Good day, and welcome to the First Industrial Realty Trust, Inc. First Quarter Results Call. Please note this event is being recorded. I would now like to turn the conference over to Art Harmon, Senior Vice President of Investor Relations and Marketing. Please go ahead.

Thank you, Dave. Hello, everybody, and welcome to our call. Before we discuss our first quarter 2024 results and our updated guidance for the year, let me remind everyone 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, April 18, 2024. 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, our Chief Financial Officer, after which we'll open it up for your questions. Also with us today are Jojo Yap, Chief Investment Officer; Peter Schultz, Executive Vice President; Chris 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.

Thank you, Art and thank you all for joining us today. Since our last call in February, our team has signed two significant development leases and we continue to make progress on our 2024 renewals at strong cash rental rate increases, both of which I will discuss shortly. Looking at the industrial market broadly, vacancies ticked up to about 5.3% as new development projects that were started in 2023 have come online. For 2024, CBRE projects completions of approximately 300 million square feet. As those projects are delivered, we expect national vacancy to increase to the mid-6% range in the coming quarters. Importantly, the market has demonstrated some discipline with respect to new starts. No doubt that the high cost of construction debt has helped. For the past three quarters, starts have averaged just 42 million square feet, which is more than 60% below the recent peak of 114 million in the third quarter of 2022. The increased level of prospect traffic for our development that we experienced toward the end of 2023 has continued into 2024 and some significant leasing decisions have been made. To that end, we signed full building leases at our 500,000 square foot First Rockdale IV in Nashville and our 1 million-square-foot First Stockton Logistics Center in Northern California. Updating you on our progress on lease signings to date related to 2024 expirations, we've taken care of 68% weighted on-net rent. Including the impact of new leasing, our cash rental rate increase currently stands at 45%, which is near the midpoint of our 40% to 52% full-year forecast that we provided on our last earnings call. Our results to date reflect a renewal of one of our three largest expirations, all of which are located in Southern California. For guidance purposes, we have assumed one of the remaining two will renew. Moving now to dispositions. In the first quarter, we sold nine properties comprised of 433,000 square feet for a total of $49 million. This puts us well on our way to achieving our full-year sales guidance of $100 million to $150 million. The largest sale was the five-building 278,000 square-foot portfolio in Cincinnati for $33 million that we discussed on our February call. The remaining $16 million consisted of 165,000 square feet located in Chicago and Detroit. As I noted on our last call, 2024 has been a particularly challenging year to project the pace and timing of leasing in our portfolio due to the economic uncertainty, increasing volatility in the capital markets and the interest rate outlook and the rapidly evolving geopolitical environment. Over the past few weeks, these factors have once again given some tenants reason for pause. As a result, with respect to our broad-based same-store leasing assumptions for the year, we decided to make some adjustments, which are reflected in our updated guidance. With that, I'll turn it over to Scott.

Thanks, Peter. Let me recap our results for the quarter. NAREIT funds from operations were $0.60 per fully diluted share compared to $0.59 per share in 1Q 2023. As a reminder, our first quarter 2023 results included $0.02 per share of income related to the accelerated recognition of a tenant improvement reimbursement associated with a departing tenant. Excluding that $0.02 per share, first quarter 2023 FFO per share was $0.57. Our cash same-store NOI growth for the quarter excluding termination fees was 10%. The results of the quarter were driven by increases in rental rates on new and renewal leasing, rental rate bumps embedded in our leases and lower free rent, which were partially offset by lower average occupancy. We finished the quarter with in-service occupancy of 95.5%, the same rate as year-end 2023 with our 500,000 square foot Nashville lease offsetting some expected move-outs. As we continue to lease up our developments, we expect our in-service occupancy to increase in the second half of the year. As we stated on our fourth quarter earnings call, developments that we placed in service in the third and fourth quarters of 2023 that were not fully leased had approximately 240 basis points of occupancy opportunity. With the lease-up of First Rockdale IV, the lease-up opportunity from these developments now stands at 160 basis points. Before I touch on guidance, let me remind you that on the capital front, we are strongly positioned with no debt maturities until 2026, assuming the exercise of extension options in two of our bank loans. Also, our expected 2024 asset sales, combined with our excess cash flow after capital expenditures and dividends will exceed the amount required to fund completion of our developments in process. Moving on to our updated 2024 guidance per our earnings release last evening. Due to changes in some of our same-store leasing assumptions that Peter discussed, our guidance range for FFO is now $2.55 to $2.65 per share. This is an adjustment of $0.01 per share compared to our prior guidance. Note, as we detailed on our fourth-quarter earnings call, our guidance excludes approximately $0.02 per share of accelerated expense related to accounting rules that require us to fully expense the value of branded equity-based compensation for certain tenured employees. Including this $0.02 per share of expense, our NAREIT FFO guidance range is $2.53 to $2.63 per share. Key assumptions for guidance are as follows: quarter-end average occupancy of 95.75% to 96.75%, a reduction of 25 basis points at the midpoint. Same-store NOI growth on a cash basis before termination fees of 7.25% to 8.25%, primarily driven by increases in rental rates on new and renewal leasing along with rental rate bumps embedded in our leases. This is an adjustment of 75 basis points at the midpoint. Note that the same-store calculation excludes the 2023 one-time tenant reimbursement that I discussed earlier. Guidance includes the anticipated 2024 costs related to our completed and under-construction developments at March 31st. For the full year 2024, we expect to capitalize about $0.05 per share of interest. Our G&A expense guidance range is $39.5 million to $40.5 million, and this excludes the roughly $3 million in accelerated expense I referred to earlier. Lastly, guidance does not reflect the impact of any future sales, acquisitions, development starts, debt issuances, debt repurchases or repayments nor the potential issuance of equity after this call. Let me turn it back over to Peter.

