管理層發言
Good day, and welcome to the First Industrial Realty Trust Second Quarter 2026 Results Conference Call. All participants will be in listen-only mode. A conference specialist will be available for question assistance. To ask a question, you may press star then 1 on a touch-tone phone. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Arthur J. Harmon, Senior Vice President, Investor Relations and Marketing. Please go ahead.
Thank you, Dave. Hello, everyone, and welcome to our call. Before we discuss our second 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. These statements may be time sensitive and accurate only as of today's date, 07/23/2026. We assume no obligation to update our statements or the other information we provide. Actual results may differ materially from our forward-looking statements, and factors which could cause this are described in our 10-Ks and other SEC filings. You can find a reconciliation of non-GAAP financial measures discussed in today's call in our supplemental report and our earnings release. The supplemental report, earnings release, and our SEC filings are available at firstindustrial.com under the Investors tab. Our call today will begin with remarks by Peter E. Baccile, our President and Chief Executive Officer, and Scott A. Musil, Chief Financial Officer. After which, we will open it up for your questions. Also with us today are Johannson L. Yap, Chief Investment Officer; Peter O. Schultz Jr., Executive Vice President; Christopher Schneider, Executive Vice President of Operations; and Bob Walter, Executive Vice President of Capital Markets and Asset Management. Now let me hand the call over to Peter.
Thank you, Arthur, and thank you all for joining us today. Our team delivered another excellent quarter building upon the momentum that took shape in Q1. Our confidence in leasing demand supporting new business growth has strengthened compared to earlier in the year and most certainly last year. We are seeing additional touring activity and enhanced decision making overall, including for larger format spaces. Our team delivered some significant leasing wins in the quarter, including a full-building lease for our 708 thousand square foot building in Central Pennsylvania as well as for a few of our developments, which I will detail shortly. On the strength of that lease we increased our FFO guidance midpoint by $0.02 per share. Scott will walk you through our guidance during his remarks. Turning to the overall market, industry fundamentals are trending positively with respect to net absorption while the pace of new deliveries continues to moderate as expected. According to CBRE, the national vacancy improved by 20 basis points to 6.5% at the end of the second quarter. Net absorption was strong at 85 million square feet, nearly doubling Q1 and significantly exceeding new deliveries of 48 million square feet. The national construction pipeline ticked up modestly to 252 million square feet and is still well pre-leased, at 38%. Turning now to our portfolio performance. We ended the quarter with in-service occupancy of 94.9%, up 60 basis points from the first quarter, primarily driven by the 708 thousand square foot lease. Regarding our 2026 rollovers, we have now taken care of 80% by square footage, and our overall cash rental rate increase for new and renewal leasing for signed leases is 39%. Our cash rental rate guidance for 2026 commencements is 35% to 40%, which is an increase at the midpoint and a tightening of the range. Moving now to development leasing. Since last quarter's call, we saw more broad-based success across several markets, inking an additional 433 thousand square feet, bringing the total signings in the quarter to 643 thousand square feet. First, we expanded our existing tenant into the remaining 31 thousand square feet at First Pompano Logistics Center in South Florida. In Dallas, we signed a full-building lease for the just-completed 176 thousand square foot building at First Park 121 to a wire and cable supplier that supports the data center industry. Lastly, we fully leased our recently completed 226 thousand square foot building at First Park New Castle in the Philadelphia market. With this full-building lease, we are excited to announce the start of a second building in that park: a 613 thousand square foot facility that can accommodate up to 4 tenants with an estimated investment of $77 million and an estimated cash yield north of 8%. Now let me update you on our other investment and disposition activity since our last call. On the acquisition front, our regional team was successful in sourcing a recently completed development in the Great Southwest submarket of Dallas. The 161 thousand square foot facility is 50% leased, giving us the opportunity to add value through lease-up. The purchase price was $26 million with a targeted cash yield of approximately 6%. We also acquired a 58-acre infill development site in the middle of the B-W Corridor, the largest submarket in Baltimore, for $39 million. The site is designed to accommodate 3 buildings totaling 629 thousand square feet upon full entitlement and completion of infrastructure work. Regarding sales, as expected, we successfully closed on the $131 million land sale in Phoenix. Pricing was $30 per land square foot, just shy of 3x industrial land values in that market. We also sold 4 buildings in Detroit, totaling 310 thousand square feet for a total of $29 million. We have just one 116 thousand square foot building remaining in that market. Before I turn it over to Scott, I would like to thank everyone that invested the time to participate in the two property tours we recently hosted in Southern California and New Jersey. I know that you came away with a greater appreciation of our portfolio quality, value creation ability, and the expertise of our regional leadership. With that, I will turn it over to Scott.
