First Industrial Realty Trust Inc

NYSE:FR

Earnings Call Transcript 2021-Q2

[Operator]

Good day, and thank you for standing by. Welcome to the First Industrial Second Quarter 2021 Earnings Conference Call. [Operator Instructions]. I would now like to hand the conference over to your host Mr. Art Harmon, Vice President of Investor Relations. Thank you. Please go ahead, Sir.

[Arthur Harmon, VP, IR & Marketing]

Thank you, Katrina. Hello, everybody, and welcome to our call. Before we discuss our second quarter 2021 results as well as updated guidance, let me remind everyone that our call may include forward-looking statements as defined by federal securities laws. These statements are based on management's expectations, plans and estimates of our prospects. Today's statements may be time-sensitive and accurate only as of today's date, Thursday, July 22nd, 2021. 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, our Chief Financial Officer, 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 Peter.

[Peter Baccile, President, CEO & Director]

Thanks, Art, and thank you all for joining us. 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 continue 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 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 of a 100,000 square foot First Independent 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 provided 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 II 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 part which I'll 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 1st. 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 the leading specialty ecommerce retailer. Completion is laid for the third quarter of 2022. Our projected investment of $59 million and with our project cash yields 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 aim to lease for 50% of the space and advance of going vertical.

Total and 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 it's already under way, 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 buildout 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 four building project totaling 344,000 square feet with an estimated investment of $45 million and a cash yield of 5.6%. In Seattle, we launched First Steele, a 129,000 square footer. Estimated total investment is $24 million with a targeted cash yield of 4.7%. In the second quarter, we acquired a strategic site in the I-78/81 quarter of Central Pennsylvania for $83 million.

Known as First Logistics Center at 283, we have begun construction on the 1.1 million square foot building A. 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 zone. Out 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 plan new development starts, our development 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 our 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 land holding to serve tenants needs in this high demand logistics quarter.

In addition, just last week, we closed at our 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% in our 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 investment 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 on 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 an $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. Before I turn over to Scott who will discuss more details on the quarter and our line-up credit and term loan execution, let me express my heartfelt thanks to the entire First Industrial team for their hard work and many contributions to our very successful second quarter.

With that, let me turn it over to Scott.

[Scott Musil, CFO, SVP, Treasurer & Assistant Secretary]

Thank you, Peter. 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, 2 million were renewals, and 400,000 were for developments in 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% a 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 out to the capital side. 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 was for $750 million, 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 loans 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 rates swaps in place, the new fixed interest rate on the term loan is 1.84%. Given the strength of our credit matrix, the line of credit and term loan provide for pricing at the BBB+/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%. We would like to thank our banking partners for the many years strong support First Industrial. Reflected by 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 30th, 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. Moving now to our updated 2021 guidance for our earnings release last evening. Our guidance range for NAREIT FFO was now $1.89 to $1.97 per share with a midpoint of $1.93 which is a three set 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 that the lease-up of the 644,000 square foot former Pier 1 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 30th, plus the expected third quarter ground breakings 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. Other than previously discussed, our guidance does not reflect the impact of any future sales, acquisitions or new development starts after this call. The impact of any future debt issuances, debt purchases or repayments after this call, and guidance also excludes the potential issuance of equity.

Let me turn it back over to Peter.

[Peter Baccile, President, CEO & Director]

Thanks, Scott. And thanks again to the FR team for another great quarter as we continue to achieve success on all fronts. Importantly, our pipeline of future projects is the strongest of spends 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.

With that, operator would you please open it up for questions. We ask that you please limit your questions to one plus follow-up and then you're welcome to get back in the queue.

[Operator]

Thank you, Sir. [Operator Instructions] Our first question is from Craig Mailman from KeyBanc Capital Markets. Your line is open.

[Craig Mailman, KeyBanc Capital Markets]

Hey, good morning guy. Could you just discuss a little bit of the prospects activity at the Pier 1 space and maybe what is it about the building or the submarket that is kind of elongating the back fall process there?

[Peter Baccile, President, CEO & Director]

Peter?

[Peter Schultz, EVP, East Region]

Sure, Craig. Good morning, it's Peter Schultz. Activity in the submarket continues to be good. The pipeline for new supply is very limited and tenants have relatively few choices. The lease signings to-date have been in a couple of buildings that were bigger than us or smaller than us. Our building is positioned for immediate occupancy which is really important to the environment where we're seeing elongated permeating process and delays on materials. So, we're ready to go.

