, and I guess so far in 1Q has been active like types of tenants in your portfolio? And do you think those are indicative of the industry or more FR specific? And any comment on like why the activity today versus like a year ago?

I'll start this, and Peter and Jojo can jump in. Look, generally, 3PLs have been very active. They've got the biggest market share, about 36%. Retail has been active. Manufacturing has been active. Food and bev has been active. And I don't think there's any significant difference other than manufacturing. We don't have a lot of that, but there's not a huge difference between what's going on in the broader market and our own lease up. Peter, do you have anything else?

Yes. The other groups I'd add, Caitlin, are auto-related energy building materials and products. It continues to be a pretty broad-based group of prospects, as we've talked about on prior calls. And that, I would say, is in line with what we're seeing in the market and across our portfolio.

That's pretty extensive. We're already the only -- there are some if you compare '24 -- '25 to '24, there's been a slight increase on data center-related either infrastructure or construction-related uses.

[Operator Instructions] Our next question comes from Vince Tibone with Green Street Advisors.

You mentioned the flight to quality, which is a common theme we've heard from others. So I want to ask a basic question, just like what traits make a building and a building and kind of what factors have changed versus maybe the recent past? And particularly, could you just talk about minimum power load requirements from tenants and how that's changed. I've heard that's come up a lot more in new leasing conversations.

Vince, it's Peter. So clear height, trailer parking, column spacing, car parking, building depths and geometry circulation. All of those are important. I would say to your comment about power pretty much every large user that we're seeing today wants more power. We design and fit out our new buildings with pretty much the maximum we can supply. Some tenants are requiring more than that, which takes additional time and investment from them to achieve that. But I wouldn't say there's anything materially different today than the last several years and what we've been building and delivering.

Yes, that's helpful. Is there any like rules of thumb you're able to share around like what would be, in your mind, a strong power load versus one that's maybe a little subpar for a new tenant and a bulk building, whether it's like megawatts per square foot or just mega -- I'm like -- is there any kind of just helpful metrics you could share on what is -- what would be adequate power for a new bulk building?

Yes. Generally, we're putting in, depending upon size between 3,000 and 5,000 apps.

Okay. No, that's helpful. And so I would just to confirm, that would be -- most tenants would find that attractive or they wouldn't need more than that in most cases.

Most tenants overstate their needs, and there's ample power, right? So some certainly have additional needs, but for the vast majority, it's fine.

SP1 No, that's really helpful. And then just one more quick one on kind of guide and near-term expectations. Just want to see if there's any large known move-outs in '26, we should be aware of, or do you want to point out? And just also broadly how you're thinking about retention rates this upcoming year? Like it's been pretty steady. So do you think 70%, 75% still reasonable, or any reasons it could go higher or lower over the next few quarters here?

Yes, I'd say that it's reasonable, it would be 70% plus or behind us. And then I can also keep in mind that we only have '24 rollovers remaining that are greater than 200,000 square feet. So again, we feel pretty good about where our retention is going to into this year.

And the next question comes from Tayo Okusanya with Deutsche Bank.

Just wanted to get your thoughts around tariff policy and this kind of upcoming decision by the Supreme Court, how you think through all those different scenarios, what could happen then if the Supreme Court does strike down current tariff policy, does the administration come back with alternatives? Does that create more kind of headline risk or uncertainty going forward? And how do you kind of think just through all the scenarios, and how it could potentially impact tenant demand?

Yes, sure. We'll take a shot at this. So a year ago, when we had this call, we were feeling pretty good about 2025. And then April 2 came and it significantly slowed down the interest in investing in new growth on the part of our the prospects and tenancy in our sector. They have had the whole year to think through, digest, remodel, replan and resource and now that topic is far less acute than it was. So I don't know is the answer to your question of whether you're going to see a a big reaction to the positive if the Supreme Court knocks them down. I would expect the reaction to be muted. I think many, many prospects have moved on. And I think we're kind of over that hump. Now it doesn't mean as an issue that it's gone, but I think we've gotten over the hard part.

The next question comes from Mike Mueller with JPMorgan.

In terms of potential dispositions that you've been thinking about, where are you seeing the best economics to you? Is it higher and better use land sales basically or user sales? I'm assuming it's not just traditional industrial sales with lower growth prospects.

Yes. So certainly, the higher and better use I mean it's potential data center use, that's not a secret. The value pickups can be significant, making them -- those are things we're going to pursue absolutely if we have the opportunity. With respect to everyday sales, industrial sales, certainly, users and users bought our '24 buildings in the third quarter. For example, users and 1031 buyers are always going to pay a little bit more. They have lots of reasons to do so. So those are the target markets. And it doesn't mean that there won't be opportunities with institutional capital as well. So that's the landscape.

And the next question comes from Rich Anderson with Cantor Fitzgerald.

So just a finer point on the Inland Empire land, you can create a small company out of all the billable square feet you have there. What is your kind of thought process about holding on to most of that or selling some of it I mean it could become an incredible asset if we get some real sort of stabilization in Southern California in general. So should we expect that to be remain a very large chunk of your land bank? Or is it possible that you would take the bade and sell some of that land for whatever use? What is your mindset as it relates to your longer-term view of the market?

You've covered the water front appropriately with your question. Right -- yes, we think it's very valuable. Our land holdings. There are very valuable. The -- it doesn't get easier to get entitlements there. It only gets more difficult. It's 1 of the topics that kind of gets forgotten as everyone is focused on development leasing and rent growth and other things. But it's still getting more and more difficult to build in SoCal. It takes from start to finish meaning first discussions to buy a site to putting it down in the building 5 to 7 years. So we think that market is going to come back. Again, on a trend line come back, not hockey stick and that land is going to be very valuable. Having said all of this, we're absolutely open to being opportunistic and taking advantage of opportunities to sell land there. There are some holdings that we might decide to take out anyway, and we're still evaluating that. But again, we're looking to maximize the value there and balance the future opportunity with the present opportunity.

The next question comes from Brendan Lynch with Barclays.

One on the power that's available in your building. It sounds like there is some element of stranded power in each asset. Is there an opportunity to either reposition that power elsewhere, or somehow generated rental revenue out of that for EDGE data centers as we saw with one of your peers recently. Any color around that would be helpful.

It's Peter. I wouldn't say there's a lot of stranded power. And certainly, some companies want to have the flexibility as they increase their operations or add technology or for newer material handling equipment or air condition in the building. So it's important to have flexibility. Some jurisdictions, we're now seeing where the tenants aren't using all of the power, the power companies may claw it back just given the power constraints generally and some of the power grids. So it's something we pay close attention to and make sure we have the right power to accommodate our tenants.

Great. That's helpful. And then maybe a question for Jojo. To follow up on your comments about concessions being very low on renewals and kind of more aggressive on new leasing. I'd imagine that's typically the scenario, but it seems like it's maybe more of an extreme now. So any commentary on what's driving that dynamic now versus in the past?

I wouldn't say it's extreme, but one thing we always should not forget is that when a tenant is in the space, they've got a tenant investment. And when they relocate, there's a lot of moving costs depending upon the tenant investment. So right there and there, that could be a deterrent from the moving Second of all, unless they significantly need more space or they need to consolidate, they tend not to move again because of moving costs and business disruption. So then when you adjust the post that with the amount of work that needs to happen, there's a high rate of renewal. That's why in the industrial real estate business, even if you look back over the past 30 years, renewal rates have been 65% to 75%. And that is one of the more stable things in the industrial real estate business. So I wouldn't say right now, it's an extreme. It's really what's going on. Now the only other thing is that why is renewal a little bit earlier now than in the past 5 years. The reason for that is that tenants have a -- because of what's going on, probably have a longer view, and they don't want to be -- they want to commit earlier so they can set their run rates more kind of take care of your future more because of maybe potential thoughts of uncertainties.

[Operator Instructions] Our next question comes from Vikram Malhotra with Mizuho.

Just I guess two clarifications. So first of all, just on the these are assumptions for developments and kind of how that's translating to occupancy. Do you mind just walking through any other impacts that are driving the occupancy sort of a modest bump up. And just to be clear, if you were to leave that those up in the back half, that should be upside to occupancy, correct?

Vikram, it's Scott. What we've assumed again is 1.7 million square feet of development leasing in the 708,000 square footer. Again, that's back half of the year. So if we hit that, you're going to be at your midpoint occupancy rate that we put out last night. I hope that answers your question, but if you have something else, please let me know.

Is there anything else that's positively or impacting occupancy kind of in the first half as we go into the second half?

Well, I would say occupancy is going to increase more in the back end of the year due to this leasing assumption that we have. And as far as any other leases, Jojo talked about, one of the renewals he's working on in Southern California, and I think Chris mentioned there was only other -- one other renewal that -- or exploration that's above 200,000 square feet. So everything else is pretty light-sized I would say.

