First Industrial Realty Trust, Inc. (FR) Q3 2014 Earnings Report, Transcript and Summary

Good morning. My name is Crystal 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 speaker’s remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. I would now like to turn today's call over to Mr. Art Harmon, Senior Director of Investor Relations. Please go ahead, sir.

Thank you, Crystal. Hello and welcome to our call. Before we discuss our third quarter 2014 results, let me remind everyone that our call may include forward-looking statements as defined by Federal Securities laws. These are based on management's expectations, plans and estimations of our prospects. Today's statements maybe time sensitive and accurate only as of today's date October 30, 2014. We assume no obligation to update our statements with the other information we provide. Actual results may differ materially from our forward looking statements and factors which could cause this are described in our 10-K and other SEC filings. Finally, you can find the reconciliations 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 Investor Relations tab. Our call will begin with remarks by Bruce Duncan, our President and CEO, as well as Scott Musil, our CFO after which, we will open it up for your questions. Also on the call today are Jojo Yap, our Chief Investment Officer; Chris Schneider, Senior Vice President of Operations; Bob Walter, Senior Vice President of Capital Markets and Asset Management; and Peter Schultz, Executive Vice President for our East Region. Now let me turn it over to Bruce.

Thanks, Art and thank you all for joining us today. Our First Industrial team delivered excellent results once again this quarter, demonstrating the strength of our platform and portfolio. We increased occupancy by 90 basis points to 93.9% and we continue to enhance our portfolio through new investments and targeted sales. I am pleased to point out that the credit rating agencies have taken note of our continuing execution on our plan. Our unsecured debt is now rated invested grade by all three agencies following yesterday's upgrade for Moody's and our upgrade Fitch in September. We are now positioned to access the senior unsecured debt market more efficiently and cost effectively enabling us to further improve cash flow by lowering our capital cost, so thanks to all of my team mates for their many contributions. The overall industrial market remains healthy. The third quarter marked the 17th consecutive quarter of positive net absorption for the industry. There is new supply, but it's in response to continuing good demand. These solid fundamentals are being reflected in the upward direction of market rental rates and in the rental rate changes, we have been achieving in our portfolio. Cash rents on leases commencing in the quarter were up 1.6% marking our third consecutive quarter in positive territory. Our GAAP rental rate change was positive 9.4%, reflecting the embedded bumps in our leases and lower free rent. Our GAAP rental rate spreads have now been positive for 11 quarters in a row. While these metrics can vary from quarter-to-quarter based on the population of leases, the general direction is positive as demand has been outstripping new supply and businesses are now faced with fewer space options. The health in the leasing environment is also reflected in our development and acquisition leasing. In September, the lease commenced for our entire 708,000 square foot First Logistics Center at I-83 in Central Pennsylvania. Recall we met our overall pro-forma economics on this long-term lease with an initial yield of 8.4%. As a reminder, when we talk about development yields, we are referring to our first year of stabilized cash NOI over the GAAP basis. I would also like to recap the other long-term development leasing wins in the quarter. We leased approximately half of our 489,000 square foot First Bandini Logistics Center in Los Angeles. We also signed a 377,000 square foot full building lease at our First Pinnacle Industrial Center in Dallas. This brings us to 87% pre-leased on the 598,000 square foot two building complex that will be completed in the first quarter of 2015. We also leased half of the 142,000 square foot spec facility at our Interstate North development in Minneapolis. That two building 239,000 square foot project is now 70% pre-leased. Interstate North will be completed in the fourth quarter of 2014. We