First Industrial Realty Trust, Inc. (FR) Q2 2013 Earnings Report, Transcript and Summary

Good afternoon. My name is Dawn, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Industrial Second Quarter Results Conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) Thank you. Mr. Art Hartmon, Senior Director of Investor Relations, you may begin your conference, sir.

Thanks, Dawn. Hello everyone and welcome to our call. Before we discuss our second quarter 2013 results, let me remind everyone that speakers' on today's call will make various remarks regarding future expectations, plans and prospects for First Industrial. These remarks constitute forward-looking statements under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. First Industrial assumes no obligation to update or supplement these forward-looking statements. Such forward-looking statements involve important factors that could cause actual results to differ materially from those in forward-looking statements, including those risk discussed in First Industrial's 10-K for the year ending December 31, 2012, filed with the SEC; and subsequent exchange Act reports. Reconciliations from GAAP financial measures to non-GAAP financial measures are provided in our supplemental report available at firstindustrial.com under the Investor Relations tab. Since this call may be accessed via replay for a period of time, it is important to note that today's call includes time sensitive information, that maybe accurate only as of today's date, July 26, 2013. Our call will begin with remarks by Bruce Duncan, our President and CEO, as well as Scott Musil, our CFO after which, we will open it up for your questions. Also on the call today are Jojo Yap, our Chief Investment Officer; Chris Schneider, Senior Vice President of Operations; Bob Walter, Senior Vice President of Capital Markets and Asset Management; and Peter Schultz, Executive Vice President for our East Region. Now, let me turn the call over to Bruce.

Thanks, Art. And thanks to all of you for joining us today. Our team delivered an excellent quarter in all aspects of our business. Leasing, the balance sheet, new investments and dispositions, so kudos and thanks to all of my colleagues around the county. Leasing is the central driver, a cash flow in value for our company. As such we were pleased to achieve 91.2% occupancy at quarter-end. An increase of a 160 basis points compared to the first quarter. A 125 basis points of the gains was the result of leasing, while the impact from asset sales with 35 basis points. Year-over-year occupancy was up 330 basis points. We're making good progress towards our year end occupancy goal of 92%. But still have some work to do. I assure you that our team is focused on this opportunity and ultimately the opportunity has stabilized our portfolio in the mid 90s. Market fundamental, our supporting absorption of industrial space and tenant demand has been growing along with the economy. While we acknowledge that there is more development underway, EBITDA level is still well above historical averages and the pace of tenant demand. We are seeing good activities across our markets and across the spectrum of customers, including the smaller tenant segment. That being said, we are entering the height of summer when tenant decision making tends to slow down which can make it difficult to pin point when some of the activity can be converted in the new leases. Needless to say we would prefer sooner better than later. On the capital side, we've been advancing toward our goal of returning to investment grade and reducing our cost of capital. As we look at our maturity schedule for the next several years, returning to investment grade is important. As we…

28: Finally, we had two user sales in both Minneapolis and Dallas and one each in Buckmore and New Jersey. In the third quarter to-date, we completed the sales of another 56,000 square foot property in Dallas as well as to sale of a small land parcel in Philadelphia for a total of $2.3 million. As you know, we are targeting $75 million to a $100 million in sales this year. So we are on page and we will continue our disciplined approach to maximize value and to upgrade our portfolio through addition by subtraction. So we made great stride this quarter throughout our business in [letting] on our way to a 92% occupancy goal for yearend 2013, the stabilization in the mid-90s. In capital management by strengthening our liquidity position, improving our fixed charge coverage and lowering our capital cost on our way back to investment grade, and in upgrading our portfolio through new investments and sales. With that let me turn over to Scott. Scott?

