First Industrial Realty Trust Inc (FR) 2008 Q4 法說會逐字稿

Good afternoon. My name is Kelly and I will be your conference operator today. At this time, I would like to welcome everyone to the First Industrial Realty Trust fourth quarter and year end results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) Thank you.

I will now turn the call over to First Industrial.

Hello everyone, and welcome to our call. Before we discuss our 2008 results, let me remind everyone that the speakers on today's call will make various remarks regarding future expectations, plans and prospects for First Industrial, such as those related to our liquidity, management of our debt maturities and overall capital deployment, our planned dispositions, our development and joint venture activities, continued compliance with our financial covenants and expected earnings.

These remarks constitute forward-looking statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. First Industrial assumes no obligation to update or supplement these forward-looking statements. Such forward-looking statements involve important factors that could cause actual results to differ materially from those in forward-looking statements, including those risks discussed in First Industrial's 10K for the year ending December 31, 2008 filed with the SEC. Reconciliations from GAAP financial measures to non-GAAP financial measures are provided in our supplement analyst report provided at firstindustrial.com under the Investor Relations tab. Now let me turn the call over to Bruce Duncan, President and CEO.

Thanks, Art. And thank you all for joining us today on our fourth quarter and full year 2008 earnings call. Let me introduce the other members of senior management who are here with me today. Scott Musil, our acting Chief Financial Officer, Jojo Yap, our Chief Investment Officer, and Chris Schneider, our CIO, and you just heard from Art Harmon, our head of Investor Relations.

Since this is my first earnings call as CEO of First Industrial, I will briefly tell you what I see as the opportunity and challenges we have, and how we, our senior management and the rest of our team, are going to work together to enhance shareholder value. But before I do that, very importantly, I would like to thank all of the First Industrial team for their hard work and dedication to serving our customers, partners and stakeholders. They are doing an outstanding job in a very difficult environment. As many of you know, I come to First Industrial with a lot of gray hair, that is, over 30 years of experience in the real estate business, having had the pleasure to serve as CEO of several industry-leading companies. During my career, I have experienced and led firms through a number of cycles and although every cycle is always a little different, and this one is about the worst I've ever seen, there are some lessons I have learned.

First and foremost is to adopt your business plan to deal with the reality and the mission at hand. I have spent my first 45 days here understanding the Company. I have met with many of our people, visited a lot of our offices, and toured a great many of our properties and markets. I came away from my conversation and visits with a real appreciation for the quality and depth of our people and their real estate skills.

So what do I see as First Industrial's strengths? We have great people and an outstanding franchise. There are only a handful of industrial real estate companies like First Industrial, with a broad platform, quality people with local market experts, and a talented team at headquarters and a strong record of customer satisfaction.

We have a diversified portfolio of more than 900 buildings, totaling 97 million square feet owned and managed, with 2,300 tenants, spanning North America's leading markets across multiple industrial types. Our customer base has been well-served by the First Industrial team, as reflected in our industry-leading customer satisfaction scores. And I like the fact that Industrial is finance-able. Industrial properties are typically much smaller in terms of the level of investments as compared to other commercial property types such as regional malls and office buildings, which makes them much easier to finance, especially in a market like this.

So what are our challenges? We have built up an organization to handle annual transaction volume of a couple of billion dollars per year. Unfortunately, given this current economic environment, we do not anticipate anywhere near that same volume of business over the next few years. Hence, we need to rationalize our business model and take cost out of our organization and make it more lean and efficient, not only to survive this downturn, but also to allow us to come out of this recession much stronger. More importantly, we need to make sure everyone understands our mission and give people clear accountability and authority to get their job done. To that end, as discussed in our press release last night and in our 8K filing, we announced a change in our organizational structure to ensure clearer accountability and responsibility for our assets.

We will focus geographically, rather than functionally and drive down responsibility and accountability to our market leaders in each of our cities across North America. Our market leaders generally are people who grew up in the industrial business and were leasing stars in their local markets who have been spending their time in the last few years focused on new acquisitions or developments. They will still have those responsibilities, but with the capital markets as they are, their main focus with their team will be on keeping our existing tenants and filling up our vacant space. As part of this reorganization, we have reduced the number of people dedicated to development and transactions. We will now have one regional head for each of the East, Central and West regions, who will have the responsibility for all aspects of operations for the markets in their region. This group will report to me.

