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Good day, and welcome to the First Industrial Realty Trust, Inc. First 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.

Thank you, Dave. Hello, everybody, and welcome to our call. Before we discuss our first quarter 2025 results and our updated guidance for the year, please note that our call may include forward-looking statements as defined by federal securities laws. These statements are based on management's expectations, plans and estimates of our prospects. Today's statements may be time sensitive and accurate only as of today's date, April 17, 2025. We assume no obligation to update our statements or the other information we provide. Actual results may differ materially from our forward-looking statements and factors, which could cause this are described in our 10-K and other SEC filings. You can find a reconciliation of non-GAAP financial measures discussed in today's call 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 hand the call over to Peter.

Thank you, Art, and thank you all for joining us today. We're off to a solid start in 2025, advancing our leasing objectives and closing on a few attractive new investments. On the capital side, we renewed our line of credit and $200 million term loan, further pushing out their maturities. Scott will provide additional details during his remarks. Top of mind for everyone is the evolving landscape surrounding tariffs. Like all of you, we are closely monitoring the developments and their potential impact on business activity and the leasing market. We are all operating in unfamiliar territory, and whether we like it or not, we're being included in the geopolitical and economic sausage making. We have ringside seat to what looks to be an ongoing and volatile negotiation with our international trading partners. It stands to reason that if more clarity is slow to develop, it could further impact the operating environment and decision-making on new investments in growth. At this point, it is too early to assess the specific impact on leasing as I'm sure there will be further developments in this area in the coming days, weeks and months. Before getting into specifics of our performance, let me comment on the industrial market broadly. Based on CoStar data, vacancy in Tier 1 U.S. markets was 5.9% at the end of the first quarter, unchanged since year-end. On the demand side, net absorption was 56 million square feet, 24 million of which was in our target markets. Nationally, new construction start volume was 75% lower than the peak of 3Q '22 with just 54 million square feet breaking ground in the first quarter. In our 15 target markets, new starts were 29 million square feet and completions were 39 million. Based under construction totals 200 million square feet and that is 38% preleased. From a portfolio standpoint, our in-service occupancy at quarter end was 95.3%, in line with our expectations. Since our last earnings call, we made further progress on our 2025 rollovers. We have now taken care of 73% by square footage, and our overall cash rental rate increase for new and renewal leasing is 30%. If you exclude the large fixed rate renewal in Central PA, we previously disclosed, the cash rental rate increase is 36%. For the full year, we continue to expect overall cash rental rate growth of 30% to 40% and 35% to 45%, excluding the fixed rate renewal. Moving now to development leasing. We successfully expanded one of our tenants at our First 76 project in Denver by 99,000 square feet, bringing that 200,000 square foot building to 100% occupancy. On the new construction front, in the second quarter, we plan to break ground on a 176,000 square foot facility at our fully leased 1.2 million square foot First Park 121 in the Northwest Dallas submarket of Louisville. Vacancy rates in this submarket have ranged from 4% to 5% since year-end 2022. The building can accommodate one or multiple tenants and will feature auto and trailer parking capacity above submarket standards. Estimated investment is $23 million with a target cash yield of approximately 8%. We also closed a 61-acre site in Philadelphia's New Castle submarket for $16 million. The site is near our successful first day crossing project that we lead last year shortly after completion. It's located within 1 mile of a full I-95, I-495 interchange. In total, we can develop 830,000 square feet. In the second quarter, we will start construction of a 226,000 square foot facility that is the visible and targets the 50,000 to 100,000 square foot tenant segment where vacancy is around 5% today. Total projected investment is $31 million with a target cash yield of approximately 8%. Moving on to investments. We acquired 2 fully leased developments from our joint venture at Phoenix, the 375,000 square foot building A and the 421,000 square foot building B. They are 100% leased to 3 tenants with a weighted average lease term of approximately 7 years. These highly functional buildings include 40-foot clear heights, 200-foot truck courts, multiple access points and prime frontage on Loop 303 in the Southwest Valley submarket. Our basis in the buildings is $120 million, adjusted for our share of JV profit with a cash yield of 6.4%, significantly exceeding market cap rates. With that, I'll turn it over to Scott.

