Yahoo Finance

Peter Baccile

Thank you, Art, and thank you all for joining us today. The First Industrial team delivered another great quarter with solid operating metrics, along with some important new leases and capital deployment activity. We continue to drive cash flow growth for our portfolio via contractual escalations in our leases, capturing embedded rent growth, on rollovers, and continued development leasing, all of which position us to deliver strong growth and funds from operations.
Before getting into specifics, let me update you on the industrial market broadly. According to CBRE-EA, US industrial market vacancy increased a modest 10 basis points to 5.8%, reflecting that most of last year's development starts have now come online.
Completions for third quarter totaled 87 million square feet. This is down approximately 30% compared to last quarter and the lowest quarterly completion number since the third quarter of 2021. For our target markets, completions were 45 million square feet, down 40% from the prior quarter. New starts remain disciplined, totaling 36 million square feet in the third quarter, down 68% from the peak in the third quarter of 2022.
On the demand side, the third quarter was active with net absorption nationally of 54 million square feet. This brought the year-to-date total to approximately 125 million square feet, of which 75 million were in our target markets.
Renewal leasing, in particular, remained strong. Since our last call, we successfully renewed the last of the three large 2024 Southern California expirations with a cash rental rate change of more than 150%. As of the date of this call, we're now through 97% of our 2024 lease expirations by square feet.
Our cash rental rate increase is 51%, which is a strong follow-up to the 58% cash rental rate growth we delivered on our 2023 commencement. Congratulations to our leasing teams for back-to-back years of outstanding performance on this metric.
Looking at our 2025 lease expirations, we're making good progress and are now through 37% by square footage, which is similar to our pace of progress last year. Together with new leasing, our cash rental rate increase for leases signed with 2025 commencement dates is 33%. More than half of this population is comprised of the 1.3 million square foot fixed rate renewal in Central PA we discussed on our last call. We will give you a refined view of our thoughts on our estimated 2025 cash rental rate increase on our fourth-quarter call with the benefit of budget reviews and incremental signings.
Regarding development leasing, as we highlighted on our last call, in the third quarter, we inked a full building lease for our 461,000-square-foot First Pioneer project in the Inland Empire East to a 3PL, plus a 61,000-square-foot lease at our First 76 project in Denver.
Turning now to capital deployment, we continue to closely monitor demand and competing supply in our target investment markets to determine potential incremental starts as we wrap up 2024. Since our last call, we launched a 542,000-square-foot development at our First Rockdale Park in Nashville. Our total projected investment is $54 million with an expected cash yield of approximately 7%. The current supply-demand dynamic in Nashville is attractive, and we like the long-term drivers of this market. Current vacancy stands at just 2.7%, and unleased new supply represents about 2% of the total stock.
We also acquired a four-building 211,000-square-foot park in Houston's southeast submarket with close proximity to the port. The buildings are 100% leased on a long-term basis. Our total investment is $29 million, and the in-place cash yield is approximately 6%.
Moving now to dispositions, as discussed on our last call, we sold a portfolio in New Jersey for $82 million. In the fourth quarter to date, we've sold three buildings in Pennsylvania totaling 163,000 square feet for a total of $19 million. This brings our year-to-date total to $157 million.
With that, let me turn it over to Scott to walk you through further details on our results and guidance.

