Q2 2020 First Industrial Realty Trust Inc Earnings Call

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Listen only mode. After the speaker presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone.

Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to Art Harmon, Vice President of Investor Relations and marketing. Thank you. Please go ahead Sir.

Thanks, a lot shall we say hello, everybody and welcome to are cool.

Before we discuss our second quarter 2020 results updated guidance, let me remind everyone that are called 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, maybe time sensitive and accurate only as of today's date Thursday July 20, Threerd 2020.

We assume no obligation to update our statements or the other information we provide.

Actual results may differ materially from our forward looking statements and factors, which could cause. This are described in our 10-K and other SEC filings you can find a reconciliation of non-GAAP financial measures discussed in today's call in our supplemental report and our earnings release.

Supplemental report earnings release in our SEC filings are available at first industrial Dot com under the investors tab.

Our cold begin work remarks by Peter facility, our President and Chief Executive Officer, and Scott Musil, Our Chief Financial Officer, After which we will open it up for your questions also on the call today or Joe, Yes, Our Chief Investment Officer, Peter Schultz Executive Vice President, Chris Snyder Senior Vice President of operations and Bob Walter.

Senior Vice President of capital markets and asset management now, let me turn the call over to Pete.

Thanks Art. Thank you all for joining us today.

I hope that you and yours are maintaining your health as we all worked through these challenging times.

Before we discuss the quarter, we would like to express our gratitude and bid farewell to an important member of the first industrial family.

As we previously disclosed Bruce Duncan has retired from our board.

As many of you know Bruce has taken a new challenge as CEO of another <unk>.

Bruce joining first industrial as our CEO in 2009 during a difficult period and provided tremendous leadership to help stabilize and transform our business model and portfolio.

We wish Bruce well in his new role.

As you May also have seen seasoned SFR director, Matt Dominski has taken over as chairperson.

Matt has been a highly productive member of our board since 2010.

We are thrilled to have Matt as our new chair and look forward to has continued council and leadership.

Moving now to the quarter.

We produced strong results demonstrated in several different areas, including collections leasing investment and capital markets.

Our regional teams have done a fantastic job in the second quarter on collections.

I'd like to thank them for their continued diligence and working with our tenants through these difficult times.

As of yesterday, we had collected 98% of to Q monthly rental billing.

And so far we've collected 97% of July billings, which is ahead of the pace, we experienced in the second quarter.

If we include collections from government related tenants that regularly pay at the end of the month.

Our collection rate for July would also be 98%.

About 65% of the outstanding monthly rental billing in the second quarter. We're in jurisdictions that have moratoriums on the landlords right to have it which we believe is a contributing factor towards the open receivables for this group.

To be clear in our calculation of this collection percentage metric.

The numerator reflects cash collection.

And we do not give ourselves credit under our methodology for the application of security deposit.

In addition, the denominator reflects the total monthly rental billing and is not reduced for any reserves for bad debt expense or rent deferrals.

Including surrendered security deposits and bad debt reserves recognized in the second quarter, our outstanding accounts receivable related to our monthly rental billing into Q is only $550000.

Rent relief requests have tapered off to a minimal.

During the cold with 19 crisis to date, we have established Reds deferment agreements.

With 14 tenants totaling $750000 or about 18 basis points of annualized billings.

The average term for these deferrals is 1.3 months.

It appears that government stimulus has helped the number of our customers and business leaders in general are more optimistic about their process.

The industrial business continues to perform well as commerce continues to flow through logistics facility.

As you've seen economic activity has improved since March and April and our customers and prospects are moving ahead with new space requirements, albeit with caution in some cases.

And its second quarter preliminary Flash report CBR, we reported 19 million square feet of net absorption versus 56 million square feet of completion.

These figures should not be a surprise given the economic slowdown attributable to co bid and the resulting drop in Q2 leasing activity.

However, we are optimistic about our long term prospects given the acceleration of E commerce adoption and the potential for additional safety stock generating incremental demand for logistics space.

This view is supported by TBR Reis recent forecast that annual net industrial absorption will total more than 333 million square feet by 2022.

If they are right net absorption for the sector would exceed the high watermark posted great financial crisis of 324 million square feet in 2016, and the all time Mark of 329 million square feet in 2000.

Despite completions exceeding net absorption nationally in the quarter, our portfolio occupancy increased 97.7% at quarter end.

We also achieved the big leasing wind at our Nottingham Rich Logistics center in the I 95, North Submarket of Baltimore.

We leased 100% of the 585000 square foot building, hey to a leading ecommerce provider on a long term bases, which commenced in late June.

[noise], considering we purchased this asset in the first quarter. We leased this property significantly ahead of the 12 month lease up budgeted in our guidance.

We're just 54000 square feet remaining to lease we are now 93% occupy that this 751000 square foot to building project.

Looking more closely our portfolio performance as of July 22nd.

We have signed 83% of our 2020 lease expirations at a cash rental rate increase of 8.6%.

For the full year, we expect our cash rental rate change, a new and renewal leasing to be approximately 10%.

The investment market has begun to awaken after a fairly quiet period in which we saw the bid ask spread widened a bit.

Most offerings had been show as participants saw more clarity on the direction of the economy and asset values.

The federal government stimulus action certainly help to quell some of those concerns and based on what we are seeing and hearing.

Pricing has returned to pre cobot levels and in some cases is higher.

We were able to make a few acquisitions during the quarter in some high barrier markets.

We acquired a 39000 square foot or in Fremont, and Northern California and added an adjacent building comprised of 46000 square feet.

The aggregate purchase price was 17.8 million with a weighted average initial yield of approximately 4.6%.

We also added a 9.7 acre covered land investment in the inland Empire for three and a half a million dollars.

The site has a 3% in place yield for the next several years generating some cash for us as we entitled the site.

The site will accommodate a 155000 square foot development.

Thus far in the third quarter, we've closed on a 6.6 acre site and Seattle for 6.1 million that can accommodate a 129000 square foot building.

We're also excited to launch a new build to suit development at our first andina to site in the inland Empire the.

The building will be 221000 square feet and at least on a long term basis to a manufacturer of material handling systems.

Total investment is 22.4 million and the initial cash yield will be approximately 6.2%.

We are proceeding with all of our developments in process, which totaled 1 million square feet and a total investment of 94.7 million at June Thirtyth.

In addition to our on balance sheet development construction on the 643000 square foot spec building in our Phoenix joint venture at PV, three or three is progressing well.

Our portion of the investment is $21 million and our targeted yield it's 7%.

Our on balance sheet land holdings will accommodate approximately 13 million square feet of future development.

The vast majority of which is entitled and ready to go.

We continue to move ahead on infrastructure work at several sites. So that we're prepared to launch when we think economic conditions in the specific submarkets justify nustars.

Moving to dispositions in the second quarter, we sold three buildings totaling 211000 square feet for 14.6 million.

These were comprised of a building in Detroit, one in Chicago, and our last asset in Indianapolis.

Year to date, we sold 437000 square feet for a total of 41.1 million.

As a reminder, in the third quarter, we expect to close on the 55 million dollar sale in Phoenix in which the tenant exercise its purchase option in 2019.

Moving to our recent capital markets activity on July 7th we entered into a private placement agreement to issued 300 million in total of 10, and 12 year notes with a weighted average interest rate of 2.81%.

On July 15th we close on an extension of our term loan that was scheduled to mature in January of 2021.

These two executions provide us additional capital for new investment and lengthen our maturity schedule.

So all in all a successful is very busy quarter with great execution by our team.

With that let me turn it over to Scott. Thanks, Peter I will begin with our EPS and Fs FFO for the second quarter.

Diluted EPS was 28 cents versus 31 cents, one year ago and they reached funds from operations were 46 cents per fully diluted share compared to 43 cents per share in Twoq 2019.

Second quarter 2020, FFO includes approximately.

$500000 of cash bad debt expense related to headed accounts receivable.

At $400000 of noncash bad debt expense related to the write off certain deferred rent receivables.

Pier one has paid July rents and we are assuming they pay August rent, which in total represents a $500000 pick up from our prior guidance.

Occupancy was strong at 97.97% up 60 basis points from the prior quarter, it up 40 basis points from a year ago.

As for leasing volume during the quarter, we commenced approximately 2.9 billion square feet of leases.

600000 were new.

1.6 million were renewals and 700000 were for developments and acquisitions with lease up.

Tenant retention by square footage was 88.7%.

Same store NOI growth on a cash basis, excluding termination fees was 6.3% helpline increase in rental rates on new and renewal leasing.

A decrease in free rent.

And rental rate bumps embedded in our leases.

This was partially offset by an increase in bad debt expense and slightly lower average occupancy.