We have a vigorous focus on cost reduction, as every dollar counts in this environment. To that end, no one received a year-end bonus for 2008 and we are looking hard at every expense line. This isn't a fun time, but in our view it is important for us competitively to be focused on the back to basics mission at hand and have our cost structure in line. The next two to three years will be all about hand-to-hand combat in the marketplace for tenants, and we will be aggressive, both at attracting them and retaining them. We need to know who is responsible for every asset in our portfolio and with our new structure there is no confusion.

Additionally, as part of these restructuring actions, as announced in December, the Company is discontinuing its European operations. The economic and industry environment in Europe is as challenging as that in North America. As a result, the Board and management did not expect to reach the levels of investment and profitability needed within the next several years to justify continuing our operations there. As a result of our restructuring and cost reduction plan, in total we have reduced staffing by 43% since the end of the third quarter, with our current headcount at 295. These actions resulted in restructuring charges in the fourth quarter and we will have additional charges in 2009. Importantly, excluding the restructuring charges, this brings our projected G&A for 2009 to approximately $37 million, which would represent a reduction of 56% compared to 2008. Our results for the quarter and the year were also impacted by an impairment charge related to our investments in joint ventures. Scott will discuss these in more detail shortly.

Regarding investments, we do not expect to pursue any new investments on our balance sheet in 2009 and we will be very selective in our joint venture investments. In managing our diversified portfolio, we monitor customer activity in our facilities and are in regular discussions with them, in advance of renewals and throughout the year. And in these economic times, we are stepping up that effort. Like most industrial and other commercial firms, the malaise in the general economy has affected some of our tenants. One such customer was Circuit City, which in December rejected its lease for the 1.3 million square foot build-to-suit we recently completed for them in Central Pennsylvania. This news is disappointing; however, we are moving forward on our plans to market the vacancy to one or multiple tenants and for sale.

Now, moving on to our capital position. Managing our liquidity is obviously a key priority. As noted before, we have $125 million in senior debt due in June. Placing secured debt on some of our properties is part of our arsenal to manage this upcoming maturity, as we have flexibility to raise debt in the secured market with 96% of our assets unencumbered. Additional asset sales also remain part of our plan to enhance our liquidity position and we currently have several assets under contract or letter of intent.

Now, I'd like to discuss the dividend. We plan to retain capital by adjusting our dividend policy to distribute the minimum amount required to maintain our REIT status. We will not pay a dividend in April of 2009 and may not pay common dividends in future quarters in 2009, depending on our taxable income. If we are required to pay common dividends in 2009, we may elect to satisfy this obligation by distributing a combination of cash and common shares. Now, let me turn it over to Scott to review the year and quarter for you, as well as our guidance for 2009. Scott?

Thanks, Bruce. First, let me review quickly for you our results for the year. Funds from operations per our methodology, that includes the impact of net economic gains, were $2.05. These results reflect $0.55 in charges related to our expense reduction plan in the fourth quarter, $0.36 of which was cash, and $0.19 was non-cash.

In addition, after a thorough review of all of our investments on our balance sheet and in our joint ventures, we recognized impairment charges for some of our joint venture investments. As noted in our press release, these impairment charges were as follows: $26 million for our Development and Repositioning joint venture; $10 million for our Strategic Land and Development joint venture; $3 million for our 2005 Core joint venture; $2 million for our 2006 Net Lease joint venture; and $1 million for our 2003 Net Lease joint venture. These resulted in an additional one-time charge in the fourth quarter of 2008 of $43 million or $0.86 per share. EPS for the year was $0.50, including those charges. Fourth quarter and full year results also reflected an approximately $0.06 non-cash loss resulting from the mark-to-market of an interest rate hedge related to the coupon reset of our series F preferred stock. In the second quarter of 2009, the coupon on our series F preferred stock will reset quarterly. This hedge will effectively lock our coupon at 7.59% until September 2013. Excluding the restructuring and impairment charges, FFO per share was $0.52 for the fourth quarter and $3.46 for 2008.

As a reminder, in 2009, we will be reporting our FFO per NAREIT's definition excluding gains from previously depreciated properties. For 2008, our FFO on the NAREIT basis was $0.42 including the restructuring and impairment charges. Excluding the above mentioned charges, NAREIT FFO was $1.84.

