First Industrial Realty Trust (FR) 14 Feb 192018 Q4 Earnings call transcript

Good morning, my name is Nicole and I will be your conference operator today. At this time I'd like to welcome everyone to the First Industrial Fourth Quarter Results Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] It is now my pleasure to hand the conference over to Mr. of President Vice Harmon, Investor Relations. Art

lot, call. a Nicole. Hello our to welcome and everybody Thanks

update discuss fourth that statements prospects. We as we statements of federal Thursday, management's assume described guidance, include Before forward-looking our today's expectations, other which no our and are statements we may or securities our let and XXXX forward-looking and XXXX. estimates cause our are me be factors could XXXX laws. results information plans These may to time-sensitive remind based only defined the other and Today's everyone accurate differ as our results statements may quarter call by and on February obligation full-year statements, our date, Actual SEC XX-K and in this of XXth, filings. from provide. materially

of SEC discussed earnings and find financial tab. our and supplemental can today's You The firstindustrial.com at report release. non-GAAP reconciliation supplemental in our the under call filings available a Investors are release our earnings measures in report,

Markets call for by we our Peter open Capital Jojo and our Executive up are Vice and Asset and Operations; Chief today Senior call the after Also questions. Musil, Peter Vice and Financial will begin of of remarks Scott Our President Officer, which our Vice it Baccile, Chief Management. Chief Schultz, with Investment Yap, President; Officer; on your Executive will President Schneider, Senior Chris Bob President Officer, Walter,

to now me Let turn call Peter. over the

serving of in the continued work to real in our XXXX and Thank further a the e-commerce want The and hearty very highly you I fantastic fourth our year hard successful you, estate economy another active for of was combination Industrial everyone. give vibrant sector, across a industrial and all quarter strong resulted thank XXX culminated country, to and morning in teammates year. for good a and our fundamentals mission growth FR year-end for First focus stakeholders. growth cash end also talented occupancy with record dedication of customers Art, and the rate as and a start strong increase by rollovers. to creation rental their great off long-term of of commitment evidenced for XX.X%, flow growth in points XXXX. an on of our XXXX generating from Their value to of all We're basis a team the shareholders. our

Nandina build-to-suits. First As our we've with to two and investment in XX.X%. wins commenced to project like expiring a turn our foot an of of of over new namely Company's our I'd on the we tenant. largest big an XX% X.X the in shortly. of development average Logistics you signed we of lease the of the California. Southern signed our walk some rental In long-term now million development rate grade Center will today, pipeline in In the XXXX December, square metrics largest leases history fourth quarter, through with rest change cash Scott and the XXX% operating for lease-up completed side, lease the building

stabilized year first yield our cash and million $XX.X X.X%. was investment was total Our

Now let projects. new our me build-to-suit move two to

the is a to We've for packaged The service value. are customers into primarily As Fairburn in margins two traded third sites First current earn build market-leading excited and nutrition. and fourth to That spec generating the can this of quarter the Park underserved said, publicly pockets we We're strategy, you the the to significant of our logistics past on we to company of put Atlanta larger we're risk-adjusted Post have projects demand and lease start food know, several Fairburn food, where in years, needs commence both building two in superior future. focused choosing foot consumer meet returns. the creating XXX,XXX million at production with quarter. expandable great goods meet Holdings, shareholder square over in and expected success had

a We X.X%, more leased quarter approximately is for X.X $X sales. $XX.X also of supply our started square of to class Dallas, the graduating to Summing Total from this XXXX service company industrial developments, estimated with XXX% two-thirds XXX,XXX fourth feet is combined California. margins expected square our foot cash the annual leading are than in First of the million Center billion Distribution in of lease-up Mountain and with our remaining X.X%. buildings That XX cash square with is in in a quarter. of Chicago, XXX,XXX foot the term XX%. placed million fourth Southern long up Creek lease these commence investment average in at at weighted buildings First these we leased north stabilized is XXXX in Park yield XX% that the at Note yield NOI

in At California, Chicago, can yield projects as pro Houston cash year-end, Denver, have projected We square lease million square We Southern Dallas, our in with meeting located Pennsylvania developments two developments previously XX%. up, as we margins excess well have X.X and California new in also deliver do of by X.X completed and feet. of totaled build-to-suits including process Southern forma but Seattle, mentioned feet million still work in to a to of X.X%. these

this our square Given the project of build-to-suits at XX% foot in Dallas, First pre-leasing is now XXX group Park XX,XXX and leased.