continue to market our other developments, namely the 350,000 square feet First Northwest Commerce Center in Houston which we’re wrapping up in the fourth quarter and our 555,000 square foot First 36 Logistics Center in the Inland Empire in Southern California which we completed in the second quarter. Recall that a pro forma lease up period for both of these assets is one year from completion. I also want to provide a quick update on our 509,000 square foot Chicago asset at the intersection of I-55 and I-80 that we acquired vacant in June of 2013. As on our last call it was 79% occupied and I am pleased to tell you today that we’re now fully leased. A critical we seek to add value is through active portfolio management including targeted asset sale. In the third quarter we completed $54.2 million of sales, comprised of 925,000 square feet, the largest sale was $28.5 million portfolio of higher finish light industrial and flex building in the Baltimore market. Additionally, we sold a 119,000 square foot vacant cooler building in Chicago for $10.5 million to a user. This asset was on our list of top 10 key bulk opportunities at our November 2013 Investor Day. In the fourth quarter to date we completed two building sales totaling 35,000 square feet in the Detroit market plus a sale of a small land parcel in Toronto our last holding there. These sales totaled $3.3 million bringing us to $62.3 million year-to-date. So we’re well on track towards our target of $75 million to $100 million for the year. As we continue to execute on targeted sales, we’re being disciplined in redeploying that capital. Our team is certainly out in the marketplace looking for both acquisitions and development opportunities. But as we have noted many times before, finding acquisitions that enhance our portfolio and where we can achieve appropriate risk adjusted returns is a challenging proposition in this market. As a result we have largely been making new investments using our development capabilities. As we redeploy a portion of our sales proceeds into development, we may have some near-term dilution from the timing of completions and lease up, but we think that the right long-term economic approach for our shareholders. To that end, this quarter we will be starting our First Arlington Commerce Center at I-20 in the Dallas market that we told you about on our last call. First Arlington will be 153,000 square foot building with an estimated total investment of $9.5 million and a projected initial yield of 6.4%. We also anticipate starting our two buildings 585,000 square foot First 33 Commerce Center in the Lehigh Valley in Pennsylvania shortly. You may recall that we purchased this land prior to 2009, total projected investments is $44 million with our targeted initial GAAP yield of 6.4% and a targeted return on incremental investment of 7.6%. During the third quarter we also added to our development pipeline by purchasing two land sites for approximately $22 million, they’re likely first half 2015 start. One is a 47 acre parcel in Houston in the energy quarter in Katy located on the Grand Parkway just north of I-10. We plan to do a phase development of three buildings totaling approximately 828,000 square feet. We also acquired a 16 acre site in Southern California in ocean side, between Los Angeles and San Diego. There we anticipate developing a three building park totaling approximately 237,000 square feet. Total combined potential investments for these two projects is estimated to be north of $80 million. In other development news we successfully completed the entitlement process for our First Nandina Logistics Center in Moreno Valley in the Inland Empire. Recall that this was in an assembly of 13 parcels that our local team put together that can now accommodate up to 1,450,000 square feet in either 1 or 2 building configuration. We like the competitive position of our site and we’re monitoring market demand for large buildings including possible build to suit. So, before I turn it over to Scott, let me say, we had an excellent quarter and as a team we’re focused on delivering on our cash flow opportunities and creating value through active portfolio management. Given these opportunities and our valuation gap to our public peers and private comps we believe we continue to offer investors good value. Our job is to deliver on those fronts and we’re all over it. With that, let it turn it over to Scott. Scott?