Thanks, Scott. We're very pleased with the two major development leasing wins to kick-off the year. Our team is focused on building on that success with additional development leasing and capturing rent growth from lease signings in our in-service portfolio. Operator, with that, we're ready to open it up for questions.

Our first question comes from Ki Bin Kim with Truist. Please go ahead.

Thank you. Good morning. Congrats on the Stockton lease. So I had a couple of questions on developments. I noticed that the couple of assets that you placed into service that the yield and profit margins were adjusted lower. I mean, thankfully, these are just smaller projects, but just more broadly speaking, should we be just aware of any other risk in the development portfolio as some of these projects near completion or leasing? And if you can provide an update on the prospect activity that you're seeing in your other development projects, please. Thank you.

Jojo, do you want to take that?

Yes, Ki Bin. No, I wouldn't say that the outlook and the forecast is pretty much similar. We made some adjustments, though, as we do every quarter. We look at exit caps, we look at pro-forma yields and, of course, the result of that is the profit margin. So overall, top-level, we increased our exit caps by about 18 basis points. So that's about, we ended up overall average about 5.22 cap-rate, which we think is appropriate or slightly conservative. And then on the pro-forma side, what we did, we adjusted some rents in pro forma and i.e., that resulted in an increase of about 16 basis points of increase in pro forma, actually a reduction of 16 basis points on a pro-forma yield. If you add that together, Ki Bin, what you'll notice that that's our overall reduction on everything in our supplemental in terms of our developments of about 4 percentage points from about 36% to 32%. So it's slight adjustments overall.

To your second question on activity on the rest of the development pipeline. As you look at what we have in Florida, Pennsylvania, Denver and Jojo can comment on California, activity overall is good. We have active prospects for all or portions of the space. I would say some are moving more deliberately while others continue to move slowly and it's really about the timing of those decisions more than it is the level of interest. We continue to see, as Peter remarked in his comments about the evolving narrative on interest rates and some of the geopolitical issues were a little bit of a headwind to people making decisions. But overall activity is pretty good. Jojo?

Yes, I don't have much to add to Peter's comment except that we've made appropriate adjustments to the total rents.

And just a quick follow-up on Baltimore. I noticed the occupancy rate dipped a little bit sequentially. I'm not sure about the timing of the Old Post Road lease-up, but I was just curious if there's anything else that drove the occupancy lower?

Ki Bin, it's Peter again. So we had one known move-out at year-end in the Hagerstown submarket, which is along the I-81 corridor, that is part of our Baltimore portfolio, 309,000 square feet. So we're marketing that space as a portion of a larger building. No other change in occupancy in Baltimore. Your question on Old Post, so the larger Old Post building took occupancy in December of last year and then the lease that we announced earlier, half of the smaller building that commenced in the first quarter.

Okay. Thank you, guys.

The next question comes from Rob Stevenson with Janney. Please go ahead.

