First Industrial Realty Trust Inc (FR) 2009 Q3 法說會逐字稿

At this time I would like to welcome everyone to the First Industrial third-quarter earnings 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)

I would now like to turn the conference over to Mr. Art Harmon, Director of Investor Relations for First Industrial. Please go ahead, sir.

Thanks, Wes. Hello, everyone, and welcome to our call. Before we discuss our third-quarter 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 10-K for the year ending December 31, 2008, filed with the SEC and subsequent reports on 10-Q. Reconciliations from GAAP financial measures to non-GAAP financial measures are provided in our supplemental report available on FirstIndustrial.com under the Investor Relations tab.

Today we will begin our call with remarks by Bruce Duncan, our President and CEO, which will be followed by a review of our results, our financial position, and guidance by Scott Musil, our acting Chief Financial Officer. After which we will be pleased to open it up for your questions.

The other members of senior management in attendance today are JoJo Yap, our Chief Investment Officer, and Chris Schneider, Senior Vice President of Operations. Now let me turn the call over to Bruce.

Thanks, Art, and thank you all very much for joining us today on our call. Since we spoke with you last quarter we have continued to make further progress on our back to basics plan that we outlined for you earlier this year.

Our team of professionals in our regions and in our headquarters has been hard at work executing that plan on the capital and operational fronts, and I would like to thank them for their efforts and dedication.

We still have a lot of work to do and the industry fundamentals remain challenging, but we are seeing some positive signs in our markets which I will talk about in more detail in a minute. But first, let me start with a discussion of what we have been doing on the capital front.

We are using a three-pronged attack of secured financing, asset sales, and most recently equity issuance as we seek to improve our capital position by reducing our overall leverage. We have the benefit of a well-laddered maturity schedule with a weighted average maturity of 7.5 years, but the focus of our three-pronged attack is taking care of our near-term maturities in 2011 and 2012.

As of today we have approximately $355 million of secured -- of senior unsecured debt due in 2011 and approximately $144 million due in 2012. And note that our current line of credit expires in September of 2012 as well.

With regard to new equity, we issued approximately 16.6 million shares; 13.6 million through our recent secondary equity offering and 3 million issued during the third quarter through the direct stock purchase feature of our dividend reinvestment program. In all, net proceeds were about $84 million.

We decided to raise equity to add to our arsenal for our deleveraging plan and enhance our ability to continue to reduce our short-term maturities. At the same time though we are very mindful of balancing our deleveraging objectives with dilution and raising new equity capital.

On the secured debt side we completed five transactions for gross proceeds of $47.1 million in the third quarter, an additional three transactions for $54 million in the fourth quarter to date, and we have a solid pipeline of more than $130 million of additional secured financing transactions committed or under application.

On the asset sale portion of our plan we sold seven facilities and three land parcels for $25.2 million in the third quarter on balance sheet. We are on track for our 2009 goal of $80 million to $100 million in sales with a total of $59 million completed year to date and several sales in our pipeline.

Five of the facilities we sold this quarter were vacant, and between these vacant facilities and the land more than $18 million of this quarter's sales were non-income producing assets. We continue to be focused on sales to the user market where we are getting the best execution.

One other source of future cash will be the federal tax refund of $27 million we expect to receive in the first quarter of next year as detailed in our press release and which Scott will discuss in more detail. We used available proceeds to buy back $123.7 million of debt in the third quarter at an average purchase price of 84% of par and $12 million in the fourth quarter to date at an average of 85% of par.

In executing these purchases since the end of the second quarter we have reduced our 2011 and 2012 unsecured note maturities by a combined $90 million.

Moving now to our bottom-line results in the third quarter, FFO came in at $0.57 per share including gains from retirement of debt plus several other one-time items. Scott will walk you through these in more detail.

Occupancy was 81.7% at quarter end for our in-service portfolio and tenant retention for the quarter was solid at 82.4%, ahead of our first-half average of 61%. We expect our full-year 2009 retention to average out in the mid-60%s.

