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Text: 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 22, 2021.
We assume no obligation to update our statements or the other information we provide.
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.
Our team delivered another great quarter, highlighted by strong operating results, robust development leasing and more investment for growth.
Our efforts were supported by the overall economy and the industrial real estate sector continued to gain momentum throughout the second quarter.
Due to strong second quarter performance and the overall strength of the sector, we are increasing our FFO guidance, which Scott will walk you through shortly.
Per CBRE flash report, net absorption was a healthy 85 million square feet in the second quarter, while completions came in at a three year quarterly low of 52 million square feet.
Completions were impacted by reduced construction activity in 2020 as well as the continuing limited availability of readily developable land in highly sought-after locations.
Through the first half of this year, net absorption was 150 million square feet, outpacing new supply of 106 million.
In the second quarter, we were successful in driving occupancy while continuing to increase rental rates on new and renewal leasing.
In-service occupancy at quarter end was 96.6%, an increase of 90 basis points from the end of last quarter.
This increase in occupancy was accompanied by a 15.7% increase in cash rental rates on new and renewal leasing.
The strength and breadth of tenant demand also carried over to our development investments evidenced by 1.2 million square feet of development leases signed in the second quarter and third quarter to date.
We are pleased to announce that our 250,000 square foot building at First Logistics Center at 78/81 in Central Pennsylvania is now 100% leased to a leading consumer products company.
This takes care of the largest vacancy among our completed developments.
Also in Pennsylvania, we successfully leased the 100,000 square foot First Independence Logistics Center to the United States Postal Service.
In Houston, at our First Grand Parkway Commerce Center, we signed two leases totaling 117,000 square feet, bringing the two building 372,000 square foot project there to 55% leased.
In Dallas, we just leased 97,000 square feet at First Park 121 to a logistics provider, bringing the two building 345,000 square foot phase of that park to 64% leased.
This is in addition to the 125,000 square foot pre-lease at the last phase of the park that we started in the second quarter as discussed on our last call.
We also achieved significant new leasing at our developments in process.
In South Florida, we pre-leased 100% of the 259,000 square foot Building two at First Park Miami to a logistics and transportation company.
This building is scheduled for completion in the fourth quarter and the lease is expected to commence in mid-first quarter of 2022.
This same tenant also pre-leased 50% of our next start in that park, which I will discuss shortly.
We also leased 100% of the soon-to-be completed 141,000 square foot First 95 Distribution Center in Pompano.
The lease will commence by October 1.
Given the strong demand and the ability of our team to replenish our pipeline with profitable development opportunities, we're excited to share several new development starts.
In Nashville, we were successful in winning a 692,000 square foot build-to-suit with a leading specialty e-commerce retailer.
Completion is slated for the third quarter of 2022.
Our projected investment is $59 million and with a projected cash yield of 6.4%.
Taking advantage of the tenant demand we are seeing in South Florida, at First Park Miami, we will start a 219,000 square footer known as Building 1.
As I just noted, we inked a lease for 50% of the space in advance of going vertical.
Total estimated investment is $39 million with a targeted cash yield of 5.3%.
We are also well positioned for future growth at that park.
In addition to what's already underway, I remind you that we can develop another 405,000 square feet on land we own today, and we control another 59 acres developable to 1.3 million square feet for a total build-out of up to 2.5 million square feet.
Also in Florida, in the Orlando market, we are starting First Loop Logistics Park.
First Loop is a 4-building project totaling 344,000 square feet with an estimated investment of $45 million and a cash yield of 5.6%.
In Seattle, we've launched First Steele, a 129,000 square footer.
Estimated total investment is $24 million, with a targeted cash yield of 4.7%.
The site can also accommodate a 700,000 square foot building, which is permit-ready.
This location is proximate to major parcel hubs for UPS, FedEx and the U.S. Postal Service, where tenants serve strong East Coast consumption zones.
Our total projected investment for the first building is $125 million with completion targeted for the third quarter of 2022 and an estimated cash yield of 5.1%.
In summary, these newly announced development starts totaled 2.5 million square feet with an estimated investment of approximately $291 million and a cash yield of 5.4%.
Including these planned new development starts, our developments in process totaled 5.7 million square feet with a total investment of $608 million, at a cash yield of 5.8%, our expected overall development margin on these projects is approximately 50%.
We are excited about this robust pipeline and what it means for future cash flow growth.
To further bolster our development pipeline, we acquired the remaining 138 acres at our PV303 joint venture for $21.5 million.
This price reflects a $10.2 million reduction from our share of the gain and are earned promote from the joint venture.
This purchase closes out a very successful JV, which generated a largely unlevered 54% IRR for the partners and gives us another prime landholding to serve tenants' needs in this high-demand logistics corridor.
