First Industrial Realty Trust (FR) Q1 2026 earnings call transcript

Thanks very much, Dave. Hello, everybody, and welcome to our call. Before we discuss our first quarter 2026 results and our updated guidance for 2026, please note that our call may include forward-looking statements as defined by federal securities laws. These statements are based on management's expectations, plans, and estimates of our prospects. Today's statements may be time-sensitive and accurate only as of today's date, April 23, 2026. We assume no obligation to update our statements or the other information we provide.

Actual results may differ materially from our forward-looking statements, and factors which could cause this are described in our 10-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 Basile, 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 Yev, 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 turn the call over to Peter.

Thank you, Art, and thank you all for joining us today. I'd like to express my congratulations and gratitude to our team for their efforts in getting 2026 off to an excellent start. We delivered some significant development leasing wins and signed a key renewal in Southern California for our largest remaining 2026 expiration. We're also capturing significant value creation via a pending $131 million land sale that I'll detail shortly.

Turning to the overall market, industry fundamentals continued to steady. According to CBRE, national vacancy was stable at 6.7% at the end of the first quarter. Net absorption was a solid 43 million square feet, modestly below new deliveries of 55 million square feet. New supply nationally continued to be disciplined with starts remaining muted at 39 million square feet. The national construction pipeline is 237 million square feet and highly pre-leased at 39%. In our portfolio, overall touring activity has increased for our availabilities, with decision-making accelerating for space sizes under 200,000 square feet within our development portfolio. With respect to potential economic and demand consequences from the conflict in the Middle East, thus far we have seen no discernible impact to leasing activity, but this is a risk we will continue to monitor.

From a portfolio standpoint, our in-service occupancy at quarter end was 94.3% in line with our expectations. Since our last earnings call, we made further progress on our 2026 rollovers. We have now taken care of 61% by square footage, and our overall cash rental rate increase for new and renewal leasing is 41%. This includes our largest remaining 2026 expiration, the 556,000 square footer in Southern California, for which we achieved a cash rental rate change that significantly exceeded the top end of our annual guidance range of 40%. Moving now to development leasing, we saw some broad-based success across several markets, inking 383,000 square feet in total. These included a full building lease for our 155,000 square foot FIRST WILSON II project in the Inland Empire.

We also signed several sub-100,000 square foot leases in the markets of Chicago, South Florida, Central Florida, as well as Central Pennsylvania. There we leased a 54,000 square foot space at the recently completed first phase of Purse Park 33 in the Lehigh Valley. As I noted in my opening comments, we are pleased to share with you that the ground lessee of 100 acres of land in the 303 corridor in the Phoenix market exercised its option to purchase the site for a sales price of $131 million. The proceeds are approximately $30 per land square foot, which is more than three times industrial land values in that market. We expect this transaction to close in June.

Before I turn it over to Scott, I would like to remind you of two upcoming property tours we will be hosting. On May 12th, we will tour our Inland Empire portfolio, and on June 4th, we'll be touring our Central New Jersey assets. Please reach out to Art Harmon to register or for more information.

With that, I'll turn it over to Scott.

Thank you, Peter. First quarter of 2026, NAIRED funds from operations were 68 cents per fully diluted share compared to 68 cents per share in the first quarter of 2025. The first quarter of 2026 FFO per share was negatively impacted by 4 cents per share of advisory costs related to the contested proxy campaign that was initiated by landed buildings. Excluding these costs, our FFO per share was $0.72. As we noted on our fourth quarter earnings call, FFO in the first quarter was impacted by higher G&A costs due to accelerated expense related to an accounting rule that required us to fully expense the value of granted equity-based compensation for certain tenured employees. Our cash savings during a wide growth for the quarter, excluding termination fees, was 8.7%.

The results in the quarter were primarily driven by increases in rental rates on new and renewal leasing, lower free rent, and contractual rent bumps, partially offset by lower average occupancy. Summarizing our leasing activity during the quarter, approximately 2.4 million square feet of leases commenced. Of these, $300,000 were new, $2 million were renewals, and $100,000 were for developments and acquisitions with LISO.

