First Industrial Realty Trust Inc (FR) 2003 Q1 法說會逐字稿

Good morning ladies and gentlemen and welcome to your First Industrial First Quarter Results Conference Call. At this time, all lines have been placed on a listen-only mode and the floor will be open for questions following today’s presentation. I would now like to hand the floor over to First Industrial. You may begin your presentation.

Good morning everyone and thank you for joining us today. Before we review the quarter, let me remind you that this conference call contains forward-looking information about First Industrial. Number of factors could cause the company’s actual results to differ materially from those anticipated including changes in economic conditions generally and the real estate market specifically, legislative and regulatory changes including changes to laws governing the taxation of real estate investment trusts, availability of financing, interest rate levels, competition, supply and demand for industrial properties in the company's current and proposed market areas, potential environmental liabilities, slippage in development or lease-up schedules, tenant credit risks, higher-than-expected costs and changes in general accounting principles, policies, and guidelines applicable to real estate investment trusts. For further information on these and other factors that could impact the company and the statements contained herein, reference should be made to the company's filings with the Securities and Exchange Commission. I will now turn the call over to Mike Brennan, President and CEO. Mike.

Thank you Mike and welcome everyone to and welcome everybody to our first quarter ’03 earnings conference call. Before we begin, let me introduce the members of management that are hear today with me Jo Jo (ph.) Yap, our Chief Investment Officer; Mike Havala, our Chief Financial Officer; and you just heard from Mike Daly, our Director of Investor Relations. On the agenda today, I am going to begin with the discussion of our strategy and also discuss the operating environment we are in. Jo Jo will talk about our portfolio and investment performance and Mike will finish up with the discussion of our balance sheet, our reporting, and some further details on our guidance for 2003.

As we spoke about in February, our mission is to create value as measured by total return by an exclusive focus on diversified industrial real estate in 25 US markets. And the value creation process for us has three critical steps. The first step in the value creation process is for us to focus our organization’s priorities and opportunities that we think offer us the best chance for superior return and that prioritization process begins with the study of owner characteristics and motivations to which we add a manual of transaction choices that are designed to appeal directly to owner motivation and structure the difficulty of replication by our competitors. And last, we try to capitalize on properties where market perception of risk is far less than the actual risk and we formalize that into a selection methodology that we follow for every property that we buy and every property that we sell. The second step in the value creation process for us is asset management and sales. And as I pointed out in February, the nature of industrial properties is such that value creation cycle generally ranges from 0-5 years. And for that reason, we will continue, we have and we will continue to sell approximately 15% of our assets every year.

And as we enter the sales phase, we of course, reverse the acquisition process. We try to ensure that we have categorized our buyer motivations; we tried to reduce transactional complexity to create the largest pool to buyers, and through the asset management process, we attempt to remove the perceived risk and thus increase the reward premium to First Industrial. But the final step and perhaps the most important step in the value creation process for us is to continue to ensure that we have a reliable and we have a predictable platform to find opportunities and to nurture them through the value creation process. And that platform, as you know, is our INDL strategy. And that ensures that we have a network to as many industrial opportunities as any one in the marketplace. But our INDL platform also serves to preserve value by setting geographic, product, and management standards for our investments.

The value creation opportunities for us do continue to be focused on four principal activities. On the development side, our strategy is to look for infill parcels and established parks and that way we avoid land development risk, and business park development risk, but we can still achieve full-scale development returns. Now, obviously, in today’s market, that activity has been limited to build-to-suite only.

On the redevelopment side, our strategy continues to be to look for properties that we can purchase at deep discounts to replacement cost or we can cure functional obsolescence for minimum dollars. In the corporate real estate arena, this strategy is to look for multi-requirement transactions with speed and more importantly, customization is essential. And on the acquisition side, the strategy continues to be to generate off-market transactions, always below replacement cost, largely sourced from our regional offices throughout the country. As we look in the environment in 2003, I think the biggest impediment to value creation is leasing; leasing remains the toughest part of our job. And while leasing activity was solid in January and February, March, no doubt, due to the war was slower. So, you could probably surmise as much by looking at the drop in the ISM index which is about 52.3 for January and February and then reduced to 46.2 at the end of March. The chief impediment to leasing, as I had mentioned in the past, apart from the continuing lower levels of capital spending, is in a word over-capacity. And over-capacity really comes in two forms; plant warehouse capacity, which know stands at approximately 76%, and capacity in the form of industrial property vacancies which stands at about 11.5% today nationwide.

Our progress on leasing today; however, is satisfactory given the condition. Our outlook, however, continues remain cautious and we predict a continuation of a challenging environment throughout 2003. But the very good news is that we held, or increased our occupancy in the majorities of the markets in which we operate in; in fact, the decline the decline in occupancy is related only to two properties, Amazon for 800,000 square feet, which we spoke to you about in February, and 425,000 square foot building in Houston. Those two properties accounted for the decline in vacancy. In the first quarter, I am very pleased that we harvested value on 22 properties with the gross value of about 66m, achieving about a 14.9% total return, and going forward, I feel that we continue to be very well positioned to deliver total returns well above the industry averages. We have continued to build and maintain a substantial pipeline of properties whose value can and will be harvested on an ongoing basis. And despite a tough acquisition market, we have seen an opening in new opportunities that Jo Jo will elaborate on further.

The biggest contributor to our pipeline has been the corporate real estate arena. This remains, in my view, the very best opportunity in the industrial real estate business and a deal flow continues to grow in this area. We are also working on increasing our capital availability, specifically for the net leased area to increase our ability to serve the corporate market and to further increase our ability to create value and Mike Havala will discuss this later on in this presentation to you. So with that, I'd like to turn the discussion over to Jo Jo.