Looking at customer demand, with vacancies near all time highs all of our markets remain very competitive as our public peers and regional competitors are similarly focused on occupancy. On the plus side, 12 of our 29 markets showed an increase in occupancy compared to only four in the previous quarter. And customer activity and interest has definitely picked up over the last few months as we are gaining increasing traffic to our vacancies in nearly all of our markets across North America.

This has yet to translate into a significant number of signed leases, but this increased activity is definitely a marked departure from where we were earlier in the year.

In our conversations with customers and prospects many businesses are shifting from a wait-and-see or even a survival mode and becoming more focused instead on growth plans and related supply chain needs. Some of the traffic is no doubt shopping -- rate shopping -- but much is related to businesses with real needs considering their options and our people in the field are focused on making sure we win more than our share.

We are aggressively pursuing tenants to improve occupancy using our competitive advantages in the marketplace which include the ability to fund TIs and free rent where they make economic sense and our record and reputation for great customer service. Our ability to fund TIs is particularly important when we are going up against local competitors who may be cash strapped.

On the expense side we made the difficult but necessary decision to further reduce our staffing in line with our expected levels of business activity. This includes lower joint venture activity given changes to our 2006 net lease program and another net lease program with the same partner, which I will discuss in a minute, and lower expected activity levels in our other repositioning and development ventures.

We have eliminated 46 positions throughout the organization and closed our offices in Calgary, Irvine, Salt Lake City, and Toronto with assets in those markets to be managed through nearby offices. Overall savings are expected to be about $8 million per year, which puts our annual run rate for G&A heading into next year in the mid-$30 million range.

With regard to our expected levels of business activity, as we have previously announced, on September 18, 2009, we received a notice from our co-investment partner that it was exercising the buy-sell provision in the joint venture agreement. We hold a 15% interest in this venture and the buy-sell provision also applies to an asset in another program with that partner in which we do not have an equity interest.

Under that buy-sell provision we have a 60-day period during which to respond and we are still evaluating our alternatives. However, we anticipate accepting the counterparty's offered price to purchase our interest in all the program's real property assets. And as a result have recognized an impairment charge of approximately $5.6 million in the third quarter reflecting the difference between our basis in our joint venture interest and the offered price.

Pending our decision we will no longer receive management fees from this program and an additional asset. These totaled approximate $0.5 million in the third quarter of 2009.

In addition, effective September 2, 2009, we no longer serve as asset property and leasing manager for two properties in another program with this partner in which we had no equity investment. Our fees from this other contract were approximately $100,000 in the third quarter of 2009. As noted in our press release, we received a one-time termination fee of approximately $900,000 in the third quarter.

In discussing capital I also want to reiterate our dividend policy. As we discussed in prior quarters, our policy is to distribute the minimum amount required to maintain our REIT status. We will look at our estimate for taxable income in the fourth quarter and to the extent we are required to pay common dividends in 2009 we may elect to satisfy this obligation by distributing a combination of stock and cash.

Looking at our levels of taxable income for the first nine months of the year if annualized, it would not require us to pay a common dividend. Based on our current guidelines for 2009, which excludes the impact of future asset sales, we would not generate taxable income at levels that would require a common dividend distribution in 2009. But no final determination with respect to a distribution has been made.

On the investment front we are certainly closely monitoring our markets and believe that longer-term there may be some good opportunities to use our platform for investments with capital partners, but right now deleveraging is our primary focus. I would note, however, that in monitoring the transaction markets there does not seem to be many distressed sales of industrial property.

Regarding FFO per share for the year we are now seeing it in a range from $1.58 to $1.68, a reduction from previous guidance reflecting the impact of the equity issuances, the G&A reduction, and other items that Scott will walk you through. We will provide our 2010 guidance when we report our fourth-quarter and full-year 2009 results early next year.