the is the an I our position Our successful and of with acquisitions, Southern more there's would projected substantially past and point on of $XXX program, California that through horizon. estimated development several out over million approximately years grown along select growth X.X% estimated investment our XX%. the margin in a dynamic markets to with like we've yield

couple other to grow rental XX% XX.X% of the fourth first Nandina full Southern other projects Pro development all in new two under lease-up will our construction we quarter, other largest projects. As lease XX%, California at additional note, impact market of income items of of of the than A our XXXX. assuming more that market First by Southern represented of our in approximately of California the income, or of forma, adding and in started have equal. being rental as lease-up elsewhere, and quarter our things

Fossil estimated The first investment an is yield $XX.X XXX,XXX X%, respectively. cash of square foot and stabilized in Creek development and Dallas our million with

square in a is quarter. first a in Phoenix corporate XX,XXX we the second foot repeat for a build-to-suit The on customer acquired site

Our cash total estimated stabilized million investment with a of is $X.X yield X.X%.

two quarter comprised New acquisition. total Southeast well facility acquisitions, feet on Jersey now Houston These position for square in the two XXX,XXX of are as in fourth buildings million already square Houston buildings four a XX% closed Turning for to leased and of parcels a foot feet $XX.X have square for were in million. million. XXX,XXX totaling a land located The XXX,XXX $XX.X as $XX.X newly we're totaling a buildings park in in we that and constructed which we

We building $X.X also feet for XX,XXX Seattle in million. acquired a square

buildings New can average the for X.X%. Jersey sites XXX,XXX them. four and acquired of cap and combined Miami, land Our rate we build on square the a weighted total we markets in approximately was are The barrier of high feet

the weighted rate at X For a million feet X.X%. million and $XXX.X square acquisitions of average cap totaled year, building

we I-XX million $XX.X Corridor in some closed in XX lease-up other to This submarket. already some is in of is acquired quarter, Chicago, In also XXX,XXX is first Logistics of Orchard in the production. foot We and first forward is the of of facility a Center. located our square on that proximate which a our development that land, properties

$XX.X is price in These efforts. parcels. ongoing St. XX and two the management projected purchase was successful yield portfolio our capital in primarily and year land million and million largely Our our also totaled Dispositions tenant-intensive $XX.X was stabilized quarter, X.X%. a of fourth smaller, Tampa comprised and properties were XXXX Louis, located Denver. for buildings

sold feet $XX $XXX buildings million. our guidance more and six square million exceeded totaling million. sales year, XX We $XXX for land million X.X by XXXX than mid-point the For we the of parcels

the XXXX, $XXX million are of For targeting in million. to $XXX sales we range

will We capital greater flow for rate to and properties we into continue cash offer growth. rental markets opportunities believe that and reallocate

which strength dividend a per of quarter the our Board declared that's our XXXX for $X.XX XXXX. performance of the increase share has a of and will represents which discuss, annualized, of On from Directors our $X.XX outlook, X.X% XXXX, Scott first

ratio XXXX, our flow to into the our defined new a as cash in retained developments and supplemental. intend this of Importantly, deploy for payout XX% approximately AFFO represents additional anticipated We of acquisitions.

