First Industrial Realty Trust Inc (FR) 2013 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the First Industrial third-quarter 2013 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). I would now like to turn the call over to Art Harmon, Senior Director of Investor Relations. You may begin.

Thanks, Victoria. Hello, everyone, and welcome to our call. Before we discuss our third-quarter 2013 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. 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, 2012, filed with the SEC, and subsequent exchange act reports. Reconciliation from GAAP financial measures to non-GAAP financial measures are provided in our supplemental report available at FirstIndustrial.com under the investor relations tab.

Since this call may be accessed via replay for a period of time, it is important to note that today's call includes time-sensitive information that may be accurate only as of today's date, October 25, 2013. Our call will begin with remarks by Bruce Duncan, our President and CEO, as well as Scott Musil, our CFO. After which we will open it up for your questions. Also on the call today are Jojo Yap, our Chief Investment Officer, Chris Schneider, Senior Vice President of Operations, Bob Walter, Senior Vice President of Capital Markets and Asset Management, and Peter Schultz, Executive Vice President for our East region. Now let me turn the call over to Bruce.

Thanks Art, and thanks to all of you for joining us today. In the third quarter, we made additional progress in positioning our Company for long-term cash flow growth in the capital, investment, and asset management aspects of our business. Our progress in occupancy, however, took a pause. So, we still have some work to do towards reaching our 92% occupancy goal for year end.

We finished the quarter at 91.2%, which was even with the second quarter, and up 270 basis points from a year ago. Sales contributed 16 basis points to our quarter-over-quarter occupancy results, so the rest of the portfolio was down slightly, consistent with our pattern the past two years. In 2011 and 2012, we also made significant strides on occupancy in the fourth quarter. And our team is focused on repeating that pattern as well and achieving our 92% goal.

Leasing activity remains good across industries and size ranges throughout our market. And we are encouraged by continuing growth in activity from smaller tenants, which has been reflected prominently in our occupancy in markets like Denver and Tampa.

On the capital side, we enhanced our financial flexibility with our new $625 million line of credit. We also redeemed all of our 7.25% Series K preferred stock and paid down $47 million of higher cost debt in the third quarter and fourth quarter to date. These actions lower our cost of capital and help us move closer to our goal of being an investment-grade rated company. Scott will walk you through the details.

On the investment side in the third quarter, we started two developments comprising 600,000 square feet in southern California. We broke ground on our First 36 Logistics Center @ Moreno Valley in the Inland Empire that we told you about on our last call. The building will be a 555,000 square-foot distribution center with 36-foot clear heights, a differentiating feature that addresses a need for certain high throughput distribution customers in this market. Estimated total investment is $32 million, with expected completion in the first half of 2014.

We also commenced construction on our 43,500 square-foot First Figueroa Logistics Center in the South Bay submarket of Los Angeles with a total investment of $9 million.

Updating you on a few other investments, we wrapped up construction of our 489,000 square-foot First Bandini Logistics Center in the Vernon Commerce submarket of Los Angeles. Industrial demand continues to be strong in Los Angeles overall with a market vacancy of just 2.2% according to CBRE. We are excited to be able to show First Bandini to those of you who will join us on our investor day tour in a few weeks.

In central Pennsylvania, we are on schedule to complete in the fourth quarter the 780,000 square-foot First Logistics Center @ I-83. We have seen solid absorption of competing space in that market as companies are attracted to this key distribution location to serve the East Coast. Consistent with all of our development underwriting, we allow one year for lease up so in this case by fourth quarter 2014. We will keep you up-to-date on our progress.

In the fourth quarter, we added to our portfolio a 627,000 square-foot distribution center in the southeast Wisconsin submarket of Chicago for $28.3 million. The building is 100% leased and the in-place yield is 6.7%. Chicago, the nation's second-largest industrial market, has enjoyed a strong recovery with 11.6 million square feet of net absorption year-to-date through the third quarter. This investment, along with our acquisition last quarter at the intersection of I-55 and I-80, position us to benefit from the continuing recovery, and combined with our targeted dispositions in this market over the past several years, significantly enhanced our Chicago portfolio.

