Logo of jester cap with thought bubble.

Image source: The Motley Fool.

First Industrial Realty Trust Inc  (NYSE:FR)
Q3 2018 Earnings Conference Call
Oct. 25, 2018, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. My name is Jason, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Industrial Third 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.

(Operator Instructions). I would now like to turn call over to Mr. Art Harmon, Vice President of Investor Relations. Sir, you may begin your conference.

Art Harmon -- Vice President of Investor Relations

Thanks, Jason. Hello, everybody, and welcome to our call. Before we discuss our third quarter 2018 results and 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, October 25th, 2018. 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 should 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 to 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 and Chief Executive Officer

Thank you, Art, and good morning, everyone. Continued strong performance by our team, our portfolio and the industrial real estate market overall drove another excellent quarter. We grew occupancy 70 basis points to finish the quarter at 97.6%. Cash same-store NOI grew at 6.8% and cash rental rates were up 9%. These metrics and others provide a firm foundation for a continued strong rental rate growth in 2019. As we have done in the past, let me give you a snapshot of our 2019 rollovers signed to date.

We've already inked approximately 40% of next year's role at a cash increase of 10.7%. We note that this is only a portion of leases to roll, but directionally, it is an useful data point for you on 2019 rents at this point in time. While we were in the early phases of our budgeting process and we'll be able to give you an updated picture for the full year on our fourth quarter call in February.

Moving on to the bigger picture, fluctuations in the stock market, concerns over trade and tariffs, and the increase in interest rates rightly have many wondering about the direction of the economy. However, the US economy is strong with solid GDP growth, high consumer confidence and record or near record unemployment that is driving a strong labor market and some real wage growth.

From our viewpoint, we continue to see tenants investing in their supply chain to accommodate future growth and consumption. CBRE Econometric Advisors, preliminary, third quarter report is consistent with this view. New additions to supply are not keeping up with tenant demand in most markets.

Third quarter net absorption was 63 million square feet compared to completions of 50 million and year-to-date net absorption was 166 million square feet with completions at 141 million square feet. So, for the first nine months of this year, we have seen tenants continue to grow their businesses while facing limited alternatives for their industrial space needs. We are taking advantage of this dynamic to drive strong cash flow and NAV growth.

Let us turn to development leasing. During the third quarter we were successful in leasing our 644,000 square footer at First Park @ PV-303 in Phoenix on a long-term basis to XPO Logistics. Our total investment was $41.1 million and our cash yield was 7.8%. The lease will commence during the fourth quarter and the building will also be placed in service at that time. As discussed on our last call, during the third quarter, we leased 3 additional buildings totaling 422,000 square feet at The Ranch by First Industrial in the Inland Empire to bring that project to 62% occupied.

We placed in service the 301,000 square footer and the 50,000 square footer during the third quarter. The least at the 71,000 square footer will commence during the fourth quarter and it will be placed in service then as well. At September 30th, we had completed developments in Southern California, Phoenix and Chicago totaling 1.4 million square feet. Total investment for this group is $103 million with an expected cash yield of 7.5%, these projects are currently 50% leased.

As we discussed on our last call, we had 4 new starts during the third quarter totaling 1.2 million square feet. These were comprised of our First Aurora Commerce Center in Denver, First Park 121 in Dallas, First Perry Logistics Center in the Inland Empire East, and First Glacier Logistics Center in Seattle. Total investment for these buildings is estimated at $96.5 million and our targeted stabilized cash yield is 6.7%. We have 3 projects totaling 2.5 million square feet for which we are wrapping up construction in the fourth quarter namely our First Nandina project in Southern California, our 2 building development First Logistics Center at I-78/81 in Pennsylvania and First 290 at Guhn Road in Houston.

In total, we had 3.7 million square feet of speculative investments under construction at September 30th with a total investment of $261 million and a targeted stabilized cash yield of 7%.

In the third quarter, we continued to build our development pipeline by closing on 2 adjacent 5 acres sites for a total of $3.9 million in the Inland Empire right near First Nandina and several of our other successful developments in Moreno Valley. The combined site will support a 231,000 square footer for which we are working on entitlements.