Scott Musil

Thanks, Peter. Let me recap our results for the quarter.
NAREIT funds from operations were $0.68 per fully diluted share, compared to $0.62 per share in 3Q 2023. Our cash same-store NOI growth for the quarter, excluding termination fees, was 7.6%. The results in the quarter were primarily driven by increases in rental rates on new and renewal leasing and rental rate bumps embedded in our leases, partially offset by higher free rent and lower average occupancy.
Excluded from the same-store calculation is the accelerated recognition of a tenant improvement reimbursement related to our tenant, boohoo, which leases 1.1 million square feet in Central Pennsylvania. Including this amount, our third-quarter cash same-store NOI growth was 11.9%. I will have some additional comments on boohoo shortly.
We finished the quarter with in-service occupancy of 95%. Within the in-service portfolio, we have approximately 200 basis points of lease up opportunity from developments placed in service in 2023 and 2024. Summarizing our leasing activity during the quarter, approximately 3.5 million square feet of leases commenced. Of these, 500,000 were new, 2.2 million were renewals, and 900,000 were for developments and acquisitions with lease up.
Turning back to our lease with boohoo, as reported in the press, they are seizing operations at our building for which they have 10 years remaining on their lease. Due to the cessation of their operations, we have written off their straight-line rent asset and tenant improvement reimbursement liability, the net result of which is a $0.01 per share reduction in our 2024 NAREIT FFO. They are current on the rent and have a shorter-term sublease to a 3PL for about 40% of the building. Also keep in mind that we have a security deposit in the form of a letter of credit which covers about a year's worth of rent.
Let me quickly review our updated guidance for 2024. Our guidance range for NAREIT FFO is now $2.61 to $2.65 per share, which is a tightening of the range and an increase at the midpoint of $0.02 per share since our last earnings call. Key assumptions have been tightened as we only have one quarter remaining in 2024, and a fourth-quarter occupancy range of 95% to 97%, which implies a quarter-end average for the year of 95.2% to 95.7%. Our occupancy guidance now assumes about 800,000 square feet of development leasing we had previously slated for the fourth quarter will now take place in 2025.
Fourth-quarter cash same-store NOI growth before termination fees of 8% to 10%, this implies a 7.75% to 8.25% range for the year, which is a 25-basis-point increase at the midpoint since our last earnings call. Note that the same-store guidance excludes the impact of the accelerated recognition tenant improvements related to the Central Pennsylvania lease in 2024 and the one-time tenant reimbursement in 2023 that we previously disclosed.
Guidance includes the anticipated 2024 costs related to our completed and under construction developments at September 30. For the full year of 2024, we expect to capitalize about $.006 per share of interest. And our G&A expense guidance range is $39.5 million to $40.5 million.
Let me turn it back over to Peter.

Peter Baccile

Thanks again to the First Industrial team for another solid quarterly performance. Through our focused strategy and capital allocation actions, we've created a high-quality portfolio that is well positioned to outperform through the business cycle.
We have embedded growth opportunities within our portfolio, and we have future growth opportunities from our current landholding on which we can build over 14 million square feet of highly functional and well-located logistics facilities. Our balance sheet is strong and we have flexibility with no maturities until 2026, assuming the exercise of extension option and our bank loans.
Operator, with that we're ready to open it up for questions.

Question and Answer Session

Operator

(Operator Instructions) Blaine Heck, Wells Fargo.

Blaine Heck

Great. Thanks. Good morning. So occupancy guidance implies upside from the third quarter, but it has a relatively wide range of outcomes between 95% and 97% at year-end. I guess, can you just talk about some of the biggest drivers in the lease up portfolio that could kind of push you towards the upper end of that guidance? Are there any specific large leases you're working on that you can maybe give us some color on?

Christopher Schneider

Yeah. This is Chris. If you look at the occupancy drop, about half of it was from the development portfolio that we've talked about. The other half was from the core portfolio. As we stand here today, we certainly do have some activity or we're talking to some tenants, but we thought it was prudent to push back the lease up with only two months left in the quarter.

Scott Musil

Hey, Blaine. It's Scott. I think development leasing is the key to hit the high, and frankly, it could be going below the midpoint. We've got 400,000 square foot of development leasing built into our guidance in the fourth quarter. That's about 60 basis points. If we get more than that, we'll be above our midpoint occupancy guidance.

Blaine Heck

Great. That's very helpful. And then maybe just a little bit more of a high-level question. I guess given that you all have a relatively diverse portfolio geographically, it seems as though you're in a good position to talk about which markets you think are poised to inflect sooner than others. I guess, can you just talk about which markets you're feeling best about from a supply and demand standpoint and which you think might take longer to come back to seeing rental rate growth?

Peter Baccile

Sure. Let's take it kind of east to west. I think as you've seen, rent growth was very, very strong in Southern California, other West Coast markets, New Jersey, South Florida. Those are the markets where the change in dynamic has happened first. And the leasing progress that we've made in our portfolio, you've seen largely that was stronger in the East.
That whole dynamic is going to shift over time as the alternatives that are available in the marketplace for potential tenants begin to get absorbed. And we're seeing that happen right now and we're seeing that additional traffic turn into more leasing activity.
Peter, do you want to comment?

Peter Schultz

The only other thing I'd say is, as we think about rental rate growth, we continue to see traction in Pennsylvania, Nashville, and Houston today, generally speaking.

Peter Baccile

Jojo, do you want to comment on the West?