Moving on to our portfolio results, overall, they were good. Our occupancy at quarter end was 93% and averaged 93.6% for the year. Tenant retention for the fourth quarter was solid at 76%. Same store NOI was 0.7% for the quarter and averaged 1.5% for the year, excluding lease termination fees. Rental rates for the quarter increased 4.8% and for the year were up 4%.

Leasing costs averaged $2.32 per square foot for the quarter and $1.94 per square foot for the year. As noted in our press release for 2009, we are modifying our definition of our in-service balance sheet portfolio to include all developments and redevelopments at the earlier of one year following shell completion or redevelopment construction completion or achievement of 90% occupancy. The in-service portfolio will also include any newly acquired properties with occupancy greater than 75% upon acquisition. If a building is acquired at less than 75% occupancy, it will be placed in-service at the earlier of one year or achievement of 90% occupancy. And in the first quarter of 2009, this change will result in the inclusion of a number of properties currently classified in our supplemental as "out of service" or as "completed developments not in service," with both categories including properties that were below 90% leased.

As of December 31st, 2008, the "out of service" and "completed developments not in service" were 41% and 16% occupied respectively, so including them will reduce by definition our 2009 occupancy figure. On this basis, First Industrial's average occupancy for 2008 was 90.4%. To help you with your modeling when comparing 2009 to 2008, looking at our portfolio on an all-in basis, that is all properties whether in-service or not, total occupancy for 2009 is projected to be on average 81% to 82%, compared to an average of 85% in 2008. As Bruce stated, we are focused on overall occupancy as a way to drive value for the Company and do not plan on new investments on balance sheet. This change in methodology will provide enhanced clarity on our overall portfolio performance over the long-term and will highlight the opportunities we have and the progress we make in improving the value through leasing.

As we have mentioned today and in the past, our debt maturity schedule is manageable. Our weighted average maturity is 7.2 years, significantly longer than many other companies in our industry. All of our long-term debt is fixed rate debt. 96% of our assets are unencumbered by mortgages. We have very little debt maturing in the next two years, only about $150 million, $125 million of which is senior notes due in June. As Bruce noted, we are looking at various tools to handle those maturities. Secured debt is part of that solution, with most of our assets unencumbered, we have the capacity to raise secured debt which is achievable in today's markets as there are lenders for sizable industrial property pools. Eastdil Secured has been selected as a placement agent for a package which we are currently marketing and we have received a great deal of interest. We also anticipate that we will be able to raise capital through select asset sales, as Bruce noted.

Our current available cash plus availability on our line of credit totals $30 million. The last point with respect to liquidity is that we need only $16 million to fund the remainder of our developments in process and that includes our balance sheet and our pro rata share of joint ventures.

Briefly now regarding our loan covenants. Our covenants are based on leverage and coverage ratios. For 2008, we are in compliance with our covenants and we intend to remain in compliance. As we noted in our 10K filed yesterday, reductions in net operating income below our projections, limitations on our ability to sell properties or ability to refinance our debt coming due in 2009, may inhibit our ability to meet our financial covenants. We have also provided some additional detail in our supplemental on our JV debt maturities which we hope you will find helpful. Total debt on our JVs is $1.4 billion. Recall that we have 10% to 15% of the equity depending on the venture. For 2009, we have a total of $478 million maturing, with only $95 million maturing without a unilateral extension right. $61million relates to our FirstCal ventures which we have capacity under other existing facilities. The remainder is mortgage loans related to our Net Lease ventures that we are looking to extend or refinance. As a reminder, none of these loans have recourse to First Industrial.

Regarding 2009 guidance, we are now providing guidance pursuant to the NAREIT definition of FFO. We expect FFO per share to be between $1.23 per share to $1.33 per share. Here are the key components of that guidance for 2009. From the portfolio point of view, we expect average occupancy to be 83% to 85%, again, this is under our new definition of our operating portfolio that I discussed previously. Same store NOI to be negative 3% to negative 4%. Rental rate change is expected to be negative 1% to negative 2%.

