Good morning. My name is Hannah. I will be your 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 then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. Mr. Art Harmon, the Vice President, Investor Relations, you may begin your conference.
Thank you very much, Hannah. Hello, everybody. Welcome to our call. Before we discuss our second quarter 2016 results, 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, Friday, July 29, 2016. 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 Bruce Duncan, our Chairman, President, and CEO, as well as Scott Musil, our CFO, after which we will open it up for your questions. Also on the call today are Jojo Yap, our Chief Investment Officer, Peter Schultz, Executive Vice President, Chris Schneider, Senior Vice President of Operations, and Bob Walter, Senior Vice President of Capital Markets and Asset Management. Let me turn the call over to Bruce.
Thanks, Art. Thanks to everyone for joining us today. We had another very good quarter as our team delivered across all aspects of business, including leasing within both our portfolio and our developments. We finished the quarter with occupancy at 95.8%, a gain of 100 basis points since March 31st. Our high occupancy levels reflect the efforts of my teammates and the strong industrial real estate fundamentals we are seeing across our markets. Cash same store NOI growth before lease termination fees was 6.3%, primarily reflecting lower free rent, in-place rental rate bumps, and rental rate growth. On the strength of these results, we raised the midpoint of our same-store guidance for the second quarter in a row. Scott will discuss the details in a bit. Cash rental rates were up 3.5% overall, our tenth consecutive positive quarter.
GAAP rents were up 12.8%, which marked the 18th positive quarter in a row. Our team also continued its strong execution on our development investments. Please refer to page 20 of our supplemental for full details. Let me provide you with a few key highlights. In the second quarter, we placed in service three developments comprising approximately 683,000 sq ft, all of which are 100% leased. The first was our 188,000 sq ft First San Michele Logistics Center in Southern California that we leased up prior to development completion. The second was this 341,000 sq ft facility at our two-building, First 33 Commerce Center in the Lehigh Valley. Lastly, we leased the remaining third of our 153,000 sq ft First Arlington Commerce Center @ I-20 in Dallas.
Thus far in 2016, we placed in service four developments totaling 748,000 sq ft that are 100% leased with a weighted average expected GAAP yield of 6.8%. At the end of the second quarter, we had four projects completed but not placed in service, totaling 1.5 million sq ft. We expect to place in service two of these developments in the third quarter, given our recent leasing success. The first is the 243,000 sq ft second building at the aforementioned First 33 Commerce Center, that entire project is now 100% leased. Second, we signed a lease for all of our recently completed 601,000 sq ft initial building at the First Park 94 in Chicago. Our four completed developments are now 79% leased with a combined targeted GAAP yield of 7.6%.
At the end of the second quarter, we also had three projects under construction, two of which are build-to-suits, with expected completion in the fourth quarter of this year. The third is our new development start in the second quarter, the First Florence Logistics Center in New Jersey. This 577,000 sq ft building has an estimated investment of $39 million, a targeted GAAP yield of 6.9%, and is expected to be completed in the first quarter of 2017. These three projects total 1 million sq ft, are 45% pre-leased with an expected target GAAP yield of 7%. We also expanded one of our tenants at First Northwest Commerce Center in Houston that we put in service in the fourth quarter of 2015 to bring that building to 100% occupancy.
We have replenished our pipeline with additional committed developments that total 2.4 million sq ft and approximately $170 million of new investments. These are comprised of three projects that we talked about on our last call, plus one new start. The largest is The Ranch by First Industrial, an $88 million six-building, 936,000 sq ft park in the Chino-Eastvale submarket of the Inland Empire. Also in Southern California, we are building the $18 million 243,000 sq ft First Sycamore 215 Logistics Center. In Phoenix, we are building a 618,000 sq ft facility at First Park @ PV 303, with an expected investment of $33 million. Lastly, on the strength of the aforementioned leasing at First Park 94 in Chicago, we will soon be starting our second building there, which will be a 602,000 square footer that is expandable.
