First Industrial Realty Trust, Inc. (FR) Q2 2016 Earnings Report, Transcript and Summary

Good morning. My name is Hannah and I will be your conference operator today. At this time, I would like to welcome everyone to the First Industrial Second Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Mr. Art Harmon, the Vice President Investor Relations. You may begin your conference.

Thank you very much Hannah. Hello, everybody and welcome to our call. Before we discuss our second quarter 2016 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 estimates of our prospects. Today's statements may be time-sensitive and accurate only as of today's date, Friday, July 29, 2016. We assume no obligation to update our statements or the other information we provide. Actual results may differ materially from our forward-looking statements and factors which could cause this, are described in our 10-K and other SEC filings. You can find a reconciliation of non-GAAP financial measures discussed in today's call in our supplemental report and our earnings release. The supplemental report, earnings release and our SEC filings are available at firstindustrial.com under the Investors tab. Our call will begin with remarks by Bruce Duncan, our Chairman, 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; Peter Schultz, Executive Vice President; Chris Schneider, Senior Vice President of Operations; and Bob Walter, Senior Vice President of Capital Markets and Asset Management. Now, let me turn the call over to Bruce.

Thanks, Art, and thanks to everyone for joining us today. We had another very good quarter, as our team delivered across all aspects of business including leasing within both our portfolio and our developments. Our high occupancy levels reflect the efforts of my teammates and the strong industrial real estate fundamentals we are [audio gap] seeing across our markets. Cash, same store NOI growth before lease termination fees with 6.3% primarily reflecting lower free rents, in place rental rate bumps and rental rates growth. On the strength of these results we raised the midpoint of our same store guidance for the second quarter in a row. Scott will discuss the details in a bit. Cash rental rates were up 3.5% overall, our tenth consecutive positive quarter. GAAP rent were up 12.8% which marked the 18th positive quarter in a row. Our team also continue its strong execution on our development investments. Please refer to page 20 of our supplemental for full details, but let me provide you with a few key highlights. In the second quarter we placed in service three developments, comprising approximately 683,000 square feet, all of which are 100% leased. The first was our 188,000 square foot First San Michele Logistics Center in Southern California that we leased up prior to development completion. The second with this 341,000 square foot facility at our two building, First 33 Commerce Center in the Lehigh Valley. Lastly we leased the remaining third of our 153,000 square foot First Arlington Commerce Center at i20 in Dallas. So, thus far in 2016 we placed in services four developments totaling 748,000 square feet that are a 100% leased with a weighted average expected GAAP yield of 6.8%. At the end of the second quarter, we had four projects completed but not placed in service, totaling 1.5 million square feet. We expect to place in service two of these developments in the third quarter given our recent leasing success. The first is the 243,000 square foot second building at the aforementioned First 33 Commerce Center so that entire project is now a 100% leased. Second, we signed a lease for all of our recently completed 601,000 square foot initial building at the First Park 94 in Chicago. Our four completed developments are now 79% leased with a combined targeted GAAP yields of 7.6%. At the end of the second quarter we also had three projects under construction, two of which are build-to-suits with expected completion in the fourth quarter of this year. The third is our new development start in the second quarter. The First Florence Logistics Center in New Jersey, this 577,000 square foot building has an estimated investment of $39 million, a targeted GAAP yield of 6.9% and it is expected to be completed in the first quarter of 2017. These three projects totaled 1 million square feet or 45% pre-leased with an expected target GAAP yield of 7%. We also expanded one of our tenants at First Northwest Commerce Center in Houston that we put in service in the fourth quarter of 2015 to bring that building to 100% occupancy. We have replenished our pipeline with additional committed developments that total 2.4 million square feet and approximately $170 million of new investments. These are comprised of three projects that we talked about on our last call, plus one new start. The largest is the Ranch by First Industrial, an $88 million, six building, 936,000 square foot park in the Chino Eastvale submarket of the Inland Empire. Also in Southern California we are building the $18 million, 243,000 square foot First Sycamore 215 Logistics Center. In Phoenix, we are building a 618,000 square foot facility at First Park at PV 303 with an expected investment of $33 million. And lastly, on a strength of the aforementioned leasing at First Park 94 in Chicago, we will soon be starting our second building there which will be a 602,000 square footer that is expandable. Please recall that First Park 94 can accommodate up to 4.6 million square feet of development. These four new development projects have a combined targeted initial GAAP yield of 6.8%. Given pricing and investor and user demand attractive acquisitions continue to be tough to uncover, but we have been successful on a couple of transactions recently. As we talked about last time, during the second quarter we acquired a recently completed 199,000 square foot facility in Orlando for $14 million. The building is a 100% leased on a long-term basis with an in place yield of 6.6%. In the third quarter to-date we acquired a 99,000 square foot building in San Diego, it is a 100% leased for $11.9 million. Our going in yield was 6.4%, we also added a development site in Dallas for $3 million. On the disposition side, we continued our portfolio management efforts with the very active quarter. We sold 26 buildings totaling 1.5 million square feet for $84.2 million. These had a weighted average in place cap rate of 7.3% and a stabilized cap rate of 7.4%. This brings our year-to-date sales totals to a $100.5 million on our way to $150 million to $200 million goal for the year. Given that we are primarily reinvesting these proceeds into new developments, we expect some temporary FFO dilution in 2016 related to these sales due to the timing of our NOI from our development. As Scott will discuss shortly, we have been able to offset this dilution with early lease up of developments year-to-date as well as our overall second quarter performance. Now let me update you again on our CEO search. We have moved the process further along since our last call, and we will let you know when we have a decision. Again, I plan to retire as CEO by yearend while continue serve as Chairman and I’m confident we will have my successor in place before then. So, we are very pleased with our results thus far this year. And our team is looking to continue that momentum by capitalizing on the good environment and the opportunities we have to grow cash flow. With that, let me turn it over to Scott to walk you through some more details on the quarter and our guidance. Scott?

