First Industrial Realty Trust Inc (FR) 2018 Q2 法說會逐字稿

Good morning. My name is Sia, and I will be the conference operator today. At this time, I would like to welcome everyone to the First Industrial Second Quarter Results Conference Call. (Operator Instructions) At this time, I would like to turn the conference over to Art Harmon, Vice President of Investor Relations and Marketing. Please go ahead, sir.

Thanks, Sia. Hello, everyone, and welcome to our call. Before we discuss our second quarter 2018 results and guidance, let me remind everyone that our call may include forward-looking statements as defined by federal securities laws. These statements are based on management's expectations, plans and estimates of our prospects. Today's statements may be time sensitive and accurate only as of today's date, Thursday, July 26, 2018. We assume no obligation to update our statements or the other information we provide. Actual results may differ materially from our forward-looking statements, and factors which could cause this are described in our 10-K and other SEC filings.

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

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

With that, let me turn the call over to Peter.

Thank you, Art, and good morning, everyone.

Our team delivered another good quarter as fundamentals in our sector remain strong. At quarter-end, our occupancy stood at 96.9%. Cash same-store NOI grew at 4.5%, and cash rental rates were up 7.7%. As of today, we have signed leases for approximately 85% of our 2018 rollovers at a weighted average cash rental rate change of 8%.

Our team and portfolio continue to deliver some strong numbers for rent growth, reflective of the health of the market. Nationally, the positive trend continues. According to CBRE Econometric Advisors preliminary second quarter report, net absorption was 59 million square feet, exceeding completions by 10 million square feet. For the first half of the year, net absorption was 105 million square feet, exceeding completions of 90 million square feet.

While trade policy is very much in the headlines and bears watching, we don't see it impacting tenant decision-making today as both new and renewal leasing activity remains strong in all of our markets. Most tenants view their logistics space as a critical part of their offense of strategy to better serve their customers and generate revenue growth. With limited available space options, industrial real estate needs remain top of mind.

This demand is evident in some of our recent leasing wins at The Ranch, our 6-building project in the Inland Empire West, where we completed construction last month. As previously announced, we signed a lease for the entire 156,000 square foot building, which commenced and was placed in service in the second quarter. Since our last call, we have also signed 3 more long-term full building leases at the park. The leases for the 301,000 and 50,000 square footers will commence in the third quarter, and the 71,000 square footer will commence in the fourth quarter. In total, we have leased 62% of The Ranch approximating 578,000 square feet. That leaves us with just 2 more buildings to lease there, 137,000 and 221,000 square feet, and we continue to see good interest.

In summary, at June 30, we had 1.4 million square feet of completed developments in lease-up in Phoenix and Southern California with an expected cash yield of 7.4%. These projects are currently 30% leased. We also had 2.9 million square feet of developments in the markets of Southern California, Chicago, Central Pennsylvania and Houston scheduled to be completed in the third and fourth quarter with an expected yield of 7.2%. This group includes our second quarter start of the 250,000 square foot second building at our I-78/81 project in Pennsylvania. Estimated total investment is $17.5 million with a cash yield of 6.9%.

In addition to the developments, we are also excited about the opportunities in our pipeline, where we can deliver strong margins relative to leased acquisitions while further enhancing our portfolio. We raised some equity in early May to support these growth efforts. We will have 4 new starts in the coming weeks totaling approximately $96 million. They include our first building at our new First Aurora Commerce Center in Denver's I-70 E submarket. We acquired the 138-acre site in the second quarter for $8.8 million, and we will execute a phase build-out of up to 5 buildings and 1.9 million square feet there. The first building at the park will be a 556,000 square foot distribution center. Total investment for this building is estimated at $38.3 million with a targeted cash yield of 7.2%. We also will start Phase 1 at First Park 121 in the North West Dallas submarket of Louisville, which serves the fast-growing cities of Frisco and Plano. Phase 1 will be comprised of 2 buildings, a 220,000 and a 105,000 square footer. Total estimated investment is $27.5 million with a projected cash yield of 7.1%. In the future, we can build another 2 buildings totaling 380,000 square feet at that park.

