Good day, and welcome to the First Industrial Realty Trust third quarter 2026 results call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star and then two. 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. Please go ahead.
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 Robert 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 a penny 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 pre-leased, 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 run 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 run 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 three 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 two available facilities in the 200,000 square foot range on 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 sq ft 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 two buildings totaling 390,000 sq ft . The first phase will be a 233,000 sq ft facility that is near-term developable upon entitlement and completion of infrastructure work. The targeted cash yield for phase one is in the mid 6% area. Moving now to development leasing. Since last quarter's call, we signed a 32,000 sq ft lease at our First Park Miami Building 12, bringing the total development leases signed this year to 849,000 sq ft . 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 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 sq ft were new, 1.6 million were renewals, and 300,000 sq ft 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 a penny per share and narrowed the range to $3.11-$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-$3.19 per share, which is also a penny increase at the midpoint. Our other major guidance assumptions are as follows. End of fourth quarter in-service occupancy of 94.5%-96.5% with a midpoint of 95.5%. So this implies an average quarter end in-service occupancy for the year of 94.5%-95%. These ranges reflect approximately 650,000 sq ft of incremental development leasing assumed to occur at the end of December. Fourth quarter cash same-store NOI growth before termination fees of 4%-6%. This implies a full year 2026 cash same-store NOI growth before termination fees 6.25%-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 30th. 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-$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 are optimistic about the activity levels we are seeing across our in-service portfolio and within our development opportunities. We are also encouraged by the renewal progress we have made thus far on our 2027 lease expirations that will contribute to our cash flow growth next year and beyond. Operator, we are ready to open it up for questions.
We will now begin the question- and- answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then two. Our first question comes from Craig Mailman with Citi. Please go ahead.
Hey, good morning. Just wanted to touch on development leasing here. I think last quarter you guys said fourth quarter you expect around 900,000 sq ft of development leasing, and it looked like in the press release that was updated to 650,000 sq ft. So I am just kind of curious, how big of a timing delay is that on that incremental 250,000 sq ft ? And maybe just give us an update on some of the bigger availabilities in the pipeline.
Hey, Craig, it is Scott. If you look at the exact math of what was remaining, it was a little over 850,000 sq ft last call. So it is about a little over 800,000 sq ft now, so 150,000 sq ft 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 is helping out a little bit. Also, keep in mind that the year-end occupancy guidance rate is unchanged at 95.5%.
Okay. So that 150,000 sq ft , 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 is going to be in two. Yeah. First of all, Craig, out of the leasing bogey that we have, it is out 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 2027, but it is 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 is what happened in the third quarter. So it is really a shift. The core did a little bit better than what we anticipated on the second quarter call, and we shifted 150,000 sq f t of development leasing next year.
Again, we are ending the year at 95.5%, which is unchanged from what we said on the second quarter call.
Okay, that is helpful. And Peter, I appreciated your commentary on the mark-to-market, and I also appreciate you are not giving 2027 guidance yet on where spreads could be. But I am just kind of curious, as you look at the expiration schedule and the peak rents in L.A. kind of peter through, could 2027 ultimately just be sort of a temporary air pocket here as you work through some of the drag from L.A., and then it could re-accelerate? Or is this just sort of indicative maybe of the directionally where we should expect that mark-to-market to trend going forward?
Yeah. Good question, Craig. Look, we look at this as we're coming off of the period, everybody signed a lot of leases in 2022. That was the peak year, beginning of 2023. We're coming through that peak year, and we're still generating from that data point, pretty strong cash rent growth. We actually think this is a good outcome, coming off of the peaks. 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. I think going forward, those numbers are going to be more modest.
Great. Thank you.
The next question comes from Nicholas Yulico with Scotiabank. Please go ahead.
Oh, yeah. Thank you for taking the question. It's Viktor Fediv . Just trying to understand on your, just the additional question on your occupancy guidance. So essentially, net of development leasing, that leaves around 350,000 sq f t from the core portfolio leasing. Can you have some expiration flap? Trying to understand what's already signed or committed on that space and what's not.
I am not sure what space. Can you ask the question, what space are you referring to?
Uh-
The 350,000 sq ft number does not. The 350,000 sq ft number or
Yeah, it is more like 800,000 sq ft to 650,000 sq ft, so it is 150,000 sq ft of development leasing that was adjusted into 2027. The strength of the core leasing in the third quarter offset that.
Got it. 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. We've got two swaps that are rolling off next year, a $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 a penny 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.
Understood. Thank you.
The next question comes from Blaine Heck with Wells Fargo. Please go ahead.
