First Industrial Realty Trust, Inc.

Good day, and welcome to the first Industrial Realty Trust, Inc. first 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. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Art Harmon, Senior Vice President of Investor Relations and Marketing. Please go ahead.

Thank you, Dave. Hello, everybody, and welcome to our call. Before we discuss our first quarter of 2024 results and our updated guidance for the year, 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, April 18, 2024. 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, 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. Since our last call in February, our team has signed two big development leases, and we continue to make progress on our 2024 renewals at strong cash rental rate increases, both of which I will discuss shortly. Looking at the industrial market broadly, vacancies ticked up to about 5.3% as new development projects that were started in 2023 have come online. For 2024, CBRE projects completions of approximately 300 million square feet. As those projects are delivered, we expect national vacancy to increase to the mid-6% range in the coming quarters. Importantly, the market has demonstrated some discipline with respect to new starts. No doubt that the high cost of construction debt has helped. For the past three quarters, starts have averaged just 42 million square feet, which is more than 60% below the recent peak of 114 million in the third quarter of 2022. The increased level of prospect traffic for our development that we experienced toward the end of 2023 has continued into 2024, and some significant leasing decisions have been made. To that end, we signed full building leases at our 500,000 square foot 1st Rockdale IV in Nashville and our 1 million square foot 1st Stockton Logistics Center in Northern California. Updating you on our progress on lease signings to date related to 2024 expirations, we've taken care of 68% weighted on net rent. Including the impact of new leasing, our cash flow rate increase currently stands at 45 percent, which is near the midpoint of our 40 to 52 percent full-year forecast that we provided on our last earnings call. Our results to date reflect a renewal of one of our three largest expirations, all of which are located in Southern California. For guidance purposes, we have assumed one of the remaining two will renew. Moving now to dispositions. In the first quarter, we sold nine properties comprised of 433,000 square feet for a total of $49 million. This puts us well on our way to achieving our full year sales guidance of 100 to 150 million. The largest sale was the five-building, 278,000-square-foot portfolio in Cincinnati for 33 million that we discussed on our February call. The remaining 16 million consisted of 165,000 square feet located in Chicago and Detroit. As I noted on our last call, 2024 has been a particularly challenging year to project the pace and timing of leasing in our portfolio due to the economic uncertainty, increasing volatility in the capital markets and the interest rate outlook, and the rapidly evolving geopolitical environment. Over the past few weeks, these factors have once again given some tenants reason for pause. As a result, with respect to our broad-based same-store leasing assumptions for the year, we decided to make some adjustments which are reflected in our updated guidance. With that, I'll turn it over to Scott.

Thanks, Peter. Let me recap our results for the quarter. NAERIC funds from operations were $0.60 per fully diluted share compared to $0.59 per share in 1Q-2023. As a reminder, our first quarter 2023 results included $0.02 per share of income related to the accelerated recognition of a tenant improvement reimbursement associated with a departing tenant. Excluding that $0.02 per share, First quarter 2023 FFO per share was 57 cents. Our cash same-store NOI growth for the quarter, excluding termination fees, was 10%. The results of the quarter were driven by increases in rental rates on new and renewal leasing, rental rate bumps embedded in our leases, and lower free rent, which were partially offset by lower average occupancy. We finished the quarter with in-service occupancy of 95.5%, the same rate as year-end 2023, with our 500,000 square foot Nashville lease offsetting some expected move-outs. As we continue to lease up our developments, we expect our in-service occupancy to increase in the second half of the year. As we stated on our fourth quarter earnings call, developments that we placed in service in the third and fourth quarters of 2023 that were not fully leased had approximately 240 basis points of occupancy opportunity. With the lease-up of first Rockdale IV, the lease-up opportunity from these developments now stands at 160 basis points. Before I touch on guidance, let me remind you that on the capital front, we are strongly positioned with no debt maturities until 2026, assuming the exercise of extension options in two of our bank loans. Also, our expected 2024 asset sales, combined with our excess cash flow after capital expenditures and dividends, will exceed the amount required to fund completion of our developments and process. Moving on to our updated 2024 guidance per our earnings release last evening. Due to changes in some of our same-store leasing assumptions that Peter discussed, our guidance range for FFO is now $2.55 to $2.65 per share. This is an adjustment of a penny per share compared to our prior guidance. Note, as we detailed on our fourth quarter earnings call, Our guidance excludes approximately $0.02 per share of accelerated expense related to accounting rules that require us to fully expense the value of granted equity-based compensation for certain tenured employees. Including this $0.02 per share of expense, our NAVRE FFO guidance range is $2.53 to $2.63 per share. Key assumptions for guidance are as follows. Quarter-end average occupancy of 95.75% to 96.75%, a reduction of 25 basis points at the midpoint. Same-store NOI growth on a cash basis before termination fees of 7.25% to 8.25%, primarily driven by increases in rental rates on new and renewal leasing, along with rental rate bumps embedded in our leases. This is an adjustment of 75 basis points at the midpoint. Note that the same store calculation excludes the 2023 one-time tenant reimbursement that I discussed earlier. Guidance includes the anticipated 2024 costs related to our completed and under construction developments at March 31st. For the full year 2024, we expect to capitalize about $0.05 per share of interest. Our G&A expense guidance range is $39.5 to $40.5 million, and this excludes the roughly $3 million in accelerated expense I referred to earlier. Lastly, guidance does not reflect the impact of any future sales, acquisitions, development starts, debt issuances, debt repurchases or repayments, nor the potential issuance of equity after this call. Let me turn it back over to Peter.

Thanks, Scott. We're very pleased with the two major development leasing wins to kick off the year. Our team is focused on building on that success with additional development leasing and capturing rent growth from lease signings in our in-service portfolio. Operator, with that, we're ready to open it up for questions.

We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then 2. Our first question comes from Keybin Kim with Truist. Please go ahead.

Thank you. Good morning. Congrats on the Stockton lease. So I had a couple questions on development. I noticed that the couple assets that you placed into servers that the yield and profit margins were adjusted lower? I mean, thankfully, these are just smaller projects, but just more broadly speaking, should we be just aware of any other risks in the development portfolio as some of these projects near completion or releasing? And if you can provide an update on the prospect activity that you're seeing in your other development projects, please. Thank you.

Jojo, you want to take that? Yes, yes.

Kevin, no, I wouldn't say that... The outlook and the forecast is pretty much similar. We made some adjustments, though, as we do every quarter. We look at exit caps, we look at pro forma yields, and then, of course, the result of that is the profit margin. So overall, top level, we increased our exit caps by about 18 basis points, so that's about, we ended up overall average of about 522 cap rate, which we think is appropriate or slightly conservative. And then on the pro forma side, what we did, we adjusted some rents in pro forma and IE. That resulted in an increase of about 16 basis points of increase in pro forma, actually a reduction of 16 basis points on a pro forma yield. If you add that together, Kevin, what you'll notice that that's our overall reduction on everything and our supplemental on terms of our development of about 4 percentage points from about 36 to 32. So, it's slight adjustments overall there.

And then, keeping it to Peter Schultz, to your second question on activity on the rest of the development pipeline, you know, as you look at what we have in Florida, Pennsylvania, Denver, and JoJo can comment on California, activity overall is good. We have active prospects for all or portions of the space. I would say some are moving more deliberately while others continue to move slowly. And it's really about the timing of those decisions more than it is the level of interest. And we continue to see, as Peter remarked in his comments, about the evolving narrative on interest rates and some of the geopolitical issues are a little bit of a headwind to people making decisions. But overall activity is pretty good. JoJo?

Yes, and just nothing really to add to Peter's comment except that I just said that we appropriately adjusted some of the rents.

And just a quick follow-up on Baltimore. I noticed the occupancy rate dipped a little bit sequentially. I'm not sure about the timing of the Old Post Road lease-up, but I was just curious if there's anything else that drove the occupancy lower.

Kevin, it's Peter again. So, we have one known move out at year end in the Hagerstown sub-market, which is along the I-81 corridor. That is part of our Baltimore portfolio, 309,000 square feet. So, we're marketing that space as a portion of a larger building. No other change in occupancy in Baltimore. Your question on Old Post. So, the larger Old Post building took occupancy in December of last year. And then the lease that we announced earlier, half of the smaller building, that commenced in the first quarter.

Okay. Thank you, guys. The next question comes from Rob Stevenson with J&E. Please go ahead.

Good morning, guys. Just to follow up on Baltimore, I know it's early, but any markets, assets, submarkets benefiting from additional demand given what's happened at the port after the Key Bridge tragedy?

So, Rob, it's Peter Schultz. We're not seeing any change in demand or impact to our tenants given the tragedy, as you said, in Baltimore. You probably know that there are already a couple of temporary channels that have been reopened. A third will be opened in the next week or two. The expectation is the port's back in full service by the end of May. So, while it's inconvenient in the near term, we think that that resolves itself here fairly quickly. We're not seeing any real change in demand, positive or negative, from that incident.