Before I discuss guidance, let me update you on the 3PL tenant under credit watch list. If you recall, we were collecting rent directly from a subtenant while working through the collection process.

We are pleased to announce that we signed an agreement with the 3PL that required a lump sum payment of approximately 60% of the balance owed us December 31, 2025, which we received in March. In addition, the agreement calls for scheduled payments to pay off the remaining past-due rent by the end of 2026.

Now moving on to our guidance. Our guidance range for 2000 eREED FFO is now $3.05 to $3.15 per share, reflecting $4 per share of incremental advisory costs relating to the land and buildings contested proxy campaign. Our 2026 FFO guidance range absent these advisory costs, $3.09 to $3.19 per share, which is on change compared to our last call. Our other major operating metric guidance assumptions are as follows. Average quarter and in-service occupancy of 94 to 95 percent. This range now reflects approximately 1.3 million square feet of incremental development leasing and the 708,000 square footer in central Pennsylvania, all to occur in the second half of the year. Cash same store on a wide growth before termination fees of 5 to 6 percent.

Guidance includes the anticipated 2026 costs related to our completed and under construction developments at March 31st. For the full year of 2026, we expect to capitalize about eight cents per share of interest. Our GINA expense guidance range is $42 to $43 million, which excludes the $5.6 million of incremental advisory costs related to the contested proxy campaign. And our guidance assumes that the aforementioned forecasted land sale in Phoenix will close in June.

Let me turn it back over to Peter. We are optimistic about the activity levels we are seeing across our availabilities. As always, our team is focused on taking care of our customers, gaining new ones, and sourcing and executing on profitable investments to drive long-term cash flow and value for shareholders. Operator, with that, we're ready to open it up for questions.

I mean, from what we're seeing, most of it is just broader industrial demand. 3PLs continue to be very active. Manufacturing is picked up, you know, and that includes data center, tech, aerospace, et cetera. So that's picked up, but it looks more like broader demand for industrial than the completely data center driven.

Could you just talk about kind of the activity you seeing at Denver and Central PA and the prospects today versus maybe on the fourth quarter call Hey, Craig, it's Scott. I think you mentioned that we pushed it to the second half, the 708,000 square footer. That's always been in the second half of the year per our 4Q guidance call, so I wanted to clarify that. And then I'll turn it over to Peter for an update on that vacancy and the Denver development.

Good morning, Craig. It's Peter. So in Denver, we continue to have interested prospects for our large vacancy there. Activity or decision-making, I would say, for larger users has been slow.

Limited competitive supply. There were just two buildings that came back that will compete with us, one from a business failure. We continue to have prospects. They are just very slow in their decision making. The smaller mid-sized tenants in Denver continue to be pretty active.

Moving to Pennsylvania, to the second part of your question, Pennsylvania probably is our most active or certainly one of our most active markets across the country in terms of prospect activity across a range of sizes in the industries, including Peter's comments about 3% of the year. We have several prospects for our 708,000 square foot building in central Pennsylvania, all but one of which are full building users, and all of those continue to be engaged in discussions with us.

Sure. We continue to evaluate opportunities for new starts. We're not going to guide on volume, of course. And the markets that we're focused on continue to be markets like Dallas, Delaware, which is really the South Philly sub-market. Lehigh Valley PA, we have opportunity, South Florida. And of course, we're continuing to try to acquire additional opportunity in the way of land and some of the other markets that we've been in and most active recently. So those are the markets we're focused on. Yes, we do have very good sites in Southern California, but those markets still have a number of availabilities, so they aren't markets where we're going to be starting projects anytime soon.

Okay, so the 3PL tenant, no impact, the same store. We never reserved that tenant back in 2025 when we discussed it being on our watch list. We just made you guys aware of it. We always thought it was collectible. We updated you on this call with the big payment we received and the agreement we reached with the tenant. So again, there's no impact FFO or same store related to that. On Boohoo, they continue to be current on their rent. They pay right at the end of the month, every month. And Peter, I'll turn it over to you to update them on the sublease potential in the space.