We've seen a couple of shorter-term deals and that's not really our preference. And some of the longer-term deals are a little slower moving. So, we remain optimistic about our success there in the mark-to-market and as Scott he said in his remarks, given the strength of leasing in the portfolio otherwise that more than offset that. And we still have that as upside for the rest of the year. So, we'll keep you posted on our progress.

[Peter Baccile, President, CEO & Director]

Yes Craig, with even with pushing out that lease up to 2022, we still plan to end the year around 97% occupancy. So, all things being equal, the lease-up of Pier 1 is about 1% percentage point of occupancy that would push us to about 98% which is verified air in the industrial sector.

[Craig Mailman, KeyBanc Capital Markets]

I guess, Peter, is -- are you guys close with the tenants or is it like your prospect pipeline is tenants point?

[Peter Schultz, EVP, East Region]

Craig, I would just reiterate, there is good activity in the market. We're evaluating a number of things as I said. Our preference would not be to do shorter-term deals and some of the longer-term deals are just slower moving.

[Peter Baccile, President, CEO & Director]

And we would prefer, Craig, for it to be a single tenant building as well. So, the size requirements in the market just needs to match up or just need to find the right match.

[Craig Mailman, KeyBanc Capital Markets]

Okay, that's very helpful. Then Scott, as we think about your same-store guidance, you guys are running around a little over 2% for the first half of the year. Is it just going to be a big spike in 4Q as you like of lap the Pier 1 move outs that's just going to get you to the midpoint?

[Scott Musil, CFO, SVP, Treasurer & Assistant Secretary]

Yes, exactly. So, if you do the math based upon our annual midpoint guidance of 4.25% that implies about a 6% same-store growth rate for back half of the year. And Craig, you're right, the two main drivers, one is occupancy. So, we're going to do better in occupancy on the back half of the year which will add about 2.3% percentage points to the same-store. We're also going to do a little bit better on the back end of the year with increasing rental rates anew and renewal leasing.

That's about a 0.6% increase compared to the first half of the year. And that takes care of the majority of the weighted to get us to this 6% of plus or minus that we think we'll achieve the back end of 2021.

[Craig Mailman, KeyBanc Capital Markets]

Great, thank you.

[Operator]

Our next question is from Ki Bin Kim from Truist. Your line is open.

[Ki Bin]

Thanks and good morning guys.

[Peter Baccile, President, CEO & Director]

Good morning, Ki Bin.

[Ki Bin]

Good morning. So, you guys have made some pretty interesting investments in the Phoenix market. You're obviously bought PV303 and the remaining portion of lands to a 100% ownership and you have the Camelback plan as well. Can you just talk about the supply and demand dynamics in that market especially given that there is seems to be about 23 million square feet that's being delivered in that market and only 25% pre-lease?

I'm not sure how's with these broker reports are but I just want to get your take on it.

[Jojo Yap]

Sure Kim Bin, hi this is Jojo. Phoenix, I would say has had a record first half, obviously there's been no absorption and it clearly trumped the complete it by almost double. First half of the year, a year-to-date of sort of net absorption of about almost 12 million square feet which is one of the highest rate I've seen in the last 15 years.

So, again very big demand. Lot of 3PL's, lot of ecommerce rated, lot of Omni channel. Manufacturers have come in as well. And a lot of demand for data centers. Historically if you look at what we have, we every building that we develop we'll lease. Actually either before completion or right after completion; minimal downtime. As you know, we have a 547,000 square feet on balance sheet development and expandable to about 925.

And now we're actually we're being proposed as we speak on that. So, we've got it proposals and now we're looking at other options. This insurance I'll keep in the land that we bought. You look at that basis, that basis is sub-4, in fact about 360 per square foot. I can tell you to-date there's about 45% to 50% below market. So, right off the bat we believe we're in the money and we think of in the future that will yield that will given the base and it we're in the rest out today that should be over six easy inside of the wheels.

So, we're very bullish and now we're feeling good about our current investment. And by the way our portfolio there existing portfolio is about 98% leased today and going to a 100% pretty shortly.