Please recall that First Park 94 can accommodate up to 4.6 million square feet of development. These four new development projects have a combined targeted initial GAAP yield of 6.8%. Given pricing and investor and user demand, attractive acquisitions continue to be tough to uncover, but we have been successful on a couple of transactions recently. As we talked about last time, during the second quarter, we acquired a recently completed 199,000 square foot facility in Orlando for $14 million. The building is 100% leased on a long-term basis with an in-place yield of 6.6%. In the third quarter to date, we acquired a 99,000 square foot building in San Diego that is 100% leased for $11.9 million. Our going-in yield was 6.4%. We also added a development site in Dallas for $3 million. On the disposition side, we continued our portfolio management efforts with a very active quarter.
We sold 26 buildings totaling 1.5 million square feet for $84.2 million. These had a weighted average in-place cap rate of 7.3% and a stabilized cap rate of 7.4%. This brings our year-to-date sales totals to $100.5 million on our way to our $150 million-$200 million goal for the year. Given that we are primarily reinvesting these proceeds into new developments, we expect some temporary FFO dilution in 2016 related to these sales due to the timing of our NOI from our developments. As Scott Musil will discuss shortly, we have been able to offset this dilution with early lease up of developments year to date, as well as our overall second quarter performance. Let me update you again on our CEO search. We have moved the process further along since our last call, we will let you know when we have a decision.
Again, I plan to retire as CEO by year-end while continuing to serve as chairman, I am confident we will have my successor in place before then. We are very pleased with our results thus far this year, our team is looking to continue that momentum by capitalizing on the good environment and the opportunities we have to grow cash flow. With that, let me turn it over to Scott Musil to walk you through some more details on the quarter and our guidance. Scott Musil?
Thanks, Bruce Duncan. Let me start with the overall results for the quarter. Funds from operations were $0.36 per fully diluted share compared to $0.35 per share in 2Q 2015. Funds from operations before one-time items, namely our acquisition costs in 2Q 2016 and 2015 As well as our hedging-related gain in 2Q 2015, were $0.36 and $0.34 per share, respectively. EPS for the quarter was $0.43 versus $0.13 one year ago. As Bruce Duncan noted, we finished the quarter with occupancy at 95.8%, up 100 basis points from the first quarter and up 70 basis points year-over-year. Sales accounted for 44 basis points of our occupancy gain since March 31st. Regarding leasing volume, we commenced approximately 4.1 million square feet of long-term leases in the second quarter. Of these, 700,000 square feet were new, 2.8 million were renewals, 700,000 square feet were development and out-of-service acquisition leases.
Tenant retention by square footage was 83.3%. Same-store NOI growth on a cash basis, excluding termination fees, was 6.3%. This was primarily driven by lower free rent, rental rate bumps, and rental rate growth. Lease termination fees totaled $96,000 in the quarter, and same-store cash NOI growth, including termination fees, was 5.6%. For the quarter, cash rental rates were up 3.5% overall. Breaking it down, renewals increased 3.2%, and new leases were up 4.5%. On a GAAP basis, overall rental rates were up 12.8%, with renewals increasing 12% and new leasing up 16.7%. To provide you with some additional color on our rental rates, as of today, for renewals signed and commencing in 2016, our cash rental rate change is 6.1%, with just 2% of our overall portfolio, or 1.4 million square feet, rolling the remainder of the year.
On the capital side during the quarter, recall that we issued 5.6 million common shares on April 5th to support our development growth opportunities. Moving on to our balance sheet metrics. At the end of 2Q, our net debt plus preferred stock to EBITDA is 5.5 times, adjusting EBITDA by normalizing G&A and excluding acquisition costs, and adjusting debt by adding back loan fees. This is below the low end of our target range of six to seven times. At June 30th, the weighted average maturity of our unsecured notes, term loans, and secured financings is 4.5 years, with a weighted average interest rate of 5%. These figures exclude our credit facility. Our credit line balance today is $202 million, and our cash position is approximately $22 million. Now reviewing our 2016 guidance per our press release last evening.
As Bruce discussed, our new guidance reflects approximately $0.02 of temporary sales dilution due to second quarter sales that are partially offset by the NOI impact of the 99,000 square foot acquisition in Southern California we closed in July. Given the additional expected FFO from early development leasing, as well as our second quarter performance, we maintained the midpoint of our NAREIT FFO guidance range and also narrowed the range to $1.42 to $1.50 per share. Recall that when we reported our first quarter results, we were also able to keep our FFO guidance midpoint the same, even after the temporary dilution related to the equity offering we closed in April. We are very pleased with our performance in the first two quarters of 2016. The key assumptions for guidance are as follows. Average in-service occupancy remains 95%-96%, based on quarter-end results.