Okay. And then just maybe on that PA space and tying it back to like any of the large 3PLs or retailers. We've also heard in addition to Amazon, Walmart, kind of very active in the market looking for space. And I'm just wondering the PA space, do you still think you need to like make the multi-tenant space? Do you think it's most likely a single tenant space for now?

Vikram, it's Peter. The 708,000 square foot building in Central Pennsylvania is more likely a single tenant, but designed and available to be split for two tenants. And we've been in discussions with prospects for either one of those scenarios. Pennsylvania continues to see, to your earlier point, good activity. There's over 8 million square feet of deals that were signed in the fourth quarter or late third -- fourth quarter of '25 that have not yet hit occupancy yet in '26. So they're not in the occupancy numbers or the net absorption. So as we've said a couple of times, vacancies are coming down. The construction pipeline continues to be muted. Activity is good, particularly for the largest buildings, but we acknowledge we have work to do on this asset and look forward to keeping you updated on our progress there.

Okay. Great. And then just one more, if I can. Just some of your peers have talked about certain submarkets or markets seeing an ability to push rate after multiple years. And I'm just wondering, are there any markets across your portfolio where you're being able to push, say, rent 3-plus percent?

Sure. South Nashville, Texas, Dallas, Houston?

Central Pennsylvania.

Central PA.

This concludes our question-and-answer session. I would like to turn the conference back over to Peter Bacilli for any closing remarks.

Thank you, operator, and thanks to everyone for participating on our call today. If you have any follow-ups from our call, please reach out to Art, Scott or me. Have a great weekend.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and welcome to the First Industrial Realty Trust, Inc. Third Quarter 2025 Results Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Art Harmon, Senior Vice President, Investor Relations and Marketing. Please go ahead.

Thank you, Dave. Hello, everybody, and welcome to our call. Before we discuss our third quarter 2025 results and our updated guidance for the year, please note that our call may include forward-looking statements as defined by federal securities laws. These statements are based on management's expectations, plans and estimates of our prospects. Today's statements may be time sensitive and accurate only as of today's date, October 16, 2025. We assume no obligation to update our statements or the other information we provide. Actual results may differ materially from our forward-looking statements, and factors which could cause this are described in our 10-K and other SEC filings.

You can find a reconciliation of non-GAAP financial measures discussed in today's call on our supplemental report and our earnings release. The supplemental, our earnings release and our SEC filings are available at firstindustrial.com under the Investors tab.

Our call will begin with remarks by Peter Baccile, our President and Chief Executive Officer; and Scott Musil, our Chief Financial Officer, after which we'll open it up for your questions. Also with us today are Jojo Yap, Chief Investment Officer; Peter Schultz, Executive Vice President; Chris Schneider, Executive Vice President of Operations; and Bob Walter, Executive Vice President of Capital Markets and Asset Management.

Now let me hand the call over to Peter.

Thank you, Art, and thank you all for joining us today. Our team delivered another solid quarter, highlighted by several development lease signings in the third quarter and fourth quarter to date including a key win in the Inland Empire that contributed to our FFO guidance increase. Scott will provide additional details during his remarks.

We also captured strong cash rental rate growth from leasing activity. The renewal side of our business is exceptionally healthy, and we have now largely taken care of our rollovers for 2025. Moreover, our pace for 2026 is consistent with prior years, and we're producing good early results.

Moving on to the leasing market. Touring activity related to new leasing picked up in the third quarter. Notwithstanding our development leasing successes, tenant decision-making on the whole remains deliberate as the uncertainty around tariffs continues to weigh on some prospects.

The fundamental picture is improving. Based on CoStar data, vacancy in Tier 1 U.S. markets was 6.3% at the end of the third quarter, which was flat compared to 2Q. We view this as a potential sign that fundamentals nationally are stabilizing.

In our 15 target markets, net absorption in the third quarter was 11 million square feet, bringing the total for the first 3 quarters of the year to $22 million. With demand showing signs of strengthening, total leasing nationally is expected to approach near record levels this year. CBRE is projecting 900 million square feet of total leasing in 2025, which would be the second largest year on record, second only to 2021.

New starts within our 15 target markets remain measured at 41 million square feet, with completions of 37 million. Space under construction now totals 212 million square feet, and that pipeline is 47% pre-leased.

Moving now to our portfolio. Results were in line with our expectations, with in-service occupancy of 94% at quarter end. Regarding our 2025 rollovers, we've now taken care of 95% by square footage, and our overall cash rental rate increase for new and renewal leasing is 32%. If you exclude the large fixed rate renewal in Central Pennsylvania, we previously discussed, the cash rental rate increase is 37% and the straight-line increase is 59%. As I mentioned, we're making good headway on our 2026 rollovers. Through yesterday, we've taken care of approximately 31% of our rollovers at a cash rental rate change of 31%. We'll provide our full year 2026 cash rental rate increase guidance on our fourth quarter earnings call, but we're off to a good start.

Moving now to development leasing. As announced on our last call, we leased the remaining 501,000 square feet of the 968,000 square foot building in our Camelback 303 joint venture. The 3-building 1.8-million-square-foot project comprised of this building and the 2 we acquired from the venture earlier this year is now 100% leased. We also leased 56,000 square feet at our First Park Miami Building 3.

In the Inland Empire, we leased our industrial outdoor storage asset in Fontana, and in the fourth quarter to date, we leased 100% of our 159,000 square foot first Harley Nox Logistics Center. We also signed another lease at First Park Miami for 57,000 square feet at Building 12. In sum, we're excited about the future cash flow growth opportunities ahead. And with that, I'll hand it over to Scott.

Thanks, Peter. Let me recap our results for the quarter. NAREIT from operations were $0.76 per fully diluted share compared to $0.68 per share in 3Q 2024. Third quarter 2025 FFO was positively impacted by $0.01 per share related to an insurance claim recovery. Our cash same-store NOI growth for the quarter, excluding termination fees, was 6.1%, primarily driven by increases in rental rates on new and renewal leasing, contractual rent bumps and the aforementioned insurance claim recovery, partially offset by lower average occupancy and higher free rent. Excluding the insurance recovery, cash same-store NOI growth was 5.4%. Please also note that third quarter 2024 same-store NOI excludes $4.5 million of income related to the accelerated recognition of a tenant improvement reimbursement associated with the tenant in Central Pennsylvania.

We finished the quarter with in-service occupancy of 94%, down 20 basis points from the second quarter.

Summarizing our balance sheet leasing activity during the quarter, approximately 2.2 million square feet of leases commenced. Of these, approximately 400,000 were new, 900,000 were renewals and 800,000 were for developments and acquisitions with lease-up.

Before I review our overall guidance, let me quickly update you on our bad debt expense and our credit watch list. Bad debt expense was $245,000 for the quarter, bringing our year-to-date total to approximately $750,000, which is right on top of our original guidance. Our forecast for the fourth quarter remains $250,000.

Two additional credit-related points: one, Debenhams Group, formerly boohoo, remains current; and two, we have added 1 3PL tenant to our watch list for which we are collecting rent directly from the subtenant other property. We are currently working through the collection process related to the lease obligation, and due to confidentiality, we will not discuss further details of this matter.

Now moving on to our guidance. We increased our 2025 NAREIT FFO midpoint by $0.04 to $2.96 per share. The $0.04 per share increase is primarily due to the development leasing successes, lower interest expense and the aforementioned insurance claim recovery. The Titan range is now $2.94 to $2.98 per share. Our key assumptions are as follows: end of fourth quarter in-service occupancy of 94% to 96%. This implies an average quarter end in-service occupancy for the year of 94.4% to 94.9%. Our midpoint assumes we will lease an additional 300,000 square feet of our in-service developments at December 31. This lease-up assumption has no impact on our midpoint FFO guidance given the December 31 date.

Fourth quarter cash same-store NOI growth before termination fees of 3% to 5%. This implies a 2025 quarterly average same-store NOI growth of 7% to 7.5%, a 75-basis-point increase at the midpoint. As a reminder, our same-store guidance excludes the impact of the aforementioned accelerated recognition of a tenant improvement reimbursement in 2024. Guidance includes the anticipated 2025 costs related to our completed and under construction developments at September 30.

For the full year 2025, we expect to capitalize about $0.09 per share of interest. And our G&A expense guidance range is $40.5 million to $41.5 million.

Now let me turn it back over to Peter.

Thanks, Scott. We're energized about our recent development leasing wins and encouraged by the overall increase in foot traffic for our availabilities. We expect that as the topic of tariffs moves out of the global headlines, we will see prospective tenant requirements commit to making investments in additional space to accommodate future growth. Every day, our teams are working hard to convert prospects into tenants that drive cash flow growth and value for shareholders.

Operator, with that, we're ready to open it up for questions.

[Operator Instructions] Our first question comes from Rob Stevenson with Janney.

Scott, with 75 days left in the quarter, what's the delta between the $0.04 FFO range? How do you get to the low end? How do you get to the high end? What's the key thing that can move on you?