on I briefly it to comment the Before environment. Scott, industrial I'll turn over

of there's While absorption. fundamentals marketplace, XXX underlying million the does for of of volatility logistics grow lot in our in as be year square significant to for continues the foreseeable demand particularly strong. than the been to future. market, net stock consumption. E-commerce is And the economy a space consecutive feet in sixth and the continue XXXX was sector the today more driving

the the outlook. entitlement continue that, that investment sky don't but held in been longer the a you New details on best in additional and expense sheet. of markets industrial supply to sites balance, are longer trees to through will the we adhere has to quarter some Overall, and With mindful are and the our developable market will management Scott in through discipline, check scarcity periods. of balance conservative and walk and strict grow XXXX we

Peter. Thanks,

the sales fourth per Let quarter share results NAREIT fourth ago, of versus compared in received FFO reflecting XXXX. XXXX $X.XX damaged overall compared and the was of recognized gains was of XXXX, the fourth $X.XX from In one for the to XQ per XXXX. with diluted for $X.XX $X.XX property to share income fully both $X.XX quarter. EPS me lower we the year start In quarter properties. insurance payments diluted related to quarter,

compared was was XXXX. XXXX. in Excluding $X.XX versus NAREIT FFO per in $X.XX Full-year fourth XXXX to XXXX share share per share FFO this income, $X.XX quarter per $X.XX XQ

up from volume Peter reflects captured occupancy of quarter. quarter basis the from strong year and noted, year we at in points a the XX rate finished leasing up basis XXX fourth an points the XX.X%, prior the ago, we As which

million approximately leases these, of new acquisitions. for Tenant for quarter, the renewals were developments was Of for commenced. X.X X.X were retention and feet XXX,XXX were X.X feet feet leases, million by XX%. million long-term and square footage square square square During

a tenant the million was retention leases XX%. For year, and of XX.X total square of feet commenced we

For fees fees, and basis, free on an same-store termination was rent leasing the fees, and rates termination cash increase excluding rental lower quarter, termination driven average growth cash NOI occupancy, including on in X.X%. bumps, Lease a growth NOI $XXX,XXX totaled same-store rent. X%, by higher was

on increasing with For fourth overall XX.X% fees, was cash cash quarter, a and X.X%. XX.X%. the the year, rates up NOI On overall X%. basis, up X.X% and straight-line basis, up leasing were were with rates including up XX.X% up leasing termination and X% renewals growth rental was fees, termination new excluding rental a In new same-store X.X% renewals

to on overall gives full-year basis, moving straight-line of metrics. us up rental rates end a XXXX, they stock times, quarter, balance a debt were sheet For few were the fourth is on X.X preferred adjusted the the cash our XX.X%. to up which At net dry and the secured and was power maturity plus related figures average a X.X% EBITDA insurance December new our note settlement. EBITDA years that term of adjusted of notes, our loans exclude excludes investments. to credit interest XXst, unsecured facility. X.XX%. for an Please the average with rate weighted These weighted At financings X.X income Quickly

XXXX Now on initial our guidance. moving to

will Our NAREIT midpoint points. XX.XX%; first average range for is on rate. represents could dip move-outs, quarter-end based XXX follows. assumptions XX.XX% of basis a to per which occupancy as a to FFO our anticipate which share $X.XX, approximate growth first we $X.XX An seasonal of guidance quarter quarter guidance to The typical are a occupancy in-service key have with X.X% $X.XX

compared Our bad guidance actual a reflects assumption total our this growth of to that in NOI of debt a cash on X%. basis X.X% XXXX. to Note for million range same-store $X $XXX,XXX is

tax an in in addition, guidance paid estimated saw Denver, same-store from predominantly markets impact in we basis In which arrears true-ups point also for reflects XX XXXX.

is $XX.X and first at the in and XXXX million. million related announced December as includes two starts Phoenix. to Guidance range $XX.X quarters construction costs guidance under completed XXst, our to G&A well Dallas we developments the Our anticipated as

related interest $X.XX XXXX, per full-year about related capitalize that an lease of approximately rules. to per the share expect Note For these accounting reflects $X.XX XXXX developments. to impact guidance the also new to we share

and or $XX issuances, million repurchases two repayments, acquisitions carry settlement the Our These secured equity. turn debt does after sales, the quarter. this damaged of of potential guidance X.XX%. third earnings to than gains payoffs average debt of debt also development call, reflect it quarter insurance issuance not rate of not Peter. $XX the final impact future that, future other starts interest an back any impact the of guidance secured and of related reflect Guidance the or excludes any to expected payoff first the debt of in million of impact from approximately claims any properties does of future new With in I'll the the

