Operator: Good day, and welcome to the First Industrial Realty Trust Second Quarter 26 Results Conference Call. All participants will be in listen-only mode. A conference specialist will be an opportunity to ask questions. To ask a question, you may press star then 1 on a touch-tone phone. To withdraw your question, please press star Please note this event is being recorded. Would now like to turn the conference over to Arthur J. Harmon, Senior Vice President Investor Relations and Marketing. Please go ahead.
Arthur J. Harmon: Thank you, Dave. Hello, everyone, and welcome to our call. Before we discuss our second quarter 2020 sales results, and our updated guidance for 2026, 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. Todd's statements may be time sensitive and accurate only as of today's date 07/23/2026. 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 ks 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. Supplemental report, earnings release, and our SEC filings are available at firstindustrial.com under the Investors tab. Our call today will begin with remarks by Peter E. Baccile, our President, Chief Executive Officer, and Scott A. Musil, Chief Financial Officer. After which, we will open it up for your questions. Also with us today are Jojo Yap, Chief Investment Officer; Peter Schultz, executive vice president Christopher 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.
Peter E. Baccile: Thank you, Arthur, and thank you all for joining us today. Our team delivered another excellent quarter building upon the momentum that took shape in Q1. Our confidence in leasing demand supporting new business growth has strengthened compared to earlier in the year and most certainly last year. We are seeing additional touring activity and enhanced decision making overall, including for larger format spaces. Our team delivered some significant leasing wins in the quarter, including a full-building lease for our 708 thousand square foot building in Central Pennsylvania as well as for a few of our developments, which I will detail shortly. On the strength of that lease we increased our FFO guidance midpoint by $0.02 per share. Scott will walk you through our guidance during his remarks. Turning to the overall market, industry fundamentals are trending positively with respect to net absorption while the pace of new deliveries continues to moderate as expected. According to CBRE, the national vacancy improved by 20 basis points to 6.5% at the end of the second quarter. Net absorption was strong at 85 million square feet nearly doubling Q1 and significantly exceeding new deliveries of 48 million square feet. The national construction pipeline ticked up modestly to 252 million square feet and is still well preleased. At 38%. Turning now to our portfolio performance. We ended the quarter with in-service occupancy of 94.9%, up 60 basis points from the first quarter primarily driven by the 708 thousand square foot TA lease. Regarding our 2026 rollovers, we have now taken care of 80% by square footage, and our overall cash rental rate increase for new and renewal leasing for signed leases is 39%. Our cash rental rate guidance for 2026 commencements is 35% to 40% which is an increase at the midpoint and a tightening of the range. Moving now to development leasing. Since last quarter's call, we saw more broad based success across several markets, inking an additional 433 thousand square feet, bringing the total signings in the quarter to 643 thousand square feet. First, we expanded our existing tenant into the remaining 31 thousand square feet at First Pompano Logistics Center in South Florida. In Dallas, we signed a full building lease for the just completed 176 thousand square footer at First Park 121 to a wire and cable supplier that supports the data center industry. Lastly, we fully leased our recently completed 226 thousand square foot building at First Park New Castle in the Philadelphia market. With this full-building lease, we are excited to announce the start of a second building in that park. 613 thousand square foot facility that can accommodate up to 4 tenants with an estimated investment of $77 million and an estimated cash yield north of 8%. Now let me update you on our other investment in disposition activity since our last call. On the acquisition front, our regional team was successful in sourcing a recently completed development in the Greg Southwest submarket of Dallas. The 161 thousand square foot facility is 50% leased giving us the opportunity to add value through lease up. The purchase price was $26 million with a targeted cash yield of approximately 6%. We also acquired a 58-acre infill development site in the middle of the B-W Corridor, the largest submarket in Baltimore, for $39 million. The site is designed to accommodate 3 buildings totaling 629 thousand square feet upon full entitlement and completion of infrastructure work. Regarding sales, as expected, we successfully closed on the $131 million land sale in Phoenix, Pricing was $30 per land square foot just shy of 3x industrial land values in that market. We also sold 4 buildings in Detroit, totaling 310 thousand square feet for a total of $29 million. We have just 116 thousand square foot building remaining in that market. Before I turn it over to Scott, I would like to thank everyone that invested the time participate in the 2 property tours we recently hosted in Southern California and New Jersey. I know that you came away with a greater appreciation of our portfolio quality value creation ability, and the expertise of our regional leadership. With that, I will turn it over to Scott.