Given our leasing success and the strength of the Southern California market, we will also begin construction of the First Perry Logistics Center in the Inland Empire East. First Perry will be 240,000 square feet with a total estimated investment of $20.5 million and a targeted yield of 5.9%. Also on the West Coast in Seattle's Kent Valley, we bought a site in the second quarter where we will start the 67,000 square foot First Glacier Logistics Center. Total investment will be $9.9 million, and the estimated yield is 5.5%. During the quarter, we also added a site in Dallas for $1.8 million that can accommodate 199,000 square foot facility.

On the acquisition front, we bought a vacant 171,000 square foot distribution center in Southern California for $20.7 million in the Santa Clarita submarket. We are currently redeveloping the interior of this property, and our targeted yield for the building upon lease-up is 5.6%.

Moving to sales. We had a successful quarter with dispositions totaling $56 million with an in-place cap rate of 5.6%. Our largest sale was a 446,000 square foot multi-building portfolio of smaller, higher finished assets in Fort Worth for $29 million. In the third quarter to date, we had 2 additional sales both in Indianapolis. The first, a vacant 54,000 square foot building for $1.7 million; and the second, a land site also for $1.7 million. Including those 2 dispositions, our year-to-date sales total is $101 million. Our prior sales guidance for the year was $100 million to $150 million, and based on our pipeline, we now expect to be at the top end of that range.

I would also note that in our Phoenix joint venture, we sold a 21-acre site to a corporate user. Our share of the proceed was $1.9 million.

So thanks to my teammates for a good quarter and good first half across all aspects of our business.

With that, Scott will walk you through some additional details on the quarter and our guidance.

Thank you, Peter. In our second quarter, diluted EPS was $0.36 versus $0.32 1 year ago. NAREIT funds from operations were $0.39 per fully diluted share compared to $0.38 per share in 2Q 2017. 2Q results reflect approximately a total of $0.01 per share impact related to the temporary dilution from the company's 4.8 million share equity offering completed in early May and second quarter property sales. As Peter noted, occupancy was 96.9%, down 20 basis points from the prior quarter and up 120 basis points from a year ago. Our occupancy change versus the first quarter was impacted by some ins and outs for our in-service portfolio.

Leasing within our portfolio contributed about 20 basis points. Sales held by about 10 basis points, while developments placed in service had a 50 basis point offsetting impact, primarily due to placing in service the 50% occupied Building B at our First Park 94 project in Kenosha. We like the activity we are seeing at this project, but we are now assuming we will lease up the 300,000 square feet in 2019.

Regarding leasing volume, approximately 3.7 million square feet of long-term leases commenced during the quarter. Of these, 789,000 square feet were new, 2.7 million were renewals, and 156,000 square feet were for development.

Tenant retention by square footage was 89.1%, which is higher than typical, given the 1.3 million square foot Amazon renewal in northeastern Pennsylvania that commenced during the quarter.

Same-store NOI growth on a cash basis, excluding termination fees, was 4.5%, driven by higher average occupancy, rent bumps, an increase in rental rates on leasing and lower free rent. This was slightly offset by an increase in landlord property expenses. Lease termination fees totaled $163,000. And including termination fees, cash same-store NOI growth was 4.4%.

Cash rental rates were up 7.7% overall, with renewals up 7.3% and new leasing up 9.1%. On a straight-line basis, overall rental rates were up 25.5%, with renewals increasing 26.7% and new leasing up 21.6%. The large difference in the straight-line rate change versus cash is attributable to the limited free rent we are giving today versus the prior comparable leases.

Quickly moving on to a few balance sheet metrics. At the end of Q2, our net debt plus preferred stock to adjusted EBITDA is 4.8x, reflecting the second quarter equity offering, which gives us plenty of dry powder for investments including our newly announced development starts.

