Prologis, Inc. (PLD) Q1 2012 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Duke Realty Quarterly Earnings Conference Call. At this time, all participants are in a listen-only mode and then later we’ll have a quarter-and-answer session. (Operator Instructions) And as a reminder, the conference is being recorded. I'd now like to turn the conference over to our host Mr. Ron Hubbard. Please go ahead sir. Ron Hubbard – Investor Relations: Thank you. Good afternoon, everyone, and welcome to our first quarter earnings call. Joining me today are Denny Oklak, Chairman and Chief Executive Officer; Christie Kelly, Executive Vice President and Chief Financial Officer; and Mark Denien, Chief Accounting Officer. Before we make our prepared remarks, let me remind you that statements we make today are subject to certain risks and uncertainties that could cause actual results to differ materially from expectations. For more information about those risk factors, we would refer you to our December 31, 2011 10-K that we have on file with the SEC. Now, for our prepared statement, I’ll turn it over to Denny Oklak. Denny Oklak – Chairman and Chief Executive Officer: Thank you, Ron. Good afternoon, everyone. Today, I will highlight some of our key accomplishments during the quarter in both our operational and asset strategies. Christie will then address our first quarter financial performance and progress on our capital strategy. Then I’ll finish up with our prepared remarks with some comments about our outlook for the remainder of 2012. By all accounts, the first quarter was a great success for Duke Reality and I am very proud of our team for their accomplishments. We signed over 8.7 million square feet of leases in the first quarter, the highest quarterly total in 5 years. We have positive net absorption during the quarter of nearly 3.7 million square feet, which rivals our annual net absorption for both 2010 and 2011. We increased our overall occupancy by 144 basis points to 92.11%, which believe it or not, is our highest level of overall occupancy since the first quarter of 1997. We started development of a $121 million of 100% long-term lease industrial and medical office projects, which will have an average initial stabilize yield of 7.05%. We completed $157 million and $65 million of strategic acquisitions and dispositions respectively. We made continued progress on our asset repositioning strategy. And finally, we issued a $147 million of new common equity and redeemed a $168 million of our preferred shares reducing our overall leverage in accordance with our capital strategy. From the macro perspective, we’ve been pleasantly surprised with the momentum in economic and consumer and business sentiment, which appears to be improving the confidence in our customers to execute new, renewal, or expansion lease decisions as well as execute construction and development transactions. Absorption and occupancies continued to trend up in bulk industrial and medical office, but suburban office continues to tread water with the recovery still a number of quarters in the distance. We are hopeful that the steady economic up tick will continue. They will give us still elevated macroeconomic and geopolitical risk in the Europe and the Middle East. And given the looming political showdown here in the U.S. this fall, we know there are still continued risks to our business. Fortunately, the execution of our asset and capital strategies the last few years have placed Duke Realty in a strong position for future growth as well as being better able to weather volatility from occasional macroeconomic shocks. We also renewed 84% of our leases during the quarter and attained an overall rental rate growth on these renewals of 1.8%. We achieved positive same property NOI for the three and 12 months ended March 31, a 4.7% and 3.6% respectively. Other than retail all product type….