Well, I would say if you look at development leasing, we have 300,000 square feet of in-service development, and that's scheduled to lease up, Rob, on December 31. So that has no impact on the midpoint guidance. I would say the only other thing that we could think of are unanticipated credit challenges that could cause us to hit on the low end. And I would say on the upside, leasing more than 300,000 square feet of our in-service development portfolio would push us up to the top.

Okay. That's helpful. And then can you guys talk a little bit about the transaction market today, both in terms of the market for buying assets as well as selling assets? How much product you're seeing on the marketplace and what pricing looks like and how deep that buyer and seller pools are today?

[indiscernible] you want to take that?

Yes. Yes. Rob, it's Jojo. In terms of the market for leased assets, it is very, very competitive market. The capital in the market wants to get invested and it's a little bit of a risk off. So if you have a leased asset, there's a lot of capital from every kind of buyer looking at it. The market for -- in terms of -- just staying on that. In terms of valuation, I would say, a product like we have leased that market would be in the low to mid-5s. And depending upon market, it would be sub -- if you have markets like Nashville, Dallas and South Florida, where it's a kind of market rent growth is outpacing all markets, the cap rates could fall below [ 5 ].

In terms of vacant property and land, it is a little bit less robust. And the reason is that's a riskier for a lot of investors to go in. But there are some markets where inland is continue to be very competitive, and they basically get sold and compute to probably a sub-6 equaled and sub-7 IRRs. And those markets, again, include the markets I just mentioned because rent growth is expected to be higher like a Nashville and Dallas and South Florida. Does that give you a sense?

Yes. And any -- I guess, any difference that you're seeing pricing-wise either on the buy or sell side in terms of size for 100,000-plus assets versus 250, 500, et cetera, the bigger assets?

No, no material difference, Rob.

And the next question comes from Nick Thillman with Baird.

Maybe I wanted to touch a little bit on 2026. Good progress there. Spreads are pretty stable year-on-year. But as we look at kind of 26 expirations, is there anything we should -- that's worth calling out, whether it be size of tenants or like fixed rate renewals that could really swing the numbers?

Chris?

I can take that. Yes. All right. If we look at 2026, like I said, we're in pretty good shape. We've already renewed 31%. Our largest remaining rollover today is a 550,000 square foot exploration in Southern California. That rolls in the third quarter of 2026. And right now, we're in discussions with them about a renewal.

That's helpful. And then maybe, Peter Baccile, when you're talking to Peter Schultz or Jojo, like what markets or who do you like hearing from more right now? Like, I guess, who has been a little bit more active here in the last 90 days?

I love hearing from both of them. I mean as far as market performance, South Florida and Nashville, Houston, Dallas, actually, the Greater Philly area, continue to be, I'll say, outperformers nationally. Atlanta is doing pretty well also. That doesn't mean I don't love to hear from Jojo about what's going on in Phoenix and SoCal and in particular, I [indiscernible] Jojo quite a bit about what's going on in SoCal. So we're encouraged by the new lease for Harley Knox, 159,000. We do have good foot traffic around our other availabilities. And not everyone is that tariff sensitive, and so we're getting to see -- beginning to see some of those players begin to act.

And the next question comes from Todd Thomas with KeyBanc Capital Markets.

First, I wanted to ask if you could discuss the company's appetite for future developments, how you're thinking about new starts today? And can you talk about the mix between spec and build-to-suits as you think about adding more product to the pipeline and what the yield expectations between the 2 are like today?

Sure. We don't give guidance on volumes, but I don't mind talking about directionally what we're thinking about in terms of development. As I mentioned a second ago, we do continue to like the markets of South Florida and greater Philly, Dallas, Houston, Nashville, where we have land in those markets, we will be considering starts in 2026, where we don't have land like Nashville in those markets, we're working very hard to change that. But we have some great sites today available in some of those markets that are entitled and ready to go. So we'll be thinking about that.

In terms of yields on a portfolio basis, our available opportunities are going to yield close to 7%. Some will be higher than that, with IRRs [ 9 ] or north of [ 9 ]. Is that -- was that -- you asked about returns didn't you?

Yes, between sort of spec and build-to-suit...

Build-to-suits, they're going to be a little bit less than that, where we try to get 100 to 125 basis point spread on spec development relative to market cap rates, you're probably looking at more like 50 to 60 basis point spreads for build-to-suits. And in terms of mix, as you know, most of our development volumes over the years has been spec. I don't think that, that mix is going to change much for us going forward.

Okay. That's helpful. And then I just wanted to follow up, I guess, on SoCal. Can you elaborate a little bit on current market conditions there and maybe discuss rent trends and sort of what the latest is in terms of concessions and free rent in the market?

Jojo?

Sure. Thanks Well, a couple of things. Top level on the demand side, if you look at Q-to-Q, gross and net absorption was higher from 3Q, 2Q. So and that's -- and that was also a result of increased traffic, there's more increase tours in RFPs. As Peter noted, in terms of the market, there are tenants just like the recent lease that we did where the tenant had to make a decision quickly because they need it, and they're not kind of tariff related. But the tenant base for committing and signing leases were about flat Q-o-Q.

On the supply side, that's where we're continuing to be having good supply metrics. Under construction was basically flat, and starts were actually much lower Q-to-Q again. So just top level, all in all, the fundamentals are pointing to the bottoming out of the market. And on overlay with that, you have improving supply metrics and signs of increasing demand. So overall, we see rents -- Q-to-Q rents were about flat, vacancy was about flat, again, reflective of bottoming out of the market. In terms of going forward, we think it's going to be flattish still because the whole -- the SoCal market still has space to digest, but it's really -- we feel like it stabilized.

The next question comes from Craig Mailman with Citi.

Just thinking about '26, you guys still have Aurora and your asset in New York to backfill. Can you talk through the kind of the competitive landscape in each of those markets, and what the prospects you guys have to kind of address those vacancies?

Peter?

Sure. Craig, it's Peter. Starting in Denver. We're 1 of 2 buildings in that size. The supply picture in Denver has improved. We continue to see and work with prospects for all or portions of the building. As we've talked about on prior calls, the larger deals tend to move a little bit slower than the smaller midsized deals. But we continue to see good activity there. And as I said, not a lot of options for full building users.

In Pennsylvania, for the 708 New York, there are 3 or 4 other buildings of similar size. Pennsylvania saw some positive absorption in the third quarter. More importantly, there's almost 9 million square feet of deals that are already signed in Pennsylvania that will be taking occupancy in the fourth quarter of this year and the first half of next year. So as Peter said in his remarks, activity is up. We're seeing more tours and interest. We are talking to a couple of prospects particularly on the 3PL side, for our building in New York. That size, I would say, has been good, but smaller and bigger has been better, but we're encouraged by the level of activity and the lease signings that we've seen to date that are going to occupy as I said in the fourth quarter and the first half of next year.

That's helpful color. And listen, I know it's not embedded in your '25 guidance. But at this point, just given the dynamics of the market and the activity that you're seeing, how should we think realistically about kind of commencement timing potentially for those 2 assets over the next 12 months?

No, I think we'll update you on that on our fourth quarter call. but we're encouraged by some of what we're seeing at this point.

Okay. And then slipping 1 more in. Scott, on the 3PL that just got to add to the watch list, I know you can't give too many details, but is that subtenant kind of talking to you about potentially going direct if the primary tenant does default? Like what's the -- can you give anything on the magnitude of the rent there or what market is it just anything incremental?

We're not going to get into the magnitude of the rent, Craig, but there are some potential conversations or conversations we're having with the subtenant to take over. So yes.

The next question comes from Nicholas Yulico with Scotiabank.

This is Viktor Fediv on for Nicolas Yulico. So just a quick question on your development leasing assumptions. So on the previous call, you mentioned 1.5 million square feet by the end of this quarter. obviously got pushed to be just trying to understand whether it's end of first quarter or kind of second quarter of 2026, do you have a perspective on that?

We're -- Peter talked about 2 of the leases that we're talking about. But we're not going to -- we're having our budget process coming up in December, fourth quarter and in our fourth quarter call, which is in early February, we'll give you a better idea of what our thoughts are on lease-up on that remaining...

Got it. And then a quick follow-up on market rents. Just trying to understand from boots on the ground, what you're seeing in terms of best-performing market and worst performing markets in your portfolio in terms of market rent?

Yes. To start with just kind of say our leading markets in 2025, highlight 4 of the markets, Atlanta, we had cash on rate increases of 13%, Baltimore, Washington was up 86%, South Florida was up 62%. And then finally, Dallas and Fort Worth has been a strong market for us. They're up 61% in 2025. And that's going to the [indiscernible] on the leading markets. And Peter and Jojo can comment a little bit more on what they see.

You want to talk about market rent growth?

In terms of market rent growth, I mean, in terms of the West part of the market. I think Dallas is -- would be the strongest market, and then we expect SoCal to be flattish. And the Phoenix has been a slight increase, a lot of supply, but outperforming in terms of gross and net absorption. Peter?

