Q4 2024 First Industrial Realty Trust Inc Earnings Call
Yeah.
Speaker Change: Good day and welcome to the first industrial reality Trust, Inc. Fourth 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.
Speaker Change: 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.
Speaker Change: I would now like to turn the conference over to Art Harmon Senior Vice President of Investor Relations and marketing. Please go ahead.
Speaker Change: Thanks, a lot, Dave Hello, everybody and welcome to our call before we discuss our fourth quarter and full year 2024 results and our initial guidance for 2025, 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.
Speaker Change: And estimates of our prospects today's statements may be time sensitive and accurate only as of todays date February six 2025, we assume no obligation to update our statements or the other information we provide.
Speaker Change: 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.
Speaker Change: Fillings are available at first industrial dot com under the investors tab.
Peter <unk>: 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.
Peter <unk>: Bob Walter Executive Vice President of capital markets and asset management now, let me hand, it over to Peter.
Speaker Change: Thank you art and thank you all for joining us today.
Speaker Change: The first industrial team wrapped up a successful 2020, 'twenty 'twenty 'twenty four highlighted by delivering strong cash rental rate growth on leasing and achieving our second highest volume year for development lease signings since we relaunched our program in 2012.
We're equally excited about the impact of this success is having on our 2025 peso growth.
Based on the midpoint of our guidance, we're expecting to grow F. F O approximately 10%.
Speaker Change: Scott will walk you through the details later when he addresses our guidance.
Speaker Change: Before getting into specifics of our performance, let me comment on the industrial market for us.
Barry: Barry a reported U S industrial market vacancy is six 1% at year end.
Barry: 30 basis point rise from Q3 'twenty four.
Barry: New construction start volume is 62% lower than the third quarter 2022 peak with just 43 million square feet breaking ground in Q4 dollars 24.
Barry: And our 15 target markets space under construction totals 143 million square feet.
Barry: Secondly, future quarterly completions could fall well below the 46 million square feet delivered in the fourth quarter of 'twenty four.
Barry: On the demand side net absorption nationally was 24 million square feet in the fourth quarter $15 million of which was in our target markets.
Barry: With the election behind US we're hopeful that this reduction in uncertainty will lead to a stronger commitment to growth investing and in turn a more consistent pace and development leasing.
Barry: From a portfolio point of view, we ended the year with in service occupancy of 96, 2%.
Barry: Aided by some fourth quarter development leasing, which I will touch upon shortly.
Barry: Our team also delivered a cash rental rate increase of 51% for the year.
Barry: Is the second highest in our 30 year history. This.
Barry: <unk> back to back years of 50 plus percent for this metric.
Barry: Looking at our 2025 lease explorations, we're making solid progress.
Barry: And they're now through 59% by square footage.
Together with new leasing our cash rental rate increase for leases signed with 2025 commencement date is 33%.
Barry: Excluding the one 3 million square foot fixed rate renewal in central Pennsylvania, We discussed on our last call 2025 signed leases to date had a cash rental rate increase of 42%.
Barry: For the full year, we expect cash rental rate growth to range from 30% to 40% overall and 35% to 45% excluding the aforementioned central P. A renewal.
Barry: We ended the fourth quarter on a positive note with about 1 million square feet of signed development leasing on balance sheet and another 463000 square feet in our Phoenix joint venture.
Barry: On balance sheet, we signed a full building lease for our 542000 square footer in Nashville, with a repeat customer nine months ahead of the anticipated building completion.
Barry: We also leased the remaining 350000 square feet.
Barry: First logistics center at $2 83 building B in Pennsylvania, and 100% of our 83000 square foot first one building in the inland Empire.
Barry: As I noted at the start of the call our team delivered an excellent year of development leasing.
In total for 2024, we signed four 7 million square feet of development leases inclusive of our joint venture.
Barry: This compares to a budgeted number of $2 8 million square feet in our original 2020 for guidance.
Barry: Not only were we pleased with the amount of leasing the signings were broad based representing 10 of our 15 target markets.
Barry: Which were northern and southern California, Nashville, Central, Pennsylvania, Phoenix, Houston, Chicago, Seattle, Miami and Denver.
Barry: Many thanks to our regional teams for this fantastic performance.
Barry: We've also started two new developments, which will contribute to our long term growth.
Barry: On the heels of the 542000 square foot lease at our first Rockdale Park in Nashville, We started a 317000 square foot building.
Barry: Our total projected investment is $33 million.
Barry: Nashville is long term growth drivers at current fundamentals are strong as vacancy stands around 3% and unleash new supply represents one 7% of total stock.
Barry: In the Lehigh Valley in the I 70, 881 quarter, we started our first phase at first Park 33.
Barry: There were constructing two buildings totaling 362000 square feet with a total estimated investment of $63 million.
Barry: The building sizes and deaths will allow us to target the smaller tenant segment, which we believe is underserved by new construction.
