First Industrial Realty Trust, Inc. (FR) Q4 2011 Earnings Report, Transcript and Summary

Good morning. My name is Brooke, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Industrial Fourth Quarter and Full Year Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Mr. Art Harmon, Senior Director of Investor Relations. Thank you. Mr. Harmon, you may begin your conference.

Thanks, Brooke. Hello everyone and welcome to our call. Before we discuss our fourth quarter and full year 2011 results, let me remind everyone that the speakers on today’s call will make various remarks regarding future expectations, plans and prospects for First Industrial such as those related to our liquidity, management of our debt maturities, portfolio performance, our overall capital deployment including investments, our plan dispositions, our development and joint venture activities, and expected earnings. These remarks constitute forward-looking statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. First Industrial assumes no obligation to update or supplement these forward-looking statements. Such forward-looking statements involve important factors that could cause actual results to differ materially from those in forward-looking statements, including those risks discussed in First Industrial’s 10-K for the year ending December 31st, 2010 filed with the SEC and subsequent ’34 Act reports. Reconciliations from GAAP financial measures to non-GAAP financial measures are provided in our supplemental report, which is available at firstindustrial.com, under the investor relations tab. Since this call may be accessed via replay for a period of time, it is important to note that today’s call includes time sensitive information that may be accurate only as of today’s date, February 23, 2012. Our call will begin with remarks by Bruce Duncan, our President and CEO, to be followed by Scott Musil, our Chief Financial Officer who will discuss our financial results in detail, our capital position, and 2012 guidance after which we will open it up for your questions. Also here today are Jojo Yap, our Chief Investment Officer; Chris Schneider, Senior Vice President of Operations; and Bob Walter, Senior Vice President of Capital Markets and Asset Management. Now, let me turn the call over to Bruce.

