LXP Industrial Trust (LXP) Q1 2016 Earnings Report, Transcript and Summary

Greetings and welcome to the Lexington Realty Trust First Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Heather Gentry, Investor Relations for Lexington Realty Trust. Thank you. You may now begin.

Hello, and welcome to the Lexington Realty Trust First Quarter 2016 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 our website at www.LXP.com in the Investors section. Additionally, we are hosting a live webcast of today’s call, which you can access in the same section. 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. Factors and risks that could cause actual results to differ materially from those expressed or implied by forward-looking statements are detailed in today’s press release and from time to time, in Lexington’s filings with the SEC and include the successful confirmation of any lease, acquisition, build-to-suit, financing, disposition or other transaction, or the final term of any such transaction. Except as required by law, Lexington does not undertake a duty to update any forward-looking statements. Operating performance measures of an individual investment are not presented or intended to be viewed as liquidity or performance measures that present a numerical measure of Lexington’s historical or future financial performance, financial position or cash flow. Joining me today to discuss Lexington first quarter 2016, results are Will Eglin, Chief Executive Officer; Pat Carroll, Chief Financial Officer, and other executive members of management. With that, I will turn the call over to Will.

Thanks, Heather. Welcome everyone, and thank you for joining the call today. I’d like to start by discussing our operating results and notable highlights for the first quarter of 2016. We had a great quarter in which we completed approximately $65 million of non-core asset sales and raised cash renewal rent 6.5% on strong leasing volume of 1.7 million square feet. Company funds from operations were $0.30 per diluted share for the quarter, which represents 3.4% increase over fourth quarter 2015. The increase was primarily due to higher revenues associated with acquisitions, principally the Preferred Freezer and McGuire Woods build-to-suit projects completed in the fourth quarter of 2015 and the Fiat Chrysler Automobile acquisition in 2016, as well as operating cost savings. We just announced that we sold two additional assets, subsequent to the end of the first quarter, which includes the $37.5 million sale of one of our New York City land investment, at a 4.1% cap rate. Given the strong first quarter and our expectations for the reminder of the year, we are tightening our 2016 Company FFO guidance to a range of $1.03 to $1.08 per diluted share from a $1 to $1.10 per diluted share. Our new guidance still assumes we sell the remaining land investments as of June 30, 2016 as a sub 4.75 quarter cap rate. Turning to investments, in January, we closed on the acquisition of a newly constructed 190,000 square foot industrial facility in Detroit, Michigan for $29.7 million. Initial cash and GAAP yields for the asset are 7.4% and the property is 100% leased for a 20-year term to Fiat Chrysler Automobiles. During the quarter, we invested approximately $34 million in four ongoing build-to-suit projects. Our expectations are that three of these projects will be completed in 2016 and one will be completed in the first quarter of 2017. These assets will have a weighted average lease term of almost 19 years and the 3 wholly owned properties are estimated to add annual rental revenue to the portfolio of approximately $26 million once completed. After the quarter ended, we signed an agreement to fund the construction of 165,000 square-foot industrials facility in Opelika, Alabama for a maximum commitment of $37 million at an initial cash cap rate of 7.05%. The property will be net leased for a 25-year term with 2% annual rent bumps to go Golden State Foods, one of the largest food service providers to quick service restaurants around the country. We expect the property to be completed in May of 2017. Investment opportunities remain plentiful, but there continues to be a lot of capital chasing transactions, especially in the purchase market. The build-to-suit market, which remains our most appealing investment choice due to the yield premium we can achieve versus other markets, looks more attractive than it did a year ago, with going in cap rate in some cases having moved 100 basis points in our favor. We’re interested in adding to our 2017 pipeline and believe there will be attractive opportunities in the build-to-suit area going forward. That said, we’ll continue to be very selective and believe that patients and discipline are likely to be rewarded. On our last call, we spent some time discussing our 10 million common share repurchase program. Given where our share price was at the time, we felt that buying back shares offered a compelling value, compared to other investment choices. With the upward movement in our stock price, we have not been active since early March in repurchasing shares. We may execute on share repurchases to the extent market volatility creates a more significant discount between our share price and net asset value per share, or our projected forward cash flow. For the quarter, we were able to repurchase approximately 1.2 million shares at an average price of $7.56 per share. And since we authorized the program in July of 2015, we have repurchased a total of 3.4 million shares at an average price of $8.04 per share. Our disposition plan is fully underway. During the quarter, we sold three wholly-owned properties for gross proceeds of approximately $58.2 million, at a weighted average capitalization rate of 6.5%. This included a car dealership in suburban Houston for $17.6 million and two suburban office assets in Florida and Pennsylvania for approximately $40.6 million. Consistent with our capital recycling objectives, these sales allowed us to further