Mr. Hubbard, this is the operator, we’re not hearing you speak at this time sir. There you go. Okay, we can hear you now. Denny Oklak – Chairman and Chief Executive Officer: The national industrial market continues to slow improvement with demand drivers improving on all fronts. Early indication show first quarter vacancy levels decline to another 10 basis points or so down 20% to 30%, 30 basis points in some of our key markets such as Atlanta and Indianapolis. Rental rate growth is relatively flat nationwide, but some pricing power has returned in select markets. Another recent data point is that the Georgia Port Authority hit an all time cargo tonnage record in March growing at significant 8% over the same period a year ago, which we expect to bode well for our dominant position in Savannah. With respect to leasing, in our in-service portfolio we completed over 2.8 million square feet of new industrial leases and approximately 3 million square feet of renewal leases, including new leases, on development build-to- suits, our industrial leases totaled over 7.4 million square feet, a record industrial leasing quarter for the company. This leasing activity increased our overall industrial occupancy to 93.6% at March 31. Some of our larger lease deals included the signing of a new deal to back sort of 1.1 million square foot distribution center in Atlanta, that was vacated at year-end. The tenant is Carter’s, a major children’s clothing retailer who used the facility for their growing Internet sales distribution. This was a great transaction for us as the space was only vacant for three months. The rental rate on this deal was very competitive, but we get nice rent increases and our tenant retrofit cost to backfill this space for 11 years was very low at under $2 per square foot. We also signed leases totaling almost 1.4 million square feet on two build-to-suit development project, which I’ll discuss shortly. Finally, we executed an expansion in renewal industrial lease totaling 321,000 square feet with Ashland Chemical, a Fortune 500 company at our World Park complex in Cincinnati. The office leasing environment continues to be challenging as expected. Occupancy levels continue to be in the 85% to 86% range as they have been for the last year. Total office leasing for the quarter was 1.1 million square feet with average renewal rents growing just 0.5%. We did sign a sizable expansion and renewal in Washington D.C. with a major tenant Citor in our building in the Westfields. On the medical office front, leasing activity and development opportunities continue to gain traction. Our medical office portfolio occupancy increased by 115 basis points from year end to 90.1% and we started one new development projects, which will – I’ll cover in a minute. Healthcare providers appear to be gaining more confidence in their growth prospects and are pulling the trigger on expansion plans. We have a solid backlog of leasing and development prospects for the remainder of 2012. We also made good progress on our asset strategy during the quarter. We acquired $157 million of properties. These acquisitions included a two building, 1 million square foot bulk industrial portfolio in Columbus, Ohio that is 86% leased to three tenants. We also acquired an 827,000 square foot bulk industrial facility in Chicago that is 100% leased to Crate & Barrel. The rest of the acquisition activity was in medical office. We acquired a portfolio of three medical office buildings in Cincinnati from an existing customer. The buildings totaled a 109,000 square feet and are 100% leased for 15 years to Bethesda North Hospital. We also acquired a 105,000 square foot medical office building in Chicago that is 100% leased for 19 years to Loyola University Medical Center. Disposition activity was relatively light this quarter with $65.3 million sold of which 46.2 million was from seven suburban office assets, which were only 81% leased and $17.5 million from six non-strategic mostly flex industrial assets in the rest from land. The non-core suburban office industrial dispositions comprised approximately 458,000 and 735,000 square feet respectively and had a weighted average age of over 21 years. Now, turning to development, I am pleased to report that our development starts this quarter, are off to the strongest start in several years. A testament to what we believe is a best-in-class development platform. We began 1.5 million square feet of 100% pre-lease industrial and medical projects consistent with our asset and operating strategy. In total, at the end of the quarter we have 2.4 million square feet across nine projects underway that are over 96% pre-leased in the aggregate. During the quarter, one new industrial development was started in Middletown, Delaware, totaling just over 1 million square feet, which is a 100% pre-leased for 12 years. One new medical office development was also started, a 117,000 square foot facility in Tampa which is a 100% leased to the VA for 20 years. And we started a 375,000 square foot industrial project in Indianapolis that is 100% pre-leased to a global manufacturing company Regal Beloit for 10 years. I’m also pleased to report that in April we executed another 100% lease new medical office building in Central Texas with an estimated project cost of just over $43 million. We also have a solid backlog of industrial build suite and medical office development opportunities, which we’re working on. We’re also planning to move forward on a 421,000 square foot speculative industrial building on the site that we own in Chino, California. This project is in the Inland Empire West submarket where the occupancy rate is over 93% and there is very little land to develop. As we’ve alluded to you on the previous call, this is one of the first markets that would make sense to develop speculatively. We’re also considering other markets for speculative bulk development, but those starts were likely be very limited for the rest of this year. So, as I said, from an operational perspective, the first quarter was an excellent quarter. And now I’ll turn our call over to Christie to discuss our financial results for the quarter. Christie Kelly – Executive Vice President and Chief Financial Officer: Thanks, Denny. Good afternoon, everyone. As Denny mentioned, I’d like to provide an update on our first quarter financial performance as well as progress on our capital strategy. Our first quarter 2012 Core FFO was $0.24 per share. The decrease in Core FFO per share from the fourth quarter of 2011 was expected and was reflected in our 2012 guidance and result from Blackstone sale transaction, which closed in December and reduction in third party construction income as a result of the substantial completion of the BRAC third party construction project in 2011, which was also anticipated. For the quarter, we generated $0.20 per share in AFFO, which translates into a dividend payout ratio of 85%. AFFO for the quarter was equal to the fourth quarter of 2011, also $0.20 per share and up from the $0.19 per share recorded in the first quarter of 2011. As we’ve communicated previously, our asset repositioning strategy is not expected to be dilutive on an AFFO per share basis, because we’re reducing our overall investment in the CapEx intensive suburban office property. We’re bearing this out with quarter-to-quarter equal AFFO even with billion dollar sales (indiscernible). Overall, we are pleased with our operating results for the quarter and the momentum we’re heading into the rest of the year. With regard to the execution of our capital strategy, we executed 10.8 million shares of common stock pursuant to our previously disclosed ATM program at an average price of $13.93 which generated net proceeds of $147 million during the quarter. Given the strong acquisition activity, the increasing funding needs for the development pipeline and our commitment to our de-levering, we thought it was an opportunistic time to dribble a moderate amount of equity into the market. As you’re aware, the ATM is highly efficient and cost effective and can be well matched with the size and timing of funding with the nature of our investment. Going forward, we will renew the ATM at approximately the same level and again intend to use it opportunistically as our business warrants. We also generated $65.3 million in proceeds for non-strategic asset dispositions during the quarter. We also effectively utilized the remaining proceeds from the Blackstone transaction in accordance with the strategy we’ve laid out for the announcement of that sale. On March 5, 2012, we redeemed our $168 million of 6.95% Series M Preferred Shares, which result in the $2.9 million ongoing quarterly reduction to preferred dividend. In addition to funding the redemption of the Series M Preferred Shares, we also utilized our available cash to complete $157 million in acquisitions as well as to fund our continued development activity. At the end of the quarter, we had no borrowings outstanding on our line of credit and $15 million of cash available with manageable debt maturities for the remainder of the year totaling $373 million. I will conclude by saying that I’m very happy with our progress in the first quarter, as we continue to execute in all assets of our strategy. And with that, I’ll turn it back over to Den. Mark Denien – Chief Accounting Officer: Thanks, Christie. Yesterday, we also reaffirmed our guidance for FFO per share of $0.94 to a $1.06 for all of 2012. There are number of moving pieces as a result of all of our activity, but the suffice it to say that our subtle leasing activity in the first quarter is providing positive momentum, but we still have a long way to go to finish the year. We remain comfortable with the range of estimates for our key operating metrics we provided to you in January, but we do believe we will be near the high-end of our average occupancy because of our strong start and the fact that we have only 5% of our leases expiring during the remainder of the year. So, we are really, really pleased with our start to 2012. We see some signs of the positive momentum is carry over into the second quarter which gives us a general outlook that 2012 will be another great year for us. Thanks again for your support to Duke Realty and now we will open it up for questions.