Thanks, Art, and thank you to everyone for joining us today. I would like to take a few moments to reflect on what the First Industrial team achieved in the fourth quarter and throughout 2011. Because of these accomplishments we’re now positioned for growth both within our existing portfolio and through new investments. First and foremost, let me talk about the portfolio where our focus has been on driving occupancy and cash flow. In the fourth quarter occupancy improved to 87.9% up a 130 basis points for the quarter and 290 basis points for the full year. Occupancy gains were broad based consistent with what has been seen in the national industrial market which enjoyed its sixth consecutive quarter of positive absorption. Given the cloud of economic uncertainty that hung over a great deal of the quarter we are pleased that key tenants made decisions and move ahead with plans for the future. The recent economic news, including the latest jobs report, reflect and support those decisions. As we stand today we’re seeing significant tenant activity across our markets. Though we will feel better when more of the activity translates into signed leases. As part of our leasing in the quarter, we made some headway on the top 10 largest strategic vacancies we outlined at Investor Day. Within this group, we completed leases for a 150,000 square feet in Chicago, a 166,000 square feet in Philadelphia, and an opportunistic sale totaling 384,000 square feet in the Inland Empire. We still have work to do with this group but we view these prosperities as a major part of our internal growth opportunity as they are well located functional distribution buildings that can meet the needs of a wide range of tenants. As of yearend, this roster represents approximately 275 basis points of potential occupancy growth compared to 320 basis points stated on Investor Day. Same-store NOI on a cash basis excluding termination fees was in positive territory for the second quarter in a row at 0.5%. Our rental rate change was negative 11.3% in the quarter and negative 11.8% for the year in line with our forecast. We still face headway in redoing leases signed near market peaks of 2007 and 2008. As the leasing market continues to recover we are focused on structuring leases with above average escalations to help mitigate the impact of rent roll downs. For 2012, we expect steady absorption to continue for the industrial real estate market supported by the backdrop of moderate growth in the economy and new supply being limited to a handful of markets, and almost exclusively to larger warehouse distribution product. In our portfolio we will see a dip in occupancy in the first quarter due to typical seasonality plus the impact of a 700,000 square foot lease term expiration in Columbus that we talked about at Investor Day. We expect occupancy to increase from there, an average 87.5% to 89% for the year or 88.3% at the mid point. This would represent a 200 basis point gain from our 86.3% average in 2011. Same-store NOI is expected to be positive 2% to 4%. The anticipated same-store gains reflect improving occupancy and higher rental rate bumps more than offsetting rental rate declines on rollovers. Modifying the impact of bumps for you for 2012, note that about half of non-expiring long term leases have bumps that average 5.2% occurring sometime this year. Moving on to dispositions. We completed $12.4 million in sales in the fourth quarter, bringing our total for the year to $86.6 million slightly below our $100 million goal for the year. Overall, I am pleased with the sales as we have continued on our mission of selling assets that don’t fit our long term vision for the portfolio. We have strived to maximize value reflected by the fact that our sales for the year were completed at prices exceeding the written down book value by approximately 40%. Our largest sale in the fourth quarter was a 384,000 square foot distribution complex in the East Inland Empire. We discussed this property on our Investor Day as a potential redevelopment opportunity. We received an attractive unsolicited offer and compared this with the risk return of a redevelopment scenario. Due to the favorable price and a significant cost and timing of entitlement, selling the property made the most economic sense. As we have said previously, asset management is a dynamic process and this is a good example of that process in action. We were also successful in selling four smaller buildings including another three in Detroit. We are committed to refining the portfolio through sale, and for 2012 we are targeting the sale of approximately $75 million to $100 million, which we anticipate being largely weighted to the second half of the year. We will continue to look to extract the best value from our assets in the sales process. Our improved financial position enables us to say no, where a deal doesn’t make economic sense. User sales continue to be a priority and we also have some buildings that require some incremental leasing to maximize their value in the marketplace when selling to local investors. With respect to the right side of the balance sheet, as we announced in December, we recapped our line of credit on very attractive terms, indicative of the progress we have made in the company and the improvement in the financial market. We greatly appreciate the support and continued confidence of our bank group. We were also able to buyback approximately $18 million in bonds during the quarter and Scott will walk you through those details. Moving now to a discussion of where we stand on the investment front. As I mentioned at the outset, external growth is again part of the First Industrial plan given our strength in balance sheet. Our team is working to identify attractive opportunity focused on the acquisition and development of high quality properties in the target markets we outlined for you at Investor Day, namely Southern California, Seattle, Houston, Miami, New Jersey, the Baltimore-Washington corridor, and Central Pennsylvania. During the first quarter to date, we were pleased to acquire our partnered 85% interest in a 390,000 square foot class-A distribution building in Central Pennsylvania. It is leased to Navistar on a long-term basis with our total investment, including our original share at $21.8 million, at an approximately 7.1% going in cap rate. Our 692,000 square foot First Inland Logistics Center in the Inland Empire in Southern California, is now complete. The market for large modern distribution centers remains active, and we look forward to the day when we can announce the lease. Our capital allocation strategy remains the same. We will be disciplined as we deploy capital generated from sales. Comparing our potential investment opportunities to the economics of debt repurchases. Through our leasing and capital market activities we are on our way towards our goal of being a divided paying REIT once again. As we noted in Investor Day we had two important milestones with regard to the dividend. We achieved the first by getting our new line of credit in place. The second milestone was to demonstrate greater progress in leasing. As we execute our plan this year the dividend will continue to be important part of our regular discussion with our board. So in sum, thanks to all of my teammates at First Industrial for a job well done in 2011. I know they share my excitement that we’re getting after growth in 2012. First and foremost from the opportunities within our portfolio as well as from new investments to meet our vision and deliver long term shareholder value. With that, let me turn it over to Scott. Scott?

