Eastgroup Properties Inc (EGP) 2007 Q1 法說會逐字稿

Welcome today at EastGroup First Quarter 2007 Earnings Conference Call. I would now like to turn the call over to David Hoster, President and CEO. Please go ahead.

Good morning. Thanks for calling in for our first quarter 2007 conference call. We appreciate your interest in EastGroup. Keith McKey, our CFO will also be participating in the call.

Since we will be making forward-looking statements today, we ask that you listen to the following disclaimer covering these statements.

The discussion today involves forward-looking statements. Please refer to the Safe Harbor language included in the Company's news release announcing results for this quarter that describes certain risk factors and uncertainties that may impact the Company's future results and may cause the actual results to differ materially from those projected. Also, the content of this conference call contains time sensitive information that subject to the Safe Harbor statements included in the news release is accurate only as of the date of this call.

Thank you. Operating results for the first quarter met the midpoint of our guidance range. Funds from operations were $0.72 per share as compared to $0.71 per share for the first quarter of last year, an increase of 1.4%. Excluding the gains on land sales of $0.03 per share in the first quarter of last year, the increase was $0.04 per share, an increase of 5.9%.

Please note that we calculate funds from operations based on NAREIT's definition of FFO, which excludes gains on depreciable real estate.

We continue to achieve solid same property net operating income results in the first quarter with an increase 6.1% without the straight-lining of rents and we are straight-lining same property results improve by 4.4%. This was the 15th consecutive quarter of positive results for both measures.

On a GAAP basis, our most -- our best major markets for same property results in the first quarter, after the elimination of termination fees, were El Paso which was up 35%, Orlando up 11%, South Florida up 9% and Houston and Los Angeles both up about 8%. The trailing same property markets were Dallas, down 18% and Phoenix, down 2%. The differences as usual, basically all due to changes in property occupancies in the individual markets.

Occupancy at March 31 was 96.1%, the highest in 6.5 years. California ended the quarter at 99.2% occupied and Florida was 98.5%. Our leasing statistics for the first quarter illustrate the continuing strength of our markets. Overall, of the 1.1 million square feet of leases that expired in the first quarter, we renewed 64% and released another 29%, for a total 93%. In addition, we leased 204,000 square feet of vacant space.

As you can see in our supplemental information, we continue to achieve good rent growth in the first quarter, both for cash and GAAP calculations. Increase is of 4.0% for cash and 11.4% for straight-lining of rents. Our average lease length was 3.8 years and our average lease size was 14,000 square feet, both figures were within our normal ranges.

First quarter tenant improvements averaged $1.61 per square foot for the length of the lease or $0.43 per square foot per year of release. These averages are higher than last quarter due to an unusual proportion of service center leases being executed during the quarter. But they are in line with 2006 full-year results.

At March 31, our development program had increased to 21 properties containing over 1.6 million square feet for the total projected investment of $121 million. Seven of the properties were in the lease-up and 14 are under construction. Geographically, the developments are diversified in five states and eight different cities and overall are currently 38% leased.

During the first quarter, we transferred two properties into the portfolio with a total of 146,000 square feet. Oak Creek III in Tampa and Santan 10 Phase II in Chandler are both 100% leased. Also during the quarter, we began construction of 250,000 square feet consisting the Southridge VII in Orlando, and three buildings in Wetmore Phase II in San Antonio.

In addition, we acquired the vacant Centennial Park building in Denver with 68,000 square feet for redevelopment into a multi-tenant facility.

This month, we executed a ten-year lease for a 404,000 square foot built-to-suit development in our Southridge Commerce Park in Orlando. This development which we are calling Southridge XII has a projected cost of approximately $20 million and is expected to be completed in the second quarter of next year. And Southridge XII is not concluded in any of the statistics that I gave earlier about the size of our development pipeline.

Last year, we had total development starts of $76 million. For 2007, we now project development starts of approximately $110 million with a total of 1.7 million square feet. These new developments will have little effect on FFO this year, but are a strong start towards achieving FFO growth for 2008 and 2009.