reduce our short-term leased office, multitenant and specialty retail exposure. The Palm Beach Gardens sale in particular represented a favorable outcome, as we were able to fully stabilize the property prior to sale and sell it for approximately $30 million. Also during the quarter, we disposed of our interest in a non-consolidated office investment located in Russellville, Arkansas, receiving $6.7 million in connection with the sale, as well as a vacant land parcel sold for $400,000. Net gains generated from the sales totaled $22.3 million. As I mentioned previously, we just sold our West 45th Street land investment for gross proceeds of $37.5 million at a 4.1% cap rate, which compares favorably to a $30.4 million purchase price. Additionally, we sold a 100,000 square-foot office building tenanted by Apria Healthcare in Lake Forest, California for $19 million at a 7.9% cap rate. Year-to-date, disposition gross proceeds total $121.8 million, which included $115.1 million of wholly-owned assets sold at an average cap rate of 5.9%. Our expectation is still to be a net seller in 2016, selling an aggregate total of approximately 600 million to 700 million of assets at an average cap rate, of 5.75% quarter percent to 6.5%. We believe we’re making good progress with our sales program, despite some changes in the credit markets, which we prepared for when creating our disposition plan. Net sales proceeds are expected to range between $300 million to $400 million, excluding transaction costs and will be used to fund our investment commitments, retire debt, acquire properties, or repurchase stock. Moving on to leasing, we were very busy this quarter, executing three new leases and six lease extensions of approximately 1.7 million square feet to end the quarter 96.7% leased. Leasing spreads were positive for the quarter, up 6.5% on a cash basis and 5.7% on a gap basis, as a result of strong rents achieved on the majority of our lease renewals. Lease extensions comprised nearly all of this leasing volume with several significant leases signed that were scheduled to expire in 2016 and 2017. This included a five-year lease extension with Kraft Heinz Foods Company for approximately 345,000 square feet in Winchester, Virginia; a 10-year lease extension with Siemens Corporation in Milford, Ohio for approximately 221,000 square feet; and a 10-year lease extension with Sears in Memphis, Tennessee for 780,000 square feet. Given healthy leasing activity in the first quarter, we have been able to address the majority of our forecasted leasing activity in our initial guidance, and we believe that leasing this year will exceed our prior expectations. As discussed on previous calls, we have approximately 745,000 square feet of space expiring in July of this year, at our Temperance, Michigan industrial property, which is currently tenanted by Michelin North America. This property has been actively marketed for lease and has generated interest from prospects looking for both partial and full building use. As of March 31, 2016, 2016 expirations totaled 1.7 million square feet, only about 2.6% of our GAAP revenue with vacant space totaling 1.5 million square feet. We are hopeful that by the end of 2016, we can address roughly 38% of expiring or vacant square footage through dispositions and leasing. We have active lease negotiations underway on 2 million square feet and are already in the process of negotiating early renewals for half a dozen leases expiring in 2017. As part of our investment strategy, we continue to manage down our shorter term leases and extend our weighted average lease term, which is approximately 12.7 years on a cash basis and 9.2 years after adjusting our New York City ground parcel’s lease term for the first purchase option. Our overall lease maturity schedule remains well staggered, providing us cash flow stability. And approximately 80% of our revenue is from leases with built in escalations which is a positive for long-term cash flow growth. Balance sheet flexibility remains a top priority, so that we may access whichever source of capital is most effective when we need it. As of March 31, 2016, our 2016 mortgage maturities total approximately $105 million and have a weighted average interest rate of 5.8%. We have a large encumbered asset base which represents 67% of net operating income and we continually look for ways to achieve cost savings through refinancing and extending out our debt maturities to better match our lease exploration. We expect lock in some long-term secured financing in 2016 with the goal of paying down our revolving credit facility, which we paid down by $30 million in the first quarter to $147 million. Before turning the call over to Pat, I’d like to summarize where we are at this point in the year and where we expect to be at year-end. To-date, we have sold approximately $122 million of assets, retired approximately $52 million of secured debt and paid down $33 million of corporate level debt. We still expect our remaining New York City land investments to be sold by the end of June subject to a $213 million mortgage assumption. Sources of capital from sales and new long-term secured financing through year-end are expected to be approximately $720 million to $820 million which we anticipate will be used to retire $325 million of mortgage debt, fund our remaining $215 million of 2016 investment commitments and pay transaction costs with the balance available to pay down our credit line, repurchase stock or invest in build-to-suit projects and other long-term lease investment opportunities. Portfolio occupancy is expected to stay healthy throughout 2016. If successfully executed, our current plan is expected to reduce our leverage to a range of 6 to 6.5 times net debt to EBITDA, generate meaningful Company FFO and Company FFO per share in relation to our dividend and share price, and further upgrade the quality of our portfolio. Now, I’ll turn the call over to Pat, who will review our financial results in more detail.

