First Industrial Realty Trust, Inc. Stock

Good day, and welcome to the First Industrial Realty Trust Third Quarter 2026 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.

[indiscernible] Welcome to our call. Before we discuss our third quarter 2026 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 22, 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, 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. Our team delivered another solid quarter marked by some key leasing wins for our in-service portfolio including excellent renewal signing activity on our 2027 expirations. Leasing markets continue to exhibit more strength and depth of demand. .

We see this among our prospects, and it's also reflected in the third quarter market statistics I will touch upon shortly. We were also active on the capital allocation front, closing on a high-quality, fully leased building and a new site that is developable in the near term.

On the strength of our performance, we increased our NAREIT FFO guidance midpoint by $0.01 per share. Scott will walk you through our guidance shortly. Turning back to overall market conditions. National industrial real estate fundamentals continue to trend positively.

According to CBRE, national vacancy improved again down 10 basis points to 6.3% in the third quarter. Nationally, third quarter net absorption was 105 million square feet, outpacing completions of 79 million square feet. This was the highest quarterly level for net absorption since the fourth quarter of 2022.

Year-to-date, net absorption of 238 million square feet is also ahead of completions of $183 million. Given the improved demand, the under-construction pipeline moderately increased and is now 279 million square feet up from $252 million as of our last call. It's important to note that the annualized pace of net absorption from Q1 to Q3 2026 exceeds total square footage under construction.

In addition, approximately 36% of the pipeline is preleased, which is similar to Q2. We ended the quarter with in-service occupancy of 94.1%, which exceeded the 93.5% forecast we telegraphed on our second quarter earnings call. This improved result was due to incremental leasing in our in-service portfolio.

Our 2026 rollovers are nearly complete as we've now taken care of 94% by square footage our overall cash run rate increase for new and renewal leasing is 38%. Looking ahead to 2027, we've already inked some key lease rules and are making good headway on our expirations.

The cash run rate increase on signed renewals for 2027 lease expirations thus far is 16%. That represents 45% of all leases expiring next year, a substantial portion. We will give you our expectations for the full year on our next earnings call and with the benefit of our completed budget process and additional signings.

At this time, we don't expect the full year number to be meaningfully different from the year-to-date results. Let me provide some additional color. For 2027 expirations, 68% by net rent are for leases signed from 2022 and to the present. So the cash rent increase of 16% achieved thus far includes the expiration of a large portion of leases signed during the period of peak rents.

In addition, if you remove SoCal expirations from the calculation, the cash rent increase is north of 20%. With respect to Southern California, that market is showing signs of improvement. For our availabilities, we've seen incremental leasing activity from tenants looking to invest in new growth.

During the third quarter and fourth quarter to date, we leased 3 vacancies in our in-service portfolio on a long-term basis, a 188,000 square foot facility and a 78,000 square footer, both located in the Inland Empire East, as well as the transload facility in Los Angeles.

We also have 2 available facilities in the 200,000 square foot range in our in-service portfolio in the Inland Empire East that are seeing healthy activity. Now let me update you on our investment activity since our last call. On the acquisition front, we closed on Park 83 Logistics Center a 2023 vintage cross-dock building in the I-78, I-81 corridor of Central PA in York near the 708,000 square footer we leased last quarter.

The 764,000 square foot facility is 100% leased to a Fortune 500 tenant and located in a high barrier-to-entry infill location. The purchase price was $120 million with an in-place cash yield of 5.1% and a yield of 5.8% using today's market rents.

We also acquired a 32-acre infill site in McKinney and Northeast Dallas, one of the region's fastest-growing cities for $13 million. The site will accommodate 2 buildings totaling 390,000 square feet. The first phase will be a 233,000 square foot facility that is near-term developable upon entitlement and completion of infrastructure work.

The targeted cash yield for Phase 1 is in the mid-6% area. Moving now to development leasing. Since last quarter's call, we signed a 32,000 square foot lease at our First Park Miami Building 12, bringing the total development leases signed this year to 849,000 square feet.

As always, the team is focused on our development and in-service portfolio lease-up opportunities and taking care of customers. With that, I'll turn it over to Scott.

Thank you, Peter. Let me recap our results for the third quarter. Daily funds from operations were $0.80 per fully diluted share versus $0.76 a year ago. Our cash same-store NOI growth for the quarter, excluding termination fees, was 5.6%, primarily driven by increases in rental rates on new and renewal leasing and contractual rent bumps partially offset by lower average occupancy.

To summarize our leasing activity during the third quarter, approximately 2.3 million square feet of leases commenced. Of these 400,000 renew 1.6 million were renewals and $300,000 were for developments and acquisitions with Lease.

Now moving on to our guidance. As Peter noted, we increased our neighbor FFO midpoint guidance by $0.01 per share and narrowed the range to $3.11 to $3.15 per share. Recall that NAREIT FFO reflects $0.04 per share of advisory costs related to the contested proxy campaign incurred in the first quarter. Excluding these advisory costs, our 2026 FFO guidance range is $3.15 to $3.19 per share, which is also a $0.01 increase at the midpoint.

For other major guidance assumptions are as follows: end of fourth quarter in-service occupancy of 94.5% and to 96.5% at a midpoint of 95.5%. This implies an average quarter end in-service occupancy for the year of 94.5% to 95%. These ranges reflect approximately 650,000 square feet of incremental development leasing assumed to occur at the end of December.

Fourth quarter cash same-store NOI growth before termination fees of 4% to 6%. This implies a full year 2026 cash same-store NOI growth before termination fees 6.25% to 6.75%, an increase of 75 basis points at the midpoint. Guidance includes the anticipated 2026 costs related to our completed and under construction developments at September 30.

For the full year 2026, we expect to capitalize about $0.08 per share of interest. Our G&A expense guidance range remains $42 million to $43 million, which excludes the $5.6 million of costs related to the contested proxy campaign. Let me turn it back over to Peter.

Thank you to all my teammates at First Industrial for another solid performance. We're optimistic about the activity levels we are seeing across our in-service portfolio and within our development opportunities. .

We're also encouraged by the renewal progress we've made thus far on our 2027 lease expirations that will contribute to our cash flow growth next year and beyond. Operator, we're ready to open it up for questions.

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

Just wanted to touch on development leasing here. I think last quarter, you guys said fourth quarter, you expect around 900,000 square feet of development leasing. And it looked like in the press release that was updated to 650,000. So I'm just kind of curious, is that just -- how big of a timing delay is that on that incremental 250,000 square feet? And maybe just give us an update on some of the bigger availabilities in the pipeline?

Craig, it's Scott. If you look at the exact math of what was remaining, it was a little over 850,000 square feet last call so it's about a little over 800,000 square feet now, so 150,000 square foot beta.

If you look at our third quarter, our core occupancy came in higher at 94.1% compared to the 93.5% we conveyed on the second quarter call. So that's helping out a little bit. Also keep in mind that the year-end occupancy guidance rate is unchanged at 95.5%.

Okay. So I mean, is it just that 150,000 square feet, is that just assumed to be kind of early first quarter now? Or was that speculative leasing that the demand is just not there to sign the leases.

I would say it's going to be a -- first off, Craig, that out of the leasing bogey that we have inside of 1.7 million square feet of an opportunity pool. So I think we have to be 40%. We haven't finished our guidance yet for '27 but it's just going to be pushed into 2027.

And again, when we spoke with folks and investors in the past, development leasing was important, but we also said it could be made up by better core in-service leasing, and that's what happened in the third quarter.