As far as G&A is concerned, as Bruce mentioned, as a result of our restructuring, we expect our G&A expense for 2009 to be about $37 million. Also, we will incur additional restructuring charges of approximately $6 million, $3 million of which are cash. For JV FFO, we expect this to be in the range of $8 million to $10 million, approximately 75% of this is expected to be from our share of NOI and fees from our income producing properties.

Again, we do not expect to pursue new investments on balance sheet for the foreseeable future. We will also be very selective for our joint venture investments. With regards to asset sales, we are targeting dispositions of select properties, but we are not providing specific guidance. As a result, the impact of any sales activity is not included in our NAREIT FFO or EPS guidance. With that, let me turn it back over to Bruce.

Thanks, Scott. Before we open up to questions, let me conclude by saying that there's a lot of hard work to be done. There will be challenges and we will work hard every day to serve our existing customers and importantly win new ones. That is our focus and our people at First Industrial, both in the field and at the head office, know and embrace that mission. With that, we'll be happy to take your questions. As a courtesy to other callers, we ask that you limit your questions to one per person, in order to give other participants a chance to get their questions answered, and you're more than welcome to get back into the queue. So now, Kelly, can you please open up the lines for questions?

Yes. (Operator Instructions) We'll pause for just a moment to compile the Q&A roster. Your first question comes from Paul Adornato with BMO Capital Markets.

Yes, hi, good morning.

Good morning.

Congratulations, and best wishes on your new role, Bruce.

Thank you.

Was wondering if you could talk a little bit about the decision to have three regional managers. It sounds like something that might be more appropriate for an apartment company, but was wondering if you could just kind of walk us through why you think it might work for First Industrial. I guess I'm curious, just because some or many of your tenants might be national in scope.

Well, it's a couple things. What we want to do is bring great focus down at the property level and the regional level. So if we take each city, we have the market leader there is responsible for the P&L of that region. We then have -- they report up to three regions. And what we've done is take layers out. There's now just three --Jojo, David Harker and Peter Schultz running that and they're reporting to me. So there's just four of us. We have people that are involved with all aspects of the business in terms of with our tenants, our national tenants, so we know who they are and can deal with that. Next question, operator.

Yes, your next question comes from the line of Ki Bin Kim with Macquarie.

Hi, good afternoon. Could you give a little more breakdown on your same store NOI projections for 2009, in terms of what are you projecting for your cash-on-cash, mark-to-market and what kind of tenant retention you're looking for?

Yes. We stated the same store is going to be trending down 3% to 4% next year. As far as the retention numbers, we've actually felt that we're maybe a little bit conservative on that. In the past, we've always experienced tenant retentions in the high 70%s or the mid-70%. This year we're in the numbers, we've forecasted numbers in the 50% range, so we think we'll actually beat that. As far as the mark-to-market on our overall rental rates right now, our in-place rents compared to the market rents were actually about -- probably about 20 basis points higher, and so those are just kind of the overall assumptions that we did for the same store.

Alright, Operator, next question.

Your next question comes from Vincent Chow with Deutsche Bank.

Hi, guys. Just had a quick question just on the taxable income and the EPS projections that you've given. Excluding the restructuring charges, it looks like about $90 million plus in net income. And you're projecting minus $90 million or so in 2009. Can you just talk about exactly what's driving it down that much? I mean, is it just the JV FFO obviously is down quite a bit year over year and that's offset by G&A savings. I think you said there's no asset sales assumed in that guidance.

Could you do me a favor? We had trouble with hearing that. Can you just repeat that a little louder?

Sure. Is that better?

Yes.

Okay. Great. Just trying to get a better understanding of how you're getting to the sort of minus $90 million range for net income for 2009, from 2008 of $91 million, ex the charges that you've taken. And I think you said there was no asset sales assumed in that guidance, so just trying to figure out how that is coming down. And obviously JV FFO is down but G&A seems like it offsets that.

Okay. I'll try to answer the question. I'm not -- the question is we issued 2009 guidance in our October '08 press release and we just reissued 2009 guidance, and there's a drop-off in -- our midpoint was $1.50 in our 2009 guidance issued in October of '08, our midpoint is now $1.28 for 2009. So there's a couple of pluses and minuses that went into the change. The first minus was on our JV FFO, we are projecting less than what we assumed in October of '08. This has to do with the fact that there's a lot less transactional activity in the market.