Scott A. Musil: Thank you, Peter. Let me recap our results for the second quarter. NAREIT funds from operations were $0.82 per fully diluted share versus $0.76 a year ago. Our cash same store NOI growth for the quarter excluding termination fees, was 6.7%. The results in the quarter were primarily driven by increases in rental rates on new and renewal leasing contractual rent bumps and lower free rent partially offset by lower average occupancy. Summarizing our leasing activity during the second quarter, approximately 2.6 million square feet of leases commenced. Of these, 1.1 million renew, 1 million were renewals, and 500 thousand were for developments and acquisitions with lease up. Also, we wanted to share with you a positive update related to tenant credit. Debenhams, formerly Boohoo, signed a full-building sublease for a 1.1 million square footer in Pennsylvania. The subtenant is a 3PL that was already a valued FR tenant, so we are very pleased with this outcome. Now moving on to our guidance. As Peter noted, we increased our FFO midpoint guidance by $0.02 per share and narrowed our guidance range for 2026 NAREIT FFO to $3.08 to $3.16 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 $3.12 to $3.20 per share which is also a $0.02 increase at the midpoint. Our other major guidance assumptions are as follows. Average quarter-end in-service occupancy of 94 to 95%, This range reflects approximately 900 thousand square feet of incremental development leasing out of an opportunity set of 1.7 million square feet. The development leasing is assumed to occur primarily in the fourth quarter. In terms of cadence, guidance assumes in-service occupancy to dip to around 93.5% at the end of 3Q. We expect to end the year at around 95.5% due to the assumed development leasing plus other core portfolio leasing. Cash same store NOI growth before termination fees of 5.25% to 6.25% increase of 25 basis points at the midpoint. Guidance includes the anticipated 2026 cost related to our completed and under construction developments and today's announced start. For the full year 2026, we expect to capitalize about $0.08 per share of interest. Our G&A expense guidance range is $42 million to $43 million which excludes the $5.6 million of cost related to the contested proxy campaign. Let me turn it back over to Peter.
Peter E. Baccile: Thank you to all of my teammates at First Industrial for your outstanding efforts this quarter. We continue to be optimistic about the activity levels we are seeing within our development and portfolio availabilities across markets and size ranges. We are excited about our new investment opportunities, and we maintain our focus on driving long term cash flow and value for shareholders. Operator, we are ready to open up for questions.
Operator: We will now begin the question and answer session. If at any time your question has been addressed and you would like to withdraw your question, please press star and then 2. Also, please limit yourself to 1 and 1 follow-up. The first question comes from Craig Mailman with Citi. Please go ahead.
Craig Mailman: Good morning. Peter, your commentary is pretty consistent with peers and brokers that things are getting better and decisions are being made quicker. I am just kind of curious as we look from here, and you have discussions with tenants and you see what vacancies you have up in the portfolio. Like, from a market condition standpoint, how real is you know, I do not wanna call it FOMO, but just with some bigger boxes being taken off the market, you had success with boohoo finding a sublease tenant. You got 708 done in Central PA. Like, some of the bigger availabilities are being taken off the market. How is this shaping the discussions you are having with tenants in terms of their mentality with less new supply coming on and the urgency they are getting. Like, should we expect to see this continue to accelerate? Into the back half of the year? Are there something that we are missing in terms of other dynamics in the market? Can you just kind of give us your thoughts on how this could play out as over the next 2 to 3 quarters?
Peter E. Baccile: Sure. I will start out, and then Jojo and Peter can weigh in. You know, net absorption is up pretty significantly That has a lot to do with the fact that we have got a lot more activity with the bigger spaces now. So 700 thousand to 1.2 million, that activity is up 127%. North of a million 2, that is up 117%. So you definitely have a scarcity value at the bigger spaces now. Activities up also across the other size ranges, but a little less. Are a little bit more alternatives that have yet to be taken up in the smaller signs ranges. But the activity and the interest investing in growth has definitely changed from a year ago. Jojo, you wanna add anything?
Johannson L. Yap: Yeah. Just I mean, what Peter just mentioned is that dynamic is absolutely what is going on in the West markets, including Chicago and Dallas, as the largest spaces decrease, I mean, tenants have fewer choices. They have to make decisions quicker. So that is definitely happening. In the midsize ranges, there is still available product for tenants to choose. So, I mean, it is been a little bit more better than Q1 but not as robust as the largest spaces.
