First Industrial Realty Trust - Earnings Call - Q2 2016
July 29, 2016
Transcript
Speaker 0
Good morning. My name is Hana, and 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 speakers' remarks, there will be a question and answer session.
Thank you. Mr. Art Harman, the Vice President, Investor Relations, you may begin your conference.
Speaker 1
Thank you very much, Hannah. Hello, everybody, and welcome to our call. Before we discuss our second quarter twenty sixteen 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 2936.
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 ks 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. Now let me turn the call over to Bruce.
Speaker 2
Thanks, Art, and 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 31. 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 eighteenth 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. But let me provide you with a few key highlights. In the second quarter, we placed in service three developments comprising approximately 683,000 square feet, all of which are 100% leased. The first was our 188,000 square foot First San Michele Logistics Center in Southern California that we leased up prior to development completion. The second was this 341,000 square foot facility at our two building First 33 Commerce Center in the Lehigh Valley.
Lastly, we leased the remaining third of our 153,000 square foot First Arlington Commerce Center at I-twenty in Dallas. So thus far in 2016, we placed in service four developments totaling 748,000 square feet 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 1,500,000 square feet. 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 square foot second building at the aforementioned First 33 Commerce Center.
So that entire project is now 100% leased. Second, we signed a lease for all of our recently completed 601,000 square foot 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 square foot building has an estimated investment of $39,000,000 a targeted GAAP yield of 6.9%, and is expected to be completed in the first quarter of twenty seventeen. These three projects total 1,000,000 square feet, 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 2015 to bring that building to 100% occupancy. We have replenished our pipeline with additional committed developments that total 2,400,000 square feet and approximately $170,000,000 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 $88,000,000.06 building, 936,000 square foot park in the Chino Eastvale submarket of the Inland Empire. Also in Southern California, we are building the $18,000,000 243,000 square foot First Sycamore at 215 Logistics Center. In Phoenix, we are building a 618,000 square foot facility at First Park at PB 303 with an expected investment of $33,000,000 And 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 4,600,000 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 $14,000,000 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. It is 100% leased for $11,900,000 Our going in yield was 6.4%.
We also added a development site in Dallas for $3,000,000 On the disposition side, we continued our portfolio management efforts with a very active quarter. We sold 26 buildings, totaling 1,500,000 square feet for $84,200,000 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 $100,500,000 on our way to our 150,000,000 to $200,000,000 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 development. As Scott 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.
Now let me update you again on our CEO search. We have moved the process further along since our last call, and 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, and I am confident we will have my successor in place before then. So we are very pleased with our results thus far this year. And 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 to walk you through some more details on the quarter and our guidance. Scott?
Speaker 1
Thanks, Bruce. 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 twenty fifteen. Funds from operations before one time items, namely our acquisition costs in 2Q twenty sixteen and 2015 as well as our hedging related gain in 2Q twenty fifteen were $0.36 and $0.34 per share respectively. EPS for the quarter was $0.43 versus $0.13 one year ago.
As Bruce 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 31. Regarding leasing volume, we commenced approximately 4,100,000 square feet of long term leases in the second quarter. Of these, 700,000 square feet were new, 2,800,000 were renewals and 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 1,400,000 square feet rolling the remainder of the year. On the capital side during the quarter, recall that we issued 5,600,000.0 common shares in April 5 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 and 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 30, the weighted average maturity of our unsecured notes, term loans and secured financings is four point five years with a weighted average interest rate of 5%. These figures exclude our credit facility. Our credit line balance today is $2.00 $2,000,000 and our cash position is approximately $22,000,000 Now reviewing our 2016 guidance for our press release last evening.
As Bruce discussed, our new guidance reflects approximately $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 $1.5 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. So we are very pleased with our performance in the first two quarters of twenty sixteen. The key assumptions for guidance are as follows: average in service occupancy remains 95% to 96% based on quarter end results average quarterly same store NOI on a cash basis before termination fees is expected to be 4.5% to 5.5%, an increase of 50 basis points at the midpoint, reflecting our second quarter performance and a narrowing of the range.