We also are seeing a little bit of decline in our NOI of our portfolio since that October '08 time frame. Some of that has to do with the Circuit City bankruptcy and others just has to do with a further decrease in occupancy we're projecting. This is offset by a decrease in G&A expense which was due to the restructuring that we did in December of 2008, and the one that we just did in February of 2009. Next question, operator.

Your next question comes from the line of Jamie Feldman with UBS.

Hi. This is John Peterson. I'm sitting in for Jamie today. I was hoping you could talk more about the mortgage debt that you guys are hoping to raise, specifically what pricing is in the market today and then what amounts you've been able to get mortgage debt.

What we've done is we've put together a bunch of pools that are going out to the marketplace and I would say the pricing that we're seeing ranges from the probably mid to high 6%s to the mid to high 7%s, and we'll report back in next quarter in terms of what we achieve. But that's sort of what we're thinking about now. Next question, operator.

Your next question comes from the line of Cedrik Lachance with Green Street Advisors.

Thanks. Scott, could you give us a little more precision in regards to your covenants in terms of how much room you have for additional borrowing on your LTV covenant. In addition to that, in terms of your secured debt, how much more secured debt can you place on the Company?

Okay. As far as the covenants are concerned, as we mentioned in the text, any decreases in NOI and reduction in property sales could impair our ability to meet our covenants. That's what we're going to say about that. As far as secured debt is concerned, 96% of our assets are unencumbered. We are allowed to have 40% of our total cap in secured debt and obviously we're way below that at this point in time.

Next question, operator.

Yes. (Operator Instructions) And your next question comes from the line of Stephanie Krewson with Janney.

Thank you. One question with two parts to it. What happens theoretically if you do not have money to retire the $125 million of senior unsecured notes in June? Doesn't that cause an acceleration of your other outstanding unsecured debt in terms of maturity?

Yes. If we are unable to refinance that at maturity, we wouldn't be in compliance with the covenants for our notes or our line of credit, and at that point in time we would have to work with the banks and the lenders to rectify that situation.

That's got to be a pretty remote thing if you look at it, when you have all these assets that are unsecured. So that shouldn't be a problem.

Next question.

Your next question comes from the line of David Rodgers with RBC Capital Markets.

Thank you. With respect to your JV impairments, should we read into any of those impairments that those were driven by any type of change in agreements or change in the whole period expectations, etc., related to those ventures? And on the joint venture FFO, you said 75% was NOI and fees, should we assume the remaining 25% are merchant build and related gains?

Okay. The first question was regarding our JV impairment. The majority of that related to impairment charges that we had to recognize under APB18. So it didn't have anything to do with any agreements or things of that nature. APB18 requires us to fair value our joint ventures and compare that fair value to our carrying value of the investment. By doing that, that caused the impairments. So again, that analysis relates to that value at that day, so it doesn't take into account any future value that may occur in the future because of values increasing or cap rates going down. As far as our JV FFO, yes, the remaining 25% relates to our share of economic gain and promotes that we would earn from sales related to our joint ventures.

Alright. Next question.

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

Hi. Just to follow up on the impairment question. It looks like your expected development yields on your development properties didn't change much from last quarter. And I was wondering were the impairments based more on operating properties versus developments and how that breaks down?

Sure. The majority of the impairments occurred in our Strategic Land joint venture and our land in redevelopment joint venture, so more of it was development related, as opposed to operating property related.

Next question, operator.

You next question comes from the line of Paul Adornato with BMO Capital Markets.

Yes, again, on the impairments, did you review the entire portfolio for impairments, and was it done on the same basis as the JV impairments?

We reviewed First Industrial as well, the accounting rule is FAS 144, which is different than APB18 when you review impairment. So we did review the REIT's properties for impairments and there weren't any impairments that we recognized relating to our balance sheet properties.

Next question.

Your next question comes from the line of Stephanie Krewson with Janney.

Just a follow-up. How many term sheets from different banks are you reviewing right now for new mortgage debt with which to refinance your senior unsecured in June? And then I'll re-queue.

What we said was that we've gotten great interest and we anticipate having the refinancing done by the time we get to three months. Next question, operator.

Your next question comes from the line of Cedrik Lachance with Green Street Advisors.