Thanks Mike. I’d first discuss the portfolio and then discuss our value creation results in reinvestment activity and conclude with the discussion of our pipeline. I will start off by giving you color on the major markets which we operate. The Chicago market occupancy is at 88.6% and we’re slightly above the market at 89.2%. Development activity in Chicago remains strong, but is concentrated in the West suburban markets and the I-55 Corridor. In terms of leasing activity, the I-55 Corridor lease with western and southern suburbs starting to rebound strongly. Our portfolio is positioned well as over 40% of our Chicago portfolio is in this submarket. The Atlanta markets’ occupancy is at 83.9% versus our occupancy of 77%. [Snap Finger] I-20 East is the best performing Atlanta submarket. Vacancy in that submarket is 8.3% and is expected to outperform the Atlanta market in terms of vacancy and rent growth, but it is the only positive submarket in Atlanta. The worst submarket is the I-20 West Douglasville a predominantly warehouse submarket. Overall in Atlanta, we expect soft market conditions although new construction is flowing and is concentrated primarily in warehouse space. South Atlanta continues to be soft and in retrospect, we are very pleased that we've been able to lease or sell close to a million square feet of bulk distribution space to meet [inaudible] in that submarket last year. Our lower occupancy is primarily due to our 800,000 square feet facility that we took back from Amazon. The Dallas [inaudible] market occupancy is 86.8% versus our occupancy which is well above the market average of 90.2%. Most of the development activity is concentrated in the Northeast Dallas, Northwest Dallas, and North Fort Worth submarkets, primarily in the warehousing distribution space. Over half of our Dallas portfolio is in these submarkets.

Overall our properties have held up well because they are primarily light industrial and regional warehouse properties. In terms of lease activity, the DFW airport areas in north Fort Worth are strong; in fact, most of the Dallas Fort Worth submarkets have picked-up, although Southern Fort Worth remains low. Turning to the Denver market, new supply is slowing down but not stopping. A majority of activity is in the East [I 17] [inaudible] Denver submarkets which is both the largest submarket and 76% of its warehouse space. It is the strongest submarket also in terms of leasing activity -- 23% of our Denver portfolio is in this submarket. The worse submarkets in Denver, are [inaudible], Castle Rock to the south, [Norman] to the north and the southeast submarket. Only 10% of our Denver portfolio is in these submarkets.

Moving on to New Jersey, new deliveries remain strong and concentrated in the warehouse space at the Middlesex, Somerset the [Humperdon] submarkets. They are also the strongest in terms of tenant activity. 31% of our northern New Jersey portfolio is in this submarket. Morris is our largest submarket with 43% of our northern New Jersey portfolio. Tenant activity here is starting to pick up, and we expect the submarket to improve at a slightly faster rate than the Northern New Jersey market as a whole. In fact, we were able to achieve a 2% positive of run rate increase last quarter. Lastly, in terms of our major markets, our occupancy in Los Angeles is 94.5%.

LA colony, we believe, is clearly the best market in the country, showing both very strong construction and tenant activity. As an example, we achieved a positive 12.5% run rate increase in our properties, which are primarily in the South Bay and the mid-counties area. International trade continues to have a strong positive influence in this market. Overall, we believe the markets in which we operate have stabilized. As evidence of this, it's interesting to note, in the first quarter of 2003 we leased 5.7m feet across the whole portfolio, including development. This compares exactly to our leasing activity of 5.7m feet in the first quarter of 2002. As further evidence, we are seeing – consistent leasing activity with respect to our base increase.

The economics of such activity though, however, continue to be challenging. In most of our markets, both prospective and renewing tenants are seeing concessions in [bond-free] rent, moving allowances, and other concessions. Moreover, rental rates for new tenants are on average approximately 10% lower than previous rental rates. For the balance of the year, we are currently anticipating that the occupancy will remain stable to slightly increasing. Rental rates and renewals we expect to be flat, and rental rates on new leasing will be between 5-10% lower. With respect to leasing cost, as you will recall last quarter, our leasing cost came in at an unusually high $2.54 square foot due to our decision to incur the upfront [standard] improvement cost to make where there are vacancies. As we've suggested they would, our first quarter leasing cost came back in line with our historical cost at approximately $1.78 per square foot. And we anticipate they will remain stable at [that rate] for most of the year.

Lastly, with respect to our portfolio, I want to mention that [Venture] Industries filed for Chapter 11. They are in the preliminary stages and have not communicated to us whether they plan or plan to assume or recheck our lease. We do not believe that this will have a material effect on our overall operations if they decide to leave. At this time they are current [under-rent] and at slightly over 6 years' [left] to lease. On a positive note, we recently signed a Letter of Intent to lease about three-quarters of the former Amazon building in Atlanta for a long-term lease. This clearly exceeds our expectations.

Now, turning to value creation, we continued in the first quarter to post solid results. Investment profits totaled $11.8m from existing portfolio sales, merchant development, redevelopment, and land sales. We believe these results are a function of our sound asset management plans to be in place with each of our assets, our expensive merchant development to redevelopment capability, and the broad reach of our IS Corporate service program. I'll give you a couple of examples on our value creation strategy [has served us well]. We acquired a building in Chicago for [around] $30 bucks a square foot from a private partnership that did not have hands-on management. Rents were below market and we saw an opportunity to substantially increase rents over time. Volumes grew on our asset management plan; we subsequently renewed and replaced 100% on each of the [15] leases the building and increased the income from it by approximately 80%. We now are selling the building at approximately $55.57 a square foot or 85% over our initial our purchase price.

Another example -- we bought a portfolio [of] 11 buildings in Los Angeles for $86 bucks a square foot at approximately 9% cap rate. To most investors this portfolio would appear run-of-the-mill industrial property. What we saw, however, was the ability to spin-off these profits to users or [1031] exchange investors for a much higher price -- specifically in the $120 per foot range or 50% higher. And this formed the basis of our asset management plan.

Last quarter we sold the [fourth] building of this $11 billion portfolio for approximately $136 per square foot or 58% over our initial purchase price. In each of these examples, we establish an asset management plan followed through on the plan, and as a point where we estimated the future total returns were below our investment criteria, we executed and sold the asset, achieving a superior return. Sales like these fund investment in high returning opportunities that ultimately increase to company's NAV.

Before I continue with the reinvestment activity, I want to comment briefly on sales. In the first quarter we sold total $66m of assets, achieving our leveraged IAR of 14.9%. That obviously reflects a strong market. And we see that market continuing to be strong. As private investors, users, institutions remain all active, [due to the] availability of capital, the desirability of industrial products, and record low interest rates. This is driving cap rates to record lows in the 8-9% range.

Turning to reinvestment activity, in the first quarter, we acquired an institutional quality property including a 527,000 square feet distribution facility and 22 acres of land in Hartford Maryland. As [inaudible] part of [a state lease-back] redevelopment transaction with super value. As part of the supply chain reconfiguration super value going forward only [leased] 40% of existing space and none of the land. We were able to purchase the property at a significant discount to market over all replacement costs they might have paid, lease-back, the super value that reduced requirements for 10 years and ended up with very functional, and because of the costs very leasable vacant space along with 22 acres of land for future development.

after our cost specifically, we were able to [defer] a significant portion of the purchase price that allowed us to underwrite full two years of downtime for a vacant space, while at the same time, asking a rent that is 10% discount of the lowest market rents that we know of. In short, this transaction was a perfect example of how our corporate service program can [inaudible] increase value even in a tough acquisition environment.