Lastly, we continued to execute on addition by subtraction through targeted sales that are a central part of our asset management strategy to improve our portfolio. Through the end of the third quarter, we have sold $68.8 million for the year, well on our way to our 2013 goal of $75 million to $100 million.

Third-quarter sales totaled $16.2 million, comprised of six properties and two land parcels. The buildings were 62% occupied at the time of sale with an in-place cap rate of 4.6%, including the land. Thus far in the fourth quarter, we have completed a $1.6 million land sale which was our last asset in Columbus.

So before I turn it over to Scott, let me say that we have a clear path to continue to drive cash flow. The biggest opportunity is in lease up of our existing portfolio. Our next step is to get to 92% occupancy at year end, and from there, we have our sights set on stabilizing in the mid-90s. Lease up will also enhance cash flow as tenant improvements and leasing commissions returned to normalized levels.

We can also drive incremental cash flow by leasing up our completed Bandini development, our soon-to-be completed central Pennsylvania development, and the Chicago property we acquired vacant in the second quarter. We have already deployed more than $100 million in these assets, but have yet to see the benefits in our income statement.

We also have opportunities to improve cash flow, by bringing down capital costs through repayment of higher rate secured and unsecured debt. At our Investor Day in Southern California on November 12, we will expand upon these opportunities in further detail. With that, let me turn it over to Scott to walk you through some additional details from the quarter. Scott?

Thanks, Bruce. First let me walk you through our results for the quarter. Funds from operations were $0.26 per share compared to $0.30 per share in 3Q 2012. Third quarter 2013 results included a loss of $0.02 per share related to the retirement of our Series K preferred stock and loss on early retirement of debt. Before one-time items, namely the impact of the early retirement of debt, the Series K preferred redemption, and NAREIT compliant land gains, funds from operations were $0.28 per share versus $0.27 per share in the year-ago quarter. EPS for the quarter was $0.05 versus $0.04 in the year-ago quarter.

Moving onto the portfolio. Occupancy was 91.2%, no change from the second quarter, and up 270 basis points from a year ago. Regarding leasing volume in the quarter, we commenced approximately 3.9 million square feet of leases. Of these, 1.1 million square feet were new; 2.2 million were renewals; and 0.6 million were short-term. Tenant retention by square footage was 70.8%. Same-store NOI on a cash basis, excluding termination fees, was positive 2.1% due to the year-over-year occupancy growth and the impact of contractual rate bumps offset by rental rate rolldowns and an increase in real estate taxes, including refunds. Same-store NOI growth including termination fees was a positive 2.5%. Lease termination fees totaled $378,000 in the quarter.

Cash rental rates were down 4% overall. Renewals were a positive 1.2%, while new leases were down 12.7%. On a GAAP basis, overall rental rate change was up 1%. Leasing costs were $2.40 per square foot.

Moving onto our capital market activities and capital position. Bruce already hit the highlights, but let me walk you through the details. Our new expanded line of credit has a capacity of $625 million, $175 million more than our prior line. The maturity date is September 29, 2017, and we have a one-year extension option. Our current rate is LIBOR plus 145 basis points, an improvement of 25 basis points. The spread can further improve with upgrades to our credit ratings.

We redeemed all of our 7.25% Series K preferred stock for $50 million. We paid off $14 million of secured debt at an interest rate of 7.5%. We repurchased $0.8 million of unsecured notes, comprised of $0.4 million of our 7.6% 2028 notes, and $0.4 million of our 5.95% 2017 notes at an average yield of maturity of 5.3%.

In the quarter to date, we paid off $32 million of mortgages with a weighted average interest rate of approximately 6.5%. Regarding our leverage metrics, at 3Q 2013, our net debt plus preferred stock to EBITDA is 6.7 times, in line with our target range of 6.5 times to 7.5 times. Our weighted average maturity of our unsecured notes and secured financings is 4.9 years with a weighted average interest rate of 6.2%. These figures exclude our credit facility. Our credit line balance today is $255 million, and our cash position is approximately $24 million.

