LXP Industrial Trust (LXP) Q4 2015 Earnings Report, Transcript and Summary

Greetings and welcome to the Lexington Realty Trust Fourth Quarter 2015 Earnings Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation [Operator Instructions] I’d now like to turn the conference over to your host, Heather Gentry, Vice President of Investor Relations for Lexington Realty Trust. Thank you. You may now begin.

Thank you, operator. Good morning and welcome to the Lexington Realty Trust Fourth Quarter 2015 Conference Call. The earnings press release was distributed over the wire this morning and the release and supplemental disclosure package will be furnished on a Form 8-K. In the press release and supplemental disclosure package, Lexington has reconciled all historical non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G requirements. If you did not receive a copy, these documents are available on Lexington’s website at www.LXP.com in the Investor Relations section. Additionally, we are hosting a live webcast of today’s call, which you can access in the same section of our website. At this time, we would like to inform you that certain statements made during this conference call, which are not historical may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although Lexington believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, Lexington can give no assurance that its expectations will be attained. .: Joining me today from management are Will Eglin, Chief Executive Officer; Robert Roskind, Chairman; Dick Rouse, Vice Chairman and Chief Investment Officer; Pat Carroll, Chief Financial Officer; Beth Boulerice, Chief Accounting Officer, and other members of management. Now, I will turn the call over to Will.