Barry: As most availabilities are targeting tenants 200000 square feet and up.
Barry: The cash yield for each of the fourth quarter starts is expected to be north of 7%.
Barry: We're also well positioned for future development opportunities as sub market conditions warrant.
Barry: In the fourth quarter, we were pleased to close on the final land parcel at our first Park Miami project for $16 million.
Barry: With this addition, we can now develop an additional one 1 million square feet of product and what will ultimately be a two and a half million square foot Park.
Barry: In total our land positions across our target markets can accommodate 15 million square feet umbrella.
Barry: Moving now to dispositions, we sold five buildings totaling 214000 square feet or $25 million in the fourth quarter to bring our total for the year to $163 million.
Barry: Since 2010, we've completed the sale of $2 4 billion of legacy assets, achieving portfolio objectives for location functionality and growth prospects.
Barry: Therefore, moving forward you should assume property sales volumes will be lower than prior years.
Barry: For 2025, we expect asset sale of up to $75 million.
Barry: Lastly, with respect to our dividend given our performance and outlook our board of directors declared a dividend of 44 and a half cents per share.
Barry: This is an increase of 23%, which is aligned with our anticipated cash flow growth.
Scott: Before I turn it over to Scott I'd like to express our heartfelt sympathies to the people of southern California, who have been impacted by the wildfires.
Scott: The physical and emotional destruction is tragic and unprecedented and as far we will continue to do what we can to support the impacted communities.
Scott: With respect to our people and properties, we are fortunate and thankful to be able to say our teammates and their families are safe and sound and none of our buildings have been affected.
Scott: With that I'll turn it over to Scott. Thanks, Peter Let me recap our results. They re funds from operations were <unk> 71 per fully diluted share compared to <unk> 63 per share for Q2 thousand 23 for.
Scott: For the year NAREIT <unk> per fully diluted share grew eight 6% to $2 65 compared to $2 44 said 2023.
Scott: Our cash same store NOI growth.
Scott: For the quarter, excluding termination fees was nine 3%.
Scott: The results in the quarter were primarily driven by increases in rental rates on new and renewal leasing rent.
Speaker Change: Hey, bumps embedded in our leases, partially offset by higher free rent.
Scott: Yes.
Scott: For the full year of 2020 for cash same store NOI growth was eight 1%, excluding the third quarter 2020 for accelerated recognition of a tenant improvement reimbursement in central Pennsylvania, and a similar accelerated reimbursement in the first quarter of 2023 related to a tenant in that.
Scott: Uh huh.
Scott: We finished the quarter with in service occupancy of 96, 2% up 120 basis points from the third quarter and 70 basis points from yearend 2023.
As we stand today, we have approximately 140 basis points lease up opportunity from developments placed in service 23.
Scott: 2024.
Scott: Summarizing our leasing activity during the fourth quarter.
Scott: Approximately one 9 million square feet.
Scott: At least has come out.
Scott: Of these 600000 or new 800000 were renewals and 500000 word for developments and acquisitions with lease up.
Scott: Now onto our 2025 initial <unk> guidance.
Scott: Our guidance range for NAREIT <unk> is $2 87 to $2.97 per share at the midpoint of $2.92 per share. This represents a 10% growth rate from 2024.
Scott: Key assumptions are as follows.
Scott: An average quarter end in service occupancy range, 95% to 96%. This assumes approximately one 6 million square feet of development leasing during the year. The vast majority assumed to occur in the second half.
Scott: Cash same store NOI growth before termination fees of 6% to 7%.
Scott: Note that the same store guidance excludes the impact of the accelerated recognition of a tenant improvement reimbursement in 2024 relate.
Scott: Related to the April mentioned Central Pennsylvania lease.
Scott: Guidance includes the anticipated 2025 costs related to our completed and under construction developments at December 31.
Scott: For the full year 2025, we expect to capitalize about 90 per share of interest.
Peter <unk>: And our G&A expense guidance range is 45 to $41 $5 million, let me turn it back over to Peter.
Peter <unk>: 2024 was an outstanding year and I would once again like to extend my thanks to the entire first industrial team.
Peter <unk>: Dedication to serving our customers and driving strong future cash flow growth from development leasing and rental rate increases are driving meaningful growth in shareholder value.
Peter <unk>: And I know you share my excitement for the growth opportunities that lie ahead in 2025 and beyond.
Peter <unk>: Operator with that we're ready to open it up for questions.
Speaker Change: We will begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
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Our first question comes from keeping Kim with Truest. Please go ahead.
Speaker Change: Thank you good morning commute.
Speaker Change: Can we first start off with maybe getting refresh your refresh views on the Los Angeles and inland Empire markets, and if you're seeing any green shoots.
Speaker Change: For demand growth.
Joe: So Joe you want to take that sure sure I'll give you an idea Joe Joe.
Joe: When you look at.
Joe: Post election, we've guided more towards more requests for proposals so touring activities up.
