First Industrial Realty Trust Inc (FR) 2025 Q4 法說會逐字稿

Good day, and welcome to the First Industrial Realty Trust Inc fourth quarter 2025 results call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Art Harmon, Senior Vice President, Investor Relations and Marketing. Please go ahead.

Thanks very much, Dave. Hello, everybody, and welcome to our call. Before we discuss our fourth quarter and full year 2025 results and our initial 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, February 5, 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 Baccile, our President and Chief Executive Officer; and Scott Musil, our Chief Financial Officer, after which we'll open it up for your questions. Also with us today are Jojo Yap, Chief Investment Officer; Peter Schultz, Executive Vice President; Chris Schneider, Executive Vice President of Operations; and Bob Walter, Executive Vice President of Capital Markets and Asset Management.

Now, let me turn the call over to Pete.

Thank you, Art, and thank you all for joining us today. I'm proud of how our team performed in 2025. For the third straight year, we competed well in a volatile and evolving economy in the challenging environment for tenants investing in new growth. The only thing that is certain in this operating environment is uncertainty. We're well prepared for more of the same.

We're positioned with a resilient portfolio and significant growth opportunity ahead. From an operational standpoint, our team remained focused and generated strong cash rental rate, cash same-store NOI and FFO growth and continue to sign new development leases. We also executed two recent term loan refinancings, which Scott will address in his remarks.

The overall leasing market showed significant activity in the fourth quarter with a record 226 million square feet of leasing according to CBRE, which was 22% higher than a year ago. Total leasing was 941 million square feet for the year, making it the second highest year on record, second only to 2021 and more than 12% higher than 2024.

3PLs continue to be very active, representing 36% of total leasing with retail and manufacturing occupiers rounding out the top three. According to CBRE, vacancy in the fourth quarter was 6.7%, reflecting net absorption of 58 million square feet, with completions at $78 million. For the year, net absorption was 149 million square feet and completions were $282 million.

Construction starts nationally in the fourth quarter were 45 million square feet, in line with the third quarter and still well below 2022's peak levels. Pre-leasing on the under-construction pipeline continues to be approximately 40%.

Within our own portfolio and development projects, touring activity continues to improve. Since our last call, we signed 231,000 square feet of leases in two of our developments. These leasing wins include the other half of our 425,000 square foot, Houston development, and 19,000 square feet at our First Loop project in Orlando. For 2025, our cash rental rate increase on new and renewal leasing was 32%. If you exclude the large, fixed rate renewal in Central PA, we previously discussed, the cash rental rate increase was 37% and the straight-line increase was 59%.

Our annual escalators for 2025 commencements, excluding the fixed rate renewal were 3.7% and which has remained steady since 2023 when we started to implement higher escalators in our leases. For the whole portfolio for 2026, they are 3.4%. Regarding our 2026 rollovers, we're off to an excellent start, having taken care of 45% by square footage, and our overall cash rental rate increase for new and renewal leasing is 35%. For the full year, we expect cash rental rate growth to range from 30% to 40%.

Moving now to investments. During the quarter, we acquired the 968,000 square-foot 100% leased building from our Camelback 303 Phoenix joint venture for $125 million. The purchase price is net of $18 million, which is our share of the venture's gain on sale promote and fees. The venture also sold the last remaining 71 acres it owned to a data center operator. With these transactions, we successfully concluded the joint venture, which achieved an overall IRR of 90%.

We thank Diamond Realty for being an outstanding partner on this and the prior PV303 venture, through which we created significant value for them and our shareholders. And ultimately, we're able to add some high-quality properties to our portfolio. We also acquired a newly constructed 117,000 square foot facility in the Baltimore market, in the infill eastern suburbs of Washington, DC, near Andrews Air Force Base for $31 million. The property was two thirds leased at acquisition. The combined stabilized cash yield on the net purchase price of the Phoenix building plus the DC facility is 6.3%.

On the development front, we're breaking ground on two new buildings in the first quarter. At First Park Miami in Medley, we're starting a 220,000 square foot project as we continue to methodically build out that park. As a reminder, we've developed 1.4 million square feet across eight buildings in this infill location, and we own additional land that will support another 859,000 square feet of projects.