Thanks, Heather, and welcome, everyone, and thank you for joining the call today. I’d like to begin by reviewing our operating results and accomplishments for the quarter and the full-year. For the fourth quarter of 2015, company funds from operations were $0.29 per share, which brought our total for the year to $1.10 per share. These were very strong results in relation to our guidance of $1.5 to a $1.7 per share as updated in November, and reflects better than expected execution in all aspects of our business, including the early closing of acquisitions, share repurchases, and lower general and administrative costs. We provided initial 2016 company FFO guidance this morning in the range of $1 to $1.10 per share. As you may recall from our third quarter 2015 call, we discussed the possibility of monetizing our New York City ground investments, which generate very high FFO, due to GAAP revenue recognition over the life of the 99-year leases. We have begun marketing these assets for sale and the mid range of guidance assumes that they’re sold as of June 30, 2016 at a sub 5% cap rate. While the 2016 company FFO guidance we initiated today represents the decrease compared to 2015 company FFO. We expect our underlying cash flows to remain strong in 2016, due to reduced capital expenditures, share repurchases, accretion from investment activity in 2015. The redeployment of sale proceeds from the potential New York City ground sale, scheduled rent escalation and refinancing statement. More details on our underlying guidance assumptions will be discussed later in the call. Overall, we had a good quarter of leasing and executed new leases and lease extensions of approximately 900,000 square feet, ending the quarter at 96.8 leased. Renewal rents during the quarter were essentially flat on both the cash and GAAP basis. Subsequent to quarter end, we have completed approximately 700,000 square feet of lease extension. On the investment front, in the fourth quarter, we invested approximately $45.4 million in ongoing build-to-suit project, and $2.1 million for Gateway Plaza, a build-to-suit in Richmond, Virginia with the initial base of approximately $101 million. This building which we acquired in December 2015 is the new headquarters McGuire Woods Law Firm. We recently closed on a $57.5 million mortgage on this property at a fixed rate of 5.2% and a 15 year term to maturity. The cash and cash yield is expected to be about 12% in the first year and the 15 year financing should generate very attractive internal rate of return. During the fourth quarter, we also acquired newly constructed Preferred Freezer industrial facility in Washington State for $152 million and obtained $110 million of 10 year mortgage financing at a fixed rate of 4%. Our cash on cash returns this year on this investment will be about 15% and we have very strong credit quality underlying leased on this state-of-the-art facility. Also during the fourth quarter, we committed to acquire and finance the construction of a new six-story 201,000 square foot Class A office property in Charlotte, North Carolina for an estimated maximum cost of approximately $62 million. This property will be the headquarters for AvidXchange, a fast-growing financial technology provider of accounts payable and payment automation. We’re going in cap rate on this 15 year lease is expected to be 8.3% and their annual rent escalation of approximately 2%. Overall in 2015, we’ve invested $550 million closing $483 million of investment will produce approximately $41.7 million of annual GAAP revenue in 2016. The average initial cap rate on these investments is 7.4% with a weighted average lease term of approximately 18 years and rent escalations that averaged 2% per year. Subsequent to quarter end, we closed or newly constructed 190,000 square foot industrial facility in Detroit, Michigan for $29.7 million with expected cash and estimated GAAP yield at 7.4%. The property is 100% leased for a 20 year term, Fiat Chrysler Automobiles. This adds another strong tenant to our portfolio in an industry that continues to perform well. We disposed that one property in the quarter, which bought our total disposition volumes for the year with $265.2 million this activity remains consistent with our portfolio management and capital recycling objectives, which include reducing our exposure to suburban office properties in certain markets monetizing multitenant properties upon stabilization of occupancy, selling vacant properties and transitioning the portfolios of more revenue is derived from long-term leases. The average cap rate on properties we disclosed of in 2015 was 6.3%, which proved to be accretive compared to our 2015 acquisition cap rate to 7.4%. We continue to see a steady volume of opportunities on the investment front, but we remain disciplined and cautious on pricing recognizing that our own shares offer an unusually compelling value at this point in the cycle, compared to many other investment choices. In July, we announced a share repurchase program of up to 10 million common shares inclusive of all outstanding prior authorization. During the fourth quarter approximately 900,000 shares were repurchased at an average price of $8.12 per share. To-date we have repurchased approximately 3.2 million shares at an average price of $8.05 per share, which include just under 1 million additional shares repurchased in 2016 at an average price of $7.48 per share. Our plan is to continue to execute on share repurchases in the context of our overall capital plan and to the extent market volatility offers a meaningful disconnect between our share price and net asset value per share as it does now. We still find build-to-suit transactions