Great. Thanks. 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 2027 expirations you've addressed. Is that a bigger proportion than the 45% overall? 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. 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, you want to cover the first part?
Yeah. On the second part, on our signed Southern California renewals, we've 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? Are you seeing any undersupplied sub-markets or size segments in particular where you may have a land parcel or cost of capital advantage over your private competitors?
Sure. 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 other opportunities in South Florida and 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 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 in the ground. But a lot of these projects are getting closer to that day, so we'll keep you posted.
Great. Thanks.
The next question comes from Nick Thillman with Baird. Please go ahead.
Hey, good morning. Peter, appreciate the comments around spreads for 2027. Just on that roll, 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 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's activity?
Good morning, Nick. It's Peter Schultz. 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. Our largest remaining is in Atlanta, and we are finalizing those discussions now.
Oh, that is helpful, Peter. Can you also just talk on some of the activity you are seeing on those larger vacancies on the development pool? Has that activity increased? Do you think there is progression? 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 is kind of a placeholder, does not really have an impact to 2026?
Peter, do you want to cover Denver and Nashville? Yeah.
Sure, Nick, it is Peter again. On Denver, we continue to have active discussions with prospects for all proportions of the building. We continue to see new inquiries. I would say from the first half of the year, our activity is better today. You are 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. As we have 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. We just need to see some more activity there.
We do have a couple of active prospects, but we would like to see them move along with their commitments. Jojo?
Yeah. As Peter Baccile has mentioned, we have continued to have more activity from Q2 to Q3. We leased 188,000 sq ft, and we also leased 78,000 sq ft , so we are very pleased with that. We have a high-quality building called First Rider that is still vacant. That is at 324,000 sq ft. The building, the leasing there has more competition. If you look at East I.E., the largest vacant size range is in the 250,000-500,000 sq ft range. So, yeah, 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 are marketing it as multi-tenant as well.
That is it for me. Thank you.
The next question comes from Todd Thomas with KeyBanc Capital Markets. Please go ahead.
Yeah. Hi, thanks. Good morning. I just wanted to first follow up on a prior line of questioning, Peter, about balancing rent versus lease up. Is there any rent sensitivity in the discussions that you are having or it is not really rent related in your view? I think your comments were about some of the renewal leasing specifically. Does that discussion change at all for the current 650,000 sq f t leasing opportunity or just vacancy lease up bucket in general?
Yeah. The discussion doesn't really center on the rent number. Lowering your rent's 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. 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?
The price of fuel's obviously an important input on the cost side, for example, for a trucking company and what you might call a normal price environment. That's about 20%-25% of their marginal operating costs. And today is anything but normal, obviously. And that would represent more like 35%-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.
Okay. Thank you.
The next question comes from Caitlin Burrows with Goldman Sachs. Please go ahead.
Hi, everyone. Good morning. 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? Also, is that like a comparable number to the 40.5% that's been achieved year to date in 2026 on the commenced ones? Or are those numbers like apples to oranges?
At this time, Caitlin, we don't think 2027 will be meaningfully different from where we are so far. Obviously, that depends on how the final discussions end up. That's probably a pretty good indication of where we're going to end up.
Okay.
I am not sure I follow your question about the 40%.
If we look at the commenced spreads year to date, they have been 40.5%. I realize there is a difference between like commenced and signed, but that is what I was asking about. It sounds like they are comparable.
Yeah, they are comparable. Yes.
Okay. 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. 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 is certainly a real time example because obviously we just acquired that and underwrote it and acquired it. I think it is representative. It does not represent a ceiling for sure, because there are lots of different reasons why we end up where we do with our yields, and we have been pretty good at that. But I think it is representative, yes.
Okay, thanks.
The next question comes from Rich Anderson with Cantor Fitzgerald. Please go ahead.
Hey, thanks. Good morning. 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-
68%.
I'm sorry, 58%.
68%.
Okay. 68%?
68%.
68%.
Okay. All right. 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-2022 number, as you would expect, is definitely higher than the post 2022 number.
Yeah.
I am not going to get into the math on that, but I think what is important as we look at this is there could have been rent rolled down from the peak, and we are coming through that with a pretty strong result.
Yeah
Historically, we have been a pretty strong relative performer on this subject, so we will see where that leads.
Okay, fair enough. And second question for me on development start activity. You are 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 do not know if you agree with that, but is the fact that this has held steady a vestige of what it is required to make development pencil? Do you feel the same thing, or do you feel like you will have more starts because you have a particular advantage because you land under control or whatever the case may be, that you can actually make sense of new development starts, even if it has stayed the same versus the second quarter? Thanks.