Thank you, Peter. Let me recap our results for the second quarter. NAREIT funds from operations were $0.82 per fully diluted share versus $0.76 a year ago. Our cash same store NOI growth for the quarter, excluding termination fees, was 6.7%. The results in the quarter were primarily driven by increases in rental rates on new and renewal leasing, contractual rent bumps, and lower free rent, partially offset by lower average occupancy. Summarizing our leasing activity during the second quarter, approximately 2.6 million square feet of leases commenced. Of these, 1.1 million were renewals, 1.0 million were renewals (note: transcript duplication), and 500 thousand were for developments and acquisitions with lease-up. Also, we wanted to share with you a positive update related to tenant credit. Boohoo signed a full-building sublease for a 1.1 million square foot property in Pennsylvania. The subtenant is a 3PL that was already a valued tenant, so we are very pleased with this outcome. Now moving on to our guidance. As Peter noted, we increased our FFO midpoint guidance by $0.02 per share and narrowed our guidance range for 2026 NAREIT FFO to $3.08 to $3.16 per share. Recall that NAREIT FFO reflects $0.04 per share of advisory costs related to the contested proxy campaign incurred in the first quarter. Excluding these advisory costs, our 2026 FFO guidance range is $3.12 to $3.20 per share, which is also a $0.02 increase at the midpoint. Our other major guidance assumptions are as follows. Average quarter-end in-service occupancy of 94% to 95%. This range reflects approximately 900 thousand square feet of incremental development leasing out of an opportunity set of 1.7 million square feet. The development leasing is assumed to occur primarily in the fourth quarter. In terms of cadence, guidance assumes in-service occupancy to dip to around 93.5% at the end of 3Q. We expect to end the year at around 95.5% due to the assumed development leasing plus other core portfolio leasing. Cash same store NOI growth before termination fees of 5.25% to 6.25%, an increase of 25 basis points at the midpoint. Guidance includes the anticipated 2026 cost related to our completed and under-construction developments and today's announced start. For the full year 2026, we expect to capitalize about $0.08 per share of interest. Our G&A expense guidance range is $42 million to $43 million, which excludes the $5.6 million of cost related to the contested proxy campaign. Let me turn it back over to Peter.
Thank you to all of my teammates at First Industrial for your outstanding efforts this quarter. We continue to be optimistic about the activity levels we are seeing within our development and portfolio availabilities across markets and size ranges. We are excited about our new investment opportunities, and we maintain our focus on driving long-term cash flow and value for shareholders. Operator, we are ready to open up for questions.
分析師問答
We will now begin the question and answer session. If at any time your question has been addressed and you would like to withdraw your question, please press star and then 2. Also, please limit yourself to one question and one follow-up. The first question comes from Craig Mailman with Citi. Please go ahead.
Good morning. Peter, your commentary is pretty consistent with peers and brokers that things are getting better and decisions are being made quicker. I am just kind of curious as we look from here, and you have discussions with tenants and you see what vacancies you have up in the portfolio. Like, from a market condition standpoint, how real is — you know, I do not want to call it FOMO, but just with some bigger boxes being taken off the market, you had success with Boohoo finding a sublease tenant. You got 708 done in Central PA. Like, some of the bigger availabilities are being taken off the market. How is this shaping the discussions you are having with tenants in terms of their mentality with less new supply coming on and the urgency they are getting? Like, should we expect to see this continue to accelerate into the back half of the year? Are there something that we are missing in terms of other dynamics in the market? Can you just kind of give us your thoughts on how this could play out over the next two to three quarters?