At June 30, the weighted average maturity of our unsecured notes, term loans and secured financings was 6.3 years with a weighted average interest rate of 4.27%. These figures exclude our credit facility.

We're also pleased to report that the second quarter, Moody's upgraded our unsecured debt range to BAA2, joining S&P and Fitch at the BBB flat rating.

Now moving on to our updated 2018 guidance for our press release last evening.

Our NAREIT FFO guidance is now $1.53 to $1.61 per share. Excluding the severance and the impairment charge recognized in the first quarter, FFO per share guidance is $1.55 to $1.63 with a midpoint of $1.59 per share. This is $0.01 per share less than what we discussed in our first quarter call, which is due to the temporary dilution related to the second quarter equity offering in property sales, slightly offset by additional NOI from development leasing and additional capitalized interest due to our new development starts.

The key assumptions for guidance are as follows: average quarter-end occupancy of 96.5% to 97.5%; the same-store NOI growth range is now 4.5% to 5.5% with the 50 basis point increase driven by our second quarter results; our G&A guidance range is unchanged at $26 million to $27 million, which excludes the $1.3 million severance charge recognized in the first quarter.

Guidance includes the anticipated 2018 costs related to our completed and under construction developments at June 30, and our planned third quarter starts First Aurora Commerce Center in Denver, First 121 in Dallas, First Perry in Southern California and First Glacier in Seattle.

In total, for the full year of 2018, we expect to capitalize about $0.05 per share of interest related to our developments.

Our guidance does not reflect the impact of any future sales or acquisitions after this earnings call or new development starts other than what we just discussed; the impact of any future debt issuances, debt repurchases or repayments; the impact of any future gains related to the final settlement; 2 insurance claims from damaged properties. And guidance also excludes any future NAREIT compliant gains or losses, the impact of impairments and the potential issuance of equity.

With that, let me turn it back over to Peter.

Thanks, Scott. We're pleased about where we are at the midway point of the year throughout our business.

Fundamentals remain strong, and we are excited about the profitable opportunities we have under construction and in our pipeline.

With that, operator, please open it up for questions.

(Operator Instructions) And the first question will come from Craig Mailman with KeyBanc Capital Markets.

Maybe just to go a little more depth into The Ranch leasing. Congrats, by the way, on that. Just can give some more color on kind of the types of tenants that took the space? And maybe relative -- where the rents came in relative to expectations and also just the timing on those? Kind of where -- if there is any yield expansion on that relative to previous expectations?

Sure, Craig. This is Jojo. The tenants -- can't name names. To give you the size of the industry, one is a very active third-party logistics provider in the West Coast. Another one is an international vitamin supplement company, who serves -- will use the ability to serve customers nationally. And the last one is related to focusing on the industrial power solutions for mid- and large-sized businesses and specifically to the power solutions stores, equipment and machines. In terms of rates, overall, it beat pro forma quite a bit. And so we're very pleased about it, and it exceeded our expectations. Of course, the lease have exceeded our expectations on downtime because we -- typically, our standard modeling is a 1-year downtime post-completion.

And as you guys look at leasing up the next 2 buildings, it sounds like there's good interest. What's the competition look like in that submarket for those size spaces?

So what's remaining is a 137,000 footer and a 221,000 square footer. There are a few choices in the Chino Eastdale market today, Craig.

And then just lastly, Scott, you kind of went into a little bit that second quarter drove the upside in same-store NOI guidance. Could you comment, was it mostly occupancy, rent spread, bad deck? Kind of what was the biggest driver in the 50 basis points?

Craig, it was a couple of pieces. Bad debt expense was one of them. We recognized under $100,000 of bad debt expense in the quarter compared to $500,000 per guidance. So that was a positive. We also had a positive due to property sales of sales being taken out of the portfolio, and then that was slightly offset by an increase in landlord expenses. So those were the 3 major pieces of the outperformance.

How much was the change in pool from the sale?