Average quarterly same-store NOI on a cash basis before termination fees is expected to be 4.5%-5.5%, an increase of 50 basis points at the midpoint, reflecting our second quarter performance and a narrowing of the range. Our G&A guidance is $25 million-$26 million. As a reminder, our G&A guidance reflects the costs related to our CEO search, but does not reflect any potential changes in CEO-related compensation. Note that guidance includes the costs related to our developments under construction at June 30th, as well as planned development starts in Southern California, Phoenix, and Chicago. In total, for the full year 2016, we expect to capitalize about $0.03 per share of interest related to these developments. Guidance also includes the impact from the acquisition we made in the third quarter to date.
Our guidance does not reflect the impact of any future sales, nor any acquisitions or developments other than those we discussed, nor the impact of any future debt issuances, debt repurchases, or repayments. Guidance also excludes any future NAREIT-compliant gains or losses, or the impact of impairments, nor the potential issuance of equity. With that, let me turn it back over to Bruce.
Thanks, Scott.
The industrial real estate environment continues to be strong as we experience broad-based demand from tenants, boosted by the tailwind of e-commerce. It is our job to continue to capitalize on the opportunities within our existing portfolio and execute on our development investments. We are very pleased with our recent development leasing wins and overall execution. Kudos to our entire team for their efforts. Of course, we know that we need to continue to build upon our track record to drive future cash flow growth. In other words, it is business as usual at First Industrial, as cash flow growth is our focus each and every day. We will now open it up for your questions. As a courtesy to our other callers, we ask that you limit your questions to one plus a follow-up in order to give the other participants a chance to get their questions answered.
You are welcome, of course, to get back into the queue. Operator, may we please open it up for questions? Operator?
Yes, sir. At this time, I would like to remind everyone, if you would like to ask a question, please press star one on your telephone keypad. Your first question comes from the line of Craig Mailman from KeyBanc Capital Markets.
Good morning, guys.
Good morning.
If I'm looking, I think since your April equity offering, the stock's up about 30%. Just curious your thoughts here on ramping equity issuance to the ATM to pay for these developments.
Let me turn that to Scott.
Hey, Craig. The reason that we did the equity offering in April was to fund the development starts, actually, four of them, plus we've got this new development that we announced at our First Park 94 project. The equity offering we did in April was basically to take care of those developments. Craig, if you look at the remaining sales guidance for the last six months of the year, it's about $50 million-$100 million. Let's call the midpoint $75 million. If you look at the projected costs that we're projecting the last six months of the year for our developments in process, as well as the four starts that we plan in the third and fourth quarter, it's about $100 million. We're pretty much in balance.
Well, I know you guys are taking advantage of the sales environment to clean up the portfolio a bit and using it to fund. Isn't there an opportunity to just de-lever in the near term as you guys look to 2017, you may have more development opportunities, and kind of take advantage of the substantial premium that you guys are trading at in the market?
Well, premium is all a judgment call. From our standpoint, we have a fortress-like balance sheet. Why don't you talk about that?
My partner is still on my line. Craig, our leverage was at 5.5 times debt to EBITDA at the end of the second quarter. If you were to just look at the second quarter EBITDA, and you were to factor in leasing up the developments, getting NOI benefit from that, and again, we're only giving ourselves credit for what's been funded. If all those developments were 100% leased, our leverage goes from 5.5 times down to 5.3 times. Again, our goal is to keep our leverage between six and seven times. We have dry powder there, so we feel like we're in pretty good shape.
Great. Thanks.
Again, if you would like to ask a question, press star then the number one on your telephone keypad. Our next question comes from the line of Mr. John Guiney.
Looks like John Guiney here. How are you?
Hey, John. How you doing?
Good. About six months ago, you guys were big on the self-funding concept. I'm assuming trading in the 5.3 implied cap range makes self-funding no longer high on your priorities.