Thanks, Peter. For the first quarter, NAREIT funds from operations were $0.68 per fully diluted share compared to $0.60 per share in 1Q 2024. Our cash same-store NOI growth for the quarter, excluding termination fees, was 10.1%. The results in the quarter were primarily driven by increases in rental rates on new and renewal leasing, contractual rent bumps and slightly higher average occupancy. We finished the quarter with in-service occupancy of 95.3%, down 90 basis points from year-end and 20 basis points from the year ago quarter. Summarizing our leasing activity during the quarter, approximately 1.3 million square feet of leases commenced. Of these, 400,000 were new, 800,000 were renewals and 100,000 were for developments and acquisitions with lease-up. On the capital side, we renewed and upside our senior unsecured revolving credit facility by $100 million, bringing the total commitment to $850 million. Including our extension options, the maturity date has been extended to March 2030. Pricing for the new facility removes the incremental 10 basis points over adjustment that was part of the previous facility's pricing structure. We also renewed our $200 million unsecured term loan with an initial maturity date of March 2028. With two 1-year extension options available, we can extend the maturity date to March 2030. There was no change to the pricing structure of this renewal. We'd like to thank our banking partners for their continuing commitment and support. Lastly, we have given notice to our lenders that we are exercising a 1-year extension option in our $300 million term loan, which will push it to maturity to August 2026. We still have another extension option available by which we can push the maturity to August 2027. Post these transactions, and assuming we exercise the remaining extension option available to us and our $300 million term loan, our next debt maturity is in 2027. Now moving on to our guidance. Our FFO and key guidance assumptions are unchanged compared to our last earnings call. Guidance range from NAREIT FFO for the year remains $2.87 to $2.97 per share. Our assumptions are as follows: average quarter-end in-service occupancy of 95% to 96%. This range reflects approximately 1.5 million square feet of development leasing soon to occur in the fourth quarter. Given this assumption and the fourth quarter leasing assumption for a 708,000 square foot building at Central PA, we expect in-service occupancy to trough in the second quarter and then increase by year-end. Cash same-store NOI growth before termination fees is 6% to 7%. As a reminder, our same-store guidance excludes the impact of the accelerated recognition of a tenant improvement reimbursement in 2024. Guidance includes the anticipated 2025 costs related to our completed and under construction developments at March 31, plus the two new future development starts announced on this call. For the full year 2025, we expect to capitalize about $0.09 per share of interest. And our G&A expense guidance range is $40.5 million to $41.5 million. Let me turn it back over to Peter.

We're off to a good start in 2025. However, like all of you, we will continue to monitor the situation around tariffs and their impact on the levels and timing of tenant demand. We hope to have a more complete picture of its impact on our business in the next several months. As always, we will be focused on executing on our objectives to drive long-term cash flow growth. Operator, we're ready to open it up for questions.

[Operator Instructions] Our first question comes from Ki Bin Kim with Truist.

So going back to the tariff question or topic, if these trade negotiations end up taking just an extended amount of time to resolve, does this pose any kind of near-term tangible risk for your tenancy perspective? For example, I'm not sure how many Chinese 3PLs you have? And what this would mean for that $1 million bad debt reserve.

Jo, Jo, you want to talk about our exposure to Chinese 3PLs?

Yes. Kim, this is Jojo. Basically, if you total all of our spaces that's leased to Chinese 3PLs, they're approximately 450,000 square feet. So they're pretty de minimis. We actually have not done a lot of deals with Asian, 3PLs in the past and turn them down because of credit.

Okay. Great. And how about just maybe not the Chinese 3PLs but like your auto tenants or anything like that? Do they -- do you see any kind of near-term risk?

So in terms of auto tenants, we don't have any tenants right now that are involved significantly in heavy, heavy manufacturing. There's a lot of design and assembly. And so right now, we have not really heard any big impact or any concern from our existing tenants.

And the next question comes from Craig Mailman with Citi.

Just want to clarify, Scott, you said the 1.5 million square feet of development leasing is now 4Q. I recall it was second half '25. Maybe that's just a nuance, but did you guys shift that out at all? And maybe what's the visibility on that?