Thanks, Bruce. Let me start with the overall results for the quarter. Funds from operations were $0.36 per fully diluted share compared to $0.35 per share in 2Q 2015. Funds from operations before one-time items, namely our acquisition costs in 2Q 2016 and 2015 as well as our hedging related gain in 2Q 2015 were $0.36 and $0.34 per share respectively. EPS for the quarter was $0.43 versus $0.13 one year ago. As Bruce noted, we finished the quarter with occupancy at 95.8% up 100 basis points from the first quarter, and up 70 basis points year-over-year. Sales accounted for 44 basis points of our occupancy gain since March 31. Regarding leasing volume, we commenced approximately 4.1 million square feet of long-term leases in the second quarter. Of these, 700,000 square feet were new, 2.8 million were renewals and 700,000 were development and out of service acquisition leases. Tenant retention by square footage was 83.3%. Same store NOI growth on a cash basis excluding termination fees was 6.3%. This was primarily driven by lower free rent, rental rate bumps, and rental rate growth. Lease termination fees totaled $96,000 in the quarter and same store cash NOI growth, including termination fees was 5.6%. For the quarter, cash rental rates were up 3.5% overall. Breaking it down, renewals increased 3.2% and new leases were up 4.5%. On a GAAP basis, overall rental rates were up 12.8% with renewals increasing 12% and new leasing up 16.7%. To provide you with some additional color on our rental rates, as of today for renewals side and commencing in 2016, our cash rental rate change is 6.1% with just 2% of our overall portfolio or 1.4 million square feet rolling the remainder of the year. On the capital side during the quarter, recall that we issued 5.6 million common shares in April 5 to support our development growth opportunities. Moving on to our balance sheet metrics. At the end of 2Q, our net debt plus preferred stock to EBITDA is 5.5 times adjusting EBITDA by normalizing G&A and excluding acquisition costs and adjusting debt by adding back loan fees. This is below the low end of our target range of 6 times to 7 times. At June 30, the weighted average maturity of our unsecured notes, term loans and secured financings is 4.5 years with a weighted average interest rate of 5%. These figures exclude our credit facility. Our credit line balance today is $202 million and our cash position is approximately $22 million. Now, reviewing our 2016 guidance for our press release last evening. As Bruce discussed, our new guidance reflects approximately $0.02 of temporary sales dilution due to second quarter sales that are partially offset by the NOI impact of the 99,000 square foot acquisition in Southern California we closed in July. Given the additional expected FFO from early development leasing, as well as our second quarter performance, we maintained the midpoint of our NAREIT FFO guidance range and also narrowed the range to $1.42 to $1.50 per share. We call that when we reported our first quarter results, but we were also able to keep our FFO guidance midpoint the same even after the temporary dilution related to the equity offering we closed in April. So we are very pleased with our performance in the first two quarters of 2016. The key assumptions for guidance are as follows: average in-service occupancy remains 95% to 96% based on quarter-end results; average quarterly same store NOI on a cash basis before termination fees is expected to be 4.5% to 5.5%, an increase of 50 basis points at midpoint reflecting our second quarter performance and a narrowing of the range. Our G&A guidance is $25 million to $26 million. As a reminder, our G&A guidance reflects the costs related to our CEO search but does not reflect any potential changes in CEO-related compensation. Note that guidance includes the costs related to our developments under construction at June 30, as well as planned development starts in Southern California, Phoenix and Chicago. In total, for the full year 2016, we expect to capitalize about $0.03 per share of interest related to these developments. Guidance also includes the impact from the acquisition we made in the third quarter to date. Our guidance does not reflect the impact of any future sales nor any acquisitions or developments other than those we discussed, nor the impact of any future debt issuances, debt repurchases or repayments. Guidance also excludes any future NAREIT 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. The industrial real estate environment continues to be strong, as we experienced broad based demand from tenants, boosted by the tailwinds of e-commerce. It is our job to continue to capitalize on the opportunities within our existing portfolio and execute on our development investments. We are very pleased with our recent development leasing wins and overall execution. So kudos to our entire team for their efforts. Of course, we know that we need to continue to build upon our track record to drive future cash flow growth, in other words is business as usual at First Industrial, as cash flow growth is our focus each and every day. We’ll now open it up for your questions. As a courtesy to other callers, we ask you to limit your questions to one plus a follow-up in order to give the other participants a chance to get their questions answered. You are welcome of course, to get back into the queue. Operator, may we please open it up for questions? Operator?

