First Industrial at Nareit REITweek: Navigating Market Volatility

On Tuesday, 03 June 2025, First Industrial Realty Trust Inc (NYSE:FR) participated in the Nareit REITweek: 2025 Investor Conference, where CEO Peter Baszliki and CFO Scott Musil provided insights into the company's strategic direction amid market volatility. While the company remains optimistic about its strong portfolio performance, challenges such as tariff uncertainties and capital market fluctuations were highlighted.

Key Takeaways

• First Industrial reported a national vacancy rate of 5.9% and net absorption of 54 million square feet in Q1.
• The company maintains a robust occupancy rate of 95.3% with a cash same-store NOI growth of 10.1%.
• Development starts have decreased by 60% to 70% from their peak, yet demand drivers like e-commerce and supply chain diversification remain strong.
• A $450 million senior note offering was completed with a 5.25% coupon rate.
• The company projects a 35% to 45% cash rental rate growth for the year, excluding a fixed rate renewal.

Financial Results

• Occupancy and Rental Rates:

- Quarter-end occupancy stood at 95.3%.

- Overall cash rental rate increased by 30%, or 36% excluding a fixed rate renewal in Central PA.

- Full-year cash rental rate growth is expected to be 35% to 45%, excluding the fixed rate renewal.

• Same Store NOI Growth:

- Achieved a cash same store NOI growth of 10.1%.

• Development and Acquisitions:

- 1.5 million square feet of development leasing is targeted for Q4, with an additional 708,000 square feet in Central PA.

- Acquired two fully leased developments in Phoenix, totaling 796,000 square feet, with a cash yield of 6.4%.

• Debt and Leverage:

- Leverage ratio is 5.2 times net debt to adjusted EBITDA.

- Completed a $450 million senior note offering at a 5.25% coupon rate.

• Dividend Growth:

- Reported a 20.3% dividend growth in Q1.

Operational Updates

• Leasing Activity:

- Strong renewal activity with deliberate new tenant decision-making due to tariff uncertainty.

- 3PLs leased about 35% of space this year, with other active sectors including retail, food and beverage, and manufacturing.

• Market Conditions:

- Nashville and South Florida show varying rent trends, while Southern California's rents are stabilizing.

• Development Projects:

- A 71,000 square foot building started in Lewisville, TX, with an expected yield of 8%.

Future Outlook

• Rent Growth Forecast:

- National rent growth is expected to align with inflation, around 2% to 3% next year.

• Development and Acquisition Strategy:

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- Focus on new starts where demand is deepest and selective real estate acquisitions similar to First Industrial's builds.

• FFO Guidance:

- Development leasing of 1.5 million square feet and lease-up of 700,000 square feet are crucial to meeting FFO guidance.

Q&A Highlights

• Tariff Impact:

- Tariff uncertainty is affecting development leasing decisions.

• Demand Outlook:

- Anticipation of increased activity following Amazon's $15 billion investment.

• Capital Allocation:

- Development yields of 6.5% with an IRR of 8.5% plus are required for new deals.

First Industrial's detailed performance metrics and strategic insights are available in the full transcript below.

Full transcript - Nareit REITweek: 2025 Investor Conference:

Ki Bin Kim, Senior REIT Equity Analyst and Managing Director, Truist: Thank you, everyone, for joining the First Industrial NAREIT session. My name is Ki Bin Kim, Senior REIT Equity Analyst and Managing Director at Truist. It is my pleasure to introduce the First Industrial management team, starting with my left, Peter Baszliki, CEO and Art Harman, Head of Investor Relations. And to my right, we have Scott Musil, Chief Financial Officer. We'll start off the session with some opening remarks before opening up the Q and A.

So Peter, the floor is yours.

Peter Baszliki, CEO, First Industrial: Thank you, Ki Bin, and thank you all for joining us today. Our first quarter call only six weeks ago, but it seems like ages ago with all of the claims, reclaims, threats and accommodations in the ongoing tariff discussions that have dominated the headlines. They've also driven significant swings in the capital markets as well as wreaked havoc on those responsible for making decisions regarding new investments and growth. We, our customers, and I'm sure all of you look forward to a day where there's more clarity on that subject. Stepping away from all that noise, the underlying picture for our business remains strong.