Okay, that's helpful. And then, Scott, the property expenses in the quarter were, you know, significantly higher than sort of run rate. I know that you've had that there was some G&A, I believe, is the two pennies in the guidance from the additional expenses. I assume that that's in G&A. But can you talk about what's happening, you know, on the property operating expense side and what that's likely to look like throughout the remainder of the year?

Yeah, Rob, it's got the two cents are in G&A, and I'm going to turn it over to Chris to talk about the property expenses.

Yeah, just on the property expenses for this quarter, it was all related to recoverable snow removal expenses that were up. And again, they're all recoverable, so there's a reason for that.

Okay, that's helpful. Thanks, guys. Appreciate the time.

The next question comes from Vikram Malhotra with Mizzouho. Please go ahead.

Morning. Thanks for taking the questions. Maybe just first one on the going back to the development. Could you just update us on your new, your development leads up guide? If I'm not wrong, I think it was like, you know, high twos. I just want to see with all the progress you've made, is there an updated version of that? And then just related to that, specifically, can you give us a sense of the timing for all what you've done so far? When does that impact SSO?

Yeah, so I'll walk through that a bit from it, Scott. So A little longer of an answer, but I think it makes sense to go through what we talked about on our fourth quarter call in February. So on that call, we said we had about 2.8 million square feet of development lease up. We included in our original guidance 500,000 square feet of this pool. That was the Rockdale deal. It was leased up in the first quarter, leaving 2.3 million square feet of development leasing still in our forecast. The majority of this leasing is assumed to start in the back half of the year. The other 1 million square feet of development leasing that was first stocked in in the first quarter was not budgeted in our original guidance. As Peter mentioned on our last quarter's call, development leasing is going to be difficult to predict in 2024. In some developments, we will beat our forecast, and in other cases, we won't. So some of the development leasing we have completed is ahead of our forecast. So we, in essence, have used some of this early leasing benefit to offset some other development lease timing assumption changes we made to our forecast. Does that help?

Yeah, that's helpful.

And then just specifically on just the development, I think there's a big asset in Colorado, close to 600,000 square feet, I think in the past you've debated is there a full user or do we multi-tenant it? Can you just update us on that?

Sure, Vikram. It's Peter Schultz. We continue to see activity for portions of the building as well as a couple of full building users. The larger users, as I said a few minutes ago, the decision-making there tends to be slower, but we continue to have activity for both partial and full building users. The building is designed to be multi-tenanted, which was our expectation when we built it. I don't have any actionable updates to give you today on any lease signings, but we continue to see activity. As we've said a couple times, it's more about the timing and the pace of that decision-making that we're really focused on.

Okay, and then just one more, if I may. Can you just update us on, you know, maybe SoCal in general, but just specifically those three, the three expirations. Can you just remind us, did you always assume two out of three and one may not renew? Or maybe just walk us through kind of how you're thinking about those three leases.

Yeah, hi, it's Peter. On the rollovers, we always did assume one would not renew. So we're right on schedule with those, and JoJo can give you a broader perspective on what's going on in SoCal.

Sure, sure. Basically, in SoCal, completions exceeded absorption, so vacancy rates did take up. And so renewal activity, though, continued to be active, and discussions are across, I would say, all sizes. New leasing, though, the environment is slower, just like... Both Peter Schultz and Peter Basile said the prospective tenants are taking more time to decide and are touring more properties before committing, and some are deferring their decisions. One other thing in SoCal is that port activity, Q1 of this year, as measured by loaded import containers only in Port of LA and Port of Long Beach, is 26% higher than last year. So, you know, we're hopeful that that has a positive impact going forward. And that container traffic is about equal to about 2018. 2018, 2019, correct. Which, if you recall, was a pretty good market.

Makes sense. Thank you.

The next question comes from Todd Thomas with KeyBank Capital Markets. Please go ahead.

Hi, thanks. Good morning. I wanted to first ask about, just given some of the progress that you've made now on the SPAC leasing development in the quarter, and we saw the increase in your SPAC leasing cap, I'm just curious, you know, you talked about, you know, build the suits and some developments, you know, moving forward. Curious what the appetite is like here. how we should think about the timeline for you to maybe, you know, shift offense a little bit more, just given that new starts are down more broadly, you know, 50% or more in most markets.

Yeah, so we do have about $300 million now of capacity in our cap. That's a number, actually, that's pretty similar to what we used to carry on a regular basis. We're just going to call it 2018-19-20. It is very possible that in the near term you'll hear from us on a couple of starts. As we've said on previous calls, those are likely to be in South Florida. As we evaluate other start opportunities across the country, those decisions will be made largely based on how we see development leasing proceeding in those markets. We have some existing assets in those markets, and when we lease those, we'll have a better view about the stickiness of demand and the pace of decision-making. So, again, as those deals come to fruition, that would give us confidence that more starts in those markets are warranted.

Okay. And then just a question on the guidance in terms of the guidance revision. And sorry if I missed this in the commentary, but I'm just curious if, you know, what the offset is to the decrease in the same store growth forecast, which is, you know, a little bit more than, you know, the one penny FFO revision that was made. What's the offset to that decrease?

Well, the penny decrease is, primarily due to same store. So there's a little bit of, you know, we're ahead of budget on those two development leases. We utilized a little of that, but we also utilized that ahead of budget leasing, Todd, to adjust some of the lease-up assumptions we have for the remaining developments. So that's the math from that point of view.

Okay. So it's primarily on the development lease-up while it's heading to the same store. Got it. Okay. All right. Thank you.

The next question comes from Rich Anderson with Wedbush. Please go ahead.

Hey, thanks. Good morning, everyone. So a lot of talk about tenant behaviors and leasing decisions are delayed but not done, and you yourself are looking at that situation and actually raising your speculative capacity. What gives you confidence that it is just a push back in timing and not something more permanent in terms of tenant demand? Are you talking to people saying, well, yeah, we're going to do this, but we just need more time? There's every possibility that we could have more of a permanent depressed demand condition, could we not? And if we do, then what's the reaction from First Industrial?

Yeah, I'll give you kind of a broad overview, and then Peter and JoJo will give you their thoughts. These discussions are happening over a pretty long period of time, and we can see from those discussions the level of enthusiasm as it changes based on what's been happening in the broader markets. And by broader markets, I mean everything from what's being talked about with inflation, the Fed and rates, all the negative news we're getting from around the world, you can see where that is having a big impact on how aggressively or otherwise these conversations are proceeding. By and large, it's not like these tenants are going away and doing trades elsewhere. We've had tenants come back after two or three months and want to reinvigorate conversations. It's just a You know, we have a good sense there that it is a matter of when and not if. Now, if the world gets a lot worse, it could be a matter of if. But we aren't seeing that right now. Peter, you want to add to that?

Sure. I would say demand continues to be very broad-based. E-commerce and particularly the largest occupier in that space was very active. in the first quarter. Indications are they're on track to lease more in the first half of this year than they leased all of last year. Market expectations is they may double what they did last year. So that's certainly a good sign, which has tended to be a catalyst for other companies making decisions as well. We continue to see a lot of activity from 3PLs, but those decisions in particular because they're waiting on the commitment of customers, continue to be elongated for all the reasons we've talked about before. We're seeing some retailers, we're seeing some automotive, we're seeing some medical and food and beverage. So the breadth of the activity continues to be good. And nobody's, rarely do we see people tell us that their requirement is canceled It's simply a matter of, in some cases, they have more choices, so there's less urgency. And that varies from market to market. But we feel good about the breadth. We feel good about the activity across some of our smaller spaces has held up very well. And it seems to be the larger spaces have more choices and just slower decision-making today. But overall, we feel pretty good. Jojo, anything else you want to add?

Yeah, the only thing that I would add is that in the biggest part of our business, which is the leasing our existing buildings, our renewal activity discussions has continued to be solid. The executions there have been pretty much the same as Last year, you can see that in our cash rent change. And, you know, a number of tenants, you know, in our discussions would like to expand, but hit the pause button as well. And so those give us confidence that a lot of, you know, our portfolio, which is a bigger part of our business, is, you know, feeling good about operating out of our spaces.

Great. Thanks for that, Keller. And then the second for me, I don't know. You've said what your mark-to-market is, but let's say it's 50% or whatever, and you have flattish market rent growth and still your typical contractual escalators. Is it as simple as that in terms of how the mark-to-market will move as you release space? And at what point do you get into a situation where the mark-to-market becomes more pedestrian and... just because of the sort of the flatness of the market and the ongoing rent escalators. I'm just curious. What's the tail here that's still in front of you?

Yeah, rents have grown so much that there is some resiliency in the duration of that mark. Now, that's in a scenario where rents are – let's say falling as much as 5% or flat or up 5% in that range, obviously if rents fell significantly more, the duration of that mark comes down. But at this point, it looks like the sector should enjoy some pretty good rent increases for some time.

And Rich, just to be clear, we haven't given a mark-to-market calculation.

Okay.

Thanks very much.

The next question comes from Craig Mailman with Tiddy.

Please go ahead.

Hey, just going back to the kind of the hesitancy of tenants here to make decisions, I mean, how much is rent, actual nominal levels of rents coming into play in certain markets like L.A. or New Jersey where, you know, rents on a per square foot basis are just higher than other markets? Is that playing into their kind of mentality at all and hesitancy, or is it just really just the uncertainty on playing the business at this point?

