Prologis, Inc. (PLD) Q2 2018 Earnings Report, Transcript and Summary

Welcome to the Prologis Q2 2018 Earnings Conference Call. My name is Chris and I will be your conference operator today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] Also note, this conference is being recorded. I would now like to turn the call over to Tracy Ward. Tracy, you may begin.

Thanks, Chris, and good morning everyone. Welcome to our second quarter 2018 conference call. The supplemental document is available on our website at prologis.com under Investor Relations. I'd like to state that this conference call will contain forward-looking statements under Federal Securities laws. These statements are based on current expectations, estimates and projections about the market and the industry in which Prologis operates as well as management's beliefs and assumptions. Forward-looking statements are not guarantees of performance and actual operating results may be affected by a variety of factors. For a list of those factors, please refer to the forward-looking statement notice in our 10-K or SEC filings. Additionally, our second quarter results press release and supplemental do contain financial measures such as FFO and EBITDA that are non-GAAP measures and in accordance with Reg G we have provided a reconciliation to those measures. On April 30th, we announced a merger between Prologis and DCT. Materials regarding the transaction are posted on both companies website and are also available on the SEC’s website. Including the joint proxy statement that contains detailed information about the transaction. This call will focus on our second quarter 2018 results and the Company will not provide comments beyond what is included in our prepared remarks. This morning, we'll hear from Tom Olinger, our CFO, who will cover results and guidance; and then Hamid Moghadam, our Chairman and CEO, who will comment on the Company's outlook. Also with us today for today's call are Gary Anderson, Chris Caton, Mike Curless, Ed Nekritz, Gene Reilly, Diana Scott and [Coleen McAllen] who is in her second week with us. With that, I'll turn the call over to Tom and we'll get started.

Thanks, Tracy, and good morning and thanks for joining our second quarter call. With very few exceptions supply in our markets remain in check and net absorption continues to be strong despite being constrained by limited availability. Market rents across our portfolio are growing faster than our prior forecast. We’re raising our estimates for full year global rent growth at 6.5% with the U.S. up 70 basis points to over 7% and Europe up 140 basis points to almost 5%. The spread between our in-place leases and market rents further widened in the quarter and now stands at 15% globally, and 90% in the U.S. extending the runway for strong same store NOI growth. Looking to results, we started the year with great momentum and that carried into the second quarter with core FFO of $0.71 per share. Our share of cash same store NOI growth was 7% and led by the U.S. at 8.2%. These results were exceptional as quality well located space remains in high demand. Our share of net effective rent change on roll was 20.6% and led by the U.S. at over 30%. Occupancy was up 60 basis points sequentially to 97.4%. Leasing volume totaled nearly 39 million square feet with an average term over five years. This includes a record 9.6 million square feet of development leasing of which 3 million was in China. Stabilizations in the quarter had an estimated margin over 40% and value creation of $240 million. So far this year, we’ve earned more than $220 million in realized development gains. Our second quarter disposition and contribution activity was light, but we expect our capital recycling to accelerate in the back half of the year. You'll note a significant increase in both our wholly-owned and fund assets classified as held for sale. Given that we have several major transactions under contract and escrow funds have gone hard. With respect to the pending transaction with DCT, their shareholder meeting has been set for August 20th, and we expect to close within a few days following the vote. The integration process is going very well and we look forward to adding their high quality assets to our portfolio and welcoming some of their employees to the Prologis team. We continue to expect $80 million in day-one synergies as well as $40 million of future annual revenue synergies and incremental development value creation. With one of the best balance sheets of business, we have access to attractive sources of capital. As we previously announced during the quarter, we issued $700 million of bond that had a weighted average interest rate of 4.1% and term of almost 19 years. We remain very well-positioned to self-fund our deployment and capitalize on opportunities as they arise given our $4 billion of liquidity, and over $6 billion in potential fund rebalances. Moving to guidance for the full year, I'll cover their significant updates on our share basis but for complete detail refer to Page 5 of our supplemental. Also note that our guidance does not include accretion from the pending DCT acquisition. We will be updated guidance to incorporate the impact from this transition, transaction after closing. Based on the strength of our second quarter results, we are increasing the midpoint of our cash same stores NOI range by 50 basis points to 6.5%. As a result of valuation gains in Europe, we now expect our net promote income for the full year to be higher by $0.01 per share and now range between $0.12 and $0.14 per share. Remaining net promote income can will be earned in the fourth quarter. With an expanding built-to-suit pipeline and accelerated lease of our perspective elements, we are raising our starts guidance by $100 million to now range between $2.3 billion and $2.6 billion. We're also increasing our contribution guidance by $150 million to now range between $1.5 billion and $1.8 billion. We’re raising the midpoint of a realized development gains by 75 million to now range between $450 million and $500 million, driven by higher valuations across our development portfolio. At the midpoint, our share net deployment proceeds will be approximately $350 million which is $50 million higher than our prior forecast. As you think about our earnings trajectory for the back half of the year, you need to consider the lag between when sources are generated and when they are put to work primarily through development. As a result, we expect core FFO for the third quarter to be about a $0.01 down from the second quarter. Again, this does not include the impact from DCT. Putting this all together for the full year, we're increasing our 2018 core FFO range between $2.98 and $3.02 per share up $0.02 at the midpoint. To put this in context when we laid out our three year plan at our investor event in 2016, we called 7% to 8% annual growth, excluding promotes, at the midpoint of our 2018 guidance will average 8.7% for the first two years far surpassing our plan. Importantly, this was achieved while realigning our portfolio and reducing our leverage by over 400 basis points. As a reminder every 100 basis points of leverage translates to about 1% of core FFO growth. Looking ahead, the combination of our significant embedded rent upside, the build out of our land bank and leverage capacity will continue to fuel our sector leading performance. And with that, I'll turn it over to Hamid.

