Good morning. My name is Sia, and I will be the conference operator today. At this time, I would like to welcome everyone to the First Industrial second quarter results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star and 1 on your telephone keypad. If you would like to withdraw the question, press the pound key. Thank you. At this time, I would like to turn the conference over to Art Harmon, Vice President of Investor Relations and Marketing. Please go ahead, sir.
Thank you, Sia. Hello, everyone, welcome to our call. Before we discuss our second quarter 2018 results and guidance, let me remind everyone 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, Thursday, July 26th, 2018. We assume no obligation to update our statements or the other information we provide. Actual results may differ materially from our forward-looking statements. 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 will open it up for your questions. Also on the call today are Johannson Yap, our Chief Investment Officer, Peter Schultz, Executive Vice President, Christopher Schneider, Senior Vice President of Operations, and Robert Walter, Senior Vice President of Capital Markets and Asset Management. With that, let me turn the call over to Peter.
Thank you, Art. Good morning, everyone. Our team delivered another good quarter as fundamentals in our sector remained strong. At quarter end, our occupancy stood at 96.9%. Cash same store NOI grew at 4.5%. Cash rental rates were up 7.7%. As of today, we have signed leases for approximately 85% of our 2018 rollovers at a weighted average cash rental rate change of 8%. Our team and portfolio continued to deliver some strong numbers for rent growth reflective of the health of the market. Nationally, the positive trend continues. According to CBRE Econometric Advisors' preliminary second quarter report, net absorption was 59 million sq ft, exceeding completions by 10 million sq ft. For the first half of the year, net absorption was 105 million sq ft, exceeding completions of 90 million sq ft.
While trade policy is very much in the headlines and bears watching, we don't see it impacting tenant decision-making today, as both new and renewal leasing activity remains strong in all of our markets. Most tenants view their logistics space as a critical part of their offensive strategy to better serve their customers and generate revenue growth. With limited available space options, industrial real estate needs remain top of mind. This demand is evident in some of our recent leasing wins at The Ranch, our six-building project in the Inland Empire West, where we completed construction last month. As previously announced, we signed a lease for the entire 156,000 square foot building, which commenced and was placed in service in the second quarter. Since our last call, we have also signed three more long-term full building leases at The Park.
The leases for the 301,000 and 50,000 square footers will commence in the third quarter, and the 71,000 square footer will commence in the fourth quarter. In total, we have leased 62% of The Ranch, approximating 578,000 square feet. That leaves us with just two more buildings to lease there, 137,000 and 221,000 square feet. We continue to see good interest. In summary, at June 30th, we had 1.4 million square feet of completed developments in lease-up in Phoenix and Southern California, with an expected cash yield of 7.4%. These projects are currently 30% leased. We also had 2.9 million square feet of developments in the markets of Southern California, Chicago, Central Pennsylvania, and Houston scheduled to be completed in the third and fourth quarter, with an expected yield of 7.2%.
This group includes our second quarter start of the 250,000 square foot second building at our I-78/81 project in Pennsylvania. Estimated total investment is $17.5 million, with a cash yield of 6.9%. In addition to these developments, we are also excited about the opportunities in our pipeline, where we can deliver strong margins relative to leased acquisitions while further enhancing our portfolio. We raised some equity in early May to support these growth efforts. We will have four new starts in the coming weeks, totaling approximately $96 million. They include our first building at our new First Aurora Commerce Center in Denver's I-70 East submarket. We acquired the 138-acre site in the second quarter for $8.8 million. We will execute a phased build-out of up to five buildings and 1.9 million square feet there. The first building at the park will be a 556,000 square foot distribution center.