Johannson Yap

Yeah. And in terms of cycling through, taking time -- taking more time to inflect, IE in general has to cycle through and digest the supply it has, but there's been increased activity in terms of offers and proposals.

Blaine Heck

Very helpful. Thank you.

Operator

Craig Mailman, Citi.

Craig Mailman

Morning. Scott, on the boohoo lease, so you guys -- I guess they're on cash basis accounting now. Is that correct? And how should we think about the impact of that if they continue to pay rent over the next couple quarters? Or are you guys planning on taking back the security deposit and trying to go direct with the subtenant? What's the game plan here to attack this to either get it released or continue cash flow in the asset?

Scott Musil

Right. I'll take care of the accounting piece of it, and I'll let Peter Schultz take care of the question about boohoo. So Craig, you're right, we're on cash basis. And again, as we mentioned in the script, they're current on their rent right now. If they continue to be current, obviously, we'll reflect that NOI in our FFO.
If they stop paying rent, we do have the security deposit in the form of a letter of credit, so we can use that for about up to a year. That covers about a year's worth rent. So that's something that would help us out in the case that they stop paying rent. And I'll turn it over to Peter to talk about the tenant in more detail.

Peter Schultz

Thanks, Scott. Good morning, Craig. So the boohoo is in the process of winding down their operations at the building, which should be completed by the end of the year. They then plan to put the entire building on the market for sublet. They will be retrenching back to the UK to fulfill their orders.
Today, there are very few options for this quality of a building in Central Pennsylvania, so they feel pretty good about their prospects for subletting. They also have a current subtenant in a portion of the building about 400,000 square feet or so through their 3PL, DHL, who's managing that. So that's subsidizing, if you will, some of their rental payments, but they fully intend to honor their lease obligation and have some success with subletting the building. We'll keep you posted on that.

Craig Mailman

Okay. And so if they do pay rent in the fourth quarter, what could that be upside to the guidance, Scott?

Scott Musil

We have them paying rent, Craig.

Craig Mailman

Oh, you have them paying rent in the [guidance], okay.

Scott Musil

Absolutely. Because they're paying for one; two, we've got the letter of credit. That's their security deposit. So even if they stop paying rent, I can keep accruing rent because I've got that letter of credit out there. Keep in mind that's with a bank, it's not with the tenant.
As a result, the accounting rules will let me recognize that security deposit on a go-forward basis if they stop paying. So that takes me to -- if they stop paying now, that takes me to probably the end of third quarter, early fourth quarter of next year.

Craig Mailman

Perfect. And then just going back to Blaine's question on the occupancy side, so we're halfway through October here. You have 400,000 square feet of development leasing in the number. How does the activity of that 400,000 square feet look? And from a kind of average occupancy in the fourth quarter versus ending occupancy, where should we be thinking about that depending on when some of this stuff could hit? Is this just going to be more kind of first quarter '25 impact from an earnings perspective?

Scott Musil

Well, I would say the development leasing, we have it baked in to our guidance at the end of the fourth quarter. So that's how we have it factored in. As far as what is included in that 400,000, correct, that's a macro assumption. There could be many different combinations of development leases with the properties that we have available. I would say the prospects we have for it is pretty decent at this point in time, but we have work to be done. There's only about two months left in the year.

Craig Mailman

Great. Thank you.

Operator

Vikram Malhotra, Mizuho.

Vikram Malhotra

Thanks so much for taking the questions. I guess just first of all, just on the tenants, do you mind just sort of walking us through how has sort of the watch list evolved. And specifically, there's one known move out, I guess, in the first -- I believe it's in the first quarter of next year in Federal-Mogul. Do you mind just sort of talking about prospects for reducing that space? Thanks.

Peter Schultz

Yeah, sure. Vikram, good morning. It's Peter Schultz. Right, that's the 708,000-square-foot building. That lease expires at the end of March. Tenants are already out of the building, so we've done our make-ready work to position the building for marketing. We have seen some interest in it already, and we're encouraged by the limited number of options for that size space in Central Pennsylvania today.

Scott Musil

And Vikram, what was your question again?

Vikram Malhotra

Just the watch list -- the tenant watch list, just given kind of sublet volumes and bankruptcies and certain segments just in economy softening. Just mind giving some color on the watch list.

Scott Musil

Sure. Other than boohoo, nothing material on the watch list at this point of time.