Yes. So it was second half when we discussed it on the last quarter's call, but the vast majority of it still was in the fourth quarter. We made some slight adjustments to development leasing, but nothing material. So as we stand now, the 1.5 million square feet is in 4Q, that's the assumption. Another material assumption is the 708,000 square footer in Central PA is 4Q as well. And if you want to do a sensitivity analysis of what the impact is of not leasing any of that up, it's only about $0.02 per share.

Okay. And what's the visibility look like on that leasing pipeline today?

I'll turn it over to Peter and Jojo.

Craig, it's Peter. So activity continues to be -- the market continues to see good activity. As we talked about on our last call, we continue to see deals getting made. A fair amount of tenants are obviously concerned about the impact of the timing and the resolution of the tariffs. So some of those are going slower and some have paused. But in general, we have more prospects today for the majority of spaces that we had at 60, 90, 120 days ago. In terms of this building in Pennsylvania specifically, we've been marketing that and we've seen some interest from partial and full building users, but nothing really actionable today.

We continue to see -- Just to add a little bit to Peter, we continue to see increased RFPs. Now this is a pre-tariff, but at the same time, one thing I only add is that in our Chicago asset, recently, we've been seeing also an increased RFPs from manufacturers.

Okay. And then maybe, Peter, bigger picture. I know you guys are planning on starting 2 developments in the second quarter and that yield on the Dallas start seems pretty high at 8%. Could you walk through just kind of thoughts here on incremental starts beyond these 2? And how you guys are kind of underwriting with the potential upward kind of push in input and labor costs?

Yes. So big picture, Craig, in terms of new investments for growth, why don't we look at it that way because that could be developments or cash flowing deals. We're going to remain opportunistic. Clearly, the tariff questions are going to be disruptive to the markets in a lot of different ways. So we're going to be cautious with that -- from that standpoint. But where we have these new starts that we've just talked about, we're really going to be serving some pockets of unmet demand in those markets. So that's the focus. In terms of the geographies, we've said a couple of times in the past couple of calls. It's still going to be places like Texas, Florida and Pennsylvania, Nashville. So yes, we're going to continue to focus there and look to make good risk-adjusted returns, but also factoring in what we're learning, as we all learn about the way forward with the discussions on tariffs.

And the next question comes from Todd Thomas.

A.J., on for Todd. Scott, first one probably for you, just around guidance. So what was the amount in G&A this quarter related to stock-based comp that was nonrecurring?

I don't have the dollar amount in front of me, but you're exactly right that the increase in the G&A had to do accelerated stock-based comp due to tenured employees that was forecasted in our guidance as you saw our G&A guidance for the year was unchanged compared to last quarter, but I can get back to you on the exact amount after the call.

Okay. Perfect. And then on the larger picture, are you seeing any short-term activity on vacant warehousing related to inventory stocking? And what, if anything, are you hearing about larger spaces in the Inland Empire?

Jojo?

Okay. In terms of short term, there continues to be a request on short-term leasing. We typically do not like to do short-term leasing, so we don't have much of that. In terms of larger requirements, I think you asked about larger requirements. The 750,000 to 800,000 square feet and up in Inland Empire is actually pretty active. In fact, just in the first quarter, there were 2 big leases over 1 million feet just for first quarter that got signed in the first quarter for Inland Empire.

The next question comes from Rob Stevenson with Janney.

Are there any markets today that you're seeing notable change either up or down operating fundamental-wise over what you would have expected 3 or 6 or 9 months ago of note?

No, not really. We continue to like South Florida and Nashville and certain submarkets in Dallas even Houston, Lehigh Valley, et cetera. And there's been a few too many alternatives for our taste in a market like Denver. That hasn't really changed. Denver is getting better, having said that, but no, there's been no big change in the dynamics around any of the 15 target markets that we're focused on.

Okay. So nothing in Southern California especially?

I mean, Jojo can comment. It's slowly getting better. Methodically and slowly, the alternatives are becoming leased, but go ahead.

