First Industrial Realty Trust, Inc. (FR) Q3 2026 Earnings Report, Transcript and Summary

Good day, and welcome to the First Industrial Realty Trust Third Quarter 2026 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 very much, Dave. Hello, everybody, and welcome to our call. Before we discuss our third quarter 2026 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, October 22, 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, 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 Peter.

Thank you, Art, and thank you all for joining us today. Our team delivered another solid quarter marked by some key leasing wins for our in-service portfolio including excellent renewal signing activity on our 2027 expirations. Leasing markets continue to exhibit more strength and depth of demand. We see this among our prospects, and it's also reflected in the third quarter market statistics I will touch upon shortly. We were also active on the capital allocation front, closing on a high-quality, fully leased building and a new site that is developable in the near term. On the strength of our performance, we increased our NAREIT FFO guidance midpoint by $0.01 per share. Scott will walk you through our guidance shortly. Turning back to overall market conditions. National industrial real estate fundamentals continue to trend positively. According to CBRE, national vacancy improved again, down 10 basis points to 6.3% in the third quarter. Nationally, third quarter net absorption was 105 million square feet, outpacing completions of 79 million square feet. This was the highest quarterly level for net absorption since the fourth quarter of 2022. Year-to-date, net absorption of 238 million square feet is also ahead of completions of 183 million. Given the improved demand, the under-construction pipeline moderately increased and is now 279 million square feet, up from 252 million as of our last call. It's important to note that the annualized pace of net absorption from Q1 to Q3 2026 exceeds total square footage under construction. In addition, approximately 36% of the pipeline is preleased, which is similar to Q2. We ended the quarter with in-service occupancy of 94.1%, which exceeded the 93.5% forecast we telegraphed on our second quarter earnings call. This improved result was due to incremental leasing in our in-service portfolio. Our 2026 rollovers are nearly complete as we've now taken care of 94% by square footage and our overall cash rental rate increase for new and renewal leasing is 38%. Looking ahead to 2027, we've already inked some key lease renewals and are making good headway on our expirations. The cash rent rate increase on signed renewals for 2027 lease expirations thus far is 16%. That represents 45% of all leases expiring next year, a substantial portion. We will give you our expectations for the full year on our next earnings call and with the benefit of our completed budget process and additional signings. At this time, we don't expect the full year number to be meaningfully different from the year-to-date results. Let me provide some additional color. For 2027 expirations, 68% by net rent are for leases signed from 2022 to the present. So the cash rent increase of 16% achieved thus far includes the expiration of a large portion of leases signed during the period of peak rents. In addition, if you remove SoCal expirations from the calculation, the cash rent increase is north of 20%. With respect to Southern California, that market is showing signs of improvement. For our availabilities, we've seen incremental leasing activity from tenants looking to invest in new growth. During the third quarter and fourth quarter to date, we leased 3 vacancies in our in-service portfolio on a long-term basis, a 188,000 square foot facility and a 78,000 square footer, both located in the Inland Empire East, as well as a transload facility in Los Angeles. We also have 2 available facilities in the 200,000 square foot range in our in-service portfolio in the Inland Empire East that are seeing healthy activity. Now let me update you on our investment activity since our last call. On the acquisition front, we closed on Park 83 Logistics Center, a 2023 vintage cross-dock building in the I-78, I-81 corridor of Central PA in York near the 708,000 square footer we leased last quarter. The 764,000 square foot facility is 100% leased to a Fortune 500 tenant and located in a high barrier-to-entry infill location. The purchase price was $120 million with an in-place cash yield of 5.1% and a yield of 5.8% using today's market rents. We also acquired a 32-acre infill site in McKinney in Northeast Dallas, one of the region's fastest-growing cities for $13 million. The site will accommodate 2 buildings totaling 390,000 square feet. The first phase will be a 233,000 square foot facility that is near-term developable upon entitlement and completion of infrastructure work. The targeted cash yield for Phase 1 is in the mid-6% area. Moving now to development leasing. Since last quarter's call, we signed a 32,000 square foot lease at our First Park Miami Building 12, bringing the total development leases signed this year to 849,000 square feet. As always, the team is focused on our development and in-service portfolio lease-up opportunities and taking care of customers. With that, I'll turn it over to Scott.