Thanks, Will. Hello everyone. Before I get started, just a reminder 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 that. Gross revenues for the quarter ended March 31, 2016 totaled $111.6 million, comprised primarily of lease rent and tenant reimbursement, which represented a 3% increased compared to gross revenues of $108.4 million in the first quarter of 2015. The increase relates primarily to revenue generated from our recent property acquisitions and new leases signed offset by 2015 and 2016 property sales and lease expirations. For the quarter ended March 31, 2016, we generated Company FFO of $72.1 million or $0.30 per diluted common share, compared to $64.5 million or $0.26 per diluted common share for the quarter ended March 31, 2016. Company FFO 2016 guidance was heightened to $1.03 to $1.08 per diluted share from $1 to $1.10 per diluted share, given our strong first quarter with better visibility on the remainder of the year. This guidance assumes that the three [ph] remaining New York City land investments are sold as of June 30, 2016 at a sub 4.75 cap rate. It has been modified to reflect that we may not complete the 10 million common share repurchase authorization during 2016. Keep in mind, this guidance is forward-looking, excludes the impact of certain items, and it’s based on current expectations. For the quarter ended March 31, 2016, GAAP rents were in excess of cash rents by approximately $13 [ph] million, which relates primarily to our New York City land investment. On page 17 of the supplement, we have included our estimates of both cash and GAAP rents for the remainder of 2016 and ‘17 for leases in place at March 31, 2016. This disclosure does not assume any tenant re-leasing of vacant space, tenant lease extensions on properties with scheduled lease expirations, property sales, or property acquisitions. For the quarter ended March 31, 2016, same-store net operating income was $75.7 million, a decrease of approximately 6.2% compared to the first quarter of 2015. We believe this decrease is misleading as it relates almost entirely to leases on property in which rent was paid semi-annually during the first and third quarter, resulting in uneven amounts in 2015. As I’ve talked about in previous calls, these leases were the reason we had large shift historically in GAAP and cash rents by quarter. For 2016, one of these properties has a new tenant who is paying rent monthly and the second property is currently vacant. If we adjust the 2015 semi-annual rent payments to reflect them as paid monthly, same-store NOI would have increased 0.4%. We believe this is a more appropriate to view same-store NOI and therefore want to show, both presentations on page 18 of the supplement. Property operating cost decreased $4.5 million in the first quarter of 2016, compared to the first quarter of 2015, primarily due to the sale of some multi-tenanted properties and a reduction in deal close. G&A expenses were approximately $7.8 million for the first quarter of 2016. Generally, first quarter G&A tends to run a little higher due to the payment of annual rent earned by a Board of Trusty and other onetime annual cost. We are still projecting the G&A for 2016 will be comparable to 2015 at approximately $30 million. Moving on to discuss our balance sheet, we had a $123.7 million of cash at quarter end including cash classified as restricted. Restricted cash balances relate to money held with agents to complete 1031 exchange transaction and with lenders at escrow deposits on mortgages. At the end of the first quarter, we had $2.2 billion consolidated debt outstanding, we had a weighted-average interest rate of 4.1% of which approximately 93% is at fixed rate, including debt currently covered by interest rate swap agreement. In February 2016, we 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 it’s interest only for 10 years. The terms maturity matches the lease term of the tenant McGuire Woods. For the quarter ended March 31, 2016, our interest coverage was approximately 3.6 times and net debt to EBITDA was approximately 6.5 times. We are targeting a net debt to EBITDA of approximately 6 to 6.5 times at the end of 2016, the bias [ph] to shrinking our leverage further. Debt maturities remain well laddered. [Ph] As of March 31st 2016 we had approximately $105.4 million balloon, mortgage payments with an average interest rate of 5.8% coming due this year, which are expected to be retired in connection with disposition -- cash and disposition and financing process. As of March 31, 2016, our unencumbered asset base was approximately $3.2 billion, representing 67% of our NOI. We are still expecting to add a $175 million to $200 million of long-term fixed rate debt to the balance sheet and retire shorter term maturity over the course of the year, including the 2016 maturing mortgage debt and amounts outstanding under our revolving credit facility. During the quarter ended March 31, 2016, we paid approximately $1.2 million in leased cost and approximately $720,000 in tenant improvements. Our TI and leasing costs budget for the remainder of 2016 is approximately $25 million. In closing, we had investment commitments of about $192 million as of March 31, 2016, more details of can be found on page 14 of the supplement on the funding projections for build-to-suit projects along with our historical NOI recognized on build-to-suit projects that have come on line. Now, I’d like to turn the call back over to Will.