are most attractive property investment option, because there is less competition in this market and a corresponding higher probability for us to garner a yield premium. As a result, we could add to our 2017 acquisition pipeline, if we find the right opportunity. Looking at the year ahead, we expect to be a net seller of property in 2016, and we have done considerable work on refining our disposition program to achieve our objective, which includes the sale of some vacant in multi-tenant buildings, the monetization of our New York City ground parcels, and the sale of joint venture, and the sale of other single tenant property. Our current sale program includes up to 30 properties with expected proceeds ranging from $600 to $700 million, and representing an average cap rate range of 5.25%, 6.50%. These properties are encumbered by approximately $300 million of mortgage debt for the 2016 disposition program would net between approximately $300 and $400 million. Excluding transaction costs to be used to fund our investment commitments, retired debt, repurchase stock, or acquire property. We can give no assurances that we will meet these objective with the timeframe to complete the program. With regard to our releasing outlook, as a result of our proactive approach, our current 2016 expiration comprised just 3.6% of our revenue and totaled 2.1 million square feet. In addition, we have actively negotiations underway on approximately 1.5 million square feet, and expect to be able to report progress throughout the year. In general, our markets remain strong in terms of the balance of supply and demand, and we believe that our negotiating position on most lease renewals is stronger than it was a year ago. Given the ongoing volatility in the energy industry, I want to give some color on the Houston, Texas market as well as our exposure. General occupancies used in for both office and industrial properties is north of 86%, although additional supply is coming into the market in 2015, which could cause higher vacancy going forward. We presently own six office properties, two industrial properties, two infrastructure properties, and one specialty property, which generate approximately $21.5 million of annual cash revenue and have a weighted average lease term of approximately 13.6 years. In addition, we have a joint venture investment involving a build-to-suit private floor in Houston. We have no lease is expiring in 2016, and only one lease expiration in 2017 with Transocean, a drilling company, who exercised its early termination option in December. This 155,000 square foot space is currently being marketed for lease and while this could prove challenging, we do not expect any material impact given the size of our portfolio. Other than that we see no near-term risk to occupancy in our Houston portfolio. At year-end 2015, we had 4 million square feet of space, which is vacant or subject to leases that expire through 2016. We believe that by the end of 2016, we can address roughly 21% of expiring or vacant square footage through disposition and our guidance assumes 19% is addressed through leasing. We continue to manage down our shorter-term leases and extend our weighted average lease term, which is now approximately 12.6 years on a cash basis and 9.1 years after adjusting our New York City ground parcel lease term to their first purchase option. Looking past 2016, we believe our overall lease maturity schedule was well staggered, which provides us with cash flow stability. Each of these metrics is an important measure of cash flow stability and we will continue to focus on further improvement. Additionally, approximately 80% of our revenue is from leases with built-in escalation, which bodes well for the long-term cash flow growth. We had great success in 2015 taking advantage of opportunities to enhance our balance sheet. As a result, we were able to achieve significant savings from refinancing our bank lending facilities and extending the maturities over to term loan and revolving credit facility by two years. Our refinancing efforts have extended our weighted average debt maturity 7.2 years, lowered our weighted average borrowing costs by 50 basis points to 4%, and increased our unencumbered assets to now represent approximately 69% of net operating income. We continue to focus on maintaining maximum balance sheet flexibility to access whichever source of capital is most advantageous. Our 2016 mortgage maturities totaled $113 million and have a weighted-average interest rate of 5.8%, representing further opportunities, unencumbered assets, and lower our financing costs. We expect to lock-in long-term financing this year with the objective of potentially paying down a revolving credit facility, which presently has $177 million outstanding. Before turning the call over to Pat, I’d like to sum up where we expect to be by year-end. We expect sources of capital from sales and new long-term financing to total between $785 million and $885 million, which will be used to retire $375 million of mortgage debt, fund $265 million of investment commitments, and pay transaction costs with the balance available to repurchase stock invest elsewhere or retire bank debt. We expect portfolio occupancy to stay strong throughout 2016, and we’re comfortable with the portfolio percentage lease target for year end of approximately 96% to 97%. A successful execution of our current plan should reduce our leverage, generate a high level of company funds from operations and company funds from operations per share in relation to our dividend and share price and meaningfully upgrade our portfolio. Now, I’ll turn the call over to Pat, who will review our financial results in more detail.