I would say the other markets around the country are flat-ish to slightly up, and it's really a submarket by submarket call.

And the next question comes from Blaine Heck with Wells Fargo.

Not to pile on, but can you just clarify and walk us through the ins and outs related to the 1.5 million square feet of development leasing discussed last quarter? Just wondering some of the specific adjustments that might have been made to that lease-up time frame, and whether any of the development leasing that you guys did this quarter was part of that 1.5 million square feet, or was that expectation reduced by the full 1.2 million square feet?

So here's the math that we talked about on the second quarter call. We had the 1.5 million square feet of projected in-service development leasing, and that was going to happen on December 31. We had a 708,000 square foot in central PA that Peter talked about. So that's the 2.2 million square feet that we referenced on the second quarter call. We signed 200,000 square feet of leases in the in-service development pool, 1 in Miami, 1 in Southern California. That leaves us with 2 million square feet remaining. We are -- in our forecast, our guidance forecast, we have 300,000 square feet, and that's a macro assumption of in-service development. It could be a multitude of different options assumed. So that leaves us 1.7 million square feet, and that's now slated to lease-up in 2026. And as we've said, we're going to go through our budget process here in the next couple of months. And when we have our fourth quarter call in early February, we'll give you an idea of when we think lease-up will occur.

Okay. Great. That's really helpful. Second question, Asian 3PLs have been a significant part of the leasing activity we've seen over the last year or so. Can you give us any color on how demand from that group has trended more recently? How much additional demand is behind that group over the longer term? And maybe also how you're thinking about credit for those tenants?

Yes. They've definitely been very active following up on a lot of the, I'll say, pull forward of imports trying to get ahead of the tariffs. We kind of look at that as a bit of a short-term thing, and, from a credit standpoint, would prefer not to be in discussion a year or 2 or 3 from now about trying to get rent that we couldn't collect. So we have generally stayed away from that demand. It has been pretty strong, though, and been a pretty significant percentage of the space that's been leased.

And the next question comes from Vikram Malhotra with Mizuho.

Maybe just I'm wondering if you can maybe give us a little bit more color on some of the large lease-ups in particular, like the Fed removal space, some of the other large lease-ups, not just timing, but what sort of demand are you seeing relative to kind of what you typically see in the submarket? Anything unique you may be seeing, any need to subdivide or, I guess, redevelop those assets? If you can watch some of the bigger pieces you're trying to lease up? And what sort of demand and what the strategy is behind those?

Vikram, it's Peter Schultz. I answered that question a couple of questions ago. But I will say that both of the buildings are designed to be multi-tenanted. That's something we always incorporate in our new developments, so certainly, flexible. Activity is good. As we've commented on a couple of times, the larger deals tend to move a little slower and more deliberately, but we're encouraged by the activity we're seeing today.

Okay. Great. And then maybe just a follow on to the, I guess, the '26 in sort of -- you mentioned good progress on exploration. I'm just wondering if you have some high-level math. You've done a lot of leasing this year, which will flow into next. For whatever reason, if you were to do all the additional leasing that you pushed out into next year, if that were to occur at -- right at the end of next year, is there like a rough impact to earnings next year you would have?

I mean, the later in the year that we complete that leasing, the less impacted it has on 2026 results. And that timing, when we sit down and do our budgets, we're going to talk about where we are in discussions on these assets, and that will inform our decisions around when in the -- during the year that we think we can get those leases signed. So that's work that we have yet to do. And you'll hear a lot more from us on that subject in February.

Okay. No, I guess what I was just saying is it seems like you have a lot of the growth baked in for next year through the leasing you've done, through the expirations. Obviously, the renewal activity has been good. So it just -- to me, it felt like there's less risk, whether you do it at the beginning of the year or the end of the year, a lot of the growth that I guess the Street anticipating seems to be locked in. I don't know if you agree or disagree with that.

Yes. I mean when you look at what we're trending right now on cash rent growth, the 31% on -- call it, 31% of the rollovers, that's obviously a very strong number and helps 2026 considerably. Also for next year, our portfolio-wide bumps on average are going to be 3.45%. So that obviously contributes to on the proportion of the portfolio that doesn't roll. So yes, we're in a pretty good position.

The next question comes from Rich Anderson with Cantor Fitzgerald.

So just reading your sort of tone on this call...

rich, I am a hard time hearing you.

How about now?

Better.

Okay. Just listening to your body language on the call and just sort of the level of confidence that you're you're expressing doesn't necessarily jump off the screen as much as it did for PLD yesterday, but sort of mentioning deliberate tenants and all that sort of stuff, but good tone nonetheless. But how would you describe the interplay between tenants? I mean, to what degree are they sort of watching 1 another and someone takes the leap and the others are following. Do you think that that's sort of a perhaps an oversimplification, but how the market may ultimately recover, there would be more of a herd event of some sort? Or do you think it will be more like a slow and steady recovery type of process?

Yes. There's definitely linkages from a competitive standpoint between certain businesses and certain sectors, and you do see that when a bigger player moves quickly and moved significantly, it does tend to act as a catalyst for others to get off the sidelines. We saw that certainly in -- during COVID with Amazon getting way ahead of its competitors. And pretty much if you sell anything today, you're competing with Amazon. So what they do definitely has a play through to the rest of the business. But that's kind of a higher-level observation to get too focused on details on that is probably not constructive. But yes, there is a little bit of a follow you, follow me that happens. And the more leases that get signed -- if you're a tenant rep and your attitude towards your clients' needs goes from you can wait a couple of months to you better side now is the best deal you're ever going to get. And when the Chinese 3PLs lease up all the competitive space and all this left is, say, ours and maybe 1 other, people start to move a lot more quickly. So that dynamic hasn't happened, but it's certainly trending toward that.

Yes, I wonder if the pull forward of demand in the early COVID era, if that -- something like that could materialize and if perhaps you don't even want that, but it may be the the fact of the matter, nonetheless.

Yes, I wouldn't call it pull forward. I would call it, now, all of a sudden, there's a cost to waiting. And for the last 2 years, there's been no cost to waiting. And when there becomes a cost to wait, that's when people act, and that does not mean that we're over signing leases like we did during COVID. That's a completely different phenomenon.

Okay. Fair enough. Second, any -- you talked about taking advantage of the land positions in some of your better markets and considering development next year, what about monetizing some land elsewhere, the data center movement, AI, all that? Is that something that could be on the horizon for you guys as well just to some degree?

Yes. I mean we're looking at everything we know not just land, but even all the income-producing assets. We have to see, if, from an economic standpoint, and from a feasibility standpoint, it would make sense to convert those assets to a higher and better use. From a value standpoint, data centers are a higher and better use. So we're looking at that. There are a lot of hurdles and a lot of challenges involved in trying to lease something like that. But we're tearing into it, and we'll see if we can dig up any opportunities.

Great. Last for me. we've done some work on this sort of the ultimate recovery of industrial, and it seems to me that larger boxes may be the leaders in the inevitable recovery of the business, if it's not already recovered or are getting recovered. Do you agree with that, that perhaps the larger boxes are the -- will lead the pack? Or do you have sort of a different view based on the size category?

Certainly, that impacts the volume and capacity. And 1 of the reasons that volume has been down is that there haven't been that many 1-million-footers leased like there were in '21, '22 and '23. So from that standpoint, that impacts the capacity or the large numbers. But what we really need is as a group of tenant requirements that begin to sign consistently new development leases and invest in growth. And it's beginning to happen. Some of it is from tenants who aren't that tariff sensitive. Some of it is from tenants who kind of say they can't wait anymore. So there's definitely been some pent-up demand. And I would say this is the -- we're getting back to a feeling like we had for April 2. We're not there yet, but it's feeling like we're getting back to that time period.

Rich, it's Peter Schultz. The other thing I'd add to Peter's comments is we continue to see a flight to quality. So as you think about the quality and location of our assets and activity, certainly, we're seeing activity 1 million and more, but we're also seeing strength and breadth of activity across a variety of sizes. So I wouldn't say it's in 1 size. But we focus, as you know, on on delivering new product in unmet pockets of size in our target market. So we feel pretty good about the broad range of square footage requirements.

And I just want to emphasize that movement to quality favors us because we've built now so much of what we own and that's another reason that we're -- our foot traffic is way up.

And the next question comes from Caitlin Burrows with Goldman Sachs.

I was wondering if you guys could go through today how you're balancing the rate versus occupancy equation. How does it vary maybe by first-generation development properties versus the existing portfolio and then renewals?

Sure. I mean the whole thing is all about NPV. We're constantly trying to maximize the NPV with respect to those inputs base rate is most important and near and dear to our hearts. Giving up another month or 2 of free rents, not the end of the world, although we'd rather not. And on the TI front, it's typically been standard TI packages. Do you guys want to add some color on what you're seeing in your markets?

