First Industrial Realty Trust Inc (FR) 2014 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the First Industrial second-quarter results conference call. (Operator Instructions)

It is my pleasure to turn the conference call over to Art Harmon, Senior Director of Investor Relations. Sir, you may begin.

Hello and welcome to our call. Before we discuss our second-quarter 2014 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, 2013, filed with the SEC and subsequent Exchange Act reports. Reconciliations 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, July 24, 2014.

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 our 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 thank you all for joining us today. We had a great second quarter which reflected both the underlying strength of the industrial market as well as the many contributions from the First Industrial team around the country. So I say a hearty thank you to all of my teammates for doing a great job in our mission of serving our customers and our shareholders.

We have many reasons to feel good about the state of the industrial market. On a macro level, second quarter 2014 was the 16th consecutive quarter of positive net absorption for the industry. Incremental demand continues to significantly outpace the growth in new supply.

It is important to have a historical context as you look at new supply. While there has certainly been acceleration in new deliveries compared to virtually nonexistent levels of the recent downturn, the amount of new product being built today is still well below historical and peak levels.

Our second-quarter portfolio results outpaced what is going on in the industry overall. We increased our occupancy to 93%, up 60 basis points from the end of the first quarter. We also saw positive rental rate change on a cash basis overall for the second quarter in a row and for the fourth quarter in a row on renewals as market rents continue to trend higher.

I would also point out that our GAAP rental rate change has been positive for 10 quarters in a row.

Our occupancy gain was headlined by leasing at our Chicago asset at the intersection of I-55 and I-80. You may remember from our last earnings call, this acquisition was going to enter our in-service portfolio in the second quarter. At that time our leasing prospects were not very clear, but as we announced last month, we were very pleased to lease 79% of the building at the end of the second quarter to a pair of third-party logistics providers.

We signed a long-term lease with one customer for 100,000 square feet that will phase up to a total of 324,000 square feet in the second quarter of 2015. The other lease was an eight-month lease for 301,000 square feet. Rents were above our original pro forma. We are happy with the progress, but we still have some work to do to fully stabilize the balance of the building.

The strength of the industrial market was also evident in the progress we made in leasing our new developments. As we announced in late May, we leased our 708,000 square-foot First Logistics Center @ I-83 in York, Pennsylvania, to a leading multinational corporation on a long-term basis. The start date is September 15, 2014, and we were ahead of pro forma on our start date and on target for the overall economics with a GAAP yield of 8.4%.

We also leased our 43,500 square foot First Figueroa Logistics Center in the South Bay submarket of Los Angeles on a long-term basis just as we were finishing the building. The tenant took immediate occupancy, so this building went into service in the second quarter. We achieved a GAAP yield of 3.8%, including the land, at our original basis and a 7.1% yield on our incremental investment excluding the land.

As a result of these three key leases, we raised our FFO guidance range. Scott will walk you through the details shortly.

As we have discussed here before, compared to the highly competitive acquisition market, development offers us the opportunity to deliver better risk-adjusted returns using the strength of our platform. By building high-quality distribution facilities with sought-after features that can stand the test of time we also enhance our portfolio quality.

Let me update you on some of our other developments in process that you have been tracking, as well as a few new projects that boost our pipeline. In the second quarter we completed our 555,000 square-foot First 36 Logistics Center at Moreno Valley in the Inland Empire in Southern California. The East Inland Empire, where our asset is located, is seeing more building, but new supply and new demand remain in balance.

Also in Southern California our 489,000 square foot First Bandini Logistics Center in Los Angeles remains in lease up and our pro forma and guidance contemplates fourth-quarter lease up. Vacancy levels are about 3% in the LA market, so we like the competitive positioning of this property. We have nothing specific to report on the leasing of these completed buildings at this time, but we will keep you posted.

Dallas, where we are developing our two building, 598,000 square-foot First Pinnacle Logistics Center, has been a hot topic of conversation of late due to the increasing supply in that market. To date, the demand has justified it. Much of the new supply is concentrated in the larger box segment.

At First Pinnacle we are targeting smaller to midsize distribution users and we have seen some activity. Just this week we signed a long-term lease for 142,000 square feet with a food provider in the 222,000 square foot facility.

Sticking with Texas, construction of our 350,000 square-foot First Northwest Commerce Center in Houston is proceeding according to schedule. The Houston market remains very tight despite the ramp up in supply as that region continues to exhibit strong economic growth. During the second quarter we also finished and placed into service our 250,000 square-foot expansion for Rustoleum in the Chicago market.