Sure. I will start out, and then Johannson and Peter can weigh in. You know, net absorption is up pretty significantly. That has a lot to do with the fact that we have got a lot more activity with the bigger spaces now. So 700 thousand to 1.2 million, that activity is up 127%. North of a million two, that is up 117%. So you definitely have a scarcity value at the bigger spaces now. Activity is up also across the other size ranges, but a little less. There are a little bit more alternatives that have yet to be taken up in the smaller size ranges. But the activity and the interest investing in growth has definitely changed from a year ago.
Yeah. Just — I mean, what Peter just mentioned is that dynamic is absolutely what is going on in the West markets, including Chicago and Dallas. As the largest spaces decrease, tenants have fewer choices. They have to make decisions quicker. So that is definitely happening. In the midsize ranges, there is still available product for tenants to choose. So it has been a little bit better than Q1 but not as robust as the largest spaces.
That is across the country. And then by category, you look at 3PLs' activity — they have been leading market share now for a while. That activity year over year is up 18%. Manufacturing, food and beverage, auto, all up 25+ percent. So it is not only across sizes, but across categories that the activity has picked up.
And just one slight thing to add. If you look at the activity of, for example, Amazon, it has picked up as well. So they have taken larger last-mile spaces. And then we have incremental additional demand that is happening over the past year or so from data center-related, aerospace and defense. That is also added to the demand and a lot of them have taken larger spaces as well.
Hey, Craig. It is Peter. Just to add to Johannson and Peter's comments, to give you some color on the Boohoo outcome and our 708 in Pennsylvania: we had multiple prospects for both of those spaces. So, clearly, there has been a pickup in the larger format as you commented and much fewer choices, but also the development lease that we signed in the Philadelphia suburbs in our First Park New Castle for 226 thousand — just echoing the broad-based level of activity, but activity has certainly picked up on the bigger spaces where it has been a little thin up until recently.
That is helpful color. I guess maybe a quick two-parter to stay under the two-question limit. But how does this kind of translate to what you guys have in terms of demand at First Aurora? And then also, just what are your updated views on Southern California? Where do you kind of fall in the debate there about where we are in that recovery cycle? Yes. Let me take Aurora, and then Johannson can comment on SoCal. So we continue to have activity at the building for partial and full building users. We have a couple of new prospects since our last call. There has been no real change in the competitive set. What we really need is for some tenants to make decisions. Those that are in the market looking for more space need to decide if they are going to take more space or not. But it is not a lack of prospects — we just want to see more definitive decision making.
Craig, in terms of statistics for Southern California, if you look at Q2 compared to Q1 or earlier this year, it points to a market that is off the bottom and is at the start of a recovery. And the reason is that if you look at gross absorption and net absorption, it significantly exceeded deliveries. If you look at starts and other construction, it is still at historic lows and, compared to the base, it is de minimis. Also, rents are just kind of flat. So when you are looking at that, it definitely did better than what we expected. So yes, that is what is going on with SoCal.
Great. Thank you, guys.
The next question comes from Nicholas Thillman with Baird. Please go ahead.
Hey, good morning, guys. Scott, maybe just wanted to comment a little bit on the occupancy guide and just the timing. If there was any shift when it comes to just the assets from the lease-up standpoint. It seems as though you are somewhat running ahead — you guys did message second half for some of the leasing. I am guessing it is more so to do with some of the larger boxes that you have available and actually getting occupancy, but just wanted to clarify that first.
Yes. Well, I will go into the development leasing first. So the 900 thousand square feet is basically pure math. You take the 1.7 million square feet we discussed in our fourth quarter call, and you deduct what we signed to date. So that number has not changed; it has gone down. We did make some adjustments to some of the development leasing. It is all in the fourth quarter now. And if we do not sign any of those leases, the FFO impact is a lot less than it was last time we had a call — it's only about $0.01 per share. And then, Nick, we made some other slight adjustments to some of our other core portfolio leasing assumptions in a variety of our markets. But I think the key thing to discuss here is even with these adjustments, we are forecasting to end the fourth quarter at an in-service occupancy rate of 95.5%.