John, as we just discussed, we still can self-fund if you look at the last six months of the year for what our funding costs are for our developments in process, plus the four starts. Again, that's about $100 million, and our midpoint of our sales for the last six months is about $75 million. It matches up pretty well. Again, our leverage is at 5.5 times at the end of the second quarter. If you give ourselves benefit for developments, it's at 5.3 times. We do have some dry powder there. On equity, we'll never say never to that. It's basically going to be related to any other investments we're able to uncover.
Second question is, no matter how much you increase your dividend, and you've increased it a lot lately, it still seems to be under a 3% yield, which I guess has something to do with the stock price.
Good thing.
When I'm looking at your outlook for 2016 and your revised guidance, your net income is now in the $0.82 to $0.90 a share range, how does that work in terms of taxable income and the need to continue to raise the dividend?
Scott, you want to take that?
Sure. John, the guidance raise in earnings per share, you're right, related to the gain on sale that we recognized in the second quarter. Keep in mind that there's a disconnect between GAAP gains and tax gains, just because of the different bases that you have there. When you look at our taxable income, look at just the ordinary income. Exclude the gains on sale. Our dividends for 2016 will cover that, and also there's a little excess capacity to help us out with gains. Now, if the gains exceed that excess capacity, we got a couple of levers. One, we have $58 million of NOLs we can use to offset it, and we also can do 1031 exchanges. For 2016, John, we think we're in pretty good shape from a taxable income point of view.
You guys still have NOLs left?
We have $58 million, yes.
Wow, okay. Hey, thanks a lot. Nice job.
Thank you.
All right. Our next question comes from the line of Mr. Dave Rodgers from Baird.
Yeah, good morning, guys. How are you? I wanted to ask about development starts. I think, when we listen to your competitors, there's a lot of build-to-suit in the pipeline. We hear you guys are obviously making good success in leasing the projects that you've built. It seems like the pipeline is much more speculative in nature. Just kind of wondering if that's just a preference, if it's the projects that you're building, the difference, or what sense you have in terms of moving forward with quite a bit of spec on the balance sheet going forward.
Sure, Dave. Jojo, why don't you handle that?
Sure. Yeah. Dave, yes. Certainly, we focus on the build-to-suit market as well. We market our sites for build-to-suits. In the projects that we've started, we believe that we can create more value to the shareholders by developing spec. We've already mentioned to you, Bruce already spoke to you. If you average out the development placed in service and those not completed, not in service, and the developments under construction, Dave, you're averaging about a 7.3 GAAP yield, which creates a lot of value for the shareholders. Obviously, we like that. If you go, and like Bruce has mentioned as well, if you look at the projected starts, the starts at The Ranch by First Industrial, 215, PV 303, and the project in First Park 94, the average there is 6.8% GAAP yield, which again, is a good spread over what exit is.
We think we're focused on the right thing. Like you said, we're still focused to try and to get build-to-suit as well.
Yeah, Dave, as I mentioned, we've got the build-to-suit in Atlanta we're doing, one in Southern California. We do have two build-to-suits underway right now. Again, we recognize our focus has been more on doing spec development. We understand that there's more risk to that. That's why we have our $325 million development cap in place, and we've planned to that. Again, we've had great success to date in our developments. We feel very good about them, but we own it in terms of being able to continue to demonstrate and execute on the plan and get these buildings up and built on time, on budget, and hopefully ahead of budget. They've been to date. It's on us, but we're going to continue to focus more on spec development than build-to-suits.
I guess along those same lines, I think that the 2.4 million square feet of backlog that you quoted got a $70 or $71 kind of all-in basis for that. Is that fair in today's dollars as you think about kind of if you were to, I guess, buy new land? You've been buying pretty recent land. It just seems like that's a pretty low number, kind of given where you're building and the quality of product you're building. Is that a replicatable number? What are you seeing in construction costs?
Jojo, you want to handle that?
Dave, of course, it varies. It varies by market by market and development by development at $70.20 per sq ft, like you mentioned. We're very comfortable with that basis. To highlight, too, two of those projects are in Southern California, one in the Chino-Eastvale market and one in basically the I-215 corridor. I'm sure everyone has looked at the prices today, exit prices of those. We're very comfortable with that. In terms of, you asked another question whether we're comfortable with that going forward. Hey, it really depends, Dave, on the future opportunities we see, and we'll let you know. Again, we're going to use our local platform.