Moving on to the recent additions to our pipeline. As we talked about at NAREIT in June, we bought a development site in the second quarter in the Minneapolis market where we started the development of two buildings. The first building is a 97,000 square-foot build-to-suit for Goodwill-Easter Seals.

The second building is 142,000 square foot being built on spec that can accommodate a single user or multiple tenants. Total investment is expected to be approximately $19 million with a targeted GAAP yield of 7.3%.

We also recently acquired a 10-acre site in the great Southwest submarket of Dallas where we expect to invest approximately $9.5 million to develop 153,000 square foot distribution center with a targeted GAAP yield of 6.4%. Like First Pinnacle, we will be targeting smaller distribution customers for this project. We expect to start this building later this year.

On a minor note, we also acquired a small land site immediately south of our assemblage in Moreno Valley in the Inland Empire. This site can serve as additional auto or truck parking for our First Nandina Logistics Center site where we are working on entitlements for up to 1.45 million square feet.

While the acquisition market continues to be extremely competitive, we did successfully complete two acquisitions during the quarter that are leased on a long-term basis. The first was a leasehold interest in a 225,000 square foot building in the Inland Empire in Moreno Valley near our recent developments. The investment was $10 million with an in-place cap rate of 6.4%.

We also acquired a 53,000 square-foot building for $3.2 million right off of Interstate 88 in the western suburbs in Chicago that is proximate to another of our assets. The in-place cap rate was 7.1%.

Lastly, on the disposition side, year-to-date sales totaled $38 million. Second-quarter sales were just $1.3 million comprised of two small buildings sold to users. But we completed the sale of $33.2 million in the third quarter to date comprised of a portfolio in Baltimore for $28.5 million that included six buildings totaling 370,000 square feet and one land parcel, as well as a 91,000 square foot facility in Houston for $4.7 million.

As we said on our last two calls and consistent with past years, we expect sales to be back-end weighted towards our goal of $75 million to $100 million for the year. So before I turn it over to Scott let me say that fundamentals are strong as we see incremental demand across our markets, both new requirements and expansions. We are continuing to execute on our new investment to drive value and enhance our portfolio, and everything we do is centered on capturing the long-term cash flow growth opportunities that we have previously laid out for you to drive additional value for shareholders.

With that let me turn it over to Scott. Scott?

Thanks, Bruce. I will start with the overall results for the quarter. Funds from operations were $0.28 per fully diluted share compared to $0.20 per share in 2Q 2013. Second-quarter results included losses from the retirement of debt, an $833,000 portion of a one-time restoration fee as we discussed last quarter, a loss related to our Series J preferred stock in 2Q of last year, and acquisition costs.

Before these one-time items, funds from operations were $0.28 per fully diluted share versus $0.27 in the year-ago quarter. EPS for the quarter was $0.04 versus $0.05 in the year-ago quarter. As we noted on our last call, our second-quarter G&A of $7 million was higher than the run rate implied by our guidance due to the accelerated vesting of approximately $1.5 million of incentive compensation related to Bruce's contract.

Moving on to our portfolio. Occupancy was 93%, up 60 basis points from the first quarter and up 180 basis points from a year ago. Regarding leasing volume, we commenced approximately 4.4 million square feet of leases in the quarter. Of these, 1.4 million square feet were new, 1.9 million were renewals, and 1.1 million were short term. Tenant retention by square footage was 69.5%.

Same-store NOI on a cash basis, excluding termination fees, was a positive 2.4%. Note that this figure excludes the portion of the one-time restoration fee that we excluded from our original same-store guidance that we discussed on our fourth-quarter call. Including the impact of this restoration fee, same-store growth in the second quarter would have been 3.9%.

Lease termination fees totaled $261,000 in the quarter and same-store cash NOI growth, including termination fees but excluding the one-time restoration fee, was 2.7%. Cash rental rates in the quarter were up 0.9% overall with renewals a positive 2% and new leases down 0.8%. On a GAAP basis the overall rental rate change was a positive 8.1%.

Moving on to our capital market activities and capital position. On the debt side we paid off our $82 million, 6.42% senior notes in June and also prepaid two secured loans totaling $40 million as anticipated at an average interest rate of 5.8%. Updating you on leverage metrics, at the end of 2Q 2014 our net debt plus preferred stock to EBITDA is 6.5 times, normalizing our G&A and excluding the one-time items I discussed earlier. This is within our target range of 6 to 7 times.