Joe: The in terms of it.
Joe: There is imports year to date, it's up 22% we haven't seen.
Joe: A big impact of that although.
Joe: As we have stated here, we leased our first L, which is a low coverage sites that may have impacted positively our leasing of that asset well, we're not going to predict it a big move because of the port activity.
Joe: Vacancy ticked up for both L, a and I E a little bit.
Joe: But it is a couple of things that we're watching closely in this trade is good overall under construction or L. A are you down in terms of quarter to quarter.
Joe: Our completions were also down quarter to quarter.
Joe: Hard to significantly down.
Joe: So if that trend continues and the market continues to absorb what's been delivered in Q.
Q4 was what he said before we should be you know the market should be firming up.
Joe: Okay and on your development pipeline.
Joe: Roughly like how much square footage are you assuming that you're leasing up I guess at the midpoint.
Joe: For your guidance please.
Joe: Sure. It's I hate you made Scott, we're assuming one 6 million square feet of development lease up the vast majority of it are weighted to the second half of the year.
Joe: Okay. Thank you.
Joe: Okay.
Speaker Change: And our next question comes from Nicholas you'll look out with Scotiabank. Please go ahead.
Speaker Change: Hi, Yeah. This is Greg mcginniss on for Nick.
Speaker Change: Just hoping you could talk about are the Denver market, what youre seeing on leasing there is occupancy has ticked down with the with the assets being placed into service there and any updates on Aurora Commerce center would be appreciated.
Speaker Change: Sure Greg It's Peter So Denver as you know has been working through a little bit of elevated supply.
Greg Mcginniss: That continues to get leased market occupancy improved a little bit.
Speaker Change: In the fourth quarter.
Speaker Change: Demand has been okay decision, making.
Speaker Change: <unk> continues to be elongated with some of the tenants or prospective tenants rather.
Speaker Change: In the market, we have seen as Jojo just commented about southern California in the last couple of months and increased level of urgency and momentum from some tenants.
Speaker Change: Better that are in the market.
Speaker Change: But we still clearly have work to do in Denver, but we.
Speaker Change: We feel a little bit more optimistic with what we're seeing today than we felt a good part of last year.
Speaker Change: Okay. Thanks, and then with regards to future development, which geographies do you plan on focusing on.
Speaker Change:
Speaker Change: You have to stop there.
Speaker Change: Sure, we're not going to talk about volumes, but the markets right now that we would thinking about new starts I'll just go by state really, Pennsylvania, Texas and Florida.
Speaker Change: Or are the places that we would focus on next.
Speaker Change: Okay, and sorry, just one final follow up here in terms of funding with the decrease in dispositions. How are you thinking about funding the development.
Speaker Change: At the same formula is the paths, we're expected to spend 220 million and 25 in development access cash flow sales and borrowings on our line of credit are going to be the sources.
Speaker Change: Thank you.
Speaker Change: Okay.
Craig Mailman: And the next question comes from Craig Mailman with Citi. Please go ahead.
Craig Mailman: Hey, good morning.
Craig Mailman: Scott on the one 6 million square feet of development leasing embedded in guidance can you go through maybe how much of that would be you know.
Craig Mailman: A portion of that 140 basis points of lease up opportunity versus <unk>.
Craig Mailman: Projects that are currently under construction.
Craig Mailman: Let me do a quick calculation I think it's going to be the vast majority of it so Craig the one 6 million square feet. It's basically comprised of our developments placed in service not lease. So that's already in the occupancy number and then developments completed not in service. So those are the two pieces that make up.
Craig Mailman: The $1 6 million.
Craig Mailman: Not assuming any lease up in any development completions and 25.
Craig Mailman: Okay. So that that's not only helping out for fall, but also helping same store as well because that's currently a drag on NOI.
Craig Mailman: Developments placed in service not least that could help same store NOI just depends what the free rent assumption is.
Craig Mailman: Okay, because that's not.
Craig Mailman: Yes.
Craig Mailman: Okay that is helpful. And then just more broadly I know development leasing has as you guys had a big year this year.
And you've kind of alluded to maybe things getting a little bit better on the ground, but just in the context of maybe what some of your peers have been saying about you know.
Craig Mailman: And kind of the trend bottoming and getting better and supporting maybe a second half.
Craig Mailman: Twenty-five the reacceleration that absorption and kind of where do you guys. What are you guys seeing on the ground and what's your kind of most current thinking on one flagship what could happen.
Speaker Change: I'll start with this and then Peter and Jojo can jump in.
Speaker Change: You know the you kind of looking at it classic you shape. The way we look at this not a V shape.
Speaker Change: So you know put predicting.
Speaker Change: How strong this rebound that you referred to is going to be is not easy.
Speaker Change: What we have seen even though.
Speaker Change: Development leasing times are a bit elongated assets are getting leased.
Speaker Change: In 2020 for 863 million square foot of leases were signed across the country.