Thanks Bruce, I will start with the overall results for the quarter. Funds from operations were $0.32 per fully diluted share compared to $0.26 per share in 3Q 2013. Third quarter results included a $1 million portion of a onetime restoration fee that we have discussed in the last few quarters. Before onetime items such as the restoration fee mentioned above, losses from the retirement of debt in both the third quarter of 2014 and 2013 and a loss from the redemption of preferred stock as well as NAREIT compliant gains in 3Q 2013 funds from operations were $0.31 per fully diluted share versus $0.28 in the year ago quarter. EPS for the quarter was $0.19 versus $0.05 in the year ago quarter. As Bruce mentioned in his earlier comments we made quite a bit of progress in the third quarter towards our year end in service occupancy goal of 94%. We finished the quarter at 93.3% occupied up 90 basis points from the second quarter and up 270 basis points from a year ago. Sales helped occupancy by 33 basis points on a quarter-over-quarter basis. Regarding leasing volume, we commenced approximately 3.9 million square feet of long term leases in the quarter of these 1.5 million square feet were new and 2.4 million were renewals. Tenant retention by square footage was 78.9%, same store NOI on a cash basis, excluding termination fees and the onetime restoration fee we recognized in 3Q 2014 was a positive 4.9%. Same store was primarily driven by higher average occupancy as well as contractual rent increases. Including the impact of the onetime restoration fee same store growth in the third quarter would have been 6.7%. Lease termination fees totaled $900,000 in the quarter and same store cash NOI growth including termination fees but excluding the onetime restoration fee was 5.7%. As Bruce already mentioned cash rental rates in the quarter were up 1.6% overall. Breaking it down, renewals rate positive 3.2% and new leases were down 3%. On a GAAP basis, the overall rental rate change was a positive 9.4%. On the capital market front, Bruce discussed the recent upgrades we received from both Moody's and Fitch. As we stand today all three agencies have our unsecured debt rated investment grade. Our next significant maturity is in early 2016 so we certainly have some time to access the senior unsecured market, but we’re pleased to have the additional flexibility. To protect ourselves from interest rate hikes in the meantime in August we entered into a swap that fixes LIBOR at 2.58% which effectively locks the 10 year treasury rate at approximately 2.43% through the end of November. On the debt side as we noted on our second quarter earnings call, we paid off approximately $25 million of secured debt in 3Q at an interest rate of 6.7%. We did not use our ATM during the quarter. Updating you on our leverage metrics at the end of 3Q 2014, our net debt plus preferred stock to EBITDA is 6.2 times excluding the onetime restoration fee and normalizing our G&A run rate. This is within our target range of 6 to 7 times. At September 30, the weighted average maturities for unsecured notes, term loan and secured financings is 4.9 years with a weighted average interest rate of 5.6%, these figures exclude our credit facility. Our credit line balance today is $198 million and our cash position is approximately $21 million. Now on to our updated 2014 guidance for our press release last evening. The midpoint of our guidance range remains the same but we’ve tighten the range to $1.14 to $1.18 per share. Guidance reflects income from the onetime restoration fee partially offset by losses from the redemption of our Series F and G preferred shares, loss from retirement of debt related to our completed early mortgage payoffs and acquisition cost. Excluding these items, FFO per share is expected to be in the same range of $1.14 to $1.18. The other key assumptions are as follows; with ranges tightened to reflect year-to-date results and expectations for the fourth quarter. Average in service occupancy end of quarter of 93% to 93.5% for the full year. Average quarterly same-store NOI on a cash basis before termination fees of positive 3.25% to 4%. This is a reduction from our prior midpoint of 4% primarily due to a lease termination fee we recognized in the third quarter that effectively covers the loss rental income for this lease in 4Q. So from an economic point of view we remain whole but since the economics were in the form a termination fee and not rent it is excluded from our same-store calculation. Let me also point out that we were successful in releasing the space in the fourth quarter although there is no impact to cash same-store this year since we are in the free rent period of the lease. Another factor causing the change was the impact of our third quarter sales. Note that our same-store guidance also excludes the one-time restoration fee of approximately $0.02 per share recognized this year. Our G&A is still expected to be in the range of $23 million to $24 million. Full year JV FFO of approximately $400,000 which is unchanged. Guidance includes the costs related to our developments in process in Houston, Dallas and Minneapolis and the incremental costs related to our completed developments. Guidance also now includes costs related to the planned fourth quarter starts of the First 33 Commerce Center and First Arlington Commerce Center at I-20. In total for 2014, we expect to capitalize $0.01 per share of interest related to our developments. Guidance also assumes we lease up the other half of the First Bandini Logistics Center by the end of the fourth quarter. Other than what I have noted our guidance does not reflect the impact of any future debt issuances, the impact of any future debt repurchases or repayments, any additional property sales, acquisitions or further developments. Any future, may re-compliant gains or losses or the impact of impairments nor the potential issuance of equity. With that let me turn it back over to Bruce.