(Operator Instructions) And our first question from the line of Josh Attie with Citi. Your line is open. Josh Attie – Citi: Thanks. Good afternoon. Could you talk about some of the yields that you are getting on the development projects and can you talk separately about industrial versus medical office?

Sure, Josh. Again when you look at the kind of development projects that we’re doing right now, these are basically build-to-suit projects that we’ve started so far. They all have long-term leases. I think the shortest lease term we did with a new development this quarter was a 12-year lease. So, there isn’t at this point in time, it’s a little hard to say whether there is much variance between the industrial and medical office. Again these are a big bulk warehouse buildings of credit tenants long-term leases and then medical office buildings are on-campus facilities, hospital taking basically a 100% of the space. So, the going in yields are really pretty comparable right now. And as I mentioned on the call, what we always call our initial stabilized yield, so it’s basically our initial yield on these kind of build-to-suit, was just over 7%, but also in all of these projects we get annual rent increases for over the term of the lease. So, if you look at our average rents over the term of the lease it’s probably closer to being in the 8.25% to 8.5% range. And that’s really what we’re seeing on the build-to-suit type today. Josh Attie – Citi: And for the speculative projects that you mentioned in California, what kind of yield would you expect to get on that?

Well, I would tell you that today’s market rates out in Southern California, the yield on that project would be kind of in the low 7s – high 6s, low 7s, which is still a pretty good spread over what things are trading for out there today. Josh Attie – Citi: And the pipeline today is around $350 million worth. I guess what is the backlog of projects looks like and as you look out 12 months at the end of the year, do you see the pipeline being substantially larger than this today?

Well. Again I think our guidance for this year was sort of in the $200 million to $300 million of starts range and again, we are off to a great start in my opinion because we signed about $120 million in the first quarter and as I mentioned, we have signed another medical office building of about $43 million here in April. So, we’re at $160 million through the first four months against that $200 million to $300 million. So, we feel pretty good. There is a backlog at both the build-to-suit industrial and the medical office. I would tell you right now that backlog you can use a lot of different kind of projects. So, I had to take a put a number on it because of probability of execution varies quite a bit, but I do think the medical office backlog is a little bit bigger than the bulk industrial backlog today. But again, I think with the start we’re at this year, I think we’re very comfortable being in that range and hopefully closer to the top end of that range and development start this year. And as far as looking ahead, I think things continue to improve in the economy, albeit very slowly like they are today. We would expect that pipeline to hold up and maybe grow a little bit. Really, what we think in a normal environment for our business model. Today, we think the development if you have a economy that’s kind of hitting on all cylinders, that debt development starts for us can be in the $400 million to $500 million range. Josh Attie – Citi: And as you didn’t do a capital to fund that, if the development pipeline would increase in other $200 million. Does that necessitate more equity to fund that in order to keep the leverage mutual? Is that the way we should think about it funding for growth?

Yeah, that’s the way you should think about it. We’re certainly not going to increase our leverage profile as we go forward to grow. Josh Attie – Citi: Okay. Thank you very much.

And our next question is from the line of James Feldman with Bank of America. Please go ahead. James Feldman – Bank of America: Thank you. I guess along similar lines, you have 620 million of land in the balance sheet. Can you talk a little bit about where that land is located and how it aligns with may be where you see the opportunity for development especially spec development?