Thanks Bruce. First, let me walk you through our results for the quarter and the year. Funds from operations for the fourth quarter of 2011 were $0.23 per share compared to $0.15 per share in the fourth quarter of 2010. Our 4Q 2011 FFO results include a $0.01 per share loss from retirement of debt as well as a $0.01 per share reversal of impairment. Note that for recent NAREIT guidance the definition of funds from operation now excludes impairment charges related to previously depreciated assets. Comparing 4Q 2011 to 4Q 2010 before one-time items, such as losses from early retirement of debt, restructuring costs, and impairment of undepreciated real estate funds from operations were $0.23 per share versus $0.30 per share in the year-ago quarter. EPS for the quarter was a loss of $0.05 per share versus a loss of $0.43 per share in the year-ago quarter. For the year, funds from operations per share were $0.89 compared to $0.80 per share for the prior year. Results for 2010 include a $0.16 per share gain from the sale of interest in certain joint ventures. Excluding losses from debt repurchases, restructuring costs, impairment of undepreciated real estate and a gain related the sale of certain of our joint ventures, full year 2011 FFO was $0.89 per share versus $1.06 per share in 2010. Full year 2011 EPS was a loss of $0.34 per share compared to a loss of $3.53 per share in 2010. Moving on to the portfolio. As Bruce discussed our occupancy for our in-service portfolio was 87.9% up a 130 basis points from 86.6% last quarter and up 290 basis points from 85% at December 31, 2010. In the fourth quarter, we commenced four million square feet of leases on our balance sheet. Of these1.4 million square feet were new, 1.6 million were renewals, and 1 million were short term. Tenant retention was in line with our guidance at 69.9%. Thinking of our retention for 2012, we expect this metric to decline in the first quarter reflecting known move outs. For the year, we expect retention to average 65% to 70%. Same store NOI on a cash basis was 0.5%, excluding lease termination fees, reflective of our occupancy gain in rent bumps over the past year. Including lease termination fees, same-store NOI was negative 1.2%. Rental rates were down 11.3% cash on cash, consistent with our guidance. On a GAAP basis, rental rates were down 5.2%. We would expect cash rental rates to continue to be down in 2012 ranging from negative 5% to negative 10% as we continue to work through a number of leases signed at market heights. Leasing costs were $2.93 per square foot for the quarter and average $2.64 for the year. For 2012, we expect leasing costs to come down a bit and average from $2.40 to $2.60 per square foot. Lease termination fees totaled $123,000 in the quarter. Moving on to our capital market activities and capital position. As Bruce noted, our major capital market achievement in the fourth quarter was a closing of our new $450 million senior unsecured revolving credit facility. We were please to obtain greater capacity in better terms. Reminding of the details, our new facility carries a three year term with a one year extension option subject to certain conditions. Payments are interest only initially at LIBOR plus 210 basis points based upon our leverage ratio. Plus importantly, a facility could be only on the unused portion that ranges from 25 to 35 basis points. The facility includes a cordial feature that allows First Industrial to increase the aggregate revolving barrowing capacity at $500 million. We used $100 million of new borrowings under the new facility to pay off and retire the turbulent portion of the prior credit facility which bore interest at LIBOR plus 325 basis points. Additionally, $52 million of new borrowings under the new facility were used to pay off and retire the revolving line of credit under the prior credit facility which bore interest at LIBOR plus 275 basis points plus a 50 basis point facility fee. We currently have $262 million available on our credit facility. This provides us with significant flexibility and capacity, a portion of which will be used to retire a $62 million of the 6.875% notes due April of 2012. During the quarter, we continued our efforts to reduce indebtedness and interest costs by repurchasing $17.7 million principal amount of our senior notes comprised of $6 million of our 2028 notes, $5.1 million of our 7.5% notes due 2017, $5 million of our 5.95% notes due 2017, $0.5 million of our 2016 notes, and $1.1 million of our 2014s. Overall, the yield to maturities on these repurchase average more than 7.5%. Quickly summarizing our capital structure and current capital position. Our weighted average maturity of our unsecured notes and secured financings at 6.8 years with a weighted average interest rate of 6.6%. These figures exclude our credit facility. Our cash position today is approximately $23 million and our debt to EBITDA ratio was approximately 7.4 times at the quarter. Moving on to our guidance. For our press release we initiated our 2012 FFO guidance range up $0.93 to a $1.03 per share. At the mid point of $0.98 per share, this would represent a 10% year-over-year FFO growth. The key assumptions are as follows, average occupancy of 87.5% to 89% reflecting the anticipated dip in the first quarter Bruce discussed and ramping throughout the year. Same-store NOI on a cash basis for the year is projected to be positive 2% to 4%, G&A in the range to $21.5 million to $22.5 million, and JV FFO of approximately $0.8 million. Please note that our guidance does not reflect the impact of any debt issuances or repurchases prior to maturity, the potential issuance of equity, the planned $75 million to $100 million of property sales, any future investments or the related transaction costs except the $21.8 million acquisition in Central Pennsylvania that Bruce discussed. Guidance also excludes any NAREIT compliant gains or impairment charges. With that, let me turn it back over to Bruce.