Thanks Bruce. First, let me walk you through our results for the quarter. Funds from operations were $0.20 per share compared to $0.15 per share in 2Q, 2012. Second quarter 2013 results include a loss of $0.03 per share related to the retirement of our Series J preferred stock and $0.04 per share loss on early retirement of the debt. The four one-time items namely the impact of the early retirement of debt, the Series J preferred redemption, and IRS agreement in 2Q, 2012; funds from operations were $0.27 per share versus $0.27 per share in the year ago quarter. EPS for the quarter was $0.05 versus a loss of $0.16 in the year ago quarter. Moving on to the portfolio, Bruce told you about the strong leasing performance as we grew occupancy to 91.2%, up 160 basis points since last quarter and 330 basis points from a year ago. Regarding leasing volume in the quarter, we commenced approximately 4.2 million square feet of leases. Of these, 1.3 million square feet were new, 2.1 million were renewals and 0.8 million were short-term, kind of retention by square footage with 74.5%. Same-store NOI in a cash basis excluding termination fees was positive 1.9% due occupancy growth, the impact of contractual rate bumps and less free rents. Given the $1 million of restoration fees plus some one-time tax refunds we had in the year ago quarter, we're pleased with our same-store results. Same-store NOI growth including termination fees was a positive 0.8%. Lease termination fees totaled $243,000 in the quarter. Cash rental rates were down 5.2% and on a GAAP basis, they were up 1.1%. Leasing costs were higher than typical at a $3.94 per square foot. The costs associated with a higher mix of new leases were driver mainly from two…

Thanks, Scott. Before we open it up to questions, let me say that we are focused on winning tenants to grow our cash flow and hit our 92% occupancy goal by year end. Beyond that we can increase cash flow by stabilizing our portfolio in the mid-90% range. We can also grow cash flow as we lease up our developmental process and our recent acquisition. Our balance sheet is in very good shape. Our new expanding credit facility improves our flexibility as we invest for growth and manage our maturities. By refinancing higher cost debt, we can further lower our cost and capital on our way towards our goal of achieving investment grade. We are upgrading our portfolio through addition in the form of new investments and through addition by subtraction from targeted sale. And from a valuation standpoint, we still trade at a discount to our public company peers as well as private market transactions. We have the opportunity to close those gaps as we deliver on our strategy and further demonstrate the value of our portfolio and our platform. One final item, I would like to mention before we take your questions. We hope that many of you will join us on Tuesday, November 12 for our Investor Day in Southern California. We chose Southern California because it is our largest market at 10.6% of our rental income as of the second quarter and growing as we execute on lease-up of our new developments and our existing portfolio. We will conduct a presentation regarding where we've been, and more importantly, where we're going. And you will also have the chance to tour some of the high quality additions we're making to our portfolio there. Please contact Art Harmon if you are interested in more information about attending. With that, we'll now be happy to take your questions. As a courtesy to other callers, we ask that you limit your questions to one plus a follow-up in order to give other participants a chance to get their questions answered. You are of course welcome to get back in to the queue. And so now operator, may we please open it up for questions.

(Operator Instructions). Your first question comes from the line of Craig Mailman with KeyBanc.

Just a question on the occupancy ramp this quarter. Just curious, did the leasing activity knock out any of the top ten vacancies that you guys have talked about previously and also curious any markets your upside surprise to relative to initial plan for the year?

Well, let me start and then Bob will talk about the on the top ten list, but in general, this is a broad-based strength and we're seeing a good strength in almost all the markets. I would say the markets that probably doing better than most of the markets. Bob, you want to talk about the top 10.

Sure, Bruce. Craig, as of the end of the quarter we still have about 90 basis points of upside from the original top 10 list we outlined at Investor Day back in November of 2011. As you may recall at that point we had about 320 basis points of upside but on a quarter-over-quarter there wasn't a lot of growth and let me ask Peter to update you a little bit on some of the specific opportunities we have in that list.

Craig, the bulk of the remaining vacancies in the top 10 list are really four properties, two in Atlanta and two in Central Pennsylvania and in Atlanta that's the market as that's continued to lag its peers but the good news is no new supply with the delivery of only one spec building on the west side. We really like the lease-ability of our properties, in these two properties we have made steady progress on so it's just the remaining piece for us to lease. And we're encouraged by the activity and the continued absorption in the market. And then in Central PA the other two buildings likewise we continue to see positive momentum and new activity there as well.

Great, that's helpful. Then just a follow up maybe just help us get a sense kind of the ramp in (inaudible) for the balance of the year I know Bruce you said maybe we see a summer slowdown here but beyond that do you guys have any other large move outs or expirations about that, could prevent you guys from hitting the 92% before year end?

A lot of things could prevent us but our goal is to hit that number and we are very encouraged by the second quarter, we've got 80 basis points to go here to meet that goal, we've got 2 quarters and as you know we've had decent growth in last couple of years in the fourth quarter. So we're encouraged at the (inaudible) going it's way.

Great, thank you.

Your next question comes from the line of Ki Bin Kim with SunTrust.