So it's really a shift that toward it a little bit better than what we anticipated in the second quarter call and we shifted 150,000 square feet of development leasing next year. And again, we're ending the year at 95.5%, which is unchanged from what we said on the second quarter call.

Okay. That's helpful. And Peter, I appreciated your commentary on the mark-to-market, and I also appreciate you're not giving 2027 guidance yet on where spreads could be.

But I'm just kind of curious, as you look at the exploration schedule and the peak rents in L.A. kind of peter through, I mean could 2027 ultimately just be sort of a temporary air pocket here as you work through some of the drag from L.A. then it could reaccelerate?

Or is this just sort of indicative maybe of the directionally where we should expect that mark-to-market to trend going forward? .

Yes. Good question, Craig. Look, we look at this as we're coming off of the period. Everybody signed a lot of leases in '22. That was the peak year, beginning of '23. We're coming through that peak year, and we're still generating from that data point, pretty strong cash rent growth.

We actually think there's a good outcome coming off of the peak. Going forward, Craig, I'm not going to get into that so much, but I certainly think that we are into somewhat of a reset here. off of the massive run-up during COVID. And so I think going forward, those numbers are going to be more modest.

The next question comes from Nicholas Yulico with Scotiabank.

Profit with Nick. Just trying to understand on your -- just additional question on your occupancy guidance. So essentially net of development leasing at least around 350,000 square feet from the core portfolio leasing and you have some exploration flat in to understand what's already signed or committed on that space and what's not?

I'm not sure what space -- can you ask the question, what space are you referring to?

Number doesn't the $350 million number...

Yes, the -- it's more like $800 to $650. So it's 150,000 square feet of development leasing. That was adjusted into 2027, but the core -- the strength of the core leasing in the third quarter offset that. .

Got it. And then if you think about switching to interest expense and some swaps that will roll off in 2027, what is your strategy on that side of things?

We're continuing to look at the swap market. I'd say the good news about treasury rates being down overnight swap rates are down as well. So we've got 2 swaps that are rolling off next year, $150 million swap and a $425 million swap, both back end of the year. .

If you assume current swap rates now are current sulfur or what the forward curve implies next year, the impact compared to the expiring rates is between $0.01 and $0.02 per share so that's the financial potential impact in 2027. And we'll continue to evaluate the forward market to see if it makes sense to lock those rates on a go-forward basis.

The next question comes from Blaine Heck with Wells Fargo.

Great. Just following up on spreads. You talked about Southern California dragging the average down a bit. you've addressed 45% of overall expirations thus far. But I'm wondering what percentage of your Southern California 27 expirations you've addressed. Is that bigger proportion than the 45% overall.

And then just along those lines, you mentioned you've done a lot of early renewals. Would you say you're less likely to push on rents on these early renewals than you would maybe closer to expiration such that you might have more leverage on the expirations that are left to address?

I'm going to take the second part, and Chris is going to take the first part. We definitely are not buying leases. Early renewals are helpful in a lot of ways. But of course, we still need the rent that we need. So we're very focused on the NPV of that lease. And obviously, there are a lot of inputs to that, but we are not being soft on rent.

Chris, do you want to cover the...

Yes, the second part on our signed Southern California renewals, we signed about half of them so far.

All right. Great. That's helpful. Second question, can you just talk about development starts from here? You have a meaningful amount of speculative capital available. I know that's not a target, but how are you thinking about launching new spec projects at current construction costs and yields? And are you seeing any undersupplied submarkets or size segments, in particular, where you may have a land parcel or a cost of capital advantage over your private competitors?

Sure. So with respect to starts, we continue to evaluate a lot of opportunities within our portfolio. Some do depend on some lease up in some of the markets. around First Park Miami, for example.

But we've got opportunities, other opportunities in South Florida and [ Broward and Dade ] Counties. Dallas is looking good. Northern California. We may have a project soon. Central PA in Chicago are all potential near term.

Some of these projects need -- we need to do a little bit more work to get them ready. We don't really announce starts until we're ready to put a shovel on the ground. But a lot of these projects are getting closer to that day. So we'll keep you posted.

And the next question comes from Nick Tillman with Baird.

Peter, appreciate the comments around spreads for '27. Just on that role, I think you guys had mentioned in the past that you had a couple of larger expirations. I think Atlanta and Denver were pointed out in like a 400 above boxes update if any of that has been addressed in leasing to date? And could those be outliers relative to where spreads were for the year-to-date activity?

Nick, it's Peter Schultz. So the large one in Denver, we talked about is sign that's in that population. I would say the rent change on that was a little bit more modest given the conditions in Denver. And then our largest remaining is in Atlanta, and we are finalizing those discussions now. .

That's helpful, Peter. And then maybe also just can you talk on some of the activity you're seeing on those larger vacancies on the development tool as that activity increase? Do you think there's progression? And I guess -- is it more of a timing-related issue on the leasing pushing it back to the first quarter or is there some conviction here that you might be able to and it's kind of a placeholder doesn't really have an impact to '26 number .

You want to cover Denver and Nashville .

Sure, Nick. It's Peter again. So on Denver, we continue to have active discussions with prospects for all or portions of the building. We continue to see new inquiries. So I would say from -- the first half of the year, our activity is better today.

You're exactly right. The speed of corporate real estate is hard to forecast when some of those decisions will be made. The supply picture in Denver continues to be pretty stable. So as we've talked about previously, we need people to make decisions, but we feel better about the activity today than we felt in the first half of the year.

Nashville continues to be an active market. little to no competition for the building you have in terms of that size range. So we just need to see some more activity there. We do have a couple of active prospects, but we'd like to see them move along with their commitments. Jojo?

Yes. As Peter Silly has mentioned, IE has continued to have more activity from Q2 to Q3, we leased 188,000 feet and we also leased 78,000 square feet, and we're very pleased with that. We have a high-quality building called First Rider that's still vacant -- the building is -- the leasing there has more competition.

If you look at the East, i.e., the largest vacant size range is in the 250,000 to 300,000 -- 250,000 to 500,000 square foot range. And so yes, so the market has to digest a lot more buildings in that size. So our building although really high quality is competing with that. But at the same time, our building is demisable, so we're marketing it as multi-tenant as well.

The next question comes from Todd Thomas with KeyBanc Capital Markets.

I just wanted to first follow up on prior line of questioning, Peter, about balancing rent versus lease-up. Is there any rent sensitivity in the discussions that you're having? Or it's not really rent related in your view?

And I think your comments were about some of the renewal leasing specifically, does that discussion change at all for the current 650,000 square foot leasing opportunity or or just vacancy lease-up bucket in general?

Yes. The discussion doesn't really center on the rent number, lowering your rents are not going to generate demand. It's the overall terms of the lease and whether or not that particular prospect has alternatives aside from what we have to offer and how we compete against that.

So it's -- there's really a lot more to it than just the rent. And that's why I say we're not sacrificing rent to get these leases done. What was the second part of your question?

No, that was good. Are higher fuel costs at all sort of reshaping some of the discussions around leasing that you're having in any way?

So the price of fuel is obviously an important input on the cost side, for example, for a trucking company. And in what you might call a normal price environment, that's about 20% to 25% of their marginal operating costs.

And today, anything about normal, obviously, those -- that would represent more like 35% to 45% of their costs. But that also places a premium on proximity, which does favor our availabilities right now. We haven't seen any drop-off in prospect activity that we would attribute to the rise in fuel costs, but certainly, it's an important input that we're going to keep our eye on .

Todd, this is Peter Schultz. The other thing I'd add to that is that, that is increasing construction costs. Anything that's related to petroleum. So you're going to see the bar go up on new supply, which is certainly a good thing. When we're looking at our existing availabilities.

