FIRST INDUSTRIAL REALTY TRUST INC Q3 FY2024 earnings call

The First Industrial team had a strong quarter with solid operating metrics, new leases, and capital deployment. The U.S. industrial market vacancy increased to 5.8%. The team drove cash flow growth via contractual escalations, rent growth on rollovers, and development leasing. They launched a 542,000 square foot development in Nashville with a projected investment of $54 million and 7% cash yield, and acquired a four-building 211,000 square foot park in Houston Southeast with $29 million investment and 6% in-place cash yield. They sold the New Jersey portfolio for $82 million and three buildings in Pennsylvania totaling 163,000 square feet for $19 million year-to-date. The team also discussed industrial market trends, leasing progress, and capital allocation actions.

NAREIT funds from operations were $0.68 per fully diluted share in the third quarter of 2024, compared to $0.62 per share in 3Q 2023. Cash same-store NOI growth for the quarter, excluding termination fees, was 7.6%. Including the accelerated recognition of a tenant improvement reimbursement related to Boohoo, cash same-store NOI growth was 11.9%. Occupancy at quarter end was 95%, with approximately 200 basis points of lease-up opportunity from developments placed in service in 2023 and 2024. Leasing activity during the quarter included approximately 3.5 million square feet of leases commenced, with 500,000 new, 2.2 million renewals, and 900,000 for developments and acquisitions with lease up.

The guidance range for NAREIT FFO is now $2.61 to $2.65 per share, tightening the range and increasing the mid-point by $0.02 per share since the last earnings call. Occupancy guidance is 95% to 97% at year end. Fourth quarter cash same-store NOI growth before termination fees is 8% to 10%. The guidance includes anticipated 2024 costs related to completed and under construction developments, with an expected $0.06 per share of interest capitalized and G&A expense range of $39.5 million to $40.5 million.

The cessation of Boohoo's operations at a building with 10 years remaining on the lease, resulting in a $0.01 per share reduction in 2024 NAREIT FFO. Macro-economic uncertainties, geopolitical issues, and weather patterns pose risks to the business and market conditions.

Q: Blaine Heck asked about drivers of occupancy guidance upside and large leases.

A: Chris Schneider and Scott Musil discussed development leasing as key to hitting high occupancy, with 400,000 square feet of development leasing in guidance and more could push above mid-point.

Q: Craig Mailman asked about Boohoo lease accounting and game plan.

A: Scott Musil discussed cash basis accounting and letter of credit security deposit, Peter Schultz talked about Boohoo winding down operations and sublet prospects.

Q: Vikram Malhotra asked about tenant watch list and Federal-Mogul space.

A: Peter Schultz talked about Federal-Mogul lease expiration and interest in the space, Scott Musil said nothing material on watch list except Boohoo.

Q: Caitlin Burrows asked about new leasing, acquisitions vs dispositions.

A: Peter Baccile and Peter Schultz discussed new leasing with pent-up demand and uncertainty, Peter Baccile talked about choosy acquisition strategy and Houston acquisition details.

Q: Rich Anderson asked about 2025 guidance, market rent growth.

A: Scott Musil and Peter Baccile discussed 2025 guidance drivers, Peter Baccile talked about market rent growth and speed of change.

Q: Robert Stevenson asked about transaction market, cap rates.

A: Peter Baccile, Peter Schultz, and Johannson Yap discussed transaction market with significant capital chasing, cap rates coming in, and land pipeline.

Q: Nick Thillman asked about weather impact on tenant decision-making and First Logistics Center.

A: Peter Baccile talked about weather as an uncertainty, Peter Schultz talked about First Logistics Center sublet and activity.

Q: Vince Tibone asked about California Legislation AB-98.

A: Peter Baccile and Johannson Yap discussed AB-98 impacting California development, existing land under entitlement exempt, and constraints on supply.

Q: Michael Mueller asked about dispositions and development starts.

A: Peter Baccile said dispositions and developments are disconnected.

Q: Nicholas Yulico asked about Boohoo accelerated tenant improvement reimbursement.

A: Scott Musil explained the unexpected accelerated recognition of tenant improvement reimbursement and write-off.

Q: Caitlin Burrows asked about market rent growth time period.

A: Peter Baccile said it was year-over-year in 3Q.

Q: Brendan Lynch asked about AB-98 gray area and entitlement requests.

A: Johannson Yap and Peter Baccile discussed AB-98 gray area, litigation, and no flurry of entitlement requests.