Thanks, Tom. I want to touch on our long-term outlook, but first let me comments on trades and tariffs since we've been getting a lot of questions on this topic lately. My insights aren't unique, but what we hear from our customers so far is that they are moving forward with their growth plans and we have yet to see any change in sentiment or decision-making on the ground. We remain cautiously optimistic as the vast majority of our portfolio is located in large consumption markets, including a significant focus on city distribution and last touched delivery; however, escalating trade tensions are negative for the global economy and it came to attack some consumers. If today's political rhetoric intensifies and translates into actual protectionist policies, it will be a negative for all businesses in the U.S. and abroad including ours. At the same time, our portfolio and balance sheet are in the best shape they ever been and any dislocation may actually create opportunities for us. We've built on enterprise and team that enables us to execute on sizable transactions such as DCT, while delivering best-in-class results and carrying out the platform initiatives that I discussed in our last call. In closing, I’d like to point out to the perplexing lag in our recent relative stock price appreciation, in spite of our sector leading operating performance and strong guidance. Some of this lag is surely attributable to pending DCT transaction, which has helped to smaller companies in sector. I suspect the rest of it is caused by all the rhetoric around trade and tariffs. As the industry's dull weather and the only global company, we believe this factor has had a disproportionate effect on our company, company's recent relative performance. Regardless, we remain laser-focused on executing our long-term business plan and are confident that we'll continue to generate earnings growth significantly ahead of the pack. Chris, let's open up the call to your questions.

[Operator Instructions] The first question comes from Craig Mailman of KeyBanc Capital Markets. Your line is open.

Maybe a two-part question here. Hamid, appreciate your comments on tenant sentiments. Just curious though you guys look at the portfolio maybe where do you see the most risk? Or I guess least exposure to consumption in the portfolio? And then just as you guys are thinking about development starts and you guys are contemplating 2019. How do the tariffs and material costs kind of weigh your, at least, appetite here to be bidding out projects and other things in advance of maybe buying out the materials?

With respect to the market that’s probably most exposed to trade and tariffs, I’d say the broader markets in Mexico are part of that because they are more of the manufacturing and transshipment market than a consumption market. But you got to understand that a lot of the value added is material imported from the U.S. with some labor value added to it and then re-exported to the U.S. So, you really need to focus on just the incremental value added in Mexico, and that for a lot of commodities is not a huge number. So, the tariffs would only apply to that. For example, a lot of the steel and actually aluminum that’s imported for car manufacturing comes through the border end of the bank. There are also some manufacturing markets in the Midwest that are -- could be exposed to this because a lot of those are relying on first level order material that are imported in the U.S. And so far, I think all those effects are small. With respect to our decision making as to the start of development and all that, so far the increases in construction costs have been in line with our expectations, and really it's on the next series of projects that we are going to see any impact from material increases. Those are all going to be under [indiscernible], and as you've seen from our strong margins, we have a lot of room to absorb those kinds of cost increases. But more importantly, those cost increases are going to translate into a higher rent because they little over time curtail supply. So, you can't just look at the cost increases, you got to also look at the impact of that on supply and rent growth.