Hi, good morning, guys. Just a follow-up on Baltimore. I know it's early, but any markets, assets, submarkets benefiting from additional demand given what's happened at the port after the Key-bridge tragedy?

So Rob, it's Peter Schultz. We're not seeing any change in demand or impact to our tenants, given the tragedy, as you said, in Baltimore. You probably know that there are already a couple of temporary channels that have been reopened. A third will be opened in the next week or two. The expectation is the port is back in full service by the end of May. So while it's inconvenient in the near term, we think that that resolves itself here fairly quickly. We're not seeing any real change in demand, positive or negative, from that incident.

Okay. That's helpful. Scott, the property expenses for the quarter were significantly higher than usual. I understand there were some additional general and administrative expenses reflected in the guidance, which I assume is part of that. Can you explain what is happening with the property operating expenses and what we can expect for the rest of the year?

Yes, Rob, it's Scott. The $0.02 are in G&A, and I'm going to turn it over to Chris to talk about the property expenses.

Yes, I just saw the property expenses for this quarter. It was all related to recoverable snow removal expenses are up. So it's. And again, they're all recoverable. So that was a reason for that.

Okay. That's helpful. Thanks guys. I appreciate the time.

The next question comes from Vikram Malhotra with Mizuho. Please go ahead.

Good morning. Thank you for your questions. First, could you provide an update on your development lease-up guidance? I believe it was in the high 2s previously, and I'm interested to know if there’s a revised version based on your recent progress. Additionally, could you share the timing of the developments completed so far? When can we expect those to affect FFO?

Yes. So I'll walk through that Vikram. It's Scott. So just a little longer of an answer, but I think it makes sense to go through what we talked about on our fourth quarter call in February. So on that call, we said we had about 2.8 million square feet of development lease-up we included in our original guidance. 500,000 square feet of this pool that was the Rockdale deal was leased up in the first quarter leaving 2.3 million square feet of development leasing still in our forecast. The majority of this leasing is assumed to start in the back half of the year. The other 1 million square feet of development leasing that was First Stockton in the first quarter was not budgeted in our original guidance. As Peter mentioned on our last quarter's call, development leasing is going to be difficult to predict in 2024. In some developments, we will beat our forecast and in other cases, we won't. So some of the development leasing we have completed is ahead of our forecast. So we, in essence, have used some of this early leasing benefit to offset some other development lease timing assumption changes we made to our forecast. Does that help?

Yes. That's helpful. And then just specifically on just the development. I think there's a big asset in Colorado close to 600,000 square feet. I think in the past, you've debated, is there a full user or do we multi-tenant it. Can you just update us on that?

Sure, Vikram, it's Peter Schultz. We continue to see activity for portions of the building as well as a couple of full building users. The larger users, as I said a few minutes ago, the decision-making there tends to be slower. But we continue to have activity for both partial and full building users. The building is designed to be multi-tenanted, which was our expectation when we built it. I don't have any actionable updates to give you today on any lease signings, but we continue to see activity. As we've said a couple of times, it's more about the timing and the pace of that decision-making that we're really focused on.

Can you provide an update on SoCal in general, specifically regarding the three expirations? Did you always plan for two out of the three to renew, with one potentially not renewing? Please walk us through your thoughts about those three leases.

Yes. Hi, it's Peter. On the rollovers, we always did assume one would not renew. And so we're right on schedule with those and Jojo can give you a broader perspective on what's going on SoCal.

Sure, sure. Basically in SoCal, completions exceeded absorption, so vacancy rates, those did tick-up. And so renewal activity, though, continue to be active and discussions are across, I would say all sizes. New leasing though, the environment is slower, just like both Peter Schultz and Peter Baccile said, the prospective tenants are taking more time to decide and are touring more properties before committing and some are deferring their decisions. One other thing in SoCal is that port activity, Q1 of this year as measured by loaded import containers only in Port of L.A. and Port of Long Beach is 26% higher than last year. So we're hopeful that that has a positive impact going forward.

So that container traffic is about equal to about 2018s.

2018, 2019, correct.

Which, if you recall, was pretty good market.

Got it.

Pretty good market.

Hi, thanks. Good morning. Just I wanted to first ask about, just given some of the progress that you've made now on the SPEC leasing development in the quarter and we saw the increase in your SPEC leasing cap. I'm just curious, you've talked about build-to-suits and some developments moving forward, curious what the appetite is like here, how we should think about the timeline for you to maybe, you know, shift offense a little bit more just given that new starts are down more broadly, 50% or more in most markets.