Total investment for this building is estimated at $38.3 million, with a targeted cash yield of 7.2%. We also will start phase 1 at First Park 121 in the Northwest Dallas sub-market of Lewisville, which serves the fast-growing cities of Frisco and Plano. Phase 1 will be comprised of two buildings, a 220,000 and a 125,000 square footer. Total estimated investment is $27.5 million, with a projected cash yield of 7.1%. In the future, we can build another two buildings totaling 380,000 square feet at that park. Given our leasing success and the strength of the Southern California market, we will also begin construction of the First Perry Logistics Center in the Inland Empire East. First Perry will be 240,000 square feet, with a total estimated investment of $20.5 million and a targeted yield of 5.9%.
Also on the West Coast, in Seattle's Kent Valley, we bought a site in the second quarter where we will start the 67,000 square foot First Glacier Logistics Center. Total investment will be $9.9 million, and the estimated yield is 5.5%. During the quarter, we also added a site in Dallas for $1.8 million that can accommodate 199,000 square foot facility. On the acquisition front, we bought a vacant 171,000 square foot distribution center in Southern California for $20.7 million in the Santa Clarita sub-market. We are currently redeveloping the interior of this property, and our targeted yield for the building upon lease-up is 5.6%. Moving to sales, we had a successful quarter with dispositions totaling $56 million, with an in-place cap rate of 5.6%. Our largest sale was a 446,000 square foot multi-building portfolio of smaller, higher-finish assets in Fort Worth for $29 million.
In the third quarter to date, we had two additional sales, both in Indianapolis. The first, a vacant 54,000 square foot building for $1.7 million, and the second, a land site, also for $1.7 million. Including those two dispositions, our year-to-date sales total is $101 million. Our prior sales guidance for the year was $100 million-$150 million, and based on our pipeline, we now expect to be at the top end of that range. I would also note that in our Phoenix joint venture, we sold a 21-acre site to a corporate user. Our share of the proceeds was $1.9 million. Thanks to my teammates for a good quarter and good first half across all aspects of our business. With that, Scott will walk you through some additional details on the quarter and our guidance.
Thank you, Peter. In our second quarter, diluted EPS was $0.36 versus $0.32 one year ago. AFFO from operations were $0.39 per fully diluted share compared to $0.38 per share in 2Q 2017. 2Q results reflect approximately a total of $0.01 per share impact related to the temporary dilution from the company's 4.8 million share equity offering completed in early May and second quarter property sales. As Peter noted, occupancy was 96.9%, down 20 basis points from the prior quarter and up 120 basis points from a year ago. Our occupancy change versus the first quarter was impacted by some ins and outs for our in-service portfolio. Leasing within our portfolio contributed about 20 basis points. Sales helped by about 10 basis points.
Developments placed in service had a 50 basis point offsetting impact, primarily due to placing in service the 50% occupied Building B at our First Park 94 project in Kenosha. We like the activity we are seeing at this project, but we are now assuming we will lease up to 300,000 square feet in 2019. Regarding leasing volume, approximately 3.7 million square feet of long-term leases commenced during the quarter. Of these, 789,000 square feet were new, 2.7 million were renewals, and 156,000 square feet were for developments. Tenant retention by square footage was 89.1%, which is higher than typical given the 1.3 million square foot Amazon renewal in northeastern Pennsylvania that commenced during the quarter. Same store NOI growth on a cash basis, excluding termination fees was 4.5%, driven by higher average occupancy, rent bumps, an increase in rental rates on leasing, and lower free rent.
This was slightly offset by an increase in landlord property expenses. Lease termination fees totaled $163,000, and including termination fees, cash same-store NOI growth was 4.4%. Cash rental rates were up 7.7% overall, with renewals up 7.3% and new leasing up 9.1%. On a straight-line basis, overall rental rates were up 25.5%, with renewals increasing 26.7% and new leasing up 21.6%. The large difference in the straight-line rate change versus cash is attributable to the limited free rent we are giving today versus the prior comparable leases. Quickly moving on to a few balance sheet metrics. At the end of 2Q, our net debt plus preferred stock to adjusted EBITDA is 4.8 times, reflecting the second quarter equity offering, which gives us plenty of dry powder for investments, including our newly announced development starts.
