First Industrial Realty Trust Inc Q3 FY2025 Earnings Call

Good day, and welcome to the First Industrial Realty Trust, Inc. Third Quarter 2025 Results Call. Please note this event is being recorded. I would now like to turn the conference over to Art Harmon, Senior Vice President, Investor Relations and Marketing. Please go ahead.

Thank you, Dave. Hello, everybody, and welcome to our call. Before we discuss our third quarter 2025 results and our updated guidance for the year, please note that our call may include forward-looking statements as defined by federal securities laws. These statements are based on management's expectations, plans, and estimates of our prospects. Today's statements may be time-sensitive and accurate only as of today's date, October 16, 2025. 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 on our supplemental report and our earnings release. The supplemental, our 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. Our team delivered another solid quarter, highlighted by several development lease signings in the third quarter and fourth quarter to date, including a key win in the Inland Empire that contributed to our FFO guidance increase. Scott will provide additional details during his remarks. We also captured strong cash rental rate growth from leasing activity. The renewal side of our business is exceptionally healthy, and we have now largely taken care of our rollovers for 2025. Moreover, our pace for 2026 is consistent with prior years, and we're producing good early results. Moving on to the leasing market, touring activity related to new leasing picked up in the third quarter. Notwithstanding our development leasing successes, tenant decision-making on the whole remains deliberate as the uncertainty around tariffs continues to weigh on some prospects. The fundamental picture is improving. Based on CoStar data, vacancy in Tier 1 U.S. markets was 6.3% at the end of the third quarter, which was flat compared to 2Q. We view this as a potential sign that fundamentals nationally are stabilizing. In our 15 target markets, net absorption in the third quarter was 11 million square feet, bringing the total for the first three quarters of the year to 22 million. With demand showing signs of strengthening, total leasing nationally is expected to approach near record levels this year. CBRE is projecting 900 million square feet of total leasing in 2025, which would be the second-largest year on record, second only to 2021. New starts within our 15 target markets remained measured at 41 million square feet, with completions of 37 million. Space under construction now totals 212 million square feet, and that pipeline is 47% pre-leased. Moving now to our portfolio, results were in line with our expectations with in-service occupancy of 94% at quarter end. Regarding our 2025 rollovers, we've now taken care of 95% by square footage and our overall cash rental rate increase for new and renewal leasing is 32%. If you exclude the large fixed-rate renewal in Central Pennsylvania that we previously discussed, the cash rental rate increase is 37% and the straight-line increase is 59%. As I mentioned, we're making good headway on our 2026 rollovers. Through yesterday, we've taken care of approximately 31% of our rollovers at a cash rental rate change of 31%. We'll provide our full year 2026 cash rental rate increase guidance on our fourth-quarter earnings call, but we're off to a good start. Moving now to development leasing. As announced on our last call, we leased the remaining 501,000 square feet of the 968,000 square foot building in our Camelback 303 joint venture. The 3-building 1.8 million square foot project comprised of this building and the two we acquired from the venture earlier this year is now 100% leased. We also leased 56,000 square feet at our First Park Miami Building 3. In the Inland Empire, we leased our industrial outdoor storage asset in Fontana. And in the fourth quarter to date, we leased 100% of our 159,000 square foot First Harley Knox Logistics Center. We also signed another lease at First Park Miami for 57,000 square feet at Building 12. In sum, we're excited about the future cash flow growth opportunities ahead. And with that, I'll hand it over to Scott.