It was about 50 basis points.

So almost a whole increase was just the pool change?

Oh, yes, 50 basis points related to bad debt expense, that was pretty much offset by the increase in landlord expenses and then the pool change held by 50 basis points as well. This is a 1 minus.

The next question will come from Ki Bin Kim with SunTrust.

So you obviously had some really high tenant retention at a very high lease spread. Can you just help us look under the hood a little bit and just understand what happened in that quarter?

Yes, Ki Bin, overall, we had -- we did have high retention. And with that, we're still able to push rental rates and those renewals. So renewals for the quarter were up 7.3%, so we're very pleased with the high retention to get pushing rents.

And Ki Bin, as I mentioned in the comments, the high retention percentage was driven by the Amazon lease. That was 1.3 million square foot lease. That was about, I think, about 47% of our renewal leasing during the quarter. So that was a big driver in pushing up that retention level.

I see. And are you starting to see any change from tenants where they maybe prefer to own the building versus lease as rents have gone up?

Ki Bin, it's Peter Schultz. I would say, no, tenants and users continue to look primarily to lease space. Certainly, part of our sales are to users, and that's something we see continuing to happen. I wouldn't say it's changed one way or the other.

Okay. And just last one on development. I think at the last NAREIT Investor Day, I think you showed that you had about 58% developed margins, which is, I think, one of the highest in the sector. How does the next round of assets that you're looking to develop in your pipeline? How do those profit margins look like?

So Ki Bin, it's Peter. Yes, you're right. The assets that we are leasing up now, the margins are in the range that you mentioned. The projects that we just announced that we're about to start, the margins average more in the 40% to 45% range. We're still targeting as we always do in our underwriting, kind of 100 to 150 basis point spread. I think we can achieve that. And over the past several years between rent growth and leasing up the assets well within our 12 months assumed downtime, we'll then be able to generate the very high margins.

(Operator Instructions) The next question will come from Rich Anderson with Mizuho Securities.

It's Zach Silverberg here with Rich. Just a couple of quick ones. Since the equity proceeds will generally be used to fund development, what is the time line to recover the temporary dilution from the offering?

This is Scott, Zach. It -- we're using $96 million of the $146 million of proceeds to fund the new starts that we have there. So per our underwriting, it's probably going to be a 9-month-construction cycle, and then we put another year of lease-up. So it could be 1.5 to 2 years. That's what we're underwriting. Having said that, we've been leasing these developments up -- more quickly than that. We also use some of the equity proceeds on second quarter acquisitions. That was about $37 million. Alliance share of that was an acquisition we did in Southern California that we think we're going to stabilize cap rate of 5.5%. That's the redevelopment property that we've given ourselves a year to lease that up, so that's probably more a middle of 2019 when we get those dollars in the door. So there is going to be -- there could be over a year delay on that, Zach.

Okay. Great. And as you continue to make progress on development, any emphasis where land costs are an issue? Or do you foresee land costs being an issue in the future?

Well, land costs continue to grow, and so total replacement or total investment cost per square foot will continue to grow. But rents have justified the growth in land cost. And so we expect land cost. If rents continue to rise, we expect land cost to continue to rise proportionally as well.

It's Rich here. Let me just chime in on that last question. So are there instances -- we've been hearing about rising construction costs in general and how that might compare to how NOIs are growing. And maybe the mass is still in favor of NOIs exceeding construction cost. Is that what you're generally seeing across your markets?

Yes, exactly that. So the increase in rent, market rent, offsets the increase in land cost and construction cost. One more thing you have to consider is that cap rates have compressed a bit. And so if you factor that in, although it's more compared to the market, primarily because there's more entrants in the market. The cap rate compression kind of maintain the spread or help the spread a little bit.

Have you seen any impact from tariff and the like in terms of material costs and what have you?

Yes, on steel prices, yes, but that steel is not a large component of a industrial building construction. And in fact, steel -- the bare component today is the rest of the construction cost materials, subcontractor profit margins and land increases. Those are the a bigger component of the increase.