In the fourth quarter to-date, we closed on the acquisition of 121,000 square foot building with an adjacent development site in New Jersey at Exit 7 of the Turnpike for a total purchase price of $16.6 million. The purchase price allocation to the building was $12.9 million and the building is 100% leased to 3 tenants with an in place cash yield of 6.3%.

We intend to build a similar 120,000 square footer on the land parcel. We are finishing some permitting and design work and expect to start that development in the early part of 2019.

Moving on to sales, we had a successful quarter with dispositions totaling $22.5 million, which included 4 buildings and 3 land parcels. In the fourth quarter to-date, we have had 1 additional sale in 84,000 square foot building in Southern New Jersey for $4.2 million. Including this fourth quarter sale, we have completed $125 million of sales year-to-date. As noted in our last call, our original guidance for the year was $100 million to $150 million and we now expect to be at or above the top end of that range.

While the overall demand picture is good, we would be remiss by not acknowledging the recent and well documented challenges faced by some retailers. The most visible being Sears and its Kmart subsidiary. And I note that we do not have any exposure with them. We do have leases with both Mattress Firm and American Tire Distribution, which both filed Chapter 11 bankruptcy earlier this month. We leased 170,000 square feet to Mattress Firm in Phoenix and we leased 2 spaces to American Tire Distribution namely 119,000 square feet at our only building in Salt Lake City and 126,000 square feet in Orlando.

In total, leases to these firms represents 72 basis points of our third quarter net rent. We have received October rent for both of these tenants and as of this call, we have not received any formal notice of lease rejection. We are closely monitoring both situations, but feel good about the long-term positioning of these buildings and our ability to retenant them if necessary at similar or higher rental rates.

So, thanks to all my teammates around the country for an excellent quarter. I know you share my enthusiasm for our growth opportunities, and putting the finishing touches on a successful 2018. And with that, Scott will walk you through some additional details on the quarter and our guidance.

Scott Musil -- Chief Financial Officer

Thanks, Peter. In the third quarter, diluted EPS was $0.24 versus $0.36, 1 year ago. NAREIT funds from operations were $0.41 per fully diluted share, compared to $0.41 per share in 3Q 2017. Excluding the approximately $0.01 gain from land sales, third quarter 2018 FFO was $0.40 per share. This compares with FFO of $0.39 per share in 3Q 2017 excluding the mark-to-market of interest rate protection agreements.

As Peter noted occupancy was 97.6%, up 70 basis points from the prior quarter and up 40 basis points from a year ago. Regarding leasing volume, approximately 1.8 million square feet of long-term leases commenced during the quarter. Of these, 512,000 square feet were for new leases, 904,000 were renewals and 415,000 square feet were for developments and acquisitions. Tenant retention by square footage was 84.3%.

Same-store NOI growth on a cash basis excluding termination fees was 6.8%, driven by higher average occupancy, rent bumps and increase in rental rates on leasing and lower free rents. Results were also helped by 160 basis points from lower landlord real estate taxes compared to the year ago quarter. Recall that we had a tax drew up in 3Q 2017 that negatively impacted our same store results a year ago.

These termination fees totaled $88,000 and including these fees, cash same-store NOI growth was 6.6%. Cash rental rates were up 9% overall with renewals up 9% and new leasing up 8.9%. On a straight line basis, overall rental rates were up 19.7% with renewals increasing 18.8% and new leasing up 21.5%.

Quickly moving onto a few balance sheet metrics. At the end of the third quarter, our net debt plus preferred stock to adjusted EBITDA is 4.8 times and at September 30th, the weighted average maturity of our unsecured notes, term loans and secured financings was 6 years with a weighted average interest rate of 4.24%. These figures exclude our credit facility.

Now moving on to our updated 2018 guidance for our press release last evening. Our NAREIT FFO guidance is now $1.56 per share to $1.60 per share, an increase of $0.01 at the midpoint and tightening up the range compared to the second quarter call. Excluding the gain from the third quarter land sales, and the severance and impairment charge recognized in the first quarter, FFO per share guidance is $1.57 to $1.61 with no change to the midpoint and tightening of the range.

The key assumptions for guidance are as follows. Ending in-service occupancy for the fourth quarter up 97% to 98%, which implies an in-service quarter-end occupancy of 97.1% to 97.4% for the full year, an increase of 25 basis points at the midpoint. Fourth quarter same-store NOI growth on a cash basis was 4.5% to 6%. This implies a quarterly average same-store NOI range of approximately 5.5% to 5.9%, an increase of 70 basis points at the midpoint, driven by our third quarter results.