In Dallas, we're starting the 84,000 square foot First Arlington Commerce Center III. This is the third project in our park in this highly sought after submarket. Total investment for these two buildings is $70 million with a combined projected cash yield of approximately 7%.

Lastly, given our performance and outlook, our Board of Directors declared a first quarter dividend of $0.50 per share. This is an increase of 12.4%, which is aligned with our anticipated cash flow growth.

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

Thanks, Peter. Let me start by recapping our results for the quarter. A REIT funds from operations for the fourth quarter were $0.77 per fully diluted share compared to $0.71 per share in 4Q 2024. For the full year 2025, FFO per fully diluted share was $2.96 versus $2.65 in 2024, representing a 12% increase. Our cash same-store NOI growth for the full year 2025, excluding termination fees, was 7.1%, primarily driven by increases in rental rates on new and renewal leasing and contractual rent bumps partially offset by lower average occupancy.

Please note that 2024 same-store NOI excludes $4.5 million of income related to the accelerated recognition of the tenant improvement reimbursement associated with the tenant in Central Pennsylvania. For the fourth quarter, cash same-store NOI growth was 3.7%. We finished the quarter with in-service occupancy of 94.4%, up 40 basis points from the third quarter.

Summarizing our balance sheet leasing activity during the quarter, approximately 1.8 million square feet of leases commenced. Of these, approximately 600,000 were new -- 600,000 were renewals and 500,000 worker developments and acquisitions with lease-up.

On the capital front, we recently renewed two term loans. First is our $425 million unsecured term loan with an initial maturity date of January 2030 with a one-year extension option. In addition, we renewed our $300 million unsecured term loan and increased its size by $75 million for a total $375 million. The initial maturity date is January 2029 with two one-year extension options. Pricing for both new term loans removes the incremental 10 basis points so for adjustment.

Lastly, in conjunction with these refinancings, we also amended our $200 million unsecured term loan to eliminate the 10 basis points so for adjustment. We thank our banking partners for their continued support and commitments.

Before I review our overall guidance, let me quickly update you on our bad debt expense and our credit watch list. Bad debt expense for the year was $700,000 coming in better than our original guidance of $1 million. Note that our forecast for full year 2026 is $1 million. Regarding our watch list, Debenhams Group, formerly Boohoo, remains current. We also continue to work through the collection process for the 3PL tenant we added last quarter, and we've been collecting the subtenant rents since October 2025.

Now, moving on to our initial guidance for 2026. Our NAREIT FFO midpoint is $3.14 per share with a range of $3.09 to $3.19 per share. Key assumptions are as follows: average quarter-end in-service occupancy for the year, 94% to 95%. At the midpoint, the major lease-up assumptions include 1.7 million square feet of development and the 708,000 square footer in Central Pennsylvania, all to occur in the second half of the year. 2026 full year average cash same-store NOI growth, 5% to 6%.

Guidance includes the anticipated 2026 costs related to our completed and under construction developments and today's announced starts. For the full year 2026, we expect to capitalize about $0.08 per share of interest. And our G&A expense guidance range is $42 million to $43 million. Please note that the cadence of our G&A expense will be similar to 2025 with our 1Q expense to represent approximately 40% of full year G&A. This is due to accelerated expense related to accounting rules that require us to fully expense the value of branded equity-based compensation for certain tenured employees.

Now, let me turn it back over to Peter.

Thanks again to my teammates for their contributions to a successful 2025. As we've often said, we manage your company to thrive through business cycles. This past year was a strong reminder of why we subscribe to that strategy. In 2026 and always, our team is focused on capitalizing on the opportunities we have both within our portfolio and in our new developments to drive cash flow growth and further enhance shareholder value.

Operator, we're ready to open it up for questions.

(Operator Instructions) Craig Mailman, Citi.

Maybe on the development leasing, that was helpful to give an update there, and I understand that second half. Just as I think through that 1.7 million square feet, how much of that is in projects that have already delivered or drag on the operating portfolio versus projects that are either under construction or lease-up that may not hit until later in the year, so the contributions more for 2027?