Peter E. Baccile: that is across the country. And then by category, you look at 3PLs' ad activity, I mean, they have been leading market share now for a while. That activity year over year is up 18%. Manufacturing, food and bev, auto, all up 25+ percent. So it is not only across spaces, but across categories that the activities picked up.
Johannson L. Yap: And just 1 thing, 1 slight thing to add. I mean, if you look at the activity of, for example, Amazon, has picked up as well. So they have taken larger last-mile spaces. And then we have incremental additional demand that is happening over the past year or so from a data center related aerospace and defense. that is also added to the demand and a lot of them have taken larger spaces as well.
Peter O. Schultz Jr.: Hey, Craig. it is Peter. Just to add to Jojo and Peter's comment, to give you some color on the boohoo outcome and our 708 in Pennsylvania. We had multiple prospects for both of those spaces. So, clearly, there has been a pickup in the larger format as you as you commented and much fewer choices but also the development lease that we signed in the Philadelphia suburbs in our First Park New Castle for 226 thousand. thousand So just echoing the broad based level of activity, but activity has certainly picked up on the bigger spaces where it is been a little thin up until recently.
Peter E. Baccile: that is helpful color. I guess maybe a quick 2 parter to stay under the 2-question limit. But how does this kind of translate to what you guys have in terms of demand at First Aurora And then also, just what are your updated views on SoCal?
Craig Mailman: Where do you kind of fall in the debate there where we are in that recovery cycle?
Peter E. Baccile: Yes. Let me take Aurora, and then Jojo can comment on SoCal. So we continue to have activity at the building for partial and full building users. We have a couple of new prospects since our last call. there is been no real change in the competitive set What we really need are for some tenants to make decisions You know, those that are in the market looking for more space, they need to decide if they are gonna take more space or not. But it is not a lack of prospects We just wanna see more definitive decision making. Jojo?
Johannson L. Yap: Craig, in terms of statistics for SoCal, if you look at Q2 compared to Q1 or earlier this year, it points to a market that is off the bottom. And it is in the start of a recovery. And the reason is that if you look at the gross absorption and net absorption, it significantly exceeded the deliveries. If you look at the starts and our construction, other construction, it is still at historic lows. And if you actually compare to the base, it is de minimis. And, also, rents are just kind of flat. And so when you are looking at that, it definitely did better than what we expected. So yes, that is what is going on with SoCal.
Craig Mailman: Great. Thank you, guys.
Operator: Great. The next question comes from Nicholas Thillman with Baird. Please go ahead.
Nicholas Thillman: Hey, good morning, guys. Scott, maybe just wanted to comment a little bit on the occupancy guide and just the timing. If there was any shift when it comes to just the assets from the lease up standpoint. It seems as though you are somewhat running ahead, you guys did message second half for some of the leasing. I am guessing it is more so to do with some of the larger box that you have available and actually getting occupancy, but just wanted to clarify that first.
Scott A. Musil: Yes. Well, I will go into the development leasing first. So the 900 thousand square feet is basically the pure math. You take the 1.7 million square feet we discussed in our fourth quarter call, and you deduct what we signed to date. So that number has not changed. it is gone down. We did make some adjustments to some of the development leasing. it is all in the fourth quarter now. And the if we do not sign any of those leases, the FFO impact is a lot less than it was, say, last, time that we had a call. it is only about $0.01 per share. And then, Nick, we made some other slight adjustments to some of our other core portfolio leasing assumptions. In a variety of our markets. But I think the key thing to discuss here is even with these adjustments, we are forecasting to end the fourth quarter at an in-service occupancy rate of 95.5%.
Nicholas Thillman: that is helpful. And then maybe curious on just the acquisition appetite with the Dallas acquisition and given the fact that where you kind of have the land bank today, they are not as many opportunities as some of the markets where you have had some leasing success on development. So do you view that there is somewhat an opportunity here on some of the value add from the acquisition standpoint in markets like the Texas and the Pennsylvanias of the world where you have been seeing some great activity on the leasing side?
Johannson L. Yap: Yeah. So we are. Thank you. Yes. We are always actually, this is always part of our business. Our local teams are always caring for good quality acquisitions with good deals. In this case, in Dallas, this was in Arlington. submarket of the Great Southwest market of Dallas, very, very infill, Very active, and this was a lightly marketed deal We came in with certainty, and we were able to acquire an asset 50% leased projected yield, 6%. We are an active investor. We have owned product in the great Southwest for some time, so we really know that market. To your point, you know, we are always looking for opportunities I already said in Dallas or you mentioned PA. Yep. And so we are gonna continue to look for those you know, but they have to meet our, you know, functional investment quality and yield criteria.