Thanks, Scott. Before I open it up for questions, let me say that we’re focused on executing across all aspects of our business. While we made great strides in leasing up our portfolio, we saw significant cash flow growth opportunities as we drive towards our goal of plus or minus 95% occupancy by the end of 2015. We’re also driving growth and enhancing our portfolio through and new development. We have a solid pipeline and are replenishing that pipeline through new land acquisitions which we can put into production quickly to meet tenant demand. We will also further enhance the long-term cash flow growth profile of our business through select acquisitions and targeted sales. If we can continue to deliver on the opportunity that we laid out at Investor Day in November of 2013 and close the valuation gap to our public peers and private comps. We can continue to create more value for our shareholders. That is our mission and we’re focused on it. We will now open it up for your questions. As a courtesy to other caller we ask you limit your questions to one plus a follow up in order to give other participants a change to get their questions answered. You are of course welcome to get back into the queue. So Crystal can we please open it up for questions.

[Operator Instructions]. Your first question comes from the line of Craig Mailman with KeyBanc Capital.

A question on development, you kind of went through for 2015. Just curious on the Houston or the Katy plan development. How do you guys envision that? Is it one building at a time? Is there enough demand there where you want to go one or two steps, kind of what you’re thinking?

Jojo answer it, but we’re really going to phase it, well go ahead and talk about the site.

Sure, it has frontage in Grand Parkway and that’s right close to the intersection of [indescribable] new outer loop in Houston. That is where the growth is at Houston right now towards the west, that’s the Energy Corridor, there’s a lot of rooftops, lot of residential growth. We foresee a lot of growth in consumer demand there. In addition our vision for the site is a three building complex. We have a building that’s front park rear load, right in front and Grand Parkway. We’re looking at a cross stop also that accesses of Grand Parkway, and also we have a rear load. So those are three buildings we envision that to be in phases but that’s our vision for that site.

And we’ll likely know next quarter in terms of specifics.

Okay, alright so we’ll get yield and those kind of things next quarter or do you guys have a sense of --?

We’ll give yields on the project when we start the next quarter.

Okay, and then just more generally you guys have been a buyer of land but prices have been moving in a bunch of market, just how are you guys viewing the underwriting there with construction cost possibly going higher, what type of rent growth you need to pencil? How far ahead, are you looking to bank land?

Well, let me ask, Jojo why don’t you just talk about taking a couple of markets and talk about what we’re seeing in terms of cost.

Sure, in terms of construction cost year-over-year construction cost in general have increased about 5% of course that varies market-by-market. Going forward to we expect construction cost to grow anywhere from 3% to 5%, it’s a little bit more growth into its construction left in California because of good vision, so you can add about 2% to 3% more than the 3% to 5% that I mentioned to you. The way we underwrite deals Craig, is that we factor all those cost increases in the total investment and when we give you project GAAP yield we factored out those in. In addition to that what we do is that we underwrite based on current market rent so when we give you GAAP yield data of what we think we’re going to achieve based on some inflationary growth which is more inflationary than a big bump from current market rents then finally what we do is we add the downtime which is a minimum one year from substantial completion. Does that answer your question Craig?

I guess more of what it getting out is what type of yield that guys finding to be justified here to be buying the land to put to work and so over the near term relative to what you traditionally look from a yield perspective?

Sure, good question. Currently, we’re still targeting a minimum of 100 basis point spread between what Class A properties would sell for, but so far we’ve been exceeding that.

Okay, thank you.

It’s consistent Craig with what we’ve done in the past, with a minimum of 100 basis points in terms of doing that.

Your next question comes from the line of Ki Bin Kim with SunTrust.

Thank you, good morning guys. So could you just quickly talk about the I guess the one big move out that you expected to occur in the fourth quarter you release, how big was that space and did you end up marking up that rent.

Ki Bin, it’s Peter. That’s a fourth quarter move out Minneapolis of the tenants in two buildings.

No, no he is talking about the lease termination fee I think.

Yeah, that’s right.

The lease termination fee that Scott touched on we view it as a net positive, that was an existing lease that’s due to expire mid-2015 and the tenants already made plans to move out and we proactively terminated that to accommodate a new lease that we signed in September and we’ll commence in a couple of weeks in November. The economics were very similar but more importantly the new lease goes into 2020.

And Ki Bin, keep in mind that new lease even though Peter mentioned its starts in the mid fourth quarter, it’s in its free rent period so there is no impact on our cash same store.

Okay, and just in general, if you looked at your expiring rents in 2015 and which have in the pipeline. What kind of trajectory should we expect in terms of occupancy growth throughout next year and in terms of lease price?

Again we’ll give you that guidance when we do the fourth quarter call -- on the next call but directionally just as you’ve seen -- rents are going up and we’re feeling pretty good but we’ll give you the details when we do our guidance for next year.

Okay, that’s fine and just one. Is there any material difference between leased percentages versus occupancy percentage for your portfolio?

No, it’s not materially different Ki Bin.

Okay, thank you.

Your next question comes from the line of Dave Rodgers with Baird.

Yes, good morning guys. Wanted to ask about the expiration schedule, obviously it’s down to a really small amount in the fourth quarter, but I also think that it’s your highest average rent that remains on your schedule what your fourth quarter expiration are I just wanted to kind of double check in terms of any hick-ups that you would expect to see in spreads because spreads really slow in the fourth quarter and any reason to think than they wouldn’t be back up or at least accelerating into 2015 as the average exploration rent continues to fall.