Thanks, Will. Prior to discussing our quarterly and annual results, I just want to point out that a new FASB Rule went to effect in 2015, so property sales are no longer reclassified as discontinued operations on the income statement. So income statement fluctuations between periods generally relate to this new FASB requirement. During the quarter, we had gross revenues of $106.6 million comprised primarily of lease rents and tenant reimbursements. The decrease compared to the fourth quarter of 2014 of $1.2 million relates primarily to the sales of property and changes in occupancy and lease terms offset in part by acquisition and build-to-suit projects coming online. For the year, revenues increased to $430.8 million compared to $423.8 million in 2014. As Will mentioned earlier on the call, during the quarter, we generated company FFO of $69.6 million, or $0.29 per diluted common share, compared to $66.3 million, or $0.27 per diluted common share for the quarter ended December 31, 2014. For the year, we generated company FFO of $268 million, or $1.10 per diluted common share. Our company FFO 2016 guidance is in the range of $1 to $1.10 coming in lower than the 2015 company FFO due to the possible sale of our New York City land investments we are currently marketing. These investments generated $50.5 million of GAAP revenue and $16.7 million of cash revenue in 2015. The most significant assumptions for guidance include the timing and amount of property sales included in New York City land positions, coupled with the retirement of debt and common share purchases as described by Will in his commentary. We’re also projecting that we will complete the 10 million common share repurchase authorization during 2016. Keep in mind this guidance is forward-looking, excludes the impact of certain items, it is based on current expectations. For the quarter ended December 31, 2015, GAAP rents were in excess of cash rents by approximately $11.7 million. And for the year ended December 31, 2015, GAAP rents were in excess of cash rents by $45.9 million, $33.8 million of which relates to our New York City land investments. We believe the company can redeploy cash from the potential New York City land sale and assets at a higher initial cap rate, so dilution is not expected to be meaningful, and the company would shed $242 million in mortgage debt in connection with the sale. The New York City land investments currently generate approximately $5.3 million in after debt service cash flow. On page 17 of the supplement, we have included our estimates of both cash and GAAP rents for 2016 and 2017 for leases in place at December 31, 2015. This disclosure does not assume any tenant releasing of vacant space, tenant lease extensions on properties with scheduled lease expirations, property sales, or property acquisitions. Property operating cost decreased $3 million in the fourth quarter of 2015, primarily due to the sale of multi-tenanted properties. Interest expense decreased $2.4 million in the fourth quarter of 2015, primarily due to lowering borrowing costs on outstanding debt offset by an increase in capitalized interest. During the fourth quarter of 2015, we incurred impairment charges of $2.8 million relating to an impairment vacant on office property in Garland, Texas and vacant land in Clive, Iowa. The land was sold in the first quarter of 2016 and the Garland property will come off lease in May of 2016. G&A expenses came in at $29.3 million for 2015, and we are projecting that G&A for 2016 to be comparable at approximately $30 million. For the year ended December 31, 2015 our interest coverage was approximately 3.5 times and net debt to EBITDA was approximately 6.7 times, debt increase in the fourth quarter of 2015 by $191.1 million primarily due to $110 million financing in our Richland, Washington acquisition and line borrowing to finance build-to-suit funding. The fourth quarter acquisitions contributed $2.6 million in rental revenue to the timing of the acquisitions during the quarter, compared with $22.7 million of rental revenue that would be expected to be realized that the properties are owned for the entire year. In addition to build-to-suit funding provide no rental revenue until the property is closed. While we remain comfortable with our leverage level, we are targeting a net debt to EBITDA of approximately 6.5 times or less at year-end 2016. Now turning to the balance sheet, our balance sheet continues to be in good shape. We had a $103.9 million of cash at quarter end including cash classified as restricted. Restricted cash balances relate the money primarily held with lenders, as escrow deposits on mortgages. At year end, we had about 2.2 billion consolidated debt outstanding, we had a weighted-average interest rate of 4% of which approximately 92% of that fixed rate, including debt currently covered by interest rate swap agreement. We have entered into LIBOR swaps on both the $255 million outstanding on our term loan, which matures in 2021 and a $250 million outstanding on our term loan, which matures in 2020. The swaps are effective through January 2019 and February 2018 respectively. The current spread components on both term loans are 1.1%. In February 2016, the company closed on a 15 year mortgage financing on Gateway Plaza in Richmond, Virginia. The loan based interest had a fixed rate of 5.2% and the terms maturity matches the lease term of the McGuire Woods lease, which occupies approximately 68% of the property. As of December 31, 2015 our unencumbered asset base was approximately $3.3 billion or 69.2% of our NOI. We have approximately $113.4 million of mortgage balloon debt at an average interest rate of 5.8% coming due this year, which are expected to be retied in connection with dispositions, cash and dispositions and financing proceeds. Over the course of the year, we expect add a $175 million to $200 million of long term fixed rate debt to the balance sheet and retire shorter-term maturity, including the 2016 maturing mortgage debt and amounts outstanding under our revolving credit facility. During the quarter ended December 31, 2015 we paid approximately $2.4 million in leased cost and approximately $7.2 million in tenant improvements. For the full-year, we spend approximately $27.1 million in TIs and leasing costs. Our budget for 2016 for these items is approximately $25 million. So we expect to see an overall decrease of roughly $2 million. We have also included on Page 14 of the supplement, the funding projection for built-to-suit projects and forward commitment along with historical NOI recognized on build-to-suit projects that have come online. For the schedule, company has investment commitment this coming year of $265 million as of year-end 2015 of which approximately $48.3 million has already been funded in 2015. As it relate to build-to-suit project, since we fund the construction costs and we have to take out upon completion. We do not recognize interest income during the construction or any rental revenue until the project is complete and the tenant takes occupancy. Our basis in the project upon completion of the actual cash we spend in the funding, plus any capitalized cost you recognize in accordance with GAAP. We capitalized the interest using our overall borrowing rate. Now I’d like to turn the call back over to Will