Your next question comes from Manny Korchman with Citi. Your line is open.

Real estate typically a lagging indicator rather than being a leading indicator and so I guess as we think about all of this trade policies and the rhetoric that’s going on. What are the indicators or data points that you’re seeing that give you the confidence that is not leading into effectively the demand quotient for your assets?

So, consumption is by far the largest driver of our demand for our business and it accounts for about 70% of GDP. So, GDP growth and consumption growth within as a subcategory, those are probably two biggest drivers of demand. The second biggest driver of demand is reconfiguration of the supply chain. I mean the long-term reconfiguration of the supply chain. But on top of that, we of course have the much more recent and stronger reconfiguration or addition, I should say because of e-commerce. So that by far overwhelms any slowdown, if you will, in the other factors that we’ve seen so far. We don't really look at supply and demand as a way of projecting into the future as to what our underwriting will be. Those are the results of those other factors. We really look at much more the leading indicators that effect supply and demand as you pointed out.

Your next question comes from Ki Bin Kim from SunTrust. Your line is open.

So, 20% of DCT's portfolio was in California and given that the merger triggered by 13. Could you talk a little bit about how this increase will impact the overall costs of tenants in California? And is there some concern to your ability to raise rents after the tax increase? And on -- and when does that actually kick in?

Yes, so this is Gene. I'll take than one. So, the proposal for effectively split rolls is not going to be on the 2018 ballot, so it’s not on the ballot now. It may appear next year or more likely in 2020, so the actual timing is probably a couple years out from now. Now having said that, dealing with DCT assets, I think we’re better off on the average California commercial property owner given the vintage over our properties. Over the long-term, our tax exposure is likely to increase. But if you boil this down to what -- how does it affect our customers' costs? It’s less than 0.5% of our customers supply chain costs and I am talking about what we see as a likely increase in taxes which would be about 5% overall. So, I think it’s going to take awhile to take hold and I think ultimately the impact isn’t really that great.

Yes, if you look at our overall California business, for example Southern California is 72 different store leads in the deal for the licensed portfolio and then in about 20 plus million feet in the Bay Area and the likes. So, we probably have a 100 million square feet in California thereabout from numbers, and I would say and I haven’t done the math with this, but I am pretty sure that our strategy of focusing in California started at least a decade sooner than everybody's. So, it’s likely that our cost basis is significantly lower than other people. So until you have this split role and everything rose to markets, we will actually have an advantage and after that will be on par with whoever else is supplying space. So, I view our position is actually very favorable.

Your next question comes from Jamie Feldman of Bank of America. Your line is now open.

So, I think your percentage of built-to-suit and you development starts in the quarter was down about 25%. So, can you talk about how we should expect that to trend going forward? And going back to Craig's first question, I think the last part of this question was, how do you think about planning going forward even looking ahead to 19 for development starts given so much uncertainty out there? You maybe talk about what you think the mix could be farther out and your conviction and the pipeline?

Jamie, this is Mike Curless. I think you really can't look at two quarters where built-to-suit percentages to get a trend. Currently, if you look at the trailing four quarters, you see the average of about 43% that’s indicative of the range we're expecting for this year. And while we feel confident about to have about very strong pipeline growth in Europe and the U.S, the multimarket requires a way up real lack available space out there in of the key markets. So, I expect an arrow up on built-to-suit percentage in second half and then overall percentage to settle in around the 40s.

Your next question comes from Vikram Malhotra from Morgan Stanley. Your line is now open.

Wanted to get some more color and thoughts about maybe ability to push rents from here on maybe by market and product type, we obviously close to peak occupancy, took the guidance up, but it seems to me that obviously that the key driver of growth from here. So, can you just talk about any changes you are seeing in, maybe anything that surprise you in terms of rents this quarter?