No, I don’t think there is any hick-ups that we’re anticipating there. Overall we’re seeing trends of rental rates going up so we don’t anticipate any hick-ups.

Dave I would just add as we mentioned in our prepared remarks, in any given quarter your population of leases could have roll over that effect that number because it’s not a big population but Bruce has mentioned several times, generation direction is positive.

Great, thanks. Bruce, what will -- in terms of the asset that you’re getting through the non-core and now just really repositioning for better growth. And what’s that number and what’s in the market today?

I would say that in terms of what we anticipate selling probably have about $85 million left of the pool we identified a few years ago. And then just ongoing portfolio management, I would say that we were pleased with the sales in the third quarter. I think that our goal for the year is to get to $75 million to $100 million. I’ll be disappointed if we don’t get near the top end of that range. And again, it’s really a niche market we’re going through and selling the assets that we don’t think have great long-term growth opportunities, and if we can point that capital into better assets.

And last question and maybe this is for Scott as well. As you ramp up development and it sounds like you’d like to ramp up development if you can find the right opportunities next year and you talked about some potential dilution between asset-sales funding that and the cash going out the door. Given that you just received your debt ratings and that was a hard work to get there in the first place. I don’t imagine you want to see those going higher and that’s really difficult to sell assets and build buildings and not lever up. So do you see a transitional leveraging up period as you move forward, 1. I guess the second would be do you just want to get more active on the ATM to manage that? Or 3, can that all be handled through just kind of growth in the core portfolio NOI metrics?

Dave this is Scott. You’re right as to the extent that we sell properties, to the extent are occupied we’re definitely losing EBITDA. As we redeploy those funds and developments our leverage will increase. But I thought you brought up a really good point and we’ll bring this back to Investor Day of November 2013 with the expected cash flow growth that have the opportunity embedded in our portfolio, that should balance out that leverage increase. And I think the other important thing that we in place on development is the $250 million cap. So I think we should be fine funding our development with sales. I think the area where possibly you might use the ATM, if that gets out of whack a little bit. So to the extent that your investments out-size your sales that might be an area where we would use the ATM but again it would depend on prices as well.

And we’re always mindful delusions.

[Operator Instructions]. Your next question comes from the line of Eric Frankel a private investor.

Going back you are talking about the evaluation your company you believe is attractive relative to private market comps. Can you touch upon what private comp transactions have occurred over the past couple of quarters that gave you that confidence?

Well I would say Eric you probably follow this more than anybody. But if you look at what’s reported it -- [Cobalt] to me. Again we have to wait till the numbers come out. But I think I saw some numbers like 6 ¼ cap rate or less and when I look at the portfolio of quality theirs versus ours, we’re much higher quality, we have big exposure in California and they have nothing. So I think if you just look at the -- what’s going on this space, there is great demand for industrial assets. And our cap rate even now our stock picked up a little bit. We’re still probably today trading at the annualized third quarter at a six day cap rate. And you look at that, I think its great value relative to our peers especially thinking of the growth opportunities we still have available to us. But that’s one man’s opinion and I do admit that most CEOs think their stocks is undervalued.

I guess that would be an unusual occurrence work the other way although. I guess you might qualify as the exception there. But I guess talking about the sale environment though. Things that every industry read-up pretty much picked up their disposition guidance, they can sell their non-core assets at a faster pace and at more attractive pricing. It’s interesting you guys haven’t picked up your pace that much and even if you had more sources and uses over the next couple of quarters. Aren’t special dividends or if buyback going to work especially if believe your stock is undervalued?

I would say we just got the investment grade, so I would count the buyback in this short run here. But in terms of asset disposition again we have a plan we out in place, we’re continuing to upgrade the portfolio, we’re having the guidance for next year but my guess is that they will be near the same amount we’re doing this year in terms of $75 million to $100 million. But again it’s systematic and our goal is to maximize the value of these dispositions and I think we’ve done a good job to date. But there is always more work to do, but we’re focused on our plans.

Your next question comes from the line of Mike Muller with JP Morgan.

Going back to the asset sales again, you talked about the $85 million left on the identified pool. You also mentioned you’d like to -- shot at getting to the upper end of the range where you would like to. So if you strip that out that kind of takes you down to about $30 million - $35 million in what’s left in that pool. So if we do the look forward to next year is it not an unreasonable assumption to think that asset sales are probably little less than they were this year?

