First Industrial Realty Trust, Inc.

Good morning, and welcome to the first Industrial Realty Trust Incorporated second quarter results call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Art Harmon, Vice President of Investor Relations and Marketing. Please go ahead.

Thank you, Jason. Hello, everybody, and welcome to our call. Before we discuss our second quarter results and our updated 2023 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 day, July 20, 2023. 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 with us today are Jojo Yap, Chief Investment Officer, Peter Schultz, Executive Vice President, Chris Schneider, Senior Vice President of Operations, and Bob Walters, Senior 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 an excellent quarter highlighted by an FR record-setting increase in cash rental rates on new and renewal leasing. We also achieved some leasing wins at some of our developments and began construction of two new buildings in coastal markets. As a result of our performance and updated outlook, we raised our estimates for our 2023 cash rental rate growth and full-year FFO per share guidance which Scott will discuss shortly. Before we get deeper into our results, let me spend a moment discussing the broader U.S. industrial market. Overall fundamentals remain good. National vacancy today is low at around 3.7%. In our 15 target markets, vacancy is 3.3%. As we discussed on our last call, there's a fair amount of new supply expected to be delivered nationally in roughly the next 12 to 18 months. Based on CBRE EA's analysis, there is 540 million square feet under construction across the U.S., 31% of which is pre-leased. Focusing on our 15 target markets, completions are expected to be approximately 400 million square feet, with 30% currently pre-leased. Nationally, new starts in the first half of 2023 are down approximately 40% compared to the same period a year ago, as sponsors continue to evaluate the economic landscape and the revised economics of new projects due to meaningful increases in the cost of capital. With respect to demand, the pace of leasing activity in our in-service portfolio continues to be strong. Tenants are making leasing decisions many months in advance of their lease expirations, and we are achieving very healthy rental rate increases. I will touch on these two points later in my remarks. For the unleashed portion of our 1.8 million square feet of completed development that is slated to be placed in service in the third and fourth quarters, we have interest from prospective tenants for many of the spaces. However, tenants' decision-making timeframes have elongated compared to a year ago. Customers are dealing with uncertainty in the overall economy, and the Fed's decision to delay future rate hikes likely didn't provide any comfort. As a result, we adjusted the lease-up assumptions for some of these developments, which impacted our average occupancy guidance midpoint by 75 basis points for the year. Scott will walk you through the details, but importantly, we have offset the FFO impact with the help of leasing at other developments. Returning now to our performance, we finished the second quarter with an occupancy rate of 97.7%. Our cash rental rate increased for leases commencing in the second quarter was 74.1%, exceeding the FR record we established just last quarter. As of yesterday, approximately 81% of our 2023 lease expirations are in the books at a cash rental rate increase of 63%. We now anticipate that our cash increase on rental rates on new and renewal leasing for 2023 commenced leases will be in the range of 55 to 60%. This is an increase of 7.5 percentage points at the midpoint compared to what we mentioned on our April call and 12.5 percentage points higher than our original guidance. As we've highlighted previously, one of the drivers of our record-setting rental rate increases is the contribution from our Southern California lease signings. For 2023, of the 2.1 million square feet expiring in Southern California. We already have signed leases for 72% of that space at a cash rental rate increase of 156%. Looking ahead, we're already seeing renewal activity on our 2024 lease expirations. Of note, we have taken care of next year's largest lease expiration by square footage with the renewal of a 700,000-square-foot tenant in Nashville at a 40% cash rental rate increase. We've also inked a 213,000-square-foot renewal in central New Jersey for a 128% cash rental rate increase. So we're off to a good start addressing our 2024 lease expirations, and we'll provide you with an update on our leasing progress on our third quarter call. Now I'd like to provide you with a leasing update on our 644,000 square foot Old Post Road building in Baltimore. Our prospective 3PL tenant continues to await the final decision from the government regarding the contract award. We continue to assume lease up of the full building in the third quarter, as this is the start date of the contract award. We also continue to market the building to new potential tenants. Moving on to development activity. Since our last earnings call, we signed full building leases for the 56,000-square-foot First Park Miami Building 13 and the 132,000-square-foot First Gate Commerce Center, both in South Florida. At our three-building project in our Phoenix JV, we pre-leased the 420,000-square-foot building to a restaurant supply business. Given our success in South Florida at our first Park Miami project in the infill market of Medley, we broke ground on the 136,000 square foot Building 12. Total estimated investment is $34 million, and the projected cash yield is 6.9%. This will be our seventh building at this multi-phase park. The previous six were leased at or shortly after completion. Beyond this new start, we look forward to further growth at First Park Miami. We just closed on another phase of land at the park, which is buildable to approximately 430,000 square feet. We expect delivery of the last parcel from the seller per our option agreement in mid-2024, which would accommodate another 430,000 square feet. When fully built out, the park will total 2.5 million square feet. On the West Coast, we broke ground at First Harley Knox Logistics Center in the Inland Empire. First Harley Knox will be a 159,000 square foot facility with a total estimated investment of $31 million and a healthy projected cash yield of 8.4%. Including the second quarter development starts, our developments in process total 2.7 million square feet with an investment of $441 million. The projected cash yield of these investments is 7.9%, which represents an expected overall development margin of approximately 75%. In addition to the first park, Miami Land, we also closed on three more new development sites since our last call. In the Lehigh Valley in Pennsylvania, we acquired 66 acres for $24 million. This site can support a four-building park, totaling 762,000 square feet. In the Inland Empire East, we added a four-acre site in Paris for $13 million that is next to a site we already own. Combining these sites will allow us to build a single 550,000 square foot building at a higher yield and margin. We also acquired five parcels totaling 101 acres from four sellers in North Palm Springs on the I-10 corridor for a total of $21 million. This assemblage will position us to build up to three buildings totaling 1.9 million square feet with a very competitive land basis. In total, our balance sheet land today can support an additional 16.8 million square feet. This represents approximately $2.6 billion of potential new investment based on today's estimated construction costs and the land at our book basis. These figures exclude our remaining share of the land in our Phoenix joint venture. Since our last call, we completed the sale of two buildings in Houston and Detroit, totaling 190,000 square feet, plus a small land parcel in Minneapolis for a total of $18 million. Our sales guidance for the year remains $50 to $150 million. With that, I'll turn it over to Scott for some additional commentary and updated guidance.