First Industrial Realty Trust, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the first industrial Q3 results call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star then one on your telephone. If you require any further assistance, please press star zero. And also please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Art Harmon, Vice President, Investor Relations and Marketing. Thank you. Please go ahead.

Thanks a lot, Chris. Hello, everybody, and welcome to our call. Before we discuss our third quarter 2020 results and updated guidance, let me remind everyone that our call may include forward-looking statements as defined by federal securities laws. These statements are based on management's expectations, plans, and estimates of our prospects. Today's statements may be time-sensitive and accurate only as of today's date, Thursday, October 22, 2020. 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 Basile, our President and Chief Executive Officer, and Scott Musil, our Chief Financial Officer, after which we'll open it up for your questions. Also on the call today are Jojo Yap, our Chief Investment Officer, Peter Schultz, Executive Vice President, Chris Schneider, Senior Vice President of Operations, and Bob Walter, Senior Vice President of Capital Markets and Asset Management. Now let me turn the call over to Peter.

Thanks, Art, and thank you all for joining us today. We hope each of you and your loved ones are doing well, staying healthy and productive. I would like to once again thank the entire FR team for all of their efforts over the past seven months while navigating the pandemic to maximize collections and achieve our leasing, investment, operating and capital markets objectives. In the third quarter and fourth quarter to date, the industrial market has experienced an increased level of leasing activity with e-commerce leading the way and other broad-based industries represented among new lease signings. In its preliminary third quarter report, CBRE reported 56 million square feet of net absorption versus 68 million square feet of completions. I'll discuss what this pickup in business activity means for our upcoming speculative development efforts in a moment. But first, let me briefly touch on cash rental collections. Our results continue to be very strong, reflecting the quality of our tenant base and portfolio, as well as the great work of our team. For the second and third quarter, we've collected 99% of monthly rental billings, and all nine of our remaining rent deferral agreements are current. Scott will walk you through collections and our third quarter bad debt expense in more detail later. I would like to highlight several key leasing solutions executed by our team in Southern California. We successfully replaced the largest tenant on our watch list at a 225,000 square foot building in the Inland Empire. By executing the new lease at current market rents, we captured a 27% rental rate increase. In other major leasing wins, the Southern California region executed on a comprehensive to replace three tenants in the South Bay market of LA. These transactions allowed us to significantly enhance the credit profile of those tenancies and meaningfully increase rental rates at those properties. With a moratorium on evictions in California, these solutions generated substantial value in a fraction of the time it would have taken to go through the courts. We were able to accommodate a leading e-commerce tenant's need for our 214,000-square-foot building, which will serve as a state-of-the-art last-mile delivery facility, and which also resulted in a 9% rental rate increase. We successfully moved the prior tenant to a smaller 23,000-square-foot building that better suited their current needs for a 58% rental rate increase. Lastly, we also replaced the tenant at our 63,000 square foot transload facility at a 92% increase. Based on these successes, cash rental rate growth for leases commenced in the quarter was 20.3%. For the full year 2020, we expect the increase in cash rental rates on new and renewal leasing to approximate 14%, which would be at the top end of the original range we set forth on our pre-COVID fourth quarter 2019 earnings call. To give you a look into cash rental rate growth for 2021, as of today, we have signed approximately 32% of our 2021 rollovers at a cash rental rate increase of 12%. Now I'd like to share with you some recent development leasing progress since our last earnings call. We signed a tenant for 100% of our 103,000 square foot first sawgrass commerce center in South Florida on a long-term basis, which is set to commence upon completion in the fourth quarter. In Dallas, we signed a full building lease for the 199,000 square foot first fossil creek commerce center that commences November 1st. We also leased 37,000 square feet at one of our first Park 121 buildings, which is slated to commence January 1st. That 125,000 square foot building is now 80% leased. The investment market continued to rebound during the quarter, and the industrial sector continues to be favored by institutions, local investors, and users, given the solid fundamentals and the secular driver of e-commerce. The sector remains highly competitive, and we continue to use our platform to uncover select opportunities and target markets. Acquisitions totaled $20.2 million in the quarter and included three well-located land sites. In Seattle, we acquired a 6.6-acre site, developable to 129,000 square feet. We added a 26-acre site in Central Florida, that can accommodate up to four buildings totaling 329,000 square feet. Lastly, we acquired 3.1 acres in the Inland Empire West adjacent to our first ELM site, which will enable us to build 84,000 square feet on the new larger combined site. Turning now to our development program. We're excited to launch our first speculative development project since the beginning of the COVID-19 pandemic. We plan to start the first phase of our first Park Miami development in the fourth quarter. Recall that we acquired this 60-acre site in the first quarter in the Infill Medley Submarket near the airport, but put the start on hold due to the pandemic. We can build a total of 1.2 million square feet, and the first phase will be three buildings totaling 600,000 square feet. Total estimated investment for this phase is approximately $90 million, and our targeted cash yield is in the mid-fives. We also plan on starting the 141,000 square foot First 95 distribution center a little further north in Pompano Beach. Total investment is approximately $21.7 million, with a targeted cash yield of 6%. To support our ramp-up of our developments at First Park Miami and First 95 and potentially other sites in target markets which we continue to monitor, we tapped our ATM program during the quarter, issuing approximately 1.84 million shares at an average price of $43.16, generating net proceeds of $78.7 million. Adjusted for our fourth quarter starts, Our on-balance sheet land holdings can accommodate approximately 13 million square feet of future development with the vast majority of sites entitled and ready to go. Summing up our development pipeline at September 30th, we had a total of 245 million of developments under construction or in lease-up, comprised of 2.6 million square feet, which is 39% leased as of today. With a projected cash yield of 6.6%, our estimated average margin on this batch of developments is approximately 47% when compared to prevailing market cap rates for similar leased assets. Updating UNR joint venture activity, we successfully leased the 644,000 square foot spec building at PV 303 to a single tenant. The building remains on track to be completed early next year. Our portion of the investment is $20 million and our cash yield is 7.1%. We also sold two land sites at PB 303 in the fourth quarter, totaling 93 acres to two separate users with our share of the sales price totaling $11 million. Today, the venture has $139 of the initial 532 developable acres remaining and has returned 137% of the originally invested capital. In the third quarter, we formed a new JV that acquired a 569-acre site about one mile north of PV 303. We're pleased to partner once again with Diamond Realty, the U.S. real estate arm of Mitsubishi Corporation. Together, we purchased the site for $70.5 million in an all-cash transaction with our interest at 43%. Like the PV303 venture, the new venture will engage in speculative development as well as build-to-suits and one-off land sales to users. First Industrial will earn development asset management, property management, disposition and leasing fees, and we have the opportunity to earn a promote beyond an established return. Our rationale for this investment is the same as our PB303 venture. The new JV provides us the opportunity to capitalize on a large investment without incurring outsized risks and market concentration in Phoenix. Moving on to dispositions. During the quarter, we sold two properties for $15.2 million, and we completed the sale of the $55 million Phoenix asset for which the tenant exercised its purchase option last year. Less far in the quarter, we've sold two buildings comprised of 194,000 square feet for 5.6 million. Excluding the purchase option related sale, we've sold 759,000 square feet for a total of 61.8 million year to date. On our way to meeting our sales target range, of $125 to $175 million. In summary, we had an excellent quarter with great execution by our team. We're very excited about restarting our speculative development program and taking advantage of the great growth opportunities in our target markets. With that, let me turn it over to Scott.