Thanks, Peter. Let me recap our results for the quarter. NAREIT funds from operations were $0.76 per fully diluted share compared to $0.68 per share in 3Q 2024. Third quarter 2025 FFO was positively impacted by $0.01 per share related to an insurance claim recovery. Our cash same store NOI growth for the quarter, excluding termination fees, was 6.1%, primarily driven by increases in rental rates on new and renewal leasing, contractual rent bumps and the aforementioned insurance claim recovery, partially offset by lower average occupancy and higher free rent. Excluding the insurance recovery, cash same store NOI growth was 5.4%. Please also note that third quarter 2024 same store NOI excludes $4.5 million of income related to the accelerated recognition of a tenant improvement reimbursement associated with a tenant in Central Pennsylvania. We finished the quarter with in-service occupancy of 94%, down 20 basis points from the second quarter. Summarizing our balance sheet leasing activity during the quarter, approximately 2.2 million square feet of leases commenced. Of these, approximately 400,000 were new, 900,000 were renewals, and 800,000 were for developments and acquisitions with lease-up. Before I review our overall guidance, let me quickly update you on our bad debt expense and our credit watch list. Bad debt expense was $245,000 for the quarter, bringing our year-to-date total to approximately $750,000, which is right on top of our original guidance. Our forecast for the fourth quarter remains $250,000. Two additional credit-related points. One, Debenhams Group, formerly Boohoo, remains current; and two, we have added one 3PL tenant to our watch list, for which we are collecting rent directly from the subtenant of the property. We are currently working through the collection process related to the lease obligation and due to confidentiality, we will not discuss further details of this matter. Now moving on to our guidance. We increased our 2025 NAREIT FFO midpoint by $0.04 to $2.96 per share. The $0.04 per share increase is primarily due to the development leasing successes, lower interest expense, and the aforementioned insurance claim recovery. The tightened range is now $2.94 to $2.98 per share. Our key assumptions are as follows: end of fourth quarter in-service occupancy of 94% to 96%. This implies an average quarter-end in-service occupancy for the year of 94.4% to 94.9%. Our midpoint assumes we will lease an additional 300,000 square feet of our in-service developments on December 31. This lease-up assumption has no impact on our midpoint FFO guidance given the December 31 date. Fourth quarter cash same store NOI growth before termination fees of 3% to 5%. This implies a 2025 quarterly average same store NOI growth of 7% to 7.5%, a 75 basis point increase at the midpoint. As a reminder, our same-store guidance excludes the impact of the aforementioned accelerated recognition of a tenant improvement reimbursement in 2024. Guidance includes the anticipated 2025 costs related to our completed and under-construction developments at September 30. For the full year 2025, we expect to capitalize about $0.09 per share of interest. And our G&A expense guidance range is $40.5 million to $41.5 million. Now let me turn it back over to Peter.

Thanks, Scott. We're energized about our recent development leasing wins and encouraged by the overall increase in foot traffic for our availabilities. We expect that as the topic of tariffs moves out of the global headlines, we will see prospective tenant requirements commit to making investments in additional space to accommodate future growth. Every day, our teams are working hard to convert prospects into tenants that drive cash flow growth and value for shareholders. Operator, with that, we're ready to open it up for questions.

Our first question comes from Rob Stevenson with Janney.

Scott, with 75 days left in the quarter, what's the delta between the $0.04 FFO range? How do you get to the low end? How do you get to the high end? What's the key thing that can move on you?

Well, I would say, if you look at development leasing, we have 300,000 square feet of in-service development, and that's scheduled to lease up, Rob, on December 31, so that has no impact on the midpoint guidance. I would say the only other thing that we could think of are unanticipated credit challenges that could cause us to hit on the low end. And I would say on the upside, leasing more than 300,000 square feet of our in-service development portfolio would push us up to the top.

Okay. That's helpful. And then can you guys talk a little bit about the transaction market today, both in terms of the market for buying assets as well as selling assets? How much product you're seeing on the marketplace and what pricing looks like and how deep that buyer and seller pools are today? And pricing.

Jojo, do you want to take that?

Yes, Rob, it’s Jojo. The market for leased assets is extremely competitive. There is a strong demand for investment from various buyers, and currently, there's a bit of a risk-averse sentiment. Consequently, if you have a leased asset, many buyers are interested. Regarding valuations, I would estimate that a product like ours would fall in the low to mid-5s range. Depending on the location, for markets like Nashville, Dallas, and South Florida, where rent growth outpaces the average, cap rates could dip below 5. On the other hand, the market for vacant properties and land is not as strong, primarily due to the perceived risks for many investors. However, there are some areas where land remains competitive and tends to sell with an eco yield below 6 and IRRs under 7.5%. These competitive markets include those I previously mentioned, where rent growth is anticipated to be higher, such as Nashville, Dallas, and South Florida. Does that provide some clarity?