Vikram Malhotra

Okay, great. And then just last one. You did some -- you did a few acquisitions. I'm just wondering from a capital deployment standpoint, you mentioned starts have come down. You did start a new development. Some of your peers who had, I guess, big development pipelines have walked it back. I'm just wondering from a development and acquisition standpoint, what are you thinking as we head into '25?

Peter Baccile

So with respect to development, we continue to keep a close eye on the submarkets where we have development opportunities. Obviously, there are a lot of factors involved that impact the fundamentals of those submarkets, whether it's the wars around the world, what's happening in the economy, the election.
We have been hearing from some big tenants that that's causing them to put their decision making off to the end of the year. When we look at the fundamentals around the country, the markets that we think are going to be most encouraging for new starts next year will be in Pennsylvania, Texas, South Florida, again, and, of course, Nashville, which, again, is one of the stronger markets in the country.

Vikram Malhotra

Thank you.

Operator

Caitlin Burrows, Goldman Sachs.

Caitlin Burrows

Hi. Good morning, everyone. I was wondering if you could talk a little bit more about new leasing, whether development or other vacancy. I guess, what do you think it will take for new leasing to pick up, and what's your take on utilization and how that's impacting the market today?

Peter Baccile

Peter, do you want to take that?

Peter Schultz

Sure. Caitlin, good morning. It's Peter Schultz. A couple of comments.
In terms of space utilization, in our discussions and inspections with our tenants, generally pretty high sublet space, other than the one we just talked about with boohoo, not that material. In terms of the cadence and pace of decisions and discussions, some tenants are operating with more urgency, but most, as Peter just commented on, are not for a variety of reasons. So there's demand and there's activity. And I would say that the level of prospects in the market today are probably better than it has been for most of the year, but the pace of that decision making continues to be lumpy and somewhat deliberate.

Peter Baccile

There's a lot of uncertainty out there with respect to the macro economy, geopolitical issues. The weather is now on people's minds, so we need to work through these things. But we believe we see there's pent-up demand. There are definitely larger tenants who have investment dollars for growth that they want to get going on, and they're just waiting for the fog to clear a little bit on some of this uncertainty.

Caitlin Burrows

Got it. Okay. And then just maybe on the acquisitions versus disposition strategy at this point, I could maybe imagine that you're looking to sell lower growth properties and buy higher growth ones. But I guess just like how possible is that? And you mentioned the 100% lease rate for the Houston acquisitions, so just wondering kind of what's the opportunity there.

Peter Baccile

Yeah. So for us, we're kind of choosy about what we're going to buy. It has to be in the right place and have the right functionality and a lot of other factors. And so typically, we do best when there are complications around deals, call them hair on deals.
And so we don't participate in the broadly attended auctions by and large, and we're much better at acquiring assets, as I said, where there's work to be done. So that's the strategy there. And again, we're focusing on the submarkets that we think are going to show the most growth over the coming near to medium term.

Caitlin Burrows

And if I could just -- on the Houston one, it doesn't sound very hairy, given it's well leased. Was that one maybe was just off market and it worked out, or there's some other complication that is not so obvious?

Johannson Yap

You nailed it right on the head, Caitlin. It basically was off market. In addition to that, the seller wanted certainty, and we have a good portfolio in the southeast submarket and they wanted to make sure that we -- they worked with a buyer that knew the submarket, could close pretty quickly, and we won the limited marketing. We were -- there were very few competitors, and we're very pleased with that acquisition, great product, new product, and a 5.9% go-in cash yield.

Peter Baccile

So Caitlin, I think you also asked about dispositions. You're right. As we have done for now quite some time, we're focusing on those assets that have a lower growth trajectory going forward, so that we can redeploy that capital into a higher growth opportunity. We'll keep doing that. But I think at a macro level, you will see the volume of those sales going forward be much lower than it's been in the past.

Caitlin Burrows

Thank you.

Operator

Rich Anderson, Wedbush.

Rich Anderson

Hey. Thanks, and good morning. First question is on the election, and you mentioned some tenants are holding off until they see what the outcome. What's the swing factor there? Is there like -- I'm not doing anything if Harris wins, but I'm all in if -- I don't understand beyond tariff risk, what it is that will change on November 6 with the election in the minds of your tenants?