The next question comes from Caitlin Burrows with Goldman Sachs.

Sorry to bring it up again. But just to clarify or confirm, Peter, earlier in the prepared remarks, you mentioned that at this time, you don't expect full year spreads to be meaningfully different than year-to-date. So you're saying that you think spreads on 2027 expirations could end up being about the 16% achieved so far? And then also, is that like a comparable number to the 40.5% that's been achieved your date in 2016 on the commenced ones? Or are those numbers like apples to oranges?

At this time, Caitlin, we don't think '27 will be meaningfully different from where we are so far. Obviously, that depends on how the final discussions end up. But that's probably a pretty good indication of where we're going to end up. I'm not sure I follow your question about the 40%.

So if we look at the commenced spreads year-to-date, they've been 40.5%. So I realize there's a difference between like commenced insight, but that's what I was asking about. It sounds like they are comparable.

Yes, they're comparable, yes.

Okay. Then my other question was just on development. I think you mentioned on the land acquisition in 3Q that you expected it could support like mid- initial yield. So would you say that, that is like a new normal based on where costs and rents are today to expect for incremental development .

It's certainly a real-time example because obviously, we just acquired that and underwrote and acquired it. So it's a good -- I think it is representative it doesn't represent a ceiling for sure because there are lots of different reasons why we end up where we do with our yields, and we've been pretty good at that. But I think it is representative, yes.

The next question comes from Rich Anderson with Cantor Fitzgerald.

So I want to unpack the releasing spread conversation just a little bit more, if I could. You said leases in 2027 originally signed 2022 to present that lease -- I'm sorry, $68? Okay. All right. So anyway, what's the differential between that group in terms of cash releasing spreads potential versus the pre-2022 lease signage situation, like how wide is that differential when you look at the cash leasing spread opportunity for you guys going forward?

Without getting into the math, the pre '22 number, as you would expect, is definitely higher than the post '22 number I'm not going to get into the math on that. But I think what's important as we look at this is there could have been rent rolled down from the peak.

And we're coming through that with a pretty strong result. So historically, we have been a pretty strong relative performer on this subject. So we'll see where that leads.

Okay. Fair enough. And second question for me on development start activity. So you're at the same level versus the second quarter in terms of under construction, $146 million. Your peer [ Prologis ] said, replacement rents are 27% above in place today. I don't know if you agree with that. But is the fact that this has held steady vestige of what it's required to make on pencil.

Do you feel the same thing? Or do you feel like you'll have more starts because you have a particular advantage because you've land under control or whatever the case may be that you can actually make sense of new development starts, even if it stayed the same versus the second quarter.

Yes. No, we have plenty of opportunity to earn really strong development yields and IRRs right now. It takes the process around bringing these to fruition it's a bit involved. And the lack of starts in the third quarter has nothing to do with what's going on behind the scenes.

And so I would just stay tuned on that subject. And I don't -- we don't see a limit to our ability to invest in new development at acceptable yields going forward.

The next question comes from Vikram Malhotra with Mizuho.

Sorry about this, I wanted to go back just tactically thinking about this 16% messaging and essentially for the full year '27 is what you're thinking I'm wondering like if the market is turning, you're seeing signs of rent growth.

A lot of your peers have talked about potentially seeing mid-single-digit rent growth next year. Is there a benefit to pre-leasing so much in now versus like waiting for the market to recover and maybe getting better spreads? I'm just -- it seems a big drop off.

Like I don't think, in general, anyone surprised by, say, 1 of your larger peers saying it's high teens or low 20s. But there was a thinking that FRS your markets would hold up better so I'm just trying to figure out like what is -- just the messaging of like, hey, next year, it's like to be this when you still have a chunk still to leave? And why not just wait if the market is turning.

You mean hold space off the market?

No. I mean like you're forward leasing, you're doing leasing rules [indiscernible]

Look, we're not sacrificing rent there. We're taking risk off the table. These tenants are eager to stay in their spaces, and we're going to take advantage of that, and we do get pretty strong rents. I'm not sure did other peers. I hadn't seen that other of our peers talked about 2027 cash rent growth. Did somebody do that?

No, no, I'm just saying if you run the math like on some of the other peers, you look at where their mark-to-market is going or has trended for the portfolio. I don't think it would be a surprise for some of your other peers to be in this, call it, 20-ish percent cash rent spreads. .

It just was that FR was outperforming the broader peer set. And we would have thought there was a little bit more strength based on the leases you had already signed in the term. It just seems like there's a big decel so I'm wondering like is this -- if that's the case for '27, '28 rents expiring are higher as are 2029.

So are we in this trajectory where it's just going to keep decelling? I'm just trying to figure out like this tactically, the market's turning positively.

You're talking about net absorption exceeding supply, market rent growth back to mid-single digits in the last few months. So I'm wondering why are we -- why could we not see better spreads in the next year -- next 2 years?

As market rent growth is in the 3% to 5% range going forward. You're going to find that, that helps reverse the curve. If you want to look at it that way? I'm not sure what that means for your analysis.

But hopefully, it would result in nobody having any rent roll down. I mean you can't have rent growth the way we had it and the way it's now come off since COVID and have that mark-to-market remain -- it just doesn't work.

Yes. No, again, I'm just trying to square like your commentary in the past year or 2 has been that you're likely to have higher versus peers a higher for longer rent spread trajectory given like all development leases that are expiring.

And so I'm just trying to figure out, like is there something unique about '27 versus as we think about 28 that I was -- again, I'm just trying to figure out, we all assumed FR's trajectory would be a lot at a much higher trajectory than most peers, but it seems to be likely versus like my own estimates, it's going to be very peer average next year in terms of rent spreads. That's all. But I guess we can take it I guess .

I guess time will tell, Vikram.

Maybe just second one, sorry for the long question, but just second one on the development lease-up. And I wanted to tie that back to a comment I think you made at NAREIT, which was you're looking now to also replenish the land bank and I know you're talking about some spec starts. Where are we in the replenishment process? Are there any target markets? How are you thinking about today's cost of land versus the rents you can achieve or the heels you can achieve in the future?

So we just acquired, as we said in the prepared remarks, an opportunity in Texas. Our teams are all over it for other locations and other opportunities. Of course, that focus is not in SoCal, for example, where we have plenty of opportunity already on the balance sheet.

People have asked in the past if we would consider selling some of that, of course, we would at the right price. So the focus for new acquisition that "replenish the land that we have is really more on the right half of the country, and I put Texas in the right half of the country.

Yes. I mean that is still a focus, and we're making some progress. We'd like to make more.

Next question comes from Jessica Zheng with Green Street.

I was wondering if you could walk through the components of the same-store guidance increase? And then also just curious same-store guidance rose 75 bps at the midpoint, but FFO only rose by $0.01. So just curious what's the offset there?

Yes, Jessica, on the 75 basis point raise, it's due to -- occupancy was slightly up. And also we had some of the increases due to less free rent in the back half of the year in 2026 compared to what was originally projected. And obviously, the free rent impacts cash same-store, but will not necessarily help FFO.

So less free rent in exchange for more cash. So that part of it impacts the cash same-store, but it's not going to impact the FFO increase.

Yes. That's helpful. And then maybe just switching gears a bit. You mentioned you're seeing good activities in SoCal. Could you just kind of describe what kind of tenants you're seeing that are active in naive today?

Yes. it's Jojo. Yes. CPLs are very active. So we just did a deal with 3PL. And then there's also just recently, first of all, it's broad-based PPL of e-commerce, you have wholesalers retailers.