Thank you, I know this is a overused term, but congrats on the quarter. Just a couple of quick follow-ups on that same store NOI question, you mentioned in the opening remarks that were some one-time items that impacted the 1.9% growth, what would it have been on a more clear number year-over-year?

All right, Chris you want to take that?

Sure. Ki Bin, the biggest impact was and we had mentioned before on restoration fees, we have some restoration fees a year ago, about $1 million and the change from this year, it's a drop about $0.5 million. If you took those out of the numbers then same store would be up about 2.9%.

Can you said again, I missed that, 2.9...

It would be up about 2.9% if you took out.

Yeah, if you took out the restoration fees from both quarters, we have 2.9%.

Okay, got it. And that answers most of my questions, but was there any additional upside in that number, could there be an additional upside on that number given maybe you could talk a little bit about of timing of the occupancy gains during this quarter, it's look more back and weighted and if that number on a pro forma basis could be a little better? And also could you remind us how much cash same store NOI growth is locked in on an annual basis due to contractual rents above on a portfolio level?

Ki Bin, if you are talking about our guidance that we issued, we did increase our same store guidance in the quarter and that was because of the outperformed we had in the second quarter, related to NOI, predominantly lower bad debt expense compared to plan and higher real estate tax refunds. So when you look out on same-store couple of things that could impact same-store in third quarter and fourth quarter, they could be those types of things as well. We budget about $750,000 per quarter in bad debts, that's a more normalized and as we've mentioned probably in the last two years, our bad debt has come in. So that would be one thing that cause our performance next quarter and again one-time items like real estate tax refunds could cause that as well. And I'll turn it over to Chris to talk about our rental rate bumps.

Yeah. Ki Bin, on the rental rate bumps, this year in 2015 the bumps are averaging about the 4.2% and that's an (inaudible) on 50% of all other leases. So effectively it's about 2% increase in rental revenues. I guess that's where and going forward, we probably see that tick down slightly and historically we've been averaging bumps about 2.5% to 3%.

And why would bumps in the average sound a little bit?

I'm sorry Ki Bin, could you repeat that?

And you said, rent bumps in your leases are averaging down a little bit going forward and why would that be?

Historically, we've been 2.5% to 3% as far as long term historical run. So we're not seeing quite as the favorable in the past couple of years, we had some bigger increases in the first part of the lease, you'll probably see a less of that going forward.

And you had lower (Inaudible) rate and higher bumps and now you're getting more normalized. So when you probably go back to the 2.5% to 3% average.

It does all, what I was leading to if I guess you're doing less up front either then?

Right. Yes.

All right, thank you.

Your next question comes from the line of Dave Rodgers with Robert W. Baird.

Yeah. Good morning there, just want to start with you on the leasing side, if you could and talk a little bit about kind of the verticals that drove the strong leasing performance during the second quarter and really during the first half of the year, maybe subdividing it between some of the smaller spaces given your average size around 90,000 square feet and then some of the bigger deals that you talked about earlier?

Peter, do you want to take that?

Sure, this is Peter, the activity as Bruce said in his comments was pretty broad based across many of our markets. And we saw a strong increase in lot of the smaller spaces Denver as an example, South Florida as an example, it wasn’t really any one deal that drove that it was broad based improvement across many markets.

And maybe in terms of the verticals of customers that drove that was that similarly broad based, or do you see any concentration of housing or internet based activity?

Broad based as well; we continue to see demand from a variety of users, consumer products, energy, oil and gas out in the Denver area, automotive. We certainly see more from the housing related side, the shower, door guy and the window guy, I wouldn’t say enough to make it a trend, but we’re definitely seeing an increase in that and we think we have additional outside on some of our smaller spaces if that continues to expand.

Okay, and thank you, and I think Jonathan probably have follow-up to that.

The way you drilling in on the development side as if, you look what you guys have place in-service, sort of having a pipeline right now, it’s a pretty good diversion in terms of the size, seems to be trending a little bit on the larger size over 400,000 square feet. I was wondering if you guys could talk a little bit your outlook for the size of product and where do you think that demand is going to come from and what your biases towards the future development?

Jon, I don’t think, let me just get, I mean, we are focus on our larger product, we think of that in terms of our distributions of product and again we are developing in key markets Southern California, Houston, Central PA. So we're pretty excited about the developments we're doing and we think there is good opportunity there. Jojo, you want to continue?