Yes. And I guess, any difference that you're seeing pricing-wise, either on the buy or sell side in terms of size for 100,000-plus assets versus 250,000, 500,000, etc., the bigger assets?

No, no material difference, Rob.

And the next question comes from Nick Thillman with Baird.

I wanted to mention that we are making good progress for 2026. The spreads remain fairly stable year-on-year. As we consider the 2026 expirations, is there anything significant we should highlight, such as tenant sizes or fixed-rate renewals that could impact the numbers?

Chris...

Yes. If we look at 2026, like I said, we're in pretty good shape. We've already renewed 31%. Our largest remaining rollover today is a 550,000 square foot expiration in Southern California. That rolls in the third quarter of 2026. And right now, we're in discussions with them about a renewal.

That's helpful. And then maybe, Peter Baccile, when you're talking to Peter Schultz or Jojo, like what markets or who do you like hearing from more right now? Like, I guess, who's been a little bit more active here in the last 90 days?

I love hearing from both of them. I mean, as far as market performance, South Florida, Nashville, Houston, Dallas, actually the Greater Philly area continue to be, I'll say, outperformers nationally. Atlanta is doing pretty well also. That doesn't mean I don't love to hear from Jojo about what's going on in Phoenix and SoCal. And in particular, I ping Jojo quite a bit about what's going on in SoCal. So we're encouraged by the new lease First Harley Knox, 159,000. We do have good foot traffic around our other availabilities. And not everyone is that tariff sensitive. And so we're beginning to see some of those players begin to act.

And the next question comes from Todd Thomas with KeyBanc Capital Markets.

First, I wanted to ask if you could discuss the company's appetite for future developments, how you're thinking about new starts today? And can you talk about the mix between spec and build-to-suits as you think about adding more product to the pipeline and what the yield expectations between the two are like today?

Sure. We don't provide specific guidance on volumes, but I can share our general thoughts on development. As I mentioned earlier, we continue to like the markets in South Florida, Greater Philadelphia, Dallas, Houston, and Nashville. In the markets where we own land, we will consider starting projects in 2026. In areas like Nashville where we do not have land, we are actively working to change that. We currently have some excellent sites in these markets that are entitled and ready for development. Regarding yields, on a portfolio level, our available opportunities are expected to yield close to 7%, with some exceeding that, showing internal rates of return of 9% or above. Did you want to know specifically about returns?

Yes, between sort of spec and build-to-suits...

Build-to-suits are going to be a little bit less than that, where we try to get 100 to 125 basis points spread on spec development relative to market cap rates, you're probably looking at more like 50 to 60 basis point spreads for build-to-suits. And in terms of mix, as you know, most of our development volumes over the years has been spec. I don't think that, that mix is going to change much for us going forward.

Okay. That's helpful. And then I just wanted to follow up, I guess, on SoCal. Can you elaborate a little bit on current market conditions there and maybe discuss rent trends and sort of what the latest is in terms of concessions and free rent in the market?

Yes, Jojo?

Sure, thank you. Overall, demand has increased from the second quarter to the third quarter, with higher gross and net absorption driven by increased traffic, inquiries, tours, and RFPs. As Peter mentioned, some tenants, like those involved in our recent lease, needed to make quick decisions due to their requirements and were not influenced by tariffs. However, the rate at which tenants are committing to and signing leases remained stable from quarter to quarter. On the supply side, metrics are solid; construction levels were steady, and new starts declined significantly from the previous quarter. In summary, the overall fundamentals suggest that the market is bottoming out, paired with improving supply metrics and rising demand signs. Consequently, rents and vacancy rates have remained stable quarter-over-quarter, indicating that the market may have reached a stabilization point. Moving forward, we expect conditions to remain relatively flat as the market still has some capacity to absorb, but we believe it is stabilizing.

And the next question comes from Craig Mailman with Citi.

Just thinking about '26, you guys still have Aurora and your asset in New York to backfill. Can you talk through the kind of the competitive landscape in each of those markets and what the prospects you guys have to kind of address those vacancies?

Peter?