Our G&A guidance range is now $26.5 million to $27.5 million, an increase of $0.5 million at the midpoint related to an increase in our expected performance based compensation costs. This range excludes the $1.3 million severance charge, recognized in the first quarter. Guidance includes the anticipated 2018 costs related to our completed and under construction developments at September 30th. In total, for the full year of 2018, we expect to capitalize about $0.05 per share of interest related to our developments.

Our guidance does not reflect the impact of any future sales or acquisitions after this earnings call or new development starts. The impact of any future debt issuances, debt repurchases or repayments, guidance does not reflect the impact of any future gains related to the final settlement to insurance claims from damaged properties.

Finally, guidance also excludes any future NAREIT-compliant gains or losses, the impact of impairments and the potential issuance of equity.

With that, let me turn it back over to Peter.

Peter Baccile -- President and Chief Executive Officer

Thanks, Scott. Our team and our portfolio are delivering excellent results in a strong market environment. We are excited about our new development investments, which will drive long-term cash flow and NAV growth while allowing us to serve the logistics needs of our tenants. The economy is strong, wages are growing and consumption reached an all-time high of $12.8 trillion in the second quarter.

With the ongoing secular shift in demand from e-commerce, more and more of what is consumed is moving through our facilities. We expect this trend to continue and look forward to taking advantage of new growth opportunities and to driving shareholder value.

With that, operator, would you please open it up for questions?

Questions and Answers:

Operator

(Operator Instructions) And your first question comes from the line of Craig Mailman from KeyBanc Capital Markets.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

Thanks guys. Peter, maybe just going back to your comment that 40% in next year's role is already in the bag. Just curious kind of how you guys approach a decision to renew early in an environment, where, as you said, most markets already even at equilibrium to supply demand. So, just kind of the view there on the bird in the hand versus letting it ride a little bit, to maybe see where market rents go and where that mark-to-market could trend.

Peter Baccile -- President and Chief Executive Officer

Well, first of all, obviously in this kind of a market we are not the ones pushing that conversation. The tenants typically do if they are paying attention to when their lease is supposed to roll, and the results from it, as our team is out there, really trying to maximize the value of all of our lease conversations, all aspects, there is a lot of different inputs, and the results so far are pretty outstanding. So, we absolutely are focused on trying to maximize term, maximize rate, minimize any kind of concessions and the timing of those discussions is really in large part up to the tenant. Again, we wouldn't choose to have them until a little bit later.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

And then just as we think of it with, I know you guys are not given guidance yet, but just kind of maybe thoughts about trajectory or magnitude with 40% kind of in the bag, kind of those near 3% escalators, I mean it seems as though initial guidance should probably trends higher on same-store relative to maybe what you guys gave in the fourth quarter of '17 for initial '18 outlook. I guess, besides the, maybe the matters for an American tire exposure, what are the big potential drags there that would prevent same store from continuing to be sustained in that 5%-plus range next year?

Scott Musil -- Chief Financial Officer

Hey Craig. It is Scott. You are right. I mean, you are going to be able to count on rental rate bumps and increases in rental rates for same-store growth next year. The other two items that we are looking at we are going through a budget process and we will give you an idea of our guidance range in our fourth quarter call is what our average occupancy is going to be in 2019 compared to 2018, but also what our free rent assumptions are going to be.

So like I said, I can tell you that 2 of these were definitely going to get increases on occupancy and free rent, we are going through our budget process now and we will give you an update on our fourth quarter call.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

If I can just sneak one last one in. A clarification on the New Jersey acquisition, the 63 cap, is that on the existing asset or is that blended once you guys develop the land parcel as well?

Peter Schultz -- Executive Vice President

Hey, good morning, Craig. It's Peter Schultz. So, the 63 is in place on the existing asset and we haven't set what the yield is going to be on the new asset as we are finishing some permitting design, we will do that in our next call.

Craig Mailman -- KeyBanc Capital Markets -- Analyst

Right. Thanks guys.

Operator

(Operator Instructions). And your next question comes from line of Rob Stevenson from Janney.