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

Good morning, guys. I’m looking on things since to your April equity offering stocks up about 30%, just curious your thoughts here on ramping kind of equity issuance to the ATM to pay for these developments?

Let me turn that to Scott.

Hey Craig, the developments – the reason that we did the equity offering in April was to fund the development starts at least three of the – actually four of them plus we’ve got this new development that we announced at our First Park 94 project. So the equity offering we did in April was basically to take care of those developments. Now Craig, if you look at the remaining sales guidance for the last six months of the year, it’s about $50 million to $100 million, let’s call the midpoint $75 million. If you look at the projected costs that we’re projecting in the last six months of the year for our developments and process as well as the four starts that we planned in the third and fourth quarter it’s about a $100 million we’re pretty much in balance.

Well, I mean I know you guys are taking advantage of the sales environment to clean up the portfolio a bit and using it to fund. But isn’t there an opportunity just delever in the near-term as you guys look to 2017 you may have more development opportunities and kind of take advantage of the substantial premium that you guys are trading at in the market?

From my standpoint we have a fortress like balance sheet.

Craig, our leverage was at 5.5 times debt to EBITDA at the end of the second quarter. And if you were to just look at the second quarter EBITDA and you were to factor in leasing up the developments getting NOI benefit from that, and again we’re only giving ourselves credit for what’s been funded, all those developments were 100% leased or leverage goes from 5.5 times down to 5.3 times. And again our goal is to keep our leverage between 6 and 7 times, so we have dry powder there so we feel like we’re in pretty good shape.

Great, thanks.

[Operator Instructions] Our next question comes from the line of Mr. John Guinee [Stifel Nicolaus].

It looks like John Guinee here, how are you?

Hey John, how are you doing?

Good, good. About six months ago you guys were big on the self-funding concept, I’m assuming trading in the 5.3 implied cap range makes self-funding no longer high on your priorities.