Before moving onto guidance, I would like to briefly discuss the impairment charge during the quarter. The total charge was $1 million related to a property which we plan to sell that is currently under contract and where the fair value was less than book value.

Moving on to our 2013 guidance. Our FFO guidance range is now $0.94 to $1.00 per share, an increase of $0.01 at the midpoint. Guidance includes $0.06 per share related to the losses from the debt we retired to date and $0.05 per share related to the losses from the redemption of our Series J and K preferred stocks. Excluding these losses, and the NAREIT compliant gains related to our land sales, FFO is expected to be in the range of $1.05 to $1.11 per share.

The key assumptions are as follows -- average in service occupancy, end of quarter, of 90.5% to 91.5%, a narrowing of the range reducing the midpoint by 0.25%; average quarterly same-store NOI on a cash basis of positive 1.5% to 3%; G&A of $21.5 million to $22.5 million; full-year JV FFO is expected to be approximately $0.5 million. And as noted last time, guidance includes the incremental costs to complete the two developments that we launched in 2012 and the incremental costs related to the new First 36 Logistics Center @ Moreno Valley and the First Figueroa Logistics Center we started in 3Q. Note that in total for the year, we will capitalize roughly $0.03 per share of interest related to our developments.

Guidance also reflects the impact of the 100% leased Chicago acquisition in the fourth quarter. Guidance does not reflect any potential lease up of our completed First Bandini Logistics Center or our in-process First Logistics Center @ I-83, or the unleased Chicago distribution center we acquired in the second quarter. Recall that each of their pro formas assume one year for lease up.

Please note that our guidance does not reflect the impact of any future debt issuances; the impact of any future debt repurchases or repayments; any additional property sales, acquisitions, or further developments; and any future NAREIT compliant gains and impairment charges; nor the potential issuance of equity. With that, let me turn it back over to Bruce.

Thanks, Scott. Before we open it up to questions, let me say that growing cash flow is our top priority. And we have a number of levers to pull to do so. Our existing portfolio offers the main opportunity as we push towards our 92% occupancy goal by year end and drive onward toward the mid-90s. By executing on our development investments, we enhance our portfolio's cash-flow profile and quality and create value using our platform. We also will work to acquire properties like our two recent Chicago acquisitions that contribute towards these objectives in a disciplined fashion.

Our sales efforts target assets that have limited or low cash-flow growth opportunities. And our balance sheet is strong and flexible yet still offers additional opportunities to further reduce costs. We are very excited about the opportunities we have to grow cash flow and enhance value.

At our Investor Day on Tuesday, November 12, in Southern California, our objective is to expand upon and help crystallize these opportunities for you. From there, our job is to deliver, as it is deeds, not words, as all of our team knows and embraces. We hope that you will attend, whether in person, via the live webcast, or the replay, which will be available on our website. On the tour, which follows our formal presentation, we will see some of our new and existing assets that represent some of our cash flow opportunities. If you would like to attend or have any questions about our Investor Day program, please contact Art Harmon.

With that, operator, we would like to open it up for questions. As a courtesy to our other callers, we ask that you limit your questions to one plus a follow-up in order to give other participants a chance to get their questions answered. You are, of course, welcome to get back into the queue. So now, Victoria, can we please open it up for questions?

(Operator Instructions). Brandon Cheatham, SunTrust Robinson Humphrey.

Good morning, thanks for taking my question. So on the occupancy front during the quarter, was there any timing related issues with why it was flat quarter over quarter? And then if you could break that out in your markets, are you experiencing weak demand in some segments versus others?

Let me just say in terms of the quarter occupancy, again, we were flat to last year. And if you look at what happened, as I said in the prepared remarks, we have historically lost occupancy or the third quarter hasn't been that good for us. The good news is if you look to the fourth quarter over the last three years we picked up, I think, two years we picked up 130 basis points and one quarter we picked up 140 basis points. So typically we had strong fourth quarters. We're seeing good activity, but it's our job to bring these deals home. But we are seeing, as I said in the remarks, good interest from tenants both large and small. Peter, maybe you can talk about what you are seeing in some of your markets.