Speaker Change: And that's the third highest year in history.
Speaker Change: So while we.
Speaker Change: We see falling rents in some markets are low grant rent growth in some markets. Our leases are getting signed and little by little and slowly and methodically that you know we always talk about tenant alternatives when we talk about markets with.
Speaker Change: Additional space those alternatives are beginning to shrink and.
Speaker Change: Equally helpful to that obviously is the fact that the national pipeline is now shrinking dramatically and new starts are staying pretty low levels. So.
Craig Mailman: Hard to say, Craig what that inflection is going to look like.
Craig Mailman: We're pretty conservative on that front, but we see it coming and we feel good about the prospects.
Peter <unk>: Craig It's Peter I'll, just give you two specific examples the deal we announced in Pennsylvania, we've been working on that almost all of last year. So finally seeing some.
Speaker Change: Higher level of engagement the deal we reported of Nashville.
Speaker Change: Our repeat customer and the early lease up there. They are in the manufacturing business of electrical components and they had a lot more urgency to get that done so things are a little better as we've said and we're seeing.
Speaker Change: Higher engagement and more momentum, what we really want to see to Peter's point has that momentum continued to be persistent.
Speaker Change: During the year.
Speaker Change: Perfect.
Speaker Change: One last thing I'll add to that while we're on the subject of development leasing and Timeframes.
Speaker Change:
Speaker Change: Some of the assets that we have as you know are complete and in service.
Speaker Change: And some are beyond the 12 months of downtime.
Speaker Change: We also have leased assets like we did last year a million foot or in Stockton at completion of $5 40 in Nashville at roughly completion.
Speaker Change: I'm sorry, nine months ahead of completion.
Speaker Change: And the $3 60 in the Philly market and completion. So when you look at if you look at our vintages, we have to group them by vintages, that's kind of a year. We started the project so.
Speaker Change: If you look at it by vintage going back to 2018 every vintage.
Speaker Change: <unk> has leased on average below nine months.
Speaker Change: So it was less than nine months of downtime. So some projects are simply going to take longer maybe it's the market theyre in maybe it's the depth of the demand for the particular size of the asset and some are going to happen quickly.
Speaker Change: That those timeframes are as difficult to judge today as they say.
Speaker Change: They've been in the last couple of years.
Speaker Change: Great. Thanks for the color.
Speaker Change: And the next question comes from Vince to bony with Green Street Advisors. Please go ahead.
Vince Tobony: Hi, good morning, or are there any large move outs in 25 that we should be aware of and generally how do you think tenant retention rates could trend this year versus the 24 levels.
Speaker Change: Chris.
Speaker Change: Obviously, we've talked about the move out to 700000 square foot move out.
Speaker Change: Central VA and we're not aware of any other significant move outs.
Speaker Change: Tenant retention last year, we were one of our highest rates in the last three or four years, where 77%.
Speaker Change: So we you know.
Speaker Change: We expect that number to be very similar going forward.
Speaker Change: No. That's helpful. And then just a quick related follow up how about bad debt. If you could share maybe where bad debt as a percentage of revenue came in for 24. How are you thinking about 25 are you seeing any cracks in certain categories and then any commentary along there it would be great sure.
Speaker Change: Sure Vince It's got bad debt expense was $700000 in 2024 that was 10 basis points of gross revenue. So at very very low number we're assuming a $1 million assumption and twenty-five like we have in the past several years as far as material tenants on the watch list, we talked about Google They have paid January.
Speaker Change: He rent were expected February rent any day based upon payment history.
Speaker Change: Keep in mind with that tenant we do have as a security deposit in the form of a letter of credit that takes care of 12 months of rent.
Speaker Change: Great. Thank you.
Speaker Change: And the next question comes from Todd Thomas with Keybanc Capital markets. Please go ahead.
Todd Thomas: Hi, Thanks, good morning.
Todd Thomas: I just wanted to go back to the 1.6 million square feet of development leasing in the guidance, which sounds like it's mostly related to projects that are already in the in service portfolio can.
Todd Thomas: Can you just comment on the four projects that.
Todd Thomas: It will transition to the in service portfolio. During the first half of 'twenty five you have a little leasing at first park Miami, but can you provide an update on an interest for the remainder of that space and the three of them on Empire assets and is there anything embedded in guidance for for those.
Todd Thomas: Properties as they transition.
Speaker Change: Sure Hi, it's Jojo Alright, now scheduled for in service date of 2025 or four projects.
Speaker Change: Three of the four isn't it isn't the Empire and one is in Miami.
Speaker Change: They range from a three buildings are at 140 to 160000 square foot range and one is a 325000 square footer.
Speaker Change: Can you just comment on are not you know.
Speaker Change: The interest level for those assets and whether there's any expected leasing.
Speaker Change: During the year as they as they transition.
Speaker Change: Sure let me comment on this.