Rob Stevenson -- Janney -- Analyst

Good morning guys. Are there any markets right now where you are seeing significant changes in the supply, either the supply mounting or the supply dissipating that you expect to influence 2019 operating fundamentals?

Jojo Yap -- Chief Investment Officer

Sure. Not a big change. It is Jojo by the way, not a big change. If you look at, for example, South Dallas, there is, I mean earlier this year, tenants have had already a number of choices to lease big box, and that environment, that situation still remains the same. I would say northeast Atlanta, there is still some broad of the cycle through, but not a major change, there has been a lot of absorption in the markets, but also continued additional supply, but not a major change. Most markets continued to be tight, in most markets' absorptions still continues to exceed completion.

Rob Stevenson -- Janney -- Analyst

Okay. And then are you guys seeing any changes in leasing behavior as a result of the accounting change on the onboarding of the leases going forward? Is that changing anybody you thought in terms of how long a lease they want to sign or whether or not they're going to wind up deciding to own stuff rather than lease?

Scott Musil -- Chief Financial Officer

This is Scott. No impact. I mean, these lease rules have been probably for the last five years to six years. People knew they were coming along and we haven't seen any differences in what the tenants want, we're looking at the same lease terms, so no change.

Rob Stevenson -- Janney -- Analyst

Okay. Thanks guys. I appreciate it.

Operator

And your next question comes from Eric Frankel of Green Street Advisors.

Eric Frankel -- Green Street Advisors -- Analyst

Thank you. Scott, can you share the rationale for the fairly wide range in the same-store NOI growth outlook for the fourth quarter. Is that just a caution regarding some of these bankrupt retailers in your portfolio?

Scott Musil -- Chief Financial Officer

Yeah, I mean, Eric, it is going to be, we gave a range of occupancy that could be -- it could be bad debt expense as well. The two tenants that we referred to, they paid October rent, but for some reason, they rejected the leases and didn't pay in November and December, that alone would be about $0.5 million impact to our same store. So, those are going to be the main drivers, Eric.

Eric Frankel -- Green Street Advisors -- Analyst

Okay, that's helpful. Thank you. And then I know you touched, your team touched upon kind of the fluctuations in the stock market and your, the cost of your equity capital. Can you comment next year on your ability to potentially self-fund your growth if it came to that?

Scott Musil -- Chief Financial Officer

Well, as you know, our debt-to-EBITDA is 4.8 times. So that is pretty low. We've got no drawings on our credit facility and we will, as we have done in the past, continue to dispose of assets, taking capital out of the lower growth assets and looking to reinvest in higher growth opportunities. So, we have got plenty of liquidity.

Eric Frankel -- Green Street Advisors -- Analyst

And would the assets sales cause any taxable gain issues?

Scott Musil -- Chief Financial Officer

Are you talking for 2019, Eric?

Eric Frankel -- Green Street Advisors -- Analyst

Yes, yes. Like you ask it yourself, are the (inaudible) (multiple speakers)

Scott Musil -- Chief Financial Officer

Yes. They could. But I mean, in general, if you look at 2018 at least, we had excess dividends above taxable income, excluding gains. This year, we were very successful in doing 10 31 exchanges. We can still do the same thing in 2019. And keep in mind; we still have the $47 million of NOLs that we generated back in 2009 and 2010. So, we got a lot of tools to manage taxable income.

Eric Frankel -- Green Street Advisors -- Analyst

Thank you for that comment. Can you just comment when those NOLs expire? I don't know the rules behind that.

Scott Musil -- Chief Financial Officer

Around 2029-2030, so we got plenty of time.

Eric Frankel -- Green Street Advisors -- Analyst

Yes. Sure. Just final question, any particular comments on the lease of some of your larger development projects, maybe first in Nandina or your development in Pennsylvania?

Scott Musil -- Chief Financial Officer

We continue to see a lot of good activity around those assets and really around all of our development assets and recently completed projects. We don't have anything to report yet on the assets that you mentioned. But Peter, I don't know if you want to add any color in Pennsylvania.

Peter Schultz -- Executive Vice President

Sure. Eric. I would just say that we continue to respond to RFPs and see interest. Both of those buildings are just wrapping up this quarter. So, we look forward to reporting to you on future calls on that activity.

Peter Baccile -- President and Chief Executive Officer

And Jojo on Nandina?