This is Peter. We have continued to see, as Bruce said, broad-based activity across the portfolio from a variety of users. In the larger spaces, we continue to see eCommerce, consumer products, traditional retailers, automotive, 3PLs. From the smaller tenant standpoint, we are seeing housing, a variety of manufacturers, tech, and medical. And on the smaller tenant side, if you look at our portfolio in Denver as an example, occupancy has been accelerating this year. We're up over almost 800 basis points from the beginning of the year, capturing a lot of that demand.

(multiple speakers) so far in the fourth quarter, have you seen any increase in demand?

We really don't update the fourth quarter, but what we are saying is, I guess the big thing is our occupancy goal of 92% continues to be our occupancy goal for year-end and we haven't changed it. So there is good activity, and it's our job to bring home the bacon.

Thank you, I'll jump back in the queue.

Craig Mailman, KeyBanc Capital Markets.

Just hoping to drill in on the change to the occupancy guidance a little bit here. Maybe just flush out a little bit what changed, because I'm just curious with buying that fully leased asset in Chicago, I thought that would've been a benefit here going to the end of the year. The other thing, too, I noticed Exel kind of dropped off the top tenant list. Maybe just update us there.

Sure. You want to take the first part?

Sure, Craig. On the occupancy guidance, from the midpoint point of view we dropped about 0.25% compared to the guidance we issued last quarter. And again we are seeing great activity in our spaces. There was just a little bit of delay in decision-making in the third quarter. As a result, we reduced our guidance by about 0.25%. On the Exel tenant, I'll turn it over to Jojo who has an update there.

In terms of Exel, they were our client, our 3PL client in the building we owned in South Bay. It was a 213,000 square foot building in South Bay. It is very well located. Vacancy there is in the low 2s. They had an unexpected loss of a client, so they moved out of the building. We have activity on that building today, as the market is tight. Our job is to get that leased.

So it really just sounds like the guidance is a timing issue, and maybe this unexpected loss of Exel? Is that kind of the fairway to characterize it? And we shouldn't be too worried about core demand for product or sort of the trajectory of the portfolio relative to where we were last quarter?

Just what we said. We had barn-burner second quarter. We picked up 160 basis points. The third quarter we were flat, typically we go down in the third quarter. And we are expecting there's good activity in the marketplace, and our job is to get the leases signed and bring them home. But we are -- our goal is to hit 92% occupancy by the end of the fourth quarter and we are focused on it.

Great, thank you.

Dave Rodgers, Robert W. Baird.

Good morning guys. I guess on the idea of kind of tenancy and occupancy, where are you -- besides what Jojo just mentioned -- where are you losing tenants and kind of what are the reasons you think that you're kind of struggling to kind of gain additional pace here? Obviously year-to-date activity has been good. But are you feeling like you are losing more tenants on the small side due to interest rates or economic activity? Can you give some color there?

Dave, I think we feel pretty good about where we are. Again, I would say that we picked up 270 basis points over the last 12 months. The second quarter we were up 160 basis points. We were flat this quarter, but we anticipate that things are going to pick up in the fourth quarter. And again, we are seeing good demand and interest in this space. And so it's all up to us to get it done, but we don't feel -- the world is doing okay, and there's good demand for our product. So, it's up to us to get the job done.

And I guess the follow-up to that, just in terms of the ability to push rents, and I know there's a big diversified portfolio out there that you are managing and operating. But can you talk about the ability to get those leasing spreads pushing higher? Do you feel like you're gaining anymore pricing power in the market broadly? And give some color around that would be helpful.

I would say that it's market by market and submarket by submarket in terms of pricing power, but overall the world is getting better, rents are firming up. You're seeing -- we are feeling pretty good. Texas is doing well. You're feeling good about the West Coast. You're feeling good about places like Indianapolis is doing just fine. So we are -- again, things -- we need to pick up on the in the occupancy, but we are feeling pretty good about the supply demand fundamentals. And as long as the world keeps expanding and the economy keeps growing, albeit it's not a boom economy, but business is good in the industrial sector. And we are seeing decent demand.

Great, thanks.

Eric Frankel, Green Street Advisors.