Thank you, Peter. Let me recap our results for the third quarter. NAREIT funds from operations were $0.80 (sic) [$0.81] per fully diluted share versus $0.76 a year ago. Our cash same-store NOI growth for the quarter, excluding termination fees, was 5.6%, primarily driven by increases in rental rates on new and renewal leasing and contractual rent bumps partially offset by lower average occupancy. Summarizing our leasing activity during the third quarter, approximately 2.3 million square feet of leases commenced. Of these, 400,000 were new, 1.6 million were renewals and 300,000 were for developments and acquisitions with lease-up. Now moving on to our guidance. As Peter noted, we increased our NAREIT FFO midpoint guidance by $0.01 per share and narrowed the range to $3.11 to $3.15 per share. Recall that NAREIT FFO reflects $0.04 per share of advisory costs related to the contested proxy campaign incurred in the first quarter. Excluding these advisory costs, our 2026 FFO guidance range is $3.15 to $3.19 per share, which is also a $0.01 increase at the midpoint. Our other major guidance assumptions are as follows: end of fourth quarter in-service occupancy of 94.5% to 96.5% with a midpoint of 95.5%. This implies an average quarter end in-service occupancy for the year of 94.5% to 95%. These ranges reflect approximately 650,000 square feet of incremental development leasing assumed to occur at the end of December. Fourth quarter cash same-store NOI growth before termination fees of 4% to 6%. This implies a full year 2026 cash same-store NOI growth before termination fees, 6.25% to 6.75%, an increase of 75 basis points at the midpoint. Guidance includes the anticipated 2026 costs related to our completed and under construction developments at September 30. For the full year 2026, we expect to capitalize about $0.08 per share of interest. Our G&A expense guidance range remains $42 million to $43 million, which excludes the $5.6 million of costs related to the contested proxy campaign. Let me turn it back over to Peter.

Thank you to all my teammates at First Industrial for another solid performance. We're optimistic about the activity levels we are seeing across our in-service portfolio and within our development opportunities. We're also encouraged by the renewal progress we've made thus far on our 2027 lease expirations that will contribute to our cash flow growth next year and beyond. Operator, we're ready to open it up for questions.

[Operator Instructions] Our first question comes from Craig Mailman with Citi.

Just wanted to touch on development leasing here. I think last quarter, you guys said fourth quarter, you expect around 900,000 square feet of development leasing. And it looked like in the press release that was updated to 650,000. So I'm just kind of curious, is that just -- how big of a timing delay is that on that incremental 250,000 square feet? And maybe just give us an update on some of the bigger availabilities in the pipeline?

Craig, it's Scott. If you look at the exact math of what was remaining, it was a little over 850,000 square feet last call so it's about a little over 800,000 square feet now, so 150,000 square foot delta. If you look at our third quarter, our core occupancy came in higher at 94.1% compared to the 93.5% we conveyed on the second quarter call. So that's helping out a little bit. Also keep in mind that the year-end occupancy guidance rate is unchanged at 95.5%.

Okay. So I mean, is it just that 150,000 square feet, is that just assumed to be kind of early first quarter now? Or was that speculative leasing that the demand is just not there to sign the leases?

I would say it's going to be a -- first off, Craig, that's out of the leasing bogey that we have inside of 1.7 million square feet of an opportunity pool. So I think we have to bat 40%. We haven't finished our guidance yet for '27 but it's just going to be pushed into 2027. And again, when we spoke with folks and investors in the past, development leasing was important, but we also said it could be made up by better core in-service leasing, and that's what happened in the third quarter. So it's really a shift. The core did a little bit better than what we anticipated on the second quarter call, and we shifted 150,000 square feet of development leasing next year. And again, we're ending the year at 95.5%, which is unchanged from what we said on the second quarter call.