XXXX debt With capturing focused XXXX. on our higher continue successful a Scott. on real our and for e-commerce lease lease-up growth bumps, our to new be economy Thanks, continued to we're fundamentals lower Cash costs. favorable, in related remain flow of in logistics renewal year growth another new market estate demand. and few investments embedded the helped driven leasing, in executing rents delivering driver opportunity will the long-term and books, of The in the by by

open you on for maintaining working our new growth, to capital up With while for operator, hard please questions? discipline. would Our opportunities investments is execute strong team find development to it and that,

the Craig from of comes question line KeyBanc first Your with Instructions] Capital. Mailman [Operator

maybe specified in of the of at for kind the there, to over it out? year similar laid that XXX sort guys basis you want -- guys XXX I for did little same I'm Scott, is point X.XX%, probably guide, means close occupancy portfolio, drag that to coming 'XX guys. get of that drilling to some the the given this drag. bit end quarter I same-store, of ex to guys side you is I you just of think just relative of you at have the what in looked kind details curious, consistent drag a basis on kind just how 'XX, guys detail more you on X.X%. Hey, the average point appreciate things what gets the story, which am

Hey, me Craig, it's through run Scott. Sure, for let that you.

growth in couple and be our So, the the release. items press and I mentioned before 'XX the will all same-store script this buildup, in of

X% a picking in rental benefit was So, decrease a of leasing, bumps, same-store so about gets then we're rates a about benefit for rent, rate renewal to you X.X%, to and about X.X%. getting slight due about a at for in for and XXXX we're X.X% increase rental a in XXXX new free in about up X%. that

about point average you like up of to if look in occupancies main picked X.X% and because XXXX got we've that XXX of XXXX, the difference same-store there. actually Craig, X.X%, is difference driver increasing about slightly So basis in due is, our occupancy And we losing we're declining.

two which between the gets of -- you pretty X.X%. difference and much So those which the that bridges is about Does X% X.X%, you help?

first you helpful. right? of quarter, Yeah, in basis you should that's points very And XXX regular then halfway much the known guys laid out dip have we're I the mean guys of so is through maybe and seasonality. just how first quarter that occupancy sense, some versus

short-term Chris. is leasing. feet about the this Craig, Yeah, square move-outs, is from XXX,XXX

that drop. So, reason for that's the main

in portfolio, If look you de-risked more I the little have can front, but with as this, think one and how and if of more could a target just on bit just you what on I lower those the done of a but the apologize pipeline, sneak developments? in, more of do I build-to-suits development that the want come to do guys a do missed start 'XX, yield overall obviously you many you kind out be

So, Craig, it's Peter.

we on As you starts. don't know, really guide

to on in that trying put we and is want contradict we there our profitable may don't that of investment are focus highly to efforts all sure Our out make that. volumes

to margins. is not we're are game yielding us This end dissimilar from for say that margins projects have three call we're that can recently, talking are I those particular too what spec build-to-suits. won up we So, that in the about always going

all always on our of to XXX. of points we projects north margins those development and be XXX basis for will XXX shoot So

there So pretty margins build-to-suits. is relative kind and of XX what basis typical point good to on

be build-to-suits, So course look, the will we'll spec to continue primary but going of to look development forward. pipeline

comes Your the Stevenson Janney. question with Rob next of from line

the might ? bottom positive Can versus and give expected in guys. expected morning, to be any or XXXX 'XX Good your on little in major in changes color you just think that 'XX markets your in you markets negative the quartile performance the of a

this I why try You approach to don't know, it way.