So Caitlin, the other thing I'd point to is, as we talked about in the script, our renewals in '26 are really strong to date, and you're seeing good pricing pressure there. So it's -- I think you've asked us about this before. It's not really about price. It's about the demand and the right product in the right place. And we clearly see an improvement in traffic, particularly among those tenants who are not tenant -- I'm sorry, not tariff centric as we've commented about a couple of times today. Certainly, there are assets where we have work to do and some of those may be in more competitive pockets like JoJo's talked about, and we're going to meet the market and do what we need to do to lease the space.

Got it. Yes, I guess I was wondering if like the willingness for you guys to wait that extra month to get the better rate has changed, but it sounds like it probably hasn't, so got it. And then on the point you made on the progress you guys have made on '26. I would have generally thought that spreads would decline over time as comps get tougher, but you have essentially maintained the 31% to 32% spread in '26 from 2025. So I was just wondering if you could give more detail on how that was possible, what the drivers were, if it could continue? Is it just like lease specific? Or is there something else going on to kind of sustain the same level of spreads?

We have said over time that we thought that, that math had some running room, some duration. And when we look at the mix of our leases and when they were signed -- don't forget, if you signed a lease in 2019 for 7 years, you signed it a very, very cheap rate relative to even today coming off the highs. And that is going to be driving that cash rental rate number for some time.

The next question comes from Vince Tibone with Green Street.

The stock has been trading at a significant discount to NAV for several quarters now. Have you given consideration to selling assets and buying back shares as a way to create shareholder value?

Vince, we have looked at that. Selling assets and buying stock has not turned out to be, from a mathematical standpoint, that accretive. And we've also looked at borrowing and buying back stock, and that doesn't look very accretive. And given that we're in a capital-intensive business in a very volatile market as this has been, in March, I think we're at $58 sector was trading a lot better. It's now obviously coming up from the lows. But speculating in our stock is probably not what investors invest in us to do.

So what I have said in the past is if we had some opportunity, for example, to convert some of our properties to data centers and create significant additional value beyond industrial value that, that could be capital that could be used to buy back some stock. But in the absence of that, the math doesn't really move much, Vince.

And then switching gears, I was hoping to drill down a little bit on the supply landscape in your markets. Are there any markets where you're starting to see pickup in development starts activity? Or is it still pretty quiet out there across the board?

Peter and Jojo, you want to talk about starts?

Sure. No, there's really -- we don't see pickup. In fact, starts are on a decline. So there is some -- if there's a pickup, there will be a little bit on the build-activity, but by and large, we don't see significant pickup. In fact, there's a decline in starts.

In Pennsylvania, I would say there's anticipated to be a couple of starts per million square foot plus buildings in the next couple of quarters. But other than that, pretty flattish.

We don't know what everybody's math looks like. Obviously, most of the space, Vince, is developed by the private players with private capital. But a lot of that land we've competed for over the years, and we think that it's very possible that the underwriting assumptions that were used at that time were pretty aggressive, not to mention the cost of debt is a lot higher than it was in 2022 and '23. So it's possible those deals don't pencil that well. So we think there's a natural drag to new supply ramping up.

[Operator Instructions] Our next question comes from Michael Mueller with JPMorgan.

I guess, for Scott, can you connect the dots a little bit? I think you said earlier, part of the guidance increase was due to development leasing success. But it looks like you pushed off some of the, I guess, anticipated '25 leasing into 2026. And I know it sounds like that component was the year-end anyway, so it may not be a lot of impact there. But again, what was the portion of development leasing success that is pushing the numbers higher?

I would say, Mike, it's about $0.01. And keep in mind, all development and leasing. This is what we assumed in our second quarter call was assumed to happen on 12/31. So all of the leasing that we announced on the call helped us by about $0.01 a share.

Okay. So it's this stuff just earlier than what was expected. That was it. Got it?

Yes. Yes. Again, from an FFO guidance point of view, we assume at least up on December 31 and at least up other than that.

Okay. So that was about $0.01 of it. Okay. And then just as it relates to escalators, 3.45% or something in place bumps for next year. On the 2026 signings thus far, have there been any notable changes one way or the other in terms of lease escalators compared to what you're getting in '25?

It's interesting. We got 3.6% in '24, 3.6% in '25, including the big fixed rate renewal and so far in '26, about 3.6%. So our team is doing a really good job dealing with significant pushback, as you can imagine, since that's a number that's above inflation. So they've been successful in keeping that number about 3.6%.

The next question comes from Michael Carroll with RBC Capital Markets.

I guess, Scott, I know that the guidance range doesn't include leasing within the recently completed or in-process development projects. But I know that you guys continue to highlight some of your best markets and a lot of these buildings are in those markets. So can you talk a little bit about the activity that's happening at those specific properties? And what are the near-term leasing prospects of getting those leased up?

Yes. I mean the stuff that's under construction, there's not really much activity around that. Our business has always been a build it first and then they will come. And that was a little bit different during COVID when, I'll call it, we had the gold rush to go lease up in logistics space. But -- so it's a little premature to try to talk about activity around the current construction pipeline. The assets that have been recently completed, there's really good foot traffic around those. And Again, we hope to have leases on some of the buildings sooner rather than later.

Okay. Great. And then just lastly, can we talk a little bit about the 3PL tenant? I know that there's not much that you want to say, but is the issue with the subtenant, or is the issue with the direct tenant at that specific site?

The issues with the direct tenant, the 3PL.

Okay. So then assuming that there is an opportunity for the subtenant to take that space, and you're just kind of working through the process on that?

Yes, that's something that we're thinking about and having conversations about. We can't give you a definitive view of what's going to happen at this point in time, but that's something we're working on.

The next question comes from Jon Peterson with Jefferies.

Great I guess in the Saga, the 10-year treasury throughout this year, it definitely seems to be trending downward at least today, let's say, and spreads have been tightening a bit. I'm just curious what impact that's been having on cap rates for warehouses across your market and how you've seen those trends?

You guys want to cover that?

No material change from Q2 to Q3. I would just say that the demand for -- like I've said earlier, demand from leased assets and quality buildings have increased from Q2 to Q3.

The next question comes from Brendan Lynch with Barclays.

You mentioned that there are some tenants out there that are still quite sensitive to tariffs. Can you describe their thought process? Is it they're just out of the market while tariffs are in place, or they're just waiting for tariffs to kind of settle into a final rate or any other considerations that might be keeping them on the sidelines, but might be able to move them off in the future?

There are 2 things. One is the cost to them. Without knowing the cost, they don't know what the impact on their margins might be? And then secondly, to protect those margins, can they put some or all of that additional cost through to the end buyer, the consumer. And so they're looking perhaps at investing in growth in, say, a 500,000 square foot building. That's a $60 million investment when you consider the lease and the equipment and the racking and the material, the product and then hiring all the people. And if your EBITDA multiple is 8x, that's almost $0.5 billion decision. And so they don't want to make that decision unless they know what the cost of their inputs is and what's going to be the outcome for their margins. And that's really it. And I think over time, the subject is becoming I'll say more commonplace, but digested a little bit like interest rates. When interest rates started to move much higher, that caused people to pause for a while, and now pretty much everyone is built into their business plans, their models, their P&Ls, higher interest rates, and they are now moving ahead, and it's kind of not an issue anymore. So that's where we need to get with the tariff subject.

But, Brendan, I would add that we're seeing some of those companies are actively looking RFPs and discussions, but they're not making decisions and continuing to push off their target occupancy dates for all the reasons Peter just said. That's what's happening on the ground.

Okay. Great. That's helpful. And a related question. We've seen some weakening consumer data, jobs growth a little bit weaker. To what extent are prospective tenants factoring in this kind of change in the macro environment and just kind of waiting on the sidelines because of that as well?

I think it's different depending on the sector and the business that they're in. And notwithstanding all of the shocks and the projections of doom and gloom, the economy has done pretty well through it all. We haven't seen massive increases in inflation from the tariff subject so far and it doesn't mean it won't come. But right now, things -- I think most of the prospects are pretty confident in the base business, and it's really just this question about when and how and how much to invest in growth.

And I just want to add that the 3PL activity continues to be good. In fact, it's increased from Q to Q. Food and beverage, RFPs and tours have increased as well, so that sector seems to be doing good. Manufacturing activity is higher from Q-to-Q. We see some softness in the home related like furniture. There's some weakness in that. So by and large, overall, I think demand activity has increased offset by a slight decrease from other sectors.

Our final question comes from Caitlin Burrows with Goldman Sachs.

Maybe just a follow-up to that last point on like where stronger were weaker. I mean yesterday, Prologis reported, they had a record leasing volume in 3Q. And you mentioned that CBRE is forecasting '25 will be second only to 2021. And could you put your own leasing volume in 3Q into the context of your past? And if you have a view on the future of like how that should be trending, realizing that you might be more weighted to development, which makes it lumpier? But trying to figure out a trend there, if there is one.