Yes. For the first quarter, the under construction pipeline for IE and L.A. came down. Vacancy actually rate ticked down 30 basis points for IE. So that's good. Deliveries are actually very small at under 2 million square feet for a large market. For IE, the starts were very small for the Q1. It was only 1.1 million square feet. So all the stats in terms of supply is trending the right way. In terms of absorption, they had Inland Empire, like a 3 million square feet net absorption, which is also good trending the right way. IE West was particularly stronger than IE East. Rents were pretty flat in IE West, did not come down, there was a slight reduction in IE East. So overall, it really feels like we're in a trough. Depending on what happens with tariffs, but right now where it seems like we're at the trough.

Okay. And then, I guess sort of dovetailing with that, in terms of tenant demand today, are you seeing better demand at certain square footage levels? Or is the demand fairly even spread across the various buckets sub-100,000, 100,000 to 200,000, et cetera. Any sort of bifurcation that you're seeing in terms of demand today and what's moving faster?

Rob, it's Peter. I would say smaller midsized tenants, as we've commented about previously continues to be active, and as Jojo said, there's demand for the larger buildings in Southern California. But demand continues, Rob, to be pretty broad-based. Our smaller spaces re-lease quickly. We're not seeing any weakness there. So we feel overall good about the level of activity. We just need more persistent decision-making. And hard for all of us to forecast when will that be given the tariff turbulence and headwind that, that's creating.

The next question comes from Vikram Malhotra from Morgan Stanley.

I wanted to -- 2 things. Just first of all, so one of your peers have said leasing velocity or volumes kind of were down 20% in the first 2 weeks of April. And then they sort of carried out a stress test, including GFC type scenarios and said they can kind of hit the low end. So 2 parts. I know kind of what have you seen kind of velocity or volume wise in your markets the last 2 or 3 weeks? And then have you done any sensitivity analysis on like if we have a fairly steep drop-off in occupancy events in the next few quarters, what happens to your FFO?

Scott, do you want to take the sensitivity question?

Right. So Vikram, it's Scott. I think for us, when you looked at the material leasing assumptions that I talked about before, the 1.5 million square feet that we've got assumed in the fourth quarter and the 708,000 square footer in the fourth quarter, if that doesn't get leased up, that's about $0.02 per share. So not a material impact to our guidance. I'd say the other thing we looked at was bad debt expense. When we look back to COVID, that was about $1.8 million compared to our guidance of $1 million. You have to realize that back during COVID, that was 2 tenants. And the reason that, that number was that high is because of the restrictions the government put on us in California to evict tenants. So that's what we've done from a stress test point of view, and I think we stack up pretty well. Peter?

And from a tone standpoint, look, we came into this year with good momentum, a lot more foot traffic, more RFPs, fewer alternatives for tenants and more tenants looking at spaces just in terms of gross numbers. That hasn't changed what isn't going to be helpful for decision-making now is all the uncertainty around tariffs. It's just another headwind, I suppose, on top of all the headwinds we've had in the past, we're built for this. It's fine. We're going to all get through this, and we're going to come out looking good in the end. So the tone is still positive, but the conversations -- a lot of the conversations have paused until people have more clarity on what's going to go forward with the tariffs.

Got it. So just sort of building on that in terms of a pause. I mean, I guess you kept the guide intact, but when you say the conversations pause, does that mean like new leasing that you anticipated in the second half kind of get -- might get pushed out in the third? Is that something you've baked in? And can you just clarify, like when you say pause, have any -- have there been folks who are kind of at the finish line and have just sort of walked away?

So first of all, our objectives for the first half of the year were 100,000 feet, and we've done that already. The rest of the leasing is in the end of the year, as Scott mentioned. So none of that has changed. Our forecast on that remain the same. With respect to pause, largely, that's a general comment. We are seeing some of the conversations pause in our own portfolio. We're hearing about it from the brokerage community and other players that we talk to in the business. It doesn't necessarily mean those requirements have gone away. It just means that with respect to pulling the trigger on investing in growth, some of the prospects have decided to wait.

Got it. Okay. And then just last quickly a clarification. Can you remind us the -- so both the Federal-Mogul and the boohoo space, when did you get the Federal-Mogul space back? Was it the end of 1Q or is it beginning of 2Q? And then just prospects for both those spaces?