Our G and A guidance is $25,000,000 to $26,000,000 As a reminder, our G and 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 30, as well as planned development starts in Southern California, Phoenix and Chicago. In total, for the full year 2016, we expect to capitalize about zero three dollars 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.
Speaker 2
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. So 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?
Speaker 1
Operator?
Speaker 0
Your first question comes from the line of Craig Mailman from KeyBanc Capital Markets.
Speaker 3
Morning, guys. If I'm looking I think since your April equity offering, the stock's up about 30%. Just curious your thoughts here on ramping kind of equity issuance to the ATM to pay for these developments?
Speaker 2
Let me turn that
Speaker 1
to Scott. Hey Craig, the developments well, the reason that we did the equity offering in April was to fund the development starts at least three of the actually four of them plus we've got this new development that we announced at our first Park 94 project. So the equity offering we did in April was basically to take care of those developments. Now Craig, if you look at the remaining sales guidance for the last six months of the year, it's about 50,000,000 to $100,000,000 let's call the midpoint $75,000,000 If you look at the projected costs that we're projecting the last six months of the year for our Developments and Process as well as the four starts that we plan in the third and fourth quarter, it's about $100,000,000 We're pretty much in balance.
Speaker 3
Well, mean, I know you guys are taking advantage of the sales environment to clean up the portfolio a bit and using it to fund. But isn't there an opportunity to just delever 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?
Speaker 2
Well, premium is all judgment call. From our standpoint, have a fortress like balance sheet. But why
Speaker 3
don't you
Speaker 4
talk about My partner is still
Speaker 1
on my line. Craig, our leverage was at 5.5x debt to EBITDA at the end of the second quarter. And 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.
And again, our goal is to keep our leverage between six and seven times. So we have dry powder there. So we feel like we're in pretty good shape.
Speaker 5
Great. Thanks.
Speaker 0
To ask a question press star then the number one on your telephone keypad. Our next question comes from the line of Mr. John
Speaker 5
Guinee. Looks like John Guinee here.
Speaker 6
How are you? Hey John, how are you doing?
Speaker 2
Good, good, good. About six
Speaker 5
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?
Speaker 1
John, as we just discussed, are still 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 $100,000,000 and our midpoint of our sales for the last month, six months is about $75,000,000 So it matches up pretty well. And 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. So we do have some dry powder there.
Now on equity, we'll never say never to that, but it's basically going to be related to any other investments we're able to uncover.
Speaker 5
And then 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. Then when I'm looking at 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?
Speaker 7
Scott, do want take that?
Speaker 1
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 basis that you have there. But 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 $58,000,000 of NOLs we can use to offset it and we also can do ten thirty one exchanges. So for twenty sixteen, John, we think we're in pretty good shape from a taxable income point of view.
Speaker 5
You guys still have NOLs left?
Speaker 1
We have $58,000,000 yes.
Speaker 5
Wow. Okay. Hey, thanks a lot. Nice job.
Speaker 2
Thank you.
Speaker 0
All right. Our next question comes from the line of Mr. Dave Rogers from Baird.
Speaker 2
Yes. Good morning, guys. How are you? I wanted to
Speaker 7
ask about development starts. I think when we listen to your competitors, there's a lot of build to suit in the pipeline. And I think we hear you guys are obviously making good success in leasing the projects that you've built, but 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?
Speaker 2
Dave. Joe, why don't you handle that?