At June 30th, the weighted average maturity of our unsecured notes, term loans, and secured financings was 6.3 years, with a weighted average interest rate of 4.27%. These figures exclude our credit facility. We are also pleased to report that in the second quarter, Moody's upgraded our unsecured debt rating to Baa2, joining S&P and Fitch at the BBB flat rating. Moving on to our updated 2018 guidance for our press release last evening. Our Nareit FFO guidance is now $1.53-$1.61 per share. Excluding the severance and the impairment charge recognized in the first quarter, FFO per share guidance is $1.55-$1.63, with a midpoint of $1.59 per share.
This is $0.01 per share less than what we discussed in our first-quarter call, which is due to the temporary dilution related to the second-quarter equity offering and property sales, slightly offset by additional NOI from development leasing and additional capitalized interest due to our new development starts. The key assumptions for guidance are as follows. Average quarter-end occupancy of 96.5%-97.5%. The same-store NOI growth range is now 4.5%-5.5%, with the 50 basis point increase driven by our second-quarter results. Our G&A guidance range is unchanged at $26 million-$27 million, which excludes the $1.3 million severance charge recognized in the first quarter. Guidance includes the anticipated 2018 costs related to our completed and under-construction developments at June 30th, and our planned third-quarter starts, First Aurora Commerce Center in Denver, First 121 in Dallas, First Perry in Southern California, and First Glacier in Seattle.
In total, for the full year 2018, we expect to capitalize about $0.05 per share of interest related to our developments. Our guidance does not reflect the impact of any future sales or acquisitions after this earnings call or new development starts other than what we just discussed. The impact of any future debt issuances, debt repurchases, or repayments, the impact of any future gains related to the final settlement of two insurance claims from damaged properties. Guidance also excludes any future Nareit-compliant gains or losses, the impact of impairments, and the potential issuance of equity. With that, let me turn it back over to Peter.
Thanks, Scott. We're pleased about where we are at the midway point of the year throughout our business. Fundamentals remain strong, and we are excited about the profitable opportunities we have under construction and in our pipeline. With that, operator, please open it up for questions.
At this time, I would like to remind everyone that if you would like to ask a question, to press star one on your telephone keypad now. Again, that's star one for any questions. We'll pause for just a moment to compile the Q&A roster. The first question will come from Craig Mailman with KeyBanc Capital Markets.
Hey, guys. Maybe just to go a little more in-depth into The Ranch leasing. Congrats, by the way, on that. Just can you give some more color on kind of the types of tenants that took the space and maybe where the rents came in relative to expectations, and also just the timing on those, kind of if there's any yield expansion on that relative to previous expectations?
Sure. Craig, this is Jojo. The tenants, can't name names, give you the sense of the industry. One is a very active third-party logistics provider in the West Coast. Another one is an international vitamin supplement company who will use the ability to serve customers nationally. The last one is related to focusing on the industrial power solutions for mid and large-size businesses, and specifically to the power solution storage equipment and machines. In terms of rates, overall, it beat pro forma quite a bit. We're very pleased about it. It exceeded our expectations. Of course, the lease have exceeded our expectations on downtime because typically, our standard modeling is a one-year downtime post-completion.
As you guys look at leasing up the next two buildings, sounds like there's good interest. What's the competition look like in that sub-market for those size spaces?
What's remaining is a 137,000 footer and a 221,000 square footer. There are few choices in the Chino, Eastvale market today, Craig.
Okay. Just lastly, Scott, you kind of went through a little bit that second quarter drove the upside in same-store NOI guidance. Could you comment, was it mostly occupancy, rent spreads, bad debt, kind of what was the biggest driver in the 50 basis points?
Craig, it was a couple of pieces. Bad debt expense was one of them. We recognized under $100,000 of bad debt expense in the quarter compared to $500,000 per our guidance. That was a positive. We also had a positive due to property sales of sales being taken out of the portfolio, that was slightly offset by an increase in landlord expenses. Those were the three major pieces of the outperformance.
How much was the change in pool from the sale?