Operator: And the next question comes from Dave Rodgers with Raymond James. Please go ahead.
Dave Rodgers: Yes. Good morning, everybody. Just got 1 clarification on the Newcastle lease. Was that in the numbers you just talked about? I thought that was in the third quarter, so I did not know if you were adding that in or not. And then just a bigger picture question. You mentioned that you started Newcastle kind of the next phase of that project. I guess where else are you excited today about kind of putting money to work in the back half of the year as clearly you have leased up a good amount of your speculative space here. In the first half.
Scott A. Musil: You take the first half. So, Dave, so First Park New Castle, so the lease start date on that was in June, so it was a second quarter start. First Park 121, that is a third quarter lease start date. We signed it in the second quarter, but it starts in August. That lease, even though it starts in the third quarter, is factored in our guidance. And that is how you get to the 900 thousand square feet of remaining development leasing.
Peter E. Baccile: Dave, for new starts, of course, our teams are actively pursuing new land acquisition opportunities like the 1 we just finished in the B-W Corridor. And with respect to perhaps more starts this year, we are evaluating opportunities in the portfolio in Pennsylvania and Florida a smaller deal right here in Chicagoland. So we will keep you posted.
Johannson L. Yap: And, of course, just wanna let's not forget the $70 million worth of projects. there is 2 projects. 1 in 1st Arlington. We call it First Arlington Commerce Center in Arlington, Texas. In our 1st Park Miami building. that is 2 projects totaling $70 million. that is not gonna be completed until the end of this year and early next year. I am looking forward and excited about those.
Dave Rodgers: that is great. Thank you.
Operator: And the next question comes from Vikram Malhotra with Mizuho. Please go ahead.
Vikram Malhotra: Morning. Thanks for taking the questions. Maybe just first, I wanted to get see if there is any update on sort of the potential to sell more land or, I guess, data center-conversion land and how that pipeline may look. I think at Nareit, you had mentioned there were a couple of opportunities. So that is just the first 1. And then second, you know, as we think about sort of any big renewals in the back half that you know, may I guess make or break the top end of the guide, can you sequence a call-out, that may be sizable, whether it is in SoCal or any other markets? Thank you.
Peter E. Baccile: So with respect to our efforts, the portfolio, with respect to trying to convert to data center use, Our teams continue to work on those projects. They are gonna be long term as I said at NAREIT. it is gonna take a while. We are trying to pursue some power commitments, and, you know, there is really nothing else to report there. Nothing will happen. if it closed this year. For sure, but we will keep you posted on that. And then on the renewal front, Vikram, we have taken care of 80% of the expirations for 2026 or taking care of the lion's share of it. If you look at the budgeted renewals that we have in our guidance, there is none that are over 100 thousand square feet, square feet, so it is, pretty granular.
Operator: And the next question comes from Blaine Heck with Wells Fargo. Please go ahead.
Blaine Heck: Great. Thanks. Good morning. So maybe just to add on to the question on development. I guess, how are you thinking about the best time to deploy your $410 million roughly 10 of spec cap capital into development. Is it now while some of the private players might still be on the sidelines given capital and land constraints? Or do you guys feel as if you have a solid window of time to kind of be patient without running into the problem of excess competitive supply once you do deliver these projects.
Peter E. Baccile: Yeah. So that is, you know, with respect to the cap, that is a cap and not a target. We focus solely on profitability. And with respect to that, as we evaluate our landhold holdings and future land acquisitions, we are trying to deliver into the deepest part of the demand or unmet demand in a particular market. So that is how we evaluate where we are gonna go We also, as you I think you probably know, do not really wanna have too many projects in any 1 park going at the same time. I mean, first part Miami, we could start a couple of more buildings there, but we want to get some leasing as we go. So it is really not we do not sit here and say, do we need to use that $400 million? We sit here and say, where is the demand Where is it not being met? And where are we well positioned? To deliver a property that is gonna be competitive in that marketplace for the long term.
Blaine Heck: Yes. that is fair. I guess the crux of the question was just, you know, do you feel like you have any emphasis to put the money out soon before you have a lot of competition kind of coming into the marketplace and starting developments off.
Peter E. Baccile: Look. I think development is ticking up in some markets. The demand right now for larger I mean, very large million footers is not being met So with respect to that, you know, that something that we are looking at. We as you know, we have some land holdings that can accommodate very large format properties.
