Q1 2024 First Industrial Realty Trust Inc Earnings Call
Good day and welcome to the first industrial reality 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 touchtone 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, David 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 first industrial Dot com under the investors tab.
Our call will begin with remarks by Peter <unk>, 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 and strong cash rental rate increases both of which I will discuss shortly.
Looking at the industrial market broadly vacancy ticked up to about five 3% as new development projects that were started in 2023 has come online.
For 2020 for CBRE project 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 that has helped.
For the past three quarters. It starts it 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 towards the end of 2023 has continued into 2024 and some significant leasing decisions have been made.
To that end, we signed a full building leases at our 500000 square foot first rockdale for in Nashville, and our 1 million square foot first stopped and logistics center in Northern California.
Updating you on our progress on lease signing date related to 2024 exploration, we've taken care of 68% weighted on net rent.
Including the impact of new leasing our cash rental rate increase currently stand at 45%, which is near the midpoint of our 40% to 52% full year forecast that we provided on our last earnings call.
Our results to date reflect a renewal of one of our three largest exploration.
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 433000 square feet for a total of $49 million.
This puts us well on our way to achieving our full yields year sales guidance of $100 million to $150 million.
The largest sale was the five building 278000 square foot portfolio in Cincinnati for $33 million that we discussed on our February call.
The remaining 16 million consisted of 165000 square feet located in Chicago and Detroit.
As I noted on our last call 2024 has been a particularly challenging year.
The pace and timing of leasing in our portfolio due to the economic uncertainty increase the 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 tenant reason for pause.
As a result with respect to our broad base 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.
Peter Let me recap our results for the quarter NAREIT funds from operations were <unk> 60 per fully diluted share compared to 59 cents per share in <unk> 2023.
As a reminder, our first quarter 2023 results included <unk> <unk> per share of income related to the accelerated recognition of a tenant improvement reimbursement associated with a departing tenant.
Excluding that <unk> <unk> per share first quarter of 2023 <unk> 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%.
Same rate as year end 2023, with our 500000 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 for 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 with 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 in 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 <unk> is now $2 55.
The $2 65 per share.
This is an adjustment of a penny per share compared to our prior guidance.
No as we detailed on our fourth quarter earnings call. Our guidance excludes approximately <unk> <unk> 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.
Excluding this <unk> <unk> per share of expense, our NAREIT <unk> guidance range is $2 53.
To $2 63 per share.
Key assumptions for guidance are as follows.
Quarter end average occupancy of 90, 575% to 90, 675% a reduction of 25 basis points at the midpoint.
Same store NOI growth on a cash basis before termination fees of seven 5% 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 since the same store calculation excludes the 2023 onetime tenant reimbursement that I discussed earlier.
Guidance includes the anticipated 2020 for costs related to our completed and under construction developments at March 31 for.
For the full year 2024, we expect to capitalize about five cents per share of interest.
Our G&A expense guidance range is $39 $5 million to $45 million and this excludes the roughly $3 million and 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.
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 signing and our in service portfolio.
Operator with that we're ready to open it up for questions.
We'll now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre 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 the key bin Kim with Truest. Please go ahead.
Thank you good morning.
Congrats on the Stockton leaf.
So I had a couple of questions on development and I noticed that the a couple of assets that you placed into service that the yield and profit margins, where I'd also lora I mean thankfully. These are smaller projects, but just more broadly speaking I should we be just.
Aware of any other risks and the development portfolio as some of these projects near completion or leasing and if you can provide an update on <unk>.
The prospect activity that you're seeing in your other development projects. Please thank you.
Do you want to take that yes, yes, I'll came in no I wouldn't say that our the outlook and our forecast is pretty much similar we made some adjustments, though as we do every quarter. We look at the exit caps, we looked at pro forma yields.
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 the overall average of all five two cap rates, which we think is appropriate will slightly conservative and then on the pro forma side, what we did we adjusted.
Rents in our pro forma I E that resulted in an increase of about 16 basis points of increase in pro forma actually reduction of 16 basis points on a pro forma yield if you add that together keep in what youll notice that our overall reduction on everything in our supplemental.
Most of our developments are about four percentage points from about 36 to 32.
And then keeping it's 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 this space I would say some are moving more.
Deliberately while others continue to.