Our next question will come from Eric Frankel with Green Street Advisors.

Scott, can you just explain the expense growth increase?

Are you talking same-store pool? Are you talking increase quarter? What period are you talking, Eric?

Call it the same-store pool, I guess across the board, it seems like.

Okay. So same-store pool, they were up quite a bit, increase in real estate taxes. So let me break the expenses out. There's common area, and then there's landlord. So the common area expenses were driven by real estate taxes and snow removal expenses. Debt, for the most part, was recovered almost one for one with additional recovery income, so very minimal if any leakage there. And then the landlord expenses, as I mentioned in the same-store, we did have some increases there. Primarily, the big increase in landlord expenses were on the real estate tax side as well.

Okay. Do you foresee that being an issue going forward in terms of how that actually is going to affect the bottom line?

Well, the common area, it's not going to impact the bottom line much just because the occupancy level were at 96.9%, so that's not going to have that much leakage. On the landlord, Eric, we have a handful of jurisdictions that we pay taxes and arrears, which means we're paying 2018 taxes in '19. So we have to expense what we think we're going to pay, so I look at that as noncash. So that's hard to say what impact that will have on a go-forward basis.

Okay. You guys -- and we touched -- I think some of the other callers have touched upon tariffs a little bit. But have none of your customers expressed any concern about how some of the larger threat in tariffs are going to affect their business or the volume of goods that are imported and how that'll affect their respective supply chains?

So the short answer is that we haven't heard anything from the tenant base in the way of concern or complaint. In general, across our portfolio, our tenants on store the items that are so far being cared after under threat of tariff. But that could, of course, change, especially if there are a lot more tariffs on things like consumer goods, and that would have an impact. I think the biggest focus for us is, are we going to actually have a policy here that does something to significantly negatively impact consumption or GDP? That would be a big factor. You do have -- despite all that, you do have the somewhat mitigating factor of e-commerce and the growth and the evolution of the supply chain there, so it's really more of a question of order of magnitude on the tariff front. But right now, we haven't seen or heard anything so far that's negative for tenants.

Great. Just a final question. I may jump back in the queue. But I know you framed, from a risk perspective, how much you want to limit development at risk in terms of a dollar going, and I think it's around $400 million. Correct me if I'm wrong. But certainly, that -- you need to support that with a land bank, and so I wanted to understand better if you have any parameter surrounding how much land you want to hold in your balance sheet?

Well, as you know, what we really focus on is trying to acquire land that is near-term developable, so that we're productive, and we're not creating a lot of drag on the balance sheet. Going forward, we would like to have a couple of years of land in the inventory. I think that's probably a prudent place to be. The dollar number, that's hard to say. It depends where we buy it. And if it's -- certainly if it's on the Coast, it's going to be a higher number than if it isn't. So I think the best way to just -- to answer that, Eric, is to say we're looking at a couple of years of inventory.

And Eric, just to be clear. The speculative development cap is $475 million today.

(Operator Instructions) The next question will come from Bill Crow with Raymond James.

Peter, I think 2 questions for you, and I guess it relates to the tariff and trade situation. But it seems like autos are maybe one of the more vulnerable sectors in the economy today, and you do have some exposure among your top 20 tenants. Are you seeing anything there? Would you be more reluctant to expand your presence in the auto space or auto parts space today?

Yes, we do have some tenants in the auto parts space. We do have tenants in the tire business. But so far, that's -- hasn't been impacted. But the amount of proportion of our leases that are in that space are really low, low single-digit percentages. So I don't -- I wouldn't think at this point that we'd be avoiding tenants in that space, especially if they have good credit and a strong business. We'd certainly look at it, but I don't think we'd be avoiding it per se to draw a line in the sand there.

All right. The second question is really about kind of capital allocation. You talked about First Glacier at, I think, 5.5% or 5.6% And the redev in Southern California, that's going to be about a mid-5%. And I'm just curious about the strategic fit of those assets versus the alternative of these kind of low 7% development yields?