Blaine Heck: Very helpful. And just sneaking in quick second 1. Sorry if I missed this, but can you break out the drivers of the increased same store NOI given that occupancy guidance was held steady? Is that rent related, bad debt related, something else?
Scott A. Musil: Yeah. If you look at the, you know, the you know, where we performed a little bit better, just our average occupancy is up slightly. And, you know, cash rental rates, you know, benefit of that. So that is really where the benefit was from.
Blaine Heck: Great. Thanks, guys.
Operator: And the next question comes from Caitlin Burrows with Goldman Sachs. Please go ahead.
Caitlin Burrows: Maybe just to follow-up to 1 of those recent questions. So it sounds like, you guys are evaluating a few markets where you could start developments. You started 1 in the second quarter. I guess, what are you seeing the rest of the market do? it is like, I imagine, land is competitive, so that would suggest maybe the rest of the market is trying to get active. But are they? Wondering if you can talk about what you are seeing kind of the rest of the market do.
Peter E. Baccile: Sure. I will start, then Jojo and Peter can add. Look. Land is very, very difficult to come by. it is not getting any easier to get entitlements. There are real barriers there. We have seen again a tick up in starts but it is it is a tough slog. In terms of, again, getting in entitlements, etcetera. So, you know, the market's going to rebound according to the pace of lease take up. And we will be there to take advantage of the opportunities that we see.
Johannson L. Yap: Jojo? Yes. Just to add to what Peter said, the land continues to be competitive. They are active developers there. there is -- there continue to be capital to support that development. that is the same through acquisitions. that is not really changed over the last for the longest time that we have been in business. What we focus on is we try to focus on off market deals. We try to use our brokerage relationships to try to get the deals that are that are that are early in the stage We have tenant relationships. We can lean on to try to have tenant in those situations where we can try to get a prelease in a property. So there these are all platform strategies wherein we use our portfolio and our troops on the ground, which are great to try to uncover these opportunities, and that has not changed.
Peter O. Schultz Jr.: Caitlin, it is Peter. The other thing I would just add to that is as you look at where we own land and where we are focused on buying land to the earlier comment, those are generally more infill supply-constrained markets. So they are by definition, there is gonna be a little less competition in some of those markets. But to your other point, you know, Pennsylvania is seeing more new starts given the lack of availability of million footers. Nashville is seeing an increase in supply given how strong that market has been. And South Florida continues to see activity given the price of land Developers cannot really afford to wait and put that into production. For the most part. But if you think about our Baltimore acquisition in the B-W Corridor as an example, very infill, very supply-constrained, and that is part of our strategy.
Caitlin Burrows: And so on that, was wondering if you could talk a little bit about the sourcing of land. I think you guys mentioned earlier in the call that the Baltimore location did not necessarily have the entitlements yet. So versus I know sometimes when you buy land, it is, like, contingent on the entitlement. So, can you talk about that, I guess, decision to move forward with that land purchase without the entitlements versus others when it is different?
Peter E. Baccile: Sure. So this is in the B-W Corridor, the largest submarket in that market. it is a very infill site. It was excess land as part of a horse racing track. They have been holding the preakness while that track is under renovation. The owner of the land was more interested in getting a deal done quickly So our view is we were able to secure the land at a discount The entitlement process there is pretty straightforward. Our plan is a buy right plan. it is zoned industrial. So it is simply a matter of when, not if, going through the process. That site should be ready for construction probably end of 28, early 29. And to emphasize the point on our pricing, initial yields are in the mid sevens.
Caitlin Burrows: That initial yield is, like, your expectation when you build?
Peter E. Baccile: Yes.
Caitlin Burrows: Got it. Thanks.
Operator: And the next question comes from Michael Carroll with RBC Capital Markets. Please go ahead.
Michael Carroll: Yes, thanks. I wanted to follow-up on some earlier topics about new development starts. I know that FR seems to be tracking much better tenant activity, its cost of capital, has continued to head in the right direction. I mean, does this give you guys more confidence to be a little bit more aggressive pursuing new development starts? I mean, are there more projects out there that you are willing to break ground on today than maybe you were not or wanted to wait on about 6 months ago?
Peter E. Baccile: it is still market by market You know, that is really what is driving it. And then what is happening in each submarket You know, with respect to confidence, as we have always said, we have been asked, you know, when will you develop more from a volume standpoint? And we have said when we see consistent signings of development leases. that is beginning to happen this year. So, yes, I mean, the activity should be more robust over the coming 6 to 12 months than it was over the last 6 to 12 months.