John, we just discussed we are still – we still can self-fund if you look at the last six months of the year for what our funding costs are for our developments in process plus the four starts, again that’s about a $100 million and our midpoint of our sales for the last month is about $75 million, so it matches up pretty well. And again our leverage is at 5.5 times at the end of the second quarter, if you give ourselves benefit for developments is at 5.3 times, so we do have some dry powder there. Now on equity, we’ll never say never to that but it’s basically going to be related to any other investments we’re able to uncover.

And then second question is, no matter how much you increase your dividend and you’ve increased it a lot lately, it still seems to be under a 3% yield which I guess has something to do with the stock price. But then when I’m looking at your outlook for 2016 and your revised guidance your net income is now in the $0.82 to $0.90 a share range. How does that work in terms of taxable income and the need to continue to raise the dividend?

Scott, do you want to take that?

Sure. John, the guidance raise in earnings per share, you’re right, related to the gain on sale that we recognized in the second quarter. Keep in mind that there is a disconnect between GAAP gains and tax gains just because of the different basis that you have there. But when you look at our taxable income, look at just the ordinary income, exclude the gains on sale, our dividends for 2016 will cover that and also there is a little excess capacity to help us out with gains. Now if the gains exceed that excess capacity we got a couple of levers, one, we have $58 million of NOLs we can use to offset it and we also can do 10-31 exchanges. So for 2016 John, we think we’re in pretty good shape from a taxable income point of view.

You guys still have NOLs left?

We have $58 million, yes.

Wow! Okay, hey thanks a lot. Nice job.

Thank you.

All right. The next question comes from the line of Mr. Dave Rogers from Baird.

Yeah, good morning guys, how are you? I wanted to ask about development starts. I think when we listen to your competitors there is a lot of build-to-suit in the pipeline and I think we hear you guys are obviously making good success in leasing the projects that you’ve build but it seems like the pipeline is much more speculative in nature. Just kind of wondering if that’s just a preference, if it’s the projects that you’re building the difference or what sense you have in terms of moving forward with quite a bit of spec on the balance sheet going forward?

Sure Dave. Jojo why don’t you handle that?

Sure, yeah. So Dave, yes certainly both within the build-to-suit market as well we market our [sites] [ph] for build-to-suits but in a project that we’ve started, I mean we believe that we can create more value to the shareholders by developing spec. We already mentioned to you, Bruce already spoke to you if you average out the development placed in service and those not completed, not in service and the development is under construction, Dave, you’re averaging about a 7.3% GAAP yield which creates a lot of value for the shareholders. So obviously we like that, and if you go – and like Bruce had mentioned as well, if you look at the projected starts, the start that [Ranch] [ph] by First Industrial, 215, PV 303 and the project in First Park 94 the average there is 6.8% GAAP yield which again is a good spread over what exit is. So we think we’re focused on the right thing but like you said, we’re still focused on trying to get [indiscernible] as well.

Okay, David, as I mentioned we’ve got the build-to-suit in Atlanta, we’re doing in Southern California so we do have two build-to-suits under way right now. But again we recognized our focus has been more on doing spec development, we understand that there is more risk to that but that’s why we have our $325 million development cap in place, and we plan to that. But again we’ve got great success to date in our developments, we feel very good about them but we own it in terms of being able to continue to demonstrate and execute on the plan and get these buildings up and built on time on budget and hopefully ahead of budget like they’ve been to date. So it’s on us but we got to continue to do focus more on spec development than build-to-suit.

And I guess along the same lines, I think that the 2.4 million square feet of backlog that you quoted get us $70 to $71 kind of all-in basis for that. Is that fair in today’s dollars as you think about kind of if you were to I guess buy new land, but you’ve been buying pretty recent land it just seems like that’s a pretty low number in a given where you’re building and the quality of products you’re building. Is that a replicatable number and what are you seeing in construction costs?

Jojo, you want to handle that?