In terms of the overall reinvestment market, it remains very competitive. In particular, there are a lot of buyers' [chasing] stabilized, longer-term net lease acquisitions continuing to drive up prices and therefore lowering returns. Accordingly, we continue to be selective to maintain our [inaudible] for investment criteria. Nonetheless, despite the tough acquisition environment, we believe we have a reasonable pipeline of investment opportunities including approximately $68m of potential acquisitions in three transactions currently under contract, the majority of which we hope will close in the very near future and an additional $47m potential acquisition currently under Letter of Intent.

[At present], these three transactions [inaudible] involved a 724,000 square feet portfolio along with additional land in San Diego. In this transaction, the U.S. subsidiary of a foreign corporation [is] disposing of asset nationally, it is a motivated seller. We see upside potential in the portfolio due to the below market rent and additional leased up through more proactive management. We also see the opportunity to sell single-tenant buildings [inaudible] this portfolio to [inaudible] higher prices and sell the additional land or to pursue [inaudible] profit.

The second of these transaction involve buying 100% lease, 520,000 square feet portfolio in the active I-81 corridor, just west of Baltimore]. As part of this transaction, we would also obtain at no additional cost, marketing rights and control of 600 acres of adjacent land. The seller here is willing to grab these rights and control over the land in order to benefit from our national infrastructure and corporate relationships. And this arrangement will further increase our ability to serve customers [focuses] requirements.

Last of these three transactions involved a 407,000 square feet building in Chicago. Our customer approached us needing 260,000 square feet of space. We identified NMT building and placed on a contract at a significant discount; we expect to close on the building with a lease in place for 65% of building. Because of our below market basis, we will be able to rent the vacancy at 20% below market. If we chose to do so and still achieve a 10.5% projected yield in a deal in Chicago.

Lastly, with respect to our pipeline of properties, we expect to sell -- it currently stands at about $700m. This is comprised of $412m of existing buildings that we have identified at the final stages of value creation, $138m of merchant development, $88m of redevelopment, $52m of [inaudible] profit including both fee and on balance sheet development, and $10m of land. This pipeline does not include any new business. Among our key developments, we are currently building a facility for [ATronics] corporation, a German game device company with American head quarters at Phoenix. In addition, we are building a 130,000 sq. ft. food processing facility in Chicago for [Bennie] foods. Of note in this transaction is that the land we sold to Bennie foods for its facility was part of the land we retained when we sold the GM service facility to a low cost [investor].

Among our on-balance sheet books [inaudible], we are building a [318,000] square foot facility for Tractor supply, one of the nation's largest retail suppliers of tractor [and farm] parts. This is our third transaction with Tractor Supply. We are also pleased that Tractor has exercised a right of first refusal to buy the property in the 8% cap-rate range. We are also building two high velocity distribution centers totaling half a million square feet for Ford Motor Company, one in North Carolina, one in Atlanta. Overall our development in process is 49% lease and remains diversified; 16 projects in 11 cities.

In summary, we believe our market has stabilized and should remain stable for the balance of the year, although as I pointed out, leasing activities will continue to see pressure in terms of economics, [inaudible] strategy could be used to show results and we believe we will continue to foster long-term growth in the company's [NAD]. While the reinvestment markets remain competitive, we continue to source the [inaudible] investment opportunities to maintain a recent pipeline of re-investment prospects. In addition, we continue to source opportunities from Corporate America as its need for [Integrated Investor Reality Solution] only increases. Lastly, our sales pipeline remains strong and we continue to see such strong demand in the sales market. I would like to now turn the presentation over to Mike Havala.

Thanks Jo Jo. What I’d first I would like to start talking about is our balance sheet in capital markets. First, I just want to remind everybody about the strength of our balance sheet. As on March 31, our debt-to-asset value was 43%, our interest coverage was 3.0 times, our fixed-charge coverage was [2.5] times, and these are very strong healthy ratios especially in tougher economic times.

With respect to our debt, we have no maturities until May of 2004, we have longer maturities at 11.4 years; our average maturity is one of the longest in the entire REIT industry. One hundred percent of our permanent debt is fixed-rate debt, and we have very little secured debt, in fact 98% of our assets are unencumbered by mortgages.

With respect to capital market’s activities; in January we paid off a $37m secured loan and this helped to increase our already high unencumbered assets [goal] to about 98%. In the first quarter, the Kuwait Finance House fund acquired an additional $7m of property bringing the total to just over $207m. I remember, this fund is anticipated to grow to close to $300m. With respect to some new business, we are in the process of setting up a net-lease fund that is a joint venture, and the purpose of this fund really is to help serve better our corporate customers. We believe that good service is full service and this will also us to do more business with our corporate customers and do more multi-part transactions and make us more competitive in the marketplace. In the ordinary course of our dealings with what is our growing list of corporate customers, we already see a large number of long-term net-lease opportunities for industrial properties. Many of these are very good properties with good tenants and by owning these in a joint venture structure, it will help us significantly increase our return on our investment.

I should also mention that by setting up this way, this uses our existing infrastructure and the companies will get paid for this in the form of fees and promotes or so forth. One thing I do want to mention with respect to this is that it's still under the final documentation stage and we will make an announcement as appropriate once as a final done deal.

Next let me talk about same store. Before I get into the detail on the numbers, let me first explain our methodology. In the past, we have reported same store using GAAP numbers and then adjusted them for unique events in order to make the same store numbers more meaningful. For example, in the fourth quarter, we reported a same store of negative 1.2%. This would have been a positive 6%, if we had included the Amazon lease termination fee in that number. Starting in 2003, however, as a result of the new rules under RegG, we are basically forced to report same store on a purely GAAP basis. So, this means it won't be adjusted for items such as lease termination fees. Unfortunately this may mean that our same store number that is reported will be more variable up and down, we will however provide more detail so you can understand what’s behind the numbers. For example, in our first quarter press release, we gave you the same store number with and without the Amazon lease termination fee. So, let me give you some -- we will talk a more about some numbers with respect to same store. Same store NOI went up 10%, again that’s with the Amazon fee in there. Same store revenues went up 10.5% and same store expenses went up 11.8% and that’s mostly due to additional snow removal cost because we had some heavy winters in some of our markets. We also had some additional R&M cost; Repairs and Maintenance cost that we incurred for vacancies in order to get these vacancies as closest to being ready to lease up.