Okay. That's helpful. And Peter, I appreciated your commentary on the mark-to-market, and I also appreciate you're not giving 2027 guidance yet on where spreads could be. But I'm just kind of curious, as you look at the expiration schedule and the peak rents in L.A., kind of filter through, I mean, could 2027 ultimately just be sort of a temporary air pocket here as you work through some of the drag from L.A., then it could reaccelerate? Or is this just sort of indicative maybe of the directionally where we should expect that mark-to-market to trend going forward?

Yes. Good question, Craig. Look, we look at this as we're coming off of the period. Everybody signed a lot of leases in '22. That was the peak year, beginning of '23. We're coming through that peak year, and we're still generating from that data point, pretty strong cash rent growth. We actually think there's a good outcome coming off of the peak. Going forward, Craig, I'm not going to get into that so much, but I certainly think that we are into somewhat of a reset here off of the massive run-up during COVID. And so I think going forward, those numbers are going to be more modest.

The next question comes from Nicholas Yulico with Scotiabank.

Viktor Fediv with Nick. Just trying to understand on your -- just additional question on your occupancy guidance. So essentially net of development leasing that leaves around 350,000 square feet from the core portfolio leasing and you have some expirations left. Just trying to understand what's already signed or committed on that space and what's not?

I'm not sure what space -- can you ask the question, what space are you referring to? Let me see the -- number the 350 number.

Yes, the -- it's more like 800,000 to 650,000. So it's 150,000 square feet of development leasing. That was adjusted into 2027, but the core -- the strength of the core leasing in the third quarter offset that.

Got it. And then if you think about switching to interest expense and some swaps that will roll off in 2027, what is your strategy on that side of things?

We're continuing to look at the swap market. I'd say the good news about treasury rates being down overnight, swap rates are down as well. So we've got 2 swaps that are rolling off next year, $150 million swap and a $425 million swap, both back end of the year. If you assume current swap rates now or current SOFR or what the forward curve implies next year, the impact compared to the expiring rates is between $0.01 and $0.02 per share, so that's the financial potential impact in 2027. And we'll continue to evaluate the forward market to see if it makes sense to lock those rates on a go-forward basis.

The next question comes from Blaine Heck with Wells Fargo.

Great. Just following up on spreads. You talked about Southern California dragging the average down a bit. You've addressed 45% of overall expirations thus far. But I'm wondering what percentage of your Southern California '27 expirations you've addressed. Is that bigger proportion than the 45% overall? And then just along those lines, you mentioned you've done a lot of early renewals. Would you say you're less likely to push on rents on these early renewals than you would maybe closer to expiration such that you might have more leverage on the expirations that are left to address?

I'm going to take the second part, and Chris is going to take the first part. We definitely are not buying leases. Early renewals are helpful in a lot of ways. But of course, we still need the rent that we need. So we're very focused on the NPV of that lease. And obviously, there are a lot of inputs to that, but we are not being soft on rent. Chris, do you want to cover the...

Yes, the second part on our signed Southern California renewals, we signed about half of them so far.

All right. Great. That's helpful. Second question, can you just talk about development starts from here? You have a meaningful amount of speculative capital available. I know that's not a target, but how are you thinking about launching new spec projects at current construction costs and yields? And are you seeing any undersupplied submarkets or size segments, in particular, where you may have a land parcel or a cost of capital advantage over your private competitors?

Sure. So with respect to starts, we continue to evaluate a lot of opportunities within our portfolio. Some do depend on some lease up in some of the markets around First Park Miami, for example. But we've got opportunities, other opportunities in South Florida in Broward and Dade Counties. Dallas is looking good. Northern California. We may have a project soon. Central PA and Chicago are all potential near term. Some of these projects need -- we need to do a little bit more work to get them ready. We don't really announce starts until we're ready to put a shovel on the ground. But a lot of these projects are getting closer to that day. So we'll keep you posted.