Dave, of course it varies but it varies market-by-market and development-by-development at $70.20 per square foot like you mentioned. But the real – that is, we’re very, very comfortable with that basis. And to highlight two of those projects are in Southern California, one in the Chino Eastvale market and one in basically i215 corridor. So I’m sure everyone has looked at the prices today, exit prices, also we’re very, very comfortable with that. In terms of you’re asking the question whether we’re comfortable with that going forward, hey it really depends on the future opportunities we see and we’ll let you. But again we’re going to use our local platform, we’re going to try to make sure that we look at the pockets of demand and we want to make sure that before we embark on any project though we create value for our shareholders because of the spread we can make.

Any progress in backfilling Memphis, the 400,000 square feet there?

Nothing to report at this time.

All right, last question I think I probably snuck through in four or five but on the CEO transition – I guess on the CEO transition is the last question, regarding compensation, do we expect a better value than Bruce, ultimately I guess what I’m getting at is…

Dave, it’s in the eye of the holder.

That is rude. I want to go on record and say that’s very rude. So we’ll let you know when we have something to announce you’ll be able to see the compensation.

Fair enough, fair enough. Thanks guys.

[Operator Instructions] Next question comes from the line of Eric Frankel from Green Street Advisors.

Thank you. Scott, I wanted to touch on leasing metrics in the same store part, I think you mentioned last quarter that operating expenses might continue to stay low with due to tax refunds and lower bad debt expense, so I was hoping you can expand up on whether that effected your metrics this quarter and what’s expect to going forward this year?

Chris, you want to handle that?

Yes, I think we’ll break down the components of the same store for the second quarter, overall we’re 6.3% and where that came from was rent bumps and cash increases about 3%. The drafting for rent was about 2.5% and as you mentioned on the expenses, the other major contributor was the drop in the landlord expenses and the real estate tax refunds that was about 60 basis. Going forward we still have some opportunity on the real estate tax refunds with the main [indiscernible] quite as much suits.

And then Eric, this is Scott. And the second quarter outperformed that causes to raise the midpoint of our same store guidance by about 50 basis points, that’s a little over a $1 million or about a penny of share. Again this is actual compared to our guidance, about half of that are $500,000 is due to lower bad debt. Again we budget about $750,000 that came in at $225,000 and the other half of penny had to do with lower landlord expenses, a little bit pickup on same store average occupancy compared to plan.

Right, just two follows up for that. One, so what exactly that operating expenses go down relative to last year, is the real estate tax refunds only represented 50 dips of the same store in Allegra?

So Eric, the other part is on the – the main part of the drop was just overall utilities. A landlord utility was a bit factor in there too also.

All right, and that’s usually pretty fully reimbursed right?

Correct.

Okay. And then second Scott, related to guidance, maybe you can help me understand the second half of the year a little bit better, so you take your first two quarters with 8.2% same store high growth and your midpoint is 5% for the year, you get to your guidance stimulate that you’re going to have roughly 1.8% same store high growth for the second half of the year that doesn’t seem to slip with your recent metrics, so I was hoping you could expand on that a little bit.

Well, I think the math that we’re getting Eric is, if you look at our midpoint guidance at 5% you back out our first two quarters of actual, you get a little over 3% same store growth and that’s basically comprised of rental rate bumps and increases in rental rates. Now the first half of the year we got the benefit of free rent burning off that we’re not getting the benefit for the second half of the year. Now keep in mind, there could be some other upside potential as we had in the first two quarters for third quarter and fourth quarter we’ve budgeted $750,000 each quarter for bad debt expense. If we come in the same as the first quarter and the second quarter which is about $200,000 our same store would go up roughly about 80 basis points, so that’s the construct of what we’re looking like for the back end of the year.

Okay, and maybe we can talk offline on how you got 3% versus like 2%. All right thank you, I’ll jump back in the queue. Thank you.

Next comes from the line of Mr. Bill Crow from Raymond James.

Hey good morning guys, nice quarter, nice year so far. First, anything in Southern California whether it’d be fundamental challenges or concentration risk that might make you deemphasize back to development over the next year or two in that market?

I’ll have Jojo to jump in on that, but we feel very good about what we’re seeing in Southern California. We’re very excited about the Ranch in the Chino Eastvale market, submarket and we’ve got great success there, we got a great team. And Jojo why don’t you talk about that, but I would expect that we could find more product we would continue to do it, we do it [indiscernible].