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

[Operator Instruction] Our first question comes from the line of Sheila McGrath from Evercore ISI. Please go ahead.

I was wondering if you could provide some clarity on FFO or FAD impacts from the ground leases and also, the impact on cash flow and leverage.

Sure. The ground lease investments generated about $0.04 a share per quarter in FFO, but $0.26 of FAD. So, if you think about the sales, you annualize that FAD number is about $5.9 million. So, if we take the proceeds and reinvest in real estate, on unlevered basis, we’ll have more FAD than we do now and all the leverage from the land investments as we go on. So, we will have shared $242 million, without any negative impact on our FAD. So, in our minds, even though we would end up in the back half of the year with lower FFO that we do now, our FAD will continue to be strong and we’ll have shrunk our leverage considerably.

And can you help us understand the timing? So, the first ground lease sale just recently closed and what are your expectations for the balance, closing?

We’re still forecasting of a mid-year sale of the other three parcels. They are not under contract yet, but we’re making good progress.

Okay, two other quick questions. On the sale of the first parcel, it looks like you made money on that. Could you just discuss, may be the IRR there or how we should think about -- how that ended up?

Yes. Recall that it was a pretty highly leveraged investment, it was not a large equity investment in our part but our leveraged IRR will be in the mid 30s, on it. So, it worked quite well. The going in cap rate that we bought that asset for was 4.93 and we had a rent bump. So, the fact that we could sell it at 4.1 cap rate is a good outcome for us.

And last question, just on the dividend versus buyback, how are you thinking; will you refrain from a bump in the dividend or how are you thinking about that?

I don’t think they have to mutually exclusive; in fact, having executed partly on the buyback, makes it more likely that we’ll be able to return to dividend growth sooner. In June, it will be two years since we increased the dividend. We did grow the dividend pretty rapidly before that period of time, so arguably shareholders have had some front loaded yield during this two-year period. But everything we’ve done in the two years with respect to sales, investing, what we’ve done with the balance sheet has been designed to put the Company back into position, where it could increase its dividend annually with a high degree of certainty. So, we are inching close to that date, and we look forward to being able to return to that policy.

Thank you. Our next question comes from the line of Todd Stender from Wells Fargo. Please go ahead.

Just on the remaining land leases teed up for sale, just as a reminder, are there mortgages on those?

Yes, Todd, they have about $211 million of mortgage loan.

And in general, is that more difficult for a buyer to assume a mortgage loan, just because it’s ground lease versus a traditional building sale?

No, I don’t think the type of asset really impacted the loan.

And just as a reminder, have you guys looked at buying back shares? Is it a return that you’re looking at or is it simple as saying your shares trade below NAV and it’s just a prudent use of capital?

It’s a combination of the two. In our mind, there is a cost of shrinking the capitalization of the Company, so the discount to NAV should be very wide. And we view our share buyback program to be used during times when the market is really trading our shares poorly and there is an opportunity for us to retire stock inside at really cheap prices. So, we still have an authorization out there, and we’re very optimistic about the direction of the share price. But to the extent we find ourselves in a market that’s very weak again, we won’t hastate to buy in stock inside.