At June 30, the weighted average maturity of our unsecured notes, term loan, and secured financings is five years with a weighted average interest rate of 5.88%. These figures exclude our credit facility. Our credit line balance today is $217 million and our cash position is approximately $28 million.

Now on to our updated 2014 guidance per our press release last evening. Our FFO guidance range is now $1.11 to $1.21 per share. Guidance reflects income from the one-time restoration fee, partially offset by losses from the redemption of our Series F and G preferred shares, loss from retirement of debt related to our completed and planned early mortgage payoffs, and acquisition costs. The net impact of these items is less than 1/2 of a $0.01 per share.

As a result, excluding these items, FFO per share is expected to be in the range of $1.11 to $1.21, which is an increase of $0.02 per share at the midpoint compared to our guidance from the last quarter. This is largely driven by the leasing of the Chicago asset and our First Logistics Center @ I-83 and First Figueroa Logistics Center developments.

The other key assumptions are as follows. Average in-service occupancy end of quarter of 92.5% to 93.5%, an increase of 50 basis points primarily reflecting the Chicago lease-up. Average quarterly same-store NOI on a cash basis of positive 3% to 5%, again excluding the aforementioned one-time restoration fee of approximately $0.02 per share recognized this year.

G&A of $23 million to $24 million, which is unchanged. Full-year JV FFO is expected to be approximately $400,000. Guidance includes the costs related to our developments in process in Houston, Dallas, and Minneapolis, and the incremental costs related to our completed developments. In total, for 2014 we expect to capitalize $0.01 per share of interest related to our developments.

Guidance also assumes the lease-up of First Bandini Logistics Center in the fourth quarter and assumes the payoff of $25 million of secured debt in 3Q at an interest rate of 6.7%. Other than what I have noted, 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 or losses or the impact of impairments; nor the potential issuance of equity.

With that let me turn it back over to Bruce.

Thanks, Scott. Before we open it up for questions, let me say that I am bullish about our prospects. The industrial real estate environment is healthy and it is providing a good backdrop for us as we work to capitalize on our unique cash flow growth opportunities.

We are using our platform to drive value from leasing, create value through new investments with an emphasis on development, and realizing value through targeted sales. We look forward to updating you in future quarters on our progress.

We will now open it up for your 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 in the queue.

Operator, may we open it up for questions?

(Operator Instructions) Craig Mailman, KeyBanc Capital Markets.

Scott, just a question on the line balance. It is I guess you said $217 million currently. Just thoughts there; do you keep riding that up a little bit higher and do a bond deal, or is that just going to be paid down with proceeds from asset sales? Just curious with the development pipeline kind of ramping a bit here.

If you look at our line balance now of $217 million, you tack on the developments that we have in process, plus the $20 million of secured debt that we are paying off in September, will get you high $200 millions on our line of credit. Now that doesn't take into account any future sales, so our line will probably be low to mid $200 million. So we are in very good shape from a liquidity point of view because our line capacity is $625 million.

Now on your question on a bond offering, I think the catalyst for us there is to get upgraded by the agencies to investment grade. And we have one of them so far at investment grade and we need two. So when that happens what we will have to do is we will look out to our debt coming due in 2016, which is about $215 million, $160 million of it is due in January 2016. So really it is a cost-benefit at that point of time.

What is the 10-year Treasury at that point in time? What are spreads and what we think they are going to do in the next 12 months? The key catalyst, Craig, is getting the rating and then evaluating what we think rates are going to do at that point.

Okay, that is helpful. Then just kind of switching gears to the rent spreads here. I remember you guys were doing some kind of teaser rates back in the recession. Are those all burned through here or is maybe that is what is keeping a little bit of a lid on the rent spread you guys could be seeing given the market rent growth?

Yes, Craig, this is Chris. As far as the teaser rates, yes, they are minimizing a little bit. That is kind of reflected in the bumps that we have in place.

Right now if you look at our bumps they are coming down a little bit from what they have been in the past couple of years, but right now the in-place bumps are still at 2.9% on an annual basis.

Great, thank you.

(Operator Instructions) Dave Rodgers, Robert W. Baird.