Yeah, just to add to what Bruce said, I mean the largest industrial market in the U.S. is also is excited on a consolidated basis if you figure LA Inland Empire and Empire East, it is still decided by giving to U.S. The fundamentals of the absorption continues on all the [indiscernible] that I mentioned to you, and some represents right now really only the – it’s the large client only represents 14% of the income for FR. And if you look at our investments, as Bruce mentioned one in the Empire Ranch and then we have one investment in Sycamore, we’ve got Sycamore 215 to 243,000 building that’s – we did that too right out because of the success on the leasing prior to completion at First San Michele as you may recall, Bill. So if you look at our investments in California, we’re placing one investment at a time in different markets and we’re not developing significant amount in the same market. So we think that’s the [indiscernible] as well.

Let me add one more thing and Jojo, if you could fly by, we also have again a wonderful sites that can accommodate about 1.4 million square feet that is – you might talk about that.

Yes, yes. And this is the site that writes kind of i215 core door in that Empire and we’re in the value where we have a pocket holding system, we’ve been very, very successful in developing and leasing. So we will – we like the site, this is the site that our local platform got from us at a very good basis to [indiscernible] entitled today. And we’ll let you know once we announce something there.

So we’re bullish on Southern California and now you should expect us to continue to be pretty bullish on that.

Got it, thanks. First, if I could just my follow-up question on the CEO search and I’m going to leave value to other people.

Don’t be rude like Dave, I mean that is…

No I’m not going to do that. I think earlier this year you talked about the search would encompass why the ray of individuals and their experience, and I’m just wondering whether the board and you have narrowed down the search, whether you’re looking for specific industrial experience at this point of former CEO, what – has there been any narrowing of the field as you’ve gotten through this process and how do the candidates, how does the pool of candidates look at this juncture?

I would say that we’re very encouraged with what we have narrowed down the candidate list and again leadership is the number one thing but we’re very excited about it and we’ve got great candidates and we’re making good progress. But other than that we’re not going to say anything until we announce something, but we’re very confident as to have my replacement in place prior to the end of the year.

You’re success or not your replacement right?

I might success, exactly.

All right [indiscernible]. Thanks guys.

All right, thanks.

Next question comes from the line of John Peterson from Jefferies.

Great, thank you. So I’m looking at your occupancy 95.8% obviously pretty strong and hard to expect you guys move with that much higher. But I guess if I’m looking or trying to look for opportunities there, if you look at specific markets it looks like Minneapolis you’re about 90% occupied and it’s about 7.5% of rents. And then maybe St. Louis is about 3% of your revenue and only about 85% occupied. Maybe talk about those two markets, is there opportunity to move those percentages higher or is that just a function of maybe having a couple I guess less competitive buildings in those market?

Let me have Peter handle that.

John, this is Peter. In Minneapolis you’re correct, we have some opportunity there. Most of our vacancies are in the Northwest submarket, a series of different buildings ranging in size from about 25,000 feet to 221,000 square feet. That Northwest submarket has seen a fair amount of new supply and absorption has been a little bit slower, so certainly competitive but we’ve continued to make progress on the smaller 20,000 to 30,000 square foot spaces but we still have work to do on getting the larger of those particularly the 221,000 square foot space down but we’re confident in our team’s ability to do that and drive the occupancy up there. And then in St. Louis which has been a pretty consistent performer for us. We have a couple of spaces there that certainly meet the market from 25, 50 or 100,000 square feet and we have work to do but those spaces have been occupied and again we have confidence in our team’s ability to have the reoccupied.

Okay. And then I guess – thank you. And I guess the flips for that is looking at your lease expiration schedule over the next couple of years it was about 12% maturing on 2017. Are there any large expirations you guys are thinking that’s going to happen going to the next year in move outs?

As far as 2017 we’ll give you when we do the 2017 guidance and we’ll report at that time.

All right, fair enough. Thank you.

Thank you.

[Operator Instructions] Next question we have again are Mr. Eric Frankel.