Thank you. Our next question comes from the line of Craig Mailman from KeyBanc Capital Markets. Please go ahead.

Hey guys, just a follow on the buyback question. You guys were able to buy back 1 million shares, a pretty wide discount on that. What was the constraint on buying back even more given that discount relative to where you put capital use in the industrial asset in Detroit at 7.4?

Well, we were blacked out for earning for a good portion of first quarter and following the 10-K we were able to buy some stock, but the stock has been on an upward pair [ph] since then and we haven’t been chasing it. So, there has been many places for us to make an arbitrage in our business, one is selling assets and buying in stock, but we can also make an arb selling assets into the auction market this year and selectively committing to some build-to-suit opportunities as well.

Okay. And then just one quick one on Detroit; is that CPI based rates?

No, that’s a flat rent and it was the build-to-suit that we committed to probably a year in advance of when we closed this, Craig. So, it’s not like the acquisition just showed up in December last year when our stock was very cheap, we’ve actually have been committed to at a previous time.

And then could you just talk your comment that the build-to-suit market’s maybe moved 100 basis points in your favor? Can you just expand on that; are there any specific markets where it’s happening; is industrial only or other pockets?

No, in the last six months, we’ve committed to two new transactions and in each case, we got -- going in cap rate was 90 basis points to 100 basis points higher than it would have been a year ago. So, it’s just a handful of cases. So, we’ll see where the market goes but that part of our business has become better for us compared to a year ago.

Was there anything special about those cases given industrial cap rates are more broadly have in some markets compressed further or kind of stayed flat, anything going on there?

One was an office building and one was an industrial. I think it’s -- the forward commitment market anytime there’s concern about the nature of credit markets, the direction of interest rate et cetera; pricing moves in our favor just because it’s risky for builders not to try to lock in their profits or early. So, we’ve seen a little bit of that; it’s good for our business and hopefully we’ll see more opportunity in that list.

And then just lastly, can you talk about the profile of the buyer on the [Indiscernible].

Not specifically, but that type of investment tends to be popular with pension funds and family office type investors.

Thank you. Our next question comes from the line of John Guinee from Stifel. Please go ahead.

I’m not sure if I’m the right person but I’ll try. First, why the 8.30 a.m...

We just wanted to get the call done before the market opens.

Is this going to be the new format?

Yes.

Alright, you guys get up earlier, okay. And what was lease term say of that 2.9 million, which asset was that?

It’s on a combination of assets, John. When a tenant exercises a lease termination, [ph] many times they exercise it but they still have lease term left meaning they have to pay the money maybe a year or 18 months in advance. So, in the gap, you have to spread it out over the life of the lease, or the remaining lease term. So, it’s a handful of them and it’s -- the ones that we talked about, generally the fourth quarter of last year that we disclosed for the lease determination, maybe. So, it is like five or six tenants.

We apologize for not remembering those tenants from the last year’s call. Can you run through, just looking at pages 28 and maybe 32, run through your major tenants and what you think is going to happen in terms of renewal extension, move-outs et cetera? The office is on page 28 and the industrial is on page 31.

Yes. What we’ve said for 2016 is that there will not be leasing activity. There are several properties that we think will be in the disposition program that’s in office. We mentioned Michelin in industrial as vacancy in July and the other industrial property at the end of this year we think will want to extend.

How about 2017, any clarity there?

Well, it’s a little premature. Typically we would go lease-by-lease later in the year, but a half dozen of those leases are in negotiation for renewal presently.

Good. Okay, I have one more question. I can’t remember what it is, but thank you.

Thank you. Our next question comes from the line of Gene Nusinzon from JP Morgan. Please go ahead.

Thank you. Can you just give a rundown of cap rates and opportunities in the market? We are seeing some compression in the net least base, some of your competitors.

Well, in the forward market, which is our focus, we think we have seen a little bit of widening compared to a year ago. I’ll say that on the sales that we have been executing, we have done very well so far, candidly. And if we can get the parcels of land sold in Manhattan that will mean two-thirds of our program will be basically done in the first half of the year, and we will have executed at prices that are better than we thought when we gave initial guidance. We have seen interest rates come back down and spreads start to tighten in the debt area, so that typically given the net lease properties are our long-term lease assets that are very much like bonds that tends to mean that cap rates can compress some.