Next when we talk about G&A expense, as you saw our first quarter G&A expense increased somewhat. This is predominantly due to the internationalization of our due-diligence function. Remember, we announced to you last quarter that we are going to take a function which we previously outsourced and internalize it as this would save us cash and will also make us more efficient. From an accounting point of view, however, this adds to our line item in G&A expense.

Last thing I want to mention about G&A is that we expect our second, third and fourth quarter in 2003 to be lower than our first quarter and this is really a function of two items. First of all in the first quarter you have your annual reporting cost, cost of doing the annual reporting and processing and so forth; and secondly we have some other cost savings initiatives, which should take hold in the second, third and fourth quarter.

Next let me talk about reporting changes for 2003. As we previously announced, we are expensing options beginning in 2003. This should have less than a penny a share impact on our annual earnings. Secondly, we are now deducting from FFO, the write-offs of unamortized loan cost resulting from early retirement of debt. Remember under GAAP, these are sometimes considered extraordinary items. However, we are taken the conservative accounting position and treating these as ordinary expenses and therefore deducting them from our FFO. In the first quarter as an example, this resulted in 3 cents per share reduction in our FFO. Last thing I want to mention about reporting, again as previously announced beginning in 2003, we simplified and clarified our computation of FFO. Basically what this does is gives us FFO definition that’s closer to a GAAP calculation. Basically we just take GAAP net income add depreciation expense and subtract out accumulated depreciation on property sales. This is something that’s more consistent with our strategy and provides more transparency into 100% of our investment and operational activity. Regarding gain from sales, you will notice that our new terminology that we have in our press release, the supplemental, is net economic gains and losses. This replaces the old terminology of [IIS] income. I would say however, you may hear us refer to [ISS] from time-time because we still retain that name for marketing to our corporate customers.

And last on gains on sales from a disclosure point of view, we are still providing the break-down like we always have after sales in the supplemental. Last thing I want to talk to you about is guidance; as you saw in the press release for 2003 we are maintaining our previous guidance. We however have modified the assumptions, and there is plus and minus here. On the plus side, we have increased our expectations for net economic gains in fees by about $10m. But the $10m are really only a $5m number, let me explain why. In the $10m number, the first piece is $5m part, that’s really just an accounting reclassification. What this is in previous years, say 2002 etc., what we did we netted overhead cost related to our IIS activities with our IIS gains in fees. However, we give you the net profit from that business. But to simplify reporting; we have one less reconciling item if you will; we are just going to leave those cost down in our G&A line. There is no bottom line effect added; it is just a reclassification among line items. So really the remaining part, which is about $5m of our increase in expectations, really the true increase in our guidance if you will, and that $5m we expect to come mostly from the new business, which I talked about before in the net leased areas and that will come in the form of fees, will come in the form of gains that we have on split etc.

That’s on the plus side; our modified assumptions. On the negative side, we are expecting a decrease in our NOI and that basically due to the continued challenging fundamentals that Mike and Jo Jo talked about before. So with that let me just conclude and say that the economic environment has been challenging for almost everybody. For First Industrial, our financial position remains strong. We have a solid balance sheet and strong and diverse sources of cash flow. With that let me turn it back to over to Mike Brennan.

Thanks Mike. I would like to offer up a couple of summary comments before we open it up for questions -- questions and answers and I just want to take the opportunity to discuss -- discuss with you sort of our views on the company’s future prospects and I have met with a number of you probably on the call today to discuss this, but for those that I haven’t met with, I just want to share with you a couple of takeaway points from some of the meetings that we had.

I think number one, I think, it’s important to keep invariant perspective that of course the earnings that are generated today are produced in one of the toughest periods that we faced in the industrial real estate business probably over the last 20 years. Now, one way our organization has met that challenge is to harness the power of our infrastructure by creating a new value stream principally through a focus on corporate real estate. Now, there is no doubt that this income has greater volatility, I think, in my view there is also no doubt that we move this component of our business to a much more mature value providing greater certainty; 14 straight quarters of performance confirmed this. Secondly, the company has significant earnings potential in the form of unused capacity and specifically I am of course referring to the vacancy in our in service portfolio and also in our out of service development and redevelopment portfolio. Lease to 95%, this will produce an additional 80-90 cents per share of FFO; in fact, and recognition of the first two points, I put my own money when my mouth was by purchasing about a $1m of our own stock in the last quarter really for no other reason then the potential that create further value that this company does possess.

Last is as the war uncertainty fades, we should we be able to tell far better, whether we are dealing with an economy poised to grow more rapidly or one that is still laboring. Yet it is worth remembering that when we spoke to you in February, all signs pointed to a fairly solid recovery in the industrial property sector. The ISM index was up 5%, manufacturing employment was up, capital spending was up about 3%, which was the first increase we saw since 2000 and absorption have been positive for the two quarters at that time in February when we spoke. Now, anecdotally, I can tell you that while the actual leasing in March was slow, the showings continued to be very strong indicating to us that the corporate managers are willing to pull the trigger provided the geopolitical uncertainties lessen, let’s hope that, that is the case. With that moderator can we please open it up for questions?

Thank you the floor is now open for your questions. If you have a question or comment, please press the numbers “1” followed by “4” on your touchtone keypad at this time please. At any point, your question has been answered you may remove yourself from the queue by pressing the “pound” key. Questions will be taken in the order they are received. Once again, that’s “1” followed by “4” for any questions. Your first question is coming from John Litt of Smith Barney. Your line is live.

Good morning it’s Gary Boston with John Litt. Jo Jo just a point of clarification I may have -- I may have missed in our comments. In terms of the developments placed into service during the quarter, I guess, there were only two. You have the expected cap rate 9.7%, what’s the current leasing on that?

Current leasing on that I believe is is 90%, let me —[Mike] go ahead

It would be between 90 and 95. We probably-- we wouldn’t have sold it, you know, to the fund if – unless it reached 90 plus percent level of leasing.

So these two developments were subsequently sold to the fund?

[He] has the number now, 96% Gary.

Okay and in terms of the future pipeline, the 158m or so. Do you have any breakdown that sort of what’s build-to-suit what‘s inventory?

Yes. I do.

I see some of them have [BTS] beside them but not all?