look Just boxes sub-market an dollars a when would Dallas, some Central sizes be to Chicago. we markets overall, opportunity. basis, that look sub-market Atlanta, in from Those invest at we I-XX by are in some excess Northeast PA, have the South and new there leasing look, certain Corridor and bigger here

So, I'm any particularly concerned portfolio not about. sure that that markets we have are in we our

across and we supplemental pretty they're the over rates go all have the country, occupancy strong. you If at the look

Okay. increase was tenants And and many debt in the what then, Scott, that? how bad drove the

and for me years. we've how this been assumption last our the guidance probably determine five Let that XXXX over go we doing for

done our We $X So against of the that's history of the projected basis bad we've apply about debt That's million. years, revenues. of is last points total we that have what revenues Company. XX XX for a the expense history our and

So, experience how tell it's XXXX Corridor expense calls, for bad booked specific. season probably really in based not a over They pure eye in zero say, January. a I holiday doing that macro the at conducted What last an XX of one, tougher are in about recently It's out, When a our XXXX. XXX,XXX would debt we're leased square you really one. we XXXX, keeping you look expense They Rob, we our debt bad can January we feet years. it's Baltimore. about there's had only tenants the I upon I-XX

us facility. and time but fully they an on news their keeping are payments on in them, utilizing eye the is So, for they are we're good their

Okay.

going expectation that or And just of -- of this just all accounting? than drives any the tariffs, previously the basically mean, is -- it trade some so, operating fundamentals your is accounting basically this none softer it all wars, is forward, is the of this I or

a macro the It's million. at history I'm for that view aware cause that to of the us hit not any of point tenants all time $X of Company. this the would

of that it's bad debt expense macro for guidance. way at a more the So we established

next The the with question Guinee John of from Stifel. line comes

Talk late Last about long-term that. heard PA of thank think I a in PA and Johnstown XXXXs. about time the market flood viability Great, guys you you. Eastern was what the

It's morning. Schultz. good Peter John,

year of Pennsylvania the 'XX square which of absorption, another I was think net had second highest. million great XX in feet So north with

there demand So to continues good. be

and two foot project square and XXX,XXX reference finished XX to I-XX continue we of in Your to is of building, foot intersection XXX,XXX quarter the in at and square see where our Johnstown the we that. fourth interest buildings

to you. So supply County, nothing say a and couple XX a and between Harrisburg foot Northeast tell a Valley under specific Lehigh plus fair Berks in to question, there XX I is amount square construction Carlisle. of standpoint, would several from buildings, your along existing minus or of south and million and the PA, couple a along

little most standpoint we a over-supplied continues moment, as like buildings, So million larger from at of a one good other two the be feel that bit it's to foot active feels our of our sizes, servicing markets. country. square know, Pennsylvania, demand the pretty very including the range We It but you about. part

second X% then, And XXXX-XXXX? and X%, around it there, was 'XX, spreads XX% Great. looks that and someone XXXX like and your both rent -- GAAP and or GAAP 'XX cash re-leasing 'XX, guess in is Peter sustainable I for were

of in looking is rental about overall, XXXX Chris. rates XX%. to this at are we Look John, X% cash

So -- the XX% in the midpoint.

-- the GAAP, If typically about X,XXX to XXX points at know, of higher. you numbers basis our, you look the

strong our in by cash so signed are we overall evidenced rates looking what far renewals. So rental as

line the Dave question [Operator Instructions] from next Rodgers The Baird. with of comes

or Maybe But something he's wants some the morning. if then that markets. between of in on to that the yield I this think there the and with do [indiscernible] maybe about about guess maybe high think market on with margin rent the in difference And secondary those. would Peter jump said to Jojo there. Coast as reconcile for kind you land kind build-to-suit talked mid-eights you I something how versus those activity, the differences the in period, the you good on kind on the to holding of get five Hi, regard you in of holding terms along spectrum. the eights growth in over high Nandina of difference in West the