It was about 50 basis points.
Almost the whole increase was just the pool change?
Oh, you had 50 basis points related to bad debt expense. That was pretty much offset by the increase in landlord expenses. The pool change helped by 50 basis points as well.
Okay, great. Thanks.
Plus this one minus.
The next question will come from Ki Bin Kim with SunTrust.
Thanks. Good morning out there. You obviously had some really high tenant retention at a very high lease spread. Can you just help us look under the hood a little bit and just understand what happened that quarter?
Ki Bin, overall, you notice we did have high retention, with that, we were still able to push our rental rates on those renewals. Renewals for the quarter were up 7.3%, we're very pleased even with the high retention to get pushing rents.
Ki Bin, as I mentioned in the comments, the high retention percentage was driven by the Amazon lease. That was a 1.3-million-square-foot lease. That was I think about 47% of our renewal leasing during the quarter. That was a big driver in pushing up that retention level.
I see. Are you starting to see any change from tenants where they maybe prefer to own the building versus lease as rents have gone up?
Ki Bin, it's Peter Schultz. I would say no. Tenants and users continue to look primarily to lease space. Certainly part of our sales are to users, and that's something we see continuing to happen. I wouldn't say it's changed one way or the other.
Just last one on development. I think in the last Nareit investor deck, you showed that you had about 58% development margins, which is, I think one of the highest in the sector. How does the next round of assets that you're looking to develop in your pipeline, how do those profit margins look like?
Ki Bin, it's Peter. Yeah, you're right. The assets that we are leasing up now, the margins are in the range that you mentioned. The projects that we've just announced that we're about to start, the margins average more in the 40%-45% range. We're still targeting, as we always do in our underwriting, kind of 100, 150 basis point spread, and think we can achieve that. Over the past several years between rent growth and leasing up the assets well within our 12-month assumed downtime, we've been able to generate the very high margins.
Okay, thank you.
Once again, if you would like to ask a question, please press star one on your telephone keypad now. The next question will come from Rich Anderson with Mizuho Securities.
Hi, Zach here with Rich. Just a couple quick ones. Since the equity proceeds will generally be used to fund development, what is the timeline to recover the temporary dilution from the offering?
This is Scott, Zach. We're using $96 million of the $146 million of proceeds to fund the new starts that we have there. Per our underwriting, it's probably gonna be a nine-month construction cycle, and then we put another year of lease up. It could be a year and a half to two years. That's what we're underwriting. Having said that, we've been leasing these developments up more quickly than that. We also used some of the equity proceeds on second quarter acquisitions. That was about $37 million. The lion's share of that was an acquisition we did in Southern California that we think will get a stabilized cap rate of 5.5%. That's a redevelopment property that we've given ourselves a year to lease that up. That's probably more a middle of 2019 when we get those dollars in the door.
There's gonna be over a year delay on that, Zach.
Okay, great. As you continue to make progress on development, any instances where land costs are an issue, or do you foresee land costs being an issue in the future?
Land costs continue to grow, toll replacement or toll investment cost per square foot will continue to grow. Our rents have justified the growth in land costs. If rents continue to rise, we expect land costs to continue to rise proportionally as well.
Hey, it's Rich here. Let me just chime in on that last question. Are there instances, we've been hearing about rising construction costs in general, and how that might compare to how NOIs are growing, and maybe the math is still in favor of NOIs exceeding construction costs. Is that what you're generally seeing across your markets?
Yes, exactly that. The increase in market rent offsets the increase in land cost and construction costs. One more thing you have to consider, is that cap rates have compressed a bit. If you factor that in, although it's more competitive market, primarily because there's more entrants in the market, the cap rate compression kind of maintain the spread or help the spread a little bit.
Have you seen any impact from tariffs and the like in terms of material costs and what have you?
Yes. On steel prices, yes. Steel is not a large component of an industrial building construction. In fact, the bigger component today is the rest of the construction cost materials, subcontractor profit margins, and land increases. Those are a bigger component of the increase.