Yes. So we do have about $300 million now of capacity in our cap. That's a number actually that's pretty similar to what we used to carry on a regular basis through, call it 2018, '19, '20. It is very possible that in the near term, you'll hear from us on a couple of starts. As we've said on previous calls, those are likely to be in South Florida. As we evaluate other start opportunities across the country, those decisions will be made largely based on how we see development leasing proceeding in those markets. We have some existing assets in those markets. And when we lease those, we'll have a better view about the stickiness of demand and the pace of decision-making. So again, as those deals come to fruition, that would give us confidence that more starts in those markets are warranted.

Okay. And then just a question on the guidance in terms of the guidance revision and sorry if I missed this in the commentary, but I'm just curious if what the offset is to the decrease in the same-store growth forecast, which is a little bit more than the $0.01 FFO revision that was made. What's the offset to that decrease?

Well, the penny decrease is primarily due to same-store. So there's a little bit of, we're ahead of budget on those two development leases. We utilized a little of that, but we also utilized that ahead of budget leasing, Todd, to adjust some of the lease-up assumptions we have for the remaining developments. So that's the math from that point of view.

Okay. So it's primarily on the development lease-up offsetting the same store. Got it. Okay. All right. Thank you.

The next question comes from Rich Anderson with Wedbush. Please go ahead.

Hi, thanks. Good morning, everyone. So I want to talk about tenant behaviors and leasing decisions are delayed but not done. And you yourself are looking at that situation and actually raising your speculative capacity. What gives you confidence that it is just a push-back in timing and not something more permanent in terms of tenant demand? Are you talking to people saying, we're going to do this, but we just need more time? There's every possibility that we could have more of a permanent depressed demand condition, could we not? And if we do, then what's the reaction from First Industrial?

Yes, I will provide a general overview, and then Peter and Jojo will share their insights. These discussions have been ongoing for quite some time. We are observing fluctuations in enthusiasm based on current events in the broader markets, including discussions around inflation, the Federal Reserve, interest rates, and various negative news from around the globe. This context is significantly influencing the pace of our conversations. However, our tenants are not abandoning us; some have returned after two or three months to renew discussions. It feels like a question of when rather than if things will progress. While it could become a concern if conditions worsen significantly, we are not seeing evidence of that at the moment. Peter, would you like to add anything?

Sure. I would say, demand continues to be very broad-based. E-commerce and particularly the largest occupier in that space was very active in the first quarter. Indications are they're on track to lease more in the first half of this year than they leased all of last year. Market expectations is they may double what they did last year. So that's certainly a good sign, which has tended to be a catalyst for other companies making decisions as well. We continue to see a lot of activity from 3PLs, but those decisions in particular, because they're waiting on the commitment of customers, continue to be elongated for all the reasons we've talked about before. We're seeing some retailers, we're seeing some automotive, we're seeing some medical and food and beverage. So the breadth of the activity continues to be good. And nobody's, rarely do we see people tell us that their requirement is canceled. It's simply a matter of, in some cases, they have more choices, so there's less urgency, and that varies from market to market. But we feel good about the breadth, we feel good about the activity across some of our smaller spaces has held up very well and it seems to be the larger spaces have more choices and just slower decision-making today. But overall, we feel pretty good. Jojo, anything else you want to add?

Yes, the only thing that I would add is that in the biggest part of our business, which is the leasing of our existing buildings, our renewal activity, discussions have continued to be solid. The executions there have been pretty much the same as last year. You can see that in our cash rent change, and a number of tenants in our discussions would like to expand, hit the pause button as well. And so those give us confidence that a lot of our portfolio, which is a bigger part of our business, is feeling good about operating out of our spaces.

Thank you for that insight. For my second question, I'm curious about your mark to market. Let's assume it’s around 50% with relatively stable market rent growth and your usual contractual escalators. Is it straightforward to determine how the mark to market will change as you release space? At what point might the mark-to-market situation become more typical due to the flatness of the market and ongoing rent escalators? I'm interested in understanding what potential remains ahead for you.