[Ki Bin]

Okay, thanks for that. And for you Scott, I know sometimes you guys give some color on the lease spreads for deals that are fine but not committed. So, when you look at the pipeline of deals that you have currently, what kind of spreads should we continue to expect?

[Scott Musil, CFO, SVP, Treasurer & Assistant Secretary]

So, there is well of the stat they were seeing is as of today we've got 84% of the leases that are expiring this year sign. Even so that coupled with the new leasing that we've done for 2021, we're looking at a cash increase in rental rates of about 14.5%. So, it's very healthy when you include the renewals which we pretty much made it through the year and the new leasing that we've done.

[Ki Bin]

Okay, thank you.

[Operator]

Our next question is from Rob Stevenson from Janney. Your line is open.

[Rob Stevenson, Janney]

Good morning, guys. Can you talk a little bit about the Central PA land purchase and the 1.1 million square foot property you're building there? I mean, the land cost alone is nearly two times which you paid on a per-acre basis for the Inland Empire Parcel. Not used to seeing Central PA trading at that big of a premium to the California land. And then were should rents be here versus the $5 per square foot on your existing Central PA portfolio.

[Peter Schultz, EVP, East Region]

Rob, good morning. It's Peter Schultz. So, a couple of things. In Pennsylvania, as we've said on prior calls bigger continues to be better. Demand has been most active and consistent in the 700 million square foot range and plus. So, that demand profile has been really strong. When you look at the supply, there has certainly been a fair number of million square footers that have been constructed, they're essentially constructed, they're essentially all lease. There is only one other building today that's under construction in addition to ours in Central Pennsylvania. So, very limited choices for tenants with strong demand.

The site as Peter mentioned in the remarks, this is very close in to Harrisburg to the parcel hubs and the intermodals and importantly a much better labor story than some of the site say along the southern 81 quarter or up in North East PA. So, we really feel great about that combination of factors and location. In terms of the price, that's about $46 on a FIR basis. So, under the building which is a site that is fully entitled permitted ready-to-go.

So, we started construction the day after. So, Jojo can talk about the California site that is going through the entitlement process. But we think the opportunity here to create value is quite good with Cap rates in that market 375 and going lower today. Jojo, you want to talk about?

[Jojo Yap]

Yes. That the in the net per-lease market, I wouldn’t want to pick that as market because that's way below market. We got that deal by assembling six parcels to two different sellers the tip of the year, off market and right across the street, there already a sale that's about 60% of our basis. So, that then hit the market where thanks to the team, so our LA Inland Empire team for getting that deal done. That's definitely in that market.

If you look at it, that's under $7 a foot. Less prices there where we have decided to be close to mid-teens. So, I would as long as that you shouldn’t use that price as market because that's never hit the market.

[Rob Stevenson, Janney]

Okay. And then second question. The pipeline now is about $500 million you've got 80'sh million rough numbers completed in to be completed in the third quarter and there's similar amount of announced starts. You guys have been doing a lot of significant pre-leasing on the pipeline. Do you sit here at this $500 million'ish level and is that where you're comfortable today. Do you let that drift up as demand pulls you in that direction?

Does it fall back to a more sort of $350 million $400 million'ish. As you look forward, how should we be thinking about the pipeline?

[Peter Schultz, EVP, East Region]

Yes, hi it's Peter. Look, we can build about 12.5 million feet on land that we own. That equates to about one and that doesn’t include the 291 million we talked about today. So, that's net of that. That's about a $1.3 billion that's $1.3 billion worth of investment. We also control land where we can build -- we can invest another 320. And our share of the JV Camelback JV is about another $340 million of investment.

So, if you add all that up, again net of the 291 we talked about today, that's pushing $2 billion of investment. You can see that our volumes are up today. I think going forward, you can expect our development volumes to be higher than they have been historically. Don’t forget our company is much larger now today than it was even two or three years ago. So, the numbers that you're quoting are probably closer to the go-forward than the historical level.

[Rob Stevenson, Janney]

Okay. Thanks guys, I appreciate it.

[Operator]

The next question is from Caitlin Burrows from Goldman Sachs. Your line is open.

[Caitlin Burrows, Goldman]

Hi, good morning. Maybe just a follow-up on that last one. I guess, given the land then that you have and that investment opportunity that you have, what keeps you from moving forward more quickly as it just think take time to assemble or is there anything else that is keeping it from moving markedly?