Cash rental rates were up 11% overall with renewals up 8.9% and new leasing 16.7%.

And on a straight line basis overall rental rates were up 32.4% with renewals, increasing 30.6% and new leasing up 37.5%.

As Peter mentioned, we executed on to capital market transactions in the third quarter that extent in ladder, our maturities at attractive rates.

First we entered into agreement issued $300 billion of fixed rate senior unsecured notes in a private placement offering.

The notes are comprised of two traunches.

$100 million with a 10 year term at a rate of 2.74%.

In $200 million with a 12 year term at a rate of 2.84%.

We expect to close on the offering on or about September 17th of this year.

On an interim basis, we will use these funds to beta paydown or line of credit, which will give us more liquidity to fund new investment and a secured debt maturity in 2021.

We also refinanced our $200 million unsecured term loan previously scheduled to mature at the end of January 2021.

The new loan has an initial maturity date of July 2021, which we can push to July 2023 via two one year extensions exercisable at our option.

The loan features interest only payments and bears an interest rate of LIBOR, plus 150 basis points.

In conjunction with the new term loan we entered into new interest rate swap agreements that convert the loan to a fixed interest rate of 2.49% beginning in February 2021.

In 2021, we will realize the body penny per share of savings due to this refinancing.

After these two executions one of our remaining 2021 maturities is the aforementioned $63 million of secured debt in the fourth quarter.

We can pay that off using our line, which will have additional capacity created by the proceeds from our private placement offering.

The other is our line of credit, which matures in October of 2021, but we can push that out another year through a one year extension exercisable at our option.

Our leverage is also in good shape with our net debt plus preferred stock to EBITDA at 5.2 times at January at June Thirtyth.

Moving onto our guidance for our press release last evening.

Our guidance range for Navarrete asset FFO and AFFO before onetime items is now $1.76 cents to $1.84 cents per share with the midpoint of $1.80 cents.

This is an increase of two cents per share compared to the midpoint of our guidance on our first quarter call.

The increase is primarily due to the early lease up of the 585000 square foot building at the Nottingham Ridge Logistics Center.

As well as two months of additional rental income from pure one.

This is slightly offset by additional interest expense based on our assumption that we use the funds from our private placement offering to pay down our line of credit in the near term.

Our assumption for the average for the range of average quarter and occupancy remains 96% to 97% and our cash bad debt expense assumption remains $900000 for each of the third and fourth quarters.

Please note that guidance does not include any potential write offs of deferred rent receivables related to tenants that are having financial difficulties.

Other key assumptions for guidance are as follows.

Same store NOI growth on a cash basis before termination fees of 3.25% to 4.25% an increase of 25 basis points at the midpoint and a tightening of the range.

Our guidance range remains at $31 million to $32 million.

And guidance also includes the anticipated 2020 costs related to our completed in under construction developments at June Thirtyth.

Plus the third quarter start a first mendieta too.

In total for the full year 2020, we expect to capitalize about four cents per share of interest related to our developments.

Our guidance does not reflect the impact of any other future sales acquisitions or new development starts. After this call other than the expected third quarter sales of the building in Phoenix for which the tenant exercises purchase option.

The impact of any future debt issuances.

Debt repurchases or repayments. After this call other than the $300 million private placement I previously discussed, which we expect to close on or about September 17 of this year.

The impact of any future gain related to the final settlement of one insurance claim from a damage property.

And guidance also excludes the potential issuance of equity, let me turn it back over to Peter.

Thanks, Scott before we open it up to questions. Let me say that I'm incredibly proud of the way. Our team has performed in this in difficult environment and thank them for their dedication to serving our customers well and doing it safely.

Our company's built for the long term and we're well positioned to drive cash flow growth for shareholders by serving logistics needs of a range of essential and emerging businesses, while capitalizing on the secular drivers of ecommerce.

With that we will now move to the question and answer portion of our call. We ask that you. Please limit your questions to one plus a follow up and then you are welcome to get back in the queue. Operator would you. Please open up for questions.

Absolutely and as a reminder, if you would like to ask a question you may do so by pressing star than the number one on your telephone keypad. Your first question is from Craig Mailman of Keybanc capital markets.

Good morning, guys.

Peter's maybe circling back to your reference of the net absorption here in the second quarter versus the new supply clearly a little bit of an imbalance, but hopefully a little bit temporary here just with that backdrop, though what are you seeing from from tenants and.

Tenant rep brokers in terms of where they see.

Rent levels are really pushing back are they asking for more concession doors.

A realization that supply could get choke off here and.

Things could tighten up pretty quick.

Well things are a lot different in the last 45 days and they were in the prior few months as you can imagine.

It looks now we do think theres going to be some rent growth depends on the market, obviously and in terms of concessions were just not seeing anything that's any different than what existed pre the virus.

There may be certain areas, where there are an oversupply of big boxes, you know that before the virus or a few markets that have additional supply. So maybe there is some additional concession there, but generally speaking the markets are pretty strong. It's obviously still clearly a landlords market and so we will.

Mystic about our opportunity to grow rents.

And then just you guys had some good execution, there and Baltimore and the I.E., but the bound to the development pipeline.

Understandably didnt get much leasing done just kind of curious where some of those projects stand and what the pipeline looks like.

Sure I'll have Joe Joe and Peter take you through that recognize that a lot of that isn't finished yet but.

So Joe you want to go over some of our projects sure sorry, if you look at the projects that were just.

Completed the end of last year, that's in Dallas, and Houston, Costar with Houston, Great project guarantee Katie.

Well ESI 10, and state highway and I appreciate frontage two buildings love that project, but at this point that means showings there had been limited because of a co bid but.

Despite that we're basically at 15% leased there of course, you know will continue to work and improve the leasing there in Dallas Theres, one important our fourth as lewisville lewisville, so much tighter market less supply.

Very good marketers a lot of demographic growth at market, we love that project as well is 18% that market is more open in terms of showings and RFP. So look forward to announcing more deals there and you know where we end up first fossil Greek thats really a one to 2000 building and we're just looking for the right tenant.

And so for.

First Redwood Nic, we just completed a building at the end of.

The end of last month, and our already getting our piece, we are well within our 12 month lease up periods were getting our peace and ER and proposals there and for the rest of the development before I turn it over to theater for.

First independents logistics on Sawgrass read was as I $21 by I mean, those projects are still not completed yet Peter.

Thanks, Joe Good morning, Craig It's Peter Schultz.

On our project in Philadelphia.

I was really just completed in the last couple of weeks, Pennsylvania as you may know how to construction Holt.

For several months, so we're a little bit delayed there, which certainly also impacted inspections and activity.

But thats a sub markets, it's very tight with limited supply.

As Peter mentioned couple of minutes ago, we've definitely seen an increasing activity in the last 30 days.

Broadening across industries and space sizes are other project in Central Pennsylvania. As you May recall is the second to the two building project there that 75% leased.

And within the last 30 days we've seen.

Pickup in inquiries traffic in RFP is there.

And more activity in the 200000 square foot plus range than we've seen them a couple of months. So clearly work to do and we'll keep you posted on our progress.

Thank you.

Your next question is from Ki bin Kim of Suntrust.

Good morning out there.

When you guys mentioned improving.

Customer dialogue, what does that really mean and can you put a little more details behind that.

But.

Ki bin Peter here.

You know look where we have.

As we mentioned.

We got very early we got very close to our tenants on helping them get access to PPP et cetera. So the specific action points were to make sure. They knew what was available make sure. They knew how to do it and also try to make sure that they had a banking relationship that we give them access.

The application process and receiving funding.

That effort that we made we think has paid off to some degree now we don't know how many of our tenants actually got ERP, but we do know about 30 did and again, we don't know how they invest the money. They received either because you can invest about half of it and non payroll activity so but.

But having that dialogue definitely put us in a good position with the tenants. We've also had some.

Weather issue that certain assets that we've taken care of.

In terms of flooding et cetera.

You know notwithstanding the environment and the difficulty with everything being shut down because of the virus and so all of these things are going to or toward retention going toward tenant relationships and ultimately we think drives value for our shareholders in the long run.

Okay, and if you take a step back and.

Incorporating everything now and kinda improved outlook, how does that translate into your willingness for capital allocation, you risk or endeavors like development.

And one of the right time to maybe reignite that.

Yes, so we're evaluating.

Various opportunities now first I'll say obviously.

The NAND Dina two projects a good example, we're in the business right now we're we're in the build to suit business, we're responding to our piece.

So we're eager to grow that business, obviously, our primary source of growth has been and we'll continue to be speculative development. There are two things that we're focused on in terms of when and how we decide when and where to go with new projects.

One is we'd like to see the great dialogue that we're having with a range of tenants on a number of our projects turned into inc. leased inked leases and when we see that happen that will give us some confidence that this new activity is sustainable the second thing. We're looking at is what's happening with the virus whats.