Good morning, guys. A question for you on maybe the high end of guidance, so taking an optimistic approach to it. What gets you up to that high end? I mean the range is still fairly wide for getting later in the year. I guess, Scott, maybe a couple of questions around that.

And any land sale gains related to the parcel that you sold in the third quarter, acceleration of leasing spreads into the back half of the year. Give us a little bit of color about what could be the optimistic scenario for the second half for First Industrial.

I think -- Dave, this is Scott. I think the catalyst is going to be hitting -- to get to the high end of the range is hitting the high end of our occupancy range. Doing lease up in our developments a little bit earlier.

Lower bad debt expense. Again, we have modeled in $750,000 per plan. We were less than that by $0.5 million this quarter. So I would say those are probably the three main catalysts to get up to the higher range of our FFO guidance.

Okay, that is helpful. Then maybe around development, a couple of questions for Bruce.

Bruce, as you look at development, you continue to talk a lot about it in your opening comments. You continue to buy some land and put money to work. So give us a sense over the next 12 to 24 months, given your preference, if you could put the money to work, what does the development pipeline look like in terms of sizing?

And I guess also with respect to that, you gave some quoted yields for the projects that you are working on. Can you talk about where those spreads are to market and how comfortable you are with those today?

Let me step back here. I would say again we love what we are doing in the development area. We have had success building these projects and, again, we are building very, very functional product in great locations. We like it. We are executing on it in terms of getting it built on-time, on budget, and leasing them up. So we are happy about that.

We are excited about what we have going in terms of the new buildings in Houston and Dallas, the new land site we just bought in the great Southwest market in Dallas, the Minneapolis project. And we have a number of other projects that we could start, i.e., if you look at our land bank we have got about $60 million of that and we could probably build a little over 6 million square feet. And on top of that we could also buy some additional land like we have done over the last few years.

But when we look at it, again we also look at what the yields are; what we can build versus what we can buy. We can still build the product at decent yields of 100 to 150 basis points is a minimum versus what we could sell the asset for if it was stabilized.

So when I look at the pipeline going forward, we have a self-imposed cap of about $250 million. With the recent leasing we are down to about $150 million, so we have about $100 million of capacity there. I could easily see next year that we could start -- we would have a couple hundred million dollars in development there, new development.

We are very excited about our opportunities and as we put them in the ground we will let you know where they are and what the economic yields are. But we think they are pretty attractive.

That $250 million, that is kind of a capital at risk, so once it is leased up it kind of moves out of that bucket, so to speak?

Yes, yes. Once it is leased up it moves out of that bucket.

Okay, fair enough. Thanks.

Eric Frankel, Green Street Advisors.

Thank you very much. I was wondering if you could walk me through your same-store guidance. So it looks like for the first three quarters same-store results were below the low end of the range and to get to your midpoint you need to have above 5% same-store NOI growth for the latter half of the year. I am just wondering from a releasing spread and occupancy standpoint how do you get there.

Yes, just overall we expected at the beginning of the year that the same-store would be accelerating in the last half of the year. That is primarily due to the leasing spreads, the positive rental rates to continue in the third and fourth quarter.

So that is -- if you look back right now, if you look back on same-store, if you look back a year ago, you have got some of the negative rental rate spreads in the last four quarters so we expect that to accelerate. And that is how you kind of get to that midpoint of 4%.

Okay, thanks. Then just kind of going to a broader goal of that drive to 95% occupancy. It looks like you are pretty full in your bulk and regional warehouse portfolios. How does it work? I understand some of that will be addition by subtraction by selling some not-as-well-leased assets.

How do you get there in the light industrial and R&D portfolio? Can you really push occupancy that much higher to get to that broader goal?

Eric, this is Bob Walter. I think we can. As we laid out at investor day, we think we have got some traction there. There is no more of that product really being built. We are seeing good pickups in occupancy in a number of markets like Tampa and Denver, so we are still optimistic that we can reset that goal.

Eric, did you hear our sick frog here? Bob is not doing well. But, again, we feel in terms of this product is that people aren't building it and the market seems to be firming up. We have now, as we have got room, we have got to get that up over the next few years.

Great, thank you.

Ki Bin Kim, SunTrust.

Thanks. Just going back to questions regarding leasing. If you guys look out what you have done or what is close to being executed on your leases with your tenants, could you maybe give a little insight into what we can expect in the second half? Do you see -- based on what you have seen on the ground or base on what you have signed or are close to signing, should we expect this 8% GAAP spread to get better incrementally or is it going to be a little bit more volatile?