Got you. That's all for us. Thanks.
The next question will come from Eric Frankel with Green Street Advisors.
Thank you. Scott, can you just explain the expense growth increase?
Are you talking same-store pool? Are you talking increased quarter? What period are you talking, Eric?
Call it the same-store pool, I guess across the board, it seems like.
Okay. Same-store pool, they were up quite a bit. Increase in real estate taxes. Let me break the expenses out. There's common area, there's landlord. The common area expenses were driven by real estate taxes and snow removal expenses. That, for the most part, was recovered almost one for one with additional recovery income, very minimal, if any, leakage there. In the landlord expenses, as I mentioned in the same store, we did have some increases there. Primarily the big increase in landlord expenses were on the real estate tax side as well.
Okay. Do you foresee that being an issue going forward in terms of how that actually is going to affect the bottom line?
Well, the common area, it's not going to impact the bottom line much just because the occupancy level we're at, 96.9%. That's not going to have that much leakage. On the landlord, Eric, we have a handful of jurisdictions that we pay taxes in arrears, which means we're paying 2018 taxes in 2019. We have to expense what we think we're going to pay. I look at that as non-cash. That's hard to say what impact that will have on a go-forward basis.
Okay, thanks. You guys, I think some of the other callers touched upon tariffs a little bit. Have none of your customers expressed any concern about how some of the larger threatened tariffs are going to affect their business or the volume of goods that are imported and how that'll affect their respective supply chains?
The short answer is that we haven't heard anything from the tenant base in the way of concern or complaint. In general, across our portfolio, our tenants don't store the items that are so far being tariffed or under threat of tariff. That could, of course, change, especially if there are a lot more tariffs on things like consumer goods, then that would have an impact. I think the biggest focus for us is, are we going to actually have policy here that does something to significantly negatively impact consumption or GDP? That would be a big factor. Despite all that, you do have the somewhat mitigating factor of e-commerce and the growth and the evolution of the supply chain there. It's really more of a question of order of magnitude on the tariff front.
Right now, we haven't seen or heard anything so far that's negative for the tenants.
Great. Just a final question, I may jump back in the queue. I know you framed from a risk perspective how much you want to limit development at risk in terms of a dollar volume. I think it's around $400 million, correct me if I'm wrong.
Close.
Certainly you need to support that with a land bank. I wanted to understand better if you had any parameters surrounding how much land you want to hold in your balance sheet.
Well, as you know, what we really focus on is trying to acquire land that is near-term developable, so that we're productive and we're not creating a lot of drag on the balance sheet. Going forward, we would like to have a couple of years of land in the inventory. I think that's probably a prudent place to be. The dollar number, that's hard to say. It depends where we buy it. Certainly if it's on the coast, it's going to be a higher number than if it isn't. I think the best way to answer that, Eric, is to say we're looking at a couple of years of inventory.
Eric, just to be clear, the speculative development cap is $475 million today.
Okay. Fantastic. Thank you.
Once again, if you would like to ask a question, please press star one on your telephone keypad now. Again, that's star one for any questions. We'll pause for just a moment. The next question will come from Bill Crow with Raymond James.
Hey, good morning, guys. Peter, I think two questions for you. I guess it relates to the tariff and trade situation, but it seems like autos are maybe one of the more vulnerable sectors in the economy today, and you do have some exposure among your top 20 tenants. Are you seeing anything there? Would you be more reluctant to expand your presence in the auto space or auto parts space today?
Yeah, we do have some tenants in the auto parts space. We do have tenants in the tire business, but so far that's hasn't been impacted. The amount of the proportion of our leases that are in that space are really low, low single-digit %. I wouldn't think at this point that we'd be avoiding tenants in that space, especially if they have good credit and a strong business. We'd certainly look at it, but I don't think we'd be avoiding it per se to draw a line in the sand there.