Happening with.

Activities and policies and protocols that may come down from the leadership of each state and nationally and will that.

Have enough a chilling effect on the economy or will allow the economy to continue to open, albeit perhaps at a slower pace. So if we see some sustainability there and some some sustainability.

As I said on the tenant activity, that's going to give us great confidence to go ahead and start putting some shovels in the ground again.

Okay. Thank you and kind of mid to upper.

Your next question is from Rob Stevenson of Janney.

Hi, guys.

Any tenants of size that are likely or known move outs were looking at the expiration through early 2022 at this point.

Yeah, Rob It's Scott what do you look at the.

So we've got going out to 2021.

The largest.

Tenant exploration, we have is about 477000 square feet, it's in Atlanta.

That lease is.

Coming due in May of next year, So we really haven't gotten far along with the dialogue with that tenant.

I would say or 2021 lease maturities are very granular from a tenant industry point of view in a regional point of view.

Okay and then.

Can you guys talking about demand in the market.

These days for the noncore assets do you expect to continue to sell in the back half of the year.

It is pricing what you would expect for that any urgency to get more this don given the rhetoric on doing away with are limiting penthirty one exchanges going forward.

Well.

First hi, this is Joe Joe I'll first in terms of the.

Sales from our investment market I mean of course, everybody knows we kind of hit the pause.

March April and May but buyers are back for all product types.

You know all across the market and.

That's really driven by the pause in a market and named seeing that the industrial business continues to lease space and rents continue to grow and so we don't expect plus for the quarter costs for the year, we don't really expect significant change.

In a sales activity market.

What we are hearing is that our sellers some sellers pulled back their portfolios didn't want to take the pricing March April may portfolios are back to the pipeline is growing and now for us.

I see it back to recall that in turn so bus sales activity.

For us in terms of strategy no change in strategy portfolio management is a part of our DNA. We will could you do that we look at it asset by asset and no change no rush I mean, it's just really maximizing value like theater said in prior calls.

And how much of that is going to be driven by what you guys do on spec development and need to spend on the development pipeline. If you guys.

Continue to have a lower development pipeline does that mean that you are unlikely to sell as much in the back half of the year to fund.

Construction cost in the early part of the under the early 2021.

No those two decisions are not connected.

We're really want to maximize the value of both outcomes. So you know if it's time.

Quite often what drives our decisions with sales is there may be a leasing opportunity in a particular asset, which we may hold off the market until we lease it up.

But that all goes toward maximizing the value that asset that won't have anything to do with whether we think it's time to start a new development in a given high barrier market those are two different decisions.

Okay. Thanks, guys.

As a reminder, if he would like to ask a question you may do so by pressing star one.

Your next question is from Michael Carroll of RBC capital markets.

Yes. Thanks.

Provide some color on I guess, the small amount of uncollected rents that you have to date, yes. There were there any themes within that bucket I guess outside of that a majority of the assets are located in jurisdictions that have restricted eviction and there are these tenants countries in the certain sectors or anything like that.

You know I guess I would say that the overall theme is that any business, that's the whose revenues depend upon the congregation of people.

Such as you know tent rental companies.

Health club or sporting goods are fitness kind of businesses businesses that serve restaurant supply.

Entertainment those are the kinds of businesses health clubs of course, those are the kinds of businesses that have been doing.

Not so well the last quarter or so.

But other than that it's not so bad.

Okay. So then within I guess, the 2% of uncollected buckets, but you guys highlighted into two and basically through July right. Now we didn't have what have those tenants been saying if you've been talking to them I mean, what's their spend a minute like in when if you're able to to lever those evictions.

Are they going to start paying or is are they do is going to get lower occupancy and try to at least that's picked back up.

Well, we'll obviously those that are behaving poorly we're gonna.

We're going to have further conversations them, but.

I would say the of that 2% some will become bad debt. Some will be collected some may be deferred.

It's hard to say right now we're just happy it's a very small number and we're happy that our tenants overall are doing well and able to pay their right.

And in some cases that would be a negotiated move out because we have a number of cases, where the in place rents are well well below market.

Well, we have tenants, who are doing well, where we know we can raise the red will be very active around swapping that out.

Okay, great. Thank you.

Your next question comes from Eric Frankel of Green Street Advisors.

Thank you I'm just going back to your dispositions, we still feel pretty good about your overall call one.

I haven't seen pricing change at all or do you think your pricing changing for the asset you want to sell.

You know from a timing standpoint, Eric as you know most of our sales are typically back ended so having to take a pause in the second quarter Didnt really disrupt our plan.

So were pretty and seeing the activity now in the buyers come back to the market and the conversations that we're now having.

They seem pretty solid so we still have a pretty optimistic outlook for the balance of the year on sales and we think we'll be in that guidance range.

Okay I just came back to your leasing results. So I guess you mentioned your your 2020 of your 2020 role of your cash rent spreads for roughly half percent or so it's still a little bit lower that would you record in the first two quarters. So Oh I know you mentioned you expected overall or annual cash leasing.

Releasing spreads to be around 10% is there anything to read so that slight dip during july or is that just start or not that's just.

The timing certain leases.

Chris I want to take that yes.

I don't think there's anything in there you know to read into that again overall, we're expecting to be ready to run 10% for the year.

Sometimes a little bit to do with mix of new and renewal, but you know we're still seeing some pretty healthy.

Oh rollover rent growth.

Okay.

As a reminder, if he would like to ask a question you might do so by pressing star one.

Your next question is from Mike Mueller of JP Morgan.

Yes, hi in terms of lease duration it looks like in 2019.

Your new leases were 5.6 years and the renewals were 4.3, we look at 2020 year to date it looks like renewals are seven to eight years.

New is in the low to mid fours can you just give us a little color the changes there.

Oh, yes. It again overall, if you look at the the total these term or about seven half years, so that's actually higher than.

The run rate is going so in renewals were up a little bit we had a larger tenants that renewed on a 10 year basis. So that's kind of push the renewals up but.

Generally that you're going to see new is probably going to be a little bit higher.

Renewal little bit lower but we got a large tenant that renewed so it kind of a push numbers, we've been pushing out extend termed the last few years.

Mike and you know make sure we maintain pretty strong rent bumps in those leases.

So that's that's really where you're seeing that the change.

Got it okay. That's helpful. Thank you.

Your next question is from David Rogers affair.

Yeah. Good morning, guys I wanted ask specifically about kind of blend and extend and and how you guys. It may be tackle some of that with respect to deferrals and and maybe a broader question then around just the leasing activity at great Commencements in the second quarter. It would we expect to see the commencement volume slow a little bit in the third quarter.

It just is going to covert catches up to the numbers that you report.

Well talk a little bit Chris about our deferrals, Yeah, you know as far as the a blend and extend Uganda deferrals or you know we've talked about in the script. So you know the deferrals, we referred to in total about $750000 I've read all of those agreements that we've entered into the re though repay.

Say that a deferred rent by the end of a 20. So we really haven't done much on the blend and extend and it's too early to tell but they've all been paying so far so correct. Greg in Dave you reached out to organize this morning on on the methodology for same store.

As long as a deferrals are paid back or the agreements to pay back within 12 months, there really isn't any timing difference in same store as an example that we build $100 in June and the tenants paying us back over the third quarter, we show that revenue in June.

For same store purposes, but keep in mind or our deferrals are very minimal as Peter mentioned in the script, it's only about $750000.

And then with respect to just kinda lease commencements in the third quarter in the activity you saw in that second I know you kind of both the Commencements in your numbers, which were really strong.

Do you expect the finally kind of cycling through the second quarter signings that you would see that come through the third quarter, where we're not really expected feedback.

Why don't you, Dave if you're asking about the 83% of expirations, we taken care of for 2020 I'm guessing by the end of the third quarter that number is going to be pretty pretty close to 100% except to the extent that there are already move outs and then in the third quarter on recall, we should have a.

Pretty good idea of the lease signings for 2021.

Okay, maybe let me ask a different question, maybe a different way so year to date, obviously March April may slow down quite a bit three guys from Leasings perspective, another backlog really built back up and we're trying to catch up I guess, if you took the first seven month for the year.

Compared that activity to the same seven months a year ago, how far it business up down.

From a leasing perspective in your overall mine just for your portfolio as you think about it it Dave if you look at the 83% statistic, it's very similar to what it's been the past couple of years now having said that we're newell's were slow going into the pandemic in April may, but they started to really pick up in June and July.

To date, so we're back on track so the 83% that we've signed to date is very similar to what it's been in the past years anymore actually not behind on developments because as you know we didnt have any new starts and much of the pipeline isn't finished yet and except for the asset that we leased in Baltimore almost immediately so.