Thanks, Pat. And operator, I have no further comments at this time. So we’re ready for you to conduct the question-and-answer portion of the call.

Thank you. We’ll now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Sheila McGrath from Evercore ISI.

Yes, good morning. Will, I was wondering if you could give us some insight on where you are in the sale of the ground lease process? What the guidance assumes in terms of timing? And what would make a JV more desirable outcome that you mentioned in your remarks?

We are marketing the positions as we speak and our guidance assumes that that we have a transaction that closes at June 30. So to the extent that, it takes longer to sell maybe that’s about a penny to FFO for every month that we hold onto the asset. So we’re exploring both the sale and a joint venture just to make sure that we have the most options to choose from. But that’s – the assumption is that there’s a transaction roughly in the middle of the year.

Okay. And is there – is the interest level and pricing does it compare favorably to what you purchased the ground lease positions at?

Yes. Our expectation is that, we’ll do well on price. Certainly, if you recall, we did the first three properties in one transaction and a fourth in a separate transaction a year later. And it’s possible that that fourth transaction would be sold separately and that we’ll sell them three together. But now our expectation is that, we’ll do well on the sale.

Okay. And then just quickly on buyback, Pat, I think you mentioned by year end you’ll be at net debt to EBITDA of 6.5. How much buyback is assumed in your guidance or how much is feasible given your – where you want to keep leverage?

Well, we have an authorization for 10, we bought back 3.2 roughly through today. So the model assumes the rest of that is acquired.

Okay. All right. Thank you.

Thank you. Our next question comes from Craig Mailman form KeyBanc.

Hey, guys, this is actually Laura in for Craig. Just a follow-up on the share buyback program. I guess, if you guys are assuming that and you completed in your guidance, what’s the potential for – what a bigger buyback program be in order once this one is complete?

It’s certainly possible or we’re focused on executing on the initial authorization, and we think the stock is very inexpensive and a great value. So management, which views themselves as long-term investors in the company view this honestly as a great opportunity to buy and stock at a very good level. So it’s certainly possible that after we work through the first authorization there would be more, but we’ll have to – the other year progresses.

Okay, great. Thanks. And then, I guess also on the Manhattan office ground portfolio sale, what percent – percentage of a disposition guidance would that represent?

Approximately half at the top end.

Okay, great. Thank you.

Thank you. Our next question comes from Anthony Paolone from JPMorgan.

Thanks. Good morning. Will, can you talk about just the competitive landscape for build-to-suits, given the volatility in the capital markets, and whether that competition has pulled back at all, or how those spreads have worked lately?

Sure, Tony. We definitely believe that there will be opportunity to look at 12 and 12 to 24 months forwards right now at higher cap rates. If you recall most of the things that we’ve closed recently were transactions we committed to a year or two ago when cap rates were attractive and spreads were wide. And as spreads compressed, we slowed down in terms of looking at our pipeline. But we do believe that the competition is less and we’re continuing to see some opportunities in the forward commitment space obviously competing with the share buyback given where the stock is right now is hard for build-to-suit to measure up, but we’re still seeing good transaction flow and for sure cap rates have inched up in that space.

Okay. I mean, can you put any brackets around where a forward yield may need to be to look more interesting than a share buyback?

Well, we committed to one transaction in fourth quarter, which is a 15-year lease at an 8.30% cap rate. And we had felt like, if that transaction was in the market a year ago, it probably would been a 100 basis points lower. So it’s not totally an apples-to-apples comparison growth comparing the acquisition of newly constructed properties with 15 and 20-year leases to buying and stocks. But in terms of this year, we’re not particularly interested in any acquisition activity. We find buyback much more attractive compared to purchasing property in the auction market. But at the same time, there’s a spread between where you can sell this year on a cap rate basis and where you might be able to redeploy capital a year or two out. So we are still looking at some forward commitments.