Yes, rents have grown so much that there is some resiliency in the durations of that mark. Now that's in a scenario where rents are, let's say, falling as much as 5% or flat or up five in that range. Obviously, if rents fell significantly more, the duration of that mark comes down. But at this point, it looks like the sector should enjoy some pretty good rent increases for some time.

And Rich, just to be clear, we haven't given a mark to market calculation.

Okay. Thanks very much.

The next question comes from Craig Mailman with Citi. Please go ahead.

Hi, I'm interested in understanding the hesitancy of tenants to make decisions. How much are actual nominal rent levels influencing markets like LA or New Jersey, where rents per square foot are higher than in other areas? Is this affecting their mindset and leading to hesitation, or is it mainly due to uncertainty in the business environment right now?

The best way to address your question is that in markets where rents have increased significantly, particularly in Southern California where they nearly doubled in 2021 and 2022, and showed decent growth last year, the likelihood of deals being made at lower levels than peak rent is greater. As we engage in both rollover and renewal negotiations, as well as discussions with tenants about new development space, this situation affects those conversations. It's not about affordability; rather, it's that rents have risen substantially in certain markets, which influences the speed of those discussions.

Okay, then you guys have mentioned and others had mentioned clearly Amazon's coming back into the market. So e-commerce feels like maybe we're in a period of expansion. But as you go through, kind of where, if you could gauge kind of by industry vertical, where there's the most hesitancy to make decisions today versus where people are more close to needing to take space to fund the five-year business plan. Is there any kind of discernible trends you're seeing?

So looking at history a little bit, in 2020, Amazon took up more space than the next 30 most active lessees combined. That served as a catalyst, as we now know, for others to say, hey, we have to get in the game. And you saw that happen to a great degree in '21 and '22, which created the very, very high net absorption numbers that we saw. That particular player is once again making a rather large move this year. Time will tell if that behaves as a catalyst for others to get involved, but we certainly don't see it as a negative thing. And the prospects going forward could be pretty good that it is a catalyst for others getting involved.

Craig, it's Peter Schultz. The other thing I would just point out, as I mentioned earlier is the 3PL decisions are slower because they're waiting on their customers. So there's two steps in that process. So it's harder for landlords to have visibility into those discussions between the 3PL and the customers. And that's where we're seeing probably the most elongated decision-making.

The other thing, sector too, Craig, would be housing, home improvement, furniture in particular. That sector's a little bit slower.

Okay. And I guess going to 3PL piece, they traditionally like shorter term leases. I think when things got very strong, they were forced to do five-year leases. Is there any push on their part to go back to shorter-term leases to match it better with their contract lengths or are you guys still able to hold that side of the equation and also just on the concession side, what are you guys seeing from a free rent pickup in certain markets versus others?

On the 3PL front, the prospects we're in discussions with are all five to ten years. Having said that, we have seen some deals in the market that are shorter term, say three years. In terms of concessions, we're seeing those come up a little bit. So they've been less than half of one month per year of term to maybe 0.6 or 0.7. And I wouldn't say it's universal. It's generally in the markets with a little bit more supply, but concessions are ticking up a little bit.

Yes. Overall, we don't think there's going to be a material change in the terms that the 3PLs want to. I think it's customarily it'll be five plus years. And the biggest reason for that is that the 3PLs are meeting their customer's needs and most customers don't want to be out of space when they make a commitment to be served by a 3PL, they want it. That's usually a long-term commitment and potentially cancelable, but long-term. So they don't want to be thrown back to the street and not having space. So usually that term is pretty sticky. We haven't really seen it according, like, significantly.

Great. Thank you.

The next question comes from Nicholas Yulico with Scotiabank. Please go ahead.

Hi good morning, everyone. I wanted to get an understanding of the volume of new leases signed in the first quarter and whether it was lower than what was budgeted. I’m curious about how you view the overall new leasing activity and its impact on the change in guidance for the year.

So the two development leases that we signed were above pro forma. And with respect to the renewal leasing, as you see where our cash rent growth there is pretty significant. And we're on track with respect to the guidance that we provided in the first quarter. Is that what you're getting at or are you asking something different?

Sorry, I was asking more just in terms of overall square footage of new leases signed in the first quarter, how that compared versus the initial budget, if it was down and that affected the occupancy guidance change for the year?

No, I think overall, just what we had projected at the end of the year for the guidance. Our leasing volume is about right there.

Yes. Nick, look at page 15 of our supplemental, we break out new renewal and development. And I would say for the first quarter, we were right on budget with new leasing.