Well, I will start and then Gene and Gary can comment on this specific, but I think based on some of the work that Chris Caton has done and shared with you, you can see that not just the cost -- real estate costs have reached small part of the supply chain costs and to the extent that approximately to customers, it's becoming more and more of the value to attribute. I think you're getting a shift to mentality from a cost focused decision criteria to much more of a service levels and experience the focused decision making process. So, bottom line, look with 10 or 15 years these customers have a pretty good run of being able to pick one landlord against the other and getting people to grind it out for the last penny of rent. I think the smart ones have figured out that right now with the market that is so under supply and continuous to be undersupply that really to get a look at the utility of the space and its ability to affect their service levels and go for the good location and lock them up because it just take a one competition with another user and a lots of one piece of space when they get that religion very quickly. Also keep in mind that we have a 15% or thereabouts mark-to-market in our portfolio, so -- and that number keeps increasing even though we’re burning off a lot of the below-market leases. So, the market continuous to be really strong and look, there is always the possibility of a recession or our great recession or something in. I’m no better at predicting that and everybody else, but so far so good on our pricing power.

So, maybe just a couple of comments about Europe, we've been talking about Europe market rent growth for some time now, and we are actually starting to see it come through. Tom mentioned in his opening remarks, but I mean the sentiment in Europe is very positive demand. Its healthy vacancy rates are down. We are approaching 5% going to 4.9%. And what Hamid didn’t touch on it or maybe did at a high level, its construction costs are way up, they are 16% over the last 24 months and that is underpinning this market rent growth that we have been talking about. You have taken our market rent growth assumptions for this year up to 140 basis points almost 5%. So, we will finally start to see this come through and that’s in the phase of 30 basis points of cap rate compression. So, setting the cap rate compression aside market rents would be up even higher. So, I think good things are coming from Europe finally.

Yes, and I’d remind those of you have been long-term participants in these calls that back in 2016, we've talked about 2018 being a year that the rents in Europe are going to accelerate and after that there could be a possibilities of those rental growth rates actually exceeding the U.S. And I wouldn’t be surprised if that were to happen in 2019 certainly by 2020. So, Europe is actually going to end up being a tailwind and sort of a headwind.

Your next question comes from John Guinee of Stifel. Your line is open.

Noticed a number of asset sales, look like you sold 29 buildings just in the second quarter alone including, I think 8 or 10 in Chicago, handful in South Florida, 9 in Seattle. And at the same time, you've also dropped your land inventory to a stunningly low 1.1 billion. Any comments on all the disposition activity and the reduction in your land bank?

Let me comment on the land bank. The land bank, we've been trying to get it to around 1 billion since the merger and we are getting there. And what that land bank doesn’t show is a whole bunch of land that we have under auction, which actually gives us the capacity for growth, but we don’t have to carry them to balance sheet. So, the land bank is getting to where we want it to be. With respect dispositions, let me ask Mike to comment.

John, this is Mike. Dispositions have been revving up as we suggested we have a busy second half with respect to well over 1 billion of dispositions well underway. As Tom mentioned in the opening remarks, several transactions are in the contract with our deposits, a series about one-off transactions portfolio make up that list. Pricing is very strong both in the Europe and U.S. Certainly, a good time to be the seller, expected to equal amount in Europe and the U.S., and a bright start some real good activity in the regional markets in the U.S. So after this work is done to the end of the year, we will be in very good shape of working our way through the rest of our non-strategic list, and we feel pretty darn bullish about our ability to get this all done this year.

It will be done with our non-strategic list, would be exception of what we will then go through as part of DCT.

Your next question comes from Michael Carroll of RBC Capital Markets. Your line is open.

Can you provide some additional details on the tariffs and I’m particularly interested in understanding how the tariffs could impact U.S. exports in your portfolio? What type of warehouses to export typically used the things build out of country and are these facilities mainly concentrated in the port market?

Most of the U.S. exports are things like soybeans and things that don’t go through warehouses. I mean our agriculture product is what we're really exporting. A lot of the manufactured stuff and stuff that goes into containers is, are the stuff that we are actually importing. So, I don’t see a big impact on that at all.

Your next question comes from Tom Catherwood of BTIG. Your line is open.

Switching over to development yields and you guys reported 7.1% yields on your 2Q stabilization, but if we look back between 3 and 5 quarters ago when you likely would have started these projects, the yields back then ranged from 6.3% to 6.5%. So, it looks like in that short period of time, you’re picking up anywhere from 60 to 80 basis points of yields. So the question is really kind of what’s driven the upward biased yields over the short time frame? And has anything changed between now and 4 quarters ago that’s altered your outlook on development yields and kept them lower from here going forward?