It's hard to see a trend. I mean last year, we leased 4.7 million square feet. And this year, it's less. Some of that has to do with what we have available and what's rolling and what's renewing. And I'm not sure you can -- we don't have enough volume given the scale of our company to have -- to identify trends like that, Caitlin.

This concludes our question-and-answer session. I would like to turn the conference back over to Peter Baccile for any closing remarks.

Thank you, operator, and thanks to everyone for participating on the call today. If you have any follow-ups from our call, please reach out to Art, Scott or me, and have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and welcome to the First Industrial Realty Trust, Inc. Second Quarter 2025 Results Call. [Operator Instructions]. Please note this event is being recorded.

I would now like to turn the conference over to Art Harmon, Senior Vice President of Investor Relations and Marketing. Please go ahead.

Thank you, Michael. Hello, everybody, and welcome to our call. Before we discuss our second quarter 2025 results and our updated guidance for the year, please note that our call may include forward-looking statements as defined by federal securities laws. These statements are based on management's expectations, plans and estimates of our prospects.

Today's statements may be time sensitive and accurate only as of today's date, July 17, 2025. We assume no obligation to update our statements or the other information we provide. Actual results may differ materially from our forward-looking statements and factors which could cause this are described in our 10-K and other SEC filings. You can find a reconciliation of non-GAAP financial measures discussed in today's call in our supplemental report and our earnings release.

The supplemental report, earnings release and our SEC filings are available at firstindustrial.com under the Investors tab. Our call will begin with remarks by Peter Baccile, our President and Chief Executive Officer; and Scott Musil, our Chief Financial Officer, after which we'll open it up for your questions.

Also with us today are Jojo Yap, Chief Investment Officer; Peter Schultz, Executive Vice President; Chris Schneider, Executive Vice President of Operations; and Bob Walter, Executive Vice President of Capital Markets and Asset Management.

Now let me hand the call over to Pete.

Thank you, Art, and thank you all for joining us today. Our portfolio continues to perform well, producing strong cash rental rate growth with a solid pace of renewals. Tenant leasing activity estimates to support new growth continue to move at a deliberate pace. The uncertainty around tariffs, whether they will be applied where and when and to what degree continues to dampen momentum around decision-making.

That said, we have a couple of success stories to share in the form of new development leases that I will review shortly. As we said on prior calls, a positive for our business is with new starts at a 10-year low, even with modest net absorption, the available alternatives for new Class 8 space continue to diminish. This trend is reflected in the most recent metrics on the broad industrial market reported by CoStar. Vacancy in Tier 1 U.S. markets was 6.3% at the end of the second quarter and up 30 basis points compared to the prior quarter. On the demand side, according to CoStar net absorption year-to-date totaled 16 million square feet nationally and 5 million square feet in our target markets.

We should also point out that there is a wide variation in reported net absorption. Depending upon the source you use, year-to-date net absorption ranges from negative 4 million square feet to positive 63 million square feet. Nationally, new construction start volume was 62 million square feet in the second quarter versus $66 million in the first quarter of 2025 and and 72% lower than the peak of third quarter 2022. In our 15 target markets, new starts were 37 million square feet and completions were $38 million. Space under construction totals 204 million square feet, and that is 42% pre-leased.

From a portfolio standpoint, our in-service occupancy at quarter end was 94.2%, in line with our expectations reflecting the known 708,000 square foot move out in Central Pennsylvania and the impact of 2 developments placed in service, partially offset by some new leasing. We've now taken care of 88% of our 2025 rollovers by square footage. Our overall cash rental rate increase for new and renewal leasing is 33% and if you exclude the large fixed rate renewal in Central PA, we previously disclosed, the cash rental rate increase is 38%. This puts us on track to achieve our overall cash rental rate growth expectations of 30% to 40% and 35% to 45%, excluding the fixed rate renewal.

Moving now to development. We are pleased to report that after we issued our press release, we leased the remaining 501,000 square feet of the 968,000 square foot building in our Camelback 303 joint venture in Phoenix. That brings the entire 3-building 1.8 million square foot project to 100% lease. Per our press release, we also leased 58,000 square feet at our first loop project in Orlando.

As discussed on our last call, we're underway on 2 new starts in the quarter. The first is a 176,000 square foot facility at First Park 121 in Northwest Dallas. The second is a 226,000 square foot at our First Park Newcastle project in the Philadelphia market. The total estimated investment for both of these projects is $54 million with target cash yields of approximately 8% for each.

Both of these opportunities are located in infill locations with low submarket vacancies and target of 50,000 to 100,000 square foot tenant segment.

Turning to our capital markets activity. We reached 2 important milestones during the quarter. First, we were upgraded by Fitch to BBB+ in early May. That upgrade was timely and shortly thereafter, we launched our first public bond offering since 2007 in the form of $450 million of senior unsecured notes at a coupon rate of 5.25%. Demand from fixed income investors was strong, and we appreciate their support for the offering.

Let me conclude by saying thank you to my teammates around the country who are executing on our plan and taking care of our customers.

With that, I'll turn it over to Scott.

Thanks, Peter. Let me recap our results for the quarter. Refunds from operations were $0.76 per fully diluted share compared to $0.66 per share in 2Q 2024. Our cash same-store NOI growth for the quarter, excluding termination fees, was 8.7%, primarily driven by increases in rental rates on new and renewal leasing and contractual rent bumps, partially offset by lower average occupancy.

We finished the quarter with in-service occupancy of 94.2%, down 110 basis points from the quarter. As Peter noted, our occupancy change reflects the impact of the no move-out in Central Pennsylvania and 2 developments entering the in-service pool offset in part by some new leasing. Summarizing our leasing activity during the quarter, approximately 2.5 million square feet of leases commenced. Of these, approximately $400,000 renew 2.1 million were renewals and $100,000 were for developments and acquisitions with [ Lisa. ]

On the capital side, as Peter noted, we were very pleased with our return to the public bond market for the first time since 2007. Our $450 million unsecured notes issued in this offering mature in January 2031 and carry a coupon rate of 5.25%. We remain strongly positioned on the capital front with our next maturity coming in 2027, assuming all available extension options are exercised on one of our bank loans. We would like to thank our banking partners for their outstanding execution and support in this transaction.

Now moving on to our guidance. Our guidance range for NAREIT FFO for the year remains $2.92 per share at the midpoint with the range narrowed to $2.88 to $2.96 per share. Our assumptions are as follows: average quarter-end in-service occupancy of 95% to 96%. This range reflects approximately 1.5 million square feet of development leasing assumed to occur in the fourth quarter of this year. Cash same-store NOI growth before termination fees of 6% to 7%. As a reminder, our same-store guidance excludes the impact of the accelerated recognition of a tenant improvement reimbursement in 2024.

Guidance includes the anticipated 2025 costs related to our completed and under construction developments at June 30. For the full year 2025, we expect to capitalize about $0.09 per share of interest. And our G&A expense guidance range is $40.5 million to $41.5 million.

Now let me turn it back over to Peter.

Thanks, Scott. Our diversified operating portfolio continues to perform strongly, generating cash rental rate growth on new and renewal leasing amongst the top performers in our sector. When the tariff picture becomes more clear, we expect improved confidence, more timely decision-making and an increase of investments in new growth initiatives. We remain focused on securing and serving existing and new customers to drive long-term cash flow growth.

Operator, with that, we're ready to open it up for questions.

[Operator Instructions]. And your first question comes from Rob Stevenson with Janney.

Peter, incremental development starts from here more or less attractive today than they were 3 or 6 months ago? And how is construction pricing in terms of flavor materials today versus in the past?

Take the first part of that, Jojo, you can talk about construction pricing. Like we said on the last call, in order to really get deeper into new starts, we'd like to see more consistent development lease signings. There's a lot of activity in the market. The amount of gross leasing activity in the first half of the year was pretty strong relative to 2024. But we need to see more investment in new growth, more take-up and development space.

As you've seen, we have executed on new starts in certain markets and in those markets that we think continue to show good fundamentals and where there is demand that is going unmet we'll continue to execute starts there.

Jojo, do you want to talk about the costs?

Yes. For construction costs from the second half of last year, costs are down 5% to 10%, depending upon the market. From the start of the year, those construction cost has been pretty flat -- the contractors have been more aggressive, so their margins have compressed, slight increase in construction costs are keeping an eye on steel. There's some talk that steel might go up, but we haven't seen it. Contractors so are able to keep their pricing for 30 to 60 days, which is good.

And you probably all follow this, there's been a tariff increase in copper, so you're looking at electrical -- the electrical supply to switch gear and -- but these items have a small impact on the cost, may be to [indiscernible] protect costs under 1%.

Okay. That's helpful. And then, Scott, anything abnormal or not recurring in the second quarter or anything expected to be sequentially a drag in the back half of the year? Just trying to figure out, you guys did $0.76 and just doing a flat 76 and 76 in the next 2 quarters puts you at the very high end of your current guidance range. I just wanted to get a feel for what's coming up here.