And the next question comes from Nick Thillman with Baird.

Peter, appreciate the comments around spreads for '27. Just on that role, I think you guys had mentioned in the past that you had a couple of larger expirations. I think Atlanta and Denver were pointed out in, like, a 400 and above boxes. Just update if any of that has been addressed in leasing to date? And could those be outliers relative to where spreads were for the year-to-date activity?

Nick, it's Peter Schultz. So the large one in Denver, we talked about is signed. That's in that population. I would say the rent change on that was a little bit more modest given the conditions in Denver. And then our largest remaining is in Atlanta, and we are finalizing those discussions now.

That's helpful, Peter. And then maybe also just can you talk on some of the activity you're seeing on those larger vacancies on the development pool? Has that activity increased? Do you think there's progression? And I guess, is it more of a timing-related issue on the leasing, pushing it back to first quarter? Or is there some conviction here that you might be able to -- and it's kind of a placeholder, doesn't really have an impact to '26. How should we...

Peter, you want to cover Denver and Nashville?

Sure, Nick. It's Peter again. So on Denver, we continue to have active discussions with prospects for all or portions of the building. We continue to see new inquiries. So I would say from the first half of the year, our activity is better today. You're exactly right. The speed of corporate real estate is hard to forecast when some of those decisions will be made. The supply picture in Denver continues to be pretty stable. So as we've talked about previously, we need people to make decisions, but we feel better about the activity today than we felt in the first half of the year. Nashville continues to be an active market. Little to no competition for the building we have in terms of that size range. So we just need to see some more activity there. We do have a couple of active prospects, but we'd like to see them move along with their commitments. Jojo?

Yes. As Peter Baccile has mentioned, IE has continued to have more activity from Q2 to Q3. We leased 188,000 feet and we also leased 78,000 square feet, and we're very pleased with that. We have a high-quality building called First Rider that's still vacant, that's at 324 -- the building is -- the leasing there has more competition. If you look at the East IE, the largest vacant size range is in the 250,000 to 300,000 -- 250,000 to 500,000 square foot range. And so yes, so the market has to digest a lot more buildings in that size range. So our building, although really high quality is competing with that. But at the same time, our building is demisable, so we're marketing it as multi-tenant as well.

The next question comes from Todd Thomas with KeyBanc Capital Markets.

I just wanted to first follow up on prior line of questioning, Peter, about balancing rent versus lease-up. Is there any rent sensitivity in the discussions that you're having? Or it's not really rent related in your view? And I think your comments were about some of the renewal leasing specifically, does that discussion change at all for the current 650,000 square foot leasing opportunity or just vacancy lease-up bucket in general?

Yes. The discussion doesn't really center on the rent number. Lowering your rents are not going to generate demand. It's the overall terms of the lease and whether or not that particular prospect has alternatives aside from what we have to offer and how we compete against that. So it's -- there's really a lot more to it than just the rent. And that's why I say we're not sacrificing rent to get these leases done. What was the second part of your question?

No, that was good. Are higher fuel costs at all, sort of, reshaping some of the discussions around leasing that you're having in any way?

So the price of fuel is obviously an important input on the cost side, for example, for a trucking company. And in what you might call a normal price environment, that's about 20% to 25% of their marginal operating costs. And today, it's anything but normal, obviously, those -- that would represent more like 35% to 45% of their costs. But that also places a premium on proximity, which does favor our availabilities right now. We haven't seen any drop-off in prospect activity that we would attribute to the rise in fuel costs, but certainly, it's an important input that we're going to keep our eye on.

Todd, this is Peter Schultz. The other thing I'd add to that is that, that is increasing construction costs. Anything that's related to petroleum. So you're going to see the bar go up on new supply, which is certainly a good thing when we're looking at our existing availabilities.