Thanks, Scott. Boohoo continues to market the building for sublet. There are a declining number of available million square foot plus buildings in Pennsylvania. Activity, as I mentioned a few minutes ago, continues to be very good at that level as well. Well, Amazon is about to ink two more million square foot plus buildings in Pennsylvania as of today, so that's in process, and there are relatively few options. There likely will be some more starts in that size range, given the strength of demand, but Boohoo continues to market the building for sublet.

And, Nick, you had one other part of the question. Our bad debt expense was $100,000 in the first quarter. Compared to our guidance of $250,000, and we kept our guidance the same in 2Q, 3Q, and 4Q at $250,000 per quarter.

Okay, so, Nick, this is Scott. We did lease up 400,000 square feet of development leasing. It did have slightly positive impact on our FFO compared to guidance. That is being offset by a couple of things. One is we have in our guidance the land sale that is expected to close in June. That is the leased piece of land. So, there is slight dilution from that sale because we are assuming the funds are used to pay down the line of credit. And the other piece of it is like what we do every quarter when we update guidance. We look at all of our leasing assumptions and guidance, and we update them accordingly, and we make adjustments as we see fit.

So, that is the reconciliation.

Yeah, as you know, we have taken a pretty close look at every asset that we own, land and income producing real estate properties, and we've narrowed it down now to about a handful of opportunities where we think we might be able to push forward and create significant value. We're in the process now of trying to secure power. That's a very lengthy process, and so we'll see where that goes. If we're successful with that, that would add significant value above and beyond the value of the industrial value for those particular assets.

Not. It's Peter. All the prospects we're engaged with are for lease only today.

That is a market-by-market question. For example, as you know, we have a number of availabilities in South Florida. We also have a number of opportunities for new starts there. We want to make sure that we are not too concentrated with development in any one market at one time.

Well, it's not in the JV. This is on balance sheet. And the supplemental, Mike, if you look, we disclosed the cap rate. It's about a 5.3% cap rate. We got a great rent from the tenant when we leased the land to them back a couple of years ago.

That's correct. The only difference is the development leasing in the fourth quarter was $1.7 million. Now it's $1.3 million, and the decline has to do with the 400,000 square foot of development leases that we signed.

So we can't really go through the lease rate or the economics, but I can tell you it's long-term. We're very happy about the long-term renewal. The space is very critical to the tenant, and it significantly exceeds the high end of our rent change guidance of 40%.

Yes. Yes.

You know, we've talked in the past about what would be a catalyst for tenants to begin to make decisions faster. The decision making now for a couple of years has been fairly slow, especially on the kind of larger spaces. And that, the topic that you're discussing does create a cost to waiting. So it does help on the margin. The other topic, of course, is power. And while data centers need a lot of power, warehouses need their fair share as well. So that's also a topic. So these are both helpful on the margin to get tenants to make decisions sooner, but it hasn't really created a wave of new lease signings. Peter and Jojo, you want to add anything to that?

The only other thing I'd add to that, Rich, is there is a little bit of incremental demand, as we commented earlier, from tenants that are supporting the construction of data centers and infrastructure. So we are seeing a little bit of that, but I wouldn't call it material to the overall demand profile.

Just to add just a little bit more detail there, if you look at the data center development, there's a lot of infrastructure-related switchgear, Semiconductor pipes, electrical supply, a lot of that, and that has to be manufactured and distributed. And data center-involved businesses need space to either distribute that equipment, store that equipment, and fulfill that equipment in a lot of places in the U. S. So at the end of the day, they need warehouses where they can store these goods or do some light assembly. So that is the incremental demand that both Peters have mentioned. But if you look at the Q126, they are not the biggest users. In fact, I think they're growing, but they didn't even make the top 10.