So I would say in the third and fourth quarter, recognizing more interest expense than in the second quarter. And Rob, that's driven by 2 items. We have to continue to fund our development pipeline that's about $110 million of spend for the last 6 months of the year. So that's driving interest expense higher.

Also, the May bond offering was slightly dilutive. We used the funds to pay down our line of credit. And the line of credit had a lower interest rate than what the bond offering rate was. So in the back end of the year, you're going to see a little bit of higher interest expense, which will knock down our FFO in the third and fourth quarter.

And your next question comes from Vikram Malhotra with Mizuho.

I just want to understand the new lease you just announced that was not in the $1.6 million target? And if you can just sort of maybe walk us through some of the bigger pieces in the $1.6 million, like how do the prospects look for 3Q and 4Q?

Pete, do you want to talk about what's happening in your markets?

Sure. On the 1.6 million square feet that we have in our guidance at year-end, the largest component of that is our building a first of a Commerce Center in Denver. We continue to have active prospects for all or portions of the building. In fact, a couple of the prospects have a need for rail, which we can accommodate on this site, but difficult to peg exactly when those get signed, but we continue to be pleased with the level of activity.

Part of the $1.5 million in the West Coast. We have 3 buildings there, 2 in the 150 square foot range and one in the 324,000 square foot range in East, i.e., good product, great product. We have very, very good functionality.

We're having tours and proposals for every building, but nothing -- no lease to announce yet. And then the remaining in the West would be under the West region, it will be a 120,000 square foot in Chicago. We alike East, i.e., we've been getting tours and now we're responding to requests for proposals, but don't have lease announced yet.

Okay. And then can you just clarify the $0.02 impact you had mentioned prior, like if you don't do any of the $1.6 million, is that still the $0.02 is still in the guide? Or have you pushed that out? And then -- and sorry, if you could just clarify that new 500,000 square foot lease that was not part of the original $1.6 billion.

Well, the good news is with the benefit of that lease that Peter just announced in the call, coupled with the lease that we did it first look earlier than what we projected, Vikram, that $0.02 a share is now $0.00 a share. So what does that mean? The 1.5 million square feet of development leasing that we still have in our guide, and I'll also throw in the 700,000 square foot in Central Pennsylvania. Now effectively, they're have a 12/31 lease-up. So they're assumed to be leased up on 12/31.

And your next question comes from Nick Thillman with Baird.

Okay. Following up maybe on that came back and the lease up there, is the plan there to kind of take that out like you did similar in 1Q?

Make the plan there to like every time is to maximize value. We have a couple of executions. We can take it to market. We can acquire the product. We can look at the holding in legal about center again about maximizing value. Also, we're very pleased about the execution because that JV project delivered returns exceeding our expectations. I also want to remind you there's another 71 acres left. We create land, freeway frontage and that we're focused on again, maximizing value there, either developing it, either doing a higher and better use deal like we've done before and all of that.

Maybe dovetailing on that, just on -- you guys have outline maybe the potential opportunity for monetizing some of the land bank or existing portfolio for data centers. I guess, is there any update there, the size or scope of what that opportunity set is?

Not really. That's a pretty big project. It's going to take some time. We have to look into power, of course, without that, you really don't have much to talk about and these things they're going to take several months to get to the answers on some of this.

And your next question comes from Craig Mailman with Citi.

Peter, maybe can you just give some context around the 50,000 square foot lease. Was that a longer kind of burn on the demand there? Is that more recent? Just to give us a sense of how quickly some of these can come together, having some bigger ones like First Aurora or left to take care of.

Yes, sure. That was on the shorter end of the spectrum. Jojo, do you want to talk about that?

Sure, sure. Basically, the building was just completed. So basically, the building was leased at completion Craig, we had a number of showings. As you may recall, too, that building has been 48% leased. So we've leased already basically half the building. And then so we have continued showing some remaining vacancy, and we actually had 3 interested parties, and this party wanted to really -- they needed to grow and they want to control the space pretty quick.

How long from beginning to now that discussion.

The discussion, I would say, would be about 45 days.

Okay. And when does that will commence?

Right now.

Right now immediately. Okay. And then just, I guess, more broadly, Peter, your kind of showing that there's some improvement in demand, but it doesn't sound like you guys are getting excited about it yet, but at the same time, there can be some big deals that can come quickly. I'm just kind of curious as you guys are talking to people at some of these developments, like First Aurora has been 1 that's been vacant for 2 years. Like -- are some of these I know we'll call stubborn vacancies but kind of longer tailed lease-ups. Are these in your opinion, like is it a leasing strategy issue? Is it a product issue? Or is it just a market issue that you guys are contending with on some of these that are taking a little bit longer to lease up.

It's a demand-side issue. It's finding the right fit at the right time for the particular Canada or potential tenant people make decisions. This particular tenant that took the Phoenix property to the other half of the Phoenix property, made some business decisions that cause them to need it pretty quickly.

It's really just finding the right fit, right, and having the right size space at the right time. And so we've had as you point out, Endeavor, several tenants come by there and actually, you've traded proposals with several tenants. Look, there's definitely pent-up demand. There's frustration to some degree. The tariff thing has really caused people to pause. And yet there are also other tenants who are less tariff sensitive who are going to do deals, and that will, in fact, include the one that signed the lease in Phoenix.

And your next question comes from Blaine Heck with Wells Fargo.

Great. So one of your competitors mentioned that their build-to-suit pipeline is very strong. I guess are you demand on that side as well? What's your general appetite for build-to-suits? And how do those returns compare with what you might be able to generate through spec development?

Yes, the returns are always going to be a little bit lower unless there's a special circumstance. We do execute on build-to-suit. You've seen us do that, but it's also not ever been a very high volume component of our business. Our platform is set up and our land holdings are such that we're more targeted to the speculative development business, but we do like the build-to-suit business depending on what we can earn.

And obviously, we're trying to maximize returns for shareholders. So we're going to evaluate the kinds of returns we can earn on a build-to-suit relative to the risk and taking on a speculative project risk and return and taking on a speculative project.

Great. That's helpful. And then maybe a little bit more high level. It seems as though there are new different strategies we're seeing from tenants. Those that are continuing on with their business plans and leasing despite the uncertainty got those that are strategizing more, but still in the market, but taking a little bit longer to make decisions and those that are completely on pause and waiting for clarity. I guess, would you agree with that characterization? And how would you kind of characterize the relative size of each of those groups today in your markets?

I would agree with it. We've had some conversations. We're close to trading paper and they said, we want your building, but we've just got work from HQ that we have to pause now. and that was post April 2. So there's definitely a large group there. There is definitely a large group of window shop because they know they need space. They're just not sure when.

And then there are the ones who are a bit more bold and some of them who say, "Hey, we see what Amazon is doing, spending $15 million or at least they're announcing to spend $15 billion on new centers, largely in rural areas" and they're going to build out their same-day delivery from the city to the suburbs to the rural areas, and they can't afford to sit and watch. So they're going to go ahead and sign leases. So I think you outlined it pretty well. You've got tenants kind of active across the spectrum in terms of objectives.

And do you think those different strategies are roughly equal in size? Or would you say 1 or another or more prominent here?

It's hard to say.

And your next question comes from Caitlin Burrows with Goldman Sachs.

I think you historically mentioned the answer was that it doesn't. But to what extent have you found that reducing price can create more leasing demand, whether it's development or other vacancies? Like have you seen this work in some places, but not others?

Caitlin, we really -- first of all, we focus on the NPV of that discussion, if you want to call it that. There are lots of different inputs, certainly raises one TIs, free rent and move-in date. Some people want to sign leases and not moving for 6 or 8 months. So there's a lot of variables there.

Lowering the rate doesn't create new demand and it's really -- then you subject yourself to a big hit to that NPV model. And so that's always the thing you try to hold steady on this rate.

Got it. Okay. And then just on the decision to issue the unsecured bonds. I was wondering if you guys could go through I don't think you had talked about it before, but maybe you had, but kind of like what drove that? Is it based on your size today, efficiency of the market that you're not doing dispositions or like what was different now versus the last 18 or so years?

Sure, Caitlin, it's Scott. I think we saw that we had a path to be a serial issuer in the public bond market. We've got maturities coming up the next 5 years. And if you look over the majority of the years in the last 20 years, the pricing in the public bond market is inside of this pricing in the private placement market from a spread point of view. So that was the rationale for doing it. As far as the home for the offering, we had about $500 million on our line of credit. So we utilized the proceeds to pay down our line.

Got it. And just in terms of like what was different now versus like 4 years ago or something to not do it then -- any comments on that?

We have the -- well, now if you look at our maturity schedule over the next 5 years, we've got enough maturities to be a somewhat of a serial issuer in the public bond market, which is what the investor base wants to see. And 4 years ago, we just didn't -- we might -- if we did something that we might not have been back to the market for a couple of years. a public bond investors likely to be back on a more recurring basis.