Jojo Yap -- Chief Investment Officer

Yes, same here. We are having inquiries and tours, no lease to report yet. We like the demand supply situation there. If you're a tenant today, you're looking for anything over 1.2 million square feet, our ability is the only one available.

Eric Frankel -- Green Street Advisors -- Analyst

Are there that many tenants looking for space of that size on a speculative basis?

Jojo Yap -- Chief Investment Officer

Yes.

Eric Frankel -- Green Street Advisors -- Analyst

Okay. Thank you. That is all I got.

Operator

Your next question comes from the line of Zack Silverberg from Mizuho Securities.

Zachary Silverberg -- Mizuho Securities -- Analyst

Thanks guys. I see that new starts are expected to achieve around 6.7%, below the 7%, you have been achieving in the past, is that a market specific dynamic or do you see that 6.7 number turned up as you gain more knowledge about the market?

Peter Baccile -- President and Chief Executive Officer

I will start and Jojo can respond as well. There is no question that it is going to be difficult to maintain the margins that we have achieved over the last four or five years, as you know, they've been kind of north of 50% or so. But we do believe we can continue to earn 100 basis points to 150 basis points above prevailing cap rates. And so, you will see the yields come down a little bit, and we also have rising construction costs.

Jojo Yap -- Chief Investment Officer

Yes. So in addition to what Peter mentioned these assets which you mentioned which are in a market of Seattle, Northeast Dallas, Denver and Inland Empire, these would be trading today in Class A in the low 4s to high 4s, and so we are still very, very pleased with this spread, but yeah, you are absolutely right. It has come down from 7 and the reason for that, Peter started to say is, land prices have increased, construction costs have increased, rental increase has partially offset that, and also you have a competitive environment. But we are still comfortable that we can meet our goal of 100 basis points to 150 basis points spread on exit.

Zachary Silverberg -- Mizuho Securities -- Analyst

All right, thanks. That's helpful. And I guess switching gears here, lately, Amazon has gotten a bit of bad press, whether it is paying their warehouse workers or customers that privacy with their data are growing too big. Do you see any headline risks to Amazon at all or has that changed, how you think about them?

Peter Schultz -- Executive Vice President

This is Peter Schultz. We haven't seen or heard of any impact in the markets. We obviously can't comment on any specific leases we have with them given the tight confidentiality. But there's no buzz, I have heard about that from anybody in the markets.

Scott Musil -- Chief Financial Officer

The thing I want to add there is that, that's really good for our industry. Any growth by Amazon just shows that a direct fulfillment and consumers is increasing and we expect again, that there is an increase also know that it is not only Amazon that is in the market for -- there is significant amount of new start-up e-commerce companies trying to do the same thing, and also OmniTown retailers.

So, if Amazon is success (ph) with increasing, we would expect the whole business environment to increase their sales on a direct fulfillment was basically e-commerce, which is good for our business.

Zachary Silverberg -- Mizuho Securities -- Analyst

All right. Thanks guys.

Operator

And your next question comes from Bill Crow of Raymond James.

Bill Crow -- Raymond James -- Analyst

Hey, good morning guys. Two questions, but first a follow up to your prior discussion. On construction cost increases, one of your peers mentioned 1 week or so ago that the inflation and the cost to develop and construct has come down to maybe 4% or 5%, 4% to 6%, somewhere in that range from 10% to 20%. Is that consistent with what you were seeing?

Jojo Yap -- Chief Investment Officer

Okay. Bill, this Jojo. Basically, year-to-date, consumption costs have increased anywhere from 5% to 15% on our projects, and it depends on the size of the buildings and the markets you're in. The west and the east coast of markets have increased a little bit more than the middle part of the country, and as you go down to smaller buildings, the costs have also increased.

So yes, it has been at a higher rate than typically, over the past couple of years, construction costs have increased closer to the 3% to 4.5% range. So, we think going forward, it will moderate a bit, and going forward, but yes, year-to-date, it has increased; for us, it has been 5% to 15% depending on market inside the building.

Bill Crow -- Raymond James -- Analyst

Great. Thanks, Jojo. Peter, my other questions for you, I think, and I appreciate the fact that you outlined very limited exposure to some of the troubled retailers. But how do you think about the overhang that a bunch of potentially vacant distribution centers from Sears and Kmart and Mattress Firm and others, might have on your markets. Are there any markets in particular that you are worried about with glooming vacancies?