You've got some advanced manufacturing some manufacturing-related data center related. But recently, we also closed on a fastener company, really a company that focuses on machinery build out with high with state-of-the-art fasteners.

And then recently, as Peter mentioned, we had a transload company, and that company is trucking freight forward and this business with the U.S. Customs and Border Protection Agency.

And the next question comes from Dave Rogers with Raymond James.

Maybe you said this and I missed it, but did you talk about what percentage of leases next year you're planning to retain versus what you'll expect to re-tenant as the year goes on, given that you're kind of working so far in advance where you typically might be? .

Yes. Dave, we're still working through the budget process completely, but we expect retention to be 65% to 75%.

Okay. That's helpful. This will be something that you probably won't want to answer, but I ask it anyway, as you look at your lease expiration schedule, even if you went back a couple of years, the big step-ups in rent really come in kind of 2028 and 2029.

And so you're saying spreads are kind of hitting that point where they're going to stay a little bit softer than they have been for you guys still strong but softer. So I mean, is there anything in the outlying years that would give us the confidence that the spreads would continue?

Or are we really just relying on market rent growth that kind of hurt turn that curve. I guess I'm just trying to kind of think about the longer-term nature of that spread number and your confidence in your performance.

Yes. I think it's math. Peak was third, fourth quarter '22. If somebody has a 5-year average lease term. Obviously, third quarter -- fourth quarter 2017, the peak rents are going to be through. And then from there, your growth rate depends on market rent growth. So what I think is encouraging is that market rent growth is rebounding now at the right time to keep that curve -- to bend that curve as you put it. So if the markets drag for 2 or 3 more years, you might see a negative roll down. And I'm not saying generally from us, I'm saying for the sector. So this isn't a bad landing. This is a decent landing off of the turbulent rise and fall of 2021, '22 and we think on a relative basis, we're still going to perform pretty well. .

Last question for me. On the 650, I know we've talked about it a couple of different times, how much is signed, how much is an LOI and how much is, I don't want to say hopeful in terms of the -- what's in that $650 million number?

You want to know the progress on the 650. Yes.

Yes, correct.

So look, I mean, one of the reasons that we moved that number during the year is obviously, it depends on where we are with conversations, whether we're trading paper, et cetera. We have, in addition to the larger projects that Jojo and Peter reviewed a number of smaller opportunities, and those also have a lot of activity around them. So that $650 million is based on that 1.7 billion -- million square feet that we have available and what's happening around all of those projects.

So I'm really -- I'm not going to break down where we are by phase, but that's where the $650 million comes from.

And the next question comes from Michael Lewis with Truist.

So you talked earlier about evaluating potential development starts. How are you thinking about risk-adjusted returns and the decision process between development and acquisitions and maybe how does this Central Pennsylvania acquisition at 5.1% fit into that? And what's the upside there?

Yes. So an acquisition we want that spread to be 50 basis points or more, and these are kind of, I'll say, minimums. Development, [ $100 million, $125 million. ] The PA deal because of the opportunity to raise it to market. In fact, when that project is available to go to a market, we think the yields are going to be closer to 6.5%. So it's going to throw off a total return that gives us the kinds of margins that we like.

And all of the developments, of course, that we start will throw off a decent cash yield in the range that we want as well as the IRR. So I don't know, does that answer your question?

9 Yes, that's helpful. And then my second question, you may not be able to answer this one. You're not giving '27 guidance on either, but you kind of gave us a retention ratio, a spread we could -- whatever you think about increases in leasing costs, maybe, is it fair to expect that AFFO growth will be better than FFO growth next year? Anything you could say about that?

I think it's too early to tell. The benefit you have on AFFO compared to FFO from a growth rate, is that the denominator for AFFO is going to be less. So to the extent that the growth is the same between the boat AFFO and FFO, you're going to get a better result.

But there's other things that impacted capital expenditures, for instance, in noncash items. So it's really too early for me to say whether the growth rate in AFFO will be better than FFO next year.

And the next question comes from Jon Petersen with Jefferies.

I was wondering if there's still opportunities within the FR portfolio to sell land sites to data center developers and how much effort you guys are putting in, trying to get more power allocated to some of your -- any existing land sites that you have for a potential flip? Or are you leaving that game to other people?

Yes. We have -- we have a handful of opportunities we're pursuing. Some are land and some are cash flowing buildings, and we are pursuing power on a couple of them right now.

It's a process that takes a while. -- but the value creation opportunity is pretty substantial. So it's a bit of a slow-moving effort, not because we're slow moving because the other side is slow moving, and we'll keep you posted on this. But yes, we're putting a lot of effort behind it.

Can you tell us more about what geographies those are in? And maybe how much power you're talking about potentially?

We really -- I'd say it's more East Coast. We're looking at this point in time.

And then maybe just... .

It's just tough to give until we get further information about the load studies that the utilities have to put together. But there are going to be more East Coast opportunities.

You guys have a buyback program in place, which you haven't used. I'm just curious as interest rates are going up, stock prices have come back, but it still seems like you have development opportunities in the market.

Like how do you -- just kind of maybe walk us through how your decision-making maybe has changed in the last couple of months on where you put an extra dollar of capital, whether it's paying down debt, buying back stock or new developments.

Sure. the stock buyback, we're going to -- as we have said in the past, we look at that very opportunistically relative to our other investment opportunities and liquidity, leverage and valuation. We continue to have ample opportunity to invest in our core business. And again, we're going to remain opportunistic about the shares.

I'm not sure what else I can tell you about that.

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

Just curious, as we're about to hit the midterm elections, anything you guys are looking at, at the federal or even local ballot that could potentially impact your business going forward?

Not really. It's obviously difficult to predict right now what this outcome is going to be. So we're just focusing on the core business, sticking to our strategy our tenant or tenants and prospects are also focused on that investing in growth.

And so right now, we're not overly concerned. We do have a regular dialogue with people on the hill, and we don't see anything coming that would -- would cause us concern.

Also at the local level as well in any of your key markets?

Yes, nothing really in the local. I mean, here and there, you might have a moratorium on new developments, but they don't tend to stay permanent when these municipalities need more money, all of a sudden more turn is relaxed.

The next question comes from Michael Muller with JPMorgan.

Just 2 questions here. One, you obviously talked a lot about the spreads versus kind of peak. Can you talk a little bit about the rent bumps that you're getting today compared to those bumps back in the peak years, if there's been any erosion there. And then just any general commentary on land pricing trends as you refill the bank?

So when you talk about bumps, you're talking about the escalations, yes?

Yes, yes.

Chris, do you want to go over the escalation? .

Yes. We haven't really seen much erosion in that. If you look at our 2026 signings, so far, we're at 3.5%. So those are staying steady or holding it .

In the past couple of years, Chris, it's been 3.6%, right? .

Yes. If you look at the entire portfolio, we're at 3.4%. So they've been holding steady. .

In terms of land prices, I would say first half would be just stable and we've been seeing an uptick as more development, warehouse development has been kicking in. So there's an uptick in land prices overall. Of course, depending on market to market.

SPEAKER01

The next question comes from Caitlin Borra with Goldman Sachs.

I was just going to ask on -- in 3Q, it looks like there were no starts then. And I know you mentioned earlier that kind of there's a lot of prep work that goes into it and you only announced the starts once it's like really going.

So just wondering on that 3Q activity, was it impacted by macro volatility or something else versus that was your expectation as of a quarter ago?