Craig, it's Scott. I think the way that we look at it is that we have a 2.5 million square foot development opportunity. These are properties that have been completed or will be completed in 2026, so that 1.7 million square feet that we have in our guidance could come out of any of that 2.5 million square feet.

Okay. And then just a follow-up. Can you just give us a sense of where you guys stand on Denver? I know you're kind of dual tracking it for sale and lease still. Kind of what's the update there?

Craig, it's Peter. Correct. The building is available for either lease or sale. We have a couple of active prospects that we're talking to for all of the building on a lease basis as well as a couple of inquiries on portions of the asset, and we'll keep you posted on our progress.

Maybe a third quick follow-up. How is that treated in same store? Because I know it, $4 a foot of property taxes on it. Like does that high probability in the 1.7 million square foot lease up? Or is that more vacant? And how much of an uptick could that be to earnings on the same store for you guys were to sell that?

Well, like you said, Craig, if we were to sell it, then we don't have the taxes, as you said, was about $2.4 million for the year, if that was something that we leased up and again, if it did lease up, we're making the assumption back end of the year, it's going to be free rent related, so it's not going to have an impact on cash same-store. Obviously, the taxes would I think all of that kind of comes into our 5% to 6% cash same-store range.

Michael Carroll, RBC Capital Markets.

I want to circle back on the development in the PA that's included in guidance. I mean Scott, have you done an analysis, how much FFO does that increase your 2026 guidance? Or how much is that contributing to your 2026 guidance range?

Are you talking about just the 708,000 or the 1.7 million square feet, Mike?

I guess, both, assuming that those spaces get leased in the back half of the year, I mean, is it in the July timeframe or the December timeframe, I guess, if we just kind of neutralize those to, I guess, larger buckets of space, I mean, how much FFO contribution is assumed in your guidance range from those specific assets?

Right. So I would say it like this, if we did not lease up, any of the 1.7 million square feet of the 708,000 square footer, we would still be within our FFO guidance range.

Okay. And then just related to some of the developments, I mean, can you talk about the South Florida campuses? I know this market has been pretty solid and some of the reasons why you're breaking ground on a new project. I know there is space left in Building 12 and Building 3. I know there's some space left in first Pompano 2. I mean, are you just seeing really good activity, and that's why you wanted to break ground on this project in Miami again?

Sure, Mike. So it's Peter. Yes, is the answer to your question. At Building 12, we only have 32,000 feet. At Building 3, we have some active prospect discussions going on for portions of that building. As you know, when we start a new project in Florida, it takes us about a year to deliver, so that building won't deliver until first quarter of '27. And we feel pretty good about the activity. The smaller building in Pompano. We have active prospects for that different submarket, so it's not the same calculus, but overall activity is pretty steady.

Blaine Heck, Wells Fargo.

Can you talk a little bit more about the balance between preserving occupancy and pushing on rental rates? Are there any more markets in which you're kind of leaning more towards pushing on rate versus preserving occupancy and maybe on the flip side, any specific markets or size segments that you still see as more vulnerable on the rate side?

Yeah. I would say on that, look, we're always trying to maximize the NPV of those leases that varies by market. We remain competitive to meet the market, and I'm not sure how else to answer that. We're really looking to maximize the value of each asset in each lease. And of course, that has different inputs, whether it's free rent or TIs or base rate, etc.

Blaine, it's Peter. The other thing I'd add to that is we're going to meet the market. And as Peter said, optimizing all of those economics. The assets that we have are available are high quality, and there is certainly a flight to quality in this market. Lowering the rent is not going to necessarily create incremental demand. There are certainly assets in the market that are second or third gen that do not have the functionality and they're struggling.

So that will be a rent challenge for them. But in general, rents are pretty stable and holding certainly concessions and TIs up a little bit. But we don't view lowering the rent on a wholesale basis as the solution.

There's also been some movement from Class B to Class A, which plays into our portfolio very, very well, given that we've built most of it now in the last 15 plus or minus years. So we're in a good position with the competitive standing of our assets.