Peter Baccile

Yeah. So we don't get into the micro on the nitty-gritty details. I think, generally speaking, it's about growth and the stability in the economy. And I can't attribute that to either candidate in terms of how that's going to come out, but it's the new growth investment, not the renewals.
The renewal activity is extremely strong, as you've seen in our cash rent increases, and very, very strong. So it's really the new growth investment. People want to see what the landscape's going to look like either way, regardless of who wins, and what that's going to mean for anything from economic activities and social unrest to increased regulation or decreased regulation. So there are some pretty big factors involved in the outcomes, and that's kind of it at a macro level.

Rich Anderson

Is there any like, red state, blue state, Trump wins, red states are going to do better? Or is that too oversimplifying it in your mind?

Peter Baccile

I don't have a view on that.

Rich Anderson

Not to get political on you guys, sorry. The next question is, 8% same-store NOI growth for 2024 is your guidance. Do you have a read on what your earn-in is for 2025, based on particularly what you've done in the second half of 2024?

Scott Musil

Are you asking for what we think an estimate of what it's going to be in 2025, Rich?

Rich Anderson

Yes, I want guidance for 2025. I'm talking about what is baked in -- so if maybe there's 3% or 4% same-store already baked into next year because of what you did in 2024.

Scott Musil

Well, I think that the key driver is the same store, a couple of different items. Occupancy is one on the core. I'm not going to get into that, but others are rental rate bumps. That's been pretty stable. And then it's the cash rental rate increase on new and renewal leasing, what we're able to achieve next year, because that's been a real driver of cash same-store growth for the industrial peers.
We gave you a look into what we think early what 2025 is. We signed 37% of the expirations in 2025 at a 33% increase in cash rental rates, and that includes that fixed rate renewal option for the 1.3 million square footer in Central Pennsylvania. So I think the number is going to be a pretty good number. We've got to see how rental rates flesh out when we do our final guidance, but we think it's going to be a good year.

Rich Anderson

Okay. Last for me, I don't know if you mentioned where you're seeing market rent growth in your areas of the country, how that's moving right now. Maybe you can answer that, but also, how quickly can it change? Let's say, God willing, we get some recovery in the geopolitical landscape and everyone's kind of happy with the political environment, macro stabilizes, all those good things happen. How quickly can you go from 0% to 5% market rent growth in your business and perhaps what you've seen in history? I'm just wondering the speed by which we start to see real health come back into the marketplace.

Peter Baccile

Okay. We can't we can't put a timeframe on that, but some math helps frame it, okay? So net absorption is not bad. It needs to improve some. Completions, so the existing pipeline is way down. Completions last quarter went from 72 million in the second quarter to 45 million this year, and this is in our markets. The construction pipe went from 170 million to 135 million feet, and 28% of that 135 million is pre-lease.
So when you look at the fall-off and what we'll call new alternatives for prospective tenants, if we get some wind at our backs on the net absorption front to lead the demand side, things can change. We don't think it's going to happen with any great speed. You're probably looking at the second half of next year. But aside from that, it's difficult to handicap.

Rich Anderson

And did you have a number for market rent growth that you're seeing today?

Peter Baccile

Yeah. So overall rents are flattish to up a little bit. If you take SoCal out of that number, they're probably up 2% or 3%.

Rich Anderson

Okay. Great. Thanks, everyone.

Operator

Rob Stevenson, Janney.

Rob Stevenson

Good morning, guys. Can you talk about the transaction market given that you've been both buyers and sellers recently, given the first rate cut and the speculation leading up to that, and sort of where cap rates are today versus 6 or 12 months ago and how strong demand is and transaction volumes are that you're seeing out there ahead of the fourth quarter?

Peter Baccile

At a high level, there is definitely significant capital chasing opportunities in the space. We're seeing some pretty significant prices paid. We would say some people are making some pretty big bets on the prior question about speed of recovery. We see a lot of bets on that being quicker rather than longer.
Peter and Jojo, do you want to comment on any specifics in your markets?

Peter Schultz

Rob, I would just say, as we monitor some of the widely marketed transactions earlier in the year, there were maybe six to eight bidders. And now, you're seeing over 20 bidders on some of these packages. So to Peter's point, a lot of interest in the space.

Johannson Yap

In terms of -- our house view is that second half will have more transactions in the first half. In addition to what both Peter said is that when talking to competing buyers, they feel like the decline in volatility, the 10-year health, the lowering of short-term interest rates, health or carry, they're more a bit more definitive now. What kind of fixed rate financing they can get, all of those leads to more comfort in pricing. Overall cap rates came in about 25 base points over the last three months, I would say, and the expectation for unlevered IRRs also came in. So definitely, overall, the market is a bit more competitive.