No, it's our expectation. No outside forces. It's just -- we call -- we talk about -- a lot about the speed of corporate real estate. We could also talk a lot about the speed of municipal approvals, et cetera. So it's really just that there's nothing exogenous impacting that -- the pace of our starts.

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-up questions from this 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 Second Quarter 2026 Results Conference 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, everyone, and welcome to our call. Before we discuss our second 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, July 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. Supplemental report, earnings release and our SEC filings are available at firstindustrial.com under the Investors tab.

Our call today will begin with remarks by Peter Baccile, our President and Chief Executive Officer; and Scott Musil, 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 excellent quarter, building upon the momentum that took shape in Q1. Our confidence in leasing demand, supporting new business growth has strengthened compared to earlier in the year and most certainly last year. We're seeing additional touring activity and enhanced decision-making overall, including for larger format spaces.

Our team delivered some significant leasing wins in the quarter, including a full building lease for our 708,000 square foot building in Central Pennsylvania as well as for a few of our developments, which I'll detail shortly. On the strength of that leasing, we increased our FFO guidance midpoint by $0.02 per share. Scott will walk you through our guidance during his remarks.

Turning to the overall market. Industry fundamentals are trending positively with respect to net absorption, while the pace of new deliveries continues to moderate as expected. According to CBRE, the national vacancy improved by 20 basis points to 6.5% at the end of the second quarter. Net absorption was strong at 85 million square feet nearly doubling Q1 and significantly exceeding new deliveries of 48 million square feet. The national construction pipeline ticked up modestly to 252 million square feet and is still well pre-leased at 38%.

Turning now to our portfolio performance. We ended the quarter with in-service occupancy of 94.9% up 60 basis points from the first quarter, primarily driven by the 708,000 square foot PA lease. Regarding our 2026 rollovers, we've now taken care of 80% by square footage and our overall cash run rate increase for new and renewal leasing for signed leases is 39%. Our cash run rate guidance for 2026 commencements is 35% to 40%, which is an increase at the midpoint and a tightening of the range.

Moving now to development leasing. Since last quarter's call, we saw more broad-based success across several markets, inking an additional 433,000 square feet, bringing the total signings in the quarter to 643,000 square feet. First, we expanded our existing tenant into the remaining 31,000 square feet at First Pompano Logistics Center in South Florida.

In Dallas, we signed a full building lease for the just completed 176,000 square footer at First Park 121 to a wire and cable supplier that supports the data center industry. Lastly, we fully leased our recently completed 226,000 square foot building at First Park Newcastle in the Philadelphia market. With this full building lease, we're excited to announce the start of a second building in that park. The 613,000 square foot facility can accommodate up to 4 tenants with an estimated investment of $77 million and an estimated cash yield north of 8%.

Now let me update you on our other investment and disposition activity since our last call. On the acquisition front, our regional team was successful in sourcing a recently completed development in the Great Southwest submarket of Dallas. The 161,000 square foot facility is 50% leased, giving us the opportunity to add value through lease up. The purchase price was $26 million with a targeted cash yield of approximately 6%. We also acquired a 58-acre infill development site in the middle of the BW corridor, the largest submarket in Baltimore for $39 million.

The site is designed to accommodate three buildings totaling 629,000 square feet upon full entitlement and completion of infrastructure work. Regarding sales, as expected, we successfully closed on the $131 million land sale in Phoenix. Pricing was $30 per land square foot just shy of 3x industrial land values in that market. We also sold four buildings in Detroit, totaling 310,000 square feet for a total of $29 million. We have just one 16,000 square foot building remaining in that market.

Before I turn it over to Scott, I'd like to thank everyone that invested the time to participate in the two property tours we recently hosted in Southern California and New Jersey. I know that you came away with a greater appreciation of our portfolio quality, value creation ability and the expertise of our regional leadership.

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

Thank you, Peter. Let me recap our results for the second quarter. NAREIT funds from operations were $0.82 per fully diluted share versus $0.76 a year ago. Our cash same-store NOI growth for the quarter, excluding termination fees, was 6.7%. The results in the quarter were primarily driven by increases in rental rates on new and renewal leasing, contractual rent bumps and lower free rent, partially offset by lower average occupancy.

Summarizing our leasing activity during the second quarter, approximately 2.6 million square feet of leases commenced. Of these, 1.1 million were new, 1 million were renewals and 500,000 were for developments and acquisitions with lease-up. Also, we wanted to share with you a positive update related to tenant credit. Debenhams formerly Boohoo, signing full building sublease for our 1.1 million square foot are in Pennsylvania. The subtenant is a 3PL that was already a valued FR tenant, so we are very pleased with this outcome. Now moving on to our guidance.

As Peter noted, we increased our FFO midpoint guidance by $0.02 per share and narrowed our guidance range for 2026 NAREIT FFO to $3.08 to $3.16 per share. Recall that NAREIT FFO reflects $0.04 per share of advisory costs related to the contested proxy campaign incurred in the first quarter. Excluding these advisory costs, our 2026 FFO guidance range is $3.12 to $3.20 per share, which is also a $0.02 increase at the midpoint.

Our other major guidance assumptions are as follows: average quarter-end in-service occupancy of 94% to 95%. This range reflects approximately 900,000 square feet of incremental development leasing out of an opportunity set of 1.7 million square feet. The development leasing is assumed to occur primarily in the fourth quarter.

In terms of cadence, guidance assumed in service occupancy to dip to around 93.5% at the end of 3Q. We expect to end the year at around 95.5% due to the assumed development leasing plus other core portfolio leasing. Cash same-store NOI growth before termination fees of 5.25% to 6.25%, an increase of 25 basis points at the midpoint. Guidance includes the anticipated 2026 costs related to our completed and under construction developments and today's announced start.

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 costs related to the contested proxy campaign.

Let me turn it back over to Peter.

Thank you to all of my teammates at First Industrial for your outstanding efforts this quarter. We continue to be optimistic about the activity levels we're seeing within our development and portfolio availabilities across markets and size ranges. We're excited about our new investment opportunities, and we maintain our focus on driving long-term cash flow and value for shareholders.

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

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

Peter, your commentary is pretty consistent with peers and brokers that things are getting better and decisions are being made quicker. I'm just kind of curious, as we look from here and you have discussions with tenants and you see what vacancies you have up on the portfolio? Like from a market condition standpoint, how real is -- I don't want to call it FOMO, but just would some bigger boxes being taken off the market, You had success with Boohoo finding a sublease tenant, you got 708 done in Central PA, like some of the bigger availabilities have been taken off the market.

How is this shaping the discussions you're having with tenants in terms of their mentality with less new supply coming on and the urgency they're getting. Like should we expect to see this continue to accelerate into the back half of the year? Or are there something that we're missing in terms of other dynamics in the market? Can you just kind of give us your thoughts on how this could play out over the next 2 to 3 quarters?

Sure. I'll start out and then Jojo and Peter can weigh in. Net absorption is up pretty significantly. That has a lot to do with the fact that we've got a lot more activity with the bigger spaces now. So 700,000 to 1.2 million, that activity is up 127%, north of 1.2 million, that's up 117%. So you definitely have a scarcity value at the bigger spaces now.

Activity is up also across the other size ranges but a little less. They're a little bit more alternatives that have yet to be taken up in the smaller size ranges. But the activity and the interest in investing in growth has definitely changed from a year ago.

Jojo, you want to add anything?

Yes. I mean what Peter just mentioned is that dynamic is absolutely what's going on in the West markets, including Chicago and Dallas, the largest spaces as they decrease, I mean, tenants have fewer choices, and they have to make decisions quicker. So that's definitely happening. In the midsized ranges, there are still available product for tenants to choose. So I mean it's been a little bit more better than Q1, but that's robust as larger spaces across the country.