Yeah, 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 is a bit involved. And the lack of starts in the third quarter has nothing to do with what is going on behind the scenes, so I would just stay tuned on that subject. And we do not see a limit to our ability to invest in new development at acceptable yields going forward.
Perfect. Thanks very much.
The next question comes from Vikram Malhotra with Mizuho. Please go ahead.
Morning. Thanks for taking the question. Sorry about this, I wanted to go back just tactically thinking about this 16% messaging, and essentially, for the full year 2027 is what you are thinking. I am wondering, if the market is turning, you are 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 now versus waiting for the market to recover and maybe getting better spreads? It seems a big drop-off. I do not think, in general, anyone is surprised by, say, one of your larger peers saying it is high teens or low twenties. But there was a thinking that FR's markets would hold up better.
I am just trying to figure out, what if just the messaging of, like, "Hey, next year, it is likely 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 2027, right?
Oh, the eight months in advance average.
Renewals. Right.
Yeah. 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 on some of the other peers, you look at where their mark-to-market's 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 % cash rent spread. It just was that FR was outperforming the broader peer set, and we would've thought there was a little bit more strength based on the leases you had already signed and the term. It just seems like there's a big decel. I'm wondering, if that's the case for 2027, 2028 rent's expiring are higher, as are 2029. Are we in this trajectory where it's just going to keep de-selling? I'm just trying to figure out this tactically. The market's turning positively.
You're talking about net absorption exceeding supply, market rent growth back to mid-single digit in the last few months. I'm wondering, could we not see better spreads in the next two years?
If market rent growth is in the 3%-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 rolled down.
Yeah. Okay.
I mean, clearly,
No.
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.
Yeah. No, again, I am just trying to square, like your commentary in the past year or two has been that you are likely to have, versus peers, a higher-for-longer rent spread trajectory, given old development leases that are expiring in. So I am just trying to figure out, is there something unique about 2027 versus as we think about 2028? Again, I am just trying to figure out. We all assumed FR's trajectory would be at a much higher trajectory than most peers, but seems to be likely versus my own estimates, it is going to be very peer average next year in terms of rent spread. That is all. But I guess we can take it.
I guess.
You can.
I guess, Vikram, time will tell, Vikram.
Okay. Maybe just a second one. Sorry for the long question, but just a second one on the development lease up. I wanted to tie that back to a comment I think you made at NAREIT, which was, you are looking now to also replenish the land bank. I know you are talking about some spec starts. Where are we in this 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. Thank you.
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. 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. Yes, that is still a focus, and we are making some progress. We would like to make more.
Again, if you have a question, please press star and then one. Our next question comes from Jessica Zheng with Green Street. Please go ahead.
Hi. Good morning. I was wondering if you could walk through the components of the same-store guidance increase. Also just curious, same-store guidance rose 75 basis points at the midpoint, but FFO only rose by a penny. Just curious, what is the offset there?
Yeah. Jessica, on the 75 basis point raise, it is 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. Obviously the free rent impacts cash same-store but will not necessarily help FFO.
Less free rent in exchange for more cash. That part of it impacts the cash same-store, but it is not going to impact the FFO increase.
Yeah. That is helpful. Thank you. Then maybe just switching gears a bit, you mentioned you are seeing good activities in SoCal. Could you just kind of describe what kind of tenants you are seeing that are active in IE today?
Yeah. Hi, Jessica, it is Jojo. Yep. 3PLs are very active. We just did a deal with a 3PL, and then there is also, just recently. First of all, it is 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 and with state-of-the-art fasteners. Then recently, as Peter mentioned, we had a transload company, and that company is a trucking freight forwarder and does business with the U.S. Customs and Border Protection Agency.
Okay, great. Thank you.
The next question comes from Dave Rodgers with Raymond James. Please go ahead.
Yeah. Good morning, everybody. Maybe you said this and I missed it, but did you talk about what percentage of leases next year you are planning to retain versus what you will expect to retenant as the year goes on, given that you are kind of working so far in advance where you typically might be?
Yeah, Dave, we are still working through the budgets process completely, but we expect retention to be 65%-75%.
Okay. That's helpful. This will be something that you probably won't want to answer, but I'll 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 2028 and 2029. You are 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. 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 to 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.
Yeah, I think it's math. Peak was third, fourth quarter 2022. If somebody has a five-year average lease term, obviously third quarter, fourth quarter 2027, the peak rents are going to be through. From there, your growth rate depends on market rent growth. 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. If the markets dragged for two or three more years, you might see negative roll down. I'm not saying generally from us, I'm saying for the sector. This isn't a bad landing. This is a decent landing off of the turbulent rise and fall of 2021, 2022. We think on a relative basis, we're still going to perform pretty well.