[Peter Schultz, EVP, East Region]

Well, every single project has a story and a timeline and it's really just working through that. We haven’t tied the entitlement process takes a long time. We do face as everyone else does, potential delays with commodity inputs as you know there are shortages on Steele and other commodity inputs. So, that influences the timing. You know we have a speculative development and leasing cap. We have to manage that. We want to make sure that we continue to lease these new developments in a timely way.

Building is great but if you don’t lease the buildings, that's not good. And so far as you've seen we're way ahead of schedule or ahead of pro forma on the lease-up of many of these projects where they're being leased at or near completion, in some cases before we even go vertical. So, that the market's very strong where we only great sites and now we're going to continue to roll them out as they're ready to go.

[Caitlin Burrows, Goldman]

Got it, okay. And then maybe if you could just talk a little bit on what types of tenants you're seeing the most interest from and how deep that is. And if there's any visibility to have while you think that these demands can continue forward then supporting those lease and spreads that you were talking about earlier.

[Peter Baccile, President, CEO & Director]

Peter and Jojo, you want to add some color to that?

[Peter Schultz, EVP, East Region]

Sure. Hey, Caitlin. So, demand is very good across markets and very fragile. The most active industries would include transportation and logistics companies, ecommerce, food & beverage, consumer products, some apparels, some home building, home improvement. It continues to be very good. Tenants needs space and we continue to see a lot of activity across the portfolio. Jojo?

[Jojo Yap]

Nothing really major that but the existing tenants and not necessarily know this or just to reconfiguring supply chain because their online business is continuing to increase. So, they just need to add more space.

[Peter Schultz, EVP, East Region]

Hey, Caitlin. Peter. Then we're not seeing any slowdown to your question of demand at all.

[Caitlin Burrows, Goldman]

Got it. Okay great, thank you.

[Operator]

[Operator Instructions] Our next question is from Michael Carroll from RBC Capital Markets. Your line is open.

[Michael Carroll, RBC Capital Markets]

Yes, thanks. Can you guys provide some color on I guess current market rents and how has that changed I guess over the past three to six months. And maybe, highlight what type of rents that you were able to achieve on the 1.2 million stack development leasing this quarter versus underwriting. If you can provide details on that, would be great.

[Peter Baccile, President, CEO & Director]

Guys, you want to talk about market rents?

[Peter Schultz, EVP, East Region]

Sure. For the first half of the year, market rents accelerated at one of the highest paces over the three-to-five year period. I would say the range would be 05 to 15. It's hard to pick that number because it's different to market by market. And towards the higher range would be West Coast and immediately behind that would be East Coastal market and then everything in between in terms of rent growth.

So, it's been very robust. The thing is that what's happened in the market for the first half of the year is that supply did not meet the demand and that's why there is a squeeze.

[Peter Baccile, President, CEO & Director]

And Mike, it's Peter. In terms of underwriting in general, all of the projects have leased earlier at higher rents at lower costs. As we've talked about, we've had a couple that took a little bit longer but in general we beat our underwriting across the board.

[Michael Carroll, RBC Capital Markets]

Great. And then can you update us on the like maybe the development margins that you've achieved I guess from the developments that were stabilized and the I guess at the end of 2020 and then maybe I guess I don’t know if you'd provide these numbers yet but on the developments that are in process right now that are a 100% leased.

If -- how are those trending the road does that right now?

[Peter Schultz, EVP, East Region]

Sure. So, like Peter said, Peter basically said that of out of the $605 million of development under construction. At the end of the quarter plus the newly launched developments, our margin there it's roughly 50%. And so, if you look at the recently announced, they're closer to the low-40's. Still, and recently above are targeted margins.

So, in terms of trending, I would say that overall first half of this year could be the first half of last year. The margins have compressed a bit and here's the reason why. 1) Land costs, land prices if gone up and 2) construction cost have gone up. But the impact of that was much over overly basically overcompensated by rental rate increases across market and cap rate compression.

So, you have some margin compression little bit but then that's a little bit. But that's primarily overweighed by the rental rate increases and cap rate compression. Does that answer your question?

[Michael Carroll, RBC Capital Markets]

It does. It's perfect. Thanks.