Speaker Change: The three buildings in Eni Empire, and I'll turn it over to Peter on the first part of building at first Park, Miami, where the three buildings again like I said the class a there all of the 215 corridor are very very state of the art facility and are looking at a 155000 feet of hardest 60000 square feet.
Speaker Change: Square feet, and a 335 square feet and all of those projects.
Speaker Change: Moving towards and we're also responding to Rfps.
Speaker Change: Arms of leasing a basically we've assumed that they will be leasing in the second half of this year.
Speaker Change: And then Todd it's Peter for Miami, We have active rfps out for all of the remaining space in that building.
Speaker Change: Okay and then just just curious if you could.
Speaker Change: Just provide an update if there's any sort of forecast for 2025.
Speaker Change: For market rent growth across our.
Speaker Change: The portfolio across the portfolio as you know markets that you're that you're targeting or our are eyeing.
Speaker Change: So generally speaking we're expecting modest rent growth some markets will be down some will be up a point or two so maybe call. It inflation plus a point that's what we're expecting this year.
Speaker Change: Socal, probably flat to down a little bit.
Speaker Change:
Speaker Change: And the next question comes from Blaine Heck with Wells Fargo. Please go ahead.
Speaker Change: Great. Thanks, Good morning, I know, it's early on but I was hoping you could talk about any change in tenant behavior, you've noticed in the southern California market or even Houston Phoenix, given the increased tariffs on China delayed but potential implementing implementation on Mexico. I guess are you seeing any hesitation until at least in those markets.
Speaker Change: On the flip side any pull forward of activity.
Speaker Change: Okay.
Speaker Change: I'm going to start with this and Joe Joe can jump in too.
Speaker Change: It is like you said at the beginning of your question very early.
Speaker Change: I think there's a lot of chaos around this topic tear up the topic of tariffs.
Speaker Change: Clearly if if very large tariffs were put in place for a very long for a long period of time.
Speaker Change: It's a negative.
But at this point you know who's to say, what's really going to end up being the case and for what kind of term.
Speaker Change: It could be negotiating ploy as you've seen.
Speaker Change: It's anyone's guess on what's going to happen with this.
We have not seen yet any reaction to this.
Speaker Change: No one has actually brought it up in terms of the tours that we're giving and properties are conversations that we're having people haven't stepped away on this because of this subject.
JoJo: Again, it's too early and too unpredictable at this point Jojo you want to add anything to that.
JoJo: Love to do it okay.
Speaker Change: Okay. Great. That's helpful. And then second question can you talk a little bit more about the economics on incremental development.
Speaker Change: Just some color on how you'd seen construction costs trending and expectations on the cost side this year and given the slowdown in rent growth what effect that might have unexpected yield if any.
Speaker Change: Sure Hi, this is Georgia, well if you look at 2024 on average construction cost came down in the 10% range is primarily driven by the decrease in contractor margins.
Speaker Change: Those are stabilizing and slight decrease in construction materials.
Speaker Change: One for at least 25, we're looking at the flat to slightly down I would say, maybe zero to 3% down and you know, yes. It did yes.
Speaker Change: Impact on.
Speaker Change: Oracle investment whenever it's if your land is anywhere from 20% to 25%.
Speaker Change: On your investment of course, it's going to have a have a way of April losing improving the yields slightly.
Speaker Change: And just put some numbers around that.
Speaker Change: We talked earlier about having 15 million square feet of growth and our our land holdings.
Speaker Change: Today, we could invest about $2 billion.
Speaker Change: That would pencil out to a high six yield.
Speaker Change: So in that today that includes today's market rents as well as our anticipated and expected cost framework for those <unk>.
Speaker Change: <unk> building in that production and and some development cost.
Speaker Change: And that's very helpful. Thanks, a lot.
Speaker Change: Two projects, we just started or a little north of seven.
Speaker Change: And the next question comes from Rob Stevenson with Janney. Please go ahead.
Rob Stevenson: Good morning, guys.
Rob Stevenson: You've talked about a little bit, but can you give a sort of a broader overview of which of your core markets Youre seeing the best operating fundamentals and tenant demand and which are the relatively weaker ones today Besides southern Cal.
Rob Stevenson: Yeah, I mean, Nashville, the best market right now vacancies around 3%.
Rob Stevenson: Very limited new starts it's not so easy to get entitlements in Perm and in that market. We're fortunate there to have a lot of growth opportunity.
Speaker Change: Pennsylvania is not bad in Lehigh Valley decent.
Speaker Change: South Florida has cooled permits blue heart.
Speaker Change: Hum phase, but we're still very very focused on south Florida.
Speaker Change: Texas, Houston and Dallas.
Speaker Change: Doing very well, we're certainly looking for more land opportunities in the state of Texas and in those two markets of course, the right Submarkets around Dallas, that's a very very big market.
Speaker Change: Those would be the strongest markets and you know aside from Socal I would say, while Denver is improving it still got some room to run.