Thank you for that color. Last question from me. On the 650,000 sq ft I know we've talked about it a couple of different times. How much is signed, how much is in LOI, and how much is, I don't want to say hopeful, in terms of what's in that 650,000 sq ft number?
You want to know the progress on the 650,000 sq ft?
Yep.
Yes?
Yes, correct.
So look, one of the reasons that we move that number during the year is obviously it depends on where we are with conversations, whether we are 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 650,000 sq ft is based on that 1.7 million square feet that we have available and what is happening around all of those projects. So I am not going to break down where we are by phase, but that is where the 650,000 sq ft comes from.
Okay, thank you.
The next question comes from Michael Lewis with Truist. Please go ahead.
Thank you. You talked earlier about evaluating potential development starts. How are you thinking about risk-adjusted returns and the decision process between development and acquisitions? Maybe how does this Central Pennsylvania acquisition at 5.1% fit into that, and what is the upside there?
Yeah. On an acquisition, we want that spread to be 50 basis points or more, and these are kind of, I will 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 is going to throw off a total return that gives us the kinds of margins that we like. 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. I do not know. Does that answer your question?
Yeah, that is helpful. My second question, you may not be able to answer this one. You are not giving 2027 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 is too early to tell. The benefit you have on AFFO compared to FFO from a growth rate is that the denominator for AFFO-
Right.
Is going to be less. 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 impact it, capital expenditures, for instance, and non-cash items. So it's really too early for me to say whether the growth rate in AFFO will be better than FFO next year.
Okay. Thank you.
The next question comes from Jon Petersen with Jefferies. Please go ahead.
Oh, great. Thanks. 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?
Yeah. We have a handful of opportunities we are pursuing. Some are land and some are cash flowing buildings, and we are pursuing power on a couple of them right now. It is a process that takes a while, but the value creation opportunity is pretty substantial. It is a bit of a slow-moving effort. Not because we are slow moving, because the other side is slow moving, and we will keep you posted on this. But yeah, we are putting a lot of effort behind it.
Can you tell us more about what geographies those are in and maybe how much power you are talking about potentially?
We really
I would say it is more East Coast we are looking at this point in time.
Okay. Then maybe just a-
Megawatts is tough to give until we get further information about the load studies that the utilities have to put together. There are going to be more East Coast opportunities.
Okay. You guys have a buyback program in place which you haven't used. I'm just curious, as interest rates are going up, I know stock prices have come back, but it still seems like you have development opportunities in the market. 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, as we have said in the past, we look at that very opportunistically relative to our other investment opportunities in liquidity, leverage, and valuation. We continue to have ample opportunity to invest in our core business. Again, we're going to remain opportunistic about the shares. Not sure what else I can tell you about that.
All right. That's helpful. Thank you, guys.
The next question comes from Omotayo Okusanya with Deutsche Bank. Please go ahead.
Hi. Yes. Good morning. Just curious, as we're about to hit the midterm elections, anything you guys are looking 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, investing in growth. 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?
Yeah, nothing really in the local. 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, the moratorium is relaxed.
Fair enough. Thank you.
The next question comes from Michael Mueller with JPMorgan. Please go ahead.
Yeah. Hi. Just two questions here. One, you obviously talked a lot about the spreads versus peak. Can you talk a little bit about the rent bumps that you are getting today compared to those bumps back in the peak years, if there has been any erosion there? Then just any general commentary on land pricing trends as you refill the bank.
When you talk about bumps, you are talking about the escalations, yeah?
Yes.
Chris, you want to go over the escalation?
Yeah. We have not really seen much erosion in that. If you look at our 2026 signings, so far we are at 3.5%. So those are staying steady or holding.
In the past couple of years, Chris, it's been 3.6%.
Yeah.
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. We've been seeing an uptick as more warehouse development has been kicking in, so just an uptick in land prices overall. Of course, depending on market to market.
Sure. Okay. Thank you.
The next question comes from Caitlin Burrows with Goldman Sachs. Please go ahead.
Oh, hi again. I was just going to ask, in Q3, it looks like there were no starts then. I know you mentioned earlier that there's a lot of prep work that goes into it, and you only announce the starts once it's really going. Just wondering on that Q3 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 talk a lot about the speed of corporate real estate. We could also talk a lot about the speed of municipal approvals, et cetera. It's really just that. There's nothing exogenous impacting the pace of our starts.
Got it. Okay. That's all. Thanks.
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.