Michael Carroll: Okay. And then and then, Scott, how do you plan on funding some of these development projects? I mean, there more land sales or maybe data center opportunity type sales that FR is pursuing that can fund a lot of these projects? Or is there something where equity comes in mind if you could really start to ramp up some of the activity?
Scott A. Musil: I tell you what, Mike, we do not really have a large expenditure requirement for the last 6 months of the year. To fund our developments and process. it is about $75 million. And a half of that will be covered with excess cash flow. After CapEx and dividends, and we can use the line of credit to fund the remaining part of it We have got a very low balance on our line of credit. As far as go forward starts are concerned, I would probably say it would be the same formula there.
Michael Carroll: Okay. Great. Thanks.
Operator: And the next question comes from Nicholas Yulico with Scotiabank. Please go ahead.
Viktor Fediv: This is Viktor Fediv on with Nick. I want to follow-up on the leasing demand and types of tenants that you kind of interact with the most. Because last time, you mentioned that data center adjacent demand is not even in the top 10 of your kind of tenant discussions, and now you leased full property in Texas to kind of data center adjacent tenants. So just trying to understand the breadth here and where in your submarket you can see pickup, of this type of demand.
Peter O. Schultz Jr.: Peter, do you want to start with that 1? Sure. I would say that data center related demand has been incremental. I would not say it is material Certainly, we signed a deal in Dallas. We signed a deal in Atlanta. And we are seeing some of that. But demand overall continues to be very, very broad based. As I think we have already commented led by 3PLs manufacturing food and beverage, automotive, home supply, Amazon, as we have called out on prior calls, continues to be very, very active. Particularly on larger buildings in a number of markets. Around the country. So it is it is broad based. The data center related is incremental. But not overly material.
Viktor Fediv: Understood. And then if you think about your occupancy guidance and what happened this quarter because we saw some decline in occupancy in Southern California, and what might happen for you to end up at the higher end of your average occupancy for the full year.
Peter E. Baccile: So on your discussions that you are having now, what needs to happen Well, certainly, if we, you know, lease up the development pipe pipeline, you have talked about you know, you have heard how we have an activity on a lot of these spaces. So, obviously, if the decisions get made and that happens, you know, we will certainly hit the higher end of our occupancy guidance.
Viktor Fediv: Thank you.
Operator: Next question comes from Jessica Zheng with Green Street. Please go ahead.
Jessica Zheng: Hi. Good morning. I am not sure if you have covered this already, but I am wondering if you can share some color around same store occupancy. Which seems to have declined quarter over quarter despite the lease up of the large Central PA property. So I am just curious what was the offsetting factor there.
Scott A. Musil: Yes. We had some move-outs in the, you know, some of the markets. So the move-outs, you know, we had like 3 or 4 move-outs in the 100 thousand-square-foot range that kind of offset the pickup of the 708 thousand square feet.
Jessica Zheng: Okay. Great. Thank you. And if I could add a follow-on. Just curious if you are seeing you know, any examples of data center developments crowding out industrial developments through elevated land pricing in any of the submarkets that you are in.
Johannson L. Yap: Jojo? Yes. Yeah. Data center active acquirers or data center developers, whether it is hyperscalers or colocation -- colocators. They have been very active in acquired land. And the land they acquire primarily industrial land. So it is put it is it is put additional competition on potential land acquisition for industrial. In addition to that, in almost all cases, our data centers are willing to pay significantly higher prices than traditional land values. But for example, 1 case is case in point is our sale in Phoenix, which is just shy of 3x. Of industrial land values. So yeah. So there is definitely any competition for land availability.
Operator: And the next question comes from Michael Mueller with JPMorgan. Please go ahead.
Michael Mueller: Yes. Hi. So for the 2 questions. First, for the in-service occupancy dip, Scott, that you talked about going from going down to 93.5, I believe, and then bouncing back to 95. Is that being driven by adding new developments that are not fully leased kind of going into the portfolio? Or is it fallout And then the second question is, when thinking about your year to date cash spreads of 39%, You know, when you look at the lease expiration schedule for 2027, is there anything we should be thinking of as a as a positive or negative for that as we move forward?
Scott A. Musil: Yeah. You know, first of all, on the dip in occupancy, actually, you know, a part of that about 45 basis points is a new development coming into service in Nashville. So that comes into service in third quarter. And right now, we are projecting that to lease up in the fourth quarter. So that is part of it. You know, as far as 2027, I think it was your second part of your question. As far as you know, right now, on 2027, we have taken care of about 26% of our rollovers there, and, you know, we will get -- we will give guidance on, you know, the rental rate change when we get to a bigger population.