Thanks, Scott. Before we open it up to questions, let me offer a few brief concluding comments. Our balance sheet is in good shape. We have flexibility, capacity, and a clear runway for upcoming maturity. As managers of our shareholder’s capital we continually look for opportunities to further strengthen our balance sheet and reduce borrowing costs. But the yield man’s work is done. We remain focused on driving value from our portfolio through leasing and disciplined sales, and we are positioned for new investment opportunities and we use our platform to put capital to work in a disciplined manner in the right property and markets that can deliver long term rental rate growth. With that, we’d now be happy to take your question. As a courtesy to other callers we ask you limit your questions to one plus a follow-up in order to give other participants a chance to get their questions answered. You are welcome to get back in the queue. So now Brooke may we please open it up for the first questions.

[Operator Instructions] Our first question comes from Craig Mailman from Keybanc Capital Markets. Craig Mailman – Keybanc Capital Markets: Good morning. On the sales front, I know you guys are putting $75 million to $100 million out there, but it’s not in guidance. Maybe could you offer some thoughts on maybe where pricing may come in and also just – are these assets being marketed already or is this just sort of – once you identified do you want to get rid of this year?

Craig, we have a number of assets in the market place right now that’s currently being marketed. Again, our goal for this year is to get $75 million to a $100 million. In terms of pricing on that, we really can't give guidance because we’ve got more than $75 million in the market place right now. We’ll have to wait and we will report on that when we get the deals closed. But again, we are very pleased with our progress last year in terms of our sales and the fact that they were sold at a price that exceeded our written down book value by over 40%. Craig Mailman – Keybanc Capital Markets: Okay. Just quickly on the dividend. What kind of the border, when you guys talk about this, what sort of thresholds are they looking for from either an occupancy perspective or maybe would they be willing to actually fund the dividend that wasn’t necessarily where cash from that income is still not positive, but they just want to get something out there or does cash on that income really have to go positive before they would strongly consider putting a dividend out?

Well again, these are the discussions that the board has or is going to have, but to me – what we said to you all is that we need to make more progress in terms of where we are. We made good progress, but there is more work to be done and again as you can see by our guidance for this year we are expecting average occupancy to be up 200 basis points. So we can execute on that plan, again we are focused on becoming a dividend paying stock and we will have more to report as we make progress. Craig Mailman – Keybanc Capital Markets: Okay, thanks Bruce.

Your next question comes from Ki Bin Kim with Macquarie. Ki Bin Kim – Macquarie Capital Markets: Thank you. Actually I just want to follow up on that previous question. I noticed your assets held for sale, went from 76 properties to 46 during the quarter. Could you just comment around that first?

Sure. Ki Bin, this is Scott Musil. Yeah, our held for sale bucket declined. It went from like $160 million down to about $92 million, and it’s something that we have to evaluate every quarter in accordance with accounting. So what we are required to do is list for help of sale marketing – properties we are actively marketing for sale in properties that had been approved for sale either by management or the board of a company. So, that's what the $92 million reflect. But currently we also have another $68 million of property that we are currently marketing. So if you add both together it’s about $160 million. That's not going to qualify for held for sale until we have management approval to sell those properties. So, I just want to make clear that decrease in held for sale is more of a GAAP accounting issue and currently what we are marketing exceeds that. It’s about $160 million. I hope that answers your question. Ki Bin Kim – Macquarie Capital Markets: Yeah it does, it helps. I guess my question would be in your occupancy guidance for 2012 increase into 87.5 to 89. Could you just talk about how you get there especially with the expected decline in first quarter occupancy and if you could frame your answer around how much occupancy gains are already locked in from early leasing and how much of it comes from top ten vacancies? You outlined it in the Investor Day, and if there is any additional meeting and does that includes assumptions of selling empty buildings?

Ki Bin, this is Chris. As we said in the prepared remarks that, you know, first quarter we are dropping in the occupancy and we have the large expiration in our Columbus market, and then after that we expect incrementally for that to go up each quarter, second, third and fourth quarter. Your other question about it, does that have any built in numbers for the impact of sales. It does not have any numbers built into that. Incrementally we just expect that after the first quarter the debt would go up a little bit each quarter. Ki Bin Kim – Macquarie Capital Markets: I guess the third part of that question was, how much of that lease of expirations have you already done, the 2012 expirations?