With a national vacancy rate of 5.9% and net absorption in the first quarter of 54,000,000 square feet. We continue to digest some of the post COVID construction boom and the excess space leased by users fearful at the time of not having enough. Since then, the market has reacted with discipline as development starts are down 60% to 70% from the peak. E commerce, supply chain diversification and reshoring continue to drive demand for logistics space, and we're well positioned to capitalize on these long term drivers. Looking specifically at new tenant demand, we entered 2025 with the number of tenant inquiries and tours picking up.

Today, prospect activity levels remain roughly the same, although decision making remains deliberate given the tariff saga along with the volatility in the capital markets. Renewal activity continues to be good. At the time of our call, we had taken care of 73% by square footage, and our overall cash rental rate increase for new and renewal leasing was 30%. If you exclude the large fixed rate renewal in Central PA that we previously disclosed, the cash rental rate increase is 36%. For

Ki Bin Kim, Senior REIT Equity Analyst and Managing Director, Truist: the

Peter Baszliki, CEO, First Industrial: full year, we continue to expect overall cash rental rate growth of 30% to 4035% to 45% excluding that fixed rate renewal. This would be an excellent follow-up to back to back years of 50% plus cash rental rate growth. Our portfolio continues to perform very well with many key metrics at or near the top among our industrial REIT peer group. Our occupancy at quarter end was 95.3% and our cash same store NOI growth was 10.1%. We had a tremendous year in 2024 with 4,700,000 square feet of development leasing across 10 of our 15 target markets.

Per our call in which we maintained our FFO per share guidance with an implied growth rate of approximately 10%, Our development leasing target for this year is an incremental 1,500,000 square feet all slated for the fourth quarter plus lease up of our 708,000 square foot are in Central PA. The dip from 4,700,000 to 1.5 is because all we have left is 1,500,000 square feet of developments to lease. We continue to see future growth opportunities from disciplined development investments supported by our strategic land positions and through select acquisitions. We have recent starts each with their own story in Nashville where we signed two five hundred thousand square foot leases last year, the Delaware submarket of Philadelphia as well as the Lehigh Valley and Dallas. The acquisition market for the types of properties we want to own remains competitive.

We were pleased to acquire two fully leased developments from our joint venture in Phoenix in the Southwest Valley submarket, the 375,000 square foot Building A and the 421,000 square foot Building B. They're 100% leased to three tenants with a weighted average lease term of approximately seven years. Our basis in the buildings is $120,000,000 adjusted for our share of JV profit with a cash yield of 6.4%. We're also well positioned for future development opportunities as economic and submarket conditions warrant. Our land positions across our target markets can accommodate 15,000,000 square feet of growth.

Our balance sheet is strong as evidenced by our manageable debt maturities, low leverage of 5.2 times net debt to adjusted EBITDA, high fixed charge coverage of 5.1 times and solid credit ratings. We also just reached an important milestone with the completion of our first public bond offering since 2007 in the form of a 450,000,000 senior note at a coupon rate of 5.25%. Since 2010 as we transformed and grew our company, private placement transactions have generally been the most efficient and cost effective means of raising long term debt capital. Given the size and quality of our asset base, our laddered maturity schedule and our path for future asset growth, accessing the public markets is now a beneficial form from a cost and market depth standpoint. Demand from investors was strong and the recent upgrade of our rating to BBB plus by Fitch was quite timely and helpful.

To wrap up our comments, our primary focus is to drive future cash flow growth and outperform through the cycle. That's being reflected in our dividend growth of 20.3% in the first quarter. With that Ki Bin, I'll turn it back to you.

Ki Bin Kim, Senior REIT Equity Analyst and Managing Director, Truist: Thank you, Peter for that great overview. So with tariffs on everyone's mind, post April 2, how has leasing activity behaved overall? And maybe you can touch on development leasing as well.