Sure, Jamie. About 120 million of that is really in the portfolio that we have designated for sale and I guess about 2.5 going on three years now. That’s the land that we have picked impaired. And we’re working through the sale on that, we had couple of sales in the first quarter. We’ve got – our backlog on the sale of land is probably a little bit higher than it’s been for a while. We’ve got a few transactions in process. So, I think we’ll make some nice progress on disposing of that land, some more of that land before the end of the year. Then, there’s about 500 million of land on the development side, 70% of that is bulk industrial land and it’s really located across the markets. There is a quite – there is a fair amount in lot of our Midwest cities where we’ve had land for a long time and it’s relatively inexpensive to carry in scheme of things, but we have – we basically have bulk industrial land in almost all of our markets and again we will look at opportunities when the time is right to start speculative projects on some of that land. But again we’re also casing build-to-suits – build-to-suit and we signed here in Indianapolis in the first quarter was on land that we owned and then we have about 30% of that land is still some office land and it’s really again also spread around the country. For the most part, we’re marketing that land to do build-to-suit developments on. As you could imagine, they are just aren't a lot of build-to-suit developments. We signed a big one last year with Primerica, which is on our land down in Atlanta, but there was not a lot going on there, but we will work our way through that office land also. James Feldman – Bank of America: Okay. So, the 70% that’s bulk industrial, how much of that would you say is kind of Main & Main where you would want to actually start construction? I guess I am getting like in the Inland Empire anywhere else you build spec, you think you will need to take down land to get started?

To buy additional land to get started is that what you are saying? James Feldman – Bank of America: When you announced Inland Empire was that a land you owned or you have to buy the land?

It’s our land, we own, yeah. James Feldman – Bank of America: Okay. So that over the 70% that you said is bulk industrial. How much of that is well located where if you were to build in that market that’s the land you would use?

All of it. James Feldman – Bank of America: All of it. Okay.

We went through that – over the past couple of years Jamie since we refined our strategy in '09 which is how we ended up with the buckets of port sales and held and we view that to be Main & Main.

And anything we didn’t believe we were going to develop, we moved over into that for sale bucket and we continue to monitor that. James Feldman – Bank of America: Okay. So it’s safe to assume if you guys do additional spec you won’t need to take down rent?

That’s right.

At 80%. James Feldman – Bank of America: Okay. And then can you just give us a little bit more color about the pipeline of demand both on warehouse and suburban office kind of what do you expect for the remainder of the year in terms of conversations you are having on the leasing side?

Starting with the industrial side, we are up to 93.6% leased now, which is starting to get back into the range of closer to where we think that stabilized portfolio would run. In a normal environment again I think we’d run at 95%, 96% there. So I still think that business is pretty good. The demand seems pretty solid there. So, hopefully we continue to make progress on that 93.6% and get it up into the 94% range before the end of the year, and I think there is a good possibility if everything stays fairly stable. The suburban office business again as I said in our remarks, I’m just not sure what’s going – when that’s going to turn around. I think we know what’s going to drive it, which is going to be some increasing employment and people starting to hire again, but it’s still really pretty hard to say when that’s going to happen and I don’t hold out any high hopes that we are going to increase that occupancy very significantly during the rest of the year.

I think the only other point that I’d add to what Denny just said Jamie is that, part of the running in place on the offices clearly given what’s happening overall in the sense of macroeconomic environment, but the other thing too, it’s a bit of a sell for selling process with us as well because as our team works to lease up the office portfolio to the extent that those properties are located and are part of our more non-strategic disposition list as outlined in our asset strategy, as we meet unless we’re selling to make sure that we get appropriate value. James Feldman – Bank of America: Okay. Alright, thank you.

We have a question from the line of Paul Adornato with BMO Capital Markets. Please go ahead. Paul Adornato – BMO Capital Markets: Hi, thanks good afternoon. Denny could you talk a little bit about the competitive environment for both distribution development as well as medical office development is it – has competition really returned to the development sector?

Yes. I think there is lot of competition on both sides. I will talk about each one specifically. I think on the bulk industrial, obviously there is still a lot of developers and I’d say both on the public and private side and you know who they are that are chasing the build – the industrial build-to-suits that are out there today. Maybe there is not quite as many competitors as there was towards the end of the last cycle, but there is still enough that pretty much all of the projects are competitive and they are all competitively fair than I think that grows across all the markets. So I would say every industrial project we’re bidding on has at least two or three developers usually more or like three to five developers bidding on a project. And then on the medical office side, again it’s generally competitive, but the medical office side can also be driven more by the hospital system relationships that we have. So, again just as an example there, we bought those street buildings in Cincinnati from the TriHealth system down there and we’ve got a long relationship with them. And I think there is opportunity to do development with that system, because we’re really their real estate partner now. Those are not necessarily competitively bid, but everybody knows what the market is. So, our pricing has to be competitive to get it even with that relationship. And I guess one other thing I’d say on the industrial side is again going back to really Jamie’s question, a lot of time it’s driven by the land parcels in the location of the land. So, again as I said, we’ve got rate industrial land in all our market. So, that helps us get some of those deals. Paul Adornato – BMO Capital Markets: Okay. And I’m looking at the hurdle rate to start-up development project. Has that hurdle rate changed? Does the cost of capital has changed or is that an absolute level?