Yes. First of all, we build to the market. We got to meet the market and we're very strict in looking at where demand is stronger and where supply is shorter, to give you an example, when we built Inland Logistics there, 700,000 square foot in Moreno Valley that was the biggest shortage. In Chino, market was tight for 300 to 500, we built a 300 and we got that on lease. In our design and commerce, that is both a multi-tenant, partial and large market. So we've designed a building to accommodate multiple users or a large building user that can accommodate 489,000 square feet. As you move to the East Inland Empire, there is where you need larger space and buildings over 500,000 square feet. So like Bruce has said, in the third quarter it will be 555 plus. This recent land establishment we did, that’s going to accommodate up to 1.4 million square feet because that is where a confluence of large user. So bottom line is that we build to the market.

(Operator Instructions) Your next question comes from the line of George Patterson with BMO Capital Market.

Just following-up a little bit on the development side. We’ve talked in the past about how much of the new supplies reached sponsor? I am curious to know if where you peg that today and if you think it has changed at all recently?

I still think the bulk of the new developments into the specter are coming from the public REITs but I mean that will change over time because more capital will come into the development of industrial. So that will change. But right now I think we are probably doing more than half of it.

More than half, okay, sort of private developers just construction financing terms changed at all in the last couple of months, is it loosening up a bit?

I would say that it’s loosening up a little bit but not a lot. I mean today it’s still one of these things that doing spec construction you need a lot of equity and you need great sponsorships. So we haven't seen that open in terms of that, you know, again if you talk about worry down the road I think we've got a decent runway for the next two-three years but at some point the spec will open and you will see a lot of new development but to-date we haven't seen that.

Okay and then speaking a little bit about you mentioned that cash rental rate spreads are down about 5% on the quarter, I was curious if that's broad based across the portfolio or can a few leases explain that?

You know what you have to remember is that the mix of new deals and renewal deals has a big impact on that. So the new deal that we do has a much higher mix, so that probably had the biggest impact as far as impact on the rental.

Right, given that we had such a good increase in occupancy the 150 basis points in which a 125 are from leasing, you know, there were a lot of new leasing. So, that's a bigger negative than the renewals.

Okay, where are renewals trending right now in terms of cash rent spreads?

In the first quarter we had a positive you know this quarter they were down about 2.5% but overall we still think renewals should be slightly positive on the entire year.

Operator, next question?

Your next question comes from the line of Eric Frankel with Green Street Advisors.

Thank you. Bruce, could you remind us how much of the non-core pool you have remain to sell in terms of book value?

Well, asset management is an ongoing process, but I would say that by the end of next year, we should have got rid of lot to discuss that we focused on couple of years ago. So but again, we will continue to sell property beyond if we get through, with the pool, just keep going in terms of selling assets and continue to upgrade the portfolio.

Okay. Again my follow-up question is, I guess something goes back to development as well, I certainly understand that development is well below over historical averages, but is that really the case in Inland Empire, Houston and Central PA, as it just seems like there is a lot more activities in those markets just because they are relatively healthy? Thank you.

Jojo, you can just looking jump on it. I would say the Inland Empire if you look at the developments, there is potential for a bunch of development out there and you are seeing that. So I would say that I feel in terms of our new project out there, the 555,000 footer, I feel that it’s a little bit more aggressive than when we started our 692,000 footer a couple of years ago First Inland Logistics, but we feel pretty good about that market and we are doing everything we can to build a great product with a lot of lessons we think make it attractive for our user. So we feel pretty good about dealing with that. Jojo, you want to talk about Houston and Inland Empire.

Overall, I mean, we came from a time where we had a significant shortage. When they were three tenants looking for, we have three tenants for every building. So it is probably practical to feel it since we've got some more development right now and be concerned. But the reality is that there is absorption that is actually meeting the supply today. So as we look today, we are closer to equilibrium today than versus two years ago, where we had a significant shortage. So at this point, there is healthy activity and we have to be diligent on the supply. In our First 36 Logistics Center, we're very pleased with that, because there are very few 36 buildings and this is going to be one of the most functional buildings in the Inland Empire, their base is great. So, and in addition to that our land position on the new 69 acres is probably the lowest, you will probably see that's the lowest comp in the market for this year.

And then we got in Houston again, there are number of buildings going up in Houston, but you add the square footage, it's not much relative to the overall market there. So we're not worried about that, we feel very good about our location in Houston for a 350,000 foot that we hope to start next year. And then in Pennsylvania, Peter, you want to talk about our 701,000 in the market there?