Sure. Craig, it's Peter. Starting in Denver, we're one of two buildings in that size. The supply picture in Denver has improved. We continue to see and work with prospects for all or portions of the building. As we've talked about on prior calls, the larger deals tend to move a little bit slower than the smaller midsized deals, but we continue to see good activity there. And as I said, not a lot of options for full building users. In Pennsylvania, for the 708 New York, there are three or four other buildings of similar size. Pennsylvania saw some positive absorption in the third quarter. More importantly, there's almost 9 million square feet of deals that are already signed in Pennsylvania that will be taking occupancy in the fourth quarter of this year and the first half of next year. So as Peter said in his remarks, activity is up. We're seeing more tours and interest. We are talking to a couple of prospects, particularly on the 3PL side for our building in New York. That size, I would say, has been good, but smaller and bigger have been better, but we're encouraged by the level of activity and the lease signings that we've seen to date that are going to occupy, as I said, in the fourth quarter and the first half of next year.

That's helpful color. And listen, I know it's not embedded in your '25 guidance. But at this point, just given the dynamics in the market and the activity that you're seeing, how should we think realistically about kind of commencement timing potentially for those two assets over the next 12 months?

No, I think we'll update you on that on our fourth quarter call, but we're encouraged by some of what we're seeing at this point.

Okay. And then slipping one more in. Scott, regarding the 3PL that just got added to the watch list, I realize you can’t provide too many details, but is the subtenant discussing the possibility of going direct if the primary tenant defaults? Can you share any information about the rent size or the market it's in, or anything else incremental?

We're not going to get into the magnitude of the rent, Craig, but there are some potential conversations that we're having with the subtenant to take over. So yes.

And the next question comes from Nicholas Yulico with Scotiabank.

This is Viktor Fediv on for Nicholas Yulico. So just a quick question on your development leasing assumptions. So on the previous call, you mentioned 1.5 million square feet by the end of this quarter. Obviously, got pushed a bit. Just trying to understand whether it's end of first quarter or end of second quarter of 2026. Do you have a perspective on that?

Peter discussed two of the leases we are considering. However, we are currently preparing for our budget process in December for the fourth quarter. During our fourth quarter call in early February, we will provide more clarity on our plans regarding the lease-up of that remaining pool.

Got it. And then a quick follow-up on market rents. Just trying to understand from boots on the ground, what you are seeing in terms of best-performing markets and worst-performing markets in your portfolio in terms of market rents?

Yes. To start with, just kind of say our leading markets in 2025, I'll highlight four of the markets. Atlanta, we had cash rental rate increases of 113%. Baltimore, Washington, was up 86%. South Florida was up 62%. And then finally, Dallas and Fort Worth have been a strong market for us. They're up 61% in 2025. So that kind of gives you the idea on the leading markets. Maybe Peter and Joseph can comment a little bit more on what they see.

Do you want to talk about market rent growth?

Sure. Regarding market rent growth, I believe Dallas is likely to be the strongest market in the West. We expect Southern California to remain relatively stable, while Phoenix has experienced a slight increase. Although there is a lot of supply, Phoenix is performing well in terms of gross and net absorption. Peter?

And I would say the other markets around the country are flat-ish to slightly up, and it's really a submarket-by-submarket call.

And the next question comes from Blaine Heck with Wells Fargo.

Okay. Great. Not to pile on, but can you just clarify and walk us through the ins and outs related to the 1.5 million square feet of development leasing discussed last quarter? Just wondering some of the specific adjustments that might have been made to that lease-up timeframe and whether any of the development leasing that you guys did this quarter was part of that 1.5 million square feet? Or was that expectation reduced by the full 1.2 million square feet?

So here's the breakdown we discussed during the second-quarter call. We projected 1.5 million square feet of in-service development leasing, expected to complete by December 31. This includes the 708,000 square foot project in Central PA mentioned by Peter. Together, that's the 2.2 million square feet referenced in the second quarter. We signed leases for 200,000 square feet in the in-service development segment, with one location in Miami and another in Southern California. This leaves us with 2 million square feet still to lease. In our guidance forecast, we have an assumption of 300,000 square feet for in-service development, which could involve several different scenarios. This results in 1.7 million square feet now expected to lease up in 2026. As we move through our budgeting process in the coming months, we'll provide more details during our fourth-quarter call in early February about when we anticipate the lease-up will take place.