Thank you. The question on the leasing spreads not to say that they were poor by any [indiscernible] they trend a little bit lower than last quarter. Were there any particular deals that were you’re wrong over some vintage lease signed maybe a decade or ago or is that – or is there some sort of anomaly there that’s just that releasing pressure turn higher than towards the second half of the year?

Well Eric, one quarter does not really make a trend and we actually said in our comments, we talked about the renewal sign at commencing at all 2016, that overall cash rental rate increases 6.1%. And then you also heard that right now we only have 2% or 1.4 million square feet of the portfolios rolling reminder of the year. So that’s – again that one quarter just doesn’t really make a trend.

Okay. Were there any particular markets that you signed this quarter where either rents aren’t moving as quickly as others or is it…?

Eric, there was one transaction that really brought that down.

Okay, helpful, thanks. Final question – well not maybe the final question, but related to your disposition this quarter, were there any trends in terms of the types of buyers you have for these assets whether it’s redevelopment or user sales or some other category and couple of other debt financing environment for other buyers?

Jojo, you want to take that?

Sure. There is – no Eric, there is no real discernable trend. The rest of the market continues to be active, all the issues are all private and the user [indiscernible] going to be active in terms of financing is readily available for the users, for the investors, most of the investors that borrow our properties did not rely on CMBS or debt financing. A lot of them are more bank led financing. And so there is really no very different trend from the first quarter.

Okay. Actually I do have a final question and it’s related to your development cap. Do you think that your development cap I guess which is $325 million of at risk dollars if you will, do you think about that relative to your balance sheet leverage, so if you took your balance sheet leverage down you can take your development cap up and maybe that’s relevant to where equity cost to capital is that?

Jojo, you want to take that?

Yeah, thanks. Eric, no, we did it – I think it’d more with the [indiscernible] value of the company and we don’t really looking it from leverage point of now. Right now we set this given where we’re at and we’re very, very comfortable here at the stage of the cycle. And I think [indiscernible] is the revolving cap and we’ve been cycling through our projects and so we’re comfortable with this cap.

We make sure you execute on your development and we’re executing to the cap rate.

Sure. Can you just – can you actually just remind me where you think actually are on the cap at this point?

Sure.

Sure. So the cap is $325 million and we have $264 million of at risk basically that includes all of the vacancy we get from acquiring and from our development. So that leaves us to $61 million of capacity Eric.

And Eric, again if we have a build-to-suit that doesn’t count because that’s…

No, understood, anything you lease up [indiscernible] dollars at risk down, understood. That’s all I got, thank you.

And Eric, that includes the four starts that we presented in the call, the four new starts in the third quarter and fourth quarter as well.

Got it, got it. Okay, that’s helpful, thank you.

Next question comes from the line again of Mr. John Guinee.

You may have – you have may have answered this already, I’ve been sort of zoning in and out but if you go to your land page you’ve got essentially half of your developable land as on FAR basis in Park 94 and then also Southern California. What is – and this is a real softball for you, what’s that work on an FAR basis or a developable square foot basis today?

Jojo, do you want to take that one?

Yeah. So, when you say what’s that all worth market value on a competitive basis you mean, is that what you mean?

For example, as First Park 94 is that $7 an FAR foot or $18 and FAR foot land and the same with the Inland Empire.

Okay. Well, today the value for FP 94 would be more in the $8.50, $9 square foot range FAR and then for the Ranch you asked about – did you asked about?

No, Southern California I think let’s do our property [indiscernible].

Okay, in the First Park $1.4 million, the FAR there would be in the $22 range because land values are into $9 to $10 and if you then grow it to about 48%, 47% coverage then that’s where you get your number.

And the Ranch land is more expensive.

The Ranch is a lot more expensive, you’re look in today’s dollars as the rest in the 22 land – $20 to $25 square foot and then you close it up 45% coverage, so you’d be basically have about $55, $60 FAR.

Got you, okay, thank you.

Okay, you’re welcome.

There are no further questions at this time. Please continue Mr. Bruce.

Great. Well thank you for joining us on the call. If you have any questions as always please call Scott, Art or myself and we’d be happy to answer them and we appreciate your interest in First Industrial. Thank you.

This concludes today's conference call. You may now disconnect.