Right. Eric as Bruce mentioned in his comments, our new building in Central PA is on track for year end completion. In fact, we just completed tilting of all the wall panels this week. But from a demand standpoint, there continues to be very strong interest from a variety of users in the marketplace. And while we acknowledge that there is future development potential, there have been no new competitive starts in that submarket at the moment. But as Jojo mentioned, we continue to see absorption of the existing space. We were pleased in fact to hear everybody talk about the leasing of a large piece of their building in [Carlyle] and their call will reduce the competition from our asset. So we very much like the location and positioning of our asset. Recall that we have assumed 12 months of lease-up post completion. And as we have said, we look forward to keeping update on our progress, but we continue to be very bullish on these markets.

We are pretty, we are encouraged about our position and again judges on how we do in terms of getting this leased up at pro forma and so on time and on budget.

Your next question comes from the line of Michael Mueller with JPMorgan.

I guess first of all on the building acquisition that was vacant, I mean how are you thinking about the prospects for leasing that up, is there a budgeted timeframe you are looking at?

Mike, we are very excited about this acquisition and again 509,000 feet, it’s in a great location and great building built in 2005. It is vacant. Our job is to get it leased up. We think there is good activity in that area. We budgeted a year leased up and judges and how we do, but I’ll be disappointed if we don’t get it leased up ahead of that.

And then secondly for the second quarter asset sales, when did they close in the quarter, was at backend, middle, beginning?

I am not exactly sure, but my guess is it was probably throughout the quarter.

Your next question is a follow-up question from the line of Craig Mailman with KeyBanc.

I’ve got a follow-up on the sale question here. Just curious, the space is pretty good this quarter, are people just trying to get ahead of kind of rising interest rates expectations and that’s why you guys saw the better pace. Do you think that continues to help here?

I think it depends. Again we're looking primarily user buyers and you can’t sort of predict what the best. We're pleased with the sales, the $41 million plus of sales with good pricing in terms of the product that we were able to sell and then move that money in to the new investment in Chicago and the new land that we're developing on. We think it's a great trade and the insight cap rate was like 3.5%. There was only 68% lease. So we feel very good. Again our strategy is to look for user buyers primarily for the assets and maximize pricing, but we're very encouraged and hope the trend continues. We're well on our way to get our $75 million to $100 million target for the year.

Okay. And then just on development, the comments we will try closer to equilibrium at this point. In this cycle and just kind of putting that together with the rise in the tenure here and expectations that rates may move higher. Kind of how are you guys, have changed at all your underwriting on developments to account for the risk of competition from the supply and then just where exit caps maybe down the road?

Well if anything the rising interest rates, they are going to make it harder in terms of the people will do that building because in terms of what they have to, the hurdles. So I think that will make it more difficult. From our standpoint again, we think our development yields are pretty good. We try and (inaudible) 100 to 150 basis points more than what we think we can sell the asset for. We got it up and lease and we're encouraged, but from our standpoint that's what's going.

And we are going to change our downtime assumptions today and then we are, it’s all return investors, so we will still look for that rent growth and you know it’s not all just going on yield. So we want to make sure that we continue to invest in submarkets so we have rent growth.

And then just one last quick one for Scott. So it sounds like the kind of just adjusting for the restoration fees in the quarter about a 100 basis points, is it fair to say kind of normalized for the year for guidance 2.5 to 4 is kind of a decent way to think about it?

Are you talking about same store for the rest of the year, Craig?

The same store guidance or same store assumption in guidance the one after three, if you kind of normalize like 2.5 to 4.

I would say it’s probably 2.5% to 3% is more where you are seeing the midpoint to be.

Your next question comes from the line of Jon Petersen with MLV.

Good job on the quarter, fundamentals look great, but I want to focus on the balance sheet for a minute here. So I know you are hyper focused on gaining on investment grade rating, your net debt to EBITDA in the mid-6s, fixed charge coverage 2.2, very in line with your peers and I'm looking at (inaudible) just right now you essentially, some looks better than that. So if industry notches above you. So I'm trying to get you know (inaudible) and I'm trying to get an insight into your conversations with the credit agencies and kind of what the hesitation is to upgrading your rating, is it just a matter of time or is it still hurdle you need to cross?