Okay. Great. That's really helpful. Second question, Asian 3PLs have been a significant part of the leasing activity we've seen over the last year or so. Can you give us any color on how demand from that group has trended more recently? How much additional demand is behind that group over the longer term? And maybe also how you're thinking about credit for those tenants?

Yes. They've definitely been very active following up on a lot of the, I'll say, pull forward of imports trying to get ahead of the tariffs. We kind of look at that as a bit of a short-term thing. And from a credit standpoint, we would prefer not to be in discussions a year or two or three from now about trying to get rent that we couldn't collect. So we have generally stayed away from that demand. It has been pretty strong though and been a pretty significant percentage of the space that's been leased.

And the next question comes from Vikram Malhotra with Mizuho.

Can you provide more details on some of the large lease-ups, particularly regarding the Federal-Mogul space and other significant lease-ups? I'm not looking for timing, but rather what kind of demand you're observing compared to what is typical in the submarket. Are there any unique considerations prompting the need to subdivide or redevelop those assets? Please walk me through some of the larger properties you're trying to lease and share the demand levels along with the strategy behind those efforts.

Yes, Vikram, it's Peter Schultz. I answered that question a couple of questions ago. But I will say that both of the buildings are designed to be multi-tenanted. That's something we always incorporate in our new developments. So certainly flexible. Activity is good. As we've commented on a couple of times, the larger deals tend to move a little bit slower and more deliberately, but we're encouraged by the activity we're seeing today.

Okay. Great. As a follow-up to your earlier point about 2026, you mentioned progress on expirations. I'm curious if you have a rough estimate. This year, you've completed a lot of leasing that will carry over into next year. If you were to postpone all the additional leasing until the end of next year, what would be the potential impact on earnings for that year?

I mean, the later in the year that we complete that leasing, the less impact it has on 2026 results. And that timing, when we sit down and do our budgets, we're going to talk about where we are in discussions on these assets, and that will inform our decisions around when during the year we think we can get those leases signed. So that's work that we have yet to do, and you'll hear a lot more from us on that subject in February.

It seems like you have a significant amount of growth already accounted for next year due to your leasing activities and expirations. The renewal activity has been positive as well. It feels to me like there is less risk in deciding whether to execute at the start or end of the year, as much of the growth that the market is anticipating appears to be secured. I'm curious if you agree or disagree with this perspective.

Yes. I mean when you look at what we're trending right now on cash rent growth, the 31% on, call it, 31% of the rollovers, that's obviously a very strong number and helps 2026 considerably. Also for next year, our portfolio-wide bumps on average are going to be 3.45%. So that obviously contributes to the proportion of the portfolio that doesn't roll. So yes, we're in a pretty good position.

And the next question comes from Rich Anderson with Cantor Fitzgerald.

So just reading your sort of tone on this call.

Hey Rich, we're having a hard time hearing you.

How about now?

Much better.

Better. Okay. Sorry about that. Just listening to your body language on the call and just sort of the level of confidence that you're expressing doesn't necessarily jump off the screen as much as it did for PLD yesterday, but I was sort of mentioning deliberate tenants and all that sort of stuff, but good tone nonetheless. But how would you describe the interplay between tenants? I mean, to what degree are they sort of watching one another and someone takes the leap and the others are following? Do you think that, that's sort of perhaps an oversimplification, but how the market may ultimately recover, there will be more of a herd event of some sort? Or do you think it will be more like a slow and steady recovery type of process?

Yes, there's definitely linkages from a competitive standpoint between certain businesses and certain sectors. And you do see that when a bigger player moves quickly and moves significantly, it does tend to act as a catalyst for others to get off the sidelines. We saw that certainly during COVID with Amazon getting way ahead of its competitors. And pretty much if you sell anything today, you're competing with Amazon. So what they do definitely has a play through to the rest of the business. But that's kind of a higher-level observation to get too focused on details on that is probably not constructive. But yes, there is a little bit of a follow you, follow me that happens. And the more leases that get signed now. If you're a tenant rep and your attitude toward your clients' needs goes from you can wait a couple of months to you better sign now, it's the best deal you're ever going to get. And when the Chinese 3PLs lease up all the competitive space and all that's left to, say, ours and maybe one other, people start to move a lot more quickly. So that dynamic hasn't happened, but it's certainly trending toward that.