Correct. Probably the best indicator or the best way to answer that question is that, yeah, in the markets where rents have grown the most, obviously SoCal in a period of two years, they practically doubled in 21 and 22. They grew decently last year. Those are markets where the probability of deals getting done at a little bit lower than peak rent is higher. And as we have both rollover and renewal discussions and talk to tenants about taking new development again, that phenomenon plays into that conversation. I wouldn't call it an affordability thing. That's not the issue. It is that rents have grown tremendously in some markets, and that would impact the pace of those discussions.

Okay. Then, you know, you guys have mentioned and others have mentioned clearly Amazon's coming back into the market, so e-commerce... feels like maybe we're in a period of expansion but as you go through kind of where if you could gauge kind of by industry vertical where there's the most hesitancy to make decisions today versus where people are more close to kind of needing to take space to fund the five year business plan is there any kind of discernible trends you're seeing so

Looking at history a little bit, in 2020, Amazon took up more space than the next 30 most active lessees combined. That served as a catalyst, as we now know, for others to say, hey, we have to get in the game. And you saw that happen to a great degree in 21 and 22, which created the very, very high net absorption numbers that we saw. That particular player is, once again, making a rather large move this year. Time will tell if that behaves as a catalyst for others to get involved, but we certainly don't see it as a negative thing. And the prospects going forward could be pretty good that it is a catalyst for others getting involved.

Craig, it's Peter Schultz. The other thing I would just point out, as I mentioned earlier, is the 3PL decisions far slower because they're waiting on their customers. So there's two steps in that process. So it's harder for landlords to have visibility into those discussions between the 3PL and the customers, and that's where we're seeing probably the most elongated decision-making.

The other thing, sector two, Craig, would be housing, home improvement, furniture in particular. That sector's a little bit slower.

Okay. And I guess going to 3PL piece, you know, they had traditionally liked shorter term leases. I think when things got very strong, they were forced to do five-year leases. Is there any, you know, push on their part to go back to shorter term leases to match it better with their contract length? Or are you guys still able to hold that side of the equation? And also just on the concession side, what are you guys seeing from a free rent take up in certain markets versus others?

On the 3PL front, the prospects we're in discussions with are all five to 10 years. Having said that, we have seen some deals in the market that are shorter term, say three years. In terms of concessions, we're seeing those come up a little bit, so they've been less than half of one month per year of term to maybe 0.6 or 0.7. And I wouldn't say it's universal. It's generally in the markets with a little bit more supply. But concessions are ticking up a little bit.

Yes, overall, we don't think there's going to be a material change in the terms that the CPLs want. I think customarily it will be five plus years. And the biggest reason for that is that the 3PLs are meeting their customers' needs. And most customers don't want to be out of space. When they make a commitment to be served by a 3PL, that's usually a long-term commitment. And potentially cancelable, but long-term. So they don't want to be thrown back to the street and not having space. So that term is pretty sticky. We haven't really seen it accordion significantly.

Great, thank you.

The next question comes from Nicholas Uliko with Scotiabank. Please go ahead.

Hi, good morning, everyone. I was hoping to get a feel for, I know you don't specifically break out like new leasing, new leases signed, but just kind of thinking about the volume of that activity in the first quarter and whether it was, you know, down versus budget, just kind of how you're thinking about like the overall impact new leasing activity affecting the change in guidance for the year?

So the two development leases that we signed were above pro forma. And with respect to the renewal leasing, as you see, our cash rent growth there is pretty significant. And we're on track with respect to the guidance that we provided in the first quarter. Is that what you're getting at, or are you asking something different?

Sorry, I was asking more just in terms of overall, you know, square footage of new leases signed in the first quarter, how that compared versus the initial budget, if it was down, and that, you know, affected the, like, occupancy guidance change for the year.

No, you know, I think overall just, you know, what we had – projected at the end of the year for the guidance, our leasing volume is about right there.

Yeah. Nick, look at page 15 of our supplemental. We break out new renewal and development. And I would say for the first quarter, we were right on budget with new leasing.

Got it. Yeah, no, I know that's in terms of commencements. I was asking more, you know, in line with leasing volume, you know, new leases signed. I don't know if there's a different number there.

Yeah. Here's what I would say to that. We gave a statistic. I think it was we took care of 69% of our expirations as of yesterday. If you look back in the first quarter last year, that number was very consistent. So there's been no material change in what we've been able to lease up at this point in time this year compared to what it was last year. I'd even say compared to the year before that.

Yeah, we're actually a little bit ahead. So, you know, we've taken care of about 71%. I think last year at this time we had taken care of about 64%. So we're actually a little bit ahead on that renewal. The new lease is taken care of.

Got it. Thanks. Appreciate the clarity there.

The next question comes from Nick Thillman with Baird. Please go ahead.

Hey, good morning, guys. Maybe just wanted to touch a little bit on your renewal discussions. Has there been any really shift in kind of the environmental when a tenant approaches you kind of to begin those discussions, maybe over the last like two quarters or so? Are they feeling less urgent to kind of sign new deals because they might think that rental rates are starting to roll over? Just a little commentary there would be helpful.

Well, most of the big guys have representation, and it won't surprise you that those tenant reps are, in many cases, telling them to wait a little bit because maybe they'll get a better deal. And, you know, as we mentioned a couple of times, the pace of those discussions does get impacted pretty significantly by, you know, market news, economic news, rate news, global goings-on, et cetera. The tone is evolving. I would say when we were going into the fourth quarter of last year, coming into the first quarter of this year, there was some optimism, of course, about three or four rate cuts, and maybe they would start early in the year. And people were feeling like it's probably time to get ready to pull the trigger. And that feeling has dulled a little bit with the recent news in the last few weeks.

Nick, the other thing I'd add is that if a tenant is considering moving, they need to plan for that well in advance because getting the permits to modify or improve another space, as we've talked about on other calls, continues to be very elongated. So that continues to weigh on tenants' decisions. Are they staying or not? But I would say, generally speaking, There's been no real change in tone or timing, you know, other than what Peter alluded to.

That's helpful. Maybe touching a little bit on dispositions, maybe getting a little bit more of a flavor of what's the buyer pool like and kind of what is there a portfolio premium still being placed on assets and then also kind of where pricing is shaking out relative to expectations on some of the assets that you have traded.

Yeah. So the market is active. Remember that what we have in our expectations in terms of our sales program is really more targeted to users. And the 1031 market is coming back now because they're able to do both sides of the trade. So it's users, 1031 buyers, local investment entities, you know, doctors, dentists, lawyers, et cetera. The profile, I would say that the activity is robust, meaning the number of people signing up to get information is high. The conversion to offers is also pretty good. So, yes, it's an active market. In terms of pricing, obviously that fluctuates depending on the market and the asset in particular. Still, the users are going to be more aggressive on pricing. The 1031 buyers are going to be more aggressive on pricing. But, yeah, those values are coming in pretty close to our expectations.

Helpful. Thank you.

The next question comes from Jessica Zhang with Green Street. Please go ahead.

Good morning. I was wondering if you could please share some color on where you're seeing relative strengths and weaknesses in your portfolio on the market level?

You mean with respect to, say, rent growth, leasing, anything specific?

Yes, rent growth and leasing activity.

So the markets right now that are showing rent growth and good leasing activity, South Florida, as we've said, continues to be pretty strong. Nashville, the demographics there continue to impress, and that market's doing well. In terms of the slower markets, we've spent a lot of time talking about SoCal. That would have to be on the list there. Seattle's a little quiet. Anything else that I'm not remembering?

No.

Everything else is kind of steady as you go.

Great. That's very helpful. And then I was also wondering if you can share some color around utilization levels in your properties. Do you sense there's some excess capacity among your tenants? I'm just curious, like how they're accommodating growth in their businesses today.

Jojo, you want to take that? Sure. So we survey our properties, we inspect our properties constantly, and we look at when we meet our tenants, our customers, and our view is that they're utilizing their space pretty well. There's not a lot of excess space. In fact, I would say there's very, very few sublease situations in our portfolio. It's de minimis.

Great. Thank you.

The next question comes from Blaine Heck with Wells Fargo. Please go ahead.

Great. Thanks. Good morning. Just wanted to talk a little bit more about the reduction in same-store guidance and the specific drivers there. You know, given that occupancy was relatively flat and rent spreads on 70-ish percent of 2024 commencing leases increased. So I guess we're just wondering whether there was anything in particular outside those metrics that gave you pause or if it's just you know, a matter of an inflection, you were forecasting and render occupancy that now you don't think will happen, and just also trying to determine how much conservatism is based in with that decrease together.

Sure, Blaine. I would say the main reason, and we touched upon it in the script, is there was a handful of properties that we adjusted the leasing assumptions on that were in the same store pool. So that was the reason for the adjustment that we made.

Okay, that's helpful.