That’s right. We have in that full year about two build-to- suites, if that build-to-suite for Ford and the build-to-suit for tractor supply.

Okay. I think I, John Litt, had some questions as well.

Yes, I am looking-- I am listening to your call and your comments and discussion of doing these things to comply with -- reporting in a way to comply with REG-G which requires you to reconcile the GAAP and for example, your same store numbers, you [can] include lease termination fees, which obviously make the same stores numbers this year look better. But I am really struggling since you are a REIT and REIT’s report FFO with the fact that while most REITs are also at looking at REG-G and considering REG-G [it’s] necessary for them to follow the REIT definition of FFO, while you guys continue to move further away, I think it’s really disingenuous for you to come out and say you are going to comply with REG-G with regard to the GAAP, but you are not going to comply with REG-G with regard to FFO. Why even report FFO, why just report EPS? I mean your definition of FFO is so far away from what everybody else reports that is meaningless. Why not just stick to EPS and skip it altogether?

First let me address REG-G, I mean as you know REG-G –essentially has you reconcile to GAAP whether its items that are non GAAP and those are items such as obviously FFO or EBITDA or NOI or FAD and we do reconcile that. It’s all laid out as you see in our press release and our supplemental information. With respect to our reporting on FFO, remember we are reporting it based on what makes sense for our business, in industrial business. The majority of the industry REITs do report gains on sales in their FFO and that’s because it’s the recurring part of our business again as we laid out in the past. We also -- lay out other metrics such as NAV, and so forth and -- you know there is no one single measure which we believe is the perfect measure of performance. I think you have to look at a number of these measures including GAAP EPS, FFO, FAD, and NAV etc. in order to really value the company from an earnings point of view and also from a point in time point of view.

Jonathan, this is -- Mike Brennan, let me – I’ll answer that question over the last couple of months as – you know several people in our peer group as Mike, said that also include our gains and losses from sales. But this is -- our view, selling buildings is a recurring part of our business. We sell about two buildings a week and have for the last four years. That recurring business produces gains and losses and if gains and losses shouldn’t be included in net income, where should they be included? For those that-- and so I very much disagree that this is disingenuous in fact I think it’s quite the opposite. I think this gives a complete view as to the full business model of our company and it also gives a full view of the business models of really most real estate companies. Those that take a different view, whether on accounting or whether it’s on valuation, are given every ability to make a very easy adjustment to either the numbers either from a valuation standpoint or an accounting standpoint, the only reason we have these discussions, I think is that -- that we have a very high level of disclosure. So, I think it’s actually on improvement to understand it what the company’s complete business model is and so I you know, although I -- you know, we -- I really make no apology for it, and though we like to make it easy to have some nice discussions, I think that it would be wrong for us in fact this is a recurring business, to do it any other way. I think those people who want the [NAV] definition again can very easily with very little assembly required, be able to do that as you folks do.

Mike, neither the SEC nor GAAP, will -- you know the SEC new accounts will allow you to report if you are not reporting GAAP on an EPS and net income basis. Just because the NAV definition is its own industry association definition should not give REIT managements the latitude to deviate from that definition. Because by deviating it results in outsider investors looking at the group and saying this group doesn’t know what they are doing. Just as people were saying about the stock market in general and if you want to create your own definition of whatever you want to call earnings, do it. But don’t do it with FFO because I think it is disservice to the REIT industry and it is disservice to your investors. No more questions.

Okay.

Thank you. The next question is coming from Paul Puryear of Raymond James.

Hi, Paul.

Good morning, thanks. Mike Havala, could you talk about the G&A a little further, gives us some detail on the IIS G&A versus the due diligence G&A? Are they the same thing?

No, they are not the same thing. Paul, what specifically are you looking for?

The 5m that you talked about that is an offset to the gains that you were going to report for the year?

Yes, that 5m is approximately our overhead for running that part of our business, which we refer to as the IIS business that generates net gains in fees and so forth. So, that overhead is simply now left in the G&A expense line item, where previously we netted it with the IIS income. Again no bottom-line affect, no impact on the FFO or net income or anything. It is just reclassification to make reporting simpler because in our supplemental, we always reconcile that out. So, you can see the pieces right now are just simpler.

Okay, so when you put that 5m together with the due diligence G&A increment that you are going to have for the year? So what's the new run rate?

The new run rate -- you take the first quarter run rate, they are both in that number already. So, this is something that we changed effective January 1. Our new run rate should be the first quarter, as I mentioned before, it will be lower than that number due to the fact that in the first quarter you have some additional expenses with respect to the annual reporting cycle, you know, doing the annual report in the proxy and so forth. And now also we have some cost savings initiatives, which are on their way which should benefit in the upcoming quarters as well. So, the new run rate will be down probably $500,000- $750,000 a quarter compared the first quarter.

Okay. A couple of more things. It looks like the IIR on the sales for the quarter is a little bit lower than what you have been able to get. Is that true and should we expect those returns to come down?

This is Jo Jo. Yes, it is actually right. It has come down. We have reporting in the 17% range, but I just want to point out a couple things. This is -- you probably know this. In our industry standard market, IIR, overall when you can combine all these investor requirements and the results there will be 10-11% IIR range, clearly even at 14.9 number, very, very pleased. It has come down though, but that will ebb and flow because it is really every time we do so is a different, you know, pool of properties and projects. But we are still very pleased with 14.9 because I think a lot of investors knew that it easily can [continually] [inaudible] with IIR over 12 if you really could make money in this environment.

So, what's your hurdle rate?

Our hurdle rate right now is 11-12% overall future total returns. In terms of hurdle rate, that’s basic -- that’s our target rate, I mean that is over our -- that’s what we believe is over our total cost of capital. So we lookout in its best in the 11-12% un-leveraged total returns. Well we clearly exceeded that in terms of our sales.

Okay. And one more question. The 400m of sales that you've got targeted for the year, could you just talk about where those properties are? Just give us some idea sort of where you are moving assets?

It’s across the nation. There is no specific market. It is not market-driven sales, it is a total return-driven sales we’re in, it is an opportunity to turn [inaudible] if you may. We look at a property, we looks at its stage, where we are in terms of asset management plan. When we feel we have created all the value, lease it to capacity, lease it to maximum occupancy, and achieve the highest rents we can. Those are very marketable and when you do so, your future total returns at that point will not be able to satisfy investment criteria. And when we do that, you really have to look across the country, because that is where it happens on a daily basis, [inaudible] finish our asset management plan. Let’s give an example. In the first quarter this year, basically we sold over 20 different transactions, basically those were -- the 66m was over 20 separate transaction and none of really large particular size, and they were over at least 7 cities. That’s all. Expect for First Industrial to be very transaction, sensitive and will have productive, I mean and then basically will be looking across a lot of country -- a lot of cities.