Thank you. Could you just mention what the yields you're expecting on the two development projects in southern California?

Sure. The one, Bandini, is about 6.5%. And the First Figueroa is about 3.7%. The incremental on First Figueroa is about 6.7%.

And the First 36 Logistics Center, that's going to be in the 6.8%, 6.9%.

And again we looked -- go ahead, Eric.

I was going to have a follow-up question, but you had other comments to say.

If you're on the tour, we are going to show you these. So we look forward to you being on the tour, but go ahead with your next question.

My next question just relates to the addition by subtraction. Maybe talk about financing availability for some of the lower quality properties you're trying to dispose of and what your activity has been there.

I can tell you that activity for -- I have seen B product is more robust. The buyers cap rates have compressed for B product and there are more buyers out there. And financing is more readily available for them. In addition, users also are getting the ability to get more financing. More banks are trying to increase their SBA loans, and we are seeing that in the marketplace. Does that answer your question?

Yes, thank you. I'll get back into queue.

(Operator Instructions). Rob Stevenson, Macquarie

This is Venkat in for Rob. Can you talk about cap rates and competition for assets in your core markets?

Sure. Jojo commented, but again there's a lot of money in the space and cap rate for existing leased product is pretty aggressive. But why don't you give some specific details in terms of different -- a couple markets.

Sure. And as the driver, what Bruce said, is competition. If you look at class A lease assets on the West Coast, you're looking at mid-4s cap rate. When you go to the East, you're looking in the 5s, 5s to mid-5s. When you go to the Midwest you are looking at mid-5s to the 6s. These are for class A distribution assets. And in addition to that, the class B asset has come down, but the class A has continued to come down as well.

Great. And given what you're seeing demand wise in your various markets, how aggressive do you expect to be with development starts over the next few quarters?

We are going to talk a lot about that at Investor Day in terms of what the potential pipeline. But again, what we have going right now, we are finishing up Bandini and our York, Pennsylvania site, that's about $90 million between First 36 and First Figueroa, you add that to it, you are about $128 million. So we still have a lot of room to go here. We've got a site in Houston that I think you can anticipate that we will start next year, and then we will talk about we've got some other potential sites in Dallas and Pennsylvania that we will talk about, and Southern California, that will talk about it Investor Day.

All right, thank you.

Michael Mueller, JPMorgan

I was wondering like on the three -- I guess two plus developments you were talking about -- Bandini, 83, and the Chicago vacant asset -- can you kind of characterize how the activity levels have been throughout the marketing process? Is it as much interest as you thought, better, not as much? Just what's going on there.

Let me just talk about. Number one, I hate talking about -- our job is to get these things leased. But in Chicago there's very good activity on our 509,000 foot building; again, that market is firming up very nicely. And we are encouraged, and so I would say we feel even better today than we did when we made the acquisition. I would say on Bandini, we love that asset. There's good activity, but, again, we've got to bring something home. But it's a great piece of real estate and very excited about its prospects. And then the project in central Pennsylvania in York, our 708,000 footer, again if you follow some of our competitors, Liberty did a nice job. They leased up their 1.2 million and their -- whatever. The market is firmed -- there's not a lot of space here. And we've got a great new building that's very well located. So we are pretty excited. And we have some tax benefits in terms of LERTA that are advantaged. Peter, you want to say a little bit about Pennsylvania?

Sure. Mike, the demand has continued be very active from a variety of users, particularly those looking for a larger spaces, 500,000 square feet and up, in quality distributions buildings. Year to date, there's been about 3.5 million square feet of positive absorption as well as a couple of recent announcements on some big leases and build-to-suits as you're probably aware. But the good news is there's no new supply since we started our building last summer. The competitive availability continues to go down, and as Bruce said we really like how our asset is positioned, both from a location and labor standpoint as well as the tax benefits we have that our competitors don't have. And we are very positive about the demand supply balance today, and we have seen some activity. And we'll keep you up-to-date on our progress there.

I forget, do I get a follow-up or no?

Sure, live it up.

There you go. It is a Friday, right? I think you mentioned occupancy typically dips in the third quarter. Why is that? What typically happens there?