And then just to follow up on Baltimore, you know, you guys made some good progress at Old Coast Road last year, but there is still some space there that remains and now includes Hagerstown. Can you just talk about whether you're seeing a slowdown in tenants looking for space in the market given the shutdown in the port and whether you think your chances of getting, you know, more leasing done in that market have changed in the near term?

It's Peter Schultz. There's been no real change in the levels of demand or impact on customers from the collapse of the bridge. You probably know that Baltimore is primarily an automobile and bulk material port, so what we refer to as roll-on, roll-off, or row-row. So the container volume there is only about 5% of the East Coast ports. It's not that material. So it's not having an impact one way or the other. In terms of leasing activity, it's about the same as we've described earlier. There's interest, but it's moving slowly. Where the balance of our Old Coast Road building is along the I-95 corridor, that's 172,000 feet That's in a different market than Hagerstown, which is along I-81 coming out of Pennsylvania. The Hagerstown market is a little soft. Vacancy rates are in the double digits there. So that's my answer for you this morning.

Great. Thank you very much.

Sure.

Dave?

Caitlin, your line is now live. Are you on mute?

Nope, now I hear you. Maybe just back to the market question that somebody asked a few minutes ago. You mentioned that South Florida and Nashville were two of the stronger ones, SoCal and Seattle more quiet. Could you talk to some of the drivers of the different markets and what's driving the difference in performance? Is it more supply-related, demand-related, or both?

Well, I think particularly with South Florida and Nashville, they're smaller markets. South Florida obviously extremely land constrained with the Everglades on one side and the Atlantic on the other. And the tendency in those markets tends to be a little bit smaller as well. And as we've talked about in the past, the activity levels on leasing are much better in the smaller spaces. That has something to do with it, of course, the demographics. A lot of people still moving to Florida. A lot of people still moving to Nashville. So those are supporting those markets. We've talked a lot about SoCal. I won't get into that. And with respect to Seattle, we're just seeing a slowdown of tenant traffic there. That happens from time to time there. I wouldn't say there's anything in particular that we would point to as being an issue

Got it. Okay. And then back to earlier in the call, you mentioned how you have the three large expirations this year, and you have assumed one is not going to renew. For that one, I was wondering if you could talk about how, like, informed of an assumption that is. Like, is it based on conversations with the tenant, or it's more of like a blanket assumption?

It's a macro blanket assumption. Okay. Got it.

Okay. Thank you.

The next question comes from Bill Crow with Raymond James.

Please go ahead.

Hey, good morning, Peter and team.

I'm curious, when you started to see the weakness in Southern California, it feels like it was, what, 12 to 18 months ago. And I'm thinking about your list of cities that are doing better and worse. Is there anything you can look ahead and say, you know, this city, while it's steady at this point, might be poised to kind of follow up Los Angeles' lead, Southern California's lead.

Peter, you want to take that? So, Bill, I would say to Peter's point earlier, the markets where the rents ran the most in Southern California is certainly at the top of that chart. That's where we've seen slower activity. We're not seeing that in Pennsylvania, in Nashville, in Atlanta, in Florida, in Texas. The rents there have not run as much. So that hasn't been a headwind. And as Peter said earlier, it's not an affordability issue. The other thing I'd say in some of those markets is there's simply not as much supply And the fundamental backdrop of that continues to be good. So that's not something I'm really concerned about today.

Is New Jersey at risk? You didn't mention that one.

So New Jersey had a little bit of a weak quarter in terms of net absorption. I think northern New Jersey, so think about the Meadowlands. as an example, has a similar rent dynamic with Southern California. So I think there's been a little weakness there. But again, they don't have the supply issues that you're seeing in some other markets.

Yeah. Lastly, for me, we've talked about lease economics quite a bit, but you mentioned increasing concession activity and, of course, market rents. under pressure in some markets. No discussion about any change in annual rent bumps. Is that becoming more of a negotiating point with tenant reps?

Chris, do you want to take that? Yeah, it certainly is becoming a little bit more of a negotiating point. But, you know, so far, you know, what we've signed in 2024, you know, our rent bumps were at 3.5%. And if you take out one large tenant, renewal that was negotiated back in 2019, we're actually at 3.7%. So there's still some discussion, but they're still holding relatively strong.

That's it for me. Thank you.

The next question comes from Nikita Beely with J.P. Morgan. Please go ahead.

Thank you, Morgan.

Good afternoon, rather.

I wanted to dig a little deeper on the demand side. I know it's been asked. At Nereid, I think you talked about that you've had already some activity. You were having some discussions on the Stockton building, and now that you've leased it, I was curious, was it the same exact person that you were or the company that you were having discussions with at that time, or was it someone else that knew, came in, and took the building, indicating maybe a deeper pool of potential applicants?

We had a bit of a horse race for that property, and one of those horses won.

So how many people were in the running? Multiple players. We're not going to get into how many. Thanks for that, though.

It was a very hotly contested property. Great for us. One particular group was able to move more quickly. And so they won the day. The terms were very similar in each of the deals that came down to the wire.

Got it. Okay. Thank you.

The next question comes from John Peterson with Jeffrey. Please go ahead. Oh, great, thanks.

I think one of the leases you guys signed in Phoenix, if I'm correlating with press reports correctly, was Steelcase moving from California to Phoenix, which seemed like it was a relocation for them. Are you seeing any of that kind of activity of people leaving Southern California and deciding they can do distribution from Phoenix?

Joe, Joe, first. Thank you. Rob, I wouldn't say, since you already named the name, we're not disclosing anything new. and we'll confirm it, but it's an expansion of footprint, and they are growing, and they are serving more parts of the U.S. In terms of movement, we do see proposals, very few proposals that have SoCal and Phoenix as a provider of space for a particular assignment. At the end of the day, the prospect really makes the decision whether lower cost or drayage is important. If they have a drayage kind of company that has transportation costs that involves the port of LA and Long Beach, almost... certain that they end up in SoCal because of the significant transportation costs. If they can actually, if they don't ship as much as a particular company and they could benefit from lower rental costs, then they potentially could end in, so two distinct customers. So I haven't seen a customer where we really, you know, Phoenix is replaceable to L.A. or SoCal or SoCal is replaceable to Phoenix.

Got it. Okay, that's a really helpful color. Maybe just sticking with Phoenix, I know in the past you guys have, I think you sold one plot of land to a data center developer. Obviously, data center demand remains pretty hot, while it seems like warehouse demand is, let's just say, less hot than it was a couple years ago. I guess, what are you seeing in terms of how land is being used in a market like Phoenix? Are you seeing more projects that, or more land parcels that you thought would go warehouse or actually go in data center, and kind of how's that impacting the development market?

Yes, certainly Phoenix benefits from a lot of things, population growth, consumption growth, and that's why we've been able to successfully lease our buildings there that we built in JV, although we still have one that we need to complete and lease. Also, in addition to that, that's been a hotbed of a lot of semiconductor projects manufacturing, so that helps the economy there, too. That's been a hotbed for data center because of the amount of power and the location continues to be a top spot for data centers. That will continue. In the near term, the data centers are of highest and best value because of the supply of industrial in Phoenix.

Very helpful. Thank you. And the last question comes from Vikram Malhotra with Mizuho. Please go ahead.

Thanks for taking the follow-up. Just two quick ones. So just on your, any statistics you can give on the box sizes in SoCal that are renewing, and I just want to make sure the assumption you made on not renewing, you haven't heard specifically from the tenant. This, as you said, is just a bigger, broader assumption.

I'll answer the next question. The next question, it was a macro assumption that we only renew Montana of the two. There continue to be discussions with both.

And to the first question, one was the land lease and the other was approximately how many square feet, 300,000? I think his question was like, Vikram, was it having to do with the different box sizes in Southern California?

Yeah, just the box sizes. Yeah, exactly. How big are these? these two assets that you're now trying to lease up?

Or renewals, sorry, the renewals, yeah, just how big the boxes are.

Oh, yes, yes, yes. They're in the 150,000 to 300,000 square foot range.

Okay, great. And then just last one, you know, with all the move-outs, I mean, not move-outs, but moving pieces to development, you leased a big one, So great progress on Stockton. It sounds like all of that's coming along well. But just your commentary, some of it getting pushed off, some of it not. Is this just sort of a timing within 2024? I.e., are you still feeling, you know, as good as you felt last quarter about lease up or is something changed? I just want to make, I just want to be clear because it sounds like there were still moving pieces.

Yeah, I mean, as I mentioned in the beginning of the call, This has been a pretty difficult year to project when certain assets are going to lease. We have some developments that are underway. We have completed developments, and we have completed developments that have gone into service without tenants. So that scenario continues because, again, it's difficult to know when these rather elongated conversations are actually going to turn into ink. And that has impacted, that is a great example of that is getting Stockton done. It wasn't even in our budget for this year. And we've got some other assets where the conversations are going a bit slower than we thought they might. And that may happen later in the year. So it's really just trying to do our best to use all of the information we have from our teams on the ground, the tone of the conversations we're having to project out when we're going to to turn these conversations into leads.

Thank you.