With that, let me turn it over to Scott to discuss the quarter in more detail, as well as our guidance for the balance of the year. Scott?

Thanks, Bruce. Funds from operations were $0.57 per share compared to $0.44 per share in the year-ago quarter. FFO results were helped by a few items including a $0.36 per share gain on early retirement of debt and a $0.13 per share benefit for income taxes.

Results also include the impact of an impairment charge of approximately $6.9 million or $0.14 per share for the third quarter with respect to a property in the Inland Empire. Based on our revised leasing assumptions for our intended holding period for the property we determined the property's book value was impaired.

Results also included an $0.11 per share impairment charge related to our net lease joint co-investment program as detailed in our press release. We also recorded a $1.4 million restructuring charge in the quarter related to the expense and staffing reductions that Bruce discussed.

EPS for the quarter was a loss of $0.04 per share compared to income of $0.08 per share for the year-ago quarter. As Bruce mentioned, our occupancy at quarter end for our in-service portfolio was 81.7%, down from 82.1% last quarter. Our in-service portfolio now represents 98% of all of our properties.

Our all-in occupancy at quarter end was 79.7% compared to 80.1% last quarter. In the quarter we commenced 4.3 million square feet of leases on our balance sheet, including 0.8 million square feet of new leases, 2.8 million square feet of renewals, and 0.7 million square feet of short-term leases. Tenant retention was solid at 82.4%, same-store NOI on a cash basis was negative 7.8% excluding lease term fees, and rental rates were down 9.4%.

These metrics are in line with our expectations and reflective of the competitive market conditions. Leasing costs averaged $2.20 per square foot for the quarter, which is a fairly normal rate when compared with our historical annual averages.

Moving to our capital market activities and capital position. During the quarter we completed the issuance of 3 million shares of the Company's common stock generating approximately $15.9 million in net proceeds under the direct stock purchase component of the Company's dividend reinvestment and direct stock repurchase plan.

Since the end of the quarter we completed an equity offering totaling 13.6 million shares for total net proceeds of $68.3 million. As of today our total shares and units outstanding are approximately 67 million.

On the secured debt side in the third quarter we closed five transactions with multiple lenders generating gross borrowing proceeds of approximately $47.1 million. These borrowings were secured by 21 properties totaling 1.6 million square feet and had a weighted average interest rate of 6.99% with maturities ranging from five to seven years.

Since quarter end we closed three additional secured financing transactions totaling $54 million secured by 14 properties totaling approximately 1.9 million square feet with a weighted average interest rate of 7.32% and maturities averaging five years. We also have lender commitments for an additional three secured financing transactions on 14 properties totaling 1.8 million square feet for potential gross borrowing proceeds of $62 million at a weighted average interest rate of 7.4% and maturities ranging from five to 10 years.

We are also under application for an additional six secured financing transactions with respect to 25 properties totaling approximately 2.2 million square feet with total potential gross borrowing proceeds of approximately $72 million at a weighted average interest rate of 7.05% and maturities approximating five years.

The sale of seven properties and three land parcels as Bruce noted resulted in additional proceeds to $25.2 million during the quarter.

Quickly summarizing our capital structure and position, our weighted average maturity is 7.5 years, significantly longer than many other companies in our industry. Following our June refinancing 85% of our assets are encumbered by mortgages. We have less than $19 million of debt maturing and regularly scheduled principal payments through the end of 2010.

As Bruce discussed, our senior unsecured note maturities in March 2011 and September of 2011, along with those in 2012, remain the primary focus on our debt reduction plan.

In the third quarter with our available capital we were successful in repurchasing a total of $123.7 million of senior unsecured debt at an average purchase price of 84% of par. This consisted of $44.1 million of our 7.375% March 2011 senior notes, $1 million of our 4.625% September 2011 exchangeable notes, $40.2 million of our 6.875% April 2012 senior notes, and $38.4 million of senior notes with maturities beyond 2012.

As a result of these transactions we recorded a gain of approximately $18.2 million in the third quarter.