And then by category, you look at 3PLs, that activity. I mean they've been leading market share now for a while. That activity year-over-year is up 18%, manufacturing, food and bev, auto all up 25-plus percent. So it's not only across spaces but across categories that the activity has picked up.

And just one slight thing to add. I mean, if you look at the activity of, for example, Amazon, that has picked up as well. So they've taken a larger lot spaces. And then we have incremental additional demand that's happening over the past year or so from a data center-related aerospace and defense. And that also added to the demand and a lot of them have taken larger spaces as well.

Craig, it's Peter. Just to add to Jojo and Peter's comment, to give you some color on the Boohoo outcome and our 701 Pennsylvania we had multiple prospects for both of those spaces. So clearly, there has been a pickup in the larger format as you commented and much fewer choices but also the development lease that we signed in the Philadelphia suburbs in our First Park Newcastle for 226. So just echoing the broad-based level of activity, but activity has certainly picked up on the bigger spaces where it's been a little thin up until recently.

That's helpful color. I guess, maybe a quick 2-parter to stay into the 2-question limit. But how does this kind of translate into what you guys have in terms of demand at First Aurora? And then also -- just what are your updated views on SoCal? Where you kind of follow the debate there where we are in that recovery cycle?

Let me take Aurora and then Jojo can comment on SoCal. So we continue to have activity at the building for partial and full building users. We have a couple of new prospects since our last call. There's been no real change in the competitive set what we really need are for some tenants to make decisions. Those that are in the market looking for more space, they need to decide if they're going to take more space or not. But it's not a lack of prospects, we just want to see more definitive decision making. Jojo?

Craig, in terms of statistics for SoCal, if you look at Q2 compared to Q1 or earlier this year, it points to a market that's off the bottom. And it's the start of a recovery. And the reason is that if you look at the growth absorption and net absorption, it significantly exceeded the deliveries. If you look at starts under contractor construction, it's still at historic lows.

And if you actually compare to the base, it's de minimis. And also, rents are kind of just like flat. And so we are looking at that. It definitely did better than what we expected. So yes, so that's what's going on with SoCal.

And the next question comes from Nick Thillman with Baird.

Scott, maybe just wanted to comment a little bit on the occupancy guide and just timing, if there was any shift when it comes to just the assets from the lease-up standpoint? It seems as though you're somewhat running ahead, you guys did message second half for some of the leasing. I'm guessing it's more so to do with some of the larger boxes that you have available and actually getting occupancy, but I just wanted to clarify that first.

Yes. So I'll go into the development leasing first. So the 900,000 square feet is basically the pure math. You take the 1.7 million square feet we discussed in our fourth quarter call, and you deduct what we signed to date. So that number hasn't changed. It's gone down. We did make some adjustments to those -- some of the development leasing. It's all in the fourth quarter now. And the -- if we do not sign any of those leases, the FFO impact is a lot less than it was, say, last time that we had a call. It's only about $0.01 per share.

And then Nick, we made some other slight adjustments to some of our other core portfolio leasing assumptions in a variety of our markets. But I think the key thing to discuss here is even with these adjustments, we are forecasting to end the fourth quarter at an in-service occupancy rate of 95.5%.

That's helpful. And then maybe curious on just the acquisition appetite with the Dallas acquisition and given the fact that where you kind of have the land bank today, there maybe is not as many opportunities as some of the markets where you've had some leasing success in development. So do you view that there is somewhat an opportunity here on some of the value-add from the acquisition standpoint in markets like the Texas and the Pennsylvania, the world where you have been seeing some great activity on the leasing side?

Thank you. Yes, we're always -- acquisition is always part of our business. Our local teams are always scouring for good quality acquisitions with good deals. In this case, in Dallas was in Arlington submarket of the Great Southwest market of Dallas, very, very infill, very active. And this was a likely marketed deal. We came in with certainty, and we were able to acquire an asset 50% leased, projected yield of 6%. We are an active investor. We've owned product in the Great Southwest for some time. So we really know that market. To your point, we're always looking for opportunities in Dallas or you mentioned PA. And so we're going to continue to look for those. But they have to meet our functional investment quality and yield criteria.

And the next question comes from Dave Rodgers with Raymond James.

I just got one clarification on the Newcastle lease. Was that in the numbers you just talked about? I thought that was in the third quarter, so I didn't know if you were adding that in or not.

And then just a bigger picture question. You mentioned that you started Newcastle kind of the next phase of that project. I guess where else are you excited today about kind of putting money to work in the second half of the year as clearly you leased up a good amount of your speculative space here in the first half?

You take the first.

Yes. So Dave, so first part, Newcastle, the lease start date on that was in June. So it was a second quarter start. First Park 121, that's a third quarter lease start date. We signed it in the second quarter, but it starts in August. So that lease, even though it starts in the third quarter, is factored in our guidance, and that's how you get to the 900,000 square feet of remaining development leasing.

Dave, for new starts, of course, our teams are actively pursuing new land acquisition opportunities like the one we just finished in the BW corridor. And with respect to perhaps more starts this year, we are evaluating opportunities in the portfolio in Pennsylvania and Florida, a smaller deal, right here in Chicago land. So we'll keep you posted.

And of course, just want to -- let's not forget the $70 million worth of projects. There's two projects, one in First Arlington. We call it First Arlington Commerce Center in Arlington, Texas in our First Park Miami building, that's two projects totaling $70 million. That's not going to be completed until the end of this year and early next year. We're looking excited about those.

The next question comes from Vikram Malhotra with Mizuho.

Maybe just first, I wanted to get -- see if there's any update on sort of the potential to sell more land or, I guess, data center conversion land? And how that pipeline may look. I think at NAREIT, you had mentioned there were a couple of opportunities. So that's just the first one. And then second, as we think about sort of any big renewals in the back half that may, I guess, make or break the top end of the guide. The same thing can call out that may be sizable, whether it's in SoCal or any other markets.

So with respect to our efforts in the portfolio with respect to trying to convert to data center use, our teams continue to work on those projects. They're going to be long term, as I said at NAREIT, it's going to take a while. We are trying to pursue some power commitments, and there's really nothing else to report there. Nothing will happen, i.e., close this year for sure, but we'll keep you posted on that.

And then on the renewal front, Vikram, we've taken care of 80% of the expirations for 2026, we're taking care of the lion share of it. If you look at the budgeted renewals that we have in our guidance, there's none that are over 100,000 square feet, so it's pretty granular.

The next question comes from Blaine Heck with Wells Fargo.

So maybe just to add on to the questions on development. I guess, how are you thinking about the best time to deploy your $410 million -- roughly $410 million of spec capital into development? Is it now while some of the private players might still be on the sidelines given capital and land constraints or do you guys feel as if you have a solid window of time to kind of be patient without running into the problem of excess competitive supply once you do deliver these projects?

Yes. So that's -- with respect to the cap, that's a cap and not a target. We focus solely on profitability. And with respect to that, as we evaluate our land holdings and future land acquisitions. We're trying to deliver into the deepest part of the demand or unmet demand in a particular market. So that's how we evaluate where we're going to go next.

We also -- as I think you probably know, don't really want to have too many projects in any One Park going at the same time. I mean, First Park Miami, we could start a couple of more buildings there, but we want to get some leasing as we go. So it's really not -- we don't sit here and say, do we need to use that $400 million. We sit here and say, where is the demand? Where is it not being met? And where are we well positioned to deliver a property that's going to be competitive in that marketplace for the long term.