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 you had pretty good Joe Joe, Yes, and just to.
Nothing really to add to Peter's family, except that I, just said that we appropriately adjusted the 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 a lease up but I was just curious if.
There was anything else that drove that occupancy lower.
Kevin It's Peter again, so we have one known move out at year end.
And the Hagerstown, Submarkets, which was along the I 81 corridor that is part of our Baltimore portfolio.
309000 square feet. So we're marketing that space as a portion of a larger building no other change.
And occupancy.
In Baltimore Youre question on old posts or the larger old posts 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.
Our next question comes from Rob Stevenson with Janney. Please go ahead.
Hi, Good morning, guys, just a follow up on Baltimore.
It's early but any markets assets submarkets.
Benefiting from additional demand given what's happened at the port after the key bridge tragedy.
Tragedy.
So Rob it's Peter Schultz.
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 open in the next week or two the expectation is the ports back in full service by the end of May So while it's inconvenient.
In the near term.
Think that that resolve 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.
Significantly higher than sort of a run rate I know that you've had that there was some G&A I believe is the two pennies in the guidance from.
From the additional expenses I assume that that's in G&A, but can you talk about what's happening on the property operating expense side and what that's likely to look like.
Throughout the remainder of the year.
Yeah, Rob it's Scott the <unk> are in G&A, and I'm going to turn it over to Chris to talk about the property expenses at southern power.
<unk> expenses for this quarter was all related to recoverable snow removal expenses are up so it's a it's.
And again, they're all we're comfortable so that was the reason.
Okay. That's helpful. Thanks, guys I appreciate the time.
Yeah.
Our next question comes from Vikram Malhotra with Mizuho. Please go ahead.
Morning, Thanks for taking the question.
Maybe just last one on the going back to the development could you just update us on your your your new Youre developing these upgrade it 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 what 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 of what you've done so far when does that impact at all.
Yes, so I'll walk through that Vikram, it's Scott so.
Little longer of an answer but I think it makes sense to go through what we talked about on our fourth quarter.
Call. It 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.
500000 square feet of this pool that was the Rockdale deal was leased up in the first quarter.
Leaving $2 3 million square feet of development leasing still in our forecast and.
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.
And 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 it.
The development I think Theres, a big asset in Colorado, those 600000 square feet I think.
In the past you've you've debated as a full user or do we do we must act ended up can you just update us.
Well 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 activity we continue to have activity for both partial and full building users. The building is designed to.
To be multi tenanted.
Which was our expectation.
When we built it.
Don't have any.
No.
Actionable updates to give you today on on any.
Any lease signings, but we continue to see activity.
As we've said a couple of 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 thinking of those three.
The T exploration I did you can you just remind US did you always assume two out of three and one may not renew or just maybe just walk us through kind of how you're thinking about those two uses.
Hi, its Peter on the rollovers, we always did assume one would not renew.
So right on schedule with those and judge I can give you a broader perspective on what's going on in Socal sure sure.
Basically in Socal completions are exceeded.
Absorptions, so vacancy rates.
Did pick up and so our renewal activity, though continue to be active and discussions are a class a I would say all all sizes, new leasing, though the environment is slower just like both Peter Schultz in a theater Brasil. He said the prospective tenants are taking more time to decide and our touring more property.
Before committing and some are deferring their.
Their decisions one other thing in Socal is at the Port activity Q1 of this year as measured by loaded import containers only in port of L. A and port of long Beach is a 26% higher than last year. So we're hopeful that that has.
The positive impact going forward in.
And that container traffic is about equal to about 2000, Eighteen's 2018 2019 correct.
Which if you recall, we got it.
Pretty good Mark.
Makes sense. Thank you.
The next question comes from Todd Thomas with Keybanc Capital markets. Please go ahead.
Hi, Thanks, Good morning, just.
I wanted to first ask about them just given some of the progress that you've made now on the spec leasing development in the quarter.
We saw the increase in your spec leasing cap I'm. Just curious you know you've talked about you know.
Build to suits and and some developments.
Moving forward I'm curious what the appetite is like here, how we should think about the timeline for you to maybe you know <unk>.
The offense a little bit more just given that new starts are down more broadly you know, 50% or more in most markets.
So we do have about $300 million out of capacity in our cap that's.
That's a number actually that's pretty similar to what we used to carry on a regular basis.