Speaker Change: Phoenix has a lot of vacancy, but we're finding that with the product that we have on offer or attracting good tenant traffic and lease signings. There so being there very early and being in a great location and offering the right sized product benefited us greatly in that market.
Speaker Change: So that that would that's how I would summarize the call it the pluses and minuses.
Speaker Change: Okay. That's helpful. And then in terms of tenants are you seeing any better demand at certain size levels or is that what demands out there is fairly widespread across the various buckets square footage was PS.
Peter: Peter Good morning, Rob, It's Peter I would say smaller mid size.
Speaker Change: Our more active generally speaking the larger and as we've talked about on prior calls that.
Peter: It varies by market.
Peter: Small in Florida or Denver.
Peter: Is different than what the smaller mid size in Pennsylvania as an example, Amazon had been pretty active.
Peter: And a couple of markets last year.
Peter: There is demand for the larger sizes, but it is not as robust as it is in the smaller mid size is today.
Peter: Okay. That's helpful. Thanks, guys I appreciate the time.
Peter: And the next question comes from Michael Carroll with RBC capital markets. Please go ahead.
Michael Carroll: Yeah. Thanks, I wanted to follow up on <unk> question, I mean, how difficult is it to underwrite a new development start today, maybe versus a few years ago. I mean do current market rents really support those developments broadly or does development only working in the Pennsylvania, Florida, and Texas markets, where you said that you're actually interested in pursuing them.
Michael Carroll: Well the state of the existing opportunities in those markets that you. Just mentioned is positive. So that's why we're focused on those markets and underwriting new deals there as you know.
Michael Carroll: It's fine it's not a problem.
Michael Carroll: Projecting out which other markets like Southern California. For example, when those markets are going to be ready as a little bit more difficult.
Michael Carroll: So in the Pennsylvania, Florida, and Texas markets, you don't need rents to go up or you're not underwriting rents to go up to justify those developments at the current market rents you can get your seven ish percent yields that that you just discussed with the deals that you just broke ground recently.
Michael Carroll: Correct.
Michael Carroll: Okay.
Speaker Change: And then just last one I guess, Peter can you talk about what's going on with broader tenant activity. I mean has there been any noticeable change specifically after the elections I mean has tenants been much more active making decisions. After the elections or has it just being kind of steady state for you and that wasn't really a driver.
Speaker Change: This isn't really a light switch topic, meaning it didnt exist on Friday and on Monday It does.
Speaker Change: This is more of an evolutionary thing what we have noticed is that there is a sense there.
Speaker Change: That being more entrepreneurial is gonna be rewarded that means investing in growth, taking some risk, whereas whereas prior it's been most definitely risk off investing tens of millions of dollars into a new lease and equipment and product.
Speaker Change: There is a lot more confidence around the fact that that product will move.
Speaker Change: So we're seeing the right now the result of that is more foot traffic or receiving a lot more rfps I would say prior to that we were sending out more unsolicited proposals.
Proposals, perhaps than we were receiving rfps that equation has changed now.
Now I want to caution you know were cautiously optimistic we have not seen as Peter mentioned earlier, what we wanted to see is consistent and.
Speaker Change: And persistent development lease signings and that that is the question Mark and that's what we're keeping our eye on.
Speaker Change: Okay, great. Thank you.
Caitlin Burrows: And the next question comes from Caitlin Burrows with Goldman Sachs. Please go ahead.
Speaker Change: Hi, good morning E.
Mentioned earlier that retention has been quite high and you expect it to continue but I think I'd concerned. Some people have is that some tenants have too much space. So where do you think what they have I'm. Just wondering what your view are there tenants that have too much space that needs to be worked through and how do you think automation could end up impacting space needs.
Speaker Change: Yeah, I'll take the first part of that so yeah. The the sublease.
Speaker Change: Space nationally is about 1.1% of existing stock.
Speaker Change: That's approximately double the long term average.
Speaker Change: Within our own portfolio, we have some sublet space.
Speaker Change: None of which is impacting us from a revenue standpoint, we have good leases with good tenants on almost all of that space.
Speaker Change: So we will just have to work through that over time and and.
Speaker Change: And we're keeping an eye on that.
Speaker Change: It was the second part of.
Speaker Change: Automation Jordan.
Speaker Change: When you look across the board in our portfolio, we don't see tennis massively.
Speaker Change: Massively investing in automation.
Speaker Change: So their utilization of the space of course, you have the big tenants.
Speaker Change: Tenants that are heavily automated like the large E Commerce company, so, but that's part of their business plan for day, one and but we're not seeing a sea change.
Speaker Change: Got it Okay, and then I think this topic came up some point in the past, but in terms of the development projects that have taken longer to lease up do you think that's a case, where reducing price would help or is it not really an issue of price that smart just does somebody need that space or not.
Peter I don't take short tail I would say, it's not really price where market sensitive.