Yes, that's fair. I guess the crux of the question was just do you feel like you have any impetus to put the money out soon before you have a lot of competition kind of coming into the marketplace and starting development off?

Look, I think development is ticking up. In some markets, the demand right now for larger -- I mean, very large million footers is not being met. So with respect to that, that's something that we're looking at. I mean as you know, we have some land holdings that can accommodate very large format properties.

Very helpful. And just sneaking in a quick second one. Sorry if I missed this, but can you break out the driver or drivers of the increased same-store NOI given that occupancy guidance was held steady? Is that rent related, bad debt related, something else?

Yes. If you look at the -- where we performed a little bit better, just our average occupancy is up slightly and cash rental rates benefited that. So that's really where the benefit is from.

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

Maybe just to follow up to one of those recent questions. So it sounds like you guys are evaluating a few markets where you could start developments, you started one in the second quarter. I guess, what are you seeing the rest of the market do? It sound -- I imagine like land is competitive, so that would suggest maybe the rest of the market is trying to get active. But are they wondering if you can talk about what you're seeing kind of at the rest of the market do?

Sure. I'll start and then Jojo and Peter can add. Look, land is very, very difficult to come by. It's not getting any easier to get entitlements. There are real barriers there. We have seen, again, a tick up in starts. But it's a tough slog in terms of, again, getting entitlements, et cetera. So the market is going to rebound according to the pace of lease take-up and we'll be there to take advantage of the opportunities that we see. Jojo?

Yes. Just to add to what Peter said, land continues to be competitive. They are active developers there. There's continue to be capital to support that development and that's the same through acquisitions. That's not really changed over for the longest time that we've been in business. What we focus on is we try to focus on off-market deals. We try to use our brokerage relationships to try to get deals that are early in the stage.

We have tenant relationships. We can lean on to try to have tenant in those situations where we can you try to get a pre-lease in a property. So these are all platform strategies wherein we use our portfolio and our troops on the ground, which are great to try to uncover those opportunities, and that hasn't changed.

Caitlin, it's Peter. The other thing I'd just add to that is, as you look at where we own land and where we're focused on buying land to the earlier comments, those are generally more infill supply-constrained market. So there -- by definition, there's going to be a little less competition in some of those markets. But to your other point, Pennsylvania is seeing more new starts given the lack of availability of million footers.

Nashville is seeing an increase in supply given how strong that market has been. And South Florida continues to see activity given the price of land developers can't really afford to wait and put that into production for the most part. But if you think about our Baltimore acquisition in the BW Corridor, as an example, very infill, very supply constrained, and that's part of our strategy.

And so on that, I was wondering if you could talk a little bit about the sourcing of land. I think you guys mentioned earlier in the call that the Baltimore location didn't necessarily have the entitlements yet versus I know sometimes when you buy land, it's like contingent on the entitlement. So yes, can you talk about that, I guess, decision to move forward with that land purchase without the entitlements versus others when it's different?

Sure. So this is in the BW corridor, the largest submarket in that market. It's a very infill site. It was excess land as part of a horse racing track where they've been holding the pre-test while that track is under renovation. The owner of the land was more interested in getting a deal done quickly. So our view is we were able to secure the land at a discount. The entitlement process there is pretty straightforward. Our plan is a buy right plan, it's zoned industrial. So it's simply a matter of when, not if, going through the process. that site should be ready for construction probably end of '28 early '29 and to emphasize the point on our pricing, the initial yields are in the mid-7s.

That initial yield is like your expectation when you build?

Yes.

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

I wanted to follow up on some earlier topics about new development starts. I know that FR seems to be tracking much better tenant activity, it's cost of capital has continued to head in the right direction. I mean does this give you guys more confidence to be a little bit more aggressive pursuing new development starts? I mean are there more projects out there that you're willing to break on today, then maybe you weren't or wanted to wait on about 6 months ago?

It's still market by market. That's really what's driving it. And then what's happening in each submarket with respect to confidence, as we've always said, we've been asked when will you develop more from a volume standpoint. And we've said when we see consistent signings of development leases. And that's beginning to happen this year. So yes, I mean, the activity should be more robust over the coming 6 to 12 months than it was over the last 6 to 12 months.

Okay. And then, Scott, how do you plan on funding some of these development projects? I mean, is there more land sales or maybe data center opportunity type sales that FR is pursuing that could fund a lot of these projects? Or is there something where equity comes in mind if you could really start to ramp up some of the activity?

I'd tell you what, Mike, we don't really have a large expenditure requirement for the last 6 months of the year to fund our developments and process. It's about $75 million. and half of that will be covered with excess cash flow after CapEx and dividends, and we can use the line of credit to fund the remaining part of it. We've got a very low balance on our line of credit. As far as go-forward starts are concerned, I would probably say would be the same formula there.

And the next question comes from Nicholas Yulico with Scotiabank.

This is Viktor Fediv on for Nick. I want to follow up on the leasing demand and types of tenants that you kind of interact with the most. Because last time, you mentioned that data center adjacent demand isn't even in the top 10 of your kind of tenant discussions and now you leased full property and Texas to kind of data center adjacent tenants. So just trying to understand the breadth here and where in your submarkets, you can see pickup of these type of demand?

Peter, do you want to start with that one?

Sure. I would say that data center-related demand has been incremental. I wouldn't say it's material. Certainly, we signed a deal in Dallas, we signed a deal in Atlanta. And we're seeing some of that, but demand overall continues to be very, very broad-based. As I think we've already commented led by 3PLs, manufacturing, food and beverage, automotive, home supply, Amazon as we've called out on prior calls, continues to be very, very active, particularly on larger buildings in a number of markets around the country. So it's broad-based. That data center related is incremental but not overly material.

Understood. And then if you think about your occupancy guidance and what happened this quarter because we saw some decline in occupancy in Southern California. And what might happen for you to end up at the higher end of your average occupancy for the full year. So based on your discussions that you're having now, what needs to happen?

Well, certainly, if we lease up that development pipeline. You've talked about -- you've heard how we have an activity on a lot of these spaces. So obviously, decisions get made and that happens, we'll certainly hit the higher end of our occupancy guidance.

[Operator Instructions]. The next question comes from Jessica Zheng with Green Street.

I'm not sure if you've covered this already, but I'm wondering if you can share some color around same-store occupancy, which seems to have declined quarter-over-quarter despite the lease-up of the large central PA properties. So just curious what was the offsetting factor there?

Yes, we had some move-outs in some of the markets. So the move-outs we had like 3 or 4 move outs the 100,000 square foot range that kind of offset the pickup of the 708,000 square feet.

Okay. Great. And if I could add a follow-up. Just curious if you're seeing any examples of data center developments crowding out industrial developments through elevated land pricing in any of the submarkets that you're in?

Yes. Data centers has been active acquirers or data center developers, whether it's hyperscalers or co-locators they've been very active in acquire land. And the land they acquire, primarily industrial. So it's put additional competition on potential land acquisition for industrial. In addition to that, in almost all cases, our data centers are willing to pay significantly higher prices than traditional land values.

For example, one case in point is our sale of Phoenix, which is just shy of 3x of industrial land values. So yes, so there are definitely any competition for land availability.

And the next question comes from Michael Mueller with JPMorgan.

So for the two questions. First, for the in-service occupancy dip, Scott, that you talked about going from -- going down to 93.5%, I believe, and then bouncing back to 95.5%. Is that being driven by adding new developments that are fully leased and kind of going into the portfolio? Or does it fall out? And then the second question is, when thinking about your year-to-date cash spreads of when you look at the lease expiration schedule for '27, is there anything we should be thinking of as a positive or negative for that as we move forward?