You can call it 2018 1920.
It is a.
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 preceding in those markets, we have some existing assets in those markets.
And when we lease those will 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 and 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 if you know what what the offset is to the decrease in the same store growth forecast, which is.
A bit more than.
The one penny.
F O revision that that was made where what's what's the offset to that decrease well. The penny decrease is primarily due to same store. So there's a little bit of were ahead of budget on those two development leases, we utilized a little of that but we also utilize that ahead of budget leasing Todd too.
Just some of the lease up assumptions, we have for the remaining developments. So that's the math.
For that point of view.
Okay. So it's primarily on the development lease up offsetting the same store got it.
Okay alright, 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 you know are looking at that situation and actually raising your.
Speculative.
<unk>, what 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 say well yeah, we're going to do this but we just need more time, but there's every possibility that we could have more of a permanent depressed demand condition could we not and if we do that but what's the reaction from first industrial.
Yeah.
Give me a 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 in a month product by broader market I mean.
Everything from what's being talked about with inflation the fed rates.
All the negative news were getting from around the world.
And 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 Tam we have a good sense, there as a matter of when and not if.
Now if the world gets a lot worse it could be a matter of yes.
We haven't seen 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 are on track to lease more than the first half of this year then they leased all of last year market expectations as 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 three pls, but those decisions in particular, because they are waiting on the commitment of customers.
Continued to be elongated.
For all the reasons, we've talked about before.
We're seeing.
Some retailers were 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.
Cancel.
It's simply a matter of in some cases, they have more choices. So there's less urgency.
And that varies from.
From market to market, but we feel good about the breath, 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 Joe Joe anything else you want to yeah. The only thing that I would add is that the biggest part of our business, which is the leasing our existing buildings or a renewal activity discussions has continued to be solid.
The executions there have been pretty much the same as last.
Last year, you can see that in R.
Our cash rent change.
And you know a number of tenants.
And our discussions we'd like to expand that to hit the pause button as well and so.
Those give us confidence that a lot of.
Our portfolio, which is a bigger part of our business is feeling good about.
Operating out of our spaces.
Great. Thanks for that color and then second for me I don't know if you said what your mark to market is but let's say, it's 50% or whatever and.
You know you have flattish market rent growth and still you know your your typical contractual escalators is it as simple as is that like in terms of how the mark to market will move as you as you really space and and you know what at what point do you get into a situation where the mark to market it becomes more.
And just because of the sort of the flatness of the market and the ongoing.
Rent escalators I'm, just you know what.
What's the what's the tail here, that's still in front of you.
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 five in that range, obviously, if rents fell significantly more.
<unk> 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 Citi. Please go ahead.
Okay.
Just going back to the kind of the hesitancy of tenants here to make decisions I mean, how.
How how much is rent actual nominal levels of rents coming into play in certain markets like L, a or new Jersey, where.
Rents on a per square foot basis, or just higher than the other markets is that playing into.
They're kind of mentality at all.
Hesitancy or is it just really just the uncertainty on I'm playing the business at this point.
Craig probably.
The best indicator of the best way to answer that question is that yeah in the markets where rents have grown the most obviously socal and a period of two years, they practically doubled in 'twenty, one and 'twenty two.
The group they grew decently last year.
Those are markets, where the probability of deals getting done.
A little bit lower or lower than peak rents is higher.
And as we do have both rollover in renewal discussions.
And talk to tenants about taking new development space.
Again that that phenomenon plays into that conversation I wouldn't call. It an affordability thing.
That's not the issue it is.
Rents have grown tremendously in some markets.
And that that would impact the pace of those discussions.
Okay, and then you guys have mentioned and others have mentioned clearly Amazon is coming back into the market. So e-commerce. It feels like maybe we're in a period of expansion, but as you go through kind of where if you could gauge kind of buy.
Industry vertical where there's the most hesitancy to make decisions today versus where.
We are more close to kind of needing to take space to fund the five year business plan.
Is there any any kind of discernible trends youre seeing.
So looking at history, a little bit in 2020, Amazon took up.
More space than in the next 30, most active lessees to come by.
That served as a catalyst as we know now.
For others to say Hey, we have to get in the game and you saw that happen.
To a great degree in 'twenty, one and 'twenty, two 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.