This is Peter. One of the things we've seen is just slower decision-making during the summer months with a lot of vacations. And as we said earlier in our remarks, we had a great second quarter, and the summer was just a little bit slower in terms of decision-making. But we are bullish on getting to our 92% goal by the end of the year, and that's what we are focused on.

Got it, thanks.

Jon Petersen, MLV & Co.

Thank you. I don't think I heard you guys talk about your same-store expenses. They were up 9.8% in the quarter, 7.3% year to date today. Can you kind of give us some insight into why the expenses are up so much year over year?

John, this is Scott Musil. In the third quarter 2013 compared with 3Q 2012, taxes, real estate taxes, were higher due to two factors. One is our real estate tax refunds in 3Q of 2012 were higher than they were in 3Q of 2013. The second piece of it is we had some reassessments of more properties in 3Q 2012, which lowered our taxes compared to what we had in 3Q of 2013. So that's the big beta is real estate taxes. So if we didn't have that increase, our same-store from the quarter would've went from 2.1% to 3.2%.

Okay. And I guess if we were to look back at 4Q 2012, were there any of those kind of adjustments in 4Q 2012 that's going to affect the number next quarter?

This is Chris. Just a couple things. Through the year we talked about restoration fees and real estate tax refunds. For fourth quarter, we don't have any of those bigger numbers as we've had in second quarter for the restoration fees or this quarter for the real estate taxes.

Okay, so fourth quarter should be more normalized number.

It should be.

That's the translation. Okay, thank you.

Brandon Cheatham, SunTrust Robinson Humphrey.

Just a follow-up to that change in expenses, the 3.2, does that have any restoration fees in it? Once you back out the taxes on same-store NOI?

It does, but there -- 3Q of 2013 compared to 3Q of 2012 there wasn't a large change in -- there wasn't a lot of restoration fees in either of those quarters. I think where you saw the big change in restoration fees was last quarter comparing 2Q 2013 to 2Q of 2012.

Okay. So 3.2 is a more normalized number.

If you take out the tax piece, yes.

Okay, thank you.

Craig Mailman, KeyBanc Capital Markets.

On same store, Scott, how has the bad debt been trending? Are you seeing a reversal now or is that still coming in below your expectations?

Craig, it's still very low compared to historical levels. The third quarter, our bad debt expense was about $200,000, so very consistent with the prior quarters. And, Craig, keep in mind as we've said in prior quarters for the fourth quarter from a guidance and modeling point of view, we assume a more normalized level of bad debt expense of about $750,000 for that quarter. But again, third-quarter results were very low comparable to the past quarters.

Okay. Then, I know you said the delay in some decision-making kind of changed your outlook in occupancy. But just in general, are you guys seeing tenant decision-making speeding up at all as occupancy is across most markets are increasing and rents are going higher? Or are people still kind of taking their time?

I would say that they are taking their time. I don't think it speeds up dramatically. I would say a couple things in terms of concerns. Whenever you have things like the government shutdown that comes around a month ago or whatever, people worry about that and some larger tenants maybe hold off doing something to wait and see how that comes. So, I mean, you worry about confidence in terms of uncertainty. So I think that to me, getting that done and just moving it two months or three months is not good. You'd like to have a permanent solution kind of put that to bed and not worry about. But I would say decision-making is -- it's not sped up in terms of -- as a result.

This is Peter. The other thing I would add to that is the smaller deals generally have shorter transaction cycles so the decisions tend to happen quicker. The larger deals generally are more deliberate and take a little bit longer.

Okay, great. Thank you.

(Operator Instructions). Eric Frankel, Green Street Advisors.

Thanks. For the sales during this quarter, could you state, Scott, how they sold as a percent a book value or impaired book value?

Eric, I don't have that information in front of me. But I can get back to you later with that. The cap rate (multiple speakers) [Company Note: First Industrial's $16.2 million of sales in the third quarter of 2013 were completed at 64% greater than the aggregate book value] (corrected by company after the call).

