First Industrial Realty Trust(FR) - 2019 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q2 2019, diluted EPS was $0.31 compared to $0.36 in the same quarter last year [17] - NAREIT funds from operations were $0.43 per fully diluted share, up from $0.39 per share in Q2 2018, primarily due to an increase in NOI from development lease-up and same-store growth [17] - Cash rental rates increased by 13.4% overall, with renewals up 14.1% and new leasing up 9.9% [19] Business Line Data and Key Metrics Changes - Occupancy at quarter-end was 97.3%, flat from the previous quarter and up 40 basis points from a year ago [17] - Same-store NOI growth on a cash basis, excluding termination fees, was 3%, driven by rental rate increases [17] - The company signed approximately 3.1 million square feet of long-term leases in the quarter, with tenant retention by square footage at 73.1% [17] Market Data and Key Metrics Changes - Nationally, CBRE reported preliminary Q2 net absorption of 31 million square feet and new completions of 41 million square feet, with year-to-date totals of 67 million square feet of net absorption and 84 million square feet of completions [6] - The industrial market remains healthy with high occupancy levels and broad-based tenant demand, supporting continued rent growth [6] Company Strategy and Development Direction - The company is focused on capturing opportunities for rent growth and profitable new investments to enhance its portfolio [24] - The development pipeline includes $449 million of completed developments, with 6 million square feet currently 64% leased [10] - The company continues to seek quality land sites for future growth, acquiring land adjacent to existing properties for new developments [10][11] Management's Comments on Operating Environment and Future Outlook - Management noted that the industrial market is tight, with limited alternatives for tenants, indicating a landlord's market [25] - The company expects to maintain strong performance in future rollovers, with 83% of 2019 rollovers signed at a 13% increase [25] - Management expressed confidence in the ability to continue driving value through speculative development pipelines without concerns for volume drop-offs [49] Other Important Information - The company celebrated its 25th anniversary as a public company, highlighting its resilience and stakeholder support [16] - A private placement of $150 million in senior unsecured notes was closed, with proceeds used to refinance existing debt and fund new investments [19][20] Q&A Session Summary Question: Insights on cash rent spreads and future mark-to-market - Management indicated that current year rollovers are a strong indicator of future performance, with 2019 rollovers showing a 13% increase [25] Question: Impact of cash freight index drop on business - Management noted that while the cash freight index has dropped, it has not materially affected tenant operations, and demand remains strong in tight port markets [30][33] Question: Dividend growth and payout levels - Management stated that dividends are grown with cash flow and there is a cushion for future increases [34] Question: NOI guidance and potential deceleration - Management explained that the increase in guidance reflects first-half outperformance, with conservative assumptions for bad debt in the second half [36] Question: Asset recycling program and disposition strategy - Management confirmed that the guidance for asset sales remains at $125 million to $175 million, with a focus on maximizing value in sales [45] Question: Market conditions and construction pipelines - Management highlighted that while some markets have elevated supply, demand continues to be strong, particularly in tight submarkets [46][48]