From that standpoint, we're kind of caught up if you will too with with prior year performance.

Alright, great. That's helpful and maybe just last one for you on that on the debt side you did the the debt in the quarter.

You mentioned kind of the drag maybe on paying down the line of credit, but as you think about the spreads and as you think about kind of use in the private side of the debt market versus going to the public market and relative to where your peers are given your debt metric given your leverage overall in the liquidity that you've created do you guys. They get a sense, if theres any potential upgrades coming.

Our wage do you feel like that spread should be collapsing a little bit more for you in the portfolio or is that more a function of size in the coming here.

In terms of an upgrade it seems to get the upgrade that the agencies would like us to be bigger.

In terms of cost of capital.

We think that that's that spread we can we still have some work to do things. We can do to narrow the cost of capital on the debt side, even without an upgrade.

You know just looking at different sources of debt and what those sources of debt costs. So we can do some of that you know typically we are not in the public bond market. As you know typically you need to issue 300 plus million dollars.

If our if our average maturity seven years that means you got to have a little bit over $2 billion of debt to be irregular issuer in that market.

And you know we're gonna be there and then not too distant future. So we think theres some savings to be game, there too, but from an upgrade standpoint, our metrics certainly if you compare metrics across the board. It would look like we should be triple B plus.

But we're getting feedback that.

I want to you know they want us to be larger overall.

Thanks for all the color guys.

Your next question is from Omotayo Okusanya of Mizuho Securities.

Hi, good morning.

Let's talk to US specific me about what you're seeing in the Houston market.

Jojo you want to take that about Houston market are sure. Let me Oh, we talked about our portfolio.

And then I'll talk to you a little bit above the market sensitive portfolio. You know, we're doing quite well there were up.

We're basically at 98.

8% occupied and we've collected close to 100% where rents there actually to be exacts, 99.7% collection.

So our portfolio there is doing well from a development standpoint, I spoke a little bit about that earlier in terms of limited showings on our Grand Parkway. Katie development is freeway frontage I would tell you overall in the market theres more construction on that absorption.

And you know I would say that in terms of sub market.

We get some markets still the north submarket, because there's a greater imbalance of supply versus absorption. There overall actually grows a TV in Houston is a good but you know there's just a more supply to be absorbed first before you know the.

Rick rents are firming up again.

Gotcha. That's helpful. I I'm then your same store cash NOI calculation this quarter I tell you.

During the rent deferrals, excluding them from that number just seems to be.

A widely in the process is happening this quarter costs across the industrial space.

Well, we're so in my example, we are including rent deferrals in it again for US it's an immaterial number and if you look at the industrial peer group a bunch of US got together a couple of years ago to standard standardized definitions were all doing that way for the most part.

So again in my example, if we build rents in June and under a deferral agreement. It's paid back over the next quarter, we'll get credit in the June billing period, but it but again for US deferrals are pretty immaterial, it's only about $750000 of rent were deferring.

Great. Thank you.

As a reminder, if you'd like to ask a question you might do so by pressing star one.

Your next question is from John Peterson of Jefferies.

Great. Thanks.

Okay.

What do you could give us a little more context on you know maybe how behavior cutting your tenant behavior has changed in terms of where you're seeing demand in the different geography, maybe by different building sizes.

Maybe you talk about like what you've seen I guess in the last three or four Mike maybe what you expect to see through the rest of the year.

Peter Schultz you want to start with that and then Joe do you can provide your thoughts that'd be great sure. Good morning, John It's Peter So.

First I would say.

During the first half of the second quarter.

Look the majority of the activity was concentrated in large tenants large spaces food and beverage ecommerce threepl them and medical most notably you know as an example, the deal that we commented on in our remarks at our Nottingham Ridge project in Baltimore So.

Second half of the quarter, we saw activity broaden across industries and space sizes.

And in fact, how the majority of the leases that we signed before vacant space in the second quarter was 75000 square feet or less.

In the last 30 or 45 days, we've seen a noticeable uptick.

And.

Requests for proposals tours inquiries.

And again, a broadening of I've industries home improvement paper and packaging building materials.

Some homebuilding related in communications and in Pennsylvania alone as an example.

Since the beginning of June we've seen a couple of does a new requirements. The average square footage was about 350000 feet.

So it's been broad based across the country, we've seen activity accelerates across size ranges and we continue to be encouraged.

By the increase in confidence and the overall activity.

I'm perspective tenants, we'll see how much of that gets converted into signed deals in the coming months and we'll certainly update you on that on the next call.

Oh.

Very a comprehensive answer by Peter the only thing I'll add that you know anything.

This isn't a few peel the E commerce and food related industries that are active with Peter I mentioned I was just add anything there has to do with the supply chain or businesses has been pretty active from small the large eva given examples that material handling equipment or tenant. The we added first andina too there.

I really focused on helping you know a tenants you know improved their warehouse management solution and then that's just assisting you know what I think is the growth part of our industry and then though we are seeing some signs of a onshoring as well.

Not as big as E commerce would relate or threepl, but there are activity now someone shoring companies are trying to relocate airport operations the U.S.

Can you expand you know what sort of geography is are we seeing the onshoring.

You know basically across the you know across the U.S. favoring.

Markets, where and you have a lower cost of doing business.

Got it that's really helpful. And then I was just you know you're looking at your top tenant list then on like a rig it's very similar to all of your peers Amazon finds himself on the top I think it's 4% a little over 4% I'm. Just curious you know industrial to have historically been a us dr. always going to factor with very diversified tenant.

Bases, but amazon's a huge part I mean at what point do you worry about having too much tenant concentration or do you kind of put some certain tenants like Amazon in a different bucket, where you don't mind, if it's if it's if it's a high percentage.

Right. So we do pay attention to the concentration in our portfolio, we don't want to heavier concentration in any particular tenant.

Obviously, Amazon is a fantastic company with tremendous growth trajectory and.

And from a competitive standpoint, we like their position in their world. So that plays a big factor and how we look at Amazon, Yes, there about 4% of our annual base rent at the end of two Q <unk>, we'd certainly do more business with Amazon I don't know that I can sit here today and tell you what that.

Cut off would be but we certainly have additional appetite capacity for Amazon.

Okay. That's all helpful. Thank you.

Your next question is a follow up from Eric Frankel of Green Street advisor.

Thank you.

Scott maybe you could just walk us through how you're thinking about your same store forecasts I was you increased the low end, a little bit, but you're still essentially guiding to roughly flat and why gross profit for the second half the year. So I'm just wondering if there's any assumptions in there that we might be missing.

Yeah. The increase of her guidance at 25 basis points, Eric had to do with a couple of items. It had to do with of our new assumption that we're in it got a couple more months of rent from pure one we've already received July we have a assuming we're going to see.

In August as well and then the other item had to do with our lower cash bad debt expense in the second quarter Ah, but but you're right. The same sort owes drop off in the second half a couple of big pieces, causing that about four percentage points of it is the impact of free rent.

So in the first half of 2020, we had the benefit benefit of free rent burn off and on our net unit building in southern California that helped us.

We don't have that impact in the second half of 2020 also in the back half of 2020, we had some new leases in our projection.

They do have free rent associated with then that did not have free rent in that same period in the prior year. So a big piece of it is the free rent impact.

About one percentage point is a a drop in occupancy a you know what big piece of that is pure one moving out.

I'd say the other big pieces, just our bad debt assumption, we recognized $800000 of cash bad debt expense in the first half of the year and there's a back half of the year. Our assumption is $1.8 million. So those are the three big pieces, causing or the same absorbs store decline in the first half of the year.

Compared to the back half.

Okay, well walk us through that I. Just final question. Obviously your tone is it's a lot more optimistic than a few months ago is there any interest and and and and pristine spec development opportunities are there any markets, where there might be implied the man.

Dynamic that went that allow for that.

Yeah, I met spoke about this a little bit earlier, but oh, I'm, sorry about that Valuating as I said and are in our portfolio in our call. It land bank today, we can build about 13 million square feet.

The vast majority of that is entitled and ready to go we're looking at opportunities right now both within our portfolio as well as a new acquisition and growth opportunities outside the portfolio.

As soon as we get you know as soon as we feel confident that the current business environment is sustainable.

We'll be ready to go and will enable commence on new speculative starts we want a little bit more time to pass Eric really just to make sure that.

All of the good conversations that we're having with tenant turn into leases on the assets that were discussing with them now and it's not just talk.

And ER and over the coming month or so make sure that we don't go back to the March April time period from a shutdown standpoint.

Understood. Thank you.

There are no other questions in queue I'd like to could turn the call back to Aeropostale for any closing remarks.

Peter.