different markets and Those they evolution I'll I'll in rent then And in that margins growth of a over we're out months. about that of Nandina, significantly. start rents different to the and project rent terms mention, forget different projects on market took in building had growth. continued it timetable. market that getting grow significantly to was assemblage of an and XX owners. are we don't Jojo. to Not XX velocity kick The that were It while obviously from building, sites different nine

was So the our initial up ended higher almost forma. points there we with yield basis that XXX pro than

we on different it a land time in to growth market that Southern site have had has that site, value Fairburn So itself few the to that's that not at that story period there. over we've as Atlanta, the Southern a was Rent The we reworked in in for California. been just California. robust as years, also improve

we up you margins yields, objectives. that excited about. talking the so like project yields continue the that end that development We're we're have... and site. our And to We about Jojo, meet the there again, really with

Yeah.

add. things of Just couple to

build-to-suit build-to-suit are and low easily fours Just Dallas terms post the of Mountain Creek, in mid-fours. margins, in to

XXX So but higher to about achieve XXX Peter spreads we overall able we're point significantly [indiscernible]. talked there. basis at Nandina, have been to looking spread

we Our is at goal point and underwriting going way forward basis and either our we look but beat XXX space try this, XXX to spread.

barrier us slightly spread of markets of expect barrier because spread expect us get day would slightly and at total you return markets to the towards XXX would growth lower a and because and we're growth rent end XXX higher investor. the in smaller we You -- the medium of rent expected because on do higher the higher in

for sheet include Scott do of tended each Comment the maybe balance does several to years and on further for some, then position the now. last I guidance you one just know to sheet. know, And well the the question equity, balance deleverage Great. not about on development. how you as feel you

So, where although you'd to guidance, it's on not sheet your balance like kind of and in what thought be.

Sure, Dave.

sheet great Our is balance shape. in

times. X.X million debt-to-EBITDA Our line credit. of drawn our only $XXX have on We is million $X

So the covered I we and process than when and sources our have our fund mentioned always debt that's our you look other XXX% by sales proceeds. uses, and being before at repayments to really developments

So when a uses comes like to it the would equity, the down to in pipeline. by has Dave, an be between it and past, be we've imbalance sources large caused in mentioned imbalance

have be today, we very equity retained very, but we a stand this stock covered So large investment is everything, by We $XX line. the uses may million pipeline about sources and or which and like leverage. if can't year sales, new price, that where issue in capital, we

Your comes the Eric of line Street from with Green Frankel Advisors. next question

are now, know -- allocation you of guidance the efforts going fine. maybe portfolio a guys But stated kind this to where and -- guys obviously your can Thank is. already, give you're you. cap repositioning I sales sense give year. don't of your look asset you that's a maybe but stabilized I obviously know what if what platform just have it don't like you look you market provide like stays just of a have might sense

was why what that's you've And be last guidance assets was flow that couple year's we're stabilized rate on on of selling again The years. significantly The to cash those $XXX The million to sales X.X%. less. in similar group that. assets $XXX The last out of those assets. the will composition Sure. seen is of million of cap

profile portfolio given be the So the I similar you be portfolio sales of will think similar, we've the and the range. will

development plowed Sounds you seeing or a past good. to of your so. what to replenishing sense opportunities a of you of your Can a can year development into in little in sense, opportunities terms of And land bit? guys you actually give the have lot give maybe a put through kind you're

Sure. that of us can also every about square to same work in when it in we XX you've say call, buy and On market we heard pretty the We're feet. time currently build buy as new it. year we're sites land, acquire the that a to every million day land much putting much in looking quarterly have, the we we

a to big looking portfolio. We're to have Eric. we're the picture, in years of have land supply two to So of three looking

questions, [Operator I'll it no for remarks. final Instructions] And Peter further with Baccile hand over back to

Thank any to free reach out and with participating you, call follow-up on Please few our to operator, we next or to seeing for questions forward in you Florida and me of weeks. all today. many the thank Scott look you feel in

participation conclude conference today's does please This that ask you thank call. line. disconnect for We your you your and