The next question comes from Caitlin Burrows with Goldman Sachs.

Sorry to bring it up again. But just to clarify or confirm, Peter, earlier in the prepared remarks, you mentioned that at this time, you don't expect full year spreads to be meaningfully different than year-to-date. So you're saying that you think spreads on 2027 expirations could end up being about the 16% achieved so far? And then also, is that like a comparable number to the 40.5% that's been achieved year-to-date in '26 on the commenced ones? Or are those numbers like apples to oranges?

At this time, Caitlin, we don't think '27 will be meaningfully different from where we are so far. Obviously, that depends on how the final discussions end up. But that's probably a pretty good indication of where we're going to end up. I'm not sure I follow your question about the 40%.

So if we look at the commenced spreads year-to-date, they've been 40.5%. So I realize there's a difference between like commenced and signed, but that's what I was asking about. It sounds like they are comparable.

Yes, they're comparable, yes.

Okay. Then my other question was just on development. I think you mentioned on the land acquisition in 3Q that you expected it could support like mid-6% initial yield. So would you say that, that is like a new normal based on where costs and rents are today to expect for incremental development starts?

It's certainly a real-time example because obviously, we just acquired that and underwrote and acquired it. So it's a good -- I think it is representative. It doesn't represent a ceiling for sure because there are lots of different reasons why we end up where we do with our yields, and we've been pretty good at that. But I think it is representative, yes.

The next question comes from Rich Anderson with Cantor Fitzgerald.

So I want to unpack the releasing spread conversation just a little bit more, if I could. You said 58% of leases in 2027 originally signed 2022 to present that lease -- I'm sorry, 68%...

68%.

Okay 68%? Okay. All right. So anyway, what's the differential between that group in terms of cash releasing spreads potential versus the pre-2022 lease signage situation, like how wide is that differential when you look at the cash leasing spread opportunity for you guys going forward?

Without getting into the math, the pre '22 number, as you would expect, is definitely higher than the post '22 number. I'm not going to get into the math on that. But I think what's important as we look at this is there could have been rent roll down from the peak. And we're coming through that with a pretty strong result. So historically, we have been a pretty strong relative performer on this subject. So we'll see where that leads.

Okay. Fair enough. And second question for me on development start activity. So you're at the same level versus the second quarter in terms of under construction, 146 million. Your peer Prologis said, replacement rents are 27% above in place today. I don't know if you agree with that. But is the fact that this has held steady, vestige of what it's required to make development pencil? Do you feel the same thing? Or do you feel like you'll have more starts because you have a particular advantage because you've land under control or whatever the case may be that you can actually make sense of new development starts, even if it stayed the same versus the second quarter?

Yes. No, we have plenty of opportunity to earn really strong development yields and IRRs right now. It takes the process around bringing these to fruition, it's a bit involved. And the lack of starts in the third quarter has nothing to do with what's going on behind the scenes. And so I would just stay tuned on that subject. And I don't -- we don't see a limit to our ability to invest in new development at acceptable yields going forward.

The next question comes from Vikram Malhotra with Mizuho.

Sorry about this, I wanted to go back just tactically thinking about this 16% messaging and essentially for the full year '27 is what you're thinking. I'm wondering, like, if the market is turning, you're seeing signs of rent growth. A lot of your peers have talked about potentially seeing mid-single-digit rent growth next year. Is there a benefit to pre-leasing so much in now versus like waiting for the market to recover and maybe getting better spreads? I'm just -- it seems a big drop off. Like I don't think, in general, anyone is surprised by, say, one of your larger peers saying it's high teens or low 20s. But there was a thinking that FR's, your markets would hold up better. So I'm just trying to figure out like what is -- just the messaging of like, hey, next year, it's like to be this when you still have a chunk still to lease? And why not just wait if the market is turning.

You mean hold space off the market?

No. I meant like you're forward leasing, you're doing leasing renewals now for '27, right?