[Operator]

And our next question is from Dave Rodgers from Baird. Your line is open.

[Dave Rodgers, Baird]

Yeah. Good morning everybody. Just wanted to ask about size ranges in terms of where rent growth is at. If you mentioned it, I missed it. And I apologize I can go back. But can you talk about maybe some broad size ranges and how rent performance has been or trended even since the beginning of the year?

[Christopher Schneider, SVP, O&CIO]

Yeah, Dave, this is Chris. As far as from a size perspective, it's been pretty broad-based across all our size ranges. We're seeing healthy increases, double-digit plus increase across all our size ranges.

[Dave Rodgers, Baird]

Okay. That's helpful.

[Peter Baccile, President, CEO & Director]

Yes. I think the slight difference in the last quarter. I don't know if you asked this question or somebody else did. I think last quarter we would have said, rents are growing a little bit faster in the smaller spaces. That's pretty much leveled out now and the larger spaces are growing pretty quickly as well.

[Dave Rodgers, Baird]

It's pretty much back to clarity. Okay. That helps. And then has that changed what you're seeing in terms of maybe cap rate compression either between sizes or what we've seen, I guess, year-to-date from a market-by-market perspective? I think there's been some greater compression either in Bs and center of the country assets. It sounds like maybe would that also be starting to hit some parity, do you think? Or are you still seeing some differences in performance on cap rates?

[Johannson Yap, Co-Founder, CIO & EVP, West Region]

In terms of -- Dave, hi, it's Jojo. The terms of capex compression is across the board. The investors from -- for all sizes of real estate increase, you have the large portfolio buyers and the one-offs. They're very, very fierce. There's so much capital across the broad spectrum of sizes and the capital also is, across either, acquisition, lease, redevelopment, or development opportunities. There's basically competition on every part on size of the market today in industrial.

[Peter Baccile, President, CEO & Director]

I'd say cap rates have probably come in based on depending on the market, primary versus secondary kind of 25 basis points to 50 basis points.

[Johannson Yap, Co-Founder, CIO & EVP, West Region]

Anything above. Yes.

[Dave Rodgers, Baird]

Okay. Yes. Thanks for that color. Peter Baccile, I think you mentioned the comment of development being larger going forward, sizing up with the company, maybe we'd argue on this number. But one thing you haven't really sized up is the disposition program, I think relative to the size of the company, as you accelerate your development this year, and it sounds like into next year and continue to have success. I mean, should we start to think about an increased level of asset sales, repositioning even more aggressively than you have been in funding development that way? Or do we think about it more from an equity perspective?

[Peter Baccile, President, CEO & Director]

I think the timing of sales and the volume of sales, there are a lot of different inputs. One is certainly the position of the particular assets that we're focused on, whether they're fully leased. We're looking to obviously maximize value on those assets. The volumes, I think, going forward, are going to be closer to that $100 million to $150 million range than maybe a few years ago when we were selling $225 million, $240 million.

But that can change. Sometimes we get some unsolicited offers that we can't refuse on assets that maybe we didn't have at the top of our list to dispose of, in which case we'll take that opportunity to dispose of those assets. So yes, we're not going to probably move up the disposition volume like we are. The development pipeline is really the answer to your question.

[Dave Rodgers, Baird]

Thanks. I appreciate that. Scott, one for you on bad debt. Can you tell us what that was in the quarter and the impact? I think you said it did have a positive impact on same-store and that's been the case, I guess, for kind of many years now. But can you give us an update on that?

[Peter Baccile, President, CEO & Director]

Dave, it was effectively zero for the second quarter, which means for the first six months of this year at zero bad debt expense. So credit metrics are doing fabulously and that added about 17 basis points to our same store, which is one of the reasons why we increased our guidance. So very good showing, very low bad debt.

[Dave Rodgers, Baird]

All right. Thank you for that. Last one, I'm just going to go back to Pier 1. Is that a long-term hold asset for you guys if you get it leased up? I guess going back to Craig's very first question is I mean does it have the parking, the truck courts, the height, the column spacing that you want in a building long term?

[Peter Schultz, EVP, East Region]

So we really like that. It's Peter Schultz, Dave. We really like that submarket. As we've talked about in prior calls, high barriers, supply constrained. And we look at all of our assets as we say, asset management is an ongoing basis. So we'll continue to evaluate that. But we like that submarket. The assets are very functional. There's this one and the one next to it, which is a little bit smaller, certainly meet the market and compete favorably.