Vikram, it's Peter. So the Federal-Mogul lease expired at the end of the first quarter. So it is now vacant in the second quarter. We've seen some interest in full and partial building users for that space. Nothing specific to comment on this morning. The boohoo building, as you know, they are marketing that entire building for sublet. We do have a subtenant in about 1/3 of the building today, and that duration is a couple of years with the ability of boohoo to terminate that. We continue to view that building very favorable where it's positioned in the market, not a lot of competition, great location in terms of proximity to parcel hubs, and there's not a lot of options for users of that size. They are current on their rent. And as a reminder, we have a security letter of credit that covers us for another 12 months of rent or so. So we don't view that as a risk today.

And the next question comes from Michael Carroll with RBC.

I want to circle back on some of your earlier comments on current tenant activity. I know you said that activity seems to be pretty healthy right now, but some tenants have decided to pause. I mean, should we assume from that, that the majority of tenants are still kind of actively moving forward and there's a much smaller percentage that's kind of delaying and not making a decision? I mean, is there a possible to kind of quantify or provide some guidelines on how many tenants have decided to pause?

No. I can't quantify how many. All I would say is that the interest that the pent-up demand to invest in growth that we came into the year with, still exists. The question for them now is when. What's the world going to look like, how much product are they going to need to store and ship and that all depends on the tariffs outcome. So some conversations have paused. It's a little too early to say whether those conversations or those tenant requirements have gone away. We can't say that now. But right now, it looks like a pause. Not all of them. I'm not going to get into how many. That's just not something we're going to track. Renewal -- I can say, renewal tenants are still renewing about 6 months in advance, and that's a good sign. They want to get their transactions done. They're confident in their business. This tariff thing doesn't impact everyone, don't forget. And in fact, the majority of the business that we do is not impacted by this. So this is just another factor on the margin that impacts development leasing for sure, and we're going to work through it.

No, I appreciate that. Now related to the few tenants or some tenants decided to pause, are there any common themes? Like are they in specific industries or specific markets or anything like that?

No. I would say, to echo some of Peter's comments, Mike, right, a number of tenants are continuing to move forward, irrespective of the tariff turbulence, but the pace continues to be somewhat measured. But no, we haven't really seen any specific concentration, if you will. And I think it's still too early to tell, right? A lot of our tenants, let's use the example of the lease we just signed in Denver. That company is in the heavy crane and rigging business. They have nothing to do with tariffs, right? It's all domestic based. So we have plenty of examples of companies who are moving forward. It just might take a little bit longer just given some of the noise in the world today.

Okay. Great. And then just last for me. I know that you've already addressed about 73% of your 2025 expirations. I mean, can you kind of describe what's remaining? Is there anything lumpy within the remaining 27%?

Chris?

Yes. No, what we have on the remaining is they're basically under 100,000 square feet. We really don't have anything bigger than that rolling. So pretty granular.

The next question comes from Nicholas Yulico with Scotiabank.

Just going back to the guidance, and I realize it's a difficult time to be trying to forecast the world. But you talked about the impact that in the second half or in the fourth quarter from, if you don't get certain leasing done, it's going to be $0.02 on the year. So I mean, should we assume then that, that's sort of the bottom end of the FFO guidance range reflects that. I'm not sure what else sort of reflects that just as we're thinking about potential downside scenarios for your guidance, which didn't change this quarter.

Nick, it's Scott. Those are the material lease-up assumptions. There's other new leasing we have baked in guidance. That could be another upside or downside and also bad debt expense. I think we had a question about that earlier. So those are 2 other items that could be variables as well.

Okay. But -- and just again, going back to -- I mean, the idea here is that if things stay tough -- if things were to stay tough on the leasing market, you guys still feel good about hitting the bottom end of your FFO guidance, range?

Yes. Yes. Yes. Correct.

Okay. Great. And then can you just also just remind us in terms of sort of what's assumed for retention in your expirations for the remainder of this year? I know you've already addressed a lot of them. And also just a reminder on the move-outs that are assumed?