Our line balance as of today is $356 million with our borrowing capacity under our line plus available cash totaling $150 million. The line balance reflects the near-term paydown with capital from our offering and other capital raising activities.

Assuming we could use the proceeds from the $134 million of secured debt we have under commitment and application plus the $139 million available capacity under our line of credit to repurchase our unsecured notes coming due in 2011 and 2012, we could reduce this debt from $499 million at September 30 to $226 million at the end of the year. Keep in mind this excludes any proceeds from property sales and our IRS refund.

As Bruce mentioned, another source of expected cash in the near future is the federal tax refund we anticipate receiving in the first quarter of 2010. During the third quarter we significantly restructured the operations of a taxable REIT subsidiary after receiving a favorable private letter ruling from the IRS.

As a result of the restructuring, the subsidiary recognized tax losses on a number of properties and investments in certain of its joint ventures whose tax basis was greater than the fair market value. Under the federal income tax rules we believe the subsidiary is able to carry back these losses to offset taxable income it had previously recognized.

We expect to apply for and receive a federal income tax refund of approximately $27 million before the end of the first quarter of 2010. We do note that the tax refund could be challenged by the IRS or delayed if our filing of the necessary tax returns is later than anticipated, or other reasons that we not foresee which could result in a delay or reduction of the expected tax refund.

With regard to our loan covenants, we were in compliance as of the end of the quarter and we expect to remain in compliance for the balance of the year subject to achieving our 2009 plan. As we noted in our 10-K in March and our last conference call, reductions in net operating income below our projections or limitations on our ability to sell properties could impact our ability to meet our financial covenants.

With regard to JV debt maturities as provided in our supplemental, the total debt for our JVs is $1.4 million and our share is 10% to 15% depending on the venture. None of the joint venture debt is recourse to First Industrial. For the remainder of 2009 we have only $9 million maturing which is in our 2009 net lease -- 2003 net lease venture.

We are currently working with the existing lender to extend this maturity. We are also currently working on refinancing debt coming due in 2010 and we will continue to look for opportunities to sell assets to reduce this debt.

Regarding 2009 guidance, as noted in our press release, we are reducing our FFO per share guidance range from a range of $1.65 to $1.75 per share to a range of $1.58 to $1.68 per share, primarily reflecting the effects of our recent stock issuances, the impairment charges we discussed, our further expense reductions, and the impact of gains from debt repurchases completed since our last call.

This guidance includes the impact of approximately $0.13 per share of restructuring charges. Also note that our guidance does not reflect the impact of any further debt buybacks that may occur in a quarter after today nor the impact of any asset sales and NAREIT compliant gains.

To reiterate some of the key components of guidance for 2009 which are found in our press release, from a portfolio point of view for the year we expect average in-service occupancy to be 82% to 83%, a tightening of the range by 0.5% on both sides. And all-in occupancy to be 80% to 81%, a similar tightening. Our forecast for same-store NOI for the year is projected to be negative 4% to negative 5%, a tightening from the prior range of negative 4% to negative 6%.

Our estimate for rental rate change for the year remains negative 5% to negative 7% and our JV FFO range is $10 million to $12 million with the change from prior guidance due to the impairment charge partially offset by a one-time termination fee of $0.9 million. We now expect our G&A expense for 2009 to be $39.5 million to $40.5 million adjusted downward from our prior figure, reflective of the recent expense reductions.

With that let me turn it back over to Bruce. Bruce?

Thanks, Scott. Before we open up to questions, let me summarize. We have made good progress in executing our back-to-basics plan which we laid out to you at the beginning of the year. We certainly have more work to do and our team is focused on doing it.

We will continue to delever and improve our capital position. We have continued to work to optimize our cost structure while maintaining our platform to serve our customers. And we are encouraged by the level of customer activity in the marketplace. Our team is focused on enhancing the value of the enterprise by winning new tenants to fill our vacancies and retaining those we have.