Great. That's helpful color. Second question, Amazon remains your largest tenant about 6% of revenue and their demand is sometimes seen as kind of the barometer for the market as a whole. So can you just talk about any recent discussions you've had with them or indications around their appetite for additional space in '26?

It's Peter again. We're seeing them active in a number of markets for additional space including a number of large format buildings in Pennsylvania as an example. They continue to be active and looking to add to their portfolio.

Also, I'd like to add that Amazon has been particularly active in Q4 in 2025, numbers that we researched totaled about 10 million feet just in Amazon. And so they've come back and lease the 1 space.

Nicholas Yulico, Scotiabank.

This is Greg McGinniss on for Nick. I just want to make sure we understand on the FFO per share guidance. Is the difference between the bottom and top end of the range is primarily related to development pipeline lease-up, or are there other key factors we should be considering as well?

That's one piece, the 1.7 million square feet of development lease up in the 708,000 square footer. The other piece of guidance we give you is bad debt expense. We put in $1 million for guidance. It came in at $700,000 last year. But you never know, there could be some volatility in that as well.

Okay. And with the 2026 lease expirations, it looks like you're down to 4.5 million square feet remaining. Are there any like key tenants in there or larger spaces that you're focusing on?

We are working with a renewal in SoCal, about 555,000 square feet, and we are in discussions with the tenant.

Nick Thillman, Baird.

Good success on the Camelback JV. I know you guys also had been evaluating potential higher uses for just through land bank and existing assets when it comes to data center opportunity set. So just curious if you had any updates there.

Yeah, we're still working on that. We're pursuing a pretty narrowly defined set of potential opportunities. It's going to take a while to play out. You have to do a lot of different studies, have a lot of discussions that take a long time. So we're still evaluating that for both land holdings and existing buildings, and we'll keep you posted on any progress.

That's helpful. And then for a follow-up, Peter, you're pretty bullish. It seems a little bit on just the macro turning here. As you look at your land bank, do you view that you have the capacity to develop in the right markets as you see it today? And as we think about new starts for '26, is it more a function of you would like is understanding that you do have that leasing cap. Is it more a function of getting some leasing done before you start new projects, or is it more going to be how you're seeing the demand environment change throughout the year?

Yeah. The cap is not really factored into these decisions. It's really the economics of each project and the condition of the markets. As we've mentioned in the past, places like Texas and Florida and PA are pretty good. Nashville is great. We're looking to add to our landholdings in Nashville, in particular as well as South Florida. We do have potential opportunities for starts in some of those markets today. And of course, over time, getting into the '27, '28, '29 timeframe, we think that some of the other markets, in particular, SoCal, will begin to be a place where you might start thinking again about it.

So we're pretty well positioned with our holdings. We certainly do want to add to those holdings, I'll say, in the eastern half of the country, and that counts Texas.

Todd Thomas, KeyBanc.

First question, I appreciate the detail around sort of the assumptions related to the development leasing and the Central PA asset. Understand it's skewed towards the second half of the year. But can you provide just a little bit more detail around the pipeline today for prospects, how demand and tenant activities trending? Just trying to get a sense for sort of how much visibility you have today?

Yeah. Jojo or Peter you can comment on it.

Sure. Todd, it's Peter. In general, we're seeing continuation of the pickup activity from the balance -- at the end of the 2025 year into the beginning of 2026. We have more inquiries, tours, RFPs engagement level from tenants is better. Still hard to predict when some of those deals, if they'll get done and when the leases will start. There's still a lot of deliberate this among tenants. But we feel better today than we did last call in terms of the overall level of activity and tenant engagement. And as we've talked about, new supply is down, sublet space is pretty much stabilized. So the environment is better.

The part of that 1.7 million square feet, as Scott mentioned, includes the two development projects in IE. I would say that IE -- in the IE, we have a bit more prospects and a bit more RFPs. We're certainly very happy to release our 159,000 square foot First Harley Knox in Q4 of last year in IE. And one thing I want to point out on the supply side, under construction deliveries and starts in IE, are in a record low. I mean, significantly decline Q3 to Q4 and the sublease availability is also slightly down.

So all in all, if you look at the fundamentals of surrounding those two development projects, it's pointing out to the bottoming of market and with improving supply metrics and some increasing demand activity.