Okay thanks.

Thank you.

Well just a little follow-up. I mean, we just on IRRs, across the capital in general. What we try to do is we try to buy properties with a base case position which assumes sort of like a five-year hold and as we -- when we purchase the property prior to it, we look for different asset management or sale scenarios that can further enhance that. So, we solve to a base case and generally speaking we have been able to exceed that particular base case that we can execute on certain different parts of our asset management plan. Jo Jo described a portfolio in Los Angeles in which it was 11 building portfolio pro forma to hold and then sell, if we could execute individual pieces we can move that -- we can move those IRRs up. The -- what we are attempting to do though, is if we take a sort of simplistic look at the cost of capital and say, half of the cost for capital that we have is 8% debt and equity. And half of it, or debt and preferred, and half of it is equity at say 12%. That gives us a sort of blend of 10. And so, what we are always trying to do is do 200, 300 or 400 basis points above that cost of capital. That’s got a simplistic view of that, but that in absence really is the way in which the criteria is fashioned. This fashion begins to particular assumption on the cost of capital and then we try to exceed those hurdles.

Right thanks, Mike.

Thank you the next question is coming from Lou Taylor (ph.) of DR Bank (ph.) Your line is live.

Thanks. Mike Havala, could you expand a little bit on that internalized due diligence cost, how much of the cost when it was outsourced was capitalized and how much of the now internalized cost is going to be capitalized?

Well. The answer to that is zero of the cost on an internal basis are capitalized. So, there are runs through the G&A line. Previously, some of it was may be 40 -- 30-40% of that was capitalized and rest of it was not. And when I say rest of it was not, where it ran through really was part of your sales, it was the cost of sales.

Okay thank you.

Yes.

Thank you the next question is coming from Terrance O'Connor (ph.) of C. D. Creek (ph.) your lines live.

Thank you. A couple of questions, one is in your conversation with John Litt, you said that you think your new reporting is an improvement in understanding. Do you also think it's an improvement in understanding to not report last year's number on a comparable basis? Why if it’s a better way to report, don’t you give us the same construction of last year's numbers? And my second question is looking at -- haven't been able to run through all of them yet, but I am looking at the number of property sales that you executed in the quarter and I started at the bottom of the list, the three New Jersey properties, look like they generated about $8m in gross gains including depreciation recapture and if your filings are correct, you held those properties, it looks like an average of about 25 years and I am getting an increase in value on a compounded basis excluding the yield of just about 1% for those properties and [inaudible], you would be hard pressed to argue that inflation was anywhere near that low, why should we look at selling 25-year-old properties at 21% gain as a recurring part of your business and something you should use the funded dividend? Why shouldn’t we think that you are just selling a bunch of old stuff to get gain?

Let me address the first part of your question on the renew reporting. Remember this year like almost every year there are changes in the accounting rules and so forth and the way things are reported even under a GAAP basis, for example, we changed the reporting with respect to expensing of options. We are expensing them or as we did not expense them in previous years similar to what number of companies are doing. We are also including as a deduction from FFO, the unamortized loan fees in conjunction with early extinguishment of debt, which under prior GAAP rules was typically an extraordinary item which today in our view is not an extraordinary item for REITs. So that’s another change, you know, FAS 144 is out; there’s many changes that happened and to go back and to recalculate each number for each and every year in the backward basis is an exercising utility. So our belief is, our changes are prospectively, there is always a number of changes every year, anyway and we think what we have done makes perfect sense. The next question you had with respect to property sales, you know, remember we have been a public company only nine years; I think, may be what you are looking at from a 25-year point of view, is when some of these properties where built, not necessarily when First Industrial bought these properties. So, I think, may be the number that you are looking at is the -- not when we acquired it necessarily but when these assets may have been constructed or built.

Yeah, Terry this is Mike Brennan, the -- you know as to, you know, the age of properties we sell, I think, if -- it’s not true that we sell old properties we held for a long time, in fact, probably 95% [or] between 0-5 years, that’s simply isn’t the case. There are properties that --these properties that we sold that we have had under contract and so properties that we sold a day later, that are properties that we sold, you know, as I mentioned in my talk, it just really-- it just depends on where we hit the asset management plan. If we bought a building that was empty and we leased it next day later and we have created the value and we can’t do better than that; that building will be identified for sale if that’s the right thing to do. Other properties don’t hit their value creation cycle later. So the facts are not as you stated them. If you take a look at the composition of sales, it’s really 0-5 years -- that’s the majority.

Terry, I also wanted our [policy] for having comment on individual projects, but let me just give you sort of like how we really felt-- and I am just going to assume you thought about, you know, four the New Jersey deals. I just want to point out to you that we believe we sold it that full replacement cost close to $80 [bucks] a square foot and at a 9 cap rate and what we estimated our future total returns, which is-- we take the net sales proceeds and assume we will reinvest it back in the property and continue to hold the property, the future total returns on this project was well below the 8-9% range, which really triggered again our responsibility of moving that asset out, knowing that we can generate these proceeds and now fund -- use those proceeds to fund higher returning investments. So, here we feel very well about what we have done here and we look forward to re-investing those dollars to create higher, you know, total return for shareholders.

Okay. The other --. We report economic gain; we don’t report depreciated gain; Terry its economic gain. Next question moderator.

The next question is coming from ED Tyler from First Industrial; your line is live.

Ed good morning. Hello.

Yes hello.

Yes, Ed, hi.

Hi, didn’t push my button. I am sorry there is no question.

Okay.

Thank you.

Thank you the next question is coming from Gary Freeman (ph.). Your line is live.

Hi, good morning guys. You guys generally comment on a couple times that you see your market is having stabilized generally in light of the increased leasing activity. I wondered if you can just explore the concept of stabilization or more, given that free rents are still prevalent and [TIs] are increasing.

That’s a very good question. Stabilization for us means that you know –- the occupancy levels have fairly much hit what we think is at the low, you know, sort of the low-end. So in other words, we feel that the vacancy that’s out there today an 11.5 or 12% is about as bad as it’s going to get. So, when we talk about stabilization that’s what we mean. But it’s a very good point because stabilization means that now you will be re-cutting your leases – in a market which is soft. So NOI can continue to go down because you are renewing in a period of softness. So we shouldn’t confuse the stabilization of the vacancy with the stabilization of NOI. And so-- does that answer your question, is it? Hi Gary?