As we have noted before, we have a significant opportunity to increase our cash flow by just getting our occupancy back up to 90%.

And with that, we would be happy to take your questions. As a courtesy to our other callers, we ask that you limit your question to one plus a follow-up in order to give other participants a chance to get their questions answered. Of course, you are welcome to get back into the queue.

So now, Wes, can we please open it up for questions?

(Operator Instructions) Ki Bin Kim, Macquarie.

So in regards to your asset sales strategy, could you just provide more commentary? So what is the size of the bucket going forward of how much assets you want to sell, and is the strategy there to sell where you can or is that market specific?

I would say, Ki Bin, what we are trying to do, if you look at what we sold in the past, is we are focusing more on -- of the buildings we sold in this quarter most of them were vacant buildings. We had a 100,000 square foot building in LA that we sold. We sold a couple things, smaller condos, office condos, or industrial condos in Miami. We sold an empty building in Phoenix.

So again, it's more one-off transactions where we find a user that we think is paying a fair price for the asset. As you know we sold these properties we averaged about $75 a foot for them and most of them were vacant, so it's one-off.

We anticipate next year probably -- and, again, we haven't finalized this, so it's my guess it would be -- sales would be the same range as this year of $80 million to $100 million. But we haven't really finalized our thinking and budgets for next year.

Another follow-up. If you completely sell out of a certain market, and I am guessing it's different for the market, is there additional cost savings coming out of closing down a regional office and what would that absolute dollar be?

I think it depends on the market and the presence you have in it. I would say that there are savings from doing that. I would say in the short term -- longer term we are going to reduce our exposure to certain markets.

In the short term, I wouldn't anticipate that we are going to do a large transaction to reduce our exposure into those markets because I don't think it's the time to do it. I think it's a tough market. I don't think you would want to do large transactions. I think you will get much better pricing by doing one-offs. So that would be our focus.

All right, thank you.

Dan Donlan, Janney Montgomery Scott.

Good morning. I was just curious looking at your year-over-year occupancy how much is the decline in occupancy on a year-over-year basis related to some of the acquisitions and redevelopments that weren't in service coming into the in-service portfolio? Could you quantify that?

Let me ask -- that is a good question. Let me ask Chris to take that.

Yes, so the year-over-year occupancy for our developments that were placed in service in 2009. At the beginning of the year we were at about 55% occupied and those developments now are about 57%, 58% occupied. So the developments that we placed in service had a big impact as far as the drop.

Okay. And then as a follow up, what is your prospects for those spaces? And then maybe more specifically, what type of asset are they? Is it bulk warehouse, is it more manufacturing, or maybe some color on that, please?

As far as the -- we are starting to see a little bit of pickup in the fourth quarter. We actually have a 63,000 square foot lease that was signed in our Baltimore portfolio in one of those assets.

And as far as the development pipeline that came in to service, a majority of it is bulk warehouse assets. So we are starting to see a little bit more pickup in that activity.

I would say that if you look -- as we mentioned in the commentary, we are seeing much more activity in terms of people looking at space. And I think that is pretty encouraging. So we will wait and see whether it's a real trend or not, but right now we are feeling much better today than we were six months ago.

Okay, I will go back in the queue.

[Matt Weishire], 4086 Advisors.

Two quick questions; one you already covered. How much cash did you say you have currently?

Cash we currently have is about $11 million. That coupled with our availability and our line of credit gets us to about $150 million.

Perfect. And then secondly, are there any other possibilities of your JVs buying you guys out or you guys somehow losing your management contracts with any of those joint ventures in the near future?

I would say that all of our joint ventures have options for partners to get out of the partnership in terms of exercising buy-sells and that. We do not anticipate any other issues as we are right now today.

Okay. That is my only question. Thanks.

They do have the legal right to get out if they can exercise the buy-sell.

And they can do that currently, right? There is no time period that they have to wait?

No, no.

Okay, thank you.