Peter Baccile -- President and Chief Executive Officer

So we are familiar with many of the assets that companies like Sears and Kmart, J.C. Penney have. They're not what we would call typically functional or in locations where they would be competing with what we own. So, we are not as concerned about that in terms of the go-forward and the Toys R Us has facilities out there too, again, they fall in the same category, they're just not located and nor do they have the functionality that we are providing in the assets that we are developing today.

Bill Crow -- Raymond James -- Analyst

Is there any opportunity to acquire these assets and make them functional and capture a better yield?

Peter Baccile -- President and Chief Executive Officer

We haven't broken them down, but the economics of those trades are probably going to be tough to pencil out.

Bill Crow -- Raymond James -- Analyst

Got you. All right. That's it from me. Thanks.

Operator

(Operator Instructions) And your next question comes from Ki Bin Kim of SunTrust.

Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst

Thanks. Good afternoon out there. So, if I think about your development pipeline, I think an overwhelming majority, maybe 100% of your projects have been spec. So, what is it about what you are seeing or your strategy that makes you want to do more spec versus build to suit?

Peter Baccile -- President and Chief Executive Officer

So we basically have opportunities to do both. Well, we feel that the strategy really belongs to our belief of where demand will exceed supply on a particular size range. So, if we see that situation, what typically happens is that almost all the time, our yields and our spreads are significantly higher than build to suits. And the reason is that at that point of time when we finish our building, tenants have fewer choices.

As you all know, when you are in a build to suit and there is nothing wrong with building build to suits. The typical build to suits tenants have more time and have the ability to basically shop their business. And so far we have been very successful in developing to Ohio risk adjusted return.

And also, the other thing I want to add is that we do not have a big, we do not have a big land bank. So, if you look at how we have done our land strategy, we've usually put into service and put into production, land that we buy. And so that's another thing, if you have a big land bank, you should be more aggressive in build to suits and we don't have with big land bank.

Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst

Okay. And for your next round or 2 of development projects, and this might be more of an industry wide question, but are you finding that maybe, you have to target a different risk spectrum or maybe have to go out another kind of outer rings from the core city to find good land sites and how much tougher is it getting for the next round of development?

Scott Musil -- Chief Financial Officer

Sure. A couple of comments here. Number one, I mean, development investment is getting a bit more difficult, because, of course, the environment is very competitive. Construction costs have -- are increasing, rental rates kind of offset that. But that, to give you an example, so for example, in our new starts, we are building -- we don't really have to go much further Southern Kent Valley, we're developing a 66,000 square feet that's First Glacier.

On Inland Empire East we are -- we have started 240,000 square feet. So, that is not a large big box, but that just comes off our success of developing first had (inaudible) if you remember, and leasing of First 215. Now Aurora, we're building this 555 in the most heighted corridor I-70 East. So, that is not going way very fast. We were able to opportunistically buy a land site there -- somewhat off market.

And the last asset is definitely a more of infill type investment in Dallas, where it is northeast Dallas. It is our First Part 121, wherein, we see a growing need, because this is one of the, this is right in the middle of one of the fastest growing cities in Dallas, it is in the middle of Flower Mound, Frisco and servicing McKinney, which is the top 3 growing cities in the market and that's where we're building multi-tenant product servicing the smaller to midsize tenants rather than a big box.

So, I guess, Ki Bin, I mean the strategy here is really to be a on the ground trying to ascertain where there is a shortage of supply and where demand will continue to exceed supply.

Peter Schultz -- Executive Vice President

And the small assemblage we just did in California.

Scott Musil -- Chief Financial Officer

Yes. Just like Peter noted, we just bought two parcels. This is a two land sandwiches of five acres each, both off market deals and one actually is dealing with a seller we dealt before. So, one-off opportunities like that are critical in our continued success.

Peter Schultz -- Executive Vice President

And you know, Ki Bin, because we're a profit shop and not a volume shop and we have 16 offices across the country and people on the ground. We think we can continue to generate the kind of growth that we have been in the center of these -- the core of these high barrier markets.

Peter Baccile -- President and Chief Executive Officer

Okay. Thank you.

Operator

And your next question comes from Sarah Tan of JP Morgan.