Thank you operator, and thanks to everyone for participating on our call today.

Please feel free to reach out to Scott Our me with any follow up questions. We wish you and your loved ones at healthy and safe summer.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

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Ladies and gentlemen, thank you for standing by welcome to the first industrial second quarter results call. At this time, all participants are any listen only mode. After the speaker presentation, there will be a question and answer session.

Good question during the session you will need to press star one on your telephone.

Please be advised that todays conference is being recorded.

If you require any further assistance please press star zero.

I'd now like to hand, the conference over to Art Harmon, Vice President of Investor Relations and marketing. Thank you. Please go ahead Sir.

Excellent Shelby Hello, everybody and welcome to our call before we discuss our second quarter 2020 results and updated guidance, let me remind everyone that our coal 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 maybe time sensitive an accurate only as of today's date Thursday July 20, Threerd 2020, we assume no obligation to update our statements or the other information we provide.

Actual results may differ materially from our forward looking statement 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 assay.

SEC filings are available at first industrial dot com under the investors tab.

Our call, we're getting work remarks by Peter but silly, our president and Chief Executive Officer, and Scott, So our Chief Financial Officer, after which we will open it up for your questions also on the call today, our Joe Yes, our Chief investment Officer, Peter Schultz Executive Vice President.

This nighter senior Vice President of operations, and Bob Walters Senior Vice President of capital markets and asset management now, let me turn the call over to Pete. Thanks.

Thanks Art. Thank you all for joining us today.

I hope that you and yours are maintaining your health as we all worked through these challenging times.

Before we discuss the corridor, we would like to express our gratitude and bid farewell to an important member of the first industrial family.

As we previously disclosed Bruce Duncan has retired from our board.

As many of you know Bruce has taken a new challenge as CEO of another rig.

Bruce Joint first industrial as our CEO in 2009 during a difficult period and provided tremendous leadership to help stabilize and transform our business model and portfolio.

We wish Bruce well in his new role.

As you May also have seen seasoned SFR director, Matt Dominski, it taking over as chairperson.

Matt has been a highly productive member of our board since 2010.

We are thrilled to have Matt as our new chair and look forward to has continued council and leadership.

Moving now to the quarter.

We produced strong results demonstrated in several different areas, including collections leasing investment and capital markets.

Our regional teams have done a fantastic job in the second quarter on collection.

I would like to thank them for their continued diligence and working with our tenants through these difficult times.

As of yesterday, we had collected 98% of Twoq monthly rental billings and so far we've collected 97% of July billings, which is ahead of the pace, we experienced in the second quarter.

If we include collections from government related tenants that regularly pay at the end of the month.

Our collection rate for July would also be 98%.

About 65% of the outstanding monthly rental billings in the second quarter. We're in jurisdictions that have moratoriums on the landlords right to event, which we believe is a contributing factor towards the open receivables for this group.

To be clear in our calculation of this collection percentage metric.

The numerator reflects cash collection.

And we do not give ourselves credit under our methodology for the application of security deposit.

In addition, the denominator reflects the total monthly rental billing and is not reduced for any reserves for bad debt expense or rent deferrals.

Including surrendered security deposits and bad debt reserves recognized in the second quarter.

Our outstanding accounts receivable related to our monthly rental billing into Q is only $550000.

Rent relief requests have tapered off to a minimal.

During the Cobot 19 crisis to date, we have established Reds deferment agreements with 14 tenants totaling $750000 or about 18 basis points of annualized billings.

The average term for these deferrals is 1.3 months.

It appears the government stimulus has helped the number of our customers and business leaders in general are more optimistic about their prospects.

The industrial business continues to perform well as commerce continues to flow through logistics facility.

As you've seen economic activity has improved since March and April and our customers and prospects are moving ahead with new space requirements, albeit with caution in some cases.

And it second quarter preliminary Flash report.

We reported 19 million square feet of net absorption versus 56 million square feet of completion.

These figures should not be a surprise given the economic slowdown attributable to covance and the resulting drop in Q2 leasing activity.

However, we are optimistic about our long term prospects given the acceleration of E commerce adoption and the potential for additional safety stock generating incremental demand for logistics space.

This view is supported by TBR raise recent forecast that annual net industrial absorption will total more than 333 million square feet by 2022.

If they are right net absorption for the sector would exceed the high watermark posted great financial crisis of 324 million square feet in 2016, and the all time Mark of 329 million square feet in 2000.

Despite completions exceeding net absorption nationally in the quarter, our portfolio occupancy increased to 97.7% at quarter end.

We also achieved the big leasing wind at our Nottingham Rich Logistics Center, and the I 95, North Submarket of Baltimore.

We leased 100% of the 585000 square foot building, hey to a leading ecommerce provider on a long term basis, which commenced in late June.

Considering we purchased the asset in the first quarter. We leased this property significantly ahead of the 12 month lease up budgeted in our guide.

Well, just 54000 square feet remaining to lease we are now 93% occupy that this 751000 square foot to building project.

Looking more closely our portfolio performance as of July 22nd.

We have signed 83% of our 2020 lease expiration at a cash rental rate increase of 8.6%.

For the full year, we expect our cash rental rate change, a new and renewal leasing to be approximately 10%.

The investment market has begun to awaken after a fairly quiet period in which we saw the bid ask spread widened a bit.

Most offerings had been shell as participants saw more clarity on the direction of the economy and asset values.

The federal government stimulus action certainly helped to quell some of those concerns and based on what we are seeing and hearing.

Pricing has returned to pre coven levels and in some cases is higher.

We were able to make a few acquisitions during the quarter in some high barrier markets.

We acquired a 39000 square foot or in Fremont, and Northern California and added an adjacent building comprised of 46000 square feet.

Aggregate purchase price was 17.8 million with a weighted average initial yield of approximately 4.6%.

We also added a 9.7 acre covered land investment in the inland Empire for three and a half a million dollars.

The site has a 3% in place yield for the next several years generating some cash for us as we entitled the site.

The site will accommodate a 155000 square foot development.

Thus far the third quarter, we've closed on a 6.6 acre site and Seattle for 6.1 million that can accommodate a 129000 square foot building.

We're also excited to launch a new build to suit development at our first Bandini two sites in the inland Empire.

The building will be 221000 square feet and at least on a long term basis to a manufacturer of material handling systems.

Total investment is 22.4 million and the initial cash yield will be approximately 6.2%.

We are proceeding with all of our developments in process, which totaled 1 million square feet and a total investment of 94.7 million at June Thirtyth.

In addition to our on balance sheet development construction on the 643000 square foot spec building in our Phoenix joint venture at PV, three or three is progressing well.

Our portion of the investment is $21 million and our targeted yield it's 7%.

Our on balance sheet land holdings will accommodate approximately 13 million square feet of future development.

The vast majority of which is entitled and ready to go.

We continue to move ahead on infrastructure work at several sites. So that we're prepared to launch when we think economic conditions in the specific submarkets justify new starts.

Moving to dispositions in the second quarter, we sold three buildings totaling 211000 square feet for 14.6 million.

These were comprised of a building in Detroit, one in Chicago, and our last asset in Indianapolis.

Year to date, we sold 437000 square feet for a total of 41.1 million.

As a reminder, in the third quarter, we expect to close on the 55 million dollar sale in Phoenix in which the tenant exercise its purchase option in 2019.

Moving to our recent capital markets activity on July 7th we entered into a private placement agreement to issue 300 million in total of 10, and 12 year notes with a weighted average interest rate of 2.81%.

On July 15, we closed on an extension of our term loan that was scheduled to mature in January of 2021.

These two executions provide us additional capital for new investment and lengthen our maturity schedule.

So all in all a successful and very busy quarter with great execution by our team.

With that let me turn it over to Scott. Thanks, Peter I will begin with our EPS and SS though for the second quarter.

Diluted EPS was 28 cents versus 31 cents, one year ago and they re funds from operations were 46 cents per fully diluted share compared to 43 cents per share in Twoq 2019.

Second quarter 2020, FFO includes approximately.

$500000 of cash bad debt expense related to headed accounts receivable.

At $400000 of noncash bad debt expense related to the write off certain deferred rent receivables.

Pier one has paid July rents and we are assuming they pay August rent, which in total represents a $500000 pick up from our prior guidance.

Occupancy was strong at 97.7% up 60 basis points from the prior quarter, it up 40 basis points from a year ago.

As for leasing volume during the quarter, we commenced approximately 2.9 billion square feet of leases.

600000, where new.

1.6 million were renewals.

700000 were for developments and acquisitions with Lisa.

Tenant retention by square footage was 88.7%.

Same store NOI growth on a cash basis, excluding termination fees was 6.3% helped slight increase in rental rates on new and renewal leasing.