Okay. That's helpful. How are concessions trending broadly? I realize it's probably market by market and asset by asset, but how should we think about sort of cash rent commencements relative to sort of the date of a lease signing?

Yeah, it's Peter again. I would say concessions are flat to drifting up. And you're exactly right. It's market by market, asset by asset. Free rent is between half of one month and one month per year of term. And the TIs are really driven by specific tenant requirements, but it's up a little bit as tenants have choices.

And I just want to add that in terms of renewals, which represents the major bulk of our activity, leasing activity, they're tight, meaning that we're not seeing significant increase on free rent versus -- and the TIs are very low. So once they've committed to the space. And by the way, in terms of renewals, they've been renewing a bit earlier than 2024 or early '25.

Okay. That's helpful. If I could just sneak in one more here. In terms of the capital plan for '26, just curious how you're thinking about dispositions and additional land sales and whether anything is contemplated for the year as sort of a source of capital, I guess, what the appetite is like in the market and sort of what's contemplated around disposition monetizations?

Sure. Look, I mean, I think the best way to describe it is we remain opportunistic. As I mentioned earlier, we are looking at everything we own to see if it can be converted to higher and better use. In terms of planned sales, that number is not a very large number. But again, we're opportunistic, and we're open to maximizing value in each and every asset that we have.

Caitlin Burrows, Goldman Sachs.

You mentioned the progress you've made on the '26 lease expirations. I guess if we take a look back on 2025, can you comment on what sort of retention rate you achieved and what do you expect a similar result in '26 and for those that are leaving any sense why?

Yeah. 2025, we are at 71% overall retention rate. We expect very similar in 2026. And as you see, we've already taken care of 45%. So we feel pretty good about that at this point.

Does that 45% mean that the other 55% is still TBD? Or are some noose included in that, too?

Yeah. So most of the renewals are the rollouts we're talking to and discussions with. So they're very close to getting done in many cases.

Got it. Okay. And then maybe just on new leasing. I know you mentioned how Amazon was quite active in the industry in 4Q. Can you go through who in 4Q, and I guess so far in 1Q has been active like types of tenants in your portfolio? And do you think those are indicative of the industry or more FR specific? And any comment on like why the activity today versus like a year ago?

I'll start this, and Peter and Jojo can jump in. Look, generally, 3PLs have been very active. They've got the biggest market share, about 36%. Retail has been active. Manufacturing has been active. Food and bev has been active. And I don't think there's any significant difference other than manufacturing. We don't have a lot of that, but there's not a huge difference between what's going on in the broader market and our own lease up.

Peter, do you have anything else?

Yeah. The other groups I'd add, Caitlin, are auto-related energy building materials and products. It continues to be a pretty broad-based group of prospects, as we've talked about on prior calls. And that, I would say, is in line with what we're seeing in the market and across our portfolio.

That's pretty extensive. We're already the only -- there are some if you compare '24 -- '25 to '24, there's been a slight increase on data center-related either infrastructure or construction-related uses.

(Operator Instructions) Vince Tibone, Green Street Advisors.

You mentioned the flight to quality, which is a common theme we've heard from others. So I want to ask a basic question, just like what traits make a building and a building and kind of what factors have changed versus maybe the recent past? And particularly, could you just talk about minimum power load requirements from tenants and how that's changed. I've heard that's come up a lot more in new leasing conversations.

Vince, it's Peter. So clear height, trailer parking, column spacing, car parking, building depths and geometry circulation. All of those are important. I would say to your comment about power pretty much every large user that we're seeing today wants more power. We design and fit out our new buildings with pretty much the maximum we can supply. Some tenants are requiring more than that, which takes additional time and investment from them to achieve that. But I wouldn't say there's anything materially different today than the last several years and what we've been building and delivering.

Yeah, that's helpful. Is there any like rules of thumb you're able to share around like what would be, in your mind, a strong power load versus one that's maybe a little subpar for a new tenant and a bulk building, whether it's like megawatts per square foot or just mega like is there any kind of just helpful metrics you could share on what would be adequate power for a new bulk building?