In addition, just last week, we closed on a 95-acre site in the Inland Empire East submarket of Banning for $27 million that can accommodate up to a 1.4 million square footer.
Vacancy in the Inland Empire East is just around 2%, and there are limited sites that can meet customer requirements in this size range.
In total, our balance sheet land today can support more than 12.5 million square feet of new investments and our share of the Camelback joint venture is around 3.8 million square feet.
So we are very well positioned for future growth.
Second quarter building acquisitions were comprised of an 81,000 square foot distribution facility in Orlando and a 33,000 square foot regional warehouse in Denver.
Total investment was $18.4 million, and the combined stabilized cash yield is 5.6%.
Moving on to sales.
During the quarter, we sold three properties and one unit for $26.2 million at an in-place cap rate of approximately 5.4%.
We also sold one land parcel for $11 million.
In total, we have sold $104 million year-to-date and have reached the low end of our sales guidance range of $100 million to $150 million.
Let me recap our results for the quarter.
NAREIT funds from operations were $0.48 per fully diluted share compared to $0.40 per share in 2Q 2020 and our same-store NOI growth for the quarter on a cash basis, excluding termination fees, was 2.1% helped by an increase in rental rates on new and renewal leasing, rental rate bumps embedded in our leases and lower bad debt expense, slightly offset by a decrease in occupancy and an increase in real estate taxes.
Summarizing our leasing activity during the quarter, we commenced approximately 3.5 million square feet of leases.
Of these, 1.1 million were new, two million were renewals and 400,000 were for developments and acquisitions with lease-up.
Tenant retention by square footage was 71.1%.
Cash rental rates for the quarter were up 15.7% overall, with renewals up 12.1% and new leasing up 22.7%.
And on a straight-line basis, overall rental rates were up 29.5% with renewals increasing 27% and new leasing up 34.4%.
Moving on to the capital side.
As Peter mentioned, we closed on two financing transactions this month for which the pricing demonstrates the strength of our balance sheet.
First, we amended our line of credit which was scheduled to expire this October.
Our new deal is for $750 million and it matures in four years with two six month extension options.
The interest rate is LIBOR plus 77.5 basis points, a pricing reduction of 32.5 basis points from our previous facilities credit spread.
We also financed our $200 million term loan that was due to mature earlier this month.
The new term loan matures in July 2026 and has an interest rate of LIBOR plus 85 basis points.
This is a 65 basis point reduction in the credit spread compared to our previous term loan.
With our interest rate swaps in place, the new fixed interest rate on the term loan is 1.84%.
Given the strength of our credit metrics, the line of credit and term loan provide for pricing at a BBB plus, Baa1 level, which is one notch better than our current credit ratings of BBB flat, Baa2.
This favorable pricing will be maintained as long as our consolidated leverage ratio as defined in the applicable agreements remains less than 32.5%.
Reflective of these two executions, the weighted average maturity of our unsecured notes, term loans and secured financings was 6.5 years with a weighted average interest rate of 3.4%.
At June 30, our net debt plus preferred stock to adjusted EBITDA is 4.9 times.
In the second quarter, we paid off $58 million of mortgage loans at an interest rate of 4.85%, which leaves us with no other maturities for the remainder of the year.
Our guidance range for NAREIT FFO is now $1.89 to $1.97 per share with a midpoint of $1.93, which is a $0.03 per share increase at the midpoint, reflecting our second quarter performance and an increase in capitalized interest due to our announced development starts.
Key assumptions for guidance are as follows: quarter end average in-service occupancy of 96% to 97%, an increase of 25 basis points at the midpoint.
Please note that our occupancy guidance now assumes that the lease-up of the 644,000 square foot former Pier one space will occur next year.
Due to additional leasing in our portfolio, we were able to essentially backfill more than enough space as an offset and raise our occupancy guidance.
Same-store NOI growth on a cash basis before termination fees of 3.75% to 4.75%, an increase of 25 basis points at the midpoint due to our second quarter performance.
Please note that our same-store guidance excludes the impact of approximately $1 million from the gain from an insurance settlement.
Our G&A expense guidance remains unchanged at $33 million to $34 million, and guidance includes the anticipated 2021 costs related to our completed and under construction developments at June 30, plus the expected third quarter groundbreakings of First Park Miami Building 1, First Loop Logistics Park and First Steele.
In total, for the full year 2021, we expect to capitalize about $0.07 per share of interest.
Importantly, our pipeline of future projects is the strongest it's been since the great recession, which positions us well to continue to drive long-term growth and value for shareholders and serve the space requirements of our tenants.

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q2 earnings per share $0.40.
q2 ffo per share $0.48.2021 ffo guidance increased $0.03 at midpoint to $1.93 per share/unit.

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