The decrease in free rent and rental rate bumps embedded in our leases.

This was partially offset by an increase in bad debt expense.

Slightly lower average occupancy.

Cash rental rates were up 11% overall with renewals up 8.9% and new leasing 16.7% in.

And on a straight line basis overall rental rates were up 32.4% with renewals, increasing 30.6% and new leasing up 37.5%.

As Peter mentioned, we executed on to capital market transactions in the third quarter that extent in ladder, our maturities at attractive rates.

First we entered into agreement issued $300 million, a fixed rate senior unsecured notes in a private placement offering.

The notes are comprised of two traunches.

$100 million with a 10 year term at a rate of 2.74%.

And $200 million with a 12 year term at a rate of 2.84%.

We expect to close on the offering on or about September 17th of this year.

On an interim basis, we will use these funds to beta pay down or line of credit, which will give us more liquidity to fund new investment and a secured debt maturity in 2021.

We also refinanced our $200 million unsecured term loan previously scheduled to mature at the end of January 2021.

The new low has an initial maturity date of July 2021, which we can push to July 2023 via two one year extensions exercisable at our option.

The loan features interest only payments and bears an interest rate of LIBOR, plus 150 basis points.

In conjunction with the new term loan we entered into new interest rate swap agreements that convert the loan to a fixed interest rate of 2.49% beginning in February 2021.

In 2021, we will realize the body penny per share of savings due to this refinancing.

After these two executions one of our remaining 2021 maturities is the aforementioned $63 million unsecured debt in the fourth quarter.

We can pay that off using our line, which will have additional capacity created by the proceeds from our private placement offerings.

The other is our line of credit, which matures in October of 2021, but we can push that out another year throat, one year extension exercisable at our option.

Our leverage is also in good shape with our net debt plus preferred stock to EBITDA at 5.2 times at January at June Thirtyth.

Moving onto our guidance for our press release last evening.

Our guidance range for Navarrete, FFO and AFFO before onetime items is now $1.76 cents to $1.84 cents per share with the midpoint of $1.80 cents.

This is an increase of two cents per share compared to the midpoint of our guidance on our first quarter call.

The increase is primarily due to the early lease up of the 585000 square foot building at the Nottingham Rich Logistics Center.

As well as two months of additional rental income from here one.

This is slightly offset by additional interest expense based on our assumption that we use the funds from our private placement offering to pay down our line of credit in the near term.

Our assumption for the average for the range of average quarter and occupancy remains 96% to 97%.

And our cash bad debt expense assumption remains $900000 for each of the third and fourth quarters.

Please note that guidance does not include any potential write offs of deferred rent receivables related to tenants that are having financial difficulties.

Other key assumptions for guidance are as follows.

Same store NOI growth on a cash basis before termination fees of 3.25% to 4.25%.

Increase of 25 basis points at the midpoint and a tightening of the range.

Our guidance range remains at $31 billion to $32 billion.

And guidance also includes the anticipated 2020 costs related to our completed in under construction developments at June Thirtyth.

Plus the third quarter start a first mendieta too.

In total for the full year 2020, we expect to capitalize about four cents per share of interest related to our developments.

Our guidance does not reflect the impact of any other future sales acquisitions or new development starts. After this call other than the expected third quarter sale of the building in Phoenix for which the tenant exercises purchase option.

The impact of any future debt issuances.

Debt repurchases or repayments. After this call other than the 300 million dollar private placement I previously discussed, which we expect to close on or about September 17 of this year.

The impact of any future gain related to the final settlement of one insurance claim from a damage property.

And guidance also excludes the potential issuance of equity, let me turn it back over to Peter.

Thanks, Scott before we open it up to questions. Let me say that I'm incredibly proud of the way. Our team has performed in this and difficult environment and thank them for their dedication to serving our customers well and doing it safely.

Our company built for the long term and we are well positioned to drive cash flow growth for shareholders by serving logistics needs of a range of essential and emerging businesses, while capitalizing on the secular drivers of E commerce.

With that we will now move to the question and answer portion of our call. We ask that you. Please limit your questions to one plus a follow up and then you are welcome to get back and acute operator would you. Please open it up for questions.

Absolutely and as a reminder, if you would like to ask a question you may do so by pressing star than the number one on your telephone keypad. Your first question is from Craig Mailman of Keybanc capital markets.

Hey, good morning, guys.

Peter's maybe circling back to your reference of the net absorption here in the second quarter versus the new supply it clearly a little bit of an imbalance, but hopefully a little bit temporary here just with that backdrop. What are you seeing from from tenants and.

Tenant rep brokers in terms of where they see.

Rent levels are really pushing back are they asking for more concession doors.

A realization that supply could get choked off here and.

Could tighten up pretty quick.

Well things are a lot different in the last 45 days and they were in the prior few months as you can imagine.

But it looks now we do think theres going to be some rent growth depends on the market, obviously and in terms of concessions were just not seeing anything that's any different than what existed pre the virus.

There may be certain areas, where there are an oversupply of big boxes, you know that before the virus or a few markets that have additional supply. So maybe there's some additional concession there, but generally speaking the markets are pretty strong. It's obviously still clearly a landlords market and so we're pretty optum.

Mystic about our opportunity to grow rents.

Then just.

You guys had some good execution, there and Baltimore and the I.E., but the balance of the development pipeline.

Understandably didnt get much leasing done just kind of curious where some of those projects stand and what the pipeline looks like sure I'll have Joe Joe and Peter take you through that recognize that a lot of that isn't finished yet but.

Jojo you want to go over some of our projects sure sorry, if you look at the projects that were just a.

Completed the end of last year, that's in Dallas and Houston.

Let's start with Houston, Great project gearing Katie.

Yes, I tend to state highway and I freeway frontage two buildings love that project, but at this point that means showings, there had been limited because of a cold but.

Despite that we're basically at 15% lease there of course will continue to work and improve the leasing there in Dallas Theres, one important are worth and lewisville lewisville, so much tighter market less supply.

Very good markets a lot of demographic growth at market, we love that project as well, it's 18% that market is more open theres or showings and RFP. So look forward to announcing more deals there and you know.

The first Foster Creek Thats really a one to 2000 building and we're just looking for the right tenant and so for.

First Redwood Nic, we just completed at building at the end of.

The end of last month, and our already getting our fees were well within our 12 month.

It's a period, we're getting our piece and.

Proposals, there and for the rest of the development before I turn it over to theater or.

First independence logistics on Sawgrass read was $21 by I mean, those projects are still not completed yet Peter.

Thanks, Joe Joe Good morning, Craig, It's Peter Schultz on our project in Philadelphia.

I was really just completed in the last couple of weeks, Pennsylvania as you may know how to construction halt.

For several months, so we're a little bit delayed there, which certainly also impacted inspections and activity.

But thats a sub markets, it's very tight with limited supply and as Peter mentioned couple of minutes ago, We've definitely seen an increase in activity.

The last 30 days.

Broadening across industries and space sizes or other project in Central Pennsylvania as you May recall, it's the second to the two building project, there that 75% leased and within the last 30 days we've seen.

Pickup in inquiries traffic in RFP is there.

More activity in the 200000 square foot plus range than we've seen in a couple of months. So clearly work to do and we'll keep you posted on our progress.

Thank you.

Your next question is from Ki bin Kim of Suntrust.

Good morning out there when you guys mentioned improving.

Customer dialogue, what does that really mean and can you put a little more details behind that.

EBIT Peter here.

You know look where we have.

As we mentioned.

We got very early we got very close to our tenants on helping them get access to PPP et cetera.

So the specific action points, where to make sure. They knew it was available make sure. They knew how to do it and also try to make sure that they had a banking relationship that we give them access to the application process and receiving funding.

That effort that we made we think has paid off to some degree now we don't know how many of our tenants actually got ERP.

We do know about 30 did and again, we don't know how they invest the money. They received either because you can invest about half of it in non payroll activities, so, but having that dialogue definitely put us in a good position with the tenants. We've also had some.

Weather issues at certain assets that we've taken care of.

In terms of flooding et cetera.

Notwithstanding the environment and the difficulty with everything being shut down because of the virus and so all of these things are going to or toward retention going toward tenant relationships and ultimately we think drives value for our shareholders in the long run.

Okay, and if you take a step back end.

Incorporating everything now and kind of improved outlook, how does that translate into your willingness for capital allocation you risk or.

Endeavors like development and when is the right time to maybe reignite that.

Yes, so we're evaluating various.

Various opportunities now first I'll say obviously.

You know Andina two projects a good example were in that business right now we're we're in the build to suit business, we're responding to RFP.

So we're eager to grow that business, obviously, our primary source of growth has been and we'll continue to be speculative development. There are two things that we're focused on in terms of when and how we decide when and where to go with new projects.