Yeah. Generally, we're putting in, depending upon size between 3,000 and 5,000 apps.

Okay. No, that's helpful. And so I would just to confirm, that would be -- most tenants would find that attractive or they wouldn't need more than that in most cases.

Most tenants overstate their needs and there's ample power, right? So some certainly have additional needs, but for the vast majority, it's fine.

No, that's really helpful. And then just one more quick one on kind of guide and near-term expectations. Just want to see if there's any large known move-outs in '26, we should be aware of or do you want to point out? And just also broadly how you're thinking about retention rates this upcoming year? Like it's been pretty steady. So do you think 70%, 75% still reasonable, or any reasons it could go higher or lower over the next few quarters here?

Yeah, I'd say that it's reasonable, it would be 70% plus or minus in that area. And also keep in mind that we only have two rollovers remaining that are greater than 200,000 square feet. So again, we feel pretty good about where our retention is going to into this year.

Tayo Okusanya, Deutsche Bank.

Just wanted to get your thoughts around tariff policy and this kind of upcoming decision by the Supreme Court. How you think through all those different scenarios, what could happen then if the Supreme Court does strike down current tariff policy? Does the administration come back with alternatives? Does that create more kind of headline risk or uncertainty going forward? And how do you kind of think just through all the scenarios and how it could potentially impact tenant demand?

Yeah, sure. We'll take a shot at this. So a year ago, when we had this call, we were feeling pretty good about 2025. And then April 2 came and it significantly slowed down the interest in investing in new growth on the part of our the prospects and tenancy in our sector. They have had the whole year to think through, digest, remodel, replan and resource and now that topic is far less acute than it was.

So I don't know is the answer to your question of whether you're going to see a big reaction to the positive if the Supreme Court knocks them down. I would expect the reaction to be muted. I think many, many prospects have moved on. And I think we're kind of over that hump. Now, it doesn't mean as an issue that it's gone, but I think we've gotten over the hard part.

Mike Mueller, JPMorgan.

In terms of potential dispositions that you've been thinking about, where are you seeing the best economics to you? Is it higher and better use land sales basically or user sales? I'm assuming it's not just traditional industrial sales with lower growth prospects.

Yeah. So certainly, the higher and better use -- I mean, it's potential data center use, that's not a secret. The value pickups can be significant, making them -- those are things we're going to pursue absolutely if we have the opportunity.

With respect to everyday sales, industrial sales, certainly, users and users bought our '24 buildings in the third quarter. For example, users and 1031 buyers are always going to pay a little bit more. They have lots of reasons to do so. So those are the target markets. And it doesn't mean that there won't be opportunities with institutional capital as well. So that's the landscape.

Rich Anderson, Cantor Fitzgerald.

So just a finer point on the Inland Empire land, you can create a small company out of all the billable square feet you have there. What is your kind of thought process about holding on to most of that or selling some of it. I mean it could become an incredible asset if we get some real sort of stabilization in Southern California in general. So should we expect that to be remain a very large chunk of your land bank? Or is it possible that you would take the bait and sell some of that land for whatever use? What is your mindset as it relates to your longer-term view of the market?

You've covered the waterfront appropriately with your question. Right -- yes, we think it's very valuable. Our land holdings. There are very valuable. It doesn't get easier to get entitlements there. It only gets more difficult. It's one of the topics that kind of gets forgotten as everyone is focused on development, leasing and rent growth and other things. But it's still getting more and more difficult to build in SoCal. It takes from start to finish meaning first discussions to buy a site to putting a tenant in the building five to seven years.

So we think that market is going to come back. Again, on a trend line come back, not hockey stick and that land is going to be very valuable. Having said all of this, we're absolutely open to being opportunistic and taking advantage of opportunities to sell land there. There are some holdings that we might decide to take out anyway, and we're still evaluating that. But again, we're looking to maximize the value there and balance the future opportunity with the present opportunity.

Brendan Lynch, Barclays.

One on the power that's available in your building. It sounds like there is some element of stranded power in each asset. Is there an opportunity to either reposition that power elsewhere or somehow generated rental revenue out of that for edge data centers as we saw with one of your peers recently. Any color around that would be helpful.