Speaker Change: It's more about as we've talked about on the last several calls just the pace of decision making.
Speaker Change: And companies.
Speaker Change: Finally, saying, okay, we need the space you saw that in our development leasing results throughout last year, culminating in what we announced in the fourth quarter. So we just want to see more of that it's frustrating for sure.
Speaker Change: That tenants aren't making decisions at the pace that we've all seen over.
Speaker Change: The last several years, but it is thought about price, we're going to do what we need to do to lease the space.
Speaker Change: As we always have.
Speaker Change: Got it thanks.
Speaker Change: And the next question comes from Nick del Woman with Baird. Please go ahead.
Speaker Change: Good morning, Baby you wanted to touch a little bit just about L. A wildfire impact no. It's early days in the rebuilding efforts are just starting up but where do you think what markets are most likely to benefit that's kind of that rebuilding effort. It's at the IEEE or is it a L. A county proper just some thoughts there would be helpful.
Speaker Change: I'm talking about central.
Speaker Change: Yes, so Joe first of all the timing is going to be very hard to predict it depending on how the permit process, how the clean up process and redevelopment process XI prizes all shakes in the 30 timing aside I mean, a lot of our investment will be dedicated to new infrastructure in the hospital.
Speaker Change: Sure.
Speaker Change: If you look at what components needed for infrastructure and our house disruption that would need storage of building materials and actual infrastructure that goes basically under under to go out so well.
Speaker Change: Going forward I think we see that it will necessitate a outside storage of materials closer.
Speaker Change: Where the fires tragic fires happened. So are you know our thought is that L. A L. A collie might benefit the most.
Speaker Change: That's helpful. And then just maybe touching a little bit on development, maybe on build to suit opportunities have you seen any sort of increase in bad activity across your markets.
Speaker Change: Yeah.
Speaker Change: Not really particularly given the tenants have choices today on the existing inventory unless something really.
Speaker Change: Specific and unique certainly there are some we were glad to pre lease the building in Nashville nine months ahead of completion so.
Speaker Change: In essence that somebody who wanted some influence over the design and specifications for them, but tenants still have choices today in the market. So build to suit is probably less.
Speaker Change: Less active.
Speaker Change: Okay.
Speaker Change: Dave.
Speaker Change: And our next question comes from Mike Mueller with JP Morgan.
Speaker Change: Hi.
Speaker Change: You've addressed about 60% of the 25 exploration looking at the remaining 40% is there anything that stands out in terms of geography or size or is it kind of more of the same of what you've released already.
Speaker Change: Yes, its pretty much broad based across our typical mix or makeup of our trajectory. So nothing stands out.
Speaker Change: Okay and then.
Speaker Change: Just kind of think he mentioned about $225 million of development spend for the year I mean, it looks like maybe half of that applies to projects that are already underway. So what is there a way you can kind of ballpark, what you'd think development starts could be for the year.
Speaker Change: I'm looking at Peter now [laughter], Yeah, we're not we're not going to give volume on development starts.
Speaker Change: You know that we have certain opportunities that we think we're going to move ahead with but.
Speaker Change: As the global economy turns and as markets change that could change. So that's why we don't talk about volume.
Speaker Change: Talking about location is fine.
Speaker Change: And as I mentioned, Pennsylvania, Texas, and Florida are there places where you would go.
Speaker Change: Okay I appreciate it thank you.
Speaker Change: And the next question comes from Vikram Malhotra with Mizuho. Please go ahead.
Vikram Malhotra: Thanks for the question guys and congrats very strong execution in 'twenty for.
Speaker Change: Maybe first one a day if you can clarify the development lease up that you've done in 'twenty. Four you may have addressed it I just wanted to.
Vikram Malhotra: Get a better understanding of when the states.
Vikram Malhotra: Except for <unk> and he asks at full or cash flow in 2025, and 26 is it is it mostly baked for 25 years is some of what you believed in 'twenty four actually hit next year.
Vikram Malhotra: So I. So if you look at the fourth quarter, releasing the two deals that are expected to start in 'twenty five or the joint venture deal I think that's first quarter Joe Joe.
Speaker Change: And then Peter steel in Nashville, as a <unk> you expected start date everything else.
Vikram Malhotra: Started in 2024.
Speaker Change: Got it.
Speaker Change: And then just in the model as you kind of looked at occupancy.
Speaker Change: Further ease up on the develop the development of $1 6 million.
Speaker Change: You also mentioned 60% of the expirations are covered I'm just wondering like do you have.
A higher than normal visibility or average visibility this year than prior years given.
Speaker Change: Given all the development lease up in the 60% you mentioned or kind of average.
Speaker Change: It's more average.
Speaker Change: We're at a similar point with our rollovers as we always are at this time of the year.
Speaker Change: And.
Speaker Change: With respect to development leasing I wouldn't say, we have any more visibility than we had last year.