Rob Stevenson

Okay, that's helpful. And how aggressively are you guys looking to add to your land pipeline today? And have you seen land pricing come down in any material manner across your core markets?

Johannson Yap

Right now, I mean if you're looking at -- we have a very good pipeline to continue to grow our platform and our company. Of course, we'll watch, like Peter Baccile said, the submarkets and want to make sure that the supply-demand dynamics are favorable.
We continue to look for land sites. One thing that I want to mention is the land sites have -- pricing is not really significant decline if you compare it to the decline of rents. So there is still quite a bit of bid ask between buyers and sellers. In the same token, there are more buyers now being a little bit more aggressive, just a little bit more aggressive, in buying land sites with lower yield expectations.

Peter Baccile

Yeah. Landowners, it seems, think the market's going to go back to 2022 pricing, which we definitely don't. So that's why the bid ask that Jojo references is pretty wide. So we are out there looking for land, but the transactions volume on that front are kind of slow.

Rob Stevenson

Okay, that's helpful. Thanks, guys. Appreciate the time.

Operator

Nick Thillman, Baird.

Nick Thillman

Hey. Good morning, guys. Peter, you kind of mentioned just more recently the weather becoming more of a factor in tenant decision making. Is that hurricane-related? Are we talking like South Florida and like how recent is that or like maybe how broadly is that comment?

Peter Baccile

It's more of a broad comment about the frequency of these highly disruptive weather patterns. They cause great economic damage. It probably has a big impact on consumption, so you can't ignore it. Now, they are geographically confined, I guess, you would say. But they're still big and they're not coming back to back. It's just something else that's on the mind of people who are looking at all the uncertainties that they have to wade through before they make investment dollars in new growth.

Nick Thillman

That's helpful. And then on First Logistics Center, it seemed like the second building that's still in lease up, it seemed as though you guys are pretty bullish on the prospects there. With boohoo kind of listing that other space as assembly space, is that another competitive building you think or is it different space needs in that specific submarket?

Peter Schultz

Nick, it's Peter Schultz. So not competitive. boohoo, as I mentioned, is going to be subletting the building in its entirety. So irrespective of the shorter-term sublease that they have there now, that will come to conclusion and they'll be marketing the entire building.
The balance of the second building is 350,000 feet. They're not competitive. We've had some activity there, a little disappointed at the pace of decision-making with some of the prospects, but they're really two separate spaces.

Nick Thillman

That's it for me. Thanks.

Operator

Vince Tibone, Green Street.

Vince Tibone

Hi. Good morning. Could you share your views on the latest California legislation impacting industrial development, AB 98? Particularly, does this bill impact your existing land bank at all in California and your ability to build on that land? And then also, what impact do you think this legislation could have on industry-wide supply in California over the next few years?

Peter Baccile

I mean, generally speaking, and then I'll hand it over to Jojo for the details on our portfolio, this is going to be a tailwind. It'll be a tailwind for our business. It'll be -- it'll increase value for existing assets. And over time, it's probably going to put upward pressure on rents. But Jojo, you can talk more about our holdings and how we're positioned with this. We're in pretty good shape.

Johannson Yap

Sure. Vince, thanks for your question. For those who are not familiar, the AB 98 is a new California State law, and it aims to limit industrial development depending upon how far you are with sensitive receptors, which is really the school, resi, and hospitals, for example. And what that means is that the state law requires building upgrades and increased setbacks and buffer zones.
All of our land under entitlement is exempt from AB 98 because this law is basically affecting development projects that have not started their permitting or entitlement process after 10/1/24. So actually, September 30 of this year, anything that you haven't started entitlement, you are subject to AB 98. So that's one thing I want to make clear.
Just to add to what Peter had said is that, again, there are -- our view is that there are going to be numerous sites that would be very difficult or nearly impossible to develop due to the constraints put by AB 98. And basically, this has the effect of constraining developable land across the state. And we all believe that anything that constrains supply of developable land will increase the value of our existing sites and existing buildings. And of course, as we all know, that anything that decreases potential supply should be good for the fundamentals of the market, i.e., rent growth.
So I hope that answers your question, Vince.