We're going to try to make sure that we look at the pockets of demand. We want to make sure that before we embark on any project, that we create value for the shareholders because of the spread we can make.
Any progress in backfilling Memphis, the 400,000 sq ft there?
Nothing to report at this time.
All right. Last question. I think I probably snuck three in or four or five. On the CEO transition-
We love you, Dave.
We love you, Dave.
We didn't notice.
Keep going. Keep going.
I'll roll round. I guess on the CEO transition, it was the last question, regarding compensation. Do we expect a better value than Bruce? Ultimately, I guess what I'm getting at.
Now that's it.
It's in the eye of the beholder.
That is rude. I want to go on record and say that's very rude. We'll let you know when we have something to announce. You'll be able to see the compensation.
Fair enough. Thanks, guys.
If you would like to ask a question, press star, then the number one on your telephone keypad. Next question comes from the line of Eric Frankel from Green Street Advisors.
Thank you. Scott, I wanted to touch upon leasing metrics in the same-store pool. I think you mentioned last quarter that operating expenses might continue to stay low due to tax refunds and lower bad debt expense. I was hoping you could expand upon whether that affected your metrics this quarter, and what's expected going forward this year.
Chris, you want to handle that?
Yeah. I kind of will break down the components of the same store for the second quarter. Overall, we're at 6.3%, and where that came from was rent bumps and cash increases, about 3%. The drop in free rent was about 2.5%. As you mentioned on the expenses, the other major contributor was a drop in the landlord expenses and the real estate tax refunds. That was about another 60 basis points. Going forward, we still have some opportunity on the real estate tax refunds, it may not be quite as much as we've seen in the past.
Eric, this is Scott. On the second quarter outperform, that caused us to raise the midpoint of our same-store guidance by about 50 basis points. That's a little over $1 million or about $0.01 a share. Again, this is actual compared to our guidance. About half of that, or $500,000, is due to lower bad debt. Again, we budget about $750,000. That came in at $225,000. The other $0.005 had to do with lower landlord expenses, a little bit pick up on same-store average occupancy compared to plan.
Right. Just two follow-ups for that. One, why exactly did operating expenses go down relative to last year if real estate tax refunds only represented 60 basis points of the same-store NOI growth?
Eric, the main part of the drop was just overall utilities. Landlord utilities was a big factor in there too, also.
All right, that's usually pretty fully reimbursed, right?
Correct.
Okay. Second, Scott, related to guidance. Maybe it helps me understand the second half of the year a little bit better. If you take your first two quarters was 8.2% same-store NOI growth, your midpoint is 5% for the year, your guidance insinuates that you're going to have roughly 1.8% same-store NOI growth for the second half of the year. That doesn't seem to fit with your leasing metrics, I was hoping you could expand upon that a little bit.
Well, I think the math that we're getting, Eric, is if you look at our midpoint guidance of 5%, you back out our first two quarters of actual, you get a little over 3% same-store growth. That's basically comprised of rental rate bumps and increases in rental rates. Now, the first half of the year, we got the benefit of free rent burning off that we're not getting the benefit for the second half of the year. Now, keep in mind, there could be some other upside potential as we had in the first two quarters. For third quarter and fourth quarter, we've budgeted $750,000 each quarter for bad debt expense. If we come in the same as the first quarter and the second quarter, which is about $200,000, our same store would go up roughly about 80 basis points.
That's the construct of what we're looking like for the back end of the year.
Okay. Maybe we can talk offline how you got to 3% versus my 2%. All right, thank you. I'll jump back in the queue. Thank you.
Next comes from the line of Mr. Bill Crow from Raymond James.
Hey, good morning, guys. Nice quarter, nice year so far. Bruce, anything in Southern California, whether it be fundamental challenges or concentration risk that might make you de-emphasize spec development over the next year or two in that market?
I'll have Jojo jump in on that, but we feel very good about what we're seeing in Southern California. We're very excited about The Ranch in the Chino-Eastvale submarket, and we've had great success there. We've got a great team. Jojo, why don't you talk about that? I would expect that if we could find more product, we would continue to do it. We're doing it. We're having great success.