This concludes our question and answer session. I would like to turn the conference back over to Peter Basile 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. We look forward to connecting with many of you in June in New York.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. you Thank you. you Thank you. Good day, and welcome to the first Industrial Realty Trust, Inc. first 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. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Art Harmon, Senior Vice President of Investor Relations and Marketing. Please go ahead.

Thank you, Dave. Hello, everybody, and welcome to our call. Before we discuss our first quarter of 2024 results and our updated guidance for the year, 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, April 18, 2024. 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, 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. Since our last call in February, our team has signed two big development leases, and we continue to make progress on our 2024 renewals at strong cash rental rate increases, both of which I will discuss shortly. Looking at the industrial market broadly, vacancies ticked up to about 5.3% as new development projects that were started in 2023 have come online. For 2024, CBRE projects completions of approximately 300 million square feet. As those projects are delivered, we expect national vacancy to increase to the mid-6% range in the coming quarters. Importantly, the market has demonstrated some discipline with respect to new starts. No doubt that the high cost of construction debt has helped. For the past three quarters, starts have averaged just 42 million square feet, which is more than 60% below the recent peak of 114 million in the third quarter of 2022. The increased level of prospect traffic for our development that we experienced toward the end of 2023 has continued into 2024, and some significant leasing decisions have been made. To that end, we signed full building leases at our 500,000-square-foot 1st Rockdale IV in Nashville and our 1 million-square-foot 1st Stockton Logistics Center in Northern California. Updating you on our progress on lease signings to date related to 2024 expirations, we've taken care of 68 percent weighted on net rent. Including the impact of new leasing, Our cash rental rate increase currently stands at 45 percent, which is near the midpoint of our 40 to 52 percent full-year forecast that we provided on our last earnings call. Our results to date reflect a renewal of one of our three largest expirations, all of which are located in Southern California. For guidance purposes, we have assumed one of the remaining two will renew. Moving now to dispositions. In the first quarter, we sold nine properties comprised of 433,000 square feet for a total of $49 million. This puts us well on our way to achieving our full year sales guidance of 100 to 150 million. The largest sale was the five-building, 278,000-square-foot portfolio in Cincinnati for 33 million that we discussed on our February call. The remaining 16 million consisted of 165,000 square feet located in Chicago and Detroit. As I noted on our last call, 2024 has been a particularly challenging year to project the pace and timing of leasing in our portfolio due to the economic uncertainty, increasing volatility in the capital markets and the interest rate outlook, and the rapidly evolving geopolitical environment. Over the past few weeks, these factors have once again given some tenants reason for pause. As a result, with respect to our broad-based same-store leasing assumptions for the year, we decided to make some adjustments which are reflected in our updated guidance. With that, I'll turn it over to Scott.

Thanks, Peter. Let me recap our results for the quarter. NAERIC funds from operations were $0.60 per fully diluted share, compared to $0.59 per share in 1Q-2023. As a reminder, our first quarter 2023 results included $0.02 per share of income related to the accelerated recognition of a tenant improvement reimbursement associated with a departing tenant. Excluding that $0.02 per share, First quarter 2023 FFO per share was 57 cents. Our cash same-store NOI growth for the quarter, excluding termination fees, was 10%. The results of the quarter were driven by increases in rental rates on new and renewal leasing, rental rate bumps embedded in our leases, and lower free rent, which were partially offset by lower average occupancy. We finished the quarter with in-service occupancy of 95.5%, the same rate as year-end 2023, with our 500,000 square foot Nashville lease offsetting some expected move-outs. As we continue to lease up our developments, we expect our in-service occupancy to increase in the second half of the year. As we stated on our fourth quarter earnings call, developments that we placed in service in the third and fourth quarters of 2023 that were not fully leased had approximately 240 basis points of occupancy opportunity. With the lease up of first Rockdale IV, the lease up opportunity from these developments now stands at 160 basis points. Before I touch on guidance, let me remind you that on the capital front, we are strongly positioned with no debt maturities until 2026, assuming the exercise of extension options in two of our bank loans. Also, our expected 2024 asset sales, combined with our excess cash flow after capital expenditures and dividends, will exceed the amount required to fund completion of our developments and process. Moving on to our updated 2024 guidance per our earnings release last evening. Due to changes in some of our same-store leasing assumptions that Peter discussed, our guidance range for FFO is now $2.55 to $2.65 per share. This is an adjustment of a penny per share compared to our prior guidance. Note, as we detailed on our fourth quarter earnings call, Our guidance excludes approximately $0.02 per share of accelerated expense related to accounting rules that require us to fully expense the value of granted equity-based compensation for certain tenured employees. Including this $0.02 per share of expense, our NAVRE FFO guidance range is $2.53 to $2.63 per share. Key assumptions for guidance are as follows. Quarter-end average occupancy of 95.75% to 96.75%, a reduction of 25 basis points at the midpoint. Same-store NOI growth on a cash basis before termination fees of 7.25% to 8.25%, primarily driven by increases in rental rates on new and renewal leasing, along with rental rate bumps embedded in our leases. This is an adjustment of 75 basis points at the midpoint. Note that the same store calculation excludes the 2023 one-time tenant reimbursement that I discussed earlier. Guidance includes the anticipated 2024 costs related to our completed and under construction developments at March 31st. For the full year 2024, we expect to capitalize about $0.05 per share of interest. Our G&A expense guidance range is $39.5 to $40.5 million, and this excludes the roughly $3 million in accelerated expense I referred to earlier. Lastly, guidance does not reflect the impact of any future sales, acquisitions, development starts, debt issuances, debt repurchases or repayments, nor the potential issuance of equity after this call. Let me turn it back over to Peter.

Thanks, Scott. We're very pleased with the two major development leasing wins to kick off the year. Our team is focused on building on that success with additional development leasing and capturing rent growth from lease signings in our in-service portfolio. Operator, with that, we're ready to open it up for questions.

We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then two. Our first question comes from Keybin Kim with Truist. Please go ahead.

Thank you. Good morning. Congrats on the Stockton lease. So I had a couple questions on development. I noticed that the couple assets that you placed into servers that the yield and profit margins were adjusted lower? I mean, thankfully, these are just smaller projects, but just more broadly speaking, should we be just aware of any other risks in the development portfolio as some of these projects near completion or releasing? And if you can provide an update on the prospect activity that you're seeing in your other development projects, please. Thank you.

Jojo, you want to take that? Yes, yes.

Kevin, no, I wouldn't say that... The outlook and the forecast is pretty much similar. We made some adjustments, though, as we do every quarter. We look at exit caps. We look at pro forma yields. And, of course, the result of that is the profit margin. So overall, top level, we increased our exit caps by about 18 basis points. So that's about – we ended up overall average of about a 522 cap rate, which we think is appropriately slightly conservative. And then on the pro forma side, what we did, we adjusted some rents in pro forma and IE. That resulted in an increase of about 16 basis points of increase in pro forma, actually a reduction of 16 basis points on a pro forma yield. If you add that together, Kibin, what you'll notice that that's our overall reduction on everything and our supplemental on terms of our development of about 4 percentage points from about 36 to 32. So, it's a slight adjustment overall there.

And then keeping it to Peter Schultz, to your second question on activity on the rest of the development pipeline, as you look at what we have in Florida, Pennsylvania, Denver, and JoJo can comment on California, activity overall is good. We have active prospects for all or portions of the space. I would say some are moving more deliberately while others continue to move slowly. And it's really about the timing of those decisions more than it is the level of interest. And we continue to see, as Peter remarked in his comments, about the evolving narrative on interest rates and some of the geopolitical issues are a little bit of a headwind to people making decisions. But overall activity is pretty good. JoJo?

Yes, and just nothing really to add to Peter's comment except that I just said that we appropriately adjusted some of the rents.

And just a quick follow-up on Baltimore. I noticed the occupancy rate dipped a little bit sequentially. I'm not sure about the timing of the Old Post Road lease-up, but I was just curious if there's anything else that drove the occupancy lower.

Kevin, it's Peter again. So we have one known move out at year end in the Hagerstown sub-market, which is along the I-81 corridor. That is part of our Baltimore portfolio, 309,000 square feet. So we're marketing that space as a portion of a larger building. No other change in occupancy in Baltimore. Your question on Old Post. So the larger Old Post building took occupancy in December of last year. And then the lease that we announced earlier, half of the smaller building, that commenced in the first quarter.

Okay. Thank you, guys. The next question comes from Rob Stevenson with J&E. Please go ahead.

Good morning, guys. Just to follow up on Baltimore, I know it's early, but any markets, assets, submarkets benefiting from additional demand given what's happened at the port after the Key Bridge tragedy?

So, Rob, it's Peter Schultz. We're not seeing any change in demand or impact to our tenants given the tragedy, as you said, in Baltimore. You probably know that there are already a couple of temporary channels that have been reopened. A third will be opened in the next week or two. The expectation is the port's back in full service by the end of May. So, while it's inconvenient in the near term, we think that that resolves itself here fairly quickly. We're not seeing any real change in demand, positive or negative, from that incident.