Ben Mackovjak, Rivanna Capital.

What was the carrying value on the balance sheet of the joint venture interest that saw the $5.6 million impairment and also the Inland Empire property that saw the $6.9 million impairment?

The carrying value of our joint venture interest is, I think, a little over $10 million. The carrying value of the property in the Inland Empire I believe is a little over $10 million as well.

That is before the impairment or right now?

That is before the impairment.

Okay. And did you say it's 67 or 57 million shares outstanding?

67.

67.

Okay. And going back to that equity deal, which is about when we got involved, what was the strategy behind announcing it in the morning but then not pricing it till the next day? It seemed like it kind of just hurt you guys more than anything?

Well, we announced it very early in the morning. I believe it was a Tuesday. And we priced it actually that night, so it wasn't priced the next day. And we had a very, very high demand of calls that day, so we were very happy with the offering.

Okay, thanks.

[Stuart Hindley], private investor.

Good morning. I would like to drill down a little bit more on the analyst question regarding your available on balance sheet space. Could you quantify perhaps how many buildings you have available in say a 300 to 500 square foot range and then say 500,000 square feet up to a million?

Yes. As far as the availability of the space, our average building size is about 22,000 square feet -- I'm sorry, the average tenant size is about 22,000 square feet. So as far as availability, it's pretty much spread across the tenant size instead of the building sizes.

Stuart, this is Art. I will look up that information with Chris after the call and get back to you.

Do you understand what I am trying to get at? I am trying to understand how many big boxes are out there, not necessarily a Circuit City-type box but just big vacant boxes, to try to get an idea of how quickly the occupancy might possibly change.

And as a follow-up I would like to ask a little bit about your leverage target is that where are you trying to get to on a total debt to say total undepreciated asset basis?

Well, Stuart, I think right now in terms of leverage, again we are trying to reduce our leverage. I would say that in terms of the golden amount we would like to get to, it's hard to set a target because we have so much -- we have got work to do to get it down, so I wouldn't set it.

But the trend is to reduce our leverage and we are doing that by asset sales, the equity issuances, and continuing to buy back debt at a discount. But it's going to get it down from where it is now. It's just at too high a level and we know that and we are working on that, but to set a level right now there is work to be done.

Thank you very much.

(Operator Instructions) Dan Donlan, Janney Montgomery Scott.

I was just curious on your lease expiration. Could you maybe talk a little bit about where some of those properties are expired -- where some of the leases are expiring? And then maybe by property type as well for just a little bit of clarity?

Sure. Chris, you want to handle that?

Yes. I guess I will make a first comment on it as far as our overall lease expiration. If you look at right now in third quarter of 2009 and look forward to 2010, we have got about 18.7% or 19% of our leases rolling in 2010.

If you look back historically the last couple of years for the same time frame in third quarter of 2008 and third quarter of 2007, we are about right at the same percentage of lease expirations. So we feel good and comfortable about the lease expiration and the velocity that we are going to see.

As far as where the lease expirations are, pretty spread across all our markets. And as far as the tenant size, we are seeing that pretty evenly spread across that. But as far as historically where we have been in the past, it's very consistent.

Okay. It sounds like it's spread across all types and all areas.

And then if I could just maybe two questions. The DRIP plan issuances, is that something you guys plan to do this quarter as well?

Well, we have 5 million shares available on the DRIP. We issued 3 million. We have got about 2 million available, and it's something we will look at periodically.

Okay. And then what were the lease termination fees? I couldn't find that in the supp. I am sure it's in there, I just couldn't find it for the quarter.

Yes, they were $515,000 for the quarter.

$515,000, okay.

Dan, that's fairly normal. They tend to run $0.5 million to $1 million in the typical quarter.

Yes, the first two quarters they were both about $480,000, right around there. So it has been pretty typical.

Right. All right, and I have one more question if I may. If you guys were to reprice the credit facility, could you give us maybe some type of spread to LIBOR you think you guys could achieve or have you guys had those discussions yet, or just maybe some guidance there?