Our development program has been and we believe will continue to be a creator of significant shareholder value. We are not a merchant builder. Our goal as a developer is to add quality state-of-the-art investments to our portfolio and thereby increase total returns to our shareholders in both the short and long term.

First quarter acquisition activity exceeded our total for all of last year. We purchased 12 buildings in four separate transactions with a combined 928,000 square feet and a total investment of $43.8 million. Two of the complexes are in Charlotte, a new market for EastGroup as of last December. These recent acquisitions increased our ownership there to just under 1 million square feet.

Our Dallas single building acquisition is in the I-35 Stemmons Corridor, which is an existing EastGroup submarket there. The San Antonio acquisition, which has 231,000 square feet in four buildings, is located in the Northwest submarket in the same park as our Alamo Downs complex. We now own or have under development a total of over 1.5 million square feet in San Antonio. In addition, we currently have a small building and adjacent land for future development under contract to purchase in Tucson with closing scheduled for next month.

As you can surmise by this acquisition activity, we are seeing a greater number of property offerings that fit our investment criteria than we did last year. At present, the only property we are marketing for sale is our 152,000 square foot Delp I building in Memphis.

Keith will now review a number of financial topics.

Good morning. As David reported, FFO per share for the quarter increased 1.4% compared to the same quarter last year. The first quarter of 2006 included $0.03 per share from a land sale and there were no land sales in the first quarter of 2007.

Excluding land sales, FFO increased 5.9%. Bad debt expense was $149,000 for the first quarter of 2007 compared to $115,000 in the same quarter last year. Lease termination fee income was $15,000 for the quarter compared to $185,000 for the first quarter of 2006. We continue to have low leverage with debt-to-total market capitalization below 30% at March 31, 2007.

For the quarter, the interest coverage ratio was 3.9 times and the fixed charge coverage ratio was 3.5 times, all improvements from the year ago. Our floating rate bank debt amounted to 5.9% of total market capitalization at quarter end.

We had two mortgages that were scheduled to mature in 2007, which totaled $14.3 million at March 31, 2007. The $4 million, 7.8% mortgage due April 15 was repaid with our bank line. The $10.3 million, 8.1% mortgage due June 26 can be repaid on May 27, and we plan to repay this loan early with our bank line. We will send out a loan package this month for quotes on a nonrecourse fixed rate mortgage with expected proceeds in excess of $50 million.

In March, we paid our 109th consecutive quarterly distributions to common stockholders. This dividend represented an increase of 2% over the previous quarter's dividend, and May 2007, the 15th consecutive year of dividend increase. This quarterly dividend of $0.50 per share equates to an annualized dividend of $2.00 per share.

Our FFO payout ratio was 69% for the quarter. FFO guidance for 2007 remains the same with a range of $2.93 to $3.03 per share and earnings per share is estimated to be in the range of $1 to $1.10.

Now, David will make some final comments.

Now you can tell from our reports, first quarter was a productive one for EastGroup. We increased occupancy to over 96% while continuing our track record of rent growth. It was our 11th consecutive quarter of increased FFO as compared to the previous year's quarter, and our 15th consecutive quarter of positive same property operating results. Our development program has expanded to a projected $110 million of new starts for this year. We completed $44 million of acquisitions and our balance sheet remains strong and flexible for future opportunities.

Keith and I will now take your questions. Thank you.

(OPERATOR INSTRUCTIONS). And we'll take our first question from Michael Bilerman with Citigroup.

Hi. This is [Erwin Guzman] here with Michael Bilerman. My first question is about Charlotte. It looks like you guys are already close to your goal in terms of acquisitions to that market. Are you done acquiring there?

No. When we said we had a goal going over a million square feet, that was just in the first 18 to 24 months of ownership. Our goal is to expand well over that. I guess our next hurdle is maybe 2 million square feet. We planned during the balance of this year opening a management and asset office in Charlotte and probably have three people in that office. And as we staff it, we will begin to look at development opportunities in that market and other acquisition opportunities in the other major North Carolina cities. So, this is just a strong start.