Is that behaves as a catalyst for others to get involved but but we certainly don't see it as a negative.
And the prospects going forward could be pretty good at it as 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 three PL decisions are slower because they are waiting on their customers. So there are two steps in that process. So it's harder for landlords to have visibility into those discussions between the <unk> and the.
<unk> and that's where we're seeing probably.
The most.
Elongated decision, making.
Think sector to Craig would be housing.
Home improvement furniture in particular that that sectors, a little bit slower.
Okay, and I guess going into three P. L 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 or better with their contract lengths 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 pick up in certain markets versus others.
On the <unk> front.
The prospects were 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.
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 six or seven and I Wouldnt say its universal it's generally in the markets with a little bit more supply, but concessions are ticking up a little bit yeah. So overall, we don't think there's going to be material.
Change in the terms that the Cps one.
What I think is customarily it'll be five plus years and the biggest reason for that is the three pls are are meeting their customers needs and most customers don't want to be honest space when they make a commitment to be served by a G. P. L. They wanted that's usually a long term.
Commitment.
And.
But Disney accountable, but long term so they don't want to be thrown back to you.
The street and not have any space are usually so that term is pretty sticky we haven't really seen it the accordion like significantly.
Great. Thank you.
The next question comes from Nicholas You'll look hope 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.
New leasing activity affecting the change in guidance.
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 where 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 is that what youre getting at are you asking sorry, I was asking more just in terms of overall square footage of new.
Leases signed in the first quarter, how that compared versus the initial budget. If it was down and that affected the occupancy guidance change for the year.
No I think overall, just what we have.
The projected at the end of the year for the guidance or at least vitamins 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.
Okay.
Got it yeah, no I know that's a that's in terms of commencement. So I was I was asking more in line with leasing volume new leases signed.
That 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 of last year that number was very consistent so theres 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.
We actually were a little bit ahead. So we've taken care of about 71% like last year is that we have taken care of about 64%. So we're actually a little bit ahead on that renewal and new leases taken care of.
Got it thanks I appreciate the clarity there.
The next question comes from Nick del men with Baird. Please go ahead.
Hey, Good morning, guys, maybe just wanted to touch a little bit on your renewal discussions have there been any really shift in kind of environmental when a tenant approaches do you kind of to begin those discussions maybe over the last like two quarters or so.
Are they feel like less urgent to kind of sign new deals because they might think that rental rates are starting to roll over this a little commentary there would be helpful.
Oh.
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 the as we mentioned a couple of times the.
Pace of the discussion does get impacted pretty significantly by.
Market News economic news right news.
Global goings on et cetera. So.
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 here and people were feeling like it's probably time to get ready to pull the trigger and that feeling has.
Dull a little bit with the recent news in the last few weeks.
Nick the other thing I'd add is that if you if a tenant is considering moving.
They need to do it I 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 that continues to weigh on tenants decisions are they staying or not but.
But I would say generally speaking there's been no real change in tone or timing.
Other than what Peter alluded to.
That's helpful and maybe touching a little bit on dispositions, maybe what are you getting a little bit more of a flavor of what's the buyer pool like in and kind of what is there a portfolio premium still being placed on asset and then also kind of where pricing is shaking out relative to expectations on some of the assets that you have trade it.
So the market is active.
Remember that what we have and our expectations in terms of our sales program.
Is really more targeted to users.
And the 10 31 market is coming back now because they're able to do both sides of the trade.
So users 10, 31 buyers local investment entities.
Doctors dentists lawyers et cetera.
The profile I would say that the activity is robust.
Meaning.
The number of <unk>.
People signing up to get information is high.
The conversion to offers is also pretty good.
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 10 31 buyers are going to be more aggressive on pricing.
But yeah, those 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.
Hi, Good morning, I was wondering if you could please share some color on where you're seeing relative strength and weaknesses in your portfolio on the market level.
You mean with respect to say rent growth.
Let me see anything specific yeah.
Growth and leasing activity.
So this the markets right now that are showing rent growth and good leasing activity South Florida. As we said continues to be pretty strong Nashville, the demographics there continue to.
Empress and that markets are doing well.
Yes.
Uh huh.
Gives me.
In terms of the slower markets. We've spent a lot of time talking about socal are that would have to be on the list there.
Seattle's a little quiet.