Peter.

It's Peter. I wouldn't say there's a lot of stranded power. And certainly, some companies want to have the flexibility as they increase their operations or add technology or for newer material handling equipment or air condition in the building. So it's important to have flexibility. Some jurisdictions, we're now seeing where the tenants aren't using all of the power, the power companies may claw it back just given the power constraints generally and some of the power grids. So it's something we pay close attention to and make sure we have the right power to accommodate our tenants.

Great. That's helpful. And then maybe a question for Jojo. To follow up on your comments about concessions being very low on renewals and kind of more aggressive on new leasing. I'd imagine that's typically the scenario, but it seems like it's maybe more of an extreme now. So any commentary on what's driving that dynamic now versus in the past?

I wouldn't say it's extreme, but one thing we always should not forget is that when a tenant is in the space, they've got a tenant investment. And when they relocate, there's a lot of moving costs depending upon the tenant investment. So right there and there, that could be a deterrent from the moving.

Second of all, unless they significantly need more space or they need to consolidate, they tend not to move again because of moving costs and business disruption. So then when you juxtapose that with the amount of work that needs to happen, there's a high rate of renewal. That's why in the industrial real estate business, even if you look back over the past 30 years, renewal rates have been 65% to 75%. And that is one of the most stable things in the industrial real estate business.

So I wouldn't say what right now, it's an extreme. It's really what's going on. Now the only other thing is that why is renewal a little bit earlier now than in the past five years. The reason for that is that tenants have a -- because of what's going on, probably have a longer view and they don't want to be or they want to commit earlier so they can set their rental rate more and kind of take care of their future more because of maybe potential thoughts of uncertainty.

(Operator Instructions) Vikram Malhotra, Mizuho.

Just I guess, two clarifications. So first of all, just on the lease-up assumptions for developments and kind of how that's translating to occupancy. Do you mind just walking through any other impacts that are driving the occupancy sort of a modest bump up? And just to be clear, if you were to lease those up in the back half, that should be upside to occupancy, correct?

Vikram, it's Scott. What we've assumed again is 1.7 million square feet of development leasing in the 708,000 square footer. Again, that's back half of the year. So if we hit that, you're going to be at your midpoint occupancy rate that we put out last night. I hope that answers your question, but -- if you have something else, please let me know.

Is there anything else that's positively or impacting occupancy kind of in the first half as we go into the second half?

Well, I would say occupancy is going to increase more in the back end of the year due to this leasing assumption that we have. And as far as any other leases, Jojo talked about one of the renewals he's working on in Southern California. And I think Chris mentioned there was only one other renewal or expiration that's above 200,000 square feet. So everything else is pretty bite size, I would say.

Okay. And then just maybe on that PA space and tying it back to like any of the large 3PLs or retailers. We've also heard in addition to Amazon, Walmart, kind of very active in the market looking for space. And I'm just wondering the PA space, do you still think you need to like make the multi-tenant space? Do you think it's most likely a single tenant space for now?

Vikram, it's Peter. The 708,000 square foot building in Central Pennsylvania is more likely a single tenant, but designed and available to be split for two tenants, and we've been in discussions with prospects for either one of those scenarios. Pennsylvania continues to see, to your earlier point, good activity. There's over 8 million square feet of deals that were signed in the fourth quarter -- late third or fourth quarter of '25 that have not yet hit occupancy yet in '26. So they're not in the occupancy numbers or the net absorption.

So as we've said a couple of times, vacancies are coming down. The construction pipeline continues to be muted. Activity is good, particularly for the largest buildings, but we acknowledge we have work to do on this asset and look forward to keeping you updated on our progress there.

Okay. Great. And then just one more, if I can. Just some of your peers have talked about certain submarkets or markets seeing an ability to push rate after multiple years. And I'm just wondering, are there any markets across your portfolio where you're being able to push, say, rent 3% plus?

Sure. South Nashville, Texas, Dallas, Houston?

Central Pennsylvania.

Central PA.

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

Thank you, operator, and thanks to everyone for participating on our call today. If you have any follow-ups from our call, please reach out to Art, Scott or me. Have a great weekend.

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