Yeah, so if we look at our expirations and the rollover schedule, we are right now at the end of the year, about 15% is the remaining rollovers in 2012. If you look back where a quarter ago we were sitting at about 20%. So we made some pretty good progress on that. If you look at where we were a year ago, a year ago we were at about 16% on the rollovers. So, we are a little bit in better shape than we were a year ago. So right now we are, you know, it’s very similar to where we were past year. But we have – in 2012 the remaining expirations is about 15%. Ki Bin Kim – Macquarie Capital Markets: Okay, thank you.

Your next question comes from Dave Rogers with RBC Capital Markets. Dave Rogers – RBC Capital Markets: Hey good morning guys. I think you guys made a great progress on the leasing and the occupancy statistics. I think one thing that's held you back from maybe some of the peers out there is higher proportion of smaller spaces in your portfolio. Can you talk about the leasing traction that you are seeing amongst smaller, maybe non-bulk distribution tenants that's helping you drive some of these numbers on occupancies during the fourth quarter or what you expect to see this year.

All right. Dave, this is Bruce. I would say that we are seeing some decent pickup in activity as I mentioned in the comments. That's really all over the country both large tenants and small tenants. We have got decent traction in terms of markets like Denver, or a pickup in Tampa in terms of the smaller tenant spaces. And so, we are pretty encouraged because this is sort of broad based. Do you want to add anything more to that Chris?

Yeah, this is Chris. I would add also that during the past year we definitely saw much more of our increase in the larger spaces in the bulk warehouse and the regional warehouses. To give the idea, past year 2011, bulk warehouse went up about 400 basis points, regional warehouse went up about 500 basis points, and we are now starting to see more of that pickup or more of that traction in the smaller tenants. For instance, in our R&D flex portfolio in the past quarter, we were up about 200 basis points. More and more from our smaller tenants received, lot more request for expansion space, and some leases getting signed. So we expect that to be a little bit – the small tenants would be good for 2012. Dave Rogers – RBC Capital Markets: Great. And Bruce or Scott, you talked about being in a better position on the balance sheet, and it clearly looks that way. But you did, I guess, leave yourself to be out of potentially issuing equity. Is the equity issuance only for opportunistic deployment or is there still a spot in the back of your mind where you would be happy to de-lever some more through additional equity.

Again, if you look at – we spend some money in the first quarter buying our partner’s interest in a building in Central PA, about $20 million worth. And as we look at it we still are a leverage company. We have a debt to EBITDA of 7.4 times and remember that excludes the preferred, so we add that in, we are in the 87, 88 times. We could use the further deleveraging. Again, we’re very judicious, very mindful of the dilution as evidenced by what we’ve done in the past. We do need to continue to de-lever, and again we said about this goal of 6.5 to 7.5 times debt to EBITDA, we are at the high end of the range at 7.4, so there is still a little bit of work to be done. Dave Rogers – RBC Capital Markets: Thank you.

[Operator Instructions] Your next question comes from Daniel Donlan with Janney Capital Markets. Daniel Donlan – Janney Capital Markets: Thank you. Scott, just going to the guidance, I’m just curious why you guys aren’t assuming any debt issuance. Should we just read into that that you guys are just comfortable paying down everything with the line given your – what’s maturing, and then kind of what your cash requirements are this year?

Dan this is Scott. On the debt issuance side, the debt maturity side, the only thing we have coming to in 2012 is $62 million of notes in April. We’ve got the line of credit year marked to take those out. Other than that we don’t have any other obligations. Now, as we mentioned, we’re going to sell $75 million to $100 million of property and we were then going to redeploy that capital either in investments in real estate or repurchasing debt. So, our assumption is – at this point of time that we’re not going to be issuing anymore debt. Daniel Donlan – Janney Capital Markets: Okay. Bruce, you talked about your leverage 7.4, net debt to EBITDA excluding the preferreds, I think your prior target was 6.5 to 7.5, caring about if that excluded the preferreds or not, but is that still kind of your target range on the leverage side?

Yes, Dan. The target we set out a couple of years ago was 6.5 and 7.5 times which we hit last quarter. But we want to be at the lower end of that range, so there is work to be done there. But, again, the best way to do that is to lease out the portfolio. Daniel Donlan – Janney Capital Markets: Okay. And then I guess moving just one more, going back to the guidance. So at the low end it assumes that you could potentially lose a little bit of occupancy, your same-store NOI is still 2%. So, we should definitely be thinking about – overall, you guys are going to see a rental rate increase for the year in 2012, right?