Renewals.

Eight months in advance average.

Right, right.

Yes. Look, we're not sacrificing rent there. We're taking risk off the table. These tenants are eager to stay in their spaces, and we're going to take advantage of that, and we do get pretty strong rents. I'm not sure -- did other peers, I hadn't seen that other of our peers talked about 2027 cash rent growth. Did somebody do that?

No, no, I'm just saying if you run the math like on some of the other peers, you look at where their mark-to-market is going or has trended for the portfolio. I don't think it would be a surprise for some of your other peers to be in this, call it, 20-ish percent cash rent spreads. It just was that FR was outperforming the broader peer set. And we would have thought there was a little bit more strength based on the leases you had already signed in the term. It just seems like there's a big decel. So I'm wondering like is this -- if that's the case for '27, '28 rents expiring are higher as are 2029. So are we in this trajectory where it's just going to keep deceling? I'm just trying to figure out like this tactically, the market's turning positively. You're talking about net absorption exceeding supply, market rent growth back to mid-single digits in the last few months. So I'm wondering why are we -- why could we not see better spreads in the next 2 years?

As market rent growth is in the 3% to 5% range going forward, you're going to find that, that helps reverse the curve. If you want to look at it that way? I'm not sure what that means for your analysis. But hopefully, it would result in nobody having any rent roll down. I mean you can't have rent growth the way we had it and the way it's now come off since COVID and have that mark-to-market remain high, it just doesn't work.

Yes. No, again, I'm just trying to square like your commentary in the past year or 2 has been that you're likely to have higher -- versus peers a higher for longer rent spread trajectory given like all development leases that are expiring. And so I'm just trying to figure out, like is there something unique about '27 versus as we think about '28 that I was -- again, I'm just trying to figure out, we all assumed FR's trajectory would be a lot -- at a much higher trajectory than most peers, but it seems to be likely versus like my own estimates, it's going to be very peer average next year in terms of rent spreads. That's all. But I guess we can take it -- I guess...

I guess time will tell, Vikram.

Okay. Maybe just second one, sorry for the long question, but just second one on the development lease-up. And I wanted to tie that back to a comment I think you made at NAREIT, which was you're looking now to also replenish the land bank and I know you're talking about some spec starts. Where are we in the replenishment process? Are there any target markets? How are you thinking about today's cost of land versus the rents you can achieve or the yields you can achieve in the future?

So we just acquired, as we said in the prepared remarks, an opportunity in Texas. Our teams are all over it for other locations and other opportunities. Of course, that focus is not in SoCal, for example, where we have plenty of opportunity already on the balance sheet. People have asked in the past if we would consider selling some of that, of course, we would at the right price. So the focus for new acquisition that "replenish the land" that we have is really more on the right half of the country, and I put Texas in the right half of the country. So yes, I mean that is still a focus, and we're making some progress. We'd like to make more.

[Operator Instructions] Next question comes from Jessica Zheng with Green Street.

I was wondering if you could walk through the components of the same-store guidance increase? And then also just curious same-store guidance rose 75 bps at the midpoint, but FFO only rose by $0.01. So just curious what's the offset there?

Yes, Jessica, on the 75 basis point raise, it's due to -- occupancy was slightly up. And also we had some of the increases due to less free rent in the back half of the year in 2026 compared to what was originally projected. And obviously, the free rent impacts cash same-store, but will not necessarily help FFO.

So less free rent in exchange for more cash. So that part of it impacts the cash same-store, but it's not going to impact the FFO increase.

Yes. That's helpful. And then maybe just switching gears a bit. You mentioned you're seeing good activities in SoCal. Could you just kind of describe what kind of tenants you're seeing that are active in IE today?