Well, development yields are higher than we would have expected before because rental growth would have been higher than what we would have projected at that time, and the margins would even be larger because it’s notwithstanding the rental growth we’ve had cap rate compression. So, we perform a much lower margin, at least we have been in the last 4 or 5 years than we actually end up realizing. So that is the explanation for that. As to going forward, I think every development deal that we approved is scrutinized with respect to the impact of the higher construction costs. We are using actually higher cap rates than our visible today in terms of underwriting exits for purposes of margins. But this is all the guessing game, about cap rates and rents a year-and-a-half from now. But so far we’ve been fortunate on both rents and cap rates and we’re building in the cushion for some slippage the other way. We’re not expecting any, but it'd be imprudent not to build that in when we’re dealing with big rents and big cap rates.

Your next question comes from Rob Simone of Evercore ISI. Your line is open.

I was just wondering if maybe you could comment on the update to the same store NOI guidance and what it means for the back half of the year. It seems to imply kind of like the 5% to 6% range over the second half which is obviously down from first quarter to second quarter. I was wondering, if you could line out or describe any discreet items that might be driving that?

The main driver of the second half same store is going to be free rent burn off approaching more normalized levels. If you think about our midpoint of our guidance applies -- imply 5.6% same store growth in the second half and you can get there by rent change and bumps are going to get you 450ish basis points. Free rent burn off is going to be about 50 basis points, which is about half of what we saw in the first half and then a little bit of occupancy in other items gets you to that 5.6%.

Your next question comes from Vincent Chao of Deutsche Bank. Your line is open.

Most of my questions have been answered, but just a question on the cap rate compression that’s been mentioned earlier and then just some of the commentary in the development gain guidance, which was increased pretty significantly, I think obviously on valuations. So just curious, are you seeing that cap rate compression really accelerate your -- in the second quarter or is that more the catch up from maybe some conservatism earlier in the year?

I would say cap rates have continued to compress throughout the year. Even the time when there was a view that interest rates were going up, we never saw it in the private market cap rates. So, I would say it's been a continuous movement and not a step function.

Your next question comes from Eric Frankel of Green Street Advisor. Your line is now open.

Two questions, one regarding trade. Just given how integrated supply chains are throughout the world and U.S. Is there anything that could be done, if tariffs are put in place in a larger scale or we're just going to have to settle for higher prices? And then second toward The Wall Street Journal articles this morning from the comment about the New York City Economic Development Corporation putting in a $100 million -- they're planning to put a $100 million of infrastructure to allow for more transit of goods via rail and waterways rather than trucks and, I’m just wondering if there is a some sort of business opportunity for your company down the road related to those type of infrastructure solutions?

Sure, with respect to your first question, you’re absolutely right. I mean the world economies getting very interconnected to everyday and more so, notwithstanding the recent protection of stocks, and it is not normal, it's not a simple factor of looking at your trade balance with the given country and calling that trade because things go through 5 or 6 different countries often times and maybe back and forth through some of the same countries before they end up with the consumer. So, the world economy is a much, much more complicated picture than this sort of 1960s view somebody make something somewhere and shifts it over a year. So, it will have all kinds of unanticipated effects on the global economy, but I would tell you this there is a lot more flexibility in the global economy in terms of manufacturing and things move around very quickly. We saw things move around very quickly from Eastern China and Western China and then to Cambodia and Thailand, and all that when labor cost move around. So, I think it's pretty difficult to take the unilateral action and affect the global economy. I think what you end up doing is putting your own economy in peril. So, the bigger risk that I see is not a risk to the global economy but a risk to the U.S economy because we are basically taxing the very same people that are looking for jobs, and why is unemployment rate in the high 3% rate? It's because finally this economy is employing some people, not a great idea to suppress that. I think that's where the big risk is. With respect to transit dependent opportunities, sure, we're looking at all of them. I mean as you know, we got a huge presence in New Jersey specifically. So anything that happens in the New York area with respect to rail transit, we’re the beneficiary that and I will give you some specific examples in places at LA, Chicago and New Jersey, we've been active acquirers of land for container storage because a lot of these rail yards don’t have the capacity on-site and this has been a great way of carrying land into the next development cycle because the yields that we can by leasing land for container storage are very strong and give us a lot of flexibility with respect to the timing of our future developments.

[Operator Instructions] Your next question comes from Manny Korchman with Citi. Your line is open.

Tom, I just want to revisit the point you made earlier. I think using the 3Q guidance being a $0.01 below, 2Q run rate which would imply a big ramp into 4Q. Just wondering, if there is one-time items we should think about that or that’s just going to be a natural take up in leasing or something else?