Yeah, just to add to what Bruce said, it's the largest industrial market in the U.S. It also is the tightest on a consolidated basis. If you put together L.A., Inland Empire West, Inland Empire East, it is still the tightest market in the U.S. The fundamentals of the absorption continues on all the markets that I mentioned to you. Our income represents right now, really only the whole. It's the largest market, it only represents 14% of the income for FR. If you look at our investments, Bruce mentioned one in Inland Empire West, The Ranch, and then we have one investment in Sycamore. We call it Sycamore 215. That's a 243,000 sq ft building. We did that too, right out because of the success on the leasing prior to completion of First San Michele, as you may recall, Bill.
If you look at our investments in California, we're placing one investment at a time in different submarkets, so we're not developing significant amounts in the same market. We think that's diversification as well.
Let me add one more thing, and Jojo can talk about it. We also have, again, a wonderful site that can accommodate about 1.4 million sq ft. You might talk about that.
Yes. This is the site that right kind of fronts the I-215 corridor in the Inland Empire East in Moreno Valley, where we have a pocket of holdings that we've been very successful in developing and leasing. We like the site. This is a site that our local platform got from us at a very good basis through a land assemblage. It's fully entitled today, we'll let you know once we announce something there.
We're bullish on Southern California, now you should expect us to continue to be pretty bullish on that.
Got it. Thanks. Bruce, if I could, just my follow-up question on the CEO search, I'm going to leave value to other people.
Don't be rude like Dave.
No, I'm not going to do that. I think earlier this year, you talked about the search would encompass a wide array of individuals and their experience, and I'm just wondering whether the board and you have narrowed down the search, whether you're looking for specific industrial experience at this point, a former REIT CEO. Has there been any narrowing of the field as you've gotten through this process, and how does the pool of candidates look at this juncture?
I would say we're very encouraged. We have narrowed down the candidate list, and again, leadership is the number one thing, but we're very excited about it, and we've got great candidates, and we're making good progress. Other than that, we're not going to say anything until we announce something. We're very confident that we will have my replacement in place prior to the end of the year.
Your successor, not your replacement, right?
My successor. Exactly. My successor.
All right.
Anyway, right. Thanks.
Thanks, guys.
Bye, thanks.
Next question comes from the line of Jon Petersen from Jefferies.
Great. Thank you. I'm looking at your occupancy, 95.8%, obviously pretty strong and hard to expect you guys to move it that much higher. I guess if I am trying to look for opportunities there, if you look at specific markets, it looks like Minneapolis, you're about 90% occupied. That's about 7.5% of rent. And then maybe St. Louis is about 3% of your revenue and only about 85% occupied. Maybe talk about those two markets. Is there opportunity to move those percentages higher, or is that just a function of maybe having a couple, I guess, less competitive buildings in those markets?
Let me have Peter handle that.
Jon, this is Peter. In Minneapolis, you're correct. We have some opportunity there. Most of our vacancies are in the Northwest sub-market, a series of different buildings ranging in size from about 25,000 feet to 221,000 square feet. That Northwest sub-market has seen a fair amount of new supply, and absorption's been a little bit slower, so certainly competitive. We've continued to make progress on the smaller 25 to 30,000 square foot spaces. We still have work to do on getting the larger of those, particularly the 221,000 square foot space done. We're confident in our team's ability to do that and drive the occupancy up there.
In St. Louis, which has been a pretty consistent performer for us, we have a couple of spaces there that certainly need to market from 25,000, 50,000, 100,000 square feet, and we have work to do, but those spaces have been occupied, and again, we have confidence in our team's ability to have them reoccupied.
Okay. Thank you. I guess the flip to that is, looking at your lease expiration schedule over the next couple of years, you have about 12% maturing in 2017. Are there any large expirations you guys are thinking is going to happen going into next year? Any move outs?
Yeah. As far as 2017, we'll give you when we do the 2017 guidance, and we'll report at that time.
All right. Fair enough. Thank you.
Thank you.
Again, if you would like to ask a question, press star, the number 1 on your telephone keypad. Next question we have again, Mr. Eric Frankel.