Okay. And can you remind me the South Carolina industrial asset is one of the lower yields in APAC. What’s the – whose tenant, what’s the story on that one?

Yes, there was a lower yield transaction that we committed to quite a while ago. It’s a 20-year industrial lease at a price per foot of $52, which we thought was appealing from the standpoint of basis, and it has 20 years with annual escalations, but that 5.9 cap rate did represent in our minds the low point of capitalization rates on new construction.

Okay. Thank you.

Thank you. Our next question comes from Jon Petersen from Jefferies.

Okay, thank you. I think previously you guys just talked about selling a portfolio suburban office building. Can you give us an update on what your plans are in terms of selling things besides the ground lease in Manhattan and what we should expect going into this year?

Yes, the numbers that we put out on this year’s disposition program of $600 to $700 million represents the end result of our process that we went through looking at a bigger pool of assets inside the company. And our view is that we can capture the most value by transacting on a one-off basis. So there are some properties that might have been looked at in the context of a portfolio sale in the past, where our plan this year is to execute on the individual transaction. It doesn’t mean that there may not be portfolio transactions that are considered as we go through the year, but the plan put out today contemplates one-off disposition activity.

And then I guess along those same lines, clearly there has been volatility in the market, some of the economic indicators within somewhat weak. So I’m curious, I know you guys have been active sellers over the last few quarters. Have you seen anything changed from what buyers are willing to buy, if you’ve seen pricing compressed at all over the last couple of months versus what you were seeing a couple of quarters ago?

We haven’t. We’ve done an extensive valuation work on the assets that were interested in selling consulting with brokers and getting broker estimates in value that in many cases in our mind seems extremely strong. So we still view this as being a good market to sell into.

Okay, thanks. That’s helpful. And then just one more on the – the new build-to-suit that you guys announced this quarter Charlotte 8.3% going in cash yield obviously very high relative to the other properties you have. I’m just kind of curious, I know you mentioned being more selective in terms of doing more built-to-suit project. But what’s kind of your minimum yield return threshold, given your current cost of capital?

We’re not looking at anything, generally sort of 7% to 8.5% our transactions that we’re looking at. But that doesn’t mean we would be committing to anything towards the low end, if we were, it would probably be only for very, very high grade credit with high-quality industrial property.

Okay. All right. That’s helpful. Thank you.

Our next question comes from John Guinee from Stifel.

Great. Okay, thank you. A couple of questions just purely out of curiosity you did two big loans what Richmond Virginia in the state of Washington. What’s the amortization schedule on those loans, i.e., what’s the principal balance of the debt when the loans – when the lease matures?

Well, in the case of preferred freezer, it’s a 10-year financing five years of interest-only payments and five years of 30-year amortization. So there’s a little bit of amortization at the tail end. And in the case of McGuire Wood, it’s 10 years of interest-only payment and the last five years or…

30 year.

On a 30-year schedule. So a little bit of amortization, but not a huge amount.

And so basically if a lender is lending on the Freezer, they still got 10 years left on the lease term. And then with McGuire Wood, they also have what five years left on the lease term?

No.

It’s exactly match funded to the McGuire Wood lease.

Okay. So what sort of basis does the lender have on McGuire Wood building at the end of the lease. Are they and is it 250 or 300 bucks of foot still?

Well, they’re – where it is amortized unlike 55 million in the 15 years.

Yes, it’s a $57.5 million loan with a 30-year schedule on the backend. So it’s probably like mid-50, 55, 54.

Okay, okay.

And then on the other one, John, on Richland, Washington the balloon is $99.5 million.

Gotcha, okay. The lenders are back, wow, okay. And then the second question, if I’m doing the math right based on Sheila’s question, the falloff quarter-over-quarter with the sales of just the ground lease assets is about $0.03 a share, is that the right way to look at it?

Per quarter that’s about right. It might be $0.035 on a quarterly basis, John.

Okay.