That is helpful. And then maybe curious on just the acquisition appetite with the Dallas acquisition and given the fact that where you kind of have the land bank today, there are not as many opportunities as some of the markets where you have had some leasing success on development. So do you view that there is somewhat an opportunity here on some of the value-add from the acquisition standpoint in markets like Texas and Pennsylvania where you have been seeing some great activity on the leasing side?
Yeah. So we are always looking for good quality acquisitions with good deals. In this case in Dallas, this was in the Arlington submarket of the Great Southwest market of Dallas — very, very infill, very active, and this was a lightly marketed deal. We came in with certainty and we were able to acquire an asset 50% leased, projected yield 6%. We are an active investor. We have owned product in the Great Southwest for some time, so we really know that market. To your point, we are always looking for opportunities in Dallas or Pennsylvania. We are going to continue to look for those, but they have to meet our functional investment quality and yield criteria.
The next question comes from Dave Rodgers with Raymond James. Please go ahead.
Yes. Good morning, everybody. Just got one clarification on the New Castle lease. Was that in the numbers you just talked about? I thought that was in the third quarter, so I did not know if you were adding that in or not. And then just a bigger picture question: you mentioned that you started New Castle — kind of the next phase of that project. I guess where else are you excited today about putting money to work in the back half of the year, as clearly you have leased up a good amount of your speculative space here in the first half?
You take the First Park New Castle: the lease start date on that was in June, so it was a second quarter start. First Park 121 is a third quarter lease start date. We signed it in the second quarter, but it starts in August. That lease, even though it starts in the third quarter, is factored in our guidance. And that is how you get to the 900 thousand square feet of remaining development leasing.
Dave, for new starts, of course our teams are actively pursuing new land acquisition opportunities like the one we just finished in the B-W Corridor. And with respect to perhaps more starts this year, we are evaluating opportunities in the portfolio in Pennsylvania and Florida and a smaller deal right here in Chicagoland. So we will keep you posted.
And, of course, just want to note the $70 million worth of projects — there are two projects, one in Arlington (we call it First Arlington Commerce Center in Arlington, Texas) and in our First Park Miami building. Those are two projects totaling $70 million that are not going to be completed until the end of this year and early next year. I am looking forward and excited about those.
That is great. Thank you.
The next question comes from Vikram Malhotra with Mizuho. Please go ahead.
Morning. Thanks for taking the questions. Maybe first I wanted to see if there is any update on the potential to sell more land or, I guess, data center-conversion land and how that pipeline may look. I think at NAREIT you had mentioned there were a couple of opportunities. So that is the first one. And then second, as we think about any big renewals in the back half that may, I guess, make or break the top end of the guide, can you call out anything that may be sizable, whether it is in SoCal or any other markets? Thank you.
So with respect to our efforts in the portfolio trying to convert to data center use, our teams continue to work on those projects. They are going to be long-term, as I said at NAREIT. It is going to take a while. We are trying to pursue some power commitments, and there is really nothing else to report there. Nothing will happen, if it closed this year, for sure, but we will keep you posted on that. And then on the renewal front, Vikram, we have taken care of 80% of the expirations for 2026 or the lion's share of it. If you look at the budgeted renewals that we have in our guidance, there is none that are over 100 thousand square feet, so it is pretty granular.
The next question comes from Blaine Heck with Wells Fargo. Please go ahead.
Great. Thanks. Good morning. Maybe just to add on to the question on development: how are you thinking about the best time to deploy your roughly $410 million of speculative capital into development? Is it now while some private players might still be on the sidelines given capital and land constraints? Or do you feel you have a solid window of time to be patient without running into the problem of excess competitive supply once you do deliver these projects?
Yeah. So that is a cap and not a target. We focus solely on profitability. As we evaluate our land holdings and future land acquisitions, we are trying to deliver into the deepest part of the demand or unmet demand in a particular market. That is how we evaluate where we are going. We also do not really want to have too many projects in any one park going at the same time. For example, First Park Miami we could start a couple more buildings there, but we want to get some leasing as we go. So it is not that we need to use that $410 million; we sit here and say, where is the demand, where is it not being met, and where are we well positioned to deliver a property that is going to be competitive in that marketplace for the long term.
Yes. That is fair. The crux of the question was just: do you feel like you have any emphasis to put the money out soon before you have a lot of competition kind of coming into the marketplace and starting developments off?