As far as retention, we're anticipating the year to be about 70% to 75%. That's pretty much what we've been averaging in the last several years and no surprises there. And again, we have very little under 100,000 square feet, the majority of the remaining rollovers. So very little -- pretty very little variability there.

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

Maybe a couple of questions on development. So on the Philadelphia land deal that you did, but even more broadly, I imagine the ideal situation would be to like buy the land and then start construction pretty quickly. So I guess just could you clarify if that's correct. But then could you go through how possible that is? So for the Philadelphia deal, it seems like it would be tough to time a land acquisition exactly when you want to start a development, but it did happen. So maybe it's not that difficult. But just wondering if you could go through that process broadly and then specific to the Philadelphia deal.

Caitlin, it's Peter Schultz. So that site has been under contract for a number of years, an infill location across from the Newcastle County Airport, but we had to get it rezoned and fully entitled as well as deal with all the agency approvals. And as you can appreciate, that continues to take longer pretty much anywhere around the country. And we were happy to close on that when we did. We thought it would have been sooner, but that process continues to be elongated. And given what it is and where it is, the infill nature of the site, the population density, the road access, Delaware being a lower cost market compared to some of the competition, the building is designed to be single or multi-tenant. And as Peter said, this is a pocket of underserved demand. So we're happy to proceed with that now and close, and we're going to start on the first of the 2 buildings.

Got it. Okay. So that makes sense. Okay. And then on development yields, it seems like the average yield for recent and under construction projects is in the 6% to 7% range. I think you mentioned the 2Q starts would be targeting around 8%. I feel like we hear a lot about higher construction costs, maybe land costs and rent growth, not necessarily keeping up. So just wondering if you could comment on how sustainable you think that 6 to 7 plus percent yield is, recognizing a backdrop of like higher costs and possibly lower rents?

So Caitlin, it's Peter. We, on a regular basis, look at our land holdings and evaluate new opportunities, building in current date construction costs and rental rates. Our most recent update shows that we can put out about $1.9 billion at over a 7% yield on what we have today. Of course, you're not going to do that into markets where there are too many alternatives right now, but that's the opportunity that we have. So yes, we have a great opportunity to grow going forward just on the property that we own. Peter talked about the Pennsylvania transaction, where we can, and that's a good example, we tie up real estate that we don't have to necessarily buy until all of that hard work is done that takes, in some cases, several years to get done, and that's a good example and one of the reasons the yield on that deal is so high.

The next question comes from Blaine Heck with Wells Fargo.

Just another kind of big picture question. In conversations you're having with tenants that might have hit the pause button on leasing given the uncertainty around tariffs, do you get the sense that a near-term resolution of trade agreements could bring about enough confidence to get them kind of to return to normal leasing activity quickly? Or do you think the indecision and mixed messages from the administration could cause a delayed leasing recovery even if agreements are reached?

What I would say is that if you want to use the word recovery, and I guess we're still recovering from too much supply and too much leasing during COVID, that pace, as you know from all these calls over the past couple of years has been slow or methodical and probably on every call, we say that decision-making is slow. Not sure that, that means that all of a sudden, we're going to break the dam and leases are going to get signed left and right if the tariff thing clears up in the short term. And so when you say go back to where we were, we may still go back to a market where the pickup is methodical. And now, as I said a bit earlier, the number of alternatives does continue to shrink, and that's a very good thing. So predicting the pace of uptake once the tariff question has been settled is a pretty tough thing to do.

Okay. Great. That's really helpful commentary. And then Scott, I think you've pointed out that a delay in the development leasing expected in the fourth quarter would only have a $0.02 impact this year, which makes sense given the timing. But can you talk about what that impact would be on more of an annualized basis as we think towards -- ahead towards potential impact to '26 numbers?

I'll get back to you on that, but I think an easy way to do it is, as I would just take that impact, that $2 million and just times by 10 or 11 months, and you'll probably get pretty close to the potential impact in 2026. That would be the easiest math.

And the next question comes from Richard Anderson.