Got it. Yes, no, I know that's in terms of commencements, I was asking more in line with leasing volume, new leases signed. I don't know if there's a different number there.

Well, here's what I would say to that. We took care of 69% of our expirations as of yesterday. If you looked back at the first quarter last year, that number was very consistent. So there has been no material change in what we've been able to lease this year compared to last year. I'd even say compared to the year before that.

Yes. We're actually a little bit ahead. So we've taken care about 71%. I think last year this time, we had taken care about 64%. So we're actually a little bit ahead on that. Renewal lease is taken care of.

Got it. Thanks. Appreciate the clarity there.

The next question comes from Nick Thillman with Baird. Please go ahead.

Hi, good morning, guys. Maybe just want to touch a little bit on your renewal discussions. Has there been any really shift in kind of the environmental, when a tenant approaches you kind of to begin those discussions maybe over the last, like, two quarters or so? Are they feeling less urgent to kind of sign new deals because they might think that rental rates are starting to roll over? Just a little commentary there would be helpful.

Most major companies have representation, and it's not surprising that these tenant representatives are often advising their clients to hold off for a while in hopes of securing a better deal. The pace of negotiations is significantly influenced by market updates, economic factors, interest rates, and global events. The sentiment has changed; while entering the fourth quarter of last year and the first quarter of this year, there was optimism regarding potential rate cuts, leading people to feel it was time to make decisions. However, that sentiment has lessened somewhat with recent developments.

Nick, I would add that if a tenant is considering moving, they need to plan for it well in advance because obtaining the permits to modify or improve a new space, as we've discussed in previous calls, remains a lengthy process. This factor continues to influence tenants' decisions about whether to stay or move. However, generally speaking, there hasn't been any significant change in tone or timing aside from what Peter mentioned.

That's helpful. Could you share more about the buyer pool for dispositions and whether there is still a portfolio premium on assets? Also, how is pricing aligning with the expectations for some of the assets you have traded?

So the market is active. Remember that what we have in our expectations in terms of our sales program is really more targeted to users. And the 1031 market is coming back now because they're able to do both sides of the trade. So it's users, 1031 buyers, local investment entities, doctors, dentists, lawyers, et cetera. So that's the profile. I would say that the activity is robust meaning the number of people signing up to get information is high. The conversion to offers is also pretty good. So, yes, it's an active market. In terms of pricing, obviously, that fluctuates depending on the market and the asset in particular. Still, the users are going to be more aggressive on pricing. The 1031 buyers are going to be more aggressive on pricing. But, those values are coming in pretty close to our expectation.

Helpful. Thank you.

The next question comes from Jessica Zheng with Green Street. Please go ahead.

Good morning. I was wondering if you could please share some color on where you're seeing relative strength and weaknesses in your portfolio on the market level?

You mean with respect to, say, rent growth, leasing, anything specific?

Yes, rent growth and leasing activity.

So the markets right now that are showing rent growth and good leasing activity, South Florida, as we said, continues to be pretty strong. Nashville, the demographics there continue to impress, and that market's doing well. Excuse me. In terms of the slower markets, we've spent a lot of time talking about SoCal. That would have to be on the list there. Seattle is a little quiet. Anything else that I'm not remembering, no. Everything else is kind of steady as you go.

We regularly survey and inspect our properties and engage with our tenants and customers. Our observation is that they are making good use of their space, with minimal excess. In fact, there are very few sublease situations in our portfolio; it's negligible.

The next question comes from Blaine Heck with Wells Fargo. Please go ahead.

Great. Thanks. Good morning. Just wanted to talk a little bit more about the reduction in same-store guidance and the specific drivers there. Given that occupancy was relatively flat and rent spreads on 70-ish percent of 2024 commencing leases increased. So I guess we're just wondering whether there was anything in particular outside those metrics that gave you pause or if it's just a matter of an inflection you were forecasting in rent or occupancy that now you don't think will happen and just also trying to determine how much conservatism is baked in with that decrease together.

Scott?

Sure, Blaine. I would say the main reason, and we touched upon it in the script is there was a handful of properties that we adjusted the leasing assumptions on that were in the same-store pool. So that was the reason for the adjustment that we made.