Look, development is ticking up in some markets. The demand right now for very large million-footers is not being met, so that is something we are looking at. We, as you know, have some land holdings that can accommodate very large format properties.
Very helpful. And just a quick second one — sorry if I missed this, but can you break out the drivers of the increased same store NOI given that occupancy guidance was held steady? Is that rent related, bad debt related, something else?
If you look at where we performed a little bit better, our average occupancy is up slightly and cash rental rates benefited. So that is really where the benefit was from.
Great. Thanks, guys.
The next question comes from Caitlin Burrows with Goldman Sachs. Please go ahead.
Maybe to follow up on one of the recent questions: it sounds like you are evaluating a few markets where you could start developments and you started one in the second quarter. What are you seeing the rest of the market do? I imagine land is competitive, so that would suggest maybe the rest of the market is trying to get active. But are they? Wondering if you can talk about what you are seeing the rest of the market do.
Sure. I will start, then Johannson and Peter can add. Land is very, very difficult to come by. It is not getting any easier to get entitlements. There are real barriers there. We have seen a tick up in starts but it is a tough slog in terms of getting entitlements. So the market's going to rebound according to the pace of lease take-up, and we will be there to take advantage of the opportunities that we see.
Just to add to what Peter said, the land continues to be competitive. There are active developers and there continues to be capital to support development and acquisitions. What we focus on is off-market deals, using our brokerage relationships to get deals early in the stage. We have tenant relationships we can lean on to try to get a prelease in a property. These are platform strategies where we use our portfolio and our teams on the ground to uncover opportunities, and that has not changed.
Caitlin, the other thing I would add is where we own land and where we are focused on buying land are generally more infill, supply-constrained markets. So by definition there is less competition in some of those markets. But to your other point, Pennsylvania is seeing more new starts given the lack of availability of million-footers. Nashville is seeing an increase in supply given how strong that market has been. And South Florida continues to see activity given the price of land. Developers cannot really afford to wait and put that into production for the most part. For the Baltimore acquisition in the B-W Corridor as an example, it is very infill and supply-constrained, and that is part of our strategy.
On that, can you talk a little bit about the sourcing of land? I think you mentioned earlier that the Baltimore location did not necessarily have the entitlements yet. Versus sometimes when you buy land it is contingent on the entitlement. Can you talk about the decision to move forward with that land purchase without the entitlements versus others when it is different?
Sure. This is in the B-W Corridor, the largest submarket in that market. It is a very infill site. It was excess land as part of a horse racing track. The owner of the land was more interested in getting a deal done quickly, so our view is we were able to secure the land at a discount. The entitlement process there is pretty straightforward. Our plan is a buy-right plan; it is zoned industrial, so it is simply a matter of when, not if, going through the process. That site should be ready for construction probably end of '28, early '29. And to emphasize the point on our pricing, initial yields are in the mid-sevens.
That initial yield is like your expectation when you build?
Yes.
The next question comes from Michael Carroll with RBC Capital Markets. Please go ahead.
Yes, thanks. I wanted to follow up on new development starts. FR seems to be tracking much better tenant activity and cost of capital has continued to head in the right direction. Does this give you more confidence to be a little bit more aggressive pursuing new development starts? Are there more projects out there you are willing to break ground on today than you were six months ago?
It is still market by market. That is really what is driving it — what is happening in each submarket. As we have always said, when we see consistent signings of development leases, that is when we will develop more from a volume standpoint. That is beginning to happen this year. So the activity should be more robust over the coming six to twelve months than it was over the last six to twelve months.
Okay. And Scott, how do you plan on funding some of these development projects? More land sales or maybe data center opportunity sales that FR is pursuing that can fund a lot of these projects? Or is equity on the table if you really start to ramp up some of the activity?
We do not have a large expenditure requirement for the last six months of the year to fund our developments in process. It is about $75 million, and half of that will be covered with excess cash flow after capex and dividends, and we can use the line of credit to fund the remaining part of it. We have a very low balance on our line of credit. As far as go-forward starts are concerned, I would say it would be the same formula.
Okay. Great. Thanks.
The next question comes from Viktor Fediv on with Scotiabank / Nicholas Yulico. Please go ahead.