I think some of it's time based. I mean, we had some traction after our first quarter call. S&P upgraded us from BB to BB+. Moody’s upgraded us from Ba3 to Ba2 and kept us on positive outlook. And Fitch kept us at BB flat but they increased our outlook to a positive, so we think we are making traction with the agencies and you are right. So some of it is time, but when we look out in the improvements we’ve made for our balance sheet, even example during the quarter issuing $480 million of equity and taking out the preferred stock, our ratios are looking very, very good. We were at seven times debt and preferred to EBITDA. Last quarter, we’re down to 6.7 times and our fixed charge coverage in the second quarter on a standalone basis is a little north of two times. And fourth quarter standalone should be at above 2.2 times area. So we like the trends that we see. We’ll go and visit the agencies at the end of the year and hopefully we will make more traction at that point in time. But we feel very good about the progress we’ve made and where we’re going to be at the end of the year.

Your next question is a follow-up question from the line of Eric Frankel with Green Street Advisors.

Just two quick questions. One of the 330 basis points occupancy increase from last year, how much of that is probably attributable to vacant building sales or less than 100% occupied building sales?

The impact for 330 basis points, it was about 20 to 30 basis points was the impact of sales.

Okay. And Bruce obviously you had a pretty hard deadline of when you like to reach 92% occupancy by the end of the year? Any chance you want to set an additional goals when you want to reach here your mid 90% occupancy goal?

Well, I tell you what. If you come to Investor Day, we will focus on that point.

We had ourselves, hope we can get in and out further.

No, we are very -- again we set this goal back in November of 2011. And at that time I think we're about 87% or some like that. We are focused on this 92%. The team is going to handle the job. We're making good progress. We still have some more to go to get there by the end of this year. But again it is a focus that we do believe we really get to mid 90s over the next few years. We'll talk about that on the Investor Day and we encourage all of you to come join us.

Your next question is a follow-up question from Ki Bin Kim with SunTrust. Ki Bin Kim – SunTrust Robinson Humphrey: So just a quickly follow0up on your leverage questions. If I look at debt or preferred to EBITDA on a look through basis, so excluding the CIP in process right now, it's actually below your low end of your leverage target. So my question is, how much are you willing to let that rise, like are you willing to let that rise 7.5 times? And with that, are converts a more attractive equity vehicle or traffic vehicle given that you are so low in your leverage target and would you that be preferred over a secondary offering going forward?

This is Scott. I would say that debt to preferred to EBITDA, I think that's something that we would have it increase on a temporary basis over that seven times goal, that is our development pipeline really ramps up. As far as the converts are concerned, we have been looking at that product for the last several years and it’s probably not one that we are fond of right now and I just think the interest rates that you are getting now with the premium aren’t worked.

I will come back and say look at where our leverage is right now and our ratio, we’re in great shape and again that ratio, we are spending the money these developments. We are going to the incoming for these developments in Bandini in California and the Pennsylvania. So if you get that income you make a lot temporary, but it is going to keep coming down and we keep leasing up. And so obviously even good about that. I think our balance sheet, if you look at it we have got a lot of capacity in terms of where we are. We got a new $625 million line of credit. We only have $200 million outstanding line. So we are in very good shape versus balance sheet compared to lot this and again it’s important to us to get to the investment grade rating. We want to keep doing that but keep moving it down, but again the best way we can do that is by keep leasing at the portfolio. Ki Bin Kim – SunTrust Robinson Humphrey: Okay. And then just one last question, the 95% goal for occupancy, how of that is called yearend, definitely your yearend target is 92%, so how much of that additional 300 basis points gain is addition like from cash versus traditional occupancy leasing?

Well, first it’s the mid 90s and not 95, we say mid 90s. Come Investor Day we can talk more about it. In terms of how much of that is from sales versus leasing, I think in termso f most of it, in terms of where we are we will be contemplating, but again we will talk more about that when we're together on Tuesday, November 12 and we look forward to seeing you there with us.

And there are no further questions at this time. I would now like to turn the floor over to our presenters for any closing remarks.

Thank you, operator. Again thank you for everyone for participating on today’s call. If you have any questions, call Scott, Art, and myself and finally again, this Investor Day, we really hope you will come out and join us. We did this a couple of years ago. We're going to try and make it meaningful for you. We wanted you to see what we're doing, what the strategy is and see the execution of what we've been able to do out in California and we look forward to sharing that with you. So again thank you. We look forward to see you in November.

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