David is there a thought that may be you are going to fast to quick before you get a sense of the full fundamentals of the market?

No, I -- we are usually accused of moving too slowly on being too conservative on things. Now, we are very pleased with our purchases that started there last December. I guess, we actually started offering in the early fall. Our occupancy, everything we bought there was below our pro forma occupancies. We signed; I think its three leases, so that we are moving towards the 95% average occupied. So, we will not pull down the overall our portfolio of occupancy. All the information that we see from the statistics on Charlotte, shows that we had good timing. Charlotte was maybe little slower out of the recession than some of our other major states. And we think this is a good time to buy there.

Do you have a blended going-in cap on the $44 million of acquisitions for the quarter?

That's a good question. Let me get back to you on that since only one of them was at or above our pro forma occupancy. Didn't make that calculation because we've already leased some space and improved. And when we -- just as an example when we put the different packages in the first quarter under contract, they were 85% occupied. As of the end of the quarter, they were 88.7% occupied and today, were up to 92.5%. So, making progress, I have to say, didn't ever calculate the blended rate on that, but we will get back to you on it.

Okay. My next question is on land. How much do you expect to buy this year to build out the development pipeline in '08 and '09 and how far in advance do you typically look to buy land?

We really don't have the stated quota, because what we are trying to do is buy land that we can turn into developments. Generally in the first three years of ownership, sometimes it happens a little slower, sometimes a little faster. And we just grab opportunities, when we identify them. We didn't buy any land, didn't close on any transactions in the first quarter, but we currently have two parcels in Houston under contract. The land that I mentioned earlier that's in Tucson and we are working on a couple of other parcels. But, we will announce I think a couple of closings in the second quarter. Industrial -- well located industrial land that allows us to build our product is hard to come by and so it's -- we just jump when we see the opportunity to do something productive with it.

And at that point are you underwriting the same 9% to 10% yield from the new land and do you expect development to slow at all because of rising land costs?

No, not because of rising land costs. If development slows, it will just be simply because of the increased building in different markets are slowdown in leasing. We have seen over the last six months maybe a slight reduction in yields on new buildings, but not anything that's significant or would cause us to pullback. I think we've been able to achieve generally higher average returns on our developments than most of the industrial developers.

Yeah. That's it. Thank you.

Thank you.

We'll take our next question from Paul Morgan with FBR. Please go ahead.

Good morning.

Good morning, Paul.

Just with respect to your guidance on same store in line and occupancy in other areas. An acquisition is based on the progress. I know its only one quarter and things move around. But, is there anything that you are looking at for the rest of the year that would lead you to think that you are going to have a flat or down quarter that's going to get you, sort of, to the midpoint of your guidance range in those areas? Or the -- basically are you seeing an acquisition to add -- to raise your acquisitions target?

Well, acquisitions, I will answer that part first, can bounce all over the board. I mean other than a building that we currently have under contract in Tucson, and we can strike out for the balance of the year. It just seems to go in spurts. I think we are going to do better than that, but acquisitions are very hard to project, especially the timing of the closing.

In addition, as I mentioned earlier, most of what we buy, we think we're getting a better return over the longer period because we're buying with some vacancy. And so as a result, when we, say we're buying something at a seven plus yield at 95% occupancy. It takes us a while to get there. Only the small building in Dallas, if we buy a property, where we were stating our actual yield when the acquisition occurred. So, it's both the timing of closing and the timing of reaching our pro forma numbers, because of the strong same property operating results that we have had over the last couple of years, well, more than couple. And the increase in occupancy showing significant improvement on that statistic is becoming harder and harder. We had one heck of a strong fourth quarter. So, when you try to project how we are going to improve on almost to 96% occupancy in the fourth quarter of '06, we will just get little conservative on what our same property result increase is going to be later in the year. Now, if we can get to 97%, 97% plus, then we will be able to keep up with those numbers but that's an aggressive projection and just don't like to do that at this stage.