I want to follow up on leasing demand and types of tenants that you interact with the most. Last time you mentioned data center-adjacent demand was not even in the top 10 of your tenant discussions, and now you leased a full property in Texas to a data center-adjacent tenant. Can you help me understand the breadth here and where in your submarkets you can see pickup of this type of demand?
Peter, do you want to start with that one? Sure. I would say that data center-related demand has been incremental; I would not say it is material. Certainly, we signed a deal in Dallas and we signed a deal in Atlanta, and we are seeing some of that. But demand overall continues to be very broad based, led by 3PLs, manufacturing, food and beverage, automotive, home supply. Amazon continues to be very active, particularly on larger buildings in a number of markets around the country. So it is broad based; the data center-related is incremental but not overly material.
Understood. And then if you think about your occupancy guidance and what happened this quarter because we saw some decline in occupancy in Southern California, what might happen for you to end up at the higher end of your average occupancy for the full year?
On your discussions that you are having now, what needs to happen? Well, certainly, if we lease up the development pipeline, you have heard how we have activity on a lot of these spaces. So, obviously, if decisions get made and that happens, we will hit the higher end of our occupancy guidance.
Thank you.
The next question comes from Jessica Zheng with Green Street. Please go ahead.
Hi. Good morning. I am not sure if you have covered this already, but I am wondering if you can share some color around same-store occupancy, which seems to have declined quarter over quarter despite the lease-up of the large Central PA property. I am curious what was the offsetting factor there.
Yes. We had some move-outs in some of the markets. We had like three or four move-outs in the 100 thousand square foot range that kind of offset the pickup of the 708 thousand square feet.
Okay. Great. Thank you. And a follow-up: curious if you are seeing any examples of data center developments crowding out industrial developments through elevated land pricing in any of the submarkets you are in.
Data center acquirers or data center developers, whether hyperscalers or colocators, have been very active in acquiring land, and the land they acquire is primarily industrial land. So it puts additional competition on potential land acquisition for industrial. In almost all cases, data center players are willing to pay significantly higher prices than traditional industrial land values. One case in point is our sale in Phoenix, which was just shy of 3x industrial land values. So yes, there is definitely additional competition for land availability.
The next question comes from Michael Mueller with JPMorgan. Please go ahead.
Hi. For two questions: first, for the in-service occupancy dip that you talked about going down to around 93.5 and then bouncing back to 95, is that being driven by adding new developments that are not fully leased going into the portfolio, or is it fallout? Second, when thinking about your year-to-date cash spreads of 39%, when you look at the lease expiration schedule for 2027, is there anything we should be thinking of as a positive or negative for that as we move forward?
On the dip in occupancy, part of that — about 45 basis points — is a new development coming into service in Nashville. That comes into service in the third quarter and we are projecting that to lease up in the fourth quarter. As far as 2027, we have taken care of about 26% of our rollovers there, and we will provide more color when we have a bigger population to discuss.
Thank you.
The next question comes from Brendan Lynch with Barclays. Please go ahead.
Thanks. Good morning. Peter, you mentioned entitlements are not getting any easier. Have there been periods in the past where entitlements became really challenging to obtain like they are now and then eased, and what could change that dynamic now?
Interesting question. I cannot remember a time when entitlements got really easy to get, especially in the markets we want to be in. It is one of the reasons we want to be there — high barriers to entry. There are times where tax revenue becomes a driver to municipal decision-making and you get the entitlements you need. But generally speaking, you can go state by state and see the states that are really tough. Nashville, for example, is getting tougher as local communities see more truck traffic and a lot more activity on the highways than they are used to seeing, and they do not like it. So it is a good and bad thing: it limits supply, which increases the value of what we own and leads to higher rent growth, but it is tougher to acquire land and get it entitled. So I do not know a time when it got easier, but there are times when municipalities need money and they will grant entitlements.
Great. Thanks. Maybe a follow-up on the First Perris Logistics Center in Perris, California: there is a lot of momentum in the surrounding area and some lease-up of surrounding assets. Could you comment on the prospects of getting that one leased?