[Inaudible] NOI expectation and maybe reconcile for us. I think last quarter we were talking about NOI being flat for the year. NOI is down 8.5% first quarter, excluding Amazon lease termination fees. Can you just talk a little bit about that?

I can give you color on just again on the cost of leasing. I like I mentioned to you, Gary, that first we are seeing renewal rents basically flat in terms of rental rate. We are seeing anywhere from 5-10% rental rates reductions on the leases, in general costs, we think, it’s going to work; you know it’s going to be in the buck seventy-five [$1.75] range. Now I want to point out to you that if you look at our rollovers; we are rolling over about $38m of rent of which if we renew 65% of that, what’s remaining is 35% of [inaudible] rolling over and a 5-10% reduction is about half a penny of quarter; it’s about half a penny of quarter if you roll those rents in the mid point of 5-10%, taking it straight out from the rental rate average of our supplemental, as indicate in the supplemental. Now Gary, that’s supplemented though by the average what helps budget that is the 1% average annual escalation, which occurs over 65% of our portfolio each year and we expect, again about only 18%, roughly 18% of our portfolio rolling over. So the rest of the portfolio is going to deliver and will [inaudible] escalations. If you do the math, what we hope for, Gary, is that the annual escalations we are getting is going to buttress, whatever 5-10% reduction we are going to get from that 35% remaining expiration this year. Does i t makes sense?

Thanks John, that’s helpful. What I am trying to get to a little more specifically is NOI just over NOI guidance for the year – flat last quarter for the year, what are we looking at now; down 2%, 3%; if you can just quantify that a little more clearly?

I would say overall in the 3-5% range.

Thank you. Last question; just bear with me. In terms of occupancies, you talk about now at 87% point looking at flat to slightly increased for the year. How does that stack up relative to your expectations last quarter?

Yes – can you repeat – can you cut out a little bit.

I am sorry maybe it was bad connection. My question just related to occupancy expectations as we stand here today. We are at 87% , a few perhaps, you talked about being flat to slightly up for the remainder of the year--

Yes.

How does that stack up relative to your expectations last quarter?

Well, couple of things with regard to our expectations. One is that you know, because we’ve signed a letter of intent for example, for Amazon with our expectations that we will be in the 89-90% range by the end of the year. How that’s back up; that is similar to what we thought it and we budgeted for our last quarter.

Havala On the quarter--it was our expectation of the quarter, that’s what we expected. The Huston move out was known and of course, Amazon you knew about-- we spoke to you before. Those were the two big things.

Right, so net-net may be your rents are down a little more than you expected last quarter, occupancy is same?

Yup, yeah.

Thank you, guys.

Thank you. The next question is coming from Christopher Haley of Wachovia Securities. Your line is live.

So, Mike, just I actually wanted to get some correct numbers and then a different question regarding development. First, the numbers you are providing on cash rent changes, is that the first year's average rent on the new deals divided again, so compared against the last year's? Was it a year or a month?

It's basically the month.

Okay, so -- and do you have that number on a GAAP basis?

We do not. On a GAAP basis, it will be a higher percent increase.

Okay.

I don’t have that number, but it would be meaningfully higher on a GAAP basis.

And what percentage of leases do you think you are signing today versus last year are -- include bumps?

It would be in the—I would say the [70% range]--. Where you get the larger bumps are the -- as you go smaller in tenant size. And as you know, we do have a significant amount of tenants under the 50,000 square feet range. Where you don’t get bounce, very typically I guess in a five-year deal, two-year flat or three-year flat with a bump in the second and third year is in the large spaces wherein you're in the 200,000 square feet or up.

And I am sorry. The percentage you mentioned again this year versus last year on deals?

In terms of annual escalation?

Yeah.

Yeah, we get at about [], 7 out of 10 leases that we get, that we get annual escalation.

Okay and just a development question. Any -- could you -- do you have any markets or submarkets that you are doing currently for owned accounts, you are doing pre-development land work, entitlement work where you want to look at projects coming out of the ground, '04 '05? And, kind of which markets?

We are not doing any pre-development work on any site that we have as we speak of. But what we do have though are those properties that we have under option, where if we have either finalized or almost substantially completed architectural drawings for the site, to present to built-suit clients. So what we have is site plans, cost -- projected cost. So we are in a position to quote a client very, very quickly how much it would cost to build a building, and then of quote its rent. That’s what we have. We're not breaking ground at any new development.

And do you -- would you care to comment on what areas around the country you're working more feverishly on?

Its terms of what, of quoting on built-to-suits?

Yes, markets.

Yes, yes. Absolutely. Number one, I-81 corridore, that's the backdoor to I-95, and so we're very bullish in that in terms of activity and we are seeing quite a good amount of activity.

Excellent.

We do have a [letter] option in Atlanta, and we are seeing activity there too. Chicago continues to be a market where there is a build-to-suit activity but it's very, very competitive. Just going through the market. That I would say would be you know our primary source of activity in terms of Build-to-suit.

Okay, thank you.

Thank you.

Thank you. The next question is coming from David Copp of RBC Capital Markets. Your line is live.

Good morning, guys.

Good morning David.

Jo Jo, in your opening remarks, you had indicated that you expect your current strategy to drive continued growth in NAV, but if I look back at the supplemental sequentially year-over-year, even going back to a couple years to [IIS] was in it’s infancy. It seems that NAV has been on a pretty steady decline despite the fact that you've grossed up your NOI to a 95% occupancy level. What am I missing here and I guess the point of the question is to what "continued growth" are you are referring?

If you look at the -- I would attribute the decline of NAV, really to only one thing is that the [inaudible] that’s been applied to our transaction business. If--=

Yes, I mean that’s a function, that’s your own doing. I mean you focused on—[inaudible] revenues that you buy your own calculation value lower than your property NOI?

That’s true, and that__

So when does that turn around, if that’s -- if you're telling its going forward, that’s the focus of your business, when does -- how does that drive -- by what you've just told me, how does that drive NAV?