What we have seen in the market and heard from other folks is that what you are seeing on repricing or new line deals is that there is LIBOR floors possibly of about 1.5% and the spreads are between 2% to 3%. So that is what we have heard and seen on some past deals that have been done.

Okay.

Ki Bin Kim, Macquarie.

Just wanted to quickly follow up on that previous question. Would the plan be for your credit facility to secure it going forward?

I think we like the flexibility of having an unsecured line, so to me we have got a bunch of maturities coming due in 2011 and 2012 of secured debt -- I mean of senior, unsecured debt and we have the line. So typically we have got to sort of weigh what security you could give when you redo the line versus making sure you have the flexibility to deal with your other maturities coming due.

Okay. And the second question, if you could comment on what percent of tenants are, or leases that are expiring in 2010 have you already had active dialogue with? And from those conversations any reason to believe that the retention rate going forward might be different than what we have seen?

Ki Bin, we are not giving sort of -- doing our 2010 guidance now. We do have active discussions with our tenants and we will continue to have that. But we are finalizing our budgets for 2010 and we will report that back when we get together in the beginning of the year.

All right, fair enough. Thank you.

[Ross Haberman], [Haberman & Fund].

Good morning, gentlemen. How are you? I just had a quick clerical question. The net debt after these repurchases, I was wondering if you could give us that and how does that differ from the roughly two billion you show on your balance sheet as of the end of the quarter?

I am sorry. So we have only done a little bit of -- I think around $10 million, $11 million of debt repurchases since the quarter end. So what you saw at September 30 is our debt position.

Plus the reduction in the line from the equity.

Right.

So the net debt is about $1 billion -- was it about $1.950 billion or so?

We had about, say, $2 billion of debt as of the end of the third quarter -- yes. And then we took down our line about $114 million since that point of time. And we had about $11 million of note repurchases since that point in time.

Okay. Just the other question, I might have missed it. In terms of lease renewals which you have recently seen, what kind of reductions in per square foot prices have you seen and do you expect to see over the next six months of the year on lease renewals?

Well, we'll just comment on what we did for the quarter.

For the current quarter overall, our rental rate decreases about 9.4%. On renewals it was about 8.4%, on new deals it was about 12.7%. For the entire year, renewal rates were down about 2.8% and new rates were down about 2.4%.

And implicit in our guidance for this year is about roughly the same kind of change for the fourth quarter on rental rates.

Yes, going forward from the third quarter. Right.

It is, okay. Does it seem like that is slowing down or any feelings to that effect?

I would say on the rental side, rental rate side, that although we are seeing more velocity in terms of people looking at space, it's still very competitive out there on rates. So I wouldn't want to say that we think it's firming up in terms of rates.

Okay. All right, thank you, guys.

Ben Mackovjak, Rivanna Capital.

Are you guys still seeing opportunities to buy back debt at a discount? That seems like hands down the best way to delever.

I would say that there is opportunity. There is -- again, as you have seen what has happened in the bond market and whatever, there is less opportunity today than there was. But we have been successful again in the third quarter buying back the $123 million of debt, so we continue to look at that option. If there is opportunities there, we are pursuing it.

Great, thank you.

Mary [Lutenski], BMO Capital Markets.

Hi, this is Mark Lutenski. Just two questions for you. How have you seen demand for new projects change? And does renting from a new property hold the same appeal that it used to, especially considering all of the available space out there?

This is JoJo, by the way. Overall activity traffic has increased from the second quarter through the third quarter, and the demand has actually increased for all types of properties, whether they are newer or a bit older. But what we are seeing is the demand has been coming really from -- in terms of the law of average activity.

As you know, from related companies, especially the companies that specialize in processed or frozen foods as the consumers buy you food at a lower price or more value-priced items. We see demand from healthcare. That continues to have an activity that is kind of above average versus the market.