Okay, that's helpful. And then just to follow up on Baltimore, you guys made some good progress at Old Post Road last year, but there is still some space there that remains and now includes Hagerstown, sorry. Can you just talk about whether you're seeing a slowdown in tenants looking for space in the market given the shutdown in the port and whether you think your chances of getting more leasing done in that market have changed in the near term?

It's Peter Schultz. There's been no real change in the levels of demand or impact on customers from the collapse of the bridge. You probably know that Baltimore is primarily an automobile and bulk material port. So what we refer to as roll on roll off or RORO. So the container volume there is only about 5% of the East Coast ports. It's not that material. So it's not having an impact one way or the other. In terms of leasing activity, it's about the same as we've described earlier. There's interest, but it's moving slowly. Where the balance of our Old Post Road building is along the I-95 Corridor, that's 172,000 feet. That's in a different market than Hagerstown, which is along I-81 coming out of Pennsylvania. The Hagerstown market is a little soft. Vacancy rates are in the double digits there. So that's my answer for you this morning.

Great. Thank you very much.

Sure.

Dave?

Caitlin, your line is now live, are you on mute?

Nope, now I hear you. Maybe just back to the market question that somebody asked a few minutes ago. You mentioned that South Florida and Nashville were two of the stronger ones, SoCal and Seattle more quiet. Could you talk through some of the drivers of the different markets and what's driving the difference in performance? Like is it more supply-related, demand-related or both?

I believe South Florida and Nashville, being smaller markets, have certain characteristics that influence their performance. South Florida, in particular, faces significant land constraints due to the Everglades on one side and the Atlantic on the other. Additionally, the tenancy in these areas is generally smaller. As we've noted previously, leasing activity tends to be more robust in these smaller spaces, which is partly linked to the demographics. Many people are still relocating to Florida and Nashville, which is beneficial for these markets. We've discussed Southern California extensively, so I won't elaborate on that. Regarding Seattle, we are currently observing a decrease in tenant traffic, which can happen periodically. However, I wouldn't attribute this slowdown to any specific issue.

Got it. Okay. And then back to earlier in the call, you mentioned how you have the three large expirations this year and you have assumed one is not going to renew. For that one, I was wondering if you could talk about how, like, informed of an assumption that is, like, is it based on conversations with the tenant or it's more of like a blanket assumption?

It's a macro blanket assumption, Caitlin.

Got it. Okay. Thank you.

The next question comes from Bill Crow with Raymond James. Please go ahead.

Hi good morning, Peter and team. I'm curious about when you first noticed the decline in Southern California, as it seems like it was around 12 to 18 months ago. Looking at your list of cities that are performing better or worse, is there a city that you believe, although it is stable right now, might eventually follow the trend of Los Angeles and Southern California?

Peter, you want to take that?

So, Bill, I would say to Peter's point earlier, the markets where the rents ran the most in Southern California is certainly at the top of that chart. That's where we've seen slower activity. We're not seeing that in Pennsylvania, in Nashville, in Atlanta, in Florida, in Texas. The rents there have not run as much. So that hasn't been a headwind. And as Peter said earlier, it's not an affordability issue. The other thing I'd say in some of those markets is there's simply not as much supply today and the fundamental backdrop of that continues to be good. So that's not something I'm really concerned about today.

Is New Jersey at risk? You didn't mention that one.

So New Jersey had a little bit of a weak quarter in terms of net absorption. I think northern New Jersey, so think about the Meadowlands as an example has a similar rent dynamic with Southern California. So I think there's been a little weakness there. But again, they don't have the supply issues that you're seeing in some other markets.

Yes. Lastly, for me, we've talked about lease economics quite a bit but you mentioned increasing concession activity, of course, market rents under pressure in some markets. No discussion about any change in annual rent bumps. Is that becoming more of a negotiating point with tenant reps?

Chris, you want to take that?

Yes, it is indeed becoming more of a negotiating point. However, in 2024, the revenue increases we have signed are at 3.5%. If we exclude one significant renewal from 2019, we're actually at 3.7%. So while there are discussions happening, they are still maintaining relatively strong positions.

Okay. That's it for me. Thank you.

The next question comes from Nikita Bely with JPMorgan. Please go ahead.

Hi, good morning, guys. Good afternoon rather. I wanted to dig a little deeper on the demand side. I know it's been asked. At NAREIT, I think you talked about that you had already some activity. You were having some discussions on the Stockton building and now that you've leased it. I was curious, was it the same exact person that you were or the company that you were having discussions with at that time or was it someone else that knew, came in and took the building indicating maybe a deeper pool of potential applicants in demand?