And focusing on the expense line item, as you sell some presumably vacant buildings, what can we expect a run rate coming towards the end of the year?

The expenses on the industrial facilities vacant, honestly it’s not a lot; it’s multi-tenanted. But I think from a standpoint of tenant reimbursement left the operating expenses, so we look at as a net number, for 2016 the number could be $18 million or $19 million on a net basis.

Okay. And are there any credit issues in the portfolio that you can bring to our attention?

All our rents have been selected, we do have one tenant in one property that’s about $165,000 a month in rent who during the quarter we did restructure their payments from payments in advance to payment in reared; they have paid to-date. But that’s the only one, I’d say the portfolio from a credit standpoint that we are looking at.

Thanks. Final question, are there any step up in the leases that we shouldn’t anticipate this year, maybe going into next or step down for that matter?

Most of our -- about 80% [ph] of our leases now have some level of step up. They generally range from 1.5 to 2. So, I think from a broad standpoint, you can look at it that way. I don’t think there are any significant step downs this year.

Just contractual rent bump, okay.

Yes, or flat.

Thank you. Our next question comes from the line of Jamie Feldman from Bank of America. Please go ahead.

I think you said you feel pretty good about the investment pipeline for the build-to-suit. Can talk more about the size of that pipeline? And then, as you are thinking of our projects, just how do you think about the geographic diversification for the portfolio going forward? I know the one you signed this quarter is in Alabama, just how should we think about that?

Well, right now, we have about $100 million for delivery to finish funding next year, which is not sizable, that’s in addition to $250 million or so that we’re committed to fund in the last nine months this year. So, the pipeline is not growing hugely but it is growing selectively where we think we can find high quality assets. In the case of the Alabama facility, it’s rare to find a 25-year lease with such a sizable credit behind the lease and with annual escalation. So, this huge value in the 25-year lease in that case, and we will continue to build out our build-to-suit business, will probably become more diversified over time from a location standpoint but that will be driven by where corporations want to build and how long the lease they are willing to commit to.

So, I think the current -- investible pipeline, I know you are not going to ramp it so much, but when you look at the landscape, how vacant this business be or what sort of annual start level you think you can maintain?

Well that will be dependent on our own liquidity and balance sheet capacity and cost of capital. But we did $500 million worth of business last year and it’s not a stretch; it’ a very large market and there is a lots of opportunity for us.

Okay. And then just going back to Will’s comment or Pat’s comments on the guidance, so I mean it sounded like you had good first quarter, maybe some of the sales are weighing on the back half. Could you just kind of walk through the moving pieces that get you to pretty much keep your midpoint in line with where you were?

Yes, I mean the real question, Jamie, will be what to review with cash in the back half of the year, because the disposition program combined with a little bit of long-term financing likely results in cash increasing in the second half of the year. And we’ve assumed that cash is not invested in our guidance. So, if we can find good opportunities with cash to work, whether that’s in further buyback or other investments, that will be swing factor with respect to how the second half of the year turns out.

Okay. So, where is your guidance now assumed for like year-end cash balance or excess cash?

Over $200 million.

[Operator Instruction] Our next question comes from the line John Guinee from Stifel. Please go ahead.

How does this 30, 27, 25, 24 sound good for a quarterly, first quarter 30, second quarter 27, third quarter 25, fourth quarter 24?

We don’t give quarterly guidance, John.

Well, you could if you wanted to.

We could if wanted to, but you’re I think very capable of following the Company based on our discloser and our comments.

Well, it looks like you have some steady deliveries of your build-to-suit in 2Q, 4Q, 1Q 2017. So, it looks like there is just a momentary low before access [ph] gets; is that in early or late 4Q stabilization?

November…

November, okay. And then essentially story here on the arb is you’re going to sell at a 4.75 cash cap rate; is that roughly a ‘14 GAAP cap rate, to buy at about an eight?

That’s about right. And John, keep your eye on FAD, because our FFO has been obviously inflated by the GAAP revenue on the ground lease investments. So, you’re right to point out that FFO will be lower in the back half of this year compared to now but the underlying cash flows of the Company should be solid.

Ladies and gentleman, we have no further questions in queue at this time. I would like to turn the floor back over to management for closing comments.

Thanks again, everyone. And if you have any questions, please don’t hesitate to reach out to us.