Speaker 4
Sure. Yes. So Dave, yes, certainly we focus on the build to suit market as well. We market our sites for build to suits. But in the projects that we've started, I mean, 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 place in service and those not completed, not in service and the development under construction, Dave, you're averaging about a 7.3 gap yield, which is creates a lot of value for the shareholders. So obviously, in you know, we like that. And if you go and like Bruce had mentioned as well, if you look at the projected starts, the starts that ran by First Industrial, two fifteen PV-three zero three and the project in First Park ninety four, the average there is 6.8% GAAP yield, which again is a good spread over what exited. So we think we're focused on the right thing. Like you said, we're still focused on trying to get build to suit as well.
Speaker 2
David, as I mentioned, we've the build to suit in Atlanta, we're doing one in Southern California. So we do have two build to suits underway right now. But again, we recognize our focus has been more on doing spec development. We understand that there's more risk to that, but that's why we have our $325,000,000 development cap in place. And we plan to that.
But 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 like they've been to date. So it's on us, but we're going continue to do focus more on spec development than build to suits.
Speaker 7
And I guess along the same lines, think that the 2,400,000 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, but 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 a replicatable number? And what are you seeing construction costs?
Speaker 2
Jojo, you want to handle that?
Speaker 4
Dave, of course, it varies, but it varies market by market and development by development at $70.2 per square foot like you mentioned. But the reality that is we're very, very comfortable with that basis. And to highlight too, two of those projects are in Southern California, one in the Chino, Eastvale market and one in basically the I-two 15 corridor. So I'm sure everyone has looked at the prices today, exit price of those. So we're very, very comfortable with that.
In terms of you asked on our 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. But 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 and 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.
Speaker 7
Any progress in backfilling Memphis, the 400,000 square feet there?
Speaker 2
Nothing to report at this time.
Speaker 7
All right. Last question, I think I priced three in or four or five. But on the CEO transition We
Speaker 4
you, baby. Oink, oink, keep going.
Speaker 7
I got a little round down. But I guess on the CEO transition, was the last question regarding compensation. Do we expect a better value than Bruce? Ultimately, I guess what I'm getting at is It's in the eye of
Speaker 2
the beholder. That is rude. I want to go on record and say that's very rude. So I will let you know when we have something to announce, you'll be able to see the compensation.
Speaker 7
Okay. Fair enough. Fair enough. Thanks,
Speaker 0
Next question comes from the line of Eric Frankel from Green Street Advisors.
Speaker 1
Thank you. Scott, I wanted to touch upon leasing metrics in the same store pool. I think you mentioned last quarter that our 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?
Speaker 2
Chris, you want to handle that?
Speaker 6
Yes. So 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 of about 3%. The drop in free rent was about 2.5%. And 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, but it may not be quite as much as we've seen in the past.
Speaker 1
And then 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 $1,000,000 or about $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 and the other $00 had to do with lower landlord expenses and a little bit pickup on the same store average occupancy compared to plan.
Speaker 2
Right. Just two follow ups
Speaker 1
for that. One, so why exactly did operating expenses go down relative to last year if real estate tax refunds only represented 60 bps of the same store NOI growth?
Speaker 6
Eric, other part on the main part of the drop was just overall utilities, landlord utilities was a big factor in there too also.
Speaker 1
All right. And that's usually pretty fully reimbursed, right?
Speaker 2
Correct.
Speaker 1
Okay. And then second, Scott, related to guidance, maybe you can help me understand the second half of year a little bit better. So if you take, your first two quarters was 8.2 same store eye growth and your midpoint is 5% for the year, you get to your guidance insinuates that you're going 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. So was hoping you could expand on 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, 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 So 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 3% versus my 2%. All right.
Speaker 4
Thank you. I'll jump back
Speaker 1
in the queue. Thank you.
Speaker 0
Next comes from the line of Mr. Bill Crow from Raymond James.
Speaker 8
Hey, good morning guys. Nice quarter, nice year so far. Bruce, anything in Southern California, whether it
Speaker 2
be
Speaker 8
fundamental challenges or concentration risk that might make you deemphasize spec development over the next year or two in that market?
Speaker 2
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 Eastfield market submarket. And we've had great success. We've a great team.