We had a bit of a horse race for that property and one of those horses won.

So how many people curious, were in the running?

Multiple players. We're not going to get into how many. Thanks for that, though. It was a very hotly contested property. Great for us. One particular group was able to move more quickly, and so they won the day. The terms were very similar in each of the deals that came down to the wire.

The next question comes from Jon Petersen with Jefferies. Please go ahead.

Great. Thanks. I think one of the leases you guys signed in Phoenix, if I'm correlating with press reports correctly, was Steelcase moving from California to Phoenix, which seemed like it was a relocation for them. Are you seeing any of that kind of activity of people leaving Southern California and deciding they can do distribution from Phoenix?

Jojo, first…

Thank you, Rob. I wouldn't say we're disclosing anything new since you've already named it, but it's an expansion of footprint, and Steelcase is growing and serving more areas of the U.S. In terms of movement, we do see very few proposals that have Southern California and Phoenix as provider spaces for specific assignments. Ultimately, the prospect decides whether lower cost or drayage is important. If they have a drayage company with transportation costs centered around LA and Long Beach, it's almost certain they will choose Southern California because of the high transportation costs. However, if they don't ship as much and can benefit from lower rental costs, they might consider Phoenix. So, we have two distinct customer types. I haven't seen a situation where Phoenix can replace LA or Southern California, or vice versa.

Got it. Okay. That's really helpful color. Maybe just sticking with Phoenix. I know in the past you guys have, I think you sold one plot of land to a data center developer. Obviously, data center demand remains pretty hot. Well, it seems like warehouse demand is, let's just say, less hot than it was a couple of years ago, like, I guess, what are you seeing in terms of how land is being used in a market like Phoenix? Like, are you seeing more projects that or more land parcels that you thought would go warehouse or actually going data center? And kind of how's that impacting the development market?

Jojo?

Yes, certainly Phoenix benefits from a lot of things. Population growth, consumption growth. And that's why we've been able to successfully lease our buildings there that we built in JV although we still have one that where we need to complete and lease. Also, in addition to that, that's been a hotbed of a lot of semiconductor manufacturing. So that helps the economy there, too. That's been a hotbed for data center because of the amount of power. And the location continues to be a top spot for data centers. That will continue. In the near term, the data centers are of highest and best value because of the supply of industrial in Phoenix.

Got it. Very helpful. Thank you.

And the last question comes from Vikram Malhotra with Mizuho. Please go ahead.

Thanks for the follow-up. I have two quick questions. Can you provide any statistics on the box sizes in Southern California that are renewing? Also, I want to clarify that the assumption about not renewing is not based on specific feedback from the tenant; it's a broader assumption you've mentioned.

I'll answer the next question. The next question. It was a macro assumption that we only renewed one tenant of the two. There continue to be discussions with both. And to the first question.

One was the land lease, and the other was approximately how many square feet? 300,000. I think his question was like, Vikram, was it having to do with different box sizes in Southern California?

Yes just the size, yes just the box sizes. Yes exactly. How big are these two assets that you're now trying to lease up? Renewal. Sorry, the renewal? Yes, just how big the boxes are.

Yes. They're in the 150,000 to 300,000 square-foot range.

Okay, great. And then just one last thing. With all the changes in development, you leased a significant property. The progress on Stockton sounds promising, but can you comment on some of it being delayed while other parts are moving forward? Is this mainly a timing issue within 2024? Are you still as optimistic about lease-up as you were last quarter, or has anything shifted? I just want to clarify because it seems like there are still several moving parts.

Yes, as I mentioned at the beginning of the call, this year has been challenging for predicting when certain assets will lease. We have ongoing developments, completed developments, and some that have been finished but are yet to secure tenants. This situation persists because it's tough to pinpoint when lengthy discussions will lead to signed agreements. A good example is Stockton, which was not even included in our budget for this year. We have other assets where discussions are progressing more slowly than we anticipated, and they may materialize later this year. We're doing our best to utilize all the information from our on-ground teams and the tone of our conversations to estimate when we can convert these discussions into leases.

Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Peter Baccile for any closing remarks.

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 Art, Scott or me. We look forward to connecting with many of you in June in New York.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.