[Dave Rodgers, Baird]

Okay. Thanks, everyone.

[Operator]

And our next question is from Vince Tibone from Green Street. Your line is open.

[Vince Tibone, Green Street]

Hi. Good morning. I had a follow-up on kind of your disposition commentary. I'm just curious, given the strength of the transaction market, why not be a little bit more active on property sales, not because you necessarily need the funds, but more to expedite portfolio goals, about going more coastal, I mean less flex that you laid out at the last Investor Day?

[Peter Baccile, President, CEO & Director]

Yes. So we certainly think about that a lot. It's a good question. The nature of the buyers for what we're selling are typically focused on one-off deals, maybe they buy a couple at a time. Users buy about 30% of these assets that we're selling. You have the 1031 buyer who is active in these assets. And then you've got the local regional high net worth family offices who are also actively looking at the assets that we're selling.

So they don't really lend themselves to big portfolios and the way that we can maximize the present value of those assets is to sell them the way we have. It doesn't mean that we don't consider from time to time trying to pull some together and taking a look at the market that way. So we evaluate all the potential options. And so far, the way we've been doing it has really been the best way to maximize value.

[Vince Tibone, Green Street]

So I mean is it possible to increase volumes in this kind of the way you're doing it? Or you kind of this $100 million to $150 million range is really the -- I don't know, just maybe from a human capital perspective, all we're able to dispose of doing it one at a time?

[Peter Baccile, President, CEO & Director]

No. I mean we have the resources internally to handle a bigger portfolio sale. And if you've seen in the last five years, we've sold to $200 million, $230 million in a crack. So that's not an issue. We're just, again, trying to maximize value and pace it out to do so.

[Vince Tibone, Green Street]

Got it. That's helpful color. That's all I have. Thank you.

[Peter Baccile, President, CEO & Director]

And the other thing I'd say is that as we have done that and been patient with those sales, the pricing has gotten better and better and better over time and the leasing status in those assets has gotten better over time. Next question?

[Operator]

[Operator Instructions] Our next question is from Mike Mueller from JPMorgan. Your line is open.

[Mike Mueller, JPMorgan]

Yes, hi. I guess on the acquisition side, it seems like you occasionally do something large, but you not got a lot of 20,000 to 60,000 square foot buildings. But on the development side, you tend to see a lot of 100,000 to 500,000 square feet. I'm curious what's driving that disconnect? Is it just you're seeing better economics on acquisitions of smaller buildings or just fewer bidders?

[Peter Baccile, President, CEO & Director]

Jojo, you want to take that?

[Johannson Yap, Co-Founder, CIO & EVP, West Region]

Yes, yes. Mike, a couple of reasons. One is exactly you're -- when you go in a little bit smaller size, you're competing to hopefully well less capitalized, less well capitalized competition, you might be dealing with less sophisticated sellers. And it's a more fertile ground to do unsolicited or off-market deals, larger and large. Large, large sellers typically are well represented and they try to do the most efficient process.

And therefore, there's no value, almost no value to be generated from those kind of acquisitions. So yes. So -- and then also, if you notice, we're always trying to increase our infill portfolio, so that infill portfolio is a very good strategy. And when you go infill, typically, the sizes are going to get smaller.

And if you look at a number of our acquisitions, we do a lot of bolt-ons. What do we mean by that? For example, this Denver portfolio, it's in Northeast. It's a neighboring property to our bigger development. So it's easy for us to get a small profitable deal there and the same thing with our recent acquisition in Orlando. So that's close to the properties that we already have.

[Mike Mueller, JPMorgan]

Got it. That makes sense. That was all I had. Thanks.

[Operator]

And I am showing no further questions at this time. I will now turn the call back over to Mr. Peter Baccile for closing remarks.

[Peter Baccile, President, CEO & Director]

Thank you, very much. And thanks everyone for participating on our call today. And as always, please feel free to reach out to meet Scott or Arthur with any follow-up question. And we look forward to connecting with many of you in the near future. Be well.

[Operator]

Thank you, presenters. Ladies and gentlemen, this concludes today's conference call. Thank you for participating, you may now disconnect.