Well, I think we held it pretty consistent, but for the most part, our hurdle rates are going to be clearly different, clearly significantly different for like specular project versus build-to-suits. We’ll certainly be more aggressive on build-to-suit projects, good solid industrial or medical office buildings that are pre-leased. We’re going to be pretty aggressive on those and as I mentioned that was really what all of our starts were in the first quarter. So, and sort of a 7% starting rental yield on those. On specular projects with the exception of Southern California, there is – you’re going to see higher starting or stabilized yields than what you’re seeing when we’re in the build-to-suit business. Is that answered your question? Paul. Paul Adornato – BMO Capital Markets: Yes, it does. Thank you.

Thanks.

And our next question from the line of Ki Bin Kim with Macquarie. Please go ahead. Ki Bin Kim – Macquarie: Thanks. If I could –could you talk about your capital deployment activities. It seems like lot of the stuff that you bought this quarter were fully leased and lot of kind of Midwest capital markets and at the same time, your – it sounds like the one that you’re buying and the one that you’re selling as a most higher yielding assets and just curious what’s the offside of buying assets that had 6 to 7 cap that’s almost 100% leased?

Well these have long-term leases. They are stable. They’ve all got well rate growth built into them both on the industrial side and on the medical office side. Basically on all these, those numbers you’re seeing are really cash on cash yield that’s going to grow because again your long-term leases and there is virtually no capital expenditures needed probably from anywhere from 5 to 10 years on these projects we’re buying. So, again they are certainly accretive over the shorter and longer term. What we have been focused on really hasn’t changed from what we’ve been doing in the last couple of years. We’re selling our older non-functional mostly office assets. We sold a few industrial assets this quarter, but there were some older flex buildings down in Cincinnati that had been on our chart list and we’re able to move those. But most of our older office buildings as I mentioned, they were only 80% leased and with an average age of over 20 years. So, the other thing that I would say is our cap rates, the way we code our cap rates is a stabilized yield and that stabilized yield that we’ll code like on that 9.7 would assume that properties somewhere leased between 90% and 95%, while those properties may have not been at 90% to 95% leased for longtime. So, in place is probably closer to 8, 8.25 on those properties. But that’s just the way we’ve always done those. It’s as much of an art as a science on calculating cap rates on dispositions. Ki Bin Kim – Macquarie: I just want to clarify that point. So, when you close stabilized yields for – when you for acquisitions and development is based on a stabilized yield based on occupancy or is that offering cooperating straight line rent?

Yeah, that’s based on occupancy, but it would also consider the cost to lease up the property – our estimated cost to lease up the property. Ki Bin Kim – Macquarie: Why not you pursue – I mean you’ve shifted your portfolio in a pretty significant manner in the past year-and-a-half and I think lot of heavy lift has been done so, why not you limit more strategic in your acquisitions or dispositions – and piecing and try to top take more of the bids. I mean the pursue kind of an under lease acquisitions where are – not just buying fully stabilized assets where you’re starting to get a straight yield for 10 years?

I just want to jump in there even because we have been assets just in terms of the specificity associated with the asset repositioning strategy since '09. So, I just want to remind everybody that we spent of that 20%, I mean call it 50% of that $1 billion in assets that we were proposing to leased up. Taking a look back and what we did in South Florida as a Dugan transaction, I mean just to start to rattle them off. So, we haven’t just combined stabilized assets. I know it seems like that as we become just even more later focused on specific markets that Denny want to be in for all the right reasons, but please don’t forget about what we’ve done over two years here and moving a couple billion dollars.

Well, the only other thing I would say is I am not sure what’s your version to stabilized assets that means, there is nothing wrong with them. They’re really great assets as I said they are immediately accretive to AFFO growth going forward because got virtually no capital expenditures and you got relevant growth. So, you’re kind of talking about them like that’s a bad thing, but I don’t think it is. Ki Bin Kim – Macquarie: And I guess I’m looking at a on a relative basis to maybe more development or lease look like we have a much higher return even at the build-to-suit level and at the same time I think last time we spoke, you guys mentioned that you guys were pretty close to your deleveraging targets, yet you still issued the equity at 13.60 a share. I think that’s probably low 7 cap rate and I was just kind of just combining everything together seems like is that the best use of capital?

What we actually issued a 39 a share. You guys all got to remember that every time we issue on that cost us some fees to do that. Ki Bin Kim – Macquarie: Yeah.