Thanks. Can you give us a little more color as to which property types you see as faring relatively better in this environment? So warehouses, regional warehouses, and some flex assets, manufacturing, where do you see occupancy holding best? Where do you see your greatest challenges? And address the same question from a rental rate perspective.

Cedrik, this is Jojo. In terms of product type, the bulk mid-sized warehouse and light industrials are holding better than R&D/flex, in general and that is across the nation. In terms of markets, where you're seeing on average a bit stronger would be the markets of Dallas, Houston, LA, for example, Minneapolis, and -- but overall, in terms of activity, velocity is down. There is activity but much less than last year, and at the same time rental rates on those few markets that I mentioned to you have been stable, but across the country has been trending down a bit.

Next question, operator.

Our final question comes from the line of David Taylor with David P. Taylor and Company.

Thank you. Bruce, I'd like -- you've sort of made it plain that you're not going to pay out any cash in 2009. How about beyond 2009? What's your vision on cash dividends?

My vision on cash is I like it and I like retaining it. And in this environment, having it around it good. We'll review it for 2010 when we get there. But right now, we're retaining cash and we want to make sure we have it as much cash around as we can and shore up our balance sheet.

Next question, operator.

(Operator Instructions) Your next question comes from Stephanie Krewson with Janney.

Question for Scott. Scott, using -- taking occupancy for your portfolio down to 81% to 82% by year end of '09, that looks like it would make you go into technical default on your maximum leverage coverage ratio on your line of credit. What would happen to -- what would you anticipate happening to your cost over LIBOR if that should happen?

Stephanie, first, as we mentioned, based upon our projections we wouldn't be in default under any of our loan agreements. So that's not an issue.

Stephanie, I would say that, again, when you look at that occupancy of 81%, 82%, that's all-in. What we tried to do is show you a new number, which is probably, I think as an investor or an analyst would be the most important number, which is how much space do we have in our portfolio that we can lease. And that's what I'm looking at in terms of the business and managing for increasing NOI and cash flow is we've got almost 20% of our space that we can lease up. And so, that even though if we did on the same basis we had done it last year would have been 93% or 91% occupied, this is just giving you another number to show what the opportunity is if we lease that up. Because for instance, if you just increase the occupancy by 10 points from the 81% to 91%, that's another 7.8 million square feet. And if you take our average rent of $4.50, that's about $35 million in NOI that we pick up. So that's really the purpose of why we wanted to show you that number and how we're changing our in-place and our all-in. Next question.

Your next question comes from the line of Cedrik Lachance with Green Street Advisors.

As per your 10K, you had not sold a single property in 2009, at the time you wrote the 10K. What's your confidence level in being able to market the amount of properties that you need to sell in order to repay the June debt? On top of that, can you give us a sense of the kind of cap rates you may be able to achieve now days versus what you got last year?

Cedrik, hi. In terms of sales, we have several assets that we have on the market and we're targeting the most active part of the market today. As we all know, transaction volume is down from last year. But there remain pockets of activity out there and they're primarily from users. So you will see even in the fourth quarter of last year, predominant buyer of our properties, in fact, about 70% of the buyers last quarter, Q4 of '08, was between users and 1031 exchanges. So there continues to be user and 1031 exchange buyers. In addition to that, in order to gain maximum pricing, what you want to do in this environment is to not sell large portfolios. What you want to do is sell portfolios under $10 million. If you look at our average size in Q4 of '08 and going forward, we might actually trend below $5 million as an average of selling. So those are the selling tactics and techniques and focus that we're having: to achieve the highest price and lower cap rates.

Next question.

Your next question comes from the line of Michael O'Dell with Met Life.

Yes, thank you. Just a couple points of clarification on the liquidity profile. What's your plans for any development spending? I know you said you're not going to start any developments but the remaining development spending in the pipeline? And then in terms of your liquidity going beyond 2009, what are you looking to do about your heavy debt load in 2010, 2011 - 2011, 2012, rather.

Yes. Very little in 2010.

Right.

The first question was on the --

Yes. Development spending, we've got $15 million to $16 million related to completing developments and that's all we have in our 2009 requirements.

And then on the -- on repaying the debt that comes due in 2011 and 2012, again, we've got a lot of assets that we can sell in terms of -- or finance, and we'll be working on that.