One as we'd like to see the great dialogue that we're having with a range of tenants on a number of our projects turned into inc. lease inked leases and when we see that happen that will give us some confidence that this new activity is sustainable the second thing. We're looking at is what's happening with the virus whats.

Happening with.

Activities and policies and protocols that may come down from the leadership of each state and nationally and will that.

Have enough a chilling effect on the economy or will allow the economy to continue to open, albeit perhaps at a slower pace. So if we see some sustainability there and so some sustainability.

As I said on the tenant activity, that's going to give us great confidence to go ahead and start putting some shovels in the ground again.

Okay, Thank you and kind of material.

Your next question is from Rob Stevenson of Janney.

Hi, guys.

How many tenants of size that are likely or known move outs were looking at the expirations through early 2022 at this point.

Rob Scott what do you look at the.

So we've got going out to 2021.

The largest.

Tenant exploration, we have is about 477000 square feet, it's in Atlanta.

That lease is.

Coming due in May of next year, So we really haven't gotten.

Our along with the dialogue with that headed.

I would say or 2021 lease maturities are very granular from a tenant industry point of view in a regional point of view.

Okay.

Then can you guys talking about demand in the market.

These days for the noncore assets do you expect to continue to sell in the back half of the year.

Pricing, what you would expect for that any urgency to get more this don given the rhetoric on doing away with limiting Penthirty one exchange is going forward.

Hi, this so Joe I'll first in terms of the sales marketing investment market I mean of course, everybody knows we hit the pause.

March April may, but buyers are back for all product types.

Ill.

All across the markets and.

That's really driven by the pause in the market and names seeing that the industrial business continues to lease space and rents continue to grow and so we don't expect but for the quarter costs for the year, we don't really expect significant change.

In the sales activity market.

What we are hearing is that more sellers some sellers pulls back their portfolios didn't want to take the pricing March April may portfolios are back to the pipeline this growing and allow for us.

I see it back to recall winter, so but sales activity.

For us in terms of strategy no change in strategy portfolio management is part of our DNA. We will continue to do that we look at it asset by asset and no change no rush I mean, it's just really maximizing value like theater said in prior calls.

And how much of that is going to be driven by what you guys do on spec development and need to spend on the development pipeline. If you guys.

Continue to have a lower development pipeline does that mean that you're unlikely to sell as much in the back half for the year to fund.

Construction cost in the early part of the under the early 2021.

So those two decisions are not connected.

We're really want to maximize the value of both outcomes.

So you know if it's time.

Quite often what drives our decisions with sales is there may be a leasing opportunity in a particular asset, which we may hold off the market until we lease it up.

But that all goes toward maximizing the value that asset that won't have anything to do with whether we think it's time to start a new development in a given high barrier market those are two different decisions.

Okay. Thanks, guys.

As a reminder, if he would like to ask a question you may do so by pressing star one.

Your next question is from Michael Carroll of RBC capital markets.

Yes. Thanks.

Provide some color on I guess, the small amount of on collect at rents that you have to date because there were there any themes within that bucket I guess outside those that a majority of the assets are located in jurisdictions that have restricted eviction and there are these tenants comp treatment me, if certain sectors or anything like that.

No I guess I would say that the overall theme is that any business.

Whose revenues depend upon the congregation of people.

Such as.

Ted rental companies health club or sporting goods or fitness kind of businesses businesses that serve restaurants supply.

Entertainment.

Those are the kinds of businesses health clubs of course, those are the kinds of businesses that have been doing.

Not so well the last quarter or so.

But other than that it's not so bad.

Okay. So then within I guess, the 2% uncollected buckets that you guys highlighted into two and basically through July right. Now we didn't have what have those tenants been saying if you've been talking to them, what's their spend a minute like in when if you're able to deliver those evictions are they going to start paying or is are they.

It's going to get lower occupancy and try to at least that's been backup.

Well, we'll obviously those that are behaving poorly we're going to.

We're going to have further conversations and but.

I would say that have that 2% some will become bad debt. Some will be collected some may be deferred.

It's hard to say right now we're just happy it's a very small number and we're happy that our tenants overall are doing well and able to pay there right.

In some cases that would be a negotiated move out because we have a number of cases, where the in place rents are well well below market.

Well, we have tenants, who are doing well, where we know we can raise the red will be very active around swapping that out.

Okay, great. Thank you.

Your next question comes from Eric Frankel of Green Street Advisors.

Thank you.

Just going back to your disposition, we still feel pretty good about your overall, calling.

I have seen pricing change at all or do you think your pricing changing for the asset you want to sell.

From a timing standpoint, Eric.

Most of our sales are typically back ended so having to take a pause in the second quarter Didnt really disrupt our plans.

So were pretty and seeing the activity now in the buyers come back to the market and the conversations that we're now having they seem pretty solid so we still have a pretty optimistic outlook for the balance of the year on sales and we think we'll be in that guidance range.

Okay I just came back to your leasing results.

I guess you mentioned your 2020 of your 2020 role of your cash rent spreads were roughly half percent or so it's still a little bit lower that would you record in the first two quarter. So.

I know you mentioned that you expected overall, our annual cash leasing releasing spreads to be around 10% is there anything to read to that slight dip during july or is that just or that's just.

The timing of certain leases.

Chris I want to take that yes.

I don't think there's anything in there you had read into that again overall, we're expecting to be ready to run 10% for the year.

Sometimes as a little bit to do with mix of new and renewal.

But we're still seeing some pretty healthy.

Rollover rent growth.

Okay.

As a reminder, if he would like to ask a question you may do so by pressing star one.

Your next question is from Mike Mueller of JP Morgan.

Yes, hi.

The lease duration it looks like in 2019.

Your new leases were 5.6 years and the renewals were 4.3, we look at 2020 year to date. It looks like renewals are seven to eight years. The new is in the low to mid fours can you just give us a little color the changes there.

Yes, again overall, if you look at the the total these term or about seven half years, so that's actually higher than.

The run rate is going so in renewals were up a little bit we had a larger tenet renewed tenure basis. So that's kind of pushed renewals up but.

Generally you're going to see new is probably going to be a little bit higher.

Renewal little bit lower but we've had a large tenant that renewed.

Of course numbers, we've been pushing out it then turn the last few years.

Mike and make sure we maintain pretty strong rent bumps in those leases.

So that's that's really where you're seeing that the change.

Got it okay. That's helpful. Thank you.

Your next question is from David Rogers of Baird.

Yes. Good morning, guys I wanted to ask specifically about kind of blend and extend and and how you guys maybe tackle some of that with respect to deferrals and and maybe a broader question then around just the leasing activity at great Commencements in the second quarter and would we expect to see the commencement volume slow a little bit in the third quarter.

Just to kind of covert catches up to the numbers that you report.

Let's talk a little bit Chris about our deferrals, yes, as far as the weather in extend I'm going to deferrals.

We've talked about in the script. So you know the deferrals, we've deferred in total but something around $50000 I've read all of those agreements that we've entered into the though repay that.

Deferred rent by the end of Twentys. So we really haven't done much on the blend and extend and it's too early to tell but they've all been paying so far so Greg Greg you reached out to our this morning on on the methodology for same store.

As long as the deferrals are paid back or are those the agreements to pay back within 12 months, there really isn't any timing differences in same store as an example that we build $100 in June and the tenants paying us back over the third quarter, we show that revenue in June.

For same store purposes, but keep in mind, our deferrals are very minimal as Peter mentioned in the script, it's only about $750000.

And then with respect to just kind of lease commencements in the third quarter in the activity you saw in the second I know you kind of both the Commencements in your numbers, which were really strong do you expect the finally kind of cycling through the second quarter signings that you would see that come through the third quarter, where we're not really expect to see that.

Hey, David you're asking about the 83% of expirations, we taken care of for 2020 I'm guessing by the end of the third quarter that number is going to be pretty pretty close to 100% except to the extent that there are any move outs and then in the third quarter on recall, we should have a pretty.

Good idea of the lease signings for 2021.

Okay, maybe let me ask a different question, maybe a different way so year to date, obviously March April may slow down quite a bit three guys from a leasings perspective, another backlog really built back up and we're trying to catch up I guess, if you took the first seven month for the year and compared to that activity to the same seven month, a year ago, how far is busy.

Lit up down from a leasing perspective in your overall mine just for your portfolio as you think about it.

If you look at the 83% statistic, it's very similar to what it's been the past couple of years now having said that we're newell's were slow going into the pandemic in April may but they started to really pick up in June and July to date. So we're back on track. So the 83% that we signed to date is very similar to what it's been.

In the past years, and we're actually not behind on developments because as you know we didnt have any new starts and much of the pipeline is finished yet.