You see activity in government services, for example, like the GSA, as government-related services continue to have funding. And finally, one part of the industry that continues to get a request for business is 3PLs, companies try to wring out their excess costs from their supply chain. So it is more the type of industries than the product type. Does that answer your question?

I guess. I mean, I was just curious. You have a lot of properties that have 0% leasing that you are developing, and I am wondering do interested tenants even care if the property is new any more or they just go -- are there choices now more -- are they more interested in properties that are better located or how have their priorities changed?

Priorities, if you compare year-over-year let's say when a lot of companies were flush with capital, it was probably more supply chain reconfiguration. Today, value is number one. Value price is number one on their list, and how do I continue to cut costs in my supply chain, is one. So again, so I would -- but then I think over time as we change again, it becomes more strategic. But right now, the focus is value.

Okay, that is helpful. Given all of the headcount reduction that you guys have done, what gives you confidence that you have sufficient manpower to manage the properties in all of the markets that you have for the long-term?

I think if you go to our offices and you talk to people and you talk to our competitors and you talk to our customers, they will say we handle -- we have capacity not only to handle our existing business, but also to do more. So I think that the reductions we have made, although they have been substantial, as it relates to the properties and leasing the properties, I think there's been very little touched there, if you will, vis-a-vis the rest of the operation.

I think we've got very good capacity and we've got great people. I think it is sort of universal. If you go around and meet our people, as a lot of our investors have done. We have very talented people that are engaged and focused and doing a great job for us. And we do have that capacity even with the reductions that we have made to handle our existing businesses and even do some more when the opportunity exists.

Thank you.

(Operator Instructions) [Anthony Zanvoni], Bestway Realty Trust.

Good morning, gentlemen. The realty trust I manage and participate with began buying First Industrial July 9, 2002 at $31.59. Currently as we speak, the stock price goes by $4.31. Any comments on the stock price today?

It is low, and we hope we can drive good value and get it up. But from our standpoint, we think it is a good opportunity. This is one person's opinion. We think when you look at where we are today, you look at us from a price per pound, if you will. You take our total debt and equity value divided by square footage, we think we are priced attractively that way. You can look at our price times a multiple of FFO, we think it is attractive.

But again, all of that's based upon if we didn't have the debt, as much debt as we have. We are highly leveraged, and our goal that we are focused on as we've talked about on the call is to reduce our leverage. And we are doing that by asset sales, we are doing that by the equity issuances.

As we get that debt down and delevered, I think that we should trade at a better multiple than what we are trading at -- should. But there is work to be done and we are focused on the deleveraging. And you can tell by with Scott's comments in terms of what we have done in terms of putting secured financings on, taking care of these maturities that are coming up in 2011 and '12 in the equity issuances. We've made a great dent in terms of being able to handle those maturities.

I think as the market gets more and more comfort that we are going to be able to do that, that we should trade better. Again, that is one person's opinion, but that is what we are focused on.

Dan Donlan, Janney Montgomery Scott.

Last question for me. Was just curious if you could comment on who is buying your assets? With your sales in the quarter, you sold some vacant buildings. Is it users, investors, or just maybe some color there, please?

It is really users. If you look at our buyers for the most part, they are users that are going to take the space. It is not -- only two of the buildings were leased, and the rest was just vacant buildings. So again, we find that market to be very efficient. The prices that are being paid are good pricing, and we are continuing to look at that market.

Thanks.

At this time, I'm showing no further questions. I will turn the conference back to management for closing remarks.

Thank, Wes. Thank all of you for participating on our call. Again, we look forward to keeping you updated on our progress next quarter, and we hope to see some of you next week when we are out at the NAREIT Conference in Phoenix. If you have any questions, please feel free to call Scott or Art or myself, and we'll be happy to answer them. Thanks again. Bye.

Ladies and gentlemen, that concludes the First Industrial third-quarter earnings conference call. We appreciate your time and attention. You may now disconnect.