Peter Baszliki, CEO, First Industrial: Yes, I mean overall, certainly with renewals and new leases, that part of the business has been very strong. We have a lot of tenants who are continuing to grow in their space. It takes about, I'm sorry, tenants are tending to renew six or seven months in advance. We see a lot that shows us that our tenants are highly confident in their business. On the development leasing side, it's a little bit different.

To make a decision to invest or lease a 500,000 square foot building, that's a 50 or $60,000,000 investment, between the lease itself, the equipment and racking, all of the product and material that goes into the building, hiring people, so labor cost, it's a very big investment. And with all of the uncertainty in the world today with respect to tariffs, that decision making has now been bogged down. So on the development front, it's still a very methodical process and yes, leases are getting done but they're getting done here and there. There isn't really a consistent flow of development leasing happening. We would like to see the tariff issue settled.

Doesn't really matter how it's settled as long as it's settled. Once people know the rules of the game, they know that how to invest either in, around, or through, whatever those rules are. But they need to be set, and right now that uncertainty is causing people to stay on the sidelines.

Ki Bin Kim, Senior REIT Equity Analyst and Managing Director, Truist: And if we stick with that topic, do you feel like there is a wall of demand, maybe call it shadow demand building while we're in this period of uncertainty and once we do have some certainty, do you think there could be a maybe more noticeable acceleration in demand?

Peter Baszliki, CEO, First Industrial: Yeah. You know, a lot of the same tenants have been hanging around the hoop now for a year. We do see new tenants come and go. I would say that based on what we see, there is some pent up demand. What will be interesting, so you might remember in 2020, Amazon leased more square footage than the next 30 most active tenants combined.

And in '21 and '22 now, there's a very heavy COVID influence here, so it's not necessarily apples to apples. But it but in '21 and '22, all the other players got very active and leased up space. In fact, some leased space they didn't really need as it turns out. Either way, Amazon was a catalyst at that time for activity because most businesses in some way are competitors of Amazon and when they do something, it can't be ignored by their competitors. Now we see they have, expressed an interest in investing $15,000,000,000 largely in more rural locations in industrial which is fine.

That's still helpful to the business. And we will see as they try to build out and I'll call it the knockout punch, same day delivery, you call by ten in the morning or you go online by ten in the morning and you have your product by three in the afternoon. They have figured out that we are very, we like to have things yesterday in this society and if they can do that, that's going to be an incredibly, powerful competitive weapon. So we're hoping and perhaps like 2020, this move will cause other tenants to react. Now, right now, there's no cost to waiting.

That could end up being a cost to waiting. We need there to be a cost to waiting, and, and that'll create a more a higher sense of urgency for tenants to lease new space.

Ki Bin Kim, Senior REIT Equity Analyst and Managing Director, Truist: And any particular industries that are more or less active today?

Peter Baszliki, CEO, First Industrial: So the three p l's are very active. In fact, this year they've leased about 35% of, the space that's been leased. That's I I don't know if that's a record, but it's the highest I remember. General retail and wholesale would be next at about 19%. Food and bev is very active and manufacturing, those would be the top four active sectors.

Ki Bin Kim, Senior REIT Equity Analyst and Managing Director, Truist: So what does this all mean for rent growth and maybe you can share your forecast and maybe early thoughts on rent growth in '25 and '26.

Peter Baszliki, CEO, First Industrial: We've all been guessing around that now for a while. Rent growth this year, you know, look, there are some markets where there's definitely Nashville is the best market in the country, rents are definitely growing there probably in the five ish percent range, maybe a little bit higher. South Florida was similar. I would say rents are flattish there now, still one of the strongest markets in the country, but there's been a little bit of a pause there in terms of rent growth.

And you have SoCal where rents continue to come down but in small increments, 1%, two %. We feel very much like that market has hit the bottom. It's certainly a U shape, not a V shape, but that market has been stabilizing let's say for the past six months or so. Overall next year, I don't know but probably you're looking at rent growth nationally of about the rate of inflation, two, two and a half, 3%, something like that. Nothing to to really blow the doors off and that's logical when you consider that we have pretty high availability rates in many markets and we need to lease up that space.