Yes, it's Jojo. Yes, 3PLs are very active. So we just did a deal with 3PL. And then there's also just recently, first of all, it's broad-based. You have 3PL, you have e-commerce, you have wholesalers, retailers, you got some advanced manufacturing, you got some manufacturing related and data center related. But recently, we also closed on a fastener company, really a company that focuses on machinery build out with high class -- with state-of-the-art fasteners. And then recently, as Peter mentioned, we had a transload company, and that company is trucking freight forwarder and does business with the U.S. Customs and Border Protection Agency.

And the next question comes from Dave Rodgers with Raymond James.

Maybe you said this and I missed it, but did you talk about what percentage of leases next year you're planning to retain versus what you'll expect to re-tenant as the year goes on, given that you're kind of working so far in advance where you typically might be?

Yes. Dave, we're still working through the budgets process completely, but we expect retention to be 65% to 75%.

Okay. That's helpful. This will be something that you probably won't want to answer, but I ask it anyway, as you look at your lease expiration schedule, even if you went back a couple of years, the big step-ups in rent really come in kind of 2028 and 2029. And so you're saying spreads are kind of hitting that point where they're going to stay a little bit softer than they have been for you guys still strong but softer. So I mean, is there anything in the outlying years that would give us the confidence that the spreads would continue? Or are we really just relying on market rent growth that kind of help turn that curve. I guess I'm just trying to kind of think about the longer-term nature of that spread number and your confidence in your performance.

Yes. I think it's math. Peak was third, fourth quarter '22. If somebody has a 5-year average lease term. Obviously, third quarter -- fourth quarter '27, the peak rents are going to be through. And then from there, your growth rate depends on market rent growth. So what I think is encouraging is that market rent growth is rebounding now at the right time to keep that curve -- to bend that curve as you put it. So if the markets dragged for 2 or 3 more years, you might see a negative roll down. And I'm not saying generally from us, I'm saying for the sector. So this isn't a bad landing. This is a decent landing off of the turbulent rise and fall of 2021, '22 and we think on a relative basis, we're still going to perform pretty well.

Last question for me. On the 650, I know we've talked about it a couple of different times, how much is signed, how much is an LOI and how much is, I don't want to say hopeful in terms of the -- what's in that 650 number?

You want to know the progress on the 650?

Yes, correct.

So look, I mean, one of the reasons that we moved that number during the year is obviously, it depends on where we are with conversations, whether we're trading paper, et cetera. We have, in addition to the larger projects that Jojo and Peter reviewed a number of smaller opportunities, and those also have a lot of activity around them. So that 650 is based on that 1.7 billion -- 1.7 million square feet that we have available and what's happening around all of those projects. So I'm really -- I'm not going to break down where we are by phase, but that's where the 650 comes from.

And the next question comes from Michael Lewis with Truist.

So you talked earlier about evaluating potential development starts. How are you thinking about risk-adjusted returns and the decision process between development and acquisitions and maybe how does this Central Pennsylvania acquisition at 5.1% fit into that? And what's the upside there?

Yes. So on an acquisition, we want that spread to be 50 basis points or more, and these are kind of, I'll say, minimums. Development is 100, 125. The PA deal because of the opportunity to raise it to market. In fact, when that project is available to go to market, we think the yield is going to be closer to 6.5%. So it's going to throw off a total return that gives us the kinds of margins that we like. And all of the developments, of course, that we start will throw off a decent cash yield in the range that we want as well as the IRR. So I don't know, does that answer your question?

Yes, that's helpful. And then my second question, you may not be able to answer this one. You're not giving '27 guidance on either, but you kind of gave us a retention ratio, a spread we could -- whatever you think about increases in leasing costs, maybe, is it fair to expect that AFFO growth will be better than FFO growth next year? Anything you could say about that?

I think it's too early to tell. The benefit you have on AFFO compared to FFO from a growth rate is that the denominator for AFFO is going to be less. So to the extent that the growth is the same between the both, AFFO and FFO, you're going to get a better result. But there's other things that impacted capital expenditures, for instance, in noncash items. So it's too -- really too early for me to say whether the growth rate in AFFO will be better than FFO next year.