As Christi mentioned, we – the ATM has a very efficient way to do that equity raise when you look at the fee side. So, again we used that strategically. I think it was a great time for us to use it in this quarter when you look at really mainly the development pipeline that we’re building. We’ve got $350 million development pipeline and as Josh asked at the beginning and I reiterate you can expect us to see us fund that kind of growth through development in line with our capital structure today. So that’s going to require roughly 50% common equity and that’s what we’re going to do, because we’re not going to increase our leverage ratios.

And I think even to in putting together the ATM programs, we put that in place in February of 2010. We carried executing on it after two years from inception. And we said that we were going to use that program opportunistically. When we announced it, it was ties at $150 million which was expected to be at 6% to the total shares outstanding. There are 40 other entities who have issued ATMs since 2011 through year-to-date that we know, as of the end of February 2012. 50% of those have re-upped on their ATMs and they’ve been larger. And in terms of overall execution of – as Dennis said, we issued at a (indiscernible) that was better than the average – weighted average price since inception, that was better than the weighted average price over the trailing 12 months, that was better than the weighted average price over the past six months and that was better than the market price over the past month and half that we executed. And if you take a look at the volume that we executed on, we were executing a 3% to 18% of the total volume that day, taking advantage of the volatility in the market. So, I think it was all first of all immaterial. We don’t take issuing equity lightly, but 150 million shares given the size of our business and we used the proceeds I mean it had no effect. Ki Bin Kim – Macquarie: Okay.

And I just want to add one other thing Ki Bin. We’re talking about taking on more risk profile. I remind our folks all the time that we still have $10 million square feet of vacancy out there. And I’ve got – there is plenty of risk left in that vacancy. We have lease explorations. Although, we’re in great shape this year, we always have lease expirations coming in at us. So, there is still plenty of risk in our business and I’m focused on managing the overall risk. So, I’m not really inclined to go buy properties that add significantly to that vacancy, because I think we’ve got enough right now.

And we’re still working on de-levering we’ve got goals out there as stated and we still got real work to do and we’re going to keep chipping away at it as we’ve communicated. So, we’re in good shape. Ki Bin Kim – Macquarie: So are you – before I had taken a lot of time but are you trying to re-up the ATM and what are your thoughts on future equity expenses and are you going to try to – and that will be tied to certain activities or…?

No, I think in my statement I did mention that we are going to re-up, because it’s a prudent thing to do, as I mentioned in other, 40 other REITs out there that are doing it. And we executed very effectively. So, yes and I think you would expect us to do that. And in terms of tying it to any one specific activity, no and I think our performance keeps for itself. We waited until it started to make sense over the past couple of years and I think we executed pretty well given the current operational profile and it’s complementing our asset strategy and we will keep doing that with minimum effect to our overall performance. Ki Bin Kim – Macquarie: Okay and just last quick question on your development page, on page 28 you guys have quoted your yields, productive yields part of being finished, so just a couple of quick questions one how do you account for land bases on those yields and second on page – to the page before why not just provide projected yields on stuff you have under construction?

Well number – your first question on 28. The land that are basis that we, which is basically our original costs because as we said we didn’t really and we haven’t impaired in any of the development land. There is a big reason why we don’t show each development yield on page 27 that’s a competitive reason I don’t necessarily want to show my competitors or our customers exactly what might yield is on any specific building that’s why we don’t show here. Ki Bin Kim – Macquarie: I guess I’m in total, also, but okay. Thank you, I’m done.

Thanks, Steven.

We have a question from the line of Dave Rodgers with RBC Capital Markets. Please go ahead. Dave Rodgers – RBC Capital Markets: Hey Denny. Given the industrial build-to-suit that you have announced it seems that large block demand continues to be fairly robust in the bulk industrial business, when you look down at maybe the 30,000, 40,000 square foot blocks have you seen any more positive traction there over the last three, six months and do you feel better about the direction of the smaller spaces in industrial?

Yeah, I say definitely Dave when you think about it, think about some of those stats that we mentioned, with 7.4 million square feet of industrial leasing. And so, you take out a couple million square feet, one for the build-to-suit, one for the Carter’s deal. And then the only other one we really talked about that was large was that 300,000 square foot deal we did down in Cincinnati. So, the rest of those – you had 4 million, 5 million square feet, which were all smaller type deals. So, we’re talking under probably 200,000 square feet for the most part. So, that activity, that’s pretty good for a quarter to have that much activity on the industrial leasing side in that size basis. Dave Rodgers – RBC Capital Markets: Your effective rents in industrial I think in the first quarter, and maybe as a small sample size versus last year were down quite a bit. What were your cash leasing spread in the quarter? And was there a big mix shift from last year till the first quarter or was it just more aggressive pricing?