Ki Bin Kim, Senior REIT Equity Analyst and Managing Director, Truist: And on the Los Angeles market, you touched on the point that maybe we're at the bottom. Is that enough to entice potential customers that may have left the market due to higher rents to come back?

Peter Baszliki, CEO, First Industrial: We have seen some tenants leave, I'll call it less expensive properties to go into nicer properties. A little Some of that has happened. Right now, again, the port activity is good. We just have, you know, the Inland Empire where rents grew 200%, you know, by definition you got too much space now. People see rents growing that fast and they put shovels in the ground and they build buildings that eventually maybe they shouldn't have.

So rents went up about 200% and they've come down about 35%, but still over that five year, six year period, you've got about a 12% CAGR on rent growth. So still very good, but we have space that needs to get absorbed.

Ki Bin Kim, Senior REIT Equity Analyst and Managing Director, Truist: And you started two new development projects in Dallas and Philadelphia. What gives you the confidence to launch these projects given some of the tariff related uncertainty? So

Peter Baszliki, CEO, First Industrial: the project is in Lewisville, just outside Dallas. And there, we have a number of, buildings that we've already built. We bought two parcels and on the back of one of the parcels is a stream that cuts off a sizable chunk of the land and we never contemplated the possibility of building on what I call the island or the piece that was behind the creek. Anyway, we looked into it and lo and behold we got approval to bridge that stream. So now that land was all, from a from an expense standpoint, expense through the other four or five buildings that we built there.

So it's quote free land in a market that is again very very tight. We'd love more land there, can't find it. And so we started a 71,000 square foot building on that found land and it's going to be a nice yield about 8%.

Ki Bin Kim, Senior REIT Equity Analyst and Managing Director, Truist: Can we talk about the strategic land bank which you can develop 16,000,000 square feet on? Do you expect to announce additional starts this year? And are you possibly looking to add more land?

Peter Baszliki, CEO, First Industrial: So we are looking to add land in what I'll call the Eastern half of the country and I count Texas in that, not the Western half. We have enough there. And in terms of starts, it really depends on what happens. We we wanna see consistent flow of development leases happen nationally. Whether it's in our portfolio or wherever, I just wanna see it happening.

Right now it's in and out, in and out and we need to see that pick up. That will give us the confidence that we can deliver into some of these markets that we've got targeted. Now we always target markets where the deepest part of the demand is and so that's why we're doing deals like we do are in Lewisville. If we had more land in Nashville which we are looking for, we would do it there too. And South Florida is a great market, Lehigh Valley, etcetera.

I don't know if we'll the answer is I don't know if we'll have more starts this year. We'll have to see what happens with the tariffs.

Ki Bin Kim, Senior REIT Equity Analyst and Managing Director, Truist: And maybe we could take a step back and just talk about the development pipeline You've been able to deliver some pretty remarkable yields over time. Can you just remind us just broadly what that looked like? And if I remember correctly, it was more spec than build to suit. Is that changing at all?

Peter Baszliki, CEO, First Industrial: No. It's, by far and away more spec. So maybe I can summarize this way. Since 02/2010, by approximate value, we've now built 49% of what we own. We acquired another 17 and we own the very best of what we started with, but we only own 34% of what we had in 02/2010.

So we have completely changed the company. And the development yields on that and the and the margins have been 40 to 50% on average and the yields have been in the 7% range on average. So we have built the right product in the right markets with the right functionality targeting the deepest part of tenant demand and now it's all pretty brand new. In fact, you look at from an age standpoint, our portfolio is the the youngest against the peers that we compare ourselves to.

Ki Bin Kim, Senior REIT Equity Analyst and Managing Director, Truist: That's interesting. Let me pause there to see if anyone in the audience had a question. Are you seeing any attractive acquisition opportunities in the market and maybe you can give an indication of where pricing is coming in?