Sarah Tan -- JP Morgan. -- Analyst

Hi, good morning. I am on for Michael Mueller. So you mentioned coming in toward the higher end of your disposition guidance of (Technical Difficulty) a year. I know you guys haven't actually given 2019 guidance yet, but how can we think about the capital recycling plants going forward in terms of development or acquisitions and sales?

Peter Baccile -- President and Chief Executive Officer

Alright, so as you know, we don't guide on development starts or acquisitions in terms of sales. We haven't really determined what that is going to look like for 2019 yet. We will let you know on our next call. But generally speaking, the volume is probably going to be similar to what it has been in the last few years.

Sarah Tan -- JP Morgan. -- Analyst

Thank you.

Operator

And your next question comes from Eric Frankel of Green Street Advisors.

Eric Frankel -- Green Street Advisors. -- Analyst

Thank you. Just one quick follow-up. It was related to Amazon, but maybe not specific to them. There seems to be a lot more automation and more specialized features and new warehouses. So, a lot of it driven by Amazon with the mezzanine levels and extra high ceiling heights. Can you comment on how those types of improvements are being valued by the market, if there is any particular transactions that you are aware of?

Peter Schultz -- Executive Vice President

You know, Eric, this is Peter Schultz. I might approach it a little bit differently. So, as we think about design and development of our buildings today, we are designing in features to accommodate more power, more air conditioning, whether it is for cooling, for automation or to run the automation and things like that because we think that is an important element on a go-forward basis as more and more buildings, add more and more automation to them, and Jojo probably has a comment to add as well.

Jojo Yap -- Chief Investment Officer

Sure. And in terms of building design, we also want to make sure that we build for the long-term that and not that multi-story mezzanines on long-term, but for now, there's a lot of broad based tenants, who wants the 36 to 40 clear heights, a lot of loading, not a lot of meds. We are designing it to be really a function on generic for a broad-based tenant, plus the ability to multitenant.

So we are sticking to that to make sure that we have a long-term asset. In terms of there is not a lot of the traits out there Eric, in terms of how investors value like a multi-story three, four, five story, buildings that are a warehouse distribution. There's no (inaudible) so I can't comment on that. But surely in terms of our design, we are sticking to what we think would be appealable to broad based tenant base.

Eric Frankel -- Green Street Advisors. -- Analyst

Okay. Thank you.

Operator

(Operator Instructions) And we do have a question from Sam Shami of Shami Development(ph).

Sam Shami -- Shami Development -- Analyst

Yeah, is there any chance in the next 6 months to 1 year that you are going to be increasing your common dividend to the shareholder? Thank you.

Peter Baccile -- President and Chief Executive Officer

So, that is a conversation that we will review with our Board, in the coming months. We haven't really determined yet what the dividend is going to be for 2019, but we will let you know when we have figured that out.

Sam Shami -- Shami Development -- Analyst

Thank you.

Operator

And there are no further questions in queue. I would now like to turn the call over to Peter Baccile.

Peter Baccile -- President and Chief Executive Officer

Thank you, operator, and thank you all for participating on our call today. Please feel free to reach out to Scott or me with any follow-up questions and we look forward to seeing many of you at the NAV Conference in San Francisco in a couple of weeks.

Operator

Ladies and gentlemen, this does conclude today's conference call. You may now disconnect. Thank you for your participation.

Duration: 41 minutes

Call participants:

Art Harmon -- Vice President of Investor Relations

Peter Baccile -- President and Chief Executive Officer

Scott Musil -- Chief Financial Officer

Craig Mailman -- KeyBanc Capital Markets -- Analyst

Peter Schultz -- Executive Vice President

Rob Stevenson -- Janney -- Analyst

Jojo Yap -- Chief Investment Officer

Eric Frankel -- Green Street Advisors -- Analyst

Zachary Silverberg -- Mizuho Securities -- Analyst

Bill Crow -- Raymond James -- Analyst

Ki Bin Kim -- SunTrust Robinson Humphrey -- Analyst

Sarah Tan -- JP Morgan. -- Analyst

Eric Frankel -- Green Street Advisors. -- Analyst

Sam Shami -- Shami Development -- Analyst

More FR analysis

Transcript powered by AlphaStreet

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

Motley Fool Transcribers has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.