Yes. I wonder if the pull forward of demand in the early COVID era, if that's something like that could materialize and if perhaps you don't even want that, but it may be the fact of the matter, nonetheless.

Yes, I wouldn't call it pull forward. I would call it now all of a sudden, there's a cost to waiting. And for the last two years, there's been no cost to waiting. And when there becomes a cost to wait, that's when people act, and that does not mean that we're oversigning leases like we did during COVID. That's a completely different phenomenon.

Okay. Fair enough. Second, you mentioned taking advantage of land positions in some of your better markets and considering development next year. What about monetizing some land elsewhere, especially with the data center movement and AI? Is that something that could be on the horizon for your team as well?

Yes. I mean we're looking at everything we own, not just land, but even all the income-producing assets we have to see if from an economic standpoint and from a feasibility standpoint, it would make sense to convert those assets to a higher and better use. From a value standpoint, data centers are a higher and better use. So we're looking at that. There are a lot of hurdles and a lot of challenges involved in trying to produce something like that, but we're tearing into it, and we'll see if we can dig up any opportunities.

Great. Last for me. We've done some work on the ultimate recovery of industrial. It seems that larger boxes may lead the recovery of the business, if it isn't already on the mend. Do you agree that the larger boxes are likely to take the lead, or do you have a different perspective based on size?

Certainly, the volume and capacity are affected. One reason for the decrease in volume is the lower number of 1 million square foot leases compared to 2021, 2022, and 2023. This situation impacts capacity and the larger numbers. What we truly need is a consistent influx of tenant requirements signing new development leases and investing in growth, which is starting to occur. Some of this activity comes from tenants who are not heavily influenced by tariffs, while others feel they can no longer wait. There is definitely some pent-up demand. I would say we are moving towards a sentiment similar to what we experienced before April 2. We're not fully there yet, but it feels like we are getting closer to that period.

Rich, it's Peter Schultz. The other thing I'd add to Peter's comments is we continue to see a flight to quality. So as you think about the quality and location of our assets, and activity, certainly, we're seeing activity $1 million and more, but we're also seeing strength and breadth of activity across a variety of sizes. So I wouldn't say it's in one size, but we focus, as you know, on delivering new product in unmet pockets of size in our target markets. So we feel pretty good about the broad range of square footage requirements.

And I just want to emphasize that movement to quality favors us because we've built now so much of what we own, and that's another reason that our foot traffic is way up.

And the next question comes from Caitlin Burrows with Goldman Sachs.

I was wondering if you guys could go through today how you're balancing the rate versus occupancy equation? How does it vary maybe by first-generation development properties versus the existing portfolio and then renewals?

Sure. I mean the whole thing is all about NPV. We're constantly trying to maximize the NPV with respect to those inputs. Base rate is most important and near and dear to our hearts, giving up another month or two of free rent is not the end of the world, although we'd rather not. And on the TI front, it's typically been standard TI packages. Do you guys want to add some color on what you're seeing in your markets?

So Caitlin, I want to highlight that our renewals in '26 are showing strong performance so far, and we are experiencing positive pricing dynamics. You've asked about this before, and it's more about demand and having the right product in the right location rather than just price. We are definitely noticing an uptick in traffic, especially from tenants who are not tariff-focused, as we've mentioned several times today. There are certainly some properties where improvements are needed, particularly in more competitive areas as Jojo has pointed out, and we will adapt to the market to ensure we can lease those spaces.

Got it. Yes. I guess I was wondering if the willingness for you guys to wait that extra month to get the better rate has changed, but it sounds like it probably hasn't, so got it. And then on the point you made on the progress you guys have made on '26, I would have generally thought that spreads would decline over time as comps get tougher, but you have essentially maintained the 31% or 32% spread in '26 from 2025. So I was just wondering if you could give more detail on how that was possible, what the drivers were, if it could continue? Is it just lease specific? Or is there something else going on to kind of sustain the same level of spreads?