And the next question comes from Jon Petersen with Jefferies.

I was wondering if there's still opportunities within the FR portfolio to sell land sites to data center developers and how much effort you guys are putting in, trying to get more power allocated to some of your -- any existing land sites that you have for a potential flip? Or are you leaving that game to other people?

Yes. We have a handful of opportunities we're pursuing. Some are land and some are cash flowing buildings, and we are pursuing power on a couple of them right now. It's a process that takes a while, but the value creation opportunity is pretty substantial. So it's a bit of a slow-moving effort, not because we're slow moving because the other side is slow moving, and we'll keep you posted on this. But yes, we're putting a lot of effort behind it.

Can you tell us more about what geographies those are in? And maybe how much power you're talking about potentially?

We really...

I'd say it's more East Coast. We're looking at this point in time.

And then maybe just...

Megawatts is tough to give until we get further information about the load studies that the utilities have to put together. But there are going to be more East Coast opportunities.

You guys have a buyback program in place, which you haven't used. I'm just curious as interest rates are going up, stock prices have come back, but it still seems like you have development opportunities in the market. Like how do you -- just kind of maybe walk us through how your decision-making maybe has changed in the last couple of months on where you put an extra dollar of capital, whether it's paying down debt, buying back stock or new developments.

Sure. The stock buyback, we're going to -- as we have said in the past, we look at that very opportunistically relative to our other investment opportunities and liquidity, leverage and valuation. We continue to have ample opportunity to invest in our core business. And again, we're going to remain opportunistic about the shares. I'm not sure what else I can tell you about that.

And the next question comes from Omotayo Okusanya with Deutsche Bank.

Just curious, as we're about to hit the midterm elections, anything you guys are looking at, at the federal or even local ballots that could potentially impact your business going forward?

Not really. It's obviously difficult to predict right now what this outcome is going to be. So we're just focusing on the core business, sticking to our strategy. Our tenants and prospects are also focused on that and investing in growth. And so right now, we're not overly concerned. We do have a regular dialogue with people on the hill, and we don't see anything coming that would cause us concern.

Also at the local level as well in any of your key markets?

Yes, nothing really in the local. I mean, here and there, you might have a moratorium on new developments, but they don't tend to stay permanent. When these municipalities need more money, all of a sudden moratorium is relaxed.

The next question comes from Michael Mueller with JPMorgan.

Just 2 questions here. One, you obviously talked a lot about the spreads versus kind of peak. Can you talk a little bit about the rent bumps that you're getting today compared to those bumps back in the peak years, if there's been any erosion there. And then just any general commentary on land pricing trends as you refill the bank?

So when you talk about bumps, you're talking about the escalations, yes?

Yes, yes.

Chris, do you want to go over the escalation?

Yes. We haven't really seen much erosion in that. If you look at our 2026 signings, so far, we're at 3.5%. So those are staying steady or holding it.

In the past couple of years, Chris, it's been 3.6%, right?

Yes. If you look at the entire portfolio, we're at 3.4%. So they've been holding steady.

In terms of land prices, I would say first half would be just stable and we've been seeing an uptick as more development, warehouse development has been kicking in. So there's an uptick in land prices overall. Of course, depending on market to market.

The next question comes from Caitlin Burrows with Goldman Sachs.

I was just going to ask on -- in 3Q, it looks like there were no starts then. And I know you mentioned earlier that kind of there's a lot of prep work that goes into it and you only announced the starts once it's like really going. So just wondering on that 3Q activity, was it impacted by macro volatility or something else versus that was your expectation as of a quarter ago?

No, it's our expectation. No outside forces. It's just -- we call -- we talk about -- a lot about the speed of corporate real estate. We could also talk a lot about the speed of municipal approvals, et cetera. So it's really just that there's nothing exogenous impacting that -- the pace of our starts.

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-up questions from this call, please reach out to Art, Scott or me, and have a great day.

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