And the size of the offering back 4 years ago was smaller than it is today. It wasn't a benchmark size and in some cases, the private place or was cheaper actually than the public market.

'17 and '18.

And your next question comes from Jessica Zheng with Green Street.

I was wondering if you have any insights around how private industrial developers are behaving in the current environment? I just wonder for the firms that are sitting on let spec developments, are they start to offer elevated concession packages? Or are they materially cutting base rents to try to secure a tenant.

Peter and Jojo, you guys want to talk about what you're seeing?

Sure. I would say, generally speaking, where there are more choices you've seen concessions drift up because tenants have a lot of choices. So some helpers are responding in that way. But I wouldn't say there's a material difference across the landscape for developers, Jojo?

Yes. I would agree. And then in term starts, they're cautious. Hard to get that, that is expensive and they're sitting a lot of developers that's sitting on their land because they've got still some vacancies on their new developments.

And your next question comes from Nick Yulico with Scotiabank.

This is [ Victor Parion ] with Nick Yulico. Now that the focus is shifted to addressing '26, '27 expirations. We see that expiring rents are rather on the lower end for '26 and '27 as well. Are those assets indicative and comparable to the types of assets you leased in 2025? Just trying to understand here the demand and potential rent spreads for those properties.

So asking about '26 or '27 expirations and how the rent stack up.

Well, so '26 compared to '25, I would say, pretty consistent, but in '26, we do have a higher proportion of expirations in Dallas and Atlanta, which have been very good markets over the last several years. So I would say that's pretty much the difference between '26 and '25, '27, I don't know right off hand. I can get back to you after the call.

Got it. And then could follow-up on your current development leasing, any types of tenants that you might highlight that are having a kind of higher interest in your assets at this point? Or there is no kind of particular trend you can highlight?

I would say, generally, we're seeing a lot of activity from food and beverage and 3PLs, some automotive, some manufacturing, some consumer products E-commerce continues to be very busy. As Peter mentioned a couple of minutes ago, Amazon, in particular, has a range of requirements in a number of markets. They are very, very active. So activity overall continues to be pretty broad-based. We're pleased with the breadth of that.

[Operator Instructions]. Your next question comes from Brendan Lynch with Barclays.

You mentioned the interest rate drag on FFO in the back half. Can you also discuss the drag on same-store that's implied in guidance for the second half as well?

Yes, if you look at the same-store kind of the second half, it's primarily due to lower average occupancy in the second half of the year compared to the first half of the year, a little bit less contribution of the cash rental rate increases. And then we have some increased free rent concessions on new leasing. So that's really what's driving that a little bit lower in the second half of the year.

Okay. That's helpful. And can you also discuss what dictates when you grant a fixed-rate renewal options for tenants? Where does that kind of fall in your list of priorities when negotiating a lease -- and should we expect any more of these in the remainder of '25 to '26.

It's not on Page 1 of the list. Let's put it that way. Obviously, you'd rather not do that, but sometimes there is a benefit in that particular case, very large tenant, very good credit, and it made sense for that deal.

And Brandon, the timing of that, that was done in 2017 as part of a lease renewal at that point. So it should -- you should not take that as a reflection of market conditions in the current environment.

We do it rarely, very rarely.

pAnd your next question comes from Todd Thomas with KeyBanc Capital Markets.

First question, just from your comments earlier around the Camelback lease, you mentioned that it replaced the lease-up assumptions on the 1.6 million square feet that you had in guidance, the $0.02 and that you're now assuming a 12/31 lease-up essentially. But 2 questions. Do you actually feel different or less confident in the timing of the lease-up on that 1.6 million square foot bucket?

Any different than you did last quarter? And then I suspect this means that the 95% to 96% occupancy assumptions if you're pushing out some of that leasing that, that should sort of be disregarded, I guess, to some extent as it pertains to '25. We can do the math, but I just wanted to ask about that also since this sort of hit after the release, it sounds like.

So for the occupancy assumptions don't change, Todd, because both the $1.5 million actually. And then also that includes the $708,000 they're assumed to lease up on 12/31. So that impacts positively impacts our 4-quarter average on that. And I'm sorry, what was the other question you had? I think I took here the last part first.

Whether or not you actually feel different at all around the timing of that 1.6 million square foot lease up, right, Camelback helps in the sense that you're kind of pushing back that assumption, but in terms of traffic and the leasing prospects that you're working on, do you feel any different than you did last quarter?

Look, we've got 5.5 months left in the year. Traffic around those assets is decent. They happen to be -- most of them happen to be asset as someone earlier pointed out that been available for a while. So the risk of getting those done is not 0. So generally, we felt than it was more reflective of the probability to push those to the end of the year.

And your next question comes from Michael Mueller with JPMorgan.

Two questions and one is probably like a really dumb clarification question. But on the first one, was there anything to note out of the ordinary with either property operating expenses or recoveries this quarter? Is it just looks like the ratio -- the expense ratios were kind of lighter compared to where they've been running and especially compared to last year and stuff?

Mike, it's Scott. I'll explain it this way. It has to do with our tenured policy related to equity-based compensation. If you remember in the first quarter, our G&A was a lot higher because of that 10-year base policy. What does that mean? GAAP accounting requires us to expense immediately awards issued to folks that reach a certain point of age and at a certain point of service in accordance with our policy. You saw that it increased our G&A that quarter.

It also increases our property expenses because our people that manage our properties, their compensation is reflected out in that line item. So what happens is it causes a depressed margin in the first quarter. And then in the second, third and fourth quarter, the margins are elevated. And if you were to look back in the first quarter of '24 and compare it to the following quarters, that same dynamic happened. And my bet is if you look back further years, that dynamic has happened. So I would say that's the cause of the differential in margins between 1Q, '25 and 2Q '25.

Got it. Okay. Yes. I just thought it was a little bit bigger even compared to last year, but maybe not in that context. And then the second one, and this is kind of the number question. When you talk about the development leasing, because in my mind, I think, development and external growth development pipeline, when I think of same-store, I think, of occupancy, the in-service portfolio. How much of this like is all the 1.3 million development leasing you're talking about doing or the $1.5 million, is all that related to the in-service portfolio.

So it just happens to be stuff that you developed at some point in time that is in there. So you can have development leasing that's impacting your occupancy guidance for the in-service portfolio or is a portion of that kind of true development leasing where it's not in the in-service portfolio. It's just getting a little kind of confusing in my -- from my standpoint.

Mike, I mean, the way that we look at it, it relates to what's already in service. That's the 1 $5 million. And if you want to walk through those projects after the call, I'd be willing -- definitely be willing to do so. Now life isn't perfect in development leasing though. We saw that last year as well. There might be 300,000 square feet of projects that we've completed that not aren't in service that aren't in our guidance that we lease up this year that have a positive impact that make up maybe for not leasing up some of the 1.5 million square feet. But what we have in guidance is in service. And again, I'd be glad to walk through the projects with you after the call if you'd like to.

And your next question is a follow-up from Caitlin Burrows with Goldman Sachs.

I feel like there hasn't been much talk about specific markets, so I figured it. Could you talk a little bit first about SoCal, how you saw evolve during the quarter, maybe from a demand perspective and on the rent side and whether there are any differences to call out by submarkets.

Sure, Caitlin. Let's start with the rent, I would say, from Q1 to Q2, there was a 5% decline in market rents in terms of -- but it's still -- rents today are probably about 100% or double the pre-COVID rents. So that's the way to look at it. So if you look at it, it's about 13.5%, 14% CAGR. Now let's move on to activity. Gross leasing activity in Q2 was kind of comparable to Q1. Vacancy increased about 10 basis points in both i.e., West and East. IES is a little bit lower vacancy rate. It's performing better than IE East.

In terms of net absorption is somewhat flat because despite the positive gross leasing activity, there has been a little bit higher giveback of space. Then moving on to the supply sats. Deliveries and starts have been really low. Total deliveries is under $2 million, of which roughly about 35% is pre-leased and starts are about $1.6 million, under $2 million, of which $600 million was built to suit, so now the stats I'm giving you is basically only i.e. core because we don't invest in the high desert, IE North, which is less than 4% of the market. And I hope that helps in terms of rents and absorption and activities.

It does. And then I guess as you think about the other markets you guys are in, are there any to call out as being strongest versus weakest today?

Sure, Caitlin, it's Peter Schultz. I would say Nashville continues to be among the strongest in the country, little new supply good demand rents continue to go up. We've seen some increased activity in Florida recently. So all the markets are doing pretty well, but those would be 2 of the stronger.

Caitlin, I'd just add certain submarkets to Dallas and Houston. We like right now. They're doing well.

This concludes our question-and-answer session. I would like to turn the conference back over to Peter Baccile for any closing remarks.

Thank you, operator, and thanks to everyone for participating on our call today. If you have any follow-ups from our call, please reach out to Art Scott or me.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.