But its not that you are implying that there is some space, like you have had a lot of [expressions] in Jackson for example, that you think is going to be above market and hard to lease up to release?

No. It's just compared to what we did in each quarter of last year.

Okay.

Rather than any problems that we see in any one market or any one or two properties.

Okay.

So, it's just when you got strong same property and increasing occupancy, it's just -- you can't do that -- you can't report the above average returns forever.

Right. On the tenant demand side, this has come up in prior quarters. So, I just wanted to get an update. A fair number of your distribution tenants are housing wholesaler or supply related and I just wanted to see if there has been any movement in shifts in the type of people you are looking at to take the distribution space and the housing market softening has changed the demand there at all?

Florida, we're not seeing the prospects related to the housing industry and we've lost a couple of small tenants related to the housing industry. But the bigger operators report that home owners, existing home owners are renovating their houses, expanding and so that all of their business is slowed. It's certainly hasn't crashed or gone away. In Houston and San Antonio, the home building business is still very, very strong. And so, we are still seeing the expansion by the home building related entities in those two markets.

So, I can see next to Florida, for example, is there another segment that is stepping up that you're seeing a lot of activity in there?

Not any specific segment, just overall continued growth because there is continued population shift into those four states, that we call core states. There was an article in the Wall Street Journal on section -- I think it was Tuesday about how many congressional seats are going to be shifting to those four states over the next couple of censuses. So, the population shifts are still occurring on a daily basis with some pretty big net numbers and there is still good job growth in most of our cities. So that -- I would say that there is a very slight slowdown overall, but it's simply I think because there was a pinup demand that came out of the recession and so -- I know I used the term spike, but there was a more demand and supply. And I think now most of our markets are more -- the fundamentals are still very strong, but they are much more stabilized in terms of new demand, new supply now equaling the strong demand.

Okay. Thanks.

Thank you.

We'll take our next question from Chris Haley with Wachovia. Please go ahead.

Hey. Good morning, guys. It's Brendan Maiorana for Chris.

Good morning.

David, just following up on the same store comments and I understand the pressures that you guys are going to be facing in terms of occupancy year-to-year such as the back half of the year. Could you give us a sense on what your mark-to-market rents are for some of your larger markets?

That's something that we got out. We've been ask for ten years and we don't calculate it. Years ago when everybody was talking about embedded rent growth in the late nineties, we try to calculate it and figured we didn't have any. And then every quarter we kept reporting higher rents. One of the issues for us is that every one of our spaces in the multi-tenant building has a little bit different office build out. And so, each one has a different rent related to the office build out directly and it's very difficult to determine what you are going to do with that space when it releases. And we found more often that and not that we are actually expanding the office purchase, we are tearing it out. We also saw our office brethren were so off based and all their embedded rent growth that they never achieved they talked about, that we figured we are just better off leasing space and increasing rents as hard as we could and the results speak for themselves rather than trying to figure out exactly what the market was going to do for us because that can change almost daily.

Okay. Well, just thinking about -- just looking at some of the role that you guys have for the remainder of the year. It looks like in most of the markets where you have significant role have been pretty strong with the exception of El Paso, which had been a little bit weak and is getting stronger. Can you give us a sense of what rents are doing in El Paso?

I think its best you could stay in El Paso. The rents, the market itself has just stabilized. They haven't moved up at all. There is a lot of optimism in El Paso that hasn't translated to higher occupancy. Yes, there is a 25,000 or 30,000 army troops coming to support police there. There is several million square feet of new manufacturing space. That's now occupied in new areas across the boarder. So that -- people are optimistic if that's going to translate to higher occupancy, but we haven't seen it yet.

Okay. And then switching gears, looking at acquisition, development, obviously you mentioned that you are much more active on the acquisition front this quarter. And it's like there is a little bit more opportunity on the acquisition side. Can you give us a sense by market, where you are seeing either the greatest pressure or opportunity in terms of changes in acquisition and development yields over the past, say, 6 to 12 months?