Anything else that I'm not remembering.
As the deal just like everything else is kind of steady as you go.
Great that's very helpful and then.
Uh huh.
I was also wondering if you can share some color around utilization levels in your properties do you sense theres excess capacity among your tenants I'm just curious like.
Like how they're accommodating growth in their business is today.
Jojo you want to take that sure sure based on the so you know we serve every property screens figure properties constantly and we look at that when you meet our tenants', sorry 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.
<unk> sublease.
Situations in our portfolio is 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 in the specific drivers there given that occupancy was relatively flat and rent spreads on 70 ish percent of 'twenty 'twenty four commencing leases increased so I guess, we're just wondering whether there was anything in particular outside.
Metrics that gave you pause or if it's just a matter of an inflection you were forecasting in rent or occupancy that now you don't think will happen and just also trying to determine how much conservatism is baked in with that decrease the got it.
Sure Blayne.
I would say the main reason we touched upon it in the script is there was a handful of properties that we adjusted the leasing assumptions that were in the same same store pool. So that was the reason for the adjustment that we made.
Okay.
Okay. That's helpful. And then just to follow up on Baltimore, you guys made some good progress at all throughout last year, but there is still some space there that remains.
<unk> now includes Hager Hagerstown Hagerstown sorry.
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 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 in automobile.
And both material ports, so what we refer to as roll on roll off of railroad. So the container volume there was only about 5% of the east coast ports.
Not that material so it's not having an.
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 Post road building is along the I 95 corridor. That's a 172000 feet. That's in a different market than Hagerstown, which is long hired one coming out of Pennsylvania behaviors time market is a little soft.
Vacancy rates are in the double digits there.
So that's my answer for you this morning.
Speaker Change: Great. Thank you very much sure.
Yeah.
Yeah.
Yeah.
Yeah.
Okay.
Yeah.
Dave.
Hi, Caitlin your your line is now live.
Or do you want to.
No no I hear you.
Maybe just back to the markets question that somebody asked a few minutes ago, you mentioned that South, Florida, and Nashville, where she led the stronger ones, So Cal and Seattle more quiet could you talk to some of the drivers of the different markets and what's driving the difference in performance I guess, it more supply related demand related or both.
Well I think it was particularly with South, Florida, 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 tenancy in those markets tends to be a little bit smaller as well and the as as we've talked about in the past the activity levels on leasing.
Are much better than the smaller spaces.
That has something to do with and of course, the demographics a lot of people so moving to Florida, a lot of people are still moving to Nashville.
Speaker Change: 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.
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 explorations. This year than you have assumed one is not going to renew for that one I was wondering if you could talk about how like inform Devin assumption that is I can say that based on conversations with the tenant or it's more of like a blanket assumption.
It's a macro landscape assumption Caitlin.
Okay. Thank you.
The next question comes from Bill Crow with Raymond James. Please go ahead.
Hey, good morning, Peter and team.
When you started to see the weakness in southern California. It feels like it was <unk> 12.
12 months to 18 months ago.
And I'm just.
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 the city well, it's steady Eddie it just at this point might be poised to kind of follow up Los Angeles leads southern California's late.
Peter you want to take that.
So bill I would say to Peter's point earlier, the markets, where the rents ran the most.
Southern California is certainly at the top of the chart.
That's where we've seen a slower activity, we're not seeing that.
In Pennsylvania.
In Nashville.
Atlanta, and Florida and Texas.
The rents there have not run as much so that hasnt been a headwind and as Peter said earlier, it's not an affordability issue.
I'd say in some of those markets is there are simply not as much supply.
Today in 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 you didn't mentioned 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 theres been a little weakness there.
But again, they don't have the the supply issues that youre seeing in some other markets.
Yes.
Lastly for me, we've talked about lease economics quite a bit.
You mentioned.
Increasing.
Concession activity and push market rents under pressure in some markets no discussion about any change in annual rent bumps is that becoming more of a negotiated point with tenant reps.
Christian I'll take that yeah. It certainly is becoming a little bit more of a negotiated point, but so far what we've signed in 2024 are rent bumps, whereas the three 5% and if you take out one large.
Renewal that was negotiated back in 2019 were actually at three 7%. So there's still there's some discussion, but they're still holding relatively strong.
Okay. That's it for me thank you.
