First Industrial Realty Trust, Inc. 2026 Q3 Earnings Call

Please go ahead. Thank you very much, Dave.

Hello, everybody, and welcome to our call. Before we discuss our third quarter 2026 results and our updated guidance for the year, please note 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, October 22, 2026. We assume no obligation to update our statements or the other information we provide. Actual results may differ materially from our forward-looking statements, and factors which could cause this are described in our 10-K and other SEC filings. You can find a reconciliation of non-GAAP financial measures discussed in today's call in our supplemental report and our earnings release. The supplemental report, earnings release, and our SEC filings are available at firstindustrial.com under the Investors tab.

Our call will begin with remarks by Peter Baccile, our President and Chief Executive Officer, and Scott Musil, Chief Financial Officer, after which we'll open it up for your questions. Also with us today are Johannson Yap, Chief Investment Officer, Peter Schultz, Executive Vice President, Chris Schneider, Executive Vice President of Operations, and Robert Walter, Executive Vice President of Capital Markets and Asset Management. Now let me turn the call over to Peter.

Thank you, Art, and thank you all for joining us today. Our team delivered another solid quarter marked by some key leasing wins for our in-service portfolio, including excellent renewal signing activity on our 2027 expirations. Leasing markets continue to exhibit more strength and depth of demand. We see this among our prospects, and it's also reflected in the third quarter market statistics I will touch upon shortly. We were also active on the capital allocation front, closing on a high quality, fully leased building and a new site that is developable in the near term. On the strength of our performance, we increased our NAREIT FFO guidance midpoint by a penny per share. Scott will walk you through our guidance shortly. Turning back to overall market conditions, national industrial real estate fundamentals continue to trend positively.

According to CBRE, national vacancy improved again, down 10 basis points to 6.3% in the third quarter. Nationally, third quarter net absorption was 105 million square feet, outpacing completions of 79 million square feet. This was the highest quarterly level for net absorption since the fourth quarter of 2022. Year to date, net absorption of 238 million square feet is also ahead of completions of 183 million. Given the improved demand, the under construction pipeline moderately increased and is now 279 million square feet, up from 252 million as of our last call. It's important to note that the annualized pace of net absorption from Q1 to Q3 2026 exceeds total square footage under construction. In addition, approximately 36% of the pipeline is pre-leased, which is similar to Q2.

We ended the quarter with in-service occupancy of 94.1%, which exceeded the 93.5% forecast we telegraphed on our second quarter earnings call. This improved result was due to incremental leasing in our in-service portfolio. Our 2026 rollovers are nearly complete, as we've now taken care of 94% by square footage, and our overall cash run rate increase for new and renewal leasing is 38%. Looking ahead to 2027, we've already inked some key lease renewals and are making good headway on our expirations. The cash run rate increase on signed renewals for 2027 lease expirations thus far is 16%. That represents 45% of all leases expiring next year, a substantial portion. We will give you our expectations for the full year on our next earnings call and with the benefit of our completed budget process and additional signings.

At this time, we don't expect the full year number to be meaningfully different from the year to date results. Let me provide some additional color. For 2027 expirations, 68% by net rent are for leases signed from 2022 to the present. So the cash rent increase of 16% achieved thus far includes the expiration of a large portion of leases signed during the period of peak rents. In addition, if you remove SoCal expirations from the calculation, the cash rent increase is north of 20%. With respect to Southern California, that market is showing signs of improvement. For our availabilities, we've seen incremental leasing activity from tenants looking to invest in new growth. During the third quarter and fourth quarter to date, we leased three vacancies in our in-service portfolio on a long-term basis.

A 188,000 square foot facility and a 78,000 square footer, both located in the Inland Empire East, as well as a transload facility in Los Angeles. We also have two available facilities in the 200,000 square foot range on our in-service portfolio in the Inland Empire East that are seeing healthy activity. Now, let me update you on our investment activity since our last call. On the acquisition front, we closed on Park 83 Logistics Center, a 2023 vintage cross-dock building in the I-78/I-81 corridor of central PA in York, near the 708,000 square footer we leased last quarter. The 764,000 square foot facility is 100% leased to a Fortune 500 tenant and located in a high barrier to entry infill location. The purchase price was $120 million, with an in-place cash yield of 5.1% and a yield of 5.8% using today's market rents.

We also acquired a 32-acre infill site in McKinney in Northeast Dallas, one of the region's fastest growing cities, for $13 million. The site will accommodate two buildings totaling 390,000 square feet. The first phase will be a 233,000 square foot facility that is near-term developable upon entitlement and completion of infrastructure work. The targeted cash yield for phase one is in the mid 6% area. Moving now to development leasing. Since last quarter's call, we signed a 32,000 square foot lease at our First Park Miami Building 12, bringing the total development leases signed this year to 849,000 square feet. As always, the team is focused on our development and in-service portfolio lease-up opportunities and taking care of customers. With that, I'll turn it over to Scott.

Thank you, Peter. Let me recap our results for the third quarter. NAREIT funds from operations were $0.80 per fully diluted share versus $0.76 a year ago. Our cash same-store NOI growth for the quarter, excluding termination fees, was 5.6%, primarily driven by increases in rental rates on new and renewal leasing and contractual rent bumps, partially offset by lower average occupancy. Summarizing our leasing activity during the third quarter, approximately 2.3 million square feet of leases commenced. Of these, 400,000 were new, 1.6 million were renewals, and 300,000 were for developments and acquisitions with lease-up. Now moving on to our guidance. As Peter noted, we increased our NAREIT FFO midpoint guidance by a penny per share and narrowed the range to $3.11-$3.15 per share.

Recall that NAREIT FFO reflects $0.04 per share of advisory costs related to the contested proxy campaign incurred in the first quarter. Excluding these advisory costs, our 2026 FFO guidance range is $3.15-$3.19 per share, which is also a penny increase at the midpoint. Our other major guidance assumptions are as follows. End of fourth quarter in-service occupancy of 94.5%-96.5% with a midpoint of 95.5%. So this implies an average quarter end in-service occupancy for the year of 94.5%-95%. These ranges reflect approximately 650,000 square feet of incremental development leasing assumed to occur at the end of December. Fourth quarter cash same-store NOI growth before termination fees of 4%-6%. This implies a full year 2026 cash same-store NOI growth before termination fees 6.25%-6.75%, an increase of 75 basis points at the midpoint.

Guidance includes the anticipated 2026 costs related to our completed and under construction developments at September 30th. For the full year 2026, we expect to capitalize about $0.08 per share of interest. Our G&A expense guidance range remains $42 million-$43 million, which excludes the $5.6 million of costs related to the contested proxy campaign. Let me turn it back over to Peter.

Thank you to all my teammates at First Industrial for another solid performance. We are optimistic about the activity levels we are seeing across our in-service portfolio and within our development opportunities. We are also encouraged by the renewal progress we have made thus far on our 2027 lease expirations that will contribute to our cash flow growth next year and beyond. Operator, we are ready to open it up for questions.