Right. So we think in those markets, rent growth is going to be significant over the near and medium term. And we don't really try to predict beyond that. And so when we look at the total of return on those investments, we like what we see. And yes, when we can build to a 7-plus percentage cash yield in some of the other markets like Dallas and Denver, that looks interesting to us as well, assuming there are grounds-up analysis shows us that those assets can be competitive for the long term. So from a capital allocation standpoint, we're really trying to put our money into the highest growing assets that we can in terms of rent growth to create long-term cash flow growth. And if that works, obviously, over time, you're creating a lot of value for shareholders.

And I just want to add that these are prime stuff markets. First Glacier is right in the heart of Kent Valley, which is the largest industrial market in Seattle. That's the deepest and a market that has one of the lowest vacancy rate. And First Perry is right off our success in the Moreno Valley submarket. As you may recall, we developed 187,000 square feet San Michele, and Dallas leased before completion. We also built 242,000 square feet First 215, and that was also successfully leased above pro forma. And so now we're just continuing that success.

Okay. I get the rent growth. I guess, I'm just thinking stabilization means they're leased-up, and you've got 3 or 4 or 5 years before the next opportunity to raise the rent income. So you're really looking out quite a ways to get up in north of a 6%, right, or 6.5%? Is that...

We also have rent bumps in those leases, as you know. Generally, they're 3%. And the total return, again, on those assets is going to be strong. And they're going to be assets that over -- they're going to withstand pressures in markets over the long term, and that's really what we're trying to create.

The next question will come from Michael Mueller with JPMorgan.

Just a question on acquisitions. I'm just curious, what sort of cap -- what sort of competition are you seeing when you go out to acquire a vacant building compared to something that's maybe more stabilized, fully occupied? Are you seeing a lot of competition? Is it less -- I mean, how would you characterize that?

Yes, there is significant -- Michael, there's significant amount of competition for both, vacant, value-add acquisition deals and fully leased. This was an off-market deal. We've been tracking this building for a while. We've been in contact -- constant contact with the owner. This -- the history in this is that the owner built this facility and outgrew it, this quality building, and they had to move. And so we made an unsolicited offer through our relationship, and that's how we got the deal. If this one is in the market, it would have not be more expensive.

The next question is from Jon Petersen with Jefferies.

So just wanted to touch on the development pipeline a little bit. Obviously, you've got, what, 5 projects underway right now that are 0% leased. You guys have a great track record of leasing-up once they're completed. But I'm just kind of curious. I guess, given the amount of spec development there, what the appetite is to expand that pipeline realizing -- I know you guys have a cap. Forget exactly what level. But then to the extent that you are looking to start new development project, I guess, in which market do you feel like you need to have more shovels on the ground?

So again, the cap is $475 million. Today, we have about $81 million-ish in capacity on that. That changes as we lease developments that are completed or vacant acquisitions. So that's a moving number kind of every month or 2. We're also focused. We are largely a spec builder. We're focused also on responding to RFPs and a build-to-suit -- with build-to-suits. And we have some sites in Kenosha, for example, in Atlanta and in Dallas, where we could develop build-to-suits. And you'll see us continue to invest capital in development, in the markets that we've been most active in. So again, it's the West Coast, it's Dallas, Houston, South Florida, Chicagoland when the market's right. So I don't know if that answers your question, but that's kind of a walk through our thinking around development.

Well, I mean, I guess, how do you think about spreading out the development in the different markets? So you guys get 2 projects in Pennsylvania right now. You've got a fair amount in Southern California. I guess, would you still be looking for new opportunities to start there? Or you don't have anything in Dallas right now and a small thing in Houston? Or would you be more -- and I don't think I've seen anything in Atlanta. Would you be more inclined to start something there? I guess that's more of the question.