All right. The second question is really about kind of capital allocation. You talked about First Glacier at, I think, a 5.5 or 5.6 in the redev in Southern California, that's going to be about a mid-five. I'm just curious about the strategic fit of those assets, versus the alternative of these kind of low 7% development yields.
Right. We think in those markets, rent growth is going to be significant over the near and medium term, and we don't really try to predict beyond that. When we look at the total return on those investments, we like what we see. Yes, when we can build to a 7-plus percent cash yield in some of the other markets like Dallas and Denver, that looks interesting to us as well as assuming that our grounds-up analysis shows us that those assets can be competitive for the long term. From a capital allocation standpoint, we're really trying to put our money into the highest-growing assets that we can in terms of rent growth to create long-term cash flow growth. If that works, obviously over time, you're creating a lot of value for shareholders.
I just want to add that these are in prime submarkets. First Glacier is right in the heart of Kent Valley, which is the largest industrial market in Seattle. That's the deepest in the market that has one of the lowest vacancy rates. First Perry is right off our success in the Moreno Valley submarket. As you may recall, we developed 187,000 sq ft San Michelle, and that was leased before completion. We also built a 242,000 sq ft First 215, and that was also successfully leased above pro forma. Now we're just continuing that success.
Yeah. Okay. I get the rent growth. I guess I'm just thinking that stabilization means that they're leased up and you've got three or four or five years before the next opportunity to raise the rent comes. You're really looking out quite a ways to get up north of a six, right? Or six and a half.
We also have rent bumps in those leases, as you know.
Right. Sure.
Generally, they're 3%. The total return, again, on those assets is going to be strong. They're going to be assets that they're going to withstand pressures in markets over the long term, and that's really what we're trying to create.
Fair enough. Appreciate it. Thanks, guys.
The next question will come from Michael Mueller with J.P. Morgan.
Yeah, hi. Just a question on acquisitions. I'm just curious, what sort of competition are you seeing when you go out to acquire a vacant building compared to something that may be more stabilized, fully occupied? Are you seeing a lot of competition? Is it less? How would you characterize that?
Yes. There is significant, Michael, there's a significant amount of competition, for both vacant value-add acquisition deals and fully leased. This was an off-market deal. We've been tracking this building for a while. We've been in constant contact with the owner. The history in this is that the owner built this facility and outgrew it, this quality building, and they had to move. So we made an unsolicited offer through a relationship, and that's how we got a deal. If this went to market, it would've gotten be more expensive.
Got it. Okay. That was it. Thank you.
The next question is from John Peterson with Jefferies.
Great. Thank you. Just wanted to touch on the development pipeline a little bit. Obviously, you've got, what, five projects underway right now that are 0% leased. You guys have a great track record of leasing up once they're completed, I'm just kind of curious, I guess given the amount of spec development there, what the appetite is to expand that pipeline, realizing I know you guys have a cap. Forget exactly what level. To the extent that you are looking to start new development projects, I guess in which markets do you feel like you need to have more shovels in the ground?
Again, the cap is $475. Today we have about $81 million-ish in capacity on that. That changes as we lease developments that are completed or vacant acquisitions. That's a moving number kind of every month or two. We're also focused, we are largely a spec builder. We're focused also on responding to RFPs with build to suits, and we have some sites in Kenosha, for example-
In Atlanta and in Dallas, where we could develop build to suits. You'll see us continue to invest capital in development in the markets that we've been most active in. Again, it's the West Coast, it's Dallas, Houston, South Florida, Chicagoland, when the market's right. I don't know if that answers your question, but that's kind of a walk through our thinking around development.
Well, I guess, how do you think about spreading out the development in the different markets? You guys have got two projects in Pennsylvania right now. You've got a fair amount in Southern California. I guess, would you still be looking for new opportunities to start there? You don't have anything in Dallas right now, and a small thing in Houston, or would you be more-- I don't think I see anything in Atlanta. Would you be more inclined to start something there? I guess that's more the question.