Except for the asset that we leased in Baltimore almost immediately so from that standpoint, we're kind of caught up if you will too with with prior year performance.

Alright, great. That's helpful and maybe just last one for you on the on the debt side you did the the debt in the quarter and you mentioned kind of the drag maybe on paying down the line of credit, but as you think about the spreads and as you think about kind of use in the private side of the debt market versus going to the public market and relative to where your peers.

Given your debt metric given your leverage overall in the liquidity that you've created do you guys. They get a sense if theres any potential upgrades coming your way do you feel like that spread should be collapsing a little bit more for you in the portfolio or is that more a function of size in the coming years.

In terms of an upgrade.

It seems to get the upgrade that the agencies would like us to be bigger.

In terms of cost of capital.

We think that thats that spread we can we still have some work to do things, we can do to narrow the cost of capital on the debt side, even without an upgrade.

You know just looking at different sources of debt and what those sources of debt costs. So we can do some of that typically we are not in the public bond market as you know.

Typically you need to issued 300 plus million dollars.

If our if our average maturity seven years that means you got to have a little bit over $2 billion of debt to be irregular issuer in that market.

And we're going to be there and then not too distant future. So we think theres some savings to be gain there too but from an upgrade standpoint, our metrics certainly if you compare metrics across the board. It would look like we should be triple B plus.

But we're getting feedback that.

I want to you know they want us to be larger overall.

Thanks for all the color guys.

Your next question is from Omotayo Okusanya of Mizuho Securities.

Hi, good morning.

Let's talk to us specifically about what you're seeing into Houston market.

Jojo you want to take that about Houston market are sure let me.

He talked about our portfolio.

And then talk to you a little bit above the market just at a portfolio, we're doing quite well there were.

We're basically at 90.

8% occupied and we've collected close to 1% or rents there seems to be exacts, 99.7% collection.

So our portfolio there is doing well from a development standpoint, I spoke a little bit about that earlier in terms of limited showings or a Grand Parkway. Katie development is freeway frontage I would tell you overall in the market theres more construction that absorption on.

And you know I would say that.

So sub market weakness of markets still the north Submarket because there is.

Greater imbalance of supply versus absorption there.

Overall add to the growth of TV in Houston is good but you know there's just more supply to be absorbed first before you know the.

Rents are firming up again.

Gotcha. That's helpful. I'll, then your same store cash NOI calculation this quarter.

Are you.

During the rent deferrals, excluding them from that number just seems to be.

A widely in the practices happening this quarter costs across the industrial space.

Well, we're so in my example, we are including rent deferrals and it again for US it's an immaterial number and if you look at the industrial peer group a bunch of US got together a couple of years ago to standard standardized definitions Raul doing that way for the most part.

So again in my example, if we build rents in June and under a deferral agreement. It's paid back over the next quarter, we'll get credit in the June billing period, but but again for US deferrals are pretty immaterial, it's only about $750000 of rent were deferring.

Great. Thank you.

As a reminder, if you would like to ask a question you may do so by pressing star one.

Your next question is from John Peterson of Jefferies.

Great. Thanks.

Okay, I'm, hoping you could give us a little more context on you know maybe how behavior cutting your tenant behavior has changed in terms of where you're seeing demand and the different geographies maybe by different building sizes.

Maybe you talk about like what you've seen I got from the last three or four months, maybe what you expect to see through the rest of the year.

Peter Schultz you want to start with that and then Joe do you can provide your thoughts that'd be great sure. Good morning, John It's Peter So.

First I would say.

During the first half of the second quarter.

The majority of the activity was concentrated in large tenants large spaces food and beverage ecommerce threepl ASM and medical most notably.

As an example that deal that we.

Commented on in our remarks at our Nottingham Ridge project in Baltimore.

The second half for the quarter, we saw activity broadening across industries and space sizes.

In fact, the majority of the leases that we signed before vacant space in the second quarter.

75000 square feet or less.

In the last 30 or 45 days, we've seen a noticeable uptick.

And.

Requests for proposals tours inquiries.

And again, a broadening of I've industries home improvement paper and packaging building materials.

So the homebuilding related and communications and in Pennsylvania alone as an example.

Since the beginning of June we've seen a couple of doesn't new requirements. The average square footage is about 350000 feet.

So it's been broad based across the country, we've seen activity accelerates across size ranges and we continue to be encouraged.

By the increase some confidence and the overall activity.

I'm perspective tenants, we'll see how much of that gets converted into signed deals in the coming months and we'll certainly update you on that on the next call.

Hello.

That was a very comprehensive answer by Peter the only thing I'll add that anything.

In addition to that.

Robertson.

Industries.

Peter I meant that I was just add anything that has to do with supply chain or businesses, it's pretty active from small and large Eva and give you. An example that material handling equipment.

Tenant that we added first andina too they are really focused on helping you know.

Tenants improve their warehouse management solutions and then that's just assisting but I think is the growth part of our industry and then we are seeing some signs of onshoring as well.

Not as big as E commerce wouldn't relate or its VPLS, but there are activity now someone shoring.

Companies are trying to relocate therefore operations the Wes.

Can you expand you know what sort of geography is are we seeing the onshoring.

Basically across.

All across the us favoring.

Markets.

And you have a lower cost of doing business.

Got it that's really helpful. And then I was just you know.

Looking at your top tenant list then on like a rig it's very similar to all of your peers Amazon finds himself on the top I think it's 4% a little over 4% I'm. Just curious you know industrial to have historically been sector always gonna sector with very diversified tenant basis about Amazon the huge part I mean at what point do you worry about having too much.

Tenant concentration or do you kind of put some certain tenants like Amazon in a different bucket, where you don't mind, if it's if it's if it's a high percentage.

Right. So we do pay attention to the concentration in our portfolio, we don't want to heavier concentration with any particular tenant.

Yes, the Amazon is a fantastic company with tremendous growth trajectory and.

And from a competitive standpoint.

We like their position in their world. So that plays a big factor and how we look at Amazon, Yes, there about 4% of our annual base rent at the end of two Q.

We certainly do more business with Amazon I don't know that I can sit here today and tell you what the cut off would be but we certainly have additional appetite capacity for Amazon.

Okay. That's all helpful. Thank you.

Your next question is a follow up from Eric Frankel of Green Street Advisors.

Thank you.

Scott maybe you could just walk us through how you're thinking about your same store forecast, obviously increased the low end a little bit, but you're still essentially guiding to roughly flat NOI growth for the second half the year. So I'm just wondering if there's any assumptions in there that we might be missing.

Yes, the increase of or guidance at 25 basis points, Eric had to do with a couple of items. It had to do with our new assumption that we're in it got a couple of war months of rent from pure one we've already received July we have assuming we're going to see.

Get August as well and then the other item head to do with our lower cash bad debt expense in the second quarter.

But you're right the same sort those drop off in the second half a couple of big pieces, causing that about four percentage points of it is the impact of free rent.

So in the first half of 2020, we had the benefit benefit of free rent burn off of our net unit building in southern California that helped us.

We don't have that impact in the second half of 2020 also in the back half of 2020, we have some new leases in our projection.

That do have free rent associated with that that did not have free rent in that same period in the prior year. So a big piece of it is the free rent impact.

About one percentage point is a drop in occupancy what big piece of that is pure one moving out.

I'd say the other big pieces, just our bad debt assumption, we recognized $800000 of cash bad debt expense in the first half of the year and as a back half of the year. Our assumption is $1.8 million. So those are the three big pieces, causing.

The same store store decline in the first half of the year compared to the back half.

On both walk us through that I. Just final question, obviously your tone as a lot more optimistic than a few months ago is there any insurance than any end and purchasing spec development opportunities are there any markets, where there might be supply demand.

Dynamic that went.

Well I'll follow up.

Yes.

Spoke about this a little bit earlier, but.

From a value waiting as I said and are in our portfolio and our call. It land bank today, we can build about 13 million square feet.

The vast majority of that is entitled and ready to go we're looking at opportunities right now both within our portfolio as well as a new acquisition and growth opportunities outside the portfolio.

As soon as we get.

As soon as we feel confident that the current business environment is sustainable.

We'll be ready to go and will end will commence on new speculative starts.

We want a little bit more time to pass Eric really just to make sure that.

All of the good conversations that we're having with tenant turned into leases on the assets that were discussing with them now and it's not just talk and ER and over the coming month or so make sure that we don't go back to the March April time period from the shutdown standpoint.

Understood. Thank you.

There are no other questions in queue I'd like to turn the call back to Aeropostale for any closing remarks.

Peter Thank you operator, and thanks to everyone for participating on our call today.

Please feel free to reach out to Scott Our me with any follow up question.

We wish you and your loved ones, a healthy and safe summer.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.