I think they said me. Richard Anderson here with Wedbush. So getting back to the impact from leasing and particularly development lease, looking at your development chart on Page 21 of the supplemental. If you were to get the $1.5 million done, what is the pre-leasing -- or what does the percentage lease look like in looking at those 7 projects in isolation? If 43% today, you've got 4 of them that are 0% leased. Do you see activity across the board? And would that number be 70%, 80%, if you get it all done or more or less? Just curious what your thoughts are there.

So you're looking at the developments under construction at March 31?

Yes.

None of that is embedded in our 2025 guidance. That is forecasted for post that time. So any lease up that impacts '25 would be incremental to FFO.

Okay. Okay. Excuse me. I understand that. But I guess when I think of this -- the speculative leasing cap $800 million, rough math, about 10% of your enterprise value, at what point do you start sort of reconsidering that? Have you reconsidered that? And is that sort of the way you look at that $800 million as a 10% number? Or how do you get to it? And under what circumstance would you start to consider reducing it?

Yes. So it is a formula. It is based on our equity and debt market cap. It is a cap and not a target. We're going to operate according to the strength of the markets and not because we have cap space. I think the good thing about the cap is that in bull markets, you don't get out over your skis. But we're only using about $470 million of it today, including the 2 new developments. And so reducing it is not really a topic of discussion for us. And as we continue to grow, obviously, you've seen us in the past increase it. So yes, there's really no reason to reduce it because we don't execute on new starts based on how much availability we have, we do it based on the opportunity to earn great risk-adjusted returns in the submarkets that we're targeting.

Okay. Great. And let me reformulate my first question because I butchered it. The exposure that you have there, even though it's apples to oranges to the $0.02 that you talked about. Does it give you any pause at all in this environment? And does it make -- does it lead you to think more about more in the way of build-to-suits versus speculative development? Is -- again, is any of that sort of entering your mind at this point?

So we are in a place where we will execute on starts again where the markets are strong and where there's unmet demand in those submarkets. In terms of volume, okay, we're not going to get into a position where we would somehow impair our balance sheet or otherwise being in a rough capital position. So again, looking at good risk-adjusted returns there. No, it doesn't concern us. If we got to the point where nothing was leasing for a period of time, we would probably pause, but then the rest of the market is probably having a bigger issue as well.

Rich, the other thing I'd add more -- maybe more granular to your question is, as you look at each of those projects, were all designed for multi-tenant as well as single tenant. So we have a lot of flexibility. So it's not a binary output.

And we're always open for business on the build-to-suit front. You've seen us execute on those, and we have some in the [indiscernible].

And the next question comes from Mike Mueller with JPMorgan.

And if there's a lot of background noise here, I apologize. I'm not in like an ideal situation for this. But two questions on development. Number one, for the land parcel that you bought. How do you think pricing has changed for that over the past year or so? And then the second question is, was there any consideration to pausing the 2Q development starts just given what's been going on in the past couple of weeks? Or do you think they just made sense regardless of the current environment?

So Mike, it's Peter Schultz. In terms of the pricing on the land parcel that we just closed on, it's probably -- the market value is probably double what we paid for it given that we put it under contract a number of years ago. And as we talked about earlier, we had to work through some prolonged rezoning entitlement and agency approvals.

And these 2 projects are not necessarily going to be trade-related tenancies. These are going to be smaller tenants, local regional guys and -- so yes, that's...

And the next question comes from Vince Tibone with Green Street Advisors.

Could you just clarify the cap rate on the Phoenix acquisitions? Is the 6.4% cap rate based on the net purchase price of $120 million or the gross purchase price of $140 million, if you were to add back the incentive fees you would have earned, I imagine otherwise?

Sure, Vince, this is Jojo. Basically, the -- that's the price that we paid to get us at 6.4% cap. The market price, the valuation for the property is about 5.3%. And so we basically had a third-party market opinion on the asset. And then the resulting 6.4% is net of our profit -- JV profit.

Makes sense. That's all right. Yes. Yes. No, that's what I figured. Are you able to share kind of when that 5.3% valuation would set just given all the volatility in terms of read-through to other deals?

Sure. When that valuation was set, it was Q1 of this year. We had a good amount of comps that point into a valuation of 5.25% cap. And it's really hard to tell going forward on this situation with tariffs. There's very few trades in the market. But again, this is a -- when you look at the valuation of Q1, there's a lot of the long-term investors who are investing in Phoenix today at high cores low buys because of the location of the asset in the market.