And Jojo why don't you talk about that. But I would expect that we could find more product we would continue to do it. We do it. We're having great success.
Speaker 4
Yes. Just to add to what Bruce said, I mean it's the largest industrial market in the It also is the tightest on a consolidated basis, if you put together LA, 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 is the large market only represents 14% of the income for FR.
And 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 215,000 square foot building. That's we did that too right out because of the success on the leasing prior to completion of First San Michele as you may recall, So if you look at our investments in California, we're placing one investment at a time in different submarkets and we're not developing significant amount in the same market. So we think that's diversification as well. Let me add one more
Speaker 2
thing and Jojo can talk about. We also have again a wonderful site that can accommodate about 1,400,000 square feet. You might talk about that.
Speaker 4
Yes. And this is the site that right kind of fronts I-two 15 corridor in the Empire East and Moreno Valley where we have a pocket of holdings that we've been very, very in developing and leasing. So we will 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 and we'll let you know once we announce something there.
Speaker 2
We're bullish on Southern California and now you should expect us to continue to be pretty bullish on that.
Speaker 8
Got it. Thanks. Bruce, if I could just my follow-up question on the CEO search, I'm going leave value to other people.
Speaker 2
Don't be rude like Dave. I mean, that is the No, case I'm
Speaker 8
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? How does how does the pool of candidates look at this juncture?
Speaker 2
I would say we're very encouraged. We have narrowed down the candidate list, and again, is the number one thing. But we're very excited about it, and we've got great candidates, we're making good progress. But other than that, we're not going to say anything until we announce something. But we're very confident that we will have my replacement in place prior to the end of the year.
Speaker 8
Your successor, not your replacement, right?
Speaker 2
My successor, exactly, exactly. Successor. All right. Thanks.
Speaker 8
Thanks guys.
Speaker 2
Next
Speaker 0
question comes from the line of John Peterson from Jefferies.
Speaker 9
Great. Thank you. So I'm looking at your occupancy, 95.8%, obviously pretty strong and hard to expect you guys to move it that much higher. But I guess if I am trying to look for opportunities there, you look at specific markets, 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?
Speaker 2
Let me have Peter handle that.
Speaker 10
John, this is Peter. In Minneapolis, you're correct, we have some opportunity there. Most of our vacancies are in the Northwest submarket, a series of different buildings ranging in size from about 25,000 feet to 221,000 square feet. That Northwest submarket has seen a fair amount of new supply and absorption has been a little bit slower, so certainly competitive. But we've continued to make progress on the smaller 25,000 to 30,000 square foot spaces, but we still have work to do on getting the larger of those, particularly the 221,000 square foot space done, but we're confident in our team's ability to do that and drive the occupancy up there.
And then in St. Louis, which has been a pretty consistent performer for us, we have a couple of spaces there that certainly meet the market from 25,000, 50,000, 100,000 square feet, and we have work to do. But those spaces have been occupied. Again, we have confidence in our team's ability to have them reoccupied.
Speaker 9
Okay. And then 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? As
Speaker 6
far as 2017, we'll give you when we do the 2017 guidance and we'll report at that time.
Speaker 9
All right. Fair enough. Thank you.
Speaker 2
Thank you.
Speaker 0
Next question, we have again, Mr. Eric Frankel.
Speaker 1
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, where you're rolling over some vintage lease signs maybe a decade ago? Or is that, or is there some sort of anomaly there that suggests that releasing spreads should trend higher again for the second half of the year?
Speaker 6
Chris? Well, Eric, quarter does not really make a trend. And we actually said in our comments, we talked about the renewal signed and commencing in all of 2016. That overall cash rental rate increase is 6.1%. And then you also heard that right now we only have 2% or 1,400,000 square feet of the portfolios rolling the remainder of the year.
So that's again that one quarter just doesn't really make a trend.