That's a pretty broad question. I think if anything and there is a change that we have seen in yields or cap rates, it's in markets like in Orlando that maybe can be viewed as a secondary or tertiary market before. It's now become a primary market. So, it's really the institutional dollars that seem to drive the cap rates. And so, cap rates have come down to -- they have to be historically at low levels in a city like Orlando, because there is more -- big money chasing the assets there. I think that's just starting to happen in Charlotte and so, we're glad that we bought what we have to date. I think cap rates are coming -- clearly coming down there is more institutions recognized potential for that market. In most of our other markets, I would say the cap rates are low and there's not much indication that they are moving in either direction.

Okay. I guess I am just trying to reconcile those comments which sounds like there hasn't been any relief in terms of acquisition yield eventually with your earlier comments that you are seeing more opportunity. And then --

Well, I say there is more opportunity. Part of it is just are more packages, where the assets in the package both geographically and by industrial type fit our criteria. In '06, a huge dollar volume moved in industrial, but a lot of that was in the packages that were $100 million, $200 million, $500 million. There were lots of different cities that we were interested in, different bulk buildings we were interested in. So, what we would do is bid on individual markets and sellers generally don't break those up. So, that -- we just didn't have the chance to get serious on acquisitions, where what we've bought so far this year, some of the assets never went to market and some others were like Dallas were small and didn't appeal the institutions. So, our whole concept to be in a more opportunistic buyer and finding some things a little bit adhere on them and being able to correct that, work for us. Now, whether we have the same opportunities in the future, I don't know. But there's more packages out with our type of assets in them.

Okay. I understood. And then in terms of Charlotte should we -- I think you had previously mentioned that, you expect to probably be in that market about 18 months before you would start any new development, is that still a reasonable estimate?

No. We've actually started the process of looking at land parcels there. We've been very pleased with the markets and the directions taking in almost -- now in 9 to 12 months that we have been studying it. And if the right opportunity appears, we'll do some development there as soon as we can.

Okay. And then just thinking about leverage longer term, where would the good range longer term should expect your leverage?

Well, we've been trying to increase it in previous years and our stock price has done so well that we've issued the equity and sometimes where we thought, we would issue that. So, we will take that. We look at all of those opportunities as we go along. And right now, we are thinking that would be the next way we would raise capital. But we would not rely on any equity either.

Okay. Thanks.

Thank you.

We'll take our next question from Chris Pike with Merrill Lynch.

Hi. Good morning, David.

Good morning.

Quick question, one of your competitors had indicated that restructuring costs are coming in I guess, commensurate with sort of housing related issues, lower bid for construction materials, things of that nature. Are you starting to see that manifest itself all on the industrial side because you have plenty of competitors?

We have seen a little bit of that but not so much that deep and go while we are going to have a good increase in yields or anything like that. And I think that the step that we are seeing particularly at Florida today is there's just more subs looking for work. So, it's a little bit better pricing, its better timing. It's more of an owner's market rather than a GC's market. So, but nothing has -- I mean, the first is just a relief that the prices have started going up. And there's still some areas where they are inching up but overall it's been pretty stable or down slightly and they are not so much that we can brag about higher returns on investment.

Is there any contemplation about new markets and your Charlotte is new? And I am not looking for a -- move out of your play book. I am just wondering are you guys actively looking into new markets across the US?

We are always considering a number of new markets.

Are you close to really starting to move into something or is it --?

Not today.

Okay.

All right. Some people announced they are going to go into a market and then start to operate there. We like to find the right opportunity, is an entrée into that market. So, we are generally going to not talk about a specific new market and tell we have something on the ground to point to.

Okay. How about in some of your current bread and butter markets? It seems that may be you have some supply creeping in and new entrance into certain markets like Orlando or Houston. Is that a concern? And if it is, are you guys doing anything to help mitigate that?