Okay, that's helpful. And then, Scott, the property expenses in the quarter were, you know, significantly higher than sort of run rate. I know that you've had that there was some G&A, I believe, is the two pennies in the guidance from the additional expenses. I assume that that's in G&A. But can you talk about what's happening, you know, on the property operating expense side and what that's likely to look like throughout the remainder of the year?

Yeah, Rob, it's got the two cents are in G&A, and I'm going to turn it over to Chris to talk about the property expenses.

Yeah, just on the property expenses for this quarter, it was all related to recoverable snow removal expenses that were up. And again, they're all recoverable. So that was the reason for that.

Okay, that's helpful. Thanks, guys. Appreciate the time.

The next question comes from Vikram Malhotra with Mizzouho. Please go ahead.

Morning. Thanks for taking the questions. Maybe just first one on the going back to the development. Could you just update us on your new, your development GZAP guide? If I'm not wrong, I think it was like, you know, high twos. I just want to see with all the progress you've made, is there an updated version of that? And then just related to that specifically, can you give us a sense of the timing for all what you've done so far? When does that impact SSO?

Yeah, so I'll walk through that a bit from it, Scott. So A little longer of an answer, but I think it makes sense to go through what we talked about on our fourth quarter call in February. So on that call, we said we had about 2.8 million square feet of development lease up. We included in our original guidance 500,000 square feet of this pool. That was the Rockdale deal. It was leased up in the first quarter, leaving 2.3 million square feet of development leasing still in our forecasts. The majority of this leasing is assumed to start in the back half of the year. The other 1 million square feet of development leasing that was first stocked in the first quarter was not budgeted in our original guidance. As Peter mentioned on our last quarter's call, development leasing is going to be difficult to predict in 2024. In some developments, we will beat our forecast, and in other cases, we won't. So some of the development leasing we have completed is ahead of our forecast. So we, in essence, have used some of this early leasing benefit to offset some other development lease timing assumption changes we made to our forecast. Does that help?

Yeah, that's helpful.

And then just specifically on just the development, I think there's a big asset in Colorado, close to 600,000 square feet, I think in the past you've debated is there a full user or do we multi-tenant it? Can you just update us on that?

Sure, Vikram. It's Peter Schultz. We continue to see activity for portions of the building as well as a couple of full building users. The larger users, as I said a few minutes ago, the decision-making there tends to be slower, but we continue to have activity for both partial and full building users. The building is designed to be multi-tenanted, which was our expectation when we built it. I don't have any actionable updates to give you today on any lease signings, but we continue to see activity. As we've said a couple times, it's more about the timing and the pace of that decision-making that we're really focused on.

Okay, and then just one more, if I may. Can you just update us on, you know, maybe SoCal in general, but just specifically those three, the three expirations. Can you just remind us, did you always assume two out of three and one may not renew? Or maybe just walk us through kind of how you're thinking about those three leases.

Yeah, hi, it's Peter. On the rollovers, we always did assume one would not renew. So we're right on schedule with those, and Jojo can give you a broader perspective on what's going on in SoCal.

Sure, sure. Basically, in SoCal, completions exceeded absorption, so vacancy rates did take up. And so renewal activity, though, continued to be active, and discussions are across, I would say, all sizes. New leasing, though, the environment is slower, just like... Both Peter Schultz and Peter Basile said the prospective tenants are taking more time to decide and are touring more properties before committing, and some are deferring their decisions. One other thing in SoCal is that port activity, Q1 of this year, as measured by loaded import containers only in Port of LA and Port of Long Beach, is 26% higher than last year. So, you know, we're hopeful that that has a positive impact going forward. And that container traffic is about equal to about 2018. 2018, 2019, correct. But if you recall, it was a pretty good market.

That makes sense. Thank you.

The next question comes from Todd Thomas with KeyBank Capital Markets. Please go ahead.

Hi, thanks. Good morning. I wanted to first ask about just given some of the progress that you've made now on the SPAC leasing development in the quarter, and we saw the increase in your SPAC leasing cap. I'm just curious, you know, you've talked about, you know, build the suits and some developments, you know, moving forward. Curious what the appetite is like here. how we should think about the timeline for you to maybe, you know, shift offense a little bit more, just given that new starts are down more broadly, you know, 50% or more in most markets.

Yeah, so we do have about $300 million now of capacity in our cap. That's a number, actually, that's pretty similar to what we used to carry on a regular basis. We're just going to call it 2018-19-20. It is very possible that in the near term you'll hear from us on a couple of starts. As we've said on previous calls, those are likely to be in South Florida. As we evaluate other start opportunities across the country, those decisions will be made largely based on how we see development leasing proceeding in those markets. We have some existing assets in those markets, and when we lease those, we'll have a better view about the stickiness of demand and the pace of decision-making. So, again, as those deals come to fruition, that would give us confidence that more starts in those markets are warranted.

Okay. And then just a question on the guidance in terms of the guidance revision. And sorry if I missed this in the commentary, but I'm just curious if, you know, what the offset is to the decrease in the same store growth forecast, which is, you know, a little bit more than, you know, the one penny FFO revision that was made. What's the offset to that decrease?

Well, the penny decrease is, primarily due to same store. So there's a little bit of, you know, we're ahead of budget on those two development leases. We utilized a little of that, but we also utilized that ahead of budget leasing, Todd, to adjust some of the lease-up assumptions we have for the remaining developments. So that's the math from that point of view.

Okay. So it's primarily on the development lease-up while it's heading to the same store. Got it. Okay, all right, thank you.

The next question comes from Rich Anderson with Wedbush. Please go ahead.

Hey, thanks. Good morning, everyone. So a lot of talk about tenant behaviors and leasing decisions are delayed but not done, and you yourself are looking at that situation and actually raising your speculative capacity. What gives you confidence that it is just a push back in timing and not something more permanent in terms of tenant demand? Are you talking to people saying, well, yeah, we're going to do this, but we just need more time? There's every possibility that we could have more of a permanent depressed demand condition, could we not? And if we do, then what's the reaction from First Industrial?

Yeah, I'll give you kind of a broad overview, and then Peter and JoJo will give you their thoughts. These discussions are happening over a pretty long period of time, and we can see from those discussions the level of enthusiasm as it changes based on what's been happening in the broader markets. And by broader markets, I mean everything from what's being talked about with inflation, the Fed and rates, all the negative news we're getting from around the world, you can see where that is having a big impact on how aggressively or otherwise these conversations are proceeding. By and large, it's not like these tenants are going away and doing trades elsewhere. We've had tenants come back after two or three months and want to reinvigorate conversations. It's just a You know, we have a good sense there that it is a matter of when and not if. Now, if the world gets a lot worse, it could be a matter of if. But we aren't seeing that right now.

Peter, you want to add to that? Sure. I would say demand continues to be very broad-based. E-commerce and particularly the largest occupier in that space was very active. in the first quarter. Indications are they're on track to lease more in the first half of this year than they leased all of last year. Market expectations is they may double what they did last year. So that's certainly a good sign, which has tended to be a catalyst for other companies making decisions as well. We continue to see a lot of activity from 3PLs, but those decisions in particular because they're waiting on the commitment of customers, continue to be elongated for all the reasons we've talked about before. We're seeing some retailers, we're seeing some automotive, we're seeing some medical and food and beverage. So the breadth of the activity continues to be good. And nobody's, rarely do we see people tell us that their requirement is canceled It's simply a matter of, in some cases, they have more choices, so there's less urgency. And that varies from market to market. But we feel good about the breadth. We feel good about the activity across some of our smaller spaces has held up very well. And it seems to be the larger spaces have more choices and just slower decision-making today. But overall, we feel pretty good. Jojo, anything else you want to add?

Yeah, the only thing that I would add is that in the biggest part of our business, which is the leasing our existing buildings, our renewal activity discussions has continued to be solid. The executions there have been pretty much the same as Last year, you can see that in our cash rent change. And, you know, a number of tenants, you know, in our discussions would like to expand but hit the pause button as well. And so those give us confidence that a lot of, you know, our portfolio, which is a bigger part of our business, is, you know, feeling good about operating out of our spaces.

Great. Thanks for that, Keller. And then the second for me, I don't know. You've said what your mark-to-market is, but let's say it's 50% or whatever, and you have flattish market rent growth and still your typical contractual escalators. Is it as simple as that in terms of how the mark-to-market will move as you release space? And at what point do you get into a situation where the mark-to-market becomes more pedestrian and... just because of the sort of the flatness of the market and the ongoing rent escalators. I'm just curious. What's the tail here that's still in front of you?

Yeah, rents have grown so much that there is some resiliency in the duration of that mark. Now, that's in a scenario where rents are – let's say falling as much as 5% or flat or up 5% in that range, obviously if rents fell significantly more, the duration of that mark comes down. But at this point, it looks like the sector should enjoy some pretty good rent increases for some time.

And Rich, just to be clear, we haven't given a mark-to-market calculation.

Okay.

Thanks very much.

The next question comes from Craig Mailman with Tiddy.

Please go ahead.

Hey, just going back to the kind of the hesitancy of tenants here to make decisions. I mean, how much is rent, actual nominal levels of rents coming into play in certain markets like LA or New Jersey where, you know, rents on a per square foot basis are just higher than other markets? Is that playing into their kind of mentality at all and hesitancy or is it just really just the uncertainty on playing the business at this point?

