First Industrial Realty Trust Third Quarter 2026 Results Conference Call - FIRST INDUSTRIAL REALTY TRUST INC

Financial Performance:

• Reported FFO of $0.80 per fully diluted share for Q3 2026, up from $0.76 a year prior.
• Cash same-store rentalized growth was 5.6% excluding termination fees, driven by rate increases, new/renewal leasing, and contractual bumps, partially offset by slightly lower average occupancy.
• Q3 leasing activity totaled 2.3 million square feet (400k new, 1.6M renewals, 300k development/acquisition lease-ups).
• In-service occupancy ended the quarter at 94.1%, exceeding the prior 93.5% forecast.
• 2026 rollovers are 94% complete by square footage, with a 38% cash run rate increase on new and renewal leasing.
• 2027 lease renewals signed thus far (45% of expirations) show a 16% cash rental rate increase; this excludes Southern California, where the increase is north of 20%.
• Acquisitions closed: Park 83 Logistics Center (100% leased, $120M purchase, 5.1% in-place yield) and a 32-acre infill site in McKinney, TX ($13M).

Guidance and Future Outlook:

• Raised NAREIT FFO guidance midpoint by one penny to a range of $3.11–$3.15 per share (adjusted to $3.15–$3.19 excluding proxy advisory costs).
• Q4 2026 end-in-service occupancy guidance: 94.5%–96.5% (midpoint 95.5%), assuming 650,000 square feet of incremental development leasing by year-end.
• Q4 cash same-store NOI growth (pre-termination fees) guidance: 4.0%–6.0%.
• Full-year 2026 cash same-store NOI growth guidance: 6.25%–6.75% (midpoint raised 75 bps).
• Full-year G&A guidance: $42–$43 million, excluding $5.6 million in contested proxy costs.
• Full-year 2026 expected interest capitalization: $0.08 per share.
• Management does not expect full-year 2027 spreads to be meaningfully different from the 16% achieved to date on renewals.
• Management anticipates 2027 and 2028 mark-to-market trends will normalize to more modest rates as peak 2022-2023 lease expirations roll off, with market rent growth aiding the curve.

Business Segments and Product Lines:

• Development leasing: 849,000 square feet signed year-to-date; 32,000 sq ft added in Q3 at First Park Miami Building 12.
• Acquisition pipeline: Focused on high-barrier-to-entry infill locations; recent Texas acquisition targets mid-6% cash yield.
• Development starts: No new starts announced in Q3 due to internal readiness and municipal approval timelines, though pipeline remains active in South Florida, Dallas, Northern California, Central PA, and Chicago.
• Land bank replenishment: Active search for new sites in the "right half" of the US (e.g., Texas, South Florida); evaluating potential land sales to data center developers, particularly on the East Coast.
• Tenancy mix: Recent Inland Empire East and LA activity includes 3PLs, e-commerce, wholesalers, advanced manufacturing, and a fastener machinery company.

Market and Competitive Landscape:

• National vacancy decreased 10 bps to 6.3% in Q3 2026; net absorption of 105 million sq ft exceeded completions of 79 million sq ft.
• YTD net absorption (238M sq ft) outpaces completions (183M sq ft), marking the highest quarterly absorption since Q4 2022.
• Under-construction pipeline increased to 279 million sq ft (up from 252M); 36% of the pipeline is pre-leased.
• Annualized net absorption pace (Q1–Q3) exceeds total square footage under construction.
• Southern California market showing signs of improvement with incremental tenant activity.
• Construction costs and fuel prices rising; fuel costs now represent 35–45% of trucking marginal costs, increasing demand for proximity (favoring FR's portfolio).
• Land prices stable in H1 2026 but showing an uptick in H2 as development activity resumes.

Risks and Challenges:

• Lease Spreads: Concerns regarding "air pocket" in 2027 spreads due to the runoff of peak 2022-2023 leases, particularly in Southern California.
• Large Vacancies: Specific challenges in leasing large 250k–500k sq ft units in East IE and Denver due to market digestion and competition.
• Development Timing: Corporate real estate decision timelines are hard to forecast; delays in lease signings can shift leasing from current year to next.
• Interest Rates: Two swaps rolling off in 2027 ($150M and $425M) could impact cash flow by 1–2 cents per share if not refinanced or swapped.
• Regulatory/Political: No major federal or local policy risks identified, though temporary local development moratoria are possible.

Management Commentary and Tone:

• Tone was optimistic yet measured; management expressed confidence in demand depth and leasing strength despite softer 2027 spread projections.
• Management emphasized a focus on Net Present Value (NPV) and term structure over simply chasing rent, avoiding "rent traps."
• Confident in the ability to generate strong development yields (targeting 100–125 bps IRR premiums over acquisitions) and IRRs from new starts.
• Reiterated that lower occupancy guidance adjustments were due to shifting development leasing timing, not a lack of demand, with 3rd quarter core occupancy exceeding expectations.
• Management declined to provide specific 2027 guidance, citing the need to complete the budget process and monitor market dynamics.

Analyst Questions and Answers:

• Development Leasing: Adjusted 2026 development leasing assumption down by 150,000 sq ft to 650,000 sq ft, shifting the remainder to 2027; attributed to core portfolio outperformance offsetting development needs.
• Rent Spreads: Confirmed 16% 2027 renewal rate is comparable to YTD 2026 started spreads (40.5%); noted that 68% of 2027 expirations were signed 2022-present, leading to a normalization of spreads.
• Large Vacancies: Denver large box deal signed (modest rent change); Atlanta large box deal finalizing; Nashville active but lacking competition in that size range.
• Capital Allocation: Acquisitions require 50+ bps spread over cost of capital; developments require 100–125 bps. Stock buybacks remain opportunistic relative to development opportunities.
• Data Centers: Actively pursuing power allocations and land sales for data centers, primarily on the East Coast.
• AFFO vs. FFO: Too early to determine if AFFO growth will outpace FFO growth in 2027 due to variable capex and non-cash items.
• Lease Retention: Expected 2027 lease retention rates to be 65%–75%.
• Escalations: Contractual rental escalations remain steady at ~3.5% for 2026 signings.

Other Key Points:

• The company closed a 188,000 sq ft lease in Inland Empire East and a 78,000 sq ft lease in the same region, plus a transload facility in Los Angeles during Q3.
• Two new vacancies (200,000 sq ft range) in Inland Empire East are seeing healthy activity.
• Management noted that the "peak" rent period for their portfolio was Q3/Q4 2022, and they are now experiencing a "decent landing" rather than a negative roll-down, aided by rebounding market rent growth.
• The company has $146 million in investments under construction (unchanged from Q2) and is actively evaluating land acquisition to replenish the land bank.