Maybe just from a value creation standpoint, do you find you get better value waiting to lease a building up and then selling it? Or can you get pretty good value for selling vacancy today, whether to a user or to an investor?

I think if it's a single tenant vacant building, I think a user execution is better than an investor, just because the pricing is better. If you have a multitenant building, that's a little bit tougher to sell to a user. So I would say that leasing that up is better to get value creation.

Okay, but are investors in general, are they willing to pay more for vacancy whether it's a user or an investor?

As we see it today, you get more value in selling a higher-occupied building than more vacancy. And so if you have more vacancy, it's better to sell to the user.

Thanks. My final question is just regarding your unsecured debt due in 2014. What's the date of that maturity?

June 1.

For $82 million.

Any particular plans on how you're going to roll over that debt?

I would say at this point of time we are going to use our line of credit to refinance that. We have got plenty of capacity. Again when we recast our line in July, our capacity increased $175 million to $625 million, so we do have plenty of capacity. As we get more traction with the rating agencies and get back to investment-grade ratings -- and again our goal is to do that by the end of 2014 -- we might at that point of time do something in the bond market to permanently refinance that maturity.

Okay. Should I get back in the queue? I do have one more question.

Go ahead, it's Friday.

I'm just curious what your take is on the development environment. It just seems there's a little bit more spec product being built everywhere, PA notwithstanding. I just want to get your thoughts on your development plans going forward.

Sure. We still think supply and demand is in check throughout the country. I would say in terms of markets, central PA is a good example; we feel very good about that. I would say Houston there's some new construction, but relative to demand and the total supply in that marketplace, we don't think it's an issue. And we are excited about our 350,000 foot development in northwest Houston that we hope to start next year, in the first half of the year. I would say the one market, Eric, that I feel more -- I'm worried about more than I was two or three years ago is the Inland Empire. When we did first Inland Logistics 2.5 years ago or so, when we started that it was first mover advantage, and there was no one else there. Today we are starting First; we leased that up. It was great. I would say today there's more construction out there, more development, and then some land. So there is probably more risk in doing that development today than there was two or three years ago, and again, how we handle that is we raised equity to sort of fund that development. And as we look at it, we are putting in some -- in terms of some additional features like the 36-clear height, and a lot more parking and trailer parking and employee parking. And I think we have a very good product. So again, but the onus is us to get it leased. But that's the one market to me where I think there could be more construction than I would like.

Great, thanks. And I look forward to next month's tour.

Thank you. Look forward to seeing you there.

Bill Crow, Raymond James and Associates.

Good morning, guys. Not to beat the subject to death, but on the delayed decision-making, two points. One of your Sun Belt peers already reported that they had fairly robust, surprisingly strong leasing in the quarter. And I'm just trying to figure out if that's Sun Belt versus northern markets. You indicated that large deals versus small deals, so that may be part of it. Anything that we should take away? And the second point on that is there you mention that the government shutdown isn't helping to speed decision-making. So should we take away from that that fourth quarter to date, there has been no acceleration in that decision-making process?

Bill, what I would say is, again, our view -- we typically in the third quarter have not really brought home a lot of occupancy. Typically our occupancy is fourth quarter driven, and we are seeing good activity. So we would anticipate -- we anticipate that continuing. Now, we do think things like this shutdown was not positive in terms of people making decisions. Again, to Peter's point earlier, it's more for the larger tenants than the smaller tenants. But I would say that we are pretty encouraged by what we see in the marketplace in almost all markets in terms of activity. So we feel pretty good about where we are; we feel pretty good about supply and demand. We will see at the end of the quarter, but our goal is to hit 92%. We will be disappointed if we don't.

Got it, thank you.

There are currently no further phone questions. I will now turn the conference back over to Mr. Duncan for any closing remarks.

Thank you, Victoria. And again we thank you for being on the call. Scott, Art, and I are around if you want ask questions or -- call or modeling questions, ask them. And then we look forward to seeing you out in Southern California. We think it will be a worthwhile trip, and we got a lot to cover and look forward to showcasing some of our new developments for you. So, thank you very much.

Thank you for your participation in today's call. This concludes today's conference, you may now disconnect.