Obviously, the number of developers building industrial is slowly picked up in our successful markets because success attracts developers. I still don't think that we have any explosion of growth so that there is the worry of significant overbuilding in any of our markets. Phoenix did not destroy. I'll touch on it in a minute. But for our type product, we are going to have more competition. There's no question about that. There is more under construction in Orlando, a lot more in Houston. But we think that we have the best locations because we've had them for a while and are building subsequent phases of earlier developments. We have got those attractive parks that attract users, just from the standpoint of the environment of the parks.

So we are going to have some a lot more pressure than we have in the past, but we haven't experienced any slow down in our leasing results yet. That certainly could happen but it hadn't yet. Phoenix has a tremendous amount of new development. I won't bore you with all the statistics, but most of it is for the bigger tenants, for the bigger boxes. There was just an announcement a couple of months ago that a group was building a 1.2 million square foot spec building on the Westside. It's the largest building ever, ever built there. Well, that could skew the numbers certainly but the prospects for a building like that are not going to be looking at our assets. So, we are still confident in building for the 5 to 50,000 square foot user, has a strong market in Phoenix and that all these buildings are going in over 400,000 square feet are not going to be competition.

Okay. And I guess, I just have a couple of balance sheet questions. But may be Keith, if he can give me a ring, when you have a moment after the call, that will be great.

I will be happy to.

Thank you very much, gentleman.

Thank you.

And we'll take our next question from John Stewart with Credit Suisse. Please go ahead.

David, can you speak to the softness in the Dallas market and what it was about the Stemmons Freeway building the -- your investment criteria?

I'll answer the second part first. The Stemmons building has I think it's seven years remaining on the lease and it's clearly a block or two from four other buildings that we already own and they did well. So, it stood exactly where we were and even though we had vacancy, we were comfortable with customer in the building and knew they were going to be there for a while. So, the fact -- and we've just add some less and successfully experience leasing over the last six months. We thought it was a good addition to the portfolio.

Dallas, leasing for us has been a disappointment over the last six to twelve months. We have done pretty well on renewing customers but have not been -- there's just not been a lot of activities, not as though we have lost a lot of deals to other people. And it just seems that our submarket around Stemmons I-35 is slowed down and I don't have a good answer for you on that right now. But we are working hard to get the occupancy back up to our normal level 95%, 96%.

Okay. And then just a quick question on the guidance. It looked like the development contribution slipped from $0.37 from the fourth quarter to $0.36 in the first quarter. I mean, I realize that it's just a penny, but are you seeing any slippage in terms of execution and development? What drove that?

It's just timing problems. Some start a little later than others, and that's all it was.

Okay. And then lastly David, could you give us -- you've touched briefly on new markets and obviously if you don't want to tip your hand. Can you give us a sense for what kinds of markets you'll be interested in?

Yeah. I think Charlotte is a good example for us. It's a metropolitan area that's well over a million people and has strong history and projections for job growth and population growth. It has a stable economy. Before it is a -- Fortune 1000 or Fortune 500 companies that are based there. Two of the biggest banks in the country are there. And years ago, people were worried about Charlotte, if those banks would be taken over and reverse happened. So, we like the prospects. And as you've heard me say many times before, our customer is generally not distributing to a region or super region internationally. Our customer is distributing to the metropolitan area where our building is located. And so, that customer's success is generally based on what's happening in the economy of that metropolitan area. And that's why we think we've done so well in Florida, Texas, Arizona and California, because most of those cities had population growth even in an economic downturn. And so, we're looking for cities with, if not that stronger growth, close to it because that leads to success for our customers, which leads to success for our buildings.

How about of Savannah?

We've looked at that superficially. The metropolitan area is not there. And Savannah is getting a lot of publicity because of the port. But, our customers generally aren't the ones that are taking containers off the ship and breaking them down and sending them out some place else. And I think only time will tell whether a lot of that -- if that happens in Savannah, are those containers are sent to bigger distribution markets like Memphis and Atlanta and broken down there. So, it's just not the size of metropolitan areas that fits our criteria.

Okay. Thank you.

Thank you.

We'll take our next question from Ross Nussbaum with Banc of America. Please go ahead.

Hey, David. This is Ross Nussbaum.

Good morning.