Michael Mueller: Thank you.
Operator: And the next question comes from Brendan Lynch with Barclays. Please go ahead.
Brendan Lynch: Great. Thanks. Good morning. Thanks for taking the question. Peter, you mentioned entitlements are not getting any easier. have there been periods in the past where entitlements have become really challenging to obtain like they are now and then eased, and what could change that dynamic now?
Peter E. Baccile: Interesting. Good question. I cannot remember. Time when entitlements got really easy to get, especially in the market that we wanna be in. it is 1 of the reasons we wanna be there. We want the high barriers to entry. But there are times where tax revenue becomes a driver to that decision making for a given municipality and so you get, you know, the entitlements that you need. But generally speaking, know, you can go state by state. You know the states that are really tough. And even Tennessee or Nashville, the Nashville market now is getting tougher as the local community begins to see a lot more 53-foot trucks and a lot more activity on the highways than they are used to seeing, and they do not like it. So it is, you know, it is a good and bad thing. it is a good thing because it limits supply, which increases the value of what we own. And leads to higher rent growth. And, again, that is why we are in those markets. On the other hand, it is tougher to acquire land and get it entitled. So yeah, I cannot -- again, I do not know a time when it got easier, but, yeah, there are times when the municipalities need money and they will grant entitlements.
Brendan Lynch: Great. Thanks. that is helpful. It does seem like it seemed somewhat structural at this point, but I guess I could change in the very long term. Maybe a follow-up question just on the First Parris Logistics Center in Perris, California. Like there is a lot of momentum in the surrounding area and some lease up of the surrounding assets. if you could just comment on the prospects of getting that 1 leased?
Johannson L. Yap: Yes. So this First Parris is about 325 thousand 30 thousand and 24 thousand square feet. Great product. it is designed to accommodate 2 tenants up to 2 tenants. And at this point, if you look at the IE, definitely, there is a significant pickup in the larger size. And the whole IE vacancy tick down. But the most amount of choices that tenants have are in the size range of 250 thousand to 500 thousand. So that is, I would say, kind of the softest part of the market. and still tenants have choices. And the market has to digest. And that is basically what is affecting First Parris. Although, the activity has picked up, our RFP inquiries and tours. On that asset.
Peter E. Baccile: And then there may be sponsors slash landlords who are a little less sensitive to NPV than we are, so keep that in mind too.
Brendan Lynch: Okay. Very good. Thank you.
Operator: And the next question comes from Omotayo Okusanya with Deutsche Bank. Please go ahead.
Omotayo Okusanya: Yes. Good morning, everyone. I just wanted to focus on the full year same store cash NOI guidance. Again, you are you are running well ahead of that number in the first half of 2026. Just kind of walk us through the second half of 2026, the expected deceleration, what is causing that? Is it just kind of a harder comp? So there additional fallout or anything we should be thinking about?
Scott A. Musil: I am sorry. You are asking about occupancy. Correct? In store versus second. Yes. Oh, same store. I am sorry. Yes. So say, yes. So in the first half of the year, yes. So in first half of the year compared to the second half of year, it really comes down to free rent, you know, free rent benefit. The difference there is that it is about 250 basis points. So that is really the that is really the whole story.
Omotayo Okusanya: Gotcha. Okay. that is helpful. And then also wanted to talk about the Pennsylvania, the back end of the Pennsylvania lease. Just talk a little bit about the economics of the new lease versus the old lease.
Peter O. Schultz Jr.: Peter? Sure. it is Peter. I cannot tell you the specifics given the confidentiality provision in the lease. But I can say it is a long term lease. Full building. The cash rental rate increase was over 60%. TIs and concessions were typical. Nothing unusual. And as we have said, it commenced in the end of the second quarter. And we have multiple prospects for that building. So we are very pleased with the result.
Omotayo Okusanya: Gotcha. Thank you.
Operator: And the next question comes from Richard Anderson with Cantor Fitzgerald. Fitzgerald. Please go ahead.
Richard Anderson: Hey. Thanks. Good morning. So on the cash releasing spread, result and guidance of 35% to 40% for the year, that is a really good range and a really good outcome this quarter, relative to pure results and so on, what do you attribute that to? You know, we have talked about this before, and I have asked this to some of your peers about what the future is for cash leasing spreads for the industry. Is there anything about this year, about markets and specific assets that is driving that up a little bit more than it would naturally be today? And, you know, where do you think cash releasing spreads start to trend down to as a company over the next, you know, call it, 2 to 3 years? Thanks.