Yes, Ki Bin, I think that, as Bruce mentioned on the GAAP rental rates, we have seen 10 straight quarters of positive increase. Also if you go back to the peak year rents prior to that time, that is going to be a smaller and smaller portion of our rollover so we would expect those positive rental rates to continue to increase.

But again, at the 8% it can go up and down depending on -- quarter by quarter?

Sure you could have fluctuations quarter by quarter, but we expect that to continue.

Have you guys done this analysis just looking at where your rents are versus the market, portfolio wide?

No.

And just a last question for me. If you had a section called -- the shadow development pipeline in your supplemental and based on your land bank you say you want to do about $200 million of development roughly, how much of that would be from land on balance sheet today versus things that you have to acquire?

Well, let's exclude the Dallas project that we just bought the land for that we are going to start in the second half of this year. Let's not count that and exclude the other developments we have in process.

In terms of new things that could easily be started over the next 12 months would be the First Park 33 in the Lehigh Valley, which is about 600,000 feet on land that we have owned for many years. We have got the entitlements which should be through on First Nandina, which is up to 1.45 million square feet in the Inland Empire. And we have got another 180-some-thousand square-footer right next to First Inland Logistics in the Inland Empire that we can start.

So those projects in and of themselves would be in total, including the land, I would just say approximately $150 million of new construction.

I see. Okay, thank you.

(Operator Instructions) Michael Mueller, JPMorgan.

I was wondering, Bruce, in your comments you talked about short-term leasing when you are walking through the different buckets of leasing activity. Can you just talk a little bit about I guess when it comes to short-term leases what percentage of overall leasing is normal to have short-term leases and kind of how that has been trending over the past couple of years?

Why don't I have Chris do that?

If you look at the trend as far as the new short-term leasing, it has been about 200,000 to 300,000 square feet a quarter. That was the average back in 2013. It is up a little bit this quarter.

As Bruce mentioned at the beginning, the Chicago asset we had a short-term lease there of about 300,000 square feet but typically we are running about 200,000 to 300,000 square feet of new short-term leasing.

Okay. That was it, thank you.

Bill Crow, Raymond James & Associates.

Good morning, guys. Question for you is where do you think stabilized occupancy can get to for your portfolio? Is this a portfolio that today, because of some of the increased market presence you have driven in the last couple of years, is now a 95% or 96% sort of occupancy portfolio? Or are you closer at 93% to what will ultimately be stabilization?

Bill, we put a stake in the ground in terms of what our goal is when we had investor day in November of last year in Los Angeles, which we said our goal is to get by the end of 2015 plus or minus 95%. We think we can get there and that is our goal, that is our stated goal that we have put out in the market. And this team, when we focus, we try and hit our goals so that is where we think is doable.

You still have presence in some markets that might -- historically haven't hit 95%; is that fair to think about it like that?

Bill, absolutely, that is fair. Some markets, like Atlanta, 95% is a big number, but overall in our portfolio our goal is plus or minus 95% by the end of 2015. We have publicly stated that and we are working hard to hit that.

Great. Okay, good quarter. Thanks, guys.

Dave Rodgers, Robert W Baird.

Scott, I didn't hear if you provided it, but the vacancy impact on the assets that you sold and what that did to occupancy in the first half or even through year-to-date with these sales you have done in the third quarter.

Yes, through second quarter is very minimal. There is very little impact on that. We will let you know what the third quarter is when the third quarter is done.

Okay, fair enough. Then last question, I didn't hear if you addressed this either. Retention is pretty good, I think, for you historically but I think it has been below some of your peers recently.

Can you talk about kind of where you are seeing retention from large versus small tenants or geographically that is kind of maybe impacting that number differently for you than some of your peers? Anything that you are seeing that is unusual in there?

Sure, Dave, this is Peter. I would say we continue to see good demand around the country not only for new tenants, but existing tenants. And from a retention standpoint I wouldn't say that there is any one area of the country that has been better or worse.

We continue to see incremental demand from our existing tenants for expansion as business continues to be good and their facilities are full, as well as the new requirements that we are seeing in the country. So we are bullish about business.

All right. Thanks again.

Eric Frankel, Green Street Advisors.

Thank you. Just getting a little bit granular on the Minnesota development. $80 per square foot seems a little bit high. Is it a little bit more flexier here nature or is that just what replacement cost is for generic industrial in the market?