Craig, probably the best indicator or the best way to answer that question is that, yeah, in the markets where rents have grown the most, obviously SoCal in a period of two years, they practically doubled in 21 and 22 and They grew decently last year. Those are markets where the probability of deals getting done at a little bit lower than peak rent is higher. And as we have both rollover and renewal discussions and talk to tenants about taking new development again, that phenomenon plays into that conversation. I wouldn't call it an affordability thing. That's not the issue. It is that rents have grown tremendously in some markets, and that would impact the pace of those discussions.

Okay. Then, you know, you guys have mentioned and others have mentioned clearly Amazon's coming back into the market, so e-commerce... feels like maybe we're in a period of expansion but as you go through kind of where if you could gauge kind of by industry vertical where there's the most hesitancy to make decisions today versus where people are more close to kind of needing to take space to fund the five year business plan is there any kind of discernible trends you're seeing so

Looking at history a little bit, in 2020, Amazon took up more space than the next 30 most active lessees combined. That served as a catalyst, as we now know, for others to say, hey, we have to get in the game. And you saw that happen to a great degree in 21 and 22, which created the very, very high net absorption numbers that we saw. That particular player is, once again, making a rather large move this year. Time will tell if that behaves as a catalyst for others to get involved, but we certainly don't see it as a negative thing. And the prospects going forward could be pretty good that it is a catalyst for others getting involved.

Craig, it's Peter Schultz. The other thing I would just point out, as I mentioned earlier, is the 3PL decisions far slower because they're waiting on their customers. So there's two steps in that process. So it's harder for landlords to have visibility into those discussions between the 3PL and the customers, and that's where we're seeing probably the most elongated decision-making.

The other thing, sector two, Craig, would be housing, home improvement, furniture in particular. That sector's a little bit slower.

Okay. And I guess going to 3PL piece, you know, they had traditionally liked shorter term leases. I think when things got very strong, they were forced to do five-year leases. Is there any, you know, push on their part to go back to shorter term leases to match it better with their contract length? Or are you guys still able to hold that side of the equation? And also just on the concession side, what are you guys seeing from a free rent take up in certain markets versus others?

On the 3PL front, the prospects we're in discussions with are all five to 10 years. Having said that, we have seen some deals in the market that are shorter term, say three years. In terms of concessions, we're seeing those come up a little bit, so they've been less than half of one month per year of term to maybe 0.6 or 0.7. And I wouldn't say it's universal. It's generally in the markets with a little bit more supply. But concessions are ticking up a little bit.

Yes, overall, we don't think there's going to be a material change in the terms that the CPLs want. I think customarily it will be five plus years. And the biggest reason for that is that the 3PLs are meeting their customers' needs. And most customers don't want to be out of space. When they make a commitment to be served by a 3PL, that's usually a long-term commitment. And potentially cancelable, but long-term. So they don't want to be thrown back to the street and not having space. So that term is pretty sticky. We haven't really seen it accordion significantly.

Great, thank you.

The next question comes from Nicholas Uliko with Scotiabank. Please go ahead.

Hi, good morning, everyone. I was hoping to get a feel for, I know you don't specifically break out like new leasing, new leases signed, but just kind of thinking about the volume of that activity in the first quarter and whether it was, you know, down versus budget, just kind of how you're thinking about like the overall impact new leasing activity, you know, affecting the change in guidance for the year?

So, the two development leases that we signed were above pro forma, and with respect to the renewal leasing, as you see, our cash rent growth there is pretty significant, and we're on track with respect to the guidance that we provided in the first quarter. Is that what you're getting at, or are you asking something different?

Sorry, I was asking more just in terms of overall, you know, square footage of new leases signed in the first quarter, how that compared versus the initial budget, if it was down, and that, you know, affected the, like, occupancy guidance change for the year.

No, you know, I think overall just, you know, what we had – projected at the end of the year for the guidance, our leasing volume is about right there.

Yeah. Nick, look at page 15 of our supplemental. We break out new renewal and development. And I would say for the first quarter, we were right on budget with new leasing.

Got it. Yeah, no, I know that's in terms of commencements. I was asking more, you know, in line with leasing volume, you know, new leases signed. I don't know if there's a different number there.

Yeah. Here's what I would say to that. We gave a statistic. I think it was we took care of 69% of our expirations as of yesterday. If you look back in the first quarter last year, that number was very consistent. So there's been no material change in what we've been able to lease up at this point in time this year compared to what it was last year. I'd even say compared to the year before that.

Yeah, we're actually a little bit ahead. So, you know, we've taken care of about 71%. I think last year at this time we had taken care of about 64%. So we're actually a little bit ahead on that. Renewal lease is taken care of.

Got it. Thanks. Appreciate the clarity there.

The next question comes from Nick Thillman with Baird. Please go ahead.

Hey, good morning, guys. Maybe just wanted to touch a little bit on your renewal discussions. Has there been any really shift in kind of the environmental when a tenant approaches you kind of to begin those discussions, maybe over the last like two quarters or so? Are they feeling less urgent to kind of sign new deals because they might think that rental rates are starting to roll over? Just a little commentary there would be helpful.

Well, most of the big guys have representation, and it won't surprise you that those tenant reps are, in many cases, telling them to wait a little bit because maybe they'll get a better deal. And, you know, as we mentioned a couple of times, the pace of those discussions does get impacted pretty significantly by, you know, market news, economic news, rate news, global goings-on, et cetera. The tone is evolving. I would say when we were going into the fourth quarter of last year, coming into the first quarter of this year, there was some optimism, of course, about three or four rate cuts, and maybe they would start early in the year. And people were feeling like it's probably time to get ready to pull the trigger. And that feeling has dulled a little bit with the recent news in the last few weeks.

Nick, the other thing I'd add is that if a tenant is considering moving, they need to plan for that well in advance because getting the permits to modify or improve another space, as we've talked about on other calls, continues to be very elongated. So that continues to weigh on tenants' decisions. Are they staying or not? But I would say, generally speaking, There's been no real change in tone or timing, you know, other than what Peter alluded to.

That's helpful. Maybe touching a little bit on dispositions, maybe getting a little bit more of a flavor of what's the buyer pool like and kind of what is there a portfolio premium still being placed on assets and then also kind of where pricing is shaking out relative to expectations on some of the assets that you have traded.

Yeah. So the market is active. Remember that what we have in our expectations in terms of our sales program is really more targeted to users. And the 1031 market is coming back now because they're able to do both sides of the trade. So it's users, 1031 buyers, local investment entities, doctors, dentists, lawyers, et cetera. The profile, I would say that the activity is robust, meaning the number of people signing up to get information is high. The conversion to offers is also pretty good. So, yes, it's an active market. In terms of pricing, obviously that fluctuates depending on the market and the asset in particular. Still, the users are going to be more aggressive on pricing. The 1031 buyers are going to be more aggressive on pricing. But, yeah, those values are coming in pretty close to our expectations.

Helpful. Thank you.

The next question comes from Jessica Zhang with Green Street. Please go ahead.

Good morning. I was wondering if you could please share some color on where you're seeing relative strengths and weaknesses in your portfolio on the market level?

You mean with respect to, say, rent growth, leasing, anything specific?

Yes, rent growth and leasing activity.

So the markets right now that are showing rent growth and good leasing activity, South Florida, as we've said, continues to be pretty strong. Nashville, the demographics there continue to impress, and that market's doing well. In terms of the slower markets, we've spent a lot of time talking about SoCal. That would have to be on the list there. Seattle's a little quiet. Anything else that I'm not remembering?

No.

Everything else is kind of steady as you go.

Great. That's very helpful. And then I was also wondering if you can share some color around utilization levels in your properties. Do you sense there's some excess capacity among your tenants? I'm just curious, like how they're accommodating growth in their businesses today.

Jojo, you want to take that? Sure. So we survey our properties, we inspect our properties constantly, and we look at when we meet our tenants, our customers, and our view is that they're utilizing their space pretty well. There's not a lot of excess space. In fact, I would say there's very, very few sublease situations in our portfolio. It's de minimis.

Great. Thank you.

The next question comes from Blaine Heck with Wells Fargo.

Please go ahead.

Great. Thanks. Good morning. Just wanted to talk a little bit more about the reduction in same-store guidance and the specific drivers there. You know, given that occupancy was relatively flat and rent spreads on 70-ish percent of 2024 commencing leases increased. So I guess we're just wondering whether there was anything in particular outside those metrics that gave you pause or if it's just you know, a matter of an inflection, you were forecasting and render occupancy that now you don't think will happen, and just also trying to determine how much conservatism is baked in with that decrease they got in.

Sure, Blaine. I would say the main reason, and we touched upon it in the script, is there was a handful of properties that we adjusted the leasing assumptions on that were in the same store pool. So that was the reason for the adjustment that we made.

Okay, that's helpful.