Good morning. I missed some of your opening comments because [BSP] ran a little late. But, what I was curious about is on the prior industrial calls this quarter. Liberty talked a little bit about a slowdown in leasing volume, nothing horrible, but a slowdown nonetheless. AMB has been very clear that they are absolutely are seeing a slowdown in demand although not in their markets, but on the nation as a whole. I'm just sort of curious and actually in other property types as well, we've heard some anecdotal evidence that there has been either a little bit of sticker shop or just aggregate leasing volume in Q1 is down from where it was the last year. And I'm just curious to what you are seeing. Do you believe that we are going to be able hold at these levels? Or from what you are seeing, do you believe that we actually could see a little bit more weakness as the year continues?

Ross I mean, we were little different than what I was trying to say before is that, last year, we all got spoiled because I think there was tenant demand from -- coming out of the recession. Some of them were slow to react. But tenants especially the bigger companies tend to hold back until they are absolutely convinced that the markets are going to be better. And so, I think there was a lot of catch up played around the end of '05 and '06. Also there was a number of developers or a lot of the development was slow to react. So, there was a delay where if you had new buildings or vacant space in the good markets, you reaped pretty quickly the benefit of increased demand. And I think several things have happened, that are resulting in a little bit of a slow down in activity and that is that a lot of companies have had to tenant demand, it's now has been met.

Secondly, there are more buildings under construction. They are just finished out there. So, it's a little more competitive market and more choices for a user. But, I don't -- we've slowed down but I don't, I think we have just slowed down. It's still the normal solid fundamental marketplace, and in just about all of our Sunbelt markets now. And I would like to think that our Sunbelt markets are generally going to beat the averages on any national statistics. So, we have seen a little less activity, but it's still good. I mean you look we are raising our occupancy. We are leasing up our development buildings. Only once that we are a little bit behind our pro forma on other service centre buildings and that's why we don't build very, many of them. But overall, we can't complain.

Thank you. I appreciate it.

Thank you.

(OPERATOR INSTRUCTIONS). And we'll take out next question from Paul Puryear with Raymond James. Please go ahead.

Thanks. I think we are pretty well covered but may be one question David. I heard your comments on the construction costs. It sounds like, from your comments on development cost that you are not getting any relief on land. Is that accurate?

Certainly, no relief on land. I think we -- now, if you look most to 2006 and may be back in the middle of 2005. There was almost defeating frenzy on industrial land. Anybody that owned industrial land wanted to sell it for another use, so they could get more money. Most local governments didn't promote warehouse development because they couldn't get the tax rates for the job creation. And so, its been gobbled up and that ran the prices up. And land prices in my experience don't come down very quickly. Once people think their lands worth for certain amount, they tend to wait for the market to come to them, rather than reduce price to move it. And so, we are not seeing any bargains. We're hoping that particularly in Florida, where residential developers may be got ahead of themselves, there might be an opportunity to buy some of the land that they've tied up for industrial use but we've not seen any drop yet. We hope for, but I am not real optimistic we are going see any significant decline.

Yes, I know it's all over the board, but just sort of bit an idea of what you are thinking. If you look -- you've got to throw out a number for what land is escalating at nationally, what would the range be?

No, I couldn't even guess on that, Paul, because in different areas, land prices almost seem to spike. If there is no interest, you can't give it away, and you can go for years with no appreciation or even decline in value. And then, once the economy picks up and everybody decides it's hard, the price just shoots up and people selling land always try to be ahead of the market on their pricing. So, its individual markets determined and there never seems to be at least industrial land, any kind of straight trend line on pricing. It's flat and then shoots straight up and then it's flat again. I think, we are in a period where maybe, we just shot up, and I think it best it'll stay flat for a while.

Very good. Thank you

Thank you.

And it appears that we have no further questions at this time.

Again, thanks to everybody for calling in. And as usual, if there's anything we didn't explain to the extent that you had questions or wanted covered, please don't hesitate to call Keith or me. We'll both be here certainly the rest of today to take any additional questions. Thank you.