Yes, Manny, what we see in Q4 is the track we are seeing in Q3 reverse number one. We are seeing some higher strategic capital revenues going into the fourth quarter just with timing and transactional related. And then third is just some expense timing between the quarters and then of course NOI growth continues to takeaway. But the bottom line is that with respect to occupancy of rent growth and all the real fundamental things, the business is much better than we would have expected at the beginning of the year. But it's so good that we've taken advantage of that to get more liquid by accelerating some of our dispositions. That creates a drag because when we are more liquid and have less deployment -- less net deployment, we actually have more growth deployment than we thought too. That’s a good news story because I don’t particularly care about penny or two here there on earnings any given quarter. We are setting up really nicely for a growth rate beyond that. And I think the expanding mark-to-market in the portfolio is going to assure that, not only we will have stronger same store growth, but it would be for an extended time period.

Your next question comes from John Guinee of Stifel. Your line is open.

Tom, if you have answered this already let me now, but I think you expected some pretty significant cost to capital saving as you paid of the DCT debt and redeploy or took advantage of the own cost to capital. I have two questions. What sort of process do you see there? How many one-time items do you think we are going to have in tendering for debt? And then can you get the achieved savings you expect given the execution you just did at 400 million 10-year bonds at 378 and 300 million a 30-year bond at 438?

John, it's Tom, so yes, to answer your second question, yes. We think we can achieve the projected savings and quite frankly then some, because as we look at the 1.8 billion and this is what we said before and it holds and if not better the $1.8 billion of debt that will assume in connection with DCT we are going to do that through accommodation of U.S. dollar, which you saw euro and yen. And we are going to get -- we are going to be doing on average easily over 10 year debt. So, we are going to get duration out of this and we are going to see rates come in. And that DCT transaction, our weighted average cost to debt was 2.9%. And we have said we thought we could reify all the debt at that rate, if not better. I’m very confident that we will do better than that regarding transactional cost with the debt. We will be looking in the incurring cost to take that debt out, but as we always look at any the economics of any debt trend or transaction while return a transaction, we always look at the underlying economics on a NPV basis and look at the match maturity to get the real economics and these things pencil, so I would expect that they will make economic sense.

Your next question comes from Manny Korchman with Citi. Your line is open.

It’s Michael Bilerman. Let me -- I just wanted to come back to sort of the trade and sort of economic impact and you've talked a little bit about that the biggest risk is clearly to the U.S. and its economic situation and therefore given your portfolio is while global has a significant exposure here would be impacted just by from an economic perspective. Would you look at your customers the 3PL transport retailers of e-commerce players and the bricks and mortar traditional players and manufacturers, which of those verticals are you paying the most attention to right now in your conversations to really understand their sort of desires right now in terms of space and utilization? And there’re going to be the leading indicators here rather the economy rollovers is going to be the lagging one. So what is it about -- which ones of those are you spending the time that you think can give you the most accurate data to know what's going -- what’s happening?

So, let me answer it, I think there’re two embedded questions there. One is what are the two segments that we’re most focused on if you will in terms of upsides and downsides in our business? In terms of upsides, we’re very focused on obviously the e-commerce players in terms of upside. And by e-commerce players, I don’t mean just e-commerce players but also traditional retailers that are building a parallel supply chain and you’ve heard the one those announcements and obviously there’s a lot of growth coming out of that. So that would be on the good news side. Correspondingly, we’re looking over the bad news side on the impact of all this on struggling retailers and we do have a retail sort of watch list and the like, and we’re being very proactive on lease renewals to not renew with those retailers in this strong market then to replace some with other customers that are stronger. With respect to the impact of these tariffs, I think where you’re going to see the most impact in the near term is going to be on autos, and I mean look we have heard, a lot of talk about direct German car if you will tariffs, that are very-very significant, and possibly trading that for elimination repairs on American cars in Europe. I don’t know where that’s going to shake up, but that’s going to really affect the car business. Similarly, the steel and aluminum a lot of that goes into cars and price of cars are going to go up. And the good news is that not a lot of cars get stored in warehouses, but a lot of car parts get stored in warehouses. So, we’re looking at the autos, as probably the most nearest term impact on the things that you mentioned.

Okay, I think Michael’s question was the last one. Thank you for joining our call and we look forward to talking to you next quarter, if not before. Take care.

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