The biggest ones are the 3PLs, consumer goods, like Peter mentioned, broad-based, construction, and food and beverage.

Yeah, that's not going to change our process or our philosophy around the quality, location, features, and functionality that we build.

Peter, do you want to talk about PA?

Sure. Caitlin, it's Peter. I would say, as I mentioned a couple minutes ago, Pennsylvania is probably our most active market from a tenant perspective across really all size ranges, reflective of the deal we signed in our just-completed project in the Lehigh Valley. The activity we have on the 708, the activity from market participants for large buildings over a million square feet, very, very active. We're seeing good activity in South Florida. We're seeing a little less activity in Nashville than we've seen the last couple of years, but pretty tight from a supply standpoint. And as I mentioned, in Denver, slower decision-making from larger tenants. But overall, markets are performing well. Along the East Coast, rents are stable and still trending up a little bit.

So pretty good shape there. JoJay, you want to talk about the West?

Yes, thank you Peter. If you look at gross leasing, Dallas, Houston, and Phoenix have exhibited significant gross leasing and that has been really continuing since the second APA 25 through Q1 to 26. What is most interesting is that gross leasing actually in the IEE has been positive from Q2Q. If you look at the activity from the large spaces over there, that has been pretty good in IE. But at the same time in IE, you have space ranges from 200 to 400,000 square feet. There is abundant in the market today that basically the market has to digest. And tenants in that size range, 200 to 400, has, you know, quite a bit of choices.

Sure. Sure. In terms of rent spreads, we will continue to see rent change, positive rent change, in SoCal, because when you look at it, you know, it has come down from the high of Q1 2023. But the growth from pre-COVID to COVID significantly still exceeds that. So, over the next couple of years, we will still see positive rent change. In terms of actual Q2Q, quarter to quarter, in terms of red growth, it's been flat. There are some deals that actually have shown some growth, but overall it's been flattish.

Sure. Look, the primary driver of our growth will continue to be speculative development. We're also always in the market making offers for opportunities to acquire cash-flowing buildings. In the past that you've seen the majority of our capital go into development, so maybe 20%, 25% into cash-flowing buildings. And with respect to the share purchase opportunity, the share authorization, look, you know, again, the primary use of our capital is going to be to support the growth of development and acquisitions, but there have been several market disruptions in the recent past where our stock price has been pretty negatively impacted to levels that belie fundamentals and our long-term prospects. And we have a very strong belief in the long-term value of our shares.

So in those periods of dislocation, we've concluded that it would be value enhancing to shareholders to opportunistically acquire shares. You can figure out, I suppose, on your own what that means in terms of allocation to that versus the other two categories.

Yeah, if you look at where we're at on the completed 2026 deals that we signed, you know, the overall bumps are about 3.6%, and if you look at the entire portfolio, as far as in-place bumps in 2026, we're at about 3.4%, so they're still holding pretty strong. And if you're asking about the rental increase side of it, we're still consistent with our cash rental rate change guidance of 30% to 40% for 2026. And as Peter mentioned in the script, I think we're at about 41% for the leases that we've signed already in 2026. The reason that's a little bit higher is that 556,000 square foot renewal that JoJo spoke about that was significantly higher than the top end of our 40% range.

Good morning, Kevin. It's Peter. Yes, that was always the plan for those buildings, so they're all designed for multi-tenant use. Certainly over the last several years, we've been fortunate to see some full building users, but we always design flexibility into our buildings. As I mentioned on the question about our building in central Pennsylvania for 708, just to contrast that size range, really good activity there that we're seeing today, and there's a lot of activity for larger buildings from tenants in Pennsylvania and some of the other big markets. So I wouldn't take that tenant demand is limited to under 200,000, but we built those buildings because we felt those pockets were underserved, and we're seeing the results of that.

You know, the Lehigh Valley building that Peter mentioned, we just completed, and we've seen good activity there and already have our FIRST DEAL signed.