Yeah. Let me just add, one thing we don't do is we don't want to cannibalize on our development. Case in point, so we're on track to complete our 1.4 million sq ft in First Nandina in the Inland Empire. We're not going to go out and build 1 million spec right now. That's why we just continued. As an example, we now are going to start a 240,000 sq ft building. Different size range, because there's activity in that size range. You'll see that strategy. For example, like in the Chicago market, we have one 355,000 sq ft footer. You won't see us build a current 400,000 sq ft footer because that would just compete with our current space. If you look at the rest of the developments, a one-off in Seattle, a new one-off 555,000 in Denver.
We're looking for great development opportunities in all the target markets, notwithstanding activity. We're going to continue to look in Pennsylvania, even though we have a lot going on there. We'll continue to look in California, obviously, even though we have a lot going on there. We're really looking at how we can make money. Yes, we look at risk. We do a ground-up analysis. We understand sub-market by sub-market, where we think the unmet demand is. Just because we're active in one market doesn't mean we wouldn't want more opportunity there. Jojo, you want to add something?
You'll see, we're spreading our investments, but at the same time really trying to go after that space size range. That's a tight, [land-and-building repeater] for the PA.
John, in Pennsylvania, those two buildings are actually on the same site. When we bought that site, it was our plan to develop both buildings in roughly the same timeframe because they service different size ranges in the market. Back to Peter's point, we're focused in on developing where there is great demand and rent growth.
The last example is that in our two buildings in Lewisville, one is a front-load shallow bay, and one is a deeper load, basically a front-load. Why that? In that sub-market, there are tenants looking for a front load or rear load, depending on what kind of exposure they want on the street. These buildings are designed based on what we think the market needs.
Great. That's really helpful. Thank you.
Once again, if you would like to ask a question, please press star one on your telephone keypad now. We'll pause for just a moment. We do have a follow-up from Eric Frankel with Green Street Advisors.
Thank you. Just one quick question. On 4020 South Compton, can you just explain what exactly happened with that transaction and how you came out?
Sure, Eric. The building burned down, and luckily, nobody got hurt. When the building burned down, substantial destruction. We sat back and decided whether we should build or we should sell. When we looked at the market, there was a higher and better use, actually, for that in primarily residential. Eric, we ended up selling it to a residential buyer. If you add the expected insurance proceeds we got from the fire insurance plus the sale price, it approximates $129 per land foot, which we are very happy about because that is something that we're not even close to seeing in an industrial land sale.
Right. How do they flow through your financial statements?
Eric, it's Scott. Some of that impact has bled through in prior periods. As I mentioned in my comments on guidance, there could be other recoverable dollar amounts that we get related to this insurance claim. We do not have anything embedded to guidance related to that. If we do recognize some of it on a go-forward basis, we'll back it out to get to our core FFO. There could be future recovery in that. If there is, we'll let you know. It does not impact same store. That's how that'll be handled on a go-forward basis.
Thanks. That's helpful. I just actually thought of one final question. I've noticed that Amazon is still quite active in the market, and they're really active in building their larger fulfillment centers that seem to be even more automated with more mezzanine levels. It looks like that cost is becoming pretty steep for developers. Do you guys have a take on what the economics of those types of buildings are now?
Eric, it's Peter Schultz. As you know, they operate under a very tight confidentiality agreement with all of their development partners and landlords. Our view is, yes, those buildings are becoming more expensive as they continue to think about their next evolution of what they're doing.
Are they having an issue getting that financed by developers or not really? Are developers just kind of eating or taking on the additional risk?
No, Eric, I couldn't answer that because we're not doing any of those today. Certainly, they have had success awarding new deals to developers, but I can't give you any color on economics.
Okay, thanks. That's all I've got.
At this time, there are no further questions. I would like to turn the conference back over to Peter Baccile for any closing comments.
Well, thank you, operator, and thank you all for participating on our call today. Please feel free to reach out to Scott, Art, or me with any follow-up questions. Have a great day.
Ladies and gentlemen, thank you for participating in today's conference call. You may now disconnect.