We have said over time that we thought that, that math had some running room, some duration. And when we look at the mix of our leases and when they were signed, don't forget, if you signed a lease in 2019 for seven years, you signed at a very, very cheap rate relative to even today coming off the highs. And that is going to be driving that cash rental rate number for some time.

The next question comes from Vince Tibone with Green Street.

The stock has been trading at a significant discount to NAV for several quarters now. Have you given consideration to selling assets and buying back shares as a way to create shareholder value?

Vince, we have looked at that. Selling assets and buying stock has not turned out to be from a mathematical standpoint, that accretive. And we've also looked at borrowing and buying back stock, and that doesn't look very accretive. And given that we're in a capital-intensive business in a very volatile market as this has been in March, I think we're at $58, the sector was trading a lot better. It's now obviously coming up from the lows. But speculating in our stock is probably not what investors invest in us to do. So what I have said in the past is if we had some opportunity, for example, to convert some of our properties to data centers and create significant additional value beyond industrial value that, that could be capital that could be used to buy back some stock. But in the absence of that, the math doesn't really move much, Vince. Jojo, you want to talk about starts?

Sure. We don't see any improvement. In fact, starts are declining. If there is any increase, it will mostly be related to build-to-suit activity. Overall, we do not anticipate a significant increase, and there is actually a decline in starts.

In Pennsylvania, I would say there's anticipated to be a couple of starts for 1 million square foot plus buildings in the next couple of quarters. But other than that, pretty flattish.

We don't know what everybody's math looks like. Obviously, most of the space, Vince, is developed by the private players with private capital. But a lot of that land we've competed for over the years, and we think that it's very possible that the underwriting assumptions that were used at that time were pretty aggressive, not to mention the cost of debt is a lot higher than it was in 2022 and '23. So it's possible those deals don't pencil that well. So we think there's a natural drag to new supply ramping up.

Our next question comes from Michael Mueller with JPMorgan.

I guess, for Scott, can you help connect the dots a little bit? I think you said earlier, part of the guidance increase was due to development leasing success, but it looks like you pushed off some of the, I guess, anticipated '25 leasing into 2026. And I know it sounds like that component was at year-end anyway, so it may not be a lot of impact there. But again, what was the portion of development leasing success that is pushing the numbers higher?

I would say, Mike, it's about $0.01. And keep in mind, all development leasing, this is what we assumed in our second-quarter call was assumed to happen on 12/31. So all of the leasing that we announced on the call helped us by about $0.01 a share.

Okay. So it's this stuff just earlier than what was expected. That was it. Got it.

Yes. Yes. Again, from an FFO guidance point of view, we assumed it leased up on December 31, and it leased up earlier than that.

Okay. So that was about $0.01 of it. Okay. And then just as it relates to escalators, 3.45% or something in place bumps for next year. On the 2026 signings thus far, have there been any notable changes one way or the other in terms of lease escalators compared to what you were getting in '25?

It's interesting. We got 3.6% in '24, 3.6% in '25, including the big fixed-rate renewal. And so far in '26, about 3.6%. So our team is doing a really good job dealing with significant pushback, as you can imagine, since that's a number that's above inflation. So they've been successful in keeping that number about 3.6%.

The next question comes from Michael Carroll with RBC Capital Markets.

I guess, Scott, I know that the guidance range doesn't include leasing within the recently completed or in-process development projects. But I know that you guys continue to highlight some of your best markets and a lot of these buildings are in those markets. So can you talk a little bit about the activity that's happening at those specific properties? And what are the near-term leasing prospects of getting those leased up?

Yes, there isn't much activity around the properties currently under construction. Our strategy has always been to develop first and attract tenants afterward. This approach shifted slightly during COVID when there was a rush to lease logistics space. Therefore, it's a bit early to discuss the activity regarding the current construction pipeline. However, the recently completed assets are seeing good foot traffic, and we are optimistic about securing leases for some of those buildings in the near future.