We're looking for great development opportunities in all the target markets, notwithstanding activity. We're going to continue to look at Pennsylvania even though we have a lot going on there. We'll continue to look in California, obviously, even though we have a lot of going on there. So we're not -- we're really looking at how we can make money. Yes, we look at risks. We do a ground-up analysis. We understand submarket by submarket, where we think the unmet demand is. But just because we're active in one market doesn't mean we wouldn't want more opportunity there. Jojo, you want to add something?

Yes, let me just add, one thing we don't do is we don't want to cannibalize on our development, so case in point. So we're on track to complete our 1.4 million feet in First Nandina in the Inland Empire. And so we're not going to go wild and build a million spec rate, no. And so that's why we just continue -- as an example, we now are going to start a 240,000 square foot building, different size range because there's activity in that size range. So that -- you'll see that strategy. We're in -- so for example, like in the Chicago market, we have 100,000, 300,000, 55,000 square footer. But you won't see us build a current 400,000 footer because that will just compete with our current space. And if you look at the rest of the developments, a one-off in Seattle, a new one-off 555,000 in Denver. So you'll see we're spreading our investments, but at the same time, really trying to go after that space size range. That's tight. Let's turn it over to Peter for PA.

Right. So Jon, in Pennsylvania, those 2 buildings are actually on the same site. And when we bought that site, it was our plan to develop both buildings in roughly at the same time frame because they service different size ranges in the market. And back to Peter's point, we're focused on developing where there is great demand and rent growth.

And last example is that in our 2 buildings in Louisville, one is a front load shallow bay and one is a deeper load, basically our front load. So why is that? Because in that submarket, there are tenants looking for a front load or rear load and depending on what kind of exposure they want on the street. So these buildings are designed based on what we think the market needs.

(Operator Instructions) And we do have a follow-up from Eric Frankel with Green Street Advisors.

Just one quick question. On 4020 South Compton, can you just explain what exactly happened with that transaction? How you came out?

Sure, Eric. So the building burned down. And luckily, nobody got hurt. When the building burned down, some substantial destruction, we then sat back and decided whether we should build or we should sell. And so when we looked at the market, there was a higher and better use actually for that and primarily residential. So Eric, we ended up selling it to a residential buyer. If you add the expected insurance proceeds we got from the fire insurance plus the sale price, it approximates $129 per land foot, which we are very, very happy about because that is something that we have not even -- close to seeing in the industrial land sale.

Right. How does the insurance proceeds -- how are they -- how do they flow through your financial statements?

Eric, it's Scott. They -- some of that impact is bled through in prior periods. As I mentioned in my comments and guidance, there could be other recoverable dollar amounts that we get related to this insurance claim. We do not have anything embedded to guidance related to that. If we do recognize some of it on a go-forward basis, we'll back it out to get to our core FFO. So there could be future recovery in that. If there is, we'll let you know. Does not impact same store. So anyway, that's how that'll be handled on a go-forward basis.

That's helpful. I just actually thought of one final question. So I've noticed that Amazon is still quite active in the market in building -- they're really active in building their larger fulfillment centers that are seemed to be even more automated with more mezzanine levels. It looks like that cost becoming pretty steep for developers. Do you guys have a take on what the economics of those types of buildings are now?

Eric, it's is Peter Schultz. As you know, they operate under a very tight confidentially agreement with all their developing partners and landlords. But our view is, yes, those buildings are becoming more expensive as they continue to think about their next evolution of what they're doing.

And are they having an issue getting that financed by developers? Or not really -- or developers just kind of eating or taking on the additional risk?

Eric, I couldn't answer that because we're not doing any of those today. But certainly, they have had success awarding new deals to developers, but I can't give you any color on economics.

At this time, there are no further questions. I would like to turn the conference back over to Peter Baccile for any closing comments.

Well, thank you, operator, and thank you all for participating on our call today. Please feel free to reach out to Scott, Art or me with any follow-up questions. Have a great day.

Ladies and gentlemen, thank you for participating in today's conference call. You may now disconnect.