Thank you. A question on the releasing spreads, not to say that they were poor by any means, but they trended a little bit lower than last quarter. Were there any particular deals that were rolling over some vintage lease signed maybe a decade ago, or is there some sort of anomaly there that suggests that releasing spreads should trend higher again towards the second half of the year?
Chris?
Well, Eric, one quarter does not really make a trend. We actually said in our comments, we talked about the renewals signed and commencing in all of 2016. That overall cash rental rate increase is 6.1%. You also heard that right now, we only have 2% or 1.4 million sq ft of the portfolio is rolling the remainder of the year. Again, that one quarter just doesn't really make a trend.
Okay. Were there any particular markets, though, of deals that you signed this quarter where either rents aren't moving as quickly as others, or is it-
Eric, there was one transaction that really brought that down.
Okay. Helpful. Thanks. Final question. Well, maybe not final question, but related to your disposition this quarter. Were there any trends in terms of the types of buyers you have for these assets, whether it's redevelopment or user sales or some other category? Maybe talk about the debt financing environment for those buyers.
Jojo, you want to take that?
Sure, Eric. There's no real discernible trend. The investor market continues to be active. All the institutional, private, and the user market continue to be active. In terms of financing is readily available for the users, for the investors. Most of the investors that bought our properties did not rely on CMBS-type financing. A lot of them are more bank-led financing. There's really no very different trend from the first quarter.
Okay. Actually, I do have a final question. It's related to your development cap. Do you think about your development cap, I guess, which is $325 million of at-risk dollars, if you will? Do you think about that relative to your balance sheet leverage? If you took your balance sheet leverage down, you can take your development cap up, maybe that's relevant to where everyone's equity cost of capital is today.
Jojo, you want to take that?
Yes. Thanks, Bruce. Eric, no, we think of it more as the total value of the company. We don't really look at it from a leverage point of view right now. We set this given where we're at. We're very comfortable here at the stage of the cycle. The nice thing about it is the revolving cap. We've been cycling through our projects. We're comfortable with this cap.
Make sure you execute on your developments, and we're executing to free up new capacity.
Sure. Can you actually just remind me where you think you actually are on the cap at this point?
Sure. The cap is $325 million, and we have $264 million of at risk. That includes all of the vacancy we get from acquiring and from our development. That leaves us to $61 million of capacity, Eric.
Eric, again, if we have a build-to-suit, that doesn't count because.
No, understood. Anything you lease up, it takes the cap down or takes your dollars at risk down. Understood. That's all I got. Thank you.
Eric, that includes the four starts that we presented in the call, the four new starts in third quarter, and fourth quarter as well.
Plus we purchased Park 94.
Got it. Okay, that's helpful. Thank you.
Next question comes from the line again of Mr. John Guiney.
Great. Hey.
Good.
You may have answered this already. I've been sort of zoning in and out. If you go to your land page, you've got essentially half of your developable land on an FAR basis is in Park 94 and also Southern California. This is a real softball for you. What's that worth on an FAR basis or a developable square foot basis today?
Jojo, you want to take that one?
Yes. When you say what's that worth, market value on a competitive basis, you mean? Is that what you mean?
For example, is First Park 94, is that $7 an FAR foot or $18 an FAR foot land? The same with the Inland Empire.
Okay. Well, today, the value for the FP94 would be more in the $8.50-$9 square foot range FAR. For The Ranch, did you ask about-
No, I asked on Southern California, the big 762, our property.
Okay.
We have our $1 million for what we think that is worth.
Okay. In the First Park, Nandina, $1.4 million. The FAR there would be in the $22 range because land values are in the $9 to $10. If you then gross it to about the 48%, 47% coverage, then that's where you get your number.
The Ranch land is a lot more expensive.
The Ranch is a lot more expensive. You're looking today's dollars at The Ranch in the $20-$25 square foot land foot, about $25 land foot, and then you can gross it up 45% coverage. You'd be basically at about $55, $60 FAR.
Got you. Okay. Thank you.
Okay. You're welcome.
There are no further questions at this time. Please continue, Mr. Bruce.
Great. Well, thank you for joining us on the call. If you have any questions, as always, please call Scott, Art, or myself, and we'd be happy to answer them. We appreciate your interest in First Industrial. Thank you.
This concludes today's conference call. You may.