On the rental rate increase, no, we’ve – for the cash base we’ve guided – that’s going to be negative 5% to negative 10%.

We have bumps in the leases that are going to help us generate the increase in cash flow, the same-store that we’re talking about.

Dan, if you’re looking at the guidance range it’s about $0.05 from the midpoint compared to the low and high that’s about $4.5 million. So if you look at the difference between our midpoint of occupancy in our low end that’s about $2.6 million of that difference. And then G&A we’ve guided to about a $0.5 million between the midpoint, the low and high, and then the other $1.4 million is just assumptions regarding rental rate assumption and debt assumption, specifically LIBOR assumptions in our line of credit. So that gets you pretty close to the difference between our low end of the guidance and our high end of the guidance. Daniel Donlan – Janney Capital Markets: Okay. Thanks.

Your next question comes from Ki Bin Kim with Macquarie. Ki Bin Kim – Macquarie Research Equities : Thanks. I just want to follow up on a previous question. From the remaining top 10 regional vacancies you outlined on your Investor Day, how does that activity volume look like for the 7 that you haven’t leased yet?

I think we’ve got – this really goes across the entire portfolio. As Bruce said in his prepared remarks we’ve got good activity in basically all of our markets, it’s just a function of bringing those leases home, that includes the top 10 vacancies. Ki Bin Kim – Macquarie Research Equities: Okay. In your same-store NOI guidance, following on the previous question, how much NOI is locked up – how much of that 2% to 4% growth is already locked up purely based on escalators and your leases, and also kind of on the flip side, how much NOI is not being booked from free rent periods and future rates?

Ki Bin, if we look just overall on the same-store guidance the kind of major components of that is the same-store portfolio. We’re looking at 1.5% increase in the average occupancy over the entire year. And then, Bruce made his comments about the contractual rent bumps that are in place for 2012, or about a positive 5.2%. Those two bagged together we are picking up overall increase of about 5%, and then what’s offsetting that is still the rent roll down, a negative rent roll down in the portfolio of about – the impact of about a negative 2%. So the combination of those two or the net numbers are getting back to our positive 3% increase, the same-store NOI for the year 2011 or 2012 at the midpoint. Ki Bin Kim – Macquarie Research Equities : Okay. Thank you very much.

[Operator Instructions] Your next question comes from Craig Mailman with Keybanc Capital Market. Craig Mailman – Keybanc Capital Markets: Hi, just a quick follow-up. On the move out on Columbus, what's the exact timing of that during the quarter?

The move out, it begins first month of the first quarter.

It’s gone. Craig Mailman – Keybanc Capital Markets: They are already gone?

Yeah. Craig Mailman – Keybanc Capital Markets: And that’s 700,000 square feet, right?

Yes, right. Craig Mailman – Keybanc Capital Markets: Okay. Then this one other one. This one may be hard to quantify, but I just want to go back to your comment Bruce that you guys are saying good activity, but conversions are a little bit lower than I guess you would like. I'm just curious if you guys have numbers on sort of what a good conversion rate would be for prospects and where you guys are now in the pipeline?

Great, we don’t, but I mean the good news is you are seeing good activity. I mean you are seeing better activity today than we’ve seen six months ago, nine months ago, whatever. So the activity is good and it’s good in terms of all sizes of tenants. So we are encouraged by that. Again our mission is to deliver and get that activity translated into leases. Craig Mailman – Keybanc Capital Markets: Great, thanks.

Thank you.

Your next question comes from John Stewart with Green Street Advisors. John Stewart – Green Street Advisors: Thank you. Sorry, if I missed this in the comments and press release, but have you quantified at all what we should expect to see as far as the seasonal occupancy decline in the first quarter?

We haven’t defined it. We just said it’s going to be down, and it’s going to be down, it’s been down the last couple of years in a row in terms of – since I’ve been here and again it’s going to be exacerbated by the 700,000 foot tenant in Columbus. John Stewart – Green Street Advisors: Right, okay. Bruce, you alluded to the day that you look forward to announcing a lease on the Inland Empire Project. Can you give us an update there, is that imminent?

John, I'm looking for it. I’ll call you straight off when we get it.

If not, a press release.