That number is probably being driven by that deal at Atlanta, because it was such a big part of it. As I mentioned in my prepared remarks, we have a pretty competitive rate on that deal. But we liked it, because we only have three months of downtime. We got the space built. We didn’t spend much at all in a way of capital expenditures on that tenant, and we get nice rent bumps and it’s an 11 year lease. So, we have low CapEx. We’ve spread that over 11 years, which is great. So, a lot of the metrics we use even though the initial rental rate was lower, we – that lease looks really good when you look at it. And then the other thing with that that I would – only thing I would add David is that tenant left in that space was side back at 2006 or 2007 and their rent was quite a bit higher. So, there was some roll down there. And I think a lot of times when you look at out those numbers David it just can really depend on the mix. If you got a lot of larger spaces in there, maybe those numbers are look little lower than they would have for smaller space. Dave Rodgers – RBC Capital Markets: Maybe to ask it in a different way and I appreciate that color. How do you feel about rental rates in the bulk industrial portfolio from the market perspective versus 3, 6, 12 months ago?

Well. I think it’s getting better. I think it’s getting better because in all markets pretty much occupancy is going up and we’re starting to see in almost every bulk industrial market pretty solid occupancy. And as you mentioned I think you said in the beginning it’s really – there is a lot of these larger vacancies has been taken. But it still little bit difficult to get a lot of traction on rental rate growth because it’s still the demand is good, but it’s not – it still not necessarily booming out there. I think when you look at it, there has just been a handful of build-to-suits around the country really so far this year, that business is starting to pick up, but until we really see that and then see the demand pick up, it’s still pretty hard to get a lot of traction on rental rates. But I certainly think it’s headed in the right direction. I think it’s better than it was six or nine months ago. Dave Rodgers – RBC Capital Markets: Okay. Last just follow-up question for me, could you provide us a range and I know this will vary by market, but if possible, provide us a range of development and construction costs for each year three property types given kind of where the bulk of your land for new development is today?

Well that is kind of hard to do when you’re looking – I would tell you, just to give you a range I think most Midwest markets are in $35 to $40 for bulk industrial, again depending on how big it is. If you look at Southern California it’s more like $70 a square foot and just trying to think where other in places like Atlanta and Dallas you get probably $40 to $45 per foot. On the medical office side, it’s really hard to say because these buildings vary pretty significantly among all those properties that we owned. And it’s not necessarily driven by geography, it’s – some of it is a little bit because – but not a lot because most of those are on land leases. So we just have long-term ground leases in the – the length of the ground rest is just the path, the tenant really pays it. So it’s just building cost and quite honestly those could range from in the low $200 a foot to up to close to $400 a foot depending on how the buildings built and what you have in it. Dave Rodgers – RBC Capital Markets: And is that with land?

No, that’s without land because again they’re almost all in ground leases. Dave Rodgers – RBC Capital Markets: It would be industrial though I’m sorry?

Yeah. That is also is with land, yes, sorry. Dave Rodgers – RBC Capital Markets: Okay, great. Thank you.

We have a question from the line of Blaine Heck with Wells Fargo. Please go ahead. Blaine Heck – Wells Fargo: Good afternoon. So looking at your same-store pool, it looks like occupancy decreased around 50 bps since Q4 and acknowledging that’s not quite apples-to-apples sequentially, pretty big difference from the 140 debt increases on the total portfolio. Just wondering if you could give some color on reconciling the two of them?

Yeah, Blaine, I can take a jump in there for you. I saw that in the note the other night. Same store, I think you mentioned was about 50 or 60 bps in terms of the population for the quarter, that’s correct. A couple of other things that we have going on in there, you’ve got in terms of the total – the total versus same-store, the same-store population measures the same property population that’s been in effect for 24 months, total is everything and so you’ve got development starts in there, acquisitions, dispositions, which is about 15 to 20 basis points. And then you’ll also have the impact of other leasing such as the quarter lease that Denny mentioned, which is the other piece of area, which is not in the same-store population. Blaine Heck – Wells Fargo: Okay. And then second question. If I take your quarter results from the first quarter $0.24 and kind of assume that the savings from the preferred redemption roughly offsets the dilution from the ATM issuance that puts you at pace to be around $0.96 for the year. Just wanted to get some color on what do you thought the earnings progression for the rest of the year was going to be like and kind of what needs to happen to hit the midpoint to upper end of guidance?

Well, I think the first quarter I’ll say couple of things about. It’s generally our lowest quarter because there are just different things that happened in the first quarter. There are some cyclicality to our service business. There are some things on the overhead side that just always get recorded in the first quarter rather than spread and it’s a timing difference. And then in this particular first quarter, we were still redeploying the proceeds from Blackstone transaction at the beginning of the year for really the first couple months of the year. So again obviously if we end up at the midpoint of our guidance, it’s going to have increase a little bit on a quarterly basis going through and again as we’ve said, we are comfortable with the guidance that we put out there so. Blaine Heck – Wells Fargo: Okay. Fair enough. Thanks.

(Operator Instructions) We go to John Stewart with Green Street Advisors. Please go ahead. John Stewart – Green Street Advisors: Thank you. Danny, could you give us a sense for which markets aside from the Inland Empire you would be looking at spec development on bulk industrial?