I think it's safe to say based on the trading environment a month ago, the market clearing cap rate was 5.25%.

Yes, absolutely.

So that's pretty recent, Vince.

Yes. No, that's helpful. And then just switching gears to the development. I mean, both the projects you announced seem to cater to smaller tenants -- to multiple tenants, smaller suite sizes. Were those just more kind of idiosyncratic? Or is this potentially first Industrial doing -- going to pursue more light industrial development going forward than maybe the company has historically?

No. I think it's -- first of all, we always try to deliver the size and amenities to the market that are going to meet the deepest part of the demand in that market. These particular submarkets are suited to this kind of demand. And that's really what drives it. We're going to continue to do that across our 15 target markets. And sometimes that's going to mean 100,000 feet and sometimes it's going to mean 1 million feet. This is not light industrial space. You mentioned that it's -- so maybe you're using that term just to reflect the size, but it's not light industrial.

Also just to add, we actually overinvest in some of our products. I'll give you an example, for the 175,000 footer which is the last building on a fully leased part of 1.2 buildings, which comprise 5 buildings. There are fully leased buildings exceeding single tenant that exceeding 175,000. The reason we multi-tenant designer buildings is for future proofing and added feasibility. And what happens is that we have the higher -- highest functional building there, and we can demise to multiple tenants, that actually increases the functionality of the building.

And the next question comes from Brendan Lynch with Barclays.

There are some press reports about Amazon having a $15 billion expansion plan. I wonder if you're seeing any difference in their approach to requesting RFPs or if they're doing anything different than they had in the past. And if you get any sense that maybe they're changing their approach to warehousing, perhaps like bringing more capacity in-house?

So they want to fulfill same-day. So they're very focused on that, and that's what this big investment that you've read about is about. You might recall, a number of years ago, they did a similar thing looking at multi-story and put it out to bid. We'll see what they get back on this in terms of economics, whether they like it or not. But the thrust for this is just to build out their same-day delivery capability.

Brendan, this is Peter. The other thing I'd add is we are seeing them very active in several markets today.

And that just includes leasing space and not actually having -- doing a financial transaction just like the $15 billion that you mentioned.

Okay. Great. That's helpful. And maybe a second question. Can you talk us through what is the minimum percent of rent that you'd ideally like to drive in any of your given markets to kind of drive some of the local scale that you've talked about in the past?

I wouldn't say we have a minimum allocation. We're really focused on the markets that we think is going to generate the highest rent growth, and therefore, the highest value accretion. South Florida is a great example. We had maybe 1% of our space there. And that's heading to double digits, and it's because it's a great market with obviously natural barriers to entry with the Atlantic on one side and the Everglades the other. So no, we don't have a minimum. Now, we have 1 building in Salt Lake. I wouldn't say that that's a primary market for us, but we really like the building, so we're keeping it. So we do want to have some kind of critical mass wherever we go, but we don't have a minimum percentage target for the portfolio allocation.

Also just to add to what Peter said, we also measure scale in terms of our organizational capabilities. In all of the 15 target markets, we have full management, asset management, leasing, development and acquisition abilities.

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

Just back to the developments and land acquisitions. Maybe this is just a question that's not for now, but I was curious to figure that I would ask. So you mentioned on that Philly project, how the land value probably doubled over the past few years. So whether it's that one in particular or just a general example. Can you go through how that land purchase works and that you can agree to a price being contract for a few years, maybe the market changes, then the terms don't change. It seems like it works out great for you. So I'm just wondering what indicates the timing of closing in that sort of situation? Is it up to you, part of the original agreement? Is it more of like an option? I guess I'm wondering also like how the seller agrees to that, assuming uncertain situation?

So Caitlin, our local team, this is our expertise. And this was an off-market deal with a relationship that we cultivated with the owner of the property. And that's typically how we like to approach it, where we buy subject to getting all the entitlements and derisk that process. It took longer, and we were able to negotiate some extensions as well. So I give a lot of kudos to our team on how they structure that.

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

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