Peter E. Baccile: Yeah. that is a good question. I think, recall that we have had pretty significant cash leasing spreads now for quite a while. They were as high as 58% when a few years ago, and it ticked down because market rent growth obviously has come off since the peak. A lot of this has to do with the fact that most of our portfolio now is new. We leased it, if you wanna say this, at the right time. We had big spaces to lease pre-peak, and so we are enjoying the benefit of that now. And the markets that we are in you know, SoCal obviously grew the most and came down the most, but the CAGR there is still kind of 11% to 12% over the last 5 or 6 years. And in the eastern half of the country, the markets did not go quite as sky high, they also have not fallen as much. So we are in the right places with the right product. The right functionality, and the buildings that we have are very competitive in their marketplaces. So know, that does not happen by chance. Or by accident, and it is a long way to say that our strategy is working. Okay.
Richard Anderson: Fair enough. And second question, I probably asked this 6 months ago, but maybe the answer is changing. On Inland Empire land of 6.5 million square feet, You have said that you find that to be a valuable sort of option for you longer term. But, you know, you would think that you could do some selling in that in that portfolio. You are already, you know, pretty full on Southern California. I am curious what your strategy is on the land specifically and generally, you know, where you are comfortable with Southern California, i.e., whatever, is as a percentage of the total. Are you comfortable going significantly higher than where we are now. So on, you know, any color you can give on that topic would be great. Thanks.
Peter E. Baccile: So over the last few years, all of our new development has been outside California. That has been the way to go given where the markets are. We continue to look for more land outside California. And so the balancing will happen that way. It will happen more by investing in other places, than it would by selling there or selling land. Now we have some great sites there. And as the market as you have heard on this call that the market is very short on million-footers, million plus footers, and we have some fantastic opportunities in SoCal in that size range. So, you know, they are a little bit further out. Because of the way that market has evolved since the peak. But those are gonna be very, very important opportunities for us going forward. Having said that, you know, we are not loving any of our real estate. And if somebody makes us a godfather offer, it will be sold.
Richard Anderson: All right. Thanks very much.
Operator: And our final question comes from Dave Rogers with Raymond James. Please go ahead.
Dave Rodgers: Yes. Just 1 follow-up, guys. I wanted to just kind of aggregate all the numbers we talked about. I think everybody on the call, including me, did a good job of asking about every project that I think you have currently going on. But if you were to aggregate the amount of demand that would meet that 800 to 900 thousand square feet of remaining spec leasing that I think you need to do, if my math is okay for the rest of the year. what is the total demand for that kind of pool of assets that gives you the continued confidence to get there. Is there a way you can aggregate that together?
Peter E. Baccile: I think we are all looking at each other here, Dave, wondering how to answer that question.
Scott A. Musil: And I think the 1 thing is that, Dave, the opportunity set is 1.7 million square feet. So we do not have to bad 100% with the developments we have. So that is 1 part of the answer.
Johannson L. Yap: Also, if, you know, when you are touring a prospect, whether it is an RFP process or it is an expansion or consolidation, or it is an inquiry, it is really kind of hard to tell to, you know, what the timing is and what the commitment of a particular prospect is And then, you know, and if it is a renewal exercise, so, I mean, it is gonna be I mean, if we put out numbers of all of our tours, of course, it is gonna be a big number. But I think it is disingenuous to put that because until you are really trading paper, and gets to a letter of intent, that is where really, the certainty happens.
Peter E. Baccile: I mean, all it takes is 1. You know? Yes. So it is a tough it is a tough thing to put a bracket around, Dave, because we have had assets where we have had really, really strong competition. A horse race, we have had assets where we had 1 interested party, and we drove a tough enough deal, and they signed the lease. But it is it is tough to give you a volume answer to that question.
Peter O. Schultz Jr.: Dave, it is Peter. The thing I would say is back to what we talked about at the top end of the call is we are seeing more activity more tours and inquiries. And while we have to convert, I think we are more optimistic today than we were at the beginning of the year.
Dave Rodgers: that is really helpful. Thanks, everyone.
Operator: This concludes our question and answer session. I would like to turn the conference back over to Peter E. Baccile for any closing remarks.
Peter E. Baccile: 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 Arthur, Scott, or me. Have a great day.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