No, the 97,000 square-foot building has a little bit more features to that building, but we did get a commensurate increase in rent over the long term on that asset, Eric.

On the build to suit.

On the build to suit.

Right. Okay. And then in your disclosures, in the releasing spreads page, I think all the new development leases have in that roughly 10-year average lease term. Is that for Chicago, Pennsylvania, and is Minnesota included in that as well?

For the quarter the development number was about 329,000 square feet. The biggest part of that was Rustoleum expansion of 250,000 square feet, so that is what is included in there. And then the smaller lease that we did in LA, 43,000 square feet, so that is the majority of it.

Okay, thanks. (multiple speakers) I'm sorry; go ahead. Just final question, I know you said that (multiple speakers).

Most of the leases were long term.

Okay, thanks. Bruce, just final question. I know you have mentioned that supply is still below average and historical norms, but it does certainly seem that there is a few more developers and players in the market and some names I haven't even heard of. Can you just comment on the environment and what kind of capital is funding that or is it -- whether it is equity or debt or what have you?

I would say, again, we acknowledge there is more development today than there was a year ago. What we are just saying is the demand is still outstripping supply. But, again, as the cycle goes you will get more development because the markets are strong and rents are up so you will see some more development.

I think what you are seeing in terms of -- it is all availability of capital. You have seen now the REITs like a year ago or two years ago were the only ones developing. Now you have not only private developers teamed up with strong equity sources, pension funds, or private equity are doing some development. And you're starting to see some of the smaller banks in certain markets, i.e., Texas, that are lending more freely than they have in the past.

Again, things are still in check but over time there is no question that when we have this discussion five years from now we are going to say things are overbuilt five years from now. But right now things are in check and we feel pretty good because demand is good, rents are good. And you have seen that with absorption throughout the country, so we are still bullish on it. But there is no question there is more development, Eric, taking place now than there was a year ago.

Okay, thank you very much for taking the time.

(Operator Instructions) Ki Bin Kim, SunTrust.

Just a couple quick questions. The asset you purchased that is on a ground lease; I don't think I've seen that too often, but can you just talk about that deal?

Yes. It is on a leasehold interest, effectively 60 years. It affords us all the rights and abilities as if we own the fee estate.

We also -- in addition to that, we have a right of first refusal on the land. So like you said, Ki Bin, it is few and far between but it is a great asset and the leasehold interest gives us again the rights like a fee estate owner.

And, Ki Bin, the owner is a governmental agency so - it's adjacent to our other properties.

(multiple speakers) And you said you have the option after the 50 years, is that what you said?

No, it is a right of first refusal.

I see, okay.

If they sell their interest.

Got it. Just last one for me. If I look across your markets, there is a few of them that are kind of in the low 80% range. And given your wide portfolio, you always kind of expect that amount, but I was wondering are those longer-terms kind of bouncing around from the low 80%s to mid-80%s type of markets, like Tampa, Atlanta? Or are these spaces that have been leased in the past couple of years? Because I know you guys give that stat previously that you think can move up much higher.

Ki Bin, it is Peter. I would say a couple of things. First, in southern New Jersey that is a market where we have lower occupancy and it is really one building that had been leased long-term but is now available. In South Florida we have half of a remaining building that has been available that we really haven't just found the right fit for. It is a well-located asset, a couple of miles north of the Miami airport, certainly leasable.

The larger markets like Atlanta -- Atlanta has still lagged as you know. We are about 85% in Q2, but Atlanta is getting better. There has been five consecutive quarters of positive absorption and we made some headway there this quarter with backfilling more than half of the 400,000 square-foot move-out that we talked in Q1. And we accomplished that through a long-term expansion of one of our existing tenants.

Then, finally, Tampa, which you probably know is a smaller tenant-driven market. We have made some pretty good headway in Tampa over the last several years, which has really been without the benefit of much improvement in the housing industry, which has certainly been a big driver of demand there. But we still have some more work to do.

Okay, thank you.

Ladies and gentlemen, this concludes the question-and-answer session for today. I will now turn the call over to Bruce Duncan for any closing remarks.

Thank you for joining us today. If you have any questions, please feel free to call Art, Scott, or myself. We would be happy to take them.

We appreciate your interest and look forward to talking to you next quarter. Thank you.

Thank you, ladies and gentlemen. This concludes today's First Industrial second-quarter results conference call. You may now disconnect.