First Perris is about 325 thousand square feet; great product designed to accommodate up to two tenants. If you look at the Inland Empire, there has been a significant pickup in the larger size and overall vacancy has ticked down, but most choices for tenants remain in the 250 thousand to 500 thousand size range. That is kind of the softest part of the market and tenants still have choices, so the market has to digest that. That is basically what is affecting First Perris, although activity has picked up in terms of RFP inquiries and tours on that asset.
And then there may be sponsors or landlords who are a little less sensitive to NPV than we are, so keep that in mind too.
Okay. Very good. Thank you.
The next question comes from Omotayo Okusanya with Deutsche Bank. Please go ahead.
Good morning, everyone. I wanted to focus on the full-year same-store cash NOI guidance. You are running well ahead of that number in the first half of 2026. Can you walk us through the expected deceleration in the second half? Is it just a harder comp, or are there additional factors or fallout we should be thinking about?
Yes. In the first half of the year versus the second half, it really comes down to free rent benefit. The difference there is about 250 basis points, so that is really the whole story.
Got it. Okay. That is helpful. Also wanted to talk about the Pennsylvania lease — can you talk a little about the economics of the new lease versus the old lease?
I cannot share specifics due to confidentiality, but I can say it is a long-term, full-building lease. The cash rental rate increase was over 60%. TI and concessions were typical, nothing unusual. It commenced at the end of the second quarter and we have multiple prospects for other buildings. We are very pleased with the result.
Got it. Thank you.
The next question comes from Richard Anderson with Cantor Fitzgerald. Please go ahead.
Good morning. On the cash releasing spread, result and guidance of 35% to 40% for the year — that is a really good range and a really good outcome this quarter. What do you attribute that to? Where do you think cash releasing spreads start to trend down to as a company over the next two to three years?
I think recall that we have had significant cash leasing spreads for quite a while; they were as high as 58% a few years ago and ticked down as market rent growth came off the peak. A lot of this has to do with the fact that much of our portfolio is newer and was leased at the right time. We had big spaces to lease pre-peak, and so we are enjoying the benefit of that now. The markets we are in — Southern California grew the most and came down the most, but eastern markets did not go as high and have not fallen as much. We are in the right places with the right product, the right functionality, and the buildings we have are very competitive in their marketplaces. That outcome reflects that our strategy is working.
Fair enough. Second question on the Inland Empire land of about 6.5 million square feet: what is your strategy on the land specifically and generally where you are comfortable with Southern California as a percentage of the total? Are you comfortable going significantly higher than where you are now?
Over the last few years, all of our new development has been outside California given where the markets are. We continue to look for more land outside California, so the balancing will happen by investing in other places rather than selling in California. We have some great sites there, and as the market has evolved since the peak, some opportunities are a bit further out but can accommodate million-plus footers — they will be very important opportunities for us going forward. Having said that, we are not married to any of our real estate, and if someone makes us a very compelling offer, it will be sold.
All right. Thanks very much.
Our final question comes from Dave Rodgers with Raymond James. Please go ahead.
One follow-up: I wanted to aggregate all the numbers we talked about. If you were to aggregate the amount of demand that would meet that 800 to 900 thousand square feet of remaining spec leasing that you need for the rest of the year, what is the total demand for that pool of assets that gives you continued confidence to get there? Is there a way you can aggregate that together?
The opportunity set is 1.7 million square feet. We do not have to fill 100% of it with the developments we have — that is one part of the answer.
When you are touring a prospect, whether it is an RFP process or an expansion or consolidation or inquiry, it is hard to tell timing and the commitment of a particular prospect until you are really trading paper and get to a letter of intent. If we put out numbers of all of our tours it would be a big number, but until you actually get that letter of intent, the certainty is not there.
All it takes is one. It is tough to put a bracket around it because we have had assets with strong competition where we got a great result and assets with only one interested party where we drove a tough deal. It is hard to give a volume answer to that question.
Dave, the thing I would say is we are seeing more activity, more tours and inquiries. While we have to convert, we are more optimistic today than we were at the beginning of the year.
That is really helpful. Thanks, everyone.
This concludes our question and answer session. I would like to turn the conference back over to Peter E. 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 Arthur, Scott, or me. Have a great day.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.