Peter Baszliki, CEO, First Industrial: So there have been some deals out there. The deal flow has flown considerably since April 2. I would have said this, pre April 2, and this is gonna sound low, but cap rates were kind of 4 70 5 to five and a quarter in the best markets. I don't know what that number is now, because there haven't been meaningful trades in the best markets since April 2. I'm sure it's moved and I'm sure the people that own are gonna figure they're gonna wait for this to blow through and think about accessing the market later.

So deal flows down considerably. You know, we look at things, but we're very choosy. We wanna buy, real estate that is just like what we build. Number one, that doesn't come to market often, and number two, when it does, it's usually eBayed and the price is silly. So we we but we look.

Ki Bin Kim, Senior REIT Equity Analyst and Managing Director, Truist: And Scott, you recently did a 450,000,000 public bond offerings, your first since 02/2007. Can you explain the rationale behind it and why public versus private? Sure.

Scott Musil, Chief Financial Officer, First Industrial: We were very pleased with the results of the offering. I actually worked on the last deal in February ago. The order book was enormous for our first deal back. It was $2,000,000,000 based upon our $450,000,000 deal. It was over 4.5 times oversubscribed.

The rationale was a couple of points. One, the pricing is better in the public market. We've generally been a private placement issuer between 2017 and 2020 private was better. But looking at it now and generally over the long run public pricing is better. So it's probably 20 to 25 basis points inside.

Two, when you're a public issuer, you have to have enough deal flow and we felt we had the size to be able to do that.

Ki Bin Kim, Senior REIT Equity Analyst and Managing Director, Truist: And maybe you can just recap for us your leverage ratio and your debt maturity profile.

Scott Musil, Chief Financial Officer, First Industrial: Sure. The first debt maturity we have coming due, we've got a couple of pieces bank term debt is in 2027. We've got a private placement coming due as well. So we got a couple of years before that comes out and we've got maturities I think all the way going through 02/1932. As far as leverage is concerned, we've been hovering around five times or a little under five times.

We're at 5.2 times at the end of 1Q. We plan to keep it in that range over the next long term. I would say if we saw a large acquisition that we really liked maybe we'd increase leverage a little bit with the idea of reducing it at a later date.

Ki Bin Kim, Senior REIT Equity Analyst and Managing Director, Truist: Great. And how is tenant credit or bad debt trending? Any material tenants on the watch list?

Scott Musil, Chief Financial Officer, First Industrial: Sure. I'll take that one again. Bad debt expense since COVID, so 'twenty one, 'twenty two, 'twenty three, 'twenty four, and I would even say this year has been very low. So if you look, I've got a statistic here. If you look over the last ten years, our bad debt expense has been about 12 basis points of total revenues.

In the first quarter that came in at about $250,000 which is about 14 basis points of revenues. So as far as the watch list is concerned, it's the one we've been talking about for a year. It's a company called Boohoo. They paid their June rent. If we have issues with them, we do have a letter of credit that covers about a year's worth rent.

That's the only material tenant.

Ki Bin Kim, Senior REIT Equity Analyst and Managing Director, Truist: And maybe tied to that, you know, why has a bad debt been so low for

Scott Musil, Chief Financial Officer, First Industrial: you guys over so many years? We have a really good credit underwriting process. So any tenant, a new tenant that has a base rent of $200,000 or higher or TI package of that has to go through the corporate office for review. It goes through that team, it goes to me for a credit recommendation, then it goes out to the field. And I would also say our two EVPs, Jojo and Peter Schultz, do a great job with credit as well, and we work together to craft the best deal.

Ki Bin Kim, Senior REIT Equity Analyst and Managing Director, Truist: And turning to FFO, if you hit the midpoint of your FFO guidance this year, you'll deliver about 10 FFO per share growth year over year, one of the highest fastest growing REITs out there. What are the primary swing factors in meeting or exiting that

Peter Baszliki, CEO, First Industrial: figure? Yes.

Scott Musil, Chief Financial Officer, First Industrial: As Peter mentioned, it's development leasing. We've got 1,500,000 square feet in the forecast. It's all assumed to lease up in the fourth quarter and then we've got one other big core lease up of 700,000 feet. That's the I would say the biggest factor. If we don't lease up any of that is only $02 a share of FFO impact though.