John, in 2015, the poor land parcels generated about $0.16 of FFO.

Okay. So essentially you’re talking about the first-half of the year maybe $1.10 to $1.15 run rate in the last-half of the year maybe $0.95 to $0.99 run rate for annualized FFO?

Well, we don’t give guidance on a quarterly basis, but obviously…

We’re asking you to?

I understand. But we walked through the FFO impact from the sales. And I think that we would encourage people to focus on the transaction from the standpoint of really looking at or after debt service cash flow, which is as Pat said $5.3 million on a position where we have $242 million of leverage. So we’re sure we can reinvest the money in a way that provides more current period accretion. And the key to deleveraging the balance sheet this year beyond the 6.5 times net debt to EBITDA that Pat mentioned would be a result of selling the land position.

Okay. And then the – if I’m looking at page 38 and all of your mortgage and notes payable, are we done with assets going back to the, or asset sales via conveyance back to the lender or there are more on this list that would be asset sale versus conveyance back to the lender?

There are still several that may be conveyed back to lenders, John, as we go forward.

John, on page 38, the footnotes O and footnote B are two loans that are currently in default, where obviously those are definitely candidates to get back to lenders.

Anymore that we expect to have footnotes O and the footnotes B in the future?

I mean, it’s always possible, John. There’s a property on Bremerton, Washington that I can think of that potentially could fall into that category.

Great. Okay. Thanks a lot. Thank you.

Thank you. Our next question comes from William Siegel from Development Associates, Inc.

Thank you, gentlemen. I’ve been an investor in your company for many years and it’s certainly an unusual time. And well, I appreciate you getting to what I think is the elephant in the room very quickly in your talk and then your words aren’t usually compelling the value of our own common stock is right now, vis-à-vis other ways you could deploy your capital. And I think you did a good job of covering it and some of the analyst that’s your – your answers on perhaps buying more than 10 million this year and that would be up for debate with your Board unusual times. Do you retire the stock or is a treasury stock?

It’s retired.

Okay, all right. Well, thank you very much for those answers. Number two, you – thanks for touching on Houston, any other areas that might be impacted by the fall in oil and hydrocarbons?

No, I mean, we discussed the area of the concern which is used and we can’t really see any other place where we are. I think we’re pretty well diversified by industry type and market. So we feel because of that diversification we have a level of safety.

Okay. And I noticed that was surprised when you went into Detroit and then here again that’s just part of this opportunistic diversification that you do and you had no hesitation about Detroit or the automobile industry et cetera?

No, in fact, automotive has been very, very strong and suburban Detroit has been doing extremely well. So there are areas in and around Detroit, where we think that automotive can be a good play.

[Multiple Speakers] First-in report on that the other night and I’m curious where is the plant – the Detroit property? In other words it’s in the outskirts or…?

No, it’s a few miles from their headquarters.

Very good. Gentlemen, thank you very much.

Thank you.

[Operator instructions] Our next question is a follow-up from Sheila McGrath with Evercore.

Hi, yes. I was wondering if you could tell us how the capital expenditures are looking in 2016 versus 2015, not on build-to-suit, but rather on leasing costs?

Yes, we came in at like 27.1 in 2015 to TIs and leasing costs, and we projected in 2016, we have about 25.

Okay, great. And then, Will, usually you pump the dividend later in the year. I’m just wondering what often when you announced third-quarter earnings, I’m just wondering how you view a dividend bump versus the stock buyback at this point?

Well, time will tell how things are looking when we get to that point later in the year. Right now we continue to view the buyback as the better use of capital.

Okay, great. Thank you.

Thank you. Our next question is a follow-up from John Guinee with Stifel.

I had the exact same question Sheila did. Thank you.

At this time we have no further questions. I will turn the call back over to our speakers for closing comments.

Great. Thanks to all of you again for joining us this morning. We think we’re going to have a terrific year and we’re looking forward to reporting our results here every quarter. Thanks again.

Thank you. This does conclude the teleconference. You may now disconnect your lines at this time. Thank you for your participation.