No I think again, active portfolio manager we’re going to continue going through and continue upgrading the portfolio throughout the country and I would anticipate that will be ongoing every year or so $75 million to $100 million but we’ll give you guidance for what we’re planning for next year because it’s active portfolio management.

Okay, that was it. Other stuff has been answer.

You have a follow up question from the line of Ki Bin Kim with SunTrust.

Thank you. Scott, going back to your opening remarks about the swap that you guys go into for the just regarding the 10 year being so low. You said it was kind of expire in November, I’m not sure if you meant this year or next year?

Yes, Ki Bin, it’s basically $220 million notionally value and we’re lot effectively into the 10 year treasury of 2.43% and that’s to the end of November. Now, we’ve the ability to extend that swap to the end of May of 2015, it would cost us about 0.8 basis points per week to do that.

Okay, just given the duration of that swap -- that will I actually say exploration deal of that swap is that a sign that maybe unsecured bond issuance might be in more of an near term event than 2016?

Yes, I would say what we look at as far as issuing unsecured -- and again this could be public private market as well. We look first that what the credit spreads are doing in the market and Ki Bin, I would say the last 4 to 6 weeks credit spreads have popped out about 20-25 basis points so we’d like to see them come in and then we look at our sources and usage as well and what need we have for the cash and to the extent that those two line up, that’s probably when we would do some of execution but again with the swap in pace we have ability, treasury as effetely locked until the end of my of 2015.

Okay and what was the kind of reasonable deal terms look like?

Are you talking spreads, covenants?

Well, not the covenants, all in interest rates.

Well I would say right now for us again with the gapping out of the interest rates its probably 200 to 210 basis points is what the credit markets are right now. I would say 4 to 6 weeks ago they were probably 20 basis points in side of that.

Okay, thank you.

[Operator Instructions] You have a follow up question from the line of Eric Frankel with Green Street.

Thank you, just a couple of questions regarding the mid development projects, can you perhaps speak to demand in Houston at this point especially given how oil prices have come down a little bit in past three months and the threat that and maybe it starts slowing oil production, if oil prices go down any further especially given that your developments in a emerging submarkets of Huston where energy is a big factor.

Sure, just to start off Eric, we have a resizable portfolio in Huston and as one of the highest leased portfolios in the country we just -- we are just going to wrap up the first Northwest which is 350,000 square feet that is cost up by tenant in Northwest. Absorption in Huston continues. Year-to-date we see like 8.5 million square feet of net absorption we think that’s going to exceed 10 million, the raise is going, net absorption by the end of the year. So it’s positive, net absorption. And to the -- Eric, to the recent investment we really like the energy quarter towards the west because that’s where a lot of the growth is. And growth due to employment demand and consumer demand. We are not seeing yet really any major pull back of customers or users due to energy prices and so we haven’t seen that -- we don’t know if it’s going to be a short term, long term and what the impact would be, but what it could tell you is that if you look at just the recent net absorption it still exceeds projected supply and under construction.

Have your customers ever mentioned if they’re vendors to oil companies or other energy producers, where issues start occurring and what price of oil?

No, Eric, No. Most of our customers are two or three industries removed because they are the retailers to supply to the 3PL to supply the consumer goods that are being bought by people who are some of them might be employed in the Oil service and gas exploration industry. So our customers are more of the distributors in the 3PLs and they are not seeing that consumer demand paper off yet. So we don’t lease to a lot of the oil service, oil rig, gas exploration companies as we said. They are more of the office, type flexi, type and crane type building users.

Eric, we love this site and we look forward to showing to your when you get down--.

I’ll look forward to seeing it. Final question just reguarding the southern California development. I think there are some reported news about that, is that going to be built of the JV or what’s the financial arrangement exactly of that deal?

Eric it’s not going to be built on a JV, its wholly owned by First Industrial 100%. We have a developer; we’ve hired a developer to build the building on a guaranteed maximum price contract, GMP.

Okay, thanks for the clarification.

We have no further questions at this time. I will now turn the call back to Mr. Bruce Duncan for any closing remarks.

Thank you, Crystal. Again we appreciate your interest, if any questions please call Scott or myself and we look forward to seeing some of you down in Atlanta next week. Thank you.

Thank you for participating in today’s First Industrial’s third quarter results conference call. You may now disconnect.