The next question comes from Nikita Bailey with J P. Morgan. Please go ahead.
Hey, good morning, guys.
The other.
Wanted to dig a little deeper on the demand side I know, it's been a NAREIT I think you talked about that you've had already some activity you were having some discussions on the stock to them building and now that you have leased it I was curious what are the same exact person that you're or the company that you're having discussions with that time or what.
Is it someone else the new came in and took the building kind of indicating maybe a deeper pool of potential applicants and demand.
We had a bit of a horse race for that property and one of those horses one.
Speaker Change: Yeah.
So how many people were in the in the running.
Multiple players, we're not going to get into how many thanks for that.
Speaker Change: Yeah.
It was a very hotly contested property a great for us.
Speaker Change: One particular group was able to move more quickly.
Speaker Change: And.
So they want the day the terms were very similar in each in each of the deals that came down to the wire.
Got it okay. Thank you.
Okay.
The next question comes from Jon Petersen with Jefferies. 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.
Seemed like it was a relocation for them.
Are you seeing any of that kind of activity of people, leaving southern California, dragging they can do distribution from Phoenix.
Joe just various things like that.
Thank you.
Rob.
I would say since you really need the name we're not disclosing anything new.
And we will confirm it.
It's an expansion.
Our footprint and.
They are growing and they are certainly serving student serving more parts of the U S in terms of movement.
See we do see proposals very few proposals that have socal Phoenix as a provider space for a particular assignment and we ended the day.
The prospect really needs makes a decision whether lower costs. Our drayage is important it is.
Daily Drayage kind of company that has transportation costs.
That involves the port of L, a and long beach almost.
Certain that they end up in socal because of the significant transportation costs. If they can actually they don't ship as much as a particular company and they could benefit from lower rental costs than they potentially could and then so two distinct customers. So I haven't seen a customer.
We really are in our Phoenix is replaceable, so L. A or socal are so possessed replaceable too.
<unk> Phoenix.
Got it Okay. That's really helpful color and maybe just sticking with Phoenix.
I know in the past you guys have.
Hold one plot of land to a data center developer.
Data center demand remains pretty hot right, while it seems like warehouse demand is let's just say laptop and it was a couple of years ago like what I guess, what are you seeing in terms of how land is being used in a market like Phoenix like are you seeing more projects that are more land parcels that you thought would go go warehouse theyre actually going datacenter and kind of help.
That impacting the development market.
Yes, certainly in our Phoenix Phoenix benefits from them and not a lot of things population growth assumption in 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.
Where we need to complete a lease.
Also in addition to that that's been a hotbed of a lot of semiconductor.
Manufacturing so that's healthy economy, there too that's been a hotbed for data center because of the amount of power and the <unk>.
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.
Okay. That's very helpful. Thank you.
And our 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 <unk>.
And any any.
If you can give on the block sizes in Socal there are.
That are renewing and I just want to make it make sure. The assumption you made on not renewing you haven't heard specifically from the tenant decided you said, it's just a bigger broader assumption.
I'll answer the next question.
The next question it was a macro.
Assumption that we only renewed Montana out there too.
He used to be discussions with both <unk> and.
The first question one of them is the land lease and the other was approximately how many square feet 300000.
I think his question was like Vikram was it having to do just that.
Southern California, I guess, the bauxite, yes, exactly how big are these these two assets if there are no kind of need up.
Oh, Oh, the size of the space, our renewals I'm, sorry, a renew their renewal just how big the boxes are oh.
Oh, yes, yes, yes are there in the 150 to 300000 square foot range.
Okay, Great and then just last one.
With all the move outs like I mean, not much move up but moving pieces to development you leave big a big one so a great progress on Stockton and.
It sounds like that's coming along well, but just your commentary some of it getting pushed out some of it not is this just sort of a timing within 'twenty 'twenty four I E are you still feeling as.
Good have you felt last quarter about knees up or is something changed I just wanted to make I just want to be clear because it sounds like there was still moving pieces.
Yes, 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 development and we have.
Fleet 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 Inc. And that has impacted that is great example of that is getting started and 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 they 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 Congress the tone of the conversations we're having to project out when we're going to to turn these conversations until these.
Thank you.
This concludes our question and answer session I would like to turn the conference back over to Peter but silly 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.
Okay.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.