Yes. First of all, on the dip for the occupancy, actually, a part of that about 45 basis points is a new development coming into service in Nashville. So that comes into service in the third quarter. And right now, we're projecting that to lease up in the fourth quarter. So that's part of it. As far as 2027, I think it was your -- second part of your question as far as right now in 2027, we've taken care of about 26% of our rollovers there, and we will get some -- we'll give guidance on the rental rate change when we get a bigger population.

And the next question comes from Brendan Lynch with Barclays.

Peter, you mentioned entitlements aren't getting any easier. Have there been periods in the past where entitlements have become really challenging to obtain like they are now and then eased? And what could change that dynamic now?

Interesting. Good question. I can't remember entitlements got really easy to get, especially in the markets that we want to be in. It's one of the reasons we want to be there. We want the high barriers to entry. But there are times where tax revenue becomes a driver to that decision-making before given municipality. And so you get the entitlements that you need.

But generally speaking, you can go state by state. You know the states that are really tough. And even Tennessee or Nashville, the Nashville market now is getting tougher as the local community begins to see a lot more 53-foot trucks and a lot more activity on the highways than they're used to seeing, and they don't like it. So it's a good and bad thing. It's a good thing because it limits supply, which increases the value of what we own and leads to higher rent growth. And again, that's why we're in those markets.

On the other hand, it's tougher to acquire land and get it entitled. So yes, I can't -- again, I don't know a time when it got easier. But yet, there are times when the municipalities need money and they will grant entitlements.

Great. That's helpful. It does seem like it seems somewhat structural at this point, but I guess I could change in the very long term.

Maybe a follow-up question. Just on the First Rider Logistics Center in Perris, California. It sounds like there's a lot of momentum in the surrounding area and some lease-up of the surrounding assets. If you could just comment on the prospects of getting that one leased.

Yes. So the First Rider is about 35,000, 34,000 square feet, great product. It's designed to accommodate two tenants -- up to two tenants. And at this point, if you look at the AIE, definitely, there's a significant pickup in the larger size and the whole AIE vacancy take down but the most amount of choices that tenants have are in the size range of 250 to 500.

So that is, I would say, kind of the softest part of the market, and still tenants have choices in the market has to digest. And that's basically was affecting First Rider, although the activity has picked up, RFPs, inquiries and tours, on that asset.

And then there may be sponsor/landlords who are a little less sensitive to NPV than we are. So keep that in mind, too.

The next question comes from Omotayo Okusanya with Deutsche Bank.

Yes. Just wanted to focus on the full year same-store cash NOI guidance again, you're running well ahead of that number in the first half of 2026. Just kind of walk us through second half of '26, the expected deceleration what's causing that? Is it just kind of harder comp? So is there additional fallout or anything we should be thinking about?

So you're asking about occupancy, correct?

Yes. yes.

So in the first half of the year -- yes. So first half of the year compared to the second half of the year, it really comes down to free rent benefit. The difference there is about 250 basis points. So that's really the whole story.

Got you. Okay. That's helpful. And then I also wanted to talk about the Pennsylvania, the backfill of the Pennsylvania lease. Can you just talk a little bit about the economics of the new lease versus the old lease?

Sure. It's Peter. I can't tell you the specifics given the confidentiality provision in the lease. But I can say it's a long-term lease full building. The cash rental rate increase was over 60%, 6-0. TIs and concessions were typical, nothing unusual. And as we've said, it commenced in the end of the second quarter, and we have multiple prospects for that building. So we're very pleased with the results.

The next question comes from Rich Anderson with Cantor Fitzgerald.

So on the cash re-leasing spread result and guidance of 35% to 40% for the year, that's a really good range and a really good outcome this quarter relative to peer results and so on. How do you -- what do you attribute that to? We've talked about this before, and I've asked this to some of your peers about what the future is for cash leasing spreads for the industry. Is there anything about this year about markets and specific assets that's driving that up a little bit more than it would naturally be today? And where do you think cash releasing spreads start to trend down to as a company as over the next, call it, 2 to 3 years?

Yes. That's a good question. I think recall that we've had pretty significant cash leasing spreads now for quite a while. They were as high as 58% a few years ago and have ticked down because market rent growth obviously has come off since the peak. A lot of this has to do with the fact that most of our portfolio now is new. We leased it, if you want to say this at the right time. We had big spaces to lease pre-peak. And so we're enjoying the benefit of that now and the markets that we're in.

SoCal obviously grew the most and came down the most, but the CAGR there is still kind of 11%, 12% over the last 5 or 6 years. And in the Eastern half of the country where the markets didn't go quite a sky high, they also haven't fallen as much. So we're in the right places with the right product the right functionality and the buildings that we have are very competitive in their marketplaces. So that doesn't happen by chance or by accident. And it's a long way to say that our strategy is working.

Okay. Fair enough. And second question, I probably asked this 6 months ago, but maybe the answer is changing. On Inland Empire land of 6.5 million FAR foot, you've said that you find that to be a valuable sort of option for you longer term. But you would think that you could do some selling in that portfolio, you're already pretty full on Southern California. I'm curious what your strategy is on the land, specifically and generally, we're your comfortable Southern California, i.e., whatever is as a percentage of the total. Are you comfortable going significantly higher than we are now, so on? Any color you can give on that topic would be great.

So over the last few years, all of our new development has been outside California. That has been the way to go, given where the markets are. We continue to look for more land outside California. And so the balancing will happen that way. It will happen more by investment in other places than it would by selling there or selling land.

Now we have some great sites there. And as the market -- as you've heard on this call, the market is very short on million footers, million-plus footers, and we have some fantastic opportunities in SoCal in that size range.

So they're a little bit further out because of the way that market has evolved since the peak, but those are going to be very, very important opportunities for us going forward. Having said that, we're not loved in any of our real estate. And if somebody makes us a godfather offer, it will be sold.

Our final question comes from Dave Rodgers with Raymond James.

Just one follow-up, guys. I wanted to just kind of aggregate some of the numbers we talked about. I think everybody on the call, including me, did a good job of asking about every project that I think you have currently going on. But if you were to aggregate the amount of demand that would meet that 800,000 to 900,000 square feet of remaining spec leasing that I think you need to do, if my math is okay, for the rest of the year. What's the total demand for that kind of pool of assets that kind of gives you the continued confidence to get there? Is there a way you can aggregate that together?

I think we're all looking at each other here, Dave, wondering how to answer that question.

I think the one thing is that, Dave, the opportunity set is 1.7 million square feet. So we don't have to add 100% with the developments we have. So that's one part of the answer.

Also, when you're touring a prospect, whether it's an RFP process or it's an expansion or a consolidation or it's an inquiry, it's really kind of hard to tell to how -- what the timing is and what the commitment of a particular prospect is, and if it's a renewal exercise.

So I mean, it's going to be -- I mean, if we put out numbers of all of our tours, of course, it's going to be a mixed number. But I think it's disingenuous to put that because until you're really trading paper and get to a letter of intent, that's where really the certainty happens.

I mean all it takes is one. It's a tough thing to put a bracket around, David. Because we've had assets where we've had really, really strong competition, a horse race. And we've had assets where we had one interested party, and we drove a tough enough deal and they signed a lease. But it's tough to give you a volume answer to that question.

David, it's Peter. The thing I would say is back to what we talked about at the top end of the call is we are seeing more activity, more tours and inquiries. And while we have to convert, I think we're more optimistic today than we were at the beginning of the year.

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. Have a great day.

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

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.