So de minimis, But hopefully we'll have more to report on that over the next quarters on that lease up.

Ki Bin Kim, Senior REIT Equity Analyst and Managing Director, Truist: And Peter, you touched on the strong rent growth historically and currently that you're having today leading to great lease spreads of I think you said 35% to 45 cash lease spreads year. One question I get all the time is how long does that last? Can elevated lease spreads stay here into '26 or '27? How do you think about that?

Peter Baszliki, CEO, First Industrial: We were asked that question a couple of years ago and I said that has some legs based on the duration of our leases. Obviously, you've seen it. We had a record for our own portfolio in '23 at 58%, and last year 50%. This year it's going be like you said 35 to 45 excluding that one fixed rate renewal. It's going to have a little bit more legs to it, that's all I can say, and we expect.

Now with rents generally falling or being flat in certain markets, obviously that number is going to come down. And you can't defy gravity when rents are coming down.

Ki Bin Kim, Senior REIT Equity Analyst and Managing Director, Truist: Let me pause here again to see if anyone had a question.

Peter Baszliki, CEO, First Industrial: Yeah, I can hear

Ki Bin Kim, Senior REIT Equity Analyst and Managing Director, Truist: How do you think about

Unidentified speaker: managing capital spend on acquisitions, development starts, dispositions with where the stock trades and the spread between private private markets and public markets?

Peter Baszliki, CEO, First Industrial: Yeah. So when we look at new developments, we have a requirement obviously to make money. And we're total return investors, IRR investors. New developments, if we were to start new developments and that's an if, we'd require about a 6.5 yield with an IRR in the 8.5 plus range. The two deals that we just started are more like eight and ten plus.

So, that's how we look at that and we fund it largely through either drawings off our line or out of free cash flow after the dividend. We raised our dividend quite a bit in the first quarter because we're making a lot of money and the REIT rules tell us we have to pay it out. So I suppose that's a rich person's problem. So that's how we look at our requirements. On acquisitions, obviously those numbers are a little bit lower, there's less risk, but not if they're empty.

If they're empty, requirements are about the same. Anyone else?

Ki Bin Kim, Senior REIT Equity Analyst and Managing Director, Truist: So Peter, what do you think about the growth in e commerce? Do you think it continues? Maybe you can also talk about some of the different things that are happening in the sector in terms of technology, robotics and EV. I mean, that's a lot of different topics, but ultimately, how do you see that potentially impacting the industrial business?

Peter Baszliki, CEO, First Industrial: So the first part of your question.

Ki Bin Kim, Senior REIT Equity Analyst and Managing Director, Truist: E commerce continue to grow.

Peter Baszliki, CEO, First Industrial: So e commerce, it's interesting when COVID came, the percentage of retail sales that were happening via e commerce jumped and since then have continued, I'll say, to trickle up. So it's it's one of the statistics, that has continued to climb, even after COVID. Obviously, that's a nice tailwind for our business. What was the

Ki Bin Kim, Senior REIT Equity Analyst and Managing Director, Truist: So like robotics and Too many.

Peter Baszliki, CEO, First Industrial: I I would say there's not a lot of our tenants are heavy into robotics. You know, we do have Amazon in about 4.8% of our space. So far that technology has not become any kind of a differentiator. Clear height definitely is and, building to the proper clear height is very important. Not everybody stacks but, for long term competitive, positioning for your asset, you need to build the proper clear height.

And you know, within that people can put as much in the way of robotics as they as they choose. Interestingly, a lot of our tenants don't want solar. They find that it's not reliable. So you know, we're we're very, you know, we look at a lot of opportunities to put solar on our rooftops. It's It's a very complicated subject, but the first step is always to talk to the tenant about what they do and don't want.

Great. Any last questions?

Ki Bin Kim, Senior REIT Equity Analyst and Managing Director, Truist: All right. Well, thank you everyone for joining the first industrial session.

Peter Baszliki, CEO, First Industrial: Thank you. Thank you.

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