Well, if you ask my guidance, I feel I have to tell you all of those, love to – try to build the spec one but – I’m not quite sure. I’d say I think we’ve had some guys are seriously look at them, I mean possibly Indianapolis, maybe in Dallas if it was a certain fit-fit, a certain profile. And Houston probably is one where you could justify some and again it’s certain submarkets there. In my opinion, John, it doesn’t really go a whole lot deeper than that right now. And again I think I would probably include South Florida in that list, but we really don’t have any developable industrial land in South Florida. That’s one of the reasons we really wanted and are so happy we got the premier portfolio last year, because we didn’t really have any land to develop down there. So, I think South Florida though for peoples who have land available spec product is certainly a consideration there. John Stewart – Green Street Advisors: Okay. And on the acquisitions for the quarter, had a pretty distinctly Midwest flavor. Is that a shift in the strategy at all or just a sample size?

Small sample size, I mean I think we got a really nice deal on those couple of buildings in Columbus. Clearly, Chicago is on our target list for bulk industrial, so we’ll keep – you’ve seen us acquire through last year and into this year in Chicago and then again if you look at the medical office business again is really less geographic focused and more health system focused and with the tri-health system in Cincinnati and about the loyal system in Chicago where our acquisitions where this quarter, both very, very good healthcare systems. John Stewart – Green Street Advisors: Okay. And I wanted to just come back for a moment to the capital allocation line of questioning, and certainly sympathetic to the desire to kind of reduce the risk profile and certainly continue to the reduce leverage particularly considering what we’ve all went through the past several years. But maybe if you could just help us understand quite a hurdle you’re trying to beat and let’s – maybe focus on acquisitions. Again understanding that there is some built-in rent growth, but just when you’re buying fully leased at a relatively lower going end yield, what’s the hurdle that you’re looking to beat?

Well, I think we’re looking at those on the basis of are they accreted to us and… John Steward – Green Street Advisors: On what basis?

I’m sorry.

AFFO.

Yep, to AFFO, are they accretive to us on an AFFO basis. And if they are, then and its good property and we’re executing on our asset strategy and we’re not doing any damage to our capital strategy that I think the acquisitions make sense. So, the issue though is the company our size it’s hard to notice the accretion when you’re doing a $150 million in the quarter event. I mean, you don’t see it for a while, but it will come into place, because once you get them, you’re not going to see the accretion in the first quarter and then it’s going to happen some in the future quarters, then you’re going to get more as rental rates grow. So, it just takes a while for that accretion that come into place to. Does that answer your question John? John Steward – Green Street Advisors: Well, I guess, ultimately, where do you peg your cost to capital?

Well, I mean there are a lot of different ways to calculate it. The way we normally look at it is our cost to debt on a 10-year basis, plus sort of our FFO yield on our stock price. And if you…

May be now it’s about 533.

Well, I would say higher than that, but…

50-50 leverage.

Yeah, it’s in the probably 5.5 to 6 the low 6 range today. John Steward – Green Street Advisors: Okay. And then, lastly, just a housekeeping question look like same-store expenses were up quite a bit sequentially and I wouldn’t have expected to see that much seasonality here, slowing the whole was anything that you can explain for us there?

I think they are down John. John Steward – Green Street Advisors: Just looking from the fourth quarter supplemental to the first quarter it looked like same store expenses were up $5 million or so?

It’s hard to do John because you got a different population every quarter.

Right. John Steward – Green Street Advisors: And maybe we can pull it offline but it didn’t look like there is much of a change in terms of square footage or anything else, so happy to follow-up offline?

Okay.

Good John. John Steward – Green Street Advisors: Thanks.

And we have a question from the line of Vincent Chao with Deutsche Bank. Please go ahead. Vincent Chao – Deutsche Bank: Hey, just a follow-up question on the same store NOI may be ask you a little bit differently. I mean it was a pretty strong result year-over-year this quarter. Was there anything seasonal in that in terms of the normal cost and should investors be looking for something in that upper forced range, guidance obviously is a lot lower than that for the full year?

No I think what your – it was higher this quarter again because as we said as we go through this year, we were building off a bigger base each quarter because we had nice same store growth throughout 2011 too. So we don’t think the first quarter is indicative of where we’ll end up for the full year and that’s the guidance that we always give as for the full 12 months calendar year. Vincent Chao – Deutsche Bank: Okay. But outside of increasingly difficult comparisons there is nothing else sort of seasonal in number this quarter?

No, we always set the data, to have people look at quarterly numbers. So there can be something goes both ways within a quarter. But I don’t think there is anything real specific in there today. Vincent Chao – Deutsche Bank: Okay.

Thank you and I will turn it back to our speakers at this time. Denny Oklak – Chairman and Chief Executive Officer: Okay, thanks everybody we appreciate being on that call and we’ll talk to you again in next quarter. Thanks. Christie Kelly – Executive Vice President and Chief Financial Officer: Take care.

Ladies and gentlemen, this concludes our conference call for today. We thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.