Exactly, but no, no, I mean there is good activity out there. But, again, our mission, I really believe the team plays it deep downwards. So, we will let you know when we have something done. John Stewart – Green Street Advisors: Okay. Just lastly, on the disposition target, I guess you would call it of $75 million to a $100 million. I appreciate that you don’t really want to discuss pricing yet, but can you help us think about what the potential impact on earnings would be? How much NOI would we be looking at coming off, and I guess the related point. How much of that are we talking about? Vacant space and what’s 10 caps in Detroit, what does the mix look like there?

Again it’s hard to quantify because we’ve got a number of properties out there. So we will take that with – we will let you know when it happens. But if you look at what we did last year, last year we were very pleased, we were able to sell properties. The income producing properties or the lease properties I think – or the buildings, the yield was about a little over 6% yield for trailing 12 months. If you looked at the land, if you had that in the mix it was probably less than 5% cap rate. But, again that was last year. The land component will be as much less this year, so again your yield who knows what they will be, but they will be higher than what they were in 2011. And then the question is what do we do with the proceeds, whether we buy back debt, whether we have been successful doing this year or investing it in assets, like the Navistar building. John Stewart – Green Street Advisors: You said the yield will be higher than 2011, so if we were just to think about making reasonable assumptions you would not advise that the low end, you would say $75 million of vacant buildings and land with no yield, and then $100 million at a 10 cap at the other end.

You are the expert. I'm just saying that I would not anticipate a repeat of this year’s number of less than 5%. Maybe we will be lucky in being able to do that, but I would anticipate a higher number than that. John Stewart – Green Street Advisors: Okay, thank you.

Thank you John.

[Operator Instructions] Your next question comes from Daniel Donlan with Janney Capital Market. Daniel Donlan – Janney Capital Market: Yes, thank you. Just real quick. Bruce, I wondered if you could kind of talk a little bit about who acquired the properties in Detroit and Philadelphia, and then going forward do we need to see more of a rebound in lending in kind the secondary and tertiary markets to some of these smaller private firms to get your disposition volume going or what's your thought process there?

Jojo, do you want to take?

Let me address that. Overall, for our sales last year, 55% were sold to users and about 45% were sold to investors. So that is a by and far the large – goes across the board. In terms of the fourth quarter, the properties in Detroit were sold to users. Does that answer your question?

I mean how much do you think – what do you need to see for investors to become more active in buying some of these properties you have there in the market? Is it more of a financing issue for them or is it kind of just timing, why isn’t this happening sooner rather than later?

Because again our focus is on selling to users. We think we get the best execution that way. Witness what we were able to achieve last year in terms of what the sales prices we received. Our focus is on users versus investors. We think we want to continue that in 2012. Daniel Donlan – Janney Capital Market.: Everything else would be the same again like Bruce has mentioned, and we are trying to increase the occupancy of some of our properties, so more stabilized they are and more value we get.

Okay, thank you very much.

Thank you.

Your next question comes from Michael Muller with JP Morgan. Joe Dazier– JP Morgan: Hi guys, it’s Joe Dazier here with Mike. Question about external growth. I know you talked about the $75 million to $100 million of dispositions targeted for 2012. Is there anything specific you can speak to that you are targeting with regards to either acquisitions or also perhaps debt pay down or is it sort of a wait and see mode at this point.

I think it’s depending on what opportunities we find to invest in, and then we are going to compare that versus buying back debt. Joe Dazier – JP Morgan: Is there anything at all with respect to either of those that’s baked into the guidance at this point? Or is that kind of contemplated in the range?

Yeah, I mean our guidance assumes no impact from sales or investment or debt repurchases. So as Bruce mentioned, what's going to happen is we will have dollars coming for the sale, we will look at our investment pipeline and determine if we like what we see. If we do we will put money into investments. If we are not to enamored with what we have at that point in time we will look into repurchase some debt. We repurchased debt over the last several years and some of our bonds in the open market, we had that opportunity. We also have above $13 million of mortgage debt that we can prepay at a later half of the year for fixed repayment being interest rate above 7.5%. So I think the benefit that we have is we have two different homes attached with attached with our sales capital. Joe Dazier – JP Morgan: Okay, thank you.

Thank you.

At this time there are no further questions. I would like to turn the conference back to Bruce Duncan for closing remarks.

Thank you operator and thank you all for participating on our call today Please feel free to call us with any of your questions and we look forward to seeing some of you at the Citigroup Conference next month. Thanks.

Thank you. This concludes the conference. You may now disconnect.