Vince Tibone

No, that's really helpful color. And we're just trying to think about how much, versus the historical pace of development in Inland Empire, specifically, this new legislation can impact that. This is all really helpful color. Thank you.

Operator

(Operator Instructions) Michael Mueller, JPMorgan.

Michael Mueller

Yeah, hi. I think you mentioned that go-forward asset sales could be considerably lower on a go-forward basis. And it seems like in the past, you've normally pointed to 75 to 125 or 150 of annual disposition targets. So I guess, how should we read into what that implies for development starts going forward, even relative to this year? Is it implying a much lower go-forward pace? And just how sensitive is dispositions to starts?

Peter Baccile

Yeah, they're disconnected. They're not connected, let me say it that way. The sales program over the last dozen years, as you've seen and as you know, for us was to reallocate capital away from lower growth assets into higher growth opportunities. We're now to a point where that program is essentially over. And so that really has nothing to do with developments.
Now, yes, obviously those sales proceeds over the last decade or so have helped fund new development, but we'll just fund those developments in a different way going forward. We'll fund them through some sales, but much lower numbers, as well as retained cash flow and the right proportions of debt and equity. So it's not really going to impact starts. They're not connected.

Michael Mueller

Got it. Okay. Thank you.

Operator

Nicholas Yulico, Scotiabank.

Nicholas Yulico

Thanks. Hi. I just wanted to go back to boohoo and that accelerated tenant improvement reimbursement. Was that income -- was that already in the guidance or was that unexpected this quarter?

Scott Musil

That was unexpected because it was the accelerated recognition of that tenant improvement reimbursement liability. So what the accounting rules tell you to do is you have to advertise that over the life of the lease.
Well, at the end of the third quarter, we accelerated the unamortized balance, which I think was about $4.4 million or $4.5 million. So that was a benefit, but that was netted against the write-off of the straight-line rent receivable of $5.5 million. So that's how you get the $0.01 per share. So again, it's all in conjunction with boohoo and it was not anticipated when we issued guidance in the second quarter.

Nicholas Yulico

Okay. And then the write-off, which is the offset, that also wasn't in prior guidance?

Scott Musil

It was not in prior guidance, correct. Both pieces were not.

Nicholas Yulico

Okay, great. Thanks. Appreciate it.

Operator

Caitlin Burrows, Goldman Sachs.

Caitlin Burrows

Hi. Sorry, I just had one quick follow-up that I figured was easier to ask this way. Before, when you guys were talking about the rent growth, I think you mentioned market rent growth, that it was about flattish, maybe up a little, and then excluding Southern California, might have been up 2% to 3% just for the time period. Was that year over year in the third quarter or something else?

Peter Baccile

That's year over year.

Caitlin Burrows

In 3Q. Okay, thanks.

Operator

Brendan Lynch, Barclays.

Brendan Lynch

Great. Thanks for taking my question. Just to follow up on AB 98, my sense is that there's a lot of gray area in the bill, and maybe there's some additional legislation that might be coming. Can you talk about whether you think the dynamics of what has been established with AB 98 is actually finalized versus might be adjusted in the future?

Johannson Yap

Sure. Very good question. When you read through AB 98, there certainly could benefit for more clarification. At this point, the investment criteria, setback criteria, and specific building upgrades, depending upon the size and how far each building would be on the receptor. And there is enough detail wherein you can kind of ballpark what might happen in a building and what land site is available.
But certainly, there could be additional detail, because even the building upgrades and how, for example, the building is laid out could be more specific. But it's so hard to forecast what kind of changes might end up with that. But right now, it is a state law and it has some detail in it.

Peter Baccile

It's also fair to say the municipalities don't like this, so it'll be litigated as well. So we'll see. There's definitely going to be some movement here.

Brendan Lynch

Great. That's helpful. Maybe just one other one on this topic. Did you submit kind of a flurry of entitlement requests right before the deadline to avoid some of the consequences of the bill itself?

Johannson Yap

Not at all. All our sites were clearly within -- some are years into, and we also have some entitlement sites already. And so yeah, none was done as a quick reaction to this AB 98.

Brendan Lynch

Great. Thanks for the color.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Peter Baccile for any closing remarks.

Peter Baccile

Thank you, operator, and thanks to everyone for participating on our call today. If you have any follow-ups from our call, please reach out to Art, Scott, or me. Have a great week.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.