Sure. I mean, we're always looking to maximize the value of our land. We continue to seek out new land investment opportunities, and some of which would involve large-format properties, large-format buildings. It's part of the game plan. As you know, we do own some sites in SoCal that could accommodate very, very large format buildings, and we continue to evaluate those in light of the economic realities and leasing realities of that market.

Hey, Vikram, this is Scott. And so the answer is yes, we did pick up a little bit of FFO due to the 400,000 square feet of development leasing we announced. That was offset by two items. One had to do with the projected land sale that we have in our guidance. That's a leased parcel, so when we sell that land parcel, we lose the NOI, and we're paying down the line of credit, so there's a little bit of dilution there.

And then the other item has to do with just our normal process of going through our lease availabilities and our leasing assumptions on a quarterly basis when we update guidance. We made assumptions to some of those. We did not make changes, though, to the 1.3 million square feet of development and the 708,000 square feet that we have in our guidance. So it was more some changes and some core lease. So those are the pieces.

We made some slight adjustments to some core lease-up assumptions as well. And also keep in mind that occupancy, we provide a range to it, and we're comfortable with that occupancy range.

Okay, so the whole topic around the new director, as you may know, we unexpectedly lost a director last year who passed away. Again, unexpectedly, at that point, we determined it would be prudent to go ahead and start a process for a new one. That process was extended on two occasions.

First, to consider the candidacy of the L&B nominee, past nominee, and then again to consider the candidacy of the two individuals that the L&B nominee suggested we talk to. So that whole process was well underway long before those conversations began. With respect to the share buyback, look, we took a look at what happened to our stock in certain periods, okay, such as COVID, such as when Amazon announced they were pulling back in April of 22, the tariffs impact on the shares, less so the war in the Middle East. And when you look at those time periods, you see significant fall off in share price when the fundamentals and long-term prospects for our shares did not.

And those are times that will continue to happen with the volatility that we have experienced and will continue to experience. And so it just simply makes sense to be in the market supporting the long-term value of our shares during those time periods. That, again, is a conversation that we have had with the board for a long time. I have now forgotten the rest of your questions.

Property tours. I would say, look, yeah, we want to do whatever we can to get the word out on not only the transformation that we have completed, But also what's going on right now in some of our markets. We want you guys to be able to get to know our market leaders. It just makes sense to take the opportunity to enhance shareholder engagement.

Yeah, Brendan, it's Peter. Generally speaking, we're seeing rent concessions at half of one month to one month of rent per year of term, and I would say that's drifted upward a little bit, which is more of a market-by-market and, in some cases, asset-by-asset, and that's on new leases. TI's have been roughly the same, just depends upon the specific requirements of the tenant.

And renewals have been pretty steady, still very low renewals in TI's, involving renewals.

We don't see material impact right now on AI in terms of brokerage services. Again, when we hire brokers, we feel we hire the best. They bring value to the table in terms of our leasing efforts.

We've seen more very quick flow, efficient flow of information back and forth in the industry, but the brokers play a key role in the industrial leasing business. AI is going to provide a lot of data.

Maybe these transactions happen more quickly for that reason, but intermediaries do bring value, And those negotiations, it always helps to have some distance. And we don't see the value of that community lessening over time because of AI.

Sure. Let me give you some color there, Michael. The light assembly, usually there are midterm to longer term leases because the assembly of the equipment, it depends on how much data center development a particular tenant is fulfilling. And if you have a multi-phase, for example, So, if there is a lot of technical development going on that our tenant is fulfilling, that would take anywhere from a couple years to long term, as much as 10 years. So, it really depends on what they are fulfilling. It also depends on how many regions that particular prospect will be serving. As you know, data center development and data center buildings take longer time than industrial buildings, so that's another piece of color there.

But yeah, so in terms of data center development, we cannot predict. You know as much as we do, if you look at the industry news and how much the hyperscalers want to put out in the marketplace, and that's pretty, it seems like pretty long-term, pretty Got it.

No, there's really nothing else in the hopper that looks like that.

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, and have a great day.