Next question.

Your next question comes from the line of Stephanie Krewson with Janney.

Does your G&A guidance include joint venture level G&A?

Yes.

Next question.

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

Hi. Could you just give an update into the leasing activity you've seen in January, February, in terms of pricing and volume?

Chris, why don't you take that?

Yes. So far this year, we've leased about 1.9 million square feet. As Jojo had mentioned before, that's definitely -- the velocity is definitely down from a year ago. A year ago, we were at about 3.8 million square feet, so there's some loss in velocity, but we are still seeing some activity. And then actually on overall rates, even though we had projected or we have projected overall for the year to average negative 1% to 3%, the activity so far in January and February we're actually showing a positive about 2%. So we're actually kind of pleased with what we've seen from that perspective so far.

And so far it's within our plan of lower average occupancy and lower NOI.

And our retention rate's higher than we have been budgeting.

Our retention rate is about 10 basis points higher than -- I'm sorry 10% higher than what we had in our plan for the first two months.

Next question, operator.

Your next question comes from the line of Cedrik Lachance with Green Street Advisors.

Cedrik?

Cedrik? Next question, operator.

Your next question comes from the line of Stephanie Krewson with Janney.

Just out of curiosity, why did you buy assets in the fourth quarter rather than buy back some of your senior unsecured notes that were maturing?

Yes. The assets were funded from a 1031 exchange fund, that if not funded we would have paid a significant amount of taxes, so that was a good investment. In addition to that, they were 100% income producing assets, 100% leased.

Next question.

Your next question comes from the line of Cedrik Lachance with Green Street Advisors.

Yes. This question is in regards to your line of credit. In the 10K, $6 million left in borrowing capacity on the line. I see about $3 million in cash as of December, the end of December on your balance sheet. How do you finance your development commitments? How do you finance the business with those lines?

Yes, we have about $6 million on our line and we've got $25 million of cash on our balance sheet.

Right now?

Right now. So that gives us the capacity to finance those development dollars.

Next question.

Your next question comes from the line of Mark Streeter with JPMorgan.

Hi, it's Mark Streeter. Wondering, is there -- given all the focus on the unsecured note maturity this year, as a contingency, is there anything that would stop your ability from taking your unencumbered assets that for whatever reason you can't sell or can't raise secured debt from, in say the life insurance company market, is there anything that would prevent you from offering the public bond holders new secured notes, some order of exchange in order to -- in the event that you'd need to -- refinance that debt?

You know what, we haven't looked into that possibility, so we --

We're pretty confident we're going to get this done.

Right.

Next question.

Your final question comes from the line of Stephanie Krewson with Janney.

Scott, if you don't mind, I'm going to circle up with you on a few small details after the call. But my final question is, just organizationally, let me make sure I understand your new tri-regional corporate structure which looks a lot like the Company looked back in 1999. Specifically, do you still have senior level transaction officers at the VP level, such as I don't know, Kevin Czerwinski out in Phoenix or have you eliminated that entire layer and consolidated?

No, no, we have that. We have acquisition people, development people in the field. Again, most of our market leaders in the markets we serve have capacity, have been development people, acquisition people, leasing people. So, like Kevin Czerwinski is a great example, he can do it all. That's the type of people we have focused on our portfolio and will continue to focus on that. All we've done is instead of having Kevin report to one development person, one acquisition person, one something else person, he reports to one person such as Jojo, who has done it all, or David Harker, who has done development, acquisition, leasing, or Peter Schultz. So I think it makes it easier. One of the reasons we're doing it when we're out in the field asking people who they reported to, there was a little bit of confusion as to who they reported to. There were so many different styles we had to deal with. This makes it much simpler. Kevin runs his region and is responsible for the P&L. So we're in great stead for the people we have in the field, running each of their portfolios.

Operator, may I just spend a minute and just conclude, which is first and foremost, to thank you all for taking the time and participating on the call. And we'll look forward to keeping you updated on our progress in future quarters. And always, if you have any questions, please feel free to call Art, Scott or myself, and we'll be happy to answer any and all questions. So again, thank you very much for your time and your interest in First Industrial. We look forward to talking to you in the future. Thank you.

Thank you.

Thank you. This concludes today's conference call. You may now disconnect.