And then just to follow up on Baltimore, you know, you guys made some good progress at Old Coast Road last year, but there is still some space there that remains and now includes Hagerstown. Can you just talk about whether you're seeing a slowdown in tenants looking for space in the market given the shutdown in the port and whether you think your chances of getting, you know, more leasing done in that market have changed in the near term?

It's Peter Schultz. There's been no real change in the levels of demand or impact on customers from the collapse of the bridge. You probably know that Baltimore is primarily an automobile and bulk material port, so what we refer to as roll-on, roll-off, or row-row. So the container volume there is only about 5% of the East Coast ports. It's not that material. So it's not having an impact one way or the other. In terms of leasing activity, it's about the same as we've described earlier. There's interest, but it's moving slowly. Where the balance of our Old Coast Road building is along the I-95 corridor, that's 172,000 feet That's in a different market than Hagerstown, which is along I-81 coming out of Pennsylvania. The Hagerstown market is a little soft. Vacancy rates are in the double digits there. So that's my answer for you this morning.

Great. Thank you very much.

Sure.

Caitlin, your line is now live.

Are you on mute? Nope, now I hear you. Maybe just back to the market question that somebody asked a few minutes ago. You mentioned that South Florida and Nashville were two of the stronger ones, SoCal and Seattle more quiet. Could you talk through some of the drivers of the different markets and what's driving the difference in performance? Is it more supply-related, demand-related, or both?

Well, I think particularly with South Florida and Nashville, they're smaller markets. South Florida obviously extremely land constrained with the Everglades on one side and the Atlantic on the other. And the tendency in those markets tends to be a little bit smaller as well. And as we've talked about in the past, the activity levels on leasing are much better in the smaller spaces. That has something to do with it, of course, the demographics. A lot of people still moving to Florida. A lot of people still moving to Nashville. So those are supporting those markets. We've talked a lot about SoCal. I won't get into that. And with respect to Seattle, we're just seeing a slowdown of tenant traffic there. That happens from time to time there. I wouldn't say there's anything in particular that we would point to as being an issue

Got it. Okay. And then back to earlier in the call, you mentioned how you have the three large expirations this year, and you have assumed one is not going to renew. For that one, I was wondering if you could talk about how, like, informed of an assumption that is. Like, is it based on conversations with the tenant, or it's more of like a blanket assumption?

It's a macro blanket assumption. Okay. Got it.

Okay. Thank you.

The next question comes from Bill Crow with Raymond James. Please go ahead.

Hey, good morning, Peter and team.

I'm curious, when you started to see the weakness in Southern California, it feels like it was, what, 12 to 18 months ago. And I'm thinking about your list of cities that are doing better and worse. Is there anything you can look ahead and say, you know, this city, while it's steady at this point, might be poised to kind of follow up Los Angeles' lead, Southern California's lead.

Peter, you want to take that? So, Bill, I would say to Peter's point earlier, the markets where the rents ran the most in Southern California is certainly at the top of that chart. That's where we've seen slower activity. We're not seeing that in Pennsylvania, in Nashville, in Atlanta, in Florida, in Texas. The rents there have not run as much. So that hasn't been a headwind. And as Peter said earlier, it's not an affordability issue. The other thing I'd say in some of those markets is There's simply not as much supply today, and the fundamental backdrop of that continues to be good. So that's not something I'm really concerned about today.

Is New Jersey at risk? You didn't mention that one.

So New Jersey had a little bit of a weak quarter in terms of net absorption. I think northern New Jersey, so think about the Meadowlands, as an example, has a similar rent dynamic with Southern California. So I think there's been a little weakness there. But again, they don't have the supply issues that you're seeing in some other markets.

Yeah. Lastly, for me, we've talked about lease economics quite a bit, but you mentioned increasing concession activity and, of course, market rents. under pressure in some markets, no discussion about any change in annual rent bumps. Is that becoming more of a negotiating point with tenant reps?

Chris, do you want to take that? Yeah, it certainly is becoming a little bit more of a negotiating point. But, you know, so far, you know, what we've signed in 2024, you know, our rent bumps were at 3.5%. And if you take out one large tenant, renewal that was negotiated back in 2019, we're actually at 3.7%. So there's still some discussion, but they're still holding relatively strong.

That's it for me. Thank you.

The next question comes from Nikita Beely with J.P. Morgan. Please go ahead.

Hi, Morgan.

Good afternoon, rather.

I wanted to dig a little deeper on the demand side. I know it's been asked. At NARIT, I think you talked about that you've had already some activity. You were having some discussions on the Stockton building, and now that you've leased it, I was curious, was it the same exact person that you were or the company that you were having discussions with at that time, or was it someone else that knew, came in, and took the building, indicating maybe a deeper pool of potential applicants?

We had a bit of a horse race for that property, and one of those horses won.

So how many people were in the running? Multiple players. We're not going to get into how many. Thanks for that, though.

It was a very hotly contested property, great for us. One particular group was able to move more quickly. And so they won the day. The terms were very similar in each of the deals that came down to the wire.

Got it. Okay. Thank you.

The next question comes from John Peterson with Jeffrey. Please go ahead. Oh, great. Thanks.

I think one of the leases you guys signed in Phoenix, if I'm correlating with press reports correctly, was Steelcase moving from California to Phoenix, which seemed like it was a relocation for them. Are you seeing any of that kind of activity of people leaving Southern California and deciding they can do distribution from Phoenix?

First, thank you. Rob, I wouldn't say, since you already named the name, we're not disclosing anything new, and we'll confirm it, but it's an expansion of footprint, and they are growing, and they are serving more parts of the U.S. In terms of movement, we do see proposals, very few proposals that have SoCal and Phoenix as a provider of space for a particular assignment. At the end of the day, the prospect really makes the decision whether lower cost or drayage is important. If they have a drayage kind of company that has transportation costs that involves the Port of LA and Long Beach, almost... certain that they end up in SoCal because of the significant transportation costs. If they can actually, if they don't ship as much as a particular company and they could benefit from lower rental costs, then they potentially could end in, so two distinct customers. So I haven't seen a customer where we really, you know, Phoenix is replaceable to L.A. or SoCal or SoCal is replaceable to Phoenix.

Got it. Okay, that's a really helpful color. Maybe just sticking with Phoenix, I know in the past you guys have, I think you sold one plot of land to a data center developer. Obviously, data center demand remains pretty hot, while it seems like warehouse demand is, let's just say, less hot than it was a couple years ago. I guess, what are you seeing in terms of how land is being used in a market like Phoenix? Are you seeing more projects that, or more land parcels that you thought would go warehouse are actually going data center, and kind of how's that impacting the development market?

Yes, certainly Phoenix benefits from a lot of things, population growth, consumption growth, and that's why we've been able to successfully lease our buildings there that we built in JV, although we still have one that we need to complete and lease. Also, in addition to that, That's been a hotbed of a lot of semiconductor manufacturing, so that helps the economy there too. That's been a hotbed for data center because of the amount of power and the location continues to be a top spot for data centers. That will continue. In the near term, the data centers are of highest and best value. because of the supply of industrial in Phoenix.

Very helpful. Thank you. And the last question comes from Vikram Malhotra with Mizuho. Please go ahead.

Thanks for taking the follow-up. Just two quick ones. So just on your, any statistics you can give on the box sizes in SoCal that are renewing, and I just want to make sure the assumption you made on not renewing. You haven't heard specifically from the tenant. This, as you said, is just a bigger, broader assumption.

I'll answer the next question. The next question, it was a macro assumption that we only renew one tenant out of the two. There continue to be discussions with both.

And to the first question... One was the land lease and the other was approximately how many square feet? I think his question was like... Vikram, was it having to do with the different box sizes in Southern California?

Yeah, just the box sizes. Yeah, exactly.

How big are these two assets that you're now trying to lease up?

Oh, the size of the spaces.

Or renewals, sorry. Or renewals. Yeah, just how big the boxes are.

Oh, yes, yes, yes. They're in the 150,000 to 300,000 square foot range.

Okay, great. And then just last one, You know, with all the move-outs, like, I mean, not move-outs, but moving pieces to development, you leased a big one, great progress on Stockton. It sounds like all of that's coming along well. But just your commentary, some of it getting pushed up, some of it not. Is this just sort of a timing within 2024? I.e., are you still feeling, you know, as good as you felt last quarter about lease-up, or has something changed? I just want to make, I just want to be clear, because it sounds like there were still moving pieces.

Yeah, I mean, as I mentioned in the beginning of the call, this has been a pretty difficult year to project when certain assets are going to lease. We have some developments that are underway. We have completed developments, and we have completed developments that have gone into service without tenants. So that scenario continues because, again, it's difficult to know when these rather elongated conversations are actually going to turn into ink. And that has impacted, that is a great example of that is getting Stockton done. It wasn't even on our, in our budget for this year. And we've got some other assets where the conversations are going a bit slower than we thought they might. And that may happen later in the year. So it's really just trying to do our best to use all of the information we have from our teams on the ground, the tone of the conversations we're having, to project out when we're going to turn these conversations into leads.

Thank you.

This concludes our question and answer session. I would like to turn the conference back over to Peter Basile 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. We look forward to connecting with many of you in June in New York.

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