Okay. Great. And then just lastly, can we talk a little bit about the 3PL tenant? I know that there's not much that you want to say. But is the issue with the subtenant or is the issue with the direct tenant at that specific site?

The issue is with the direct tenant, the 3PL.

Okay. So then assuming that there is an opportunity for the subtenant to take that space and you're just kind of working through the process on that?

Yes, that's something that we're thinking about and having conversations about. We can't give you a definitive view of what's going to happen at this point in time, but that's something we're working on.

And the next question comes from John Petersen with Jefferies.

I guess in the saga of the 10-year treasury throughout this year, it definitely seems to be trending downward, at least today, let's say, and spreads have been tightening a bit. I'm just curious what impact that's been having on cap rates for warehouses across your market and how you've seen those trend?

You guys want to cover that?

There has been no significant change from Q2 to Q3. However, I can confirm that the demand for leased assets and high-quality buildings has increased from Q2 to Q3.

And the next question comes from Brendan Lynch with Barclays.

You mentioned that there are some tenants out there that are still quite sensitive to tariffs. Can you describe their thought process? Is it that they're just out of the market while tariffs are in place or they're just waiting for tariffs to kind of settle into a final rate? Or any other considerations that might be keeping them on the sidelines but might be able to move them off in the future?

There are two things. One is the cost to them. Without knowing the cost, they don't know what the impact on their margins might be. And then secondly, to protect those margins, can they put some or all of that additional cost through to the end buyer, the consumer. And so they're looking perhaps at investing in growth in, say, a 500,000 square foot building that's a $60 million investment when you consider the lease and the equipment and the racking and the material, the product and then hiring all the people. And if your EBITDA multiple is 8x, that's almost a $0.5 billion decision. And so they don't want to make that decision unless they know what the cost of their inputs is and what's going to be the outcome for their margins. And that's really it. And I think over time, the subject is becoming, I'll say, more commonplace, but digested a little bit like interest rates. When interest rates started to move much higher, that caused people to pause for a while. And now pretty much everyone is built into their business plans, their models, their P&Ls, higher interest rates, and they are now moving ahead and it's kind of not an issue anymore. So that's where we need to get with the tariff subject.

But Brendan, I would add that we're seeing some of those companies are actively looking RFPs and discussions, but they're not making decisions and continuing to push off their target occupancy dates for all the reasons Peter just said. That's what's happening on the ground.

Okay. Great. That's helpful. And a related question. We've seen some weakening consumer data, jobs growth a little bit weaker. To what extent are prospective tenants factoring in this kind of change in the macro environment and just kind of waiting on the sidelines because of that as well.

I think it's different depending on the sector and the business that they're in and notwithstanding all of the shocks and the projections of doom and gloom, the economy has done pretty well through it all. We haven't seen massive increases in inflation from the tariff subject so far, and it doesn't mean it won't come. But right now, I think most of the prospects are pretty confident in the base business, and it's really just this question about when and how and how much to invest in growth.

And I just want to add that the 3PL activity continues to be good. In fact, it's increased from Q-to-Q. Food and beverage, RFPs and tours have increased as well. So that sector seems to be doing good. Manufacturing activity is higher from Q-to-Q. We see some softness in the home-related like furniture. There's some weakness in that. So by and large, overall, I think demand activity has increased, offset by a slight decrease from other sectors.

Our final question comes from Caitlin Burrows with Goldman Sachs.

Maybe just a follow-up to that last point on like where is stronger, where is weaker. I mean, yesterday, Prologis reported they had a record leasing volume in 3Q, and you mentioned that CBRE is forecasting '25 will be second only to 2021. Could you put your own leasing volume in 3Q into the context of your past? And if you have a view on the future of like how that should be trending, realizing that you might be more weighted to development, which makes it lumpier, but trying to figure out a trend there, if there is one.

It's difficult to identify a trend. Last year, we leased 4.7 million square feet, and this year, that number is lower. Some of this is related to our available space, what is transitioning, and what is renewing. Given the scale of our company, we don't have sufficient volume to recognize trends like that.

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 the call today. If you have any follow-ups from our call, please reach out to Art, Scott, or me, and have a great day.

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