Let me also explain some other things that mechanically will help drive a NAV up. While we've made an occupancy adjustment in there so you can see the effect of that; clearly when rents go up, that will have a bigger impact on NAV. Right now, we are in an environment of rents declining. So as rents go up, that will have a positive impact on NOI independent of occupancy. Also remember, we have other assets such as 1031 cash, even though they are part of NAV, they provide a higher value to NAV and those are invested in assets earnings, pick a number of 10%, so on and so forth. So -- and the same thing with the development. In our NAV calculation, we show no profit or no markup on development for land even though the values of those might be higher than where they are today. So, if you look at where we are today in our investment and land development, it’s a higher number than you would have seen a couple of years ago. And because we are not showing a mark up on that, that tends to have a negative impact on your NAV. So, once they are assured and rents go up, that will have a better impact on your NAV, when we convert some of these non-income producing assets such as development and land and cash in 1031 that will also have a positive impact on NAV.

Sure. But, you could argue that going forward, those can be somewhat offset by the fact that you are going to be selling NOI producing assets, and running them through current gain -- current income and then paying up a good portion of them out as dividends, so, that’s going to take us back in the other direction. So, net-net, when do we ever -- move positive again?

Under the same exact scenario that I outlined. Rents go up when occupancies go up, and we have less cash invested in development, that’s when NAV will go up again.

Of course -- the money of course is being reinvested back in the income producing properties as well.

A portion of it, sure.

Yes.

Yes.

Moderator, we -- I think we are open for follow-up questions. If there are no -- we didn’t have anyone on the queue, so time for follow up.

Excuse me Mr. Brennan.

Yes.

Okay, we do have a follow-up question coming from Lou Taylor of D R Bank.

Okay. I think we just did, some other people have been on the queue as well. So -- okay great.

Mike Havala or Mike Brennan, can you just break out how you expect to fund the dividend? How much comes from the core? How much comes from merchant building gains? And how much comes from other sources?

Well Lou, all that comes from the core. Because remember what our core is, our core is producing income from investment and from running our portfolio i.e. rental income. So, 100% of what we do comes from our core. We are not doing anything that’s a non-core business to us.

I guess from my view of the core, its really not close to covering the dividend at all. And that your earnings, it's really good at being driven and gains and that your core portfolio, your rental income is significantly below.

If you're making distinction between rents-- let me make a distinction between rents and core. Again as I mentioned, core is everything that we do that’s our business. If you just look at rental income, obviously that’s gone down in the environment that we're at and because we have less properties then we did a year or so ago. And if you--

I guess that’s where, I am going. From your property NOI, what percent -- of your dividend, what percent is coming from property NOI, and what percent is coming from other sources?

You can do the math right in the supplemental, that information is laid out.

Well I know, and we have done it, and we have come up very short to covering the dividends. So, we are looking at these critical gains, and I guess there is an important distinction in my mind between how much comes from merchant development gains versus just economic gains from sale of assets as the gentleman [Audio Break] [mentioned earlier] that’s 25 years old, which may be -- is true arithmetic correctly-- correct calculation, but from the stand point of covering the dividend , it doesn’t really help you very much, it just a liquidation. So, can you help us understand how this dividend is going to get paid, going forward?

Well Lou, -- let me try to explain it my own words as we see it here. You know, the dividend is 270, -- approximately 274 and NOI is about 240, approximately. So, yes you are correct that NOI doesn’t cover the dividend. With respect to our other component of our business, which is primarily the corporate real estate side of the gains and losses from sales. That’s contributing -- that’s contributing the rest or about $1.15. Now it is not a liquidation that is a recycling in our -- and it is definitely recycling, the money gets sold and then it gets reinvested and in the aggregate all the money gets reinvested with the exception of that which we cannot find at the moment and it sits in 1031 exchanges, but in the aggregate all the money gets reinvested and reinvested it at pretty good rates.

That component of our business as I have laid out is very much ongoing and continues to grow and gets better and better every single quarter. You know remember too, that you know, we have increased the amount of business we are doing with corporations significantly, and the other thing Lou is that and I think people have to remember that in the industrial real estate business, 65% of everything is owned by corporations. So when we go and we put a building out for remarketing, it goes up for sale or for lease. So, you are constantly converting rental income and to gain on sale income just by virtue of doing your core business. So there-- in no way is that business going away, I mean, there is just absolutely-- there is no way that that component of our business is going to go away.

Yes it’s [volatile], yes it can go up and down, but that’s a very, very important part of what we do and I feel very comfortable and confident that that’s going to continue to be there. Now, the other point of it is that yes, you know, yes the NOI is down but we also think that’s upside. We have also think we found as I said a very fantastic way in our view to be able to use our infrastructure and to create further value. Now to give you some additional view point on our dividend, you know the dividend coverage that we’ve got today is almost better than the entire dividend coverage we had between ’94 and 1999, approximately.

Now it’s true that we had a greater reliance on NOI, but we also had a reliance on being 96 and 97% and that’s not really sustainable either. So I feel very comfortable that during this period of softness that we have a new value stream that makes me very comfortable that we can and will continue to pay the dividend and as the economy recovers, we will be able to hit on two engines not just one as was the case in the past. So Lou, does that answer gives you at least our perspective on that?

Thank you.

Okay.

The final question is coming from Charles Fitzgerald (ph.) of High Rise (ph.) Partners. Your line is live.

Hi. Actually David Copp asked my question about the NAV, but can you just follow up on it and ask you more specifically if I look at the first quarter of ’02 and the first quarter ’03 supplementals that you guys have put out? The categories which you said are sort of dragging NAV which is I guess construction in progress, restricted cash, cash, land under construction and developable land. If I add up those total columns, I get pretty much the same number, year-over-year, and yet sort of your report on NAV went down by 7% or so? And if you just exclude the IIS business value, then the NAV actually fell by 10%. I just want to sort of reconcile that with the fact that earnings per share were up, you didn’t pay out accordingly you didn’t pay out all of your cash. You should have some retained cash which should add to NAV and I am not sure but I think if you went through your old standard, you-- actually had FFO growth, so I was just real curious if you could reconcile why the NAV went down, while some of the operational metrics look positive?

That sounds like a line-by-line reconciliation which we would be happy to go through with you -- at some point later today and so we don’t take up everybody's time here, but again, I think we may take our comments about NAV as we mentioned before are the same comments.

We would be happy to talk with you Charles later and go through it line by line if you would like.

Okay. Thanks.

Thanks.

Okay moderator I don’t know if there are any more questions, it looks like that’s the end of questions. Thank you very much and we look forward to speaking with you again in July, thank you.

Thank you. That does conclude today's first quarter results conference call. You may disconnect your lines at this time and have a wonderful day.