Speaker 1
Okay. Were there any particular markets of deals that you signed this quarter where either rents aren't moving as quickly as others or is it
Speaker 2
Eric, one transaction that really brought that down. Okay.
Speaker 1
Helpful. Thanks. Final question well, not 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? And maybe you can talk about the debt financing environment for those buyers?
Speaker 2
Jojo, you want take that?
Speaker 4
Sure. No Eric, there's no real discernible trend. It's the investor market continues to be active. All the institutional, private and the user market continue to be active. In terms of financing, 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. And so there's really no very different trend from the first quarter.
Speaker 1
Okay. Actually, I do have a final question, and it's related to your development cap. Do you think about your development cap, guess, which is $325,000,000 of at risk dollars, if you will? Do you think about that relative to your balance sheet leverage? So if you took your balance sheet leverage down, you can take your development cap up and maybe that's relevant to where everyone's equity cost of capital is today?
Speaker 2
Joe, do want to take that?
Speaker 4
Thanks, Bruce. Eric, no, we think of it more as the total value of the company and we don't really look at it from an average point of view right now. We said this given where we're at and we're very, very comfortable here at the stage of the cycle. And the nice thing about this is the revolving cap and we've been cycling through our projects and so we're comfortable with this cap.
Speaker 2
Make sure you execute on your development and we're executing to free up new capacity.
Speaker 3
Can you actually just remind me where you
Speaker 1
think actually are on the cap at this point?
Speaker 4
Sure. So the cap is $325,000,000 and we have $264,000,000 of at risk basically and that includes all of the vacancy we get from acquiring and from our development. So that leaves us to $61,000,000 of capacity, Eric. And Eric, again, if
Speaker 2
we have a build to suit, that doesn't count because that's No.
Speaker 1
Understood. Anything you lease up, it takes the cap down or it takes your dollars and risk down. Understood. That's all I got. Thank you.
And Eric, that includes the four starts that we presented in the call, the four new starts in third quarter and fourth quarter as well.
Speaker 2
But then we created Park 94.
Speaker 1
Got it. Got it. Okay. That's helpful. Thank you.
Speaker 0
Next question comes from the line again of Mr. John Guinee.
Speaker 5
Great. Hey you may have answered this already. I've been sort of zoning in and out. But if you go to your land page you've got essentially half of your developable land is on an FAR basis is in Park 94 and then also Southern California. What is and this is a real softball for you, what's that worth on an FAR basis or a developable square foot basis today?
Speaker 2
Joe, you want to take that one?
Speaker 4
Yes. So when you say what's that worth market value on a competitive basis you mean? That what you
Speaker 5
For example, is First Park 94, is that $7 an FAR foot or $18 an FAR foot land and the same with the Inland Empire?
Speaker 4
Okay. Well, would today, the value was all for the FP94 would be more in the $859 square foot range, you know, FAR. And then for for the ranch, you asked about did you ask about oh, did you ask Southern California. The big
Speaker 2
the sand let's do the our our our property. Okay. That's our million 4. Okay. Our think I will.
Speaker 4
The First Park, Man Nandina, 4. FAR there would be in the $22 range because land values are in the 9 to $10. And if you then gross it to about the 48, 47% coverage, then that that's where you get your number.
Speaker 2
And the ranch land is a lot more expensive.
Speaker 4
The the ranch is a lot more expensive. You're looking today's dollars at the ranch in the 22 land 20 to $25 square foot land foot, about $25 land foot, and then you could gross it up 45% coverage. So you'd be basically at about $55.60 dollars FAR.
Speaker 5
Gotcha. Okay. Thank you.
Speaker 1
Okay. You're welcome.
Speaker 0
There are no further questions at this time. Please continue, Mr. Bruce.
Speaker 2
Great. Well, thank you for joining us on the call. If you have any questions, as always, please call Scott, Art or myself. We would be happy to answer them. And we appreciate your interest in First Industrial.
Thank you.
Speaker 0
This concludes today's conference call.