Speaker Change: Got it and then just lastly, the occupancy map some of your peers have outlined.
Speaker Change: The dip in the first half.
Speaker Change: You know down to perhaps 90 494 plus percent and then the expectation of a pick back up can you just sort of walk through like how much of the guided dependence on them on a back half recovery.
Speaker Change: Yeah, if you look at our occupancy that we're projecting for 2025.
Speaker Change: You know, we're going to be down in the first and second quarter and we talked about the 700000 square foot move out in the central and the supportive elements are coming into service in the first quarter and second quarter. So you'll definitely have a pick up.
Speaker Change: Occupancy in the last two quarters of the year.
Speaker Change: Thank you.
Speaker Change: And the next question comes from it Teo Okusanya with Deutsche Bank. Please go ahead.
Teo Okusanya: Yes, good morning, again, congrats on a really strong outlook on really strong execution in 2004.
Speaker Change: I wanted to go back to George's comments about Southern California, I think you mentioned.
Speaker Change: But the rent growth in 'twenty fives are expected to be flat to maybe slightly down and I guess I'm trying to understand that number in the context of kind of low code.
Speaker Change: And some of your peers talking about rental rates down anywhere from 10% to 20% on a year over year basis since one for.
Speaker Change: While rental rates to be still a ball.
Speaker Change: Pre pandemic levels. So just trying to understand about slots of dot com when they took the kind of sum up all the other stuff going on in southern California.
Speaker Change: Yeah, I mean, I'll start out and Jojo can take provide more detail but.
Speaker Change: And our portfolio composition matters.
Speaker Change: We all operate in several markets and when I say, we all I mean, our peers, whether public or private.
Speaker Change: Delivering the product that meets the demand has always been one of our primary focuses.
And delivering product that's going to remain competitive in a sub market for the long term that's been a key focus.
Speaker Change: So you know, we can't create rent growth and tenants out of nowhere, but we can deliver a product that is so competitive it's amongst the first to lease and Thats why we have maybe perhaps a slightly different view on rent growth for our markets as others do.
Speaker Change: Okay.
Speaker Change: That's helpful. Thank you.
Speaker Change: And the next question comes from Brendan Lynch with Barclays. Please go ahead.
Brendan Lynch: Great. Thanks for taking my question, maybe to follow up on that looking more broadly at other markets around the country can you talk about your market pricing assumptions that are embedded in guidance.
Speaker Change: Yeah.
Speaker Change: We we build up our budgets from the ground up lease by lease.
Speaker Change: So it's a little bit different maybe than the question you're asking.
Speaker Change: We don't take inputs necessarily of all the economic metrics decided that we really go based on what the market leaders, who are talking to the tenants in the market and the brokers in the market think about.
Speaker Change: Demand and we match that up with the product that we have on offer.
Speaker Change: A little tougher here.
Speaker Change: I'm at your question with the stats I think that you are looking for.
Speaker Change: Okay. Thank you that's still helpful color to understand the process.
Speaker Change: Maybe you could also talk about different levels of demand that you're seeing between different types of tenants and in particular, our three pls.
Speaker Change: Sure Peter to ensure its Peter I would say the activity continues to be broad based as we've talked about for a number of quarters.
Speaker Change: Three pls remain active certainly they over leased some space over the last couple of years.
Speaker Change: But they are still very active.
Speaker Change: On the prospect list, we're seeing manufacturing.
Speaker Change: <unk> E com food and beverage.
Speaker Change: As we responded to Rob Stevenson comment earlier activity.
Speaker Change: And the smaller and mid size ranges generally speaking around the country, which varies by market, but it continues to be pretty broad based and our smaller and midsized spaces for.
Speaker Change: For the most part in our existing portfolio of Ohio lease and re lease fairly quickly.
Speaker Change: Should we have in availability.
Kebin Kim: And the next question comes from key bin Kim with Truest. Please go ahead.
Speaker Change: For take me back into the queue.
Speaker Change: I'm going back to your comments about dispositions being up to $75 million I was curious how much of that is a function of perhaps pricing not being quite there versus you know after selling at $2 4 billion are we much closer to I guess.
Speaker Change: Are there longer term ideal portfolio and perhaps going forward should we expect this reduced I suppose just pushing level to continue.
Speaker Change: Yeah.
Speaker Change: It's basically the ladder keven, where we're.
Speaker Change: We're happy with what we have we have some trimming will do well you're always going every year you're going to.
Speaker Change: I guess I'll call. It <unk> GE right they have to read the bottom 10% every year, we're going to always have something we will sell but in terms of any meaningful volume.
Speaker Change: [noise] goals and targets, we don't have those anymore.
Thank you.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Peter <unk> for any closing remarks.
Speaker Change: Thank you operator, and thanks to everyone for participating on our call. Today you all has very good questions and we appreciate that if you have any follow up from our costs. These reach out to our art Scott or me.
Speaker Change: Have a great weekend.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.