First Industrial Realty Trust Inc (FR) 2014 Q3 法說會逐字稿

Good morning. My name is Crystal and I will be your conference operator today. At this time, I would like to welcome everyone to the First Industrial third-quarter results conference call. (Operator Instructions).

I would now like to turn today's call over to Mr. Art Harmon, Senior Director, Investor Relations. Please go ahead, sir.

Thank you, Crystal. Hello and welcome to our call.

Before we discuss our third-quarter 2014 results, let me remind everyone that our call may include forward-looking statements as defined by federal securities laws. These are based on management's expectations, plans, and estimation of our prospects.

Today's statements may be time sensitive and accurate only as of today's date, October 30, 2014. We assume no obligation to update our statements or the other information we provide.

Actual results may differ materially from our forward-looking statements and factors which could cause this are described in our 10-K and other SEC filings.

Finally, you can find a reconciliation of non-GAAP financial measures discussed in today's call in our supplemental report and our earnings release. The supplemental report, earnings release, and our SEC filings are available at firstindustrial.com under the investor relations tab.

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, 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 it over to Bruce.

Thanks, Art, and thank you all for joining us today.

Our First Industrial team delivered excellent results once again this quarter, demonstrating the strength of our platform and portfolio. We increased occupancy by 90 basis points to 93.9% and we continued to enhance our portfolio through new investments and targeted sales.

I am pleased to point out that the credit rating agencies have taken note of our continuing execution on our plan. Our unsecured debt is now rated investment grade by all three agencies, following yesterday's upgrade from Moody's and our upgrade by Fitch in September.

We are now positioned to access the senior unsecured debt market more efficiently and cost effectively, enabling us to further improve cash flow by lowering our capital costs. So, thanks to all of my teammates for their many contributions.

The overall industrial market remains healthy. The third quarter marked the 17th consecutive quarter of positive net absorption for the industry. There is new supply, but it is in response to continuing good demand. These solid fundamentals are being reflected in the upward direction of market rental rates and in the rental rate changes we have been achieving in our portfolio.

Cash rents on leases commencing in the quarter were up 1.6%, marking our third consecutive quarter in positive territory. Our GAAP rental rate change was positive 9.4%, reflecting the embedded bumps in our leases and lower free rent. Our GAAP rental rate spreads have now been positive for 11 quarters in a row.

While these metrics can vary from quarter to quarter, based on the population of leases, the general direction is positive as demand has been outstripping new supply and businesses are now faced with fewer space options.

The health in the leasing environment is also reflected in our development and acquisition leasing. In September, the lease commenced for our entire 708,000-square-foot First Logistics Center @ I-83 in central Pennsylvania. Recall we met our overall pro forma economics on this long-term lease with an initial yield of 8.4%.

As a reminder, when we talk about development yields, we are referring to our first year of stabilized cash NOI over the GAAP basis.

I would also like to recap the other long-term development leasing wins in the quarter. We leased approximately one-half of our 489,000-square-foot First Bandini Logistics Center in Los Angeles.

We also signed a 377,000-square-foot full-building lease at our First Pinnacle Industrial Center in Dallas. This brings us to 87% preleased on this 598,000-square-foot two-building complex that will be completed in the first quarter of 2015.

We also leased one-half of a 142,000-square-foot spec facility at our Interstate North development in Minneapolis. That two-building 239,000-square-foot project is now 70% preleased. Interstate North will be completed in the fourth quarter of 2014.

We continue to market our other developments, namely the 350,000-square-feet First Northwest Commerce Center in Houston, which we are wrapping up in the fourth quarter, and our 555,000-square-foot First 36 Logistics Center in the Inland Empire in southern California, which we completed in the second quarter.

Recall that the pro forma lease-up period for both of these assets is one year from completion.

I also want to provide a quick update on our 509,000-square-foot Chicago asset at the intersection of I-55 and I-80 that we acquired vacant in June 2013. As of our last call, it was 79% occupied, and I am pleased to tell you today that we are now fully leased.

A critical way we seek to add value is through active portfolio management, including targeted asset sales. In the third quarter, we completed $54.2 million of sales, comprised of 925,000 square feet.

The largest sale was a $28.5 million portfolio of higher finish, light industrial and flex buildings in the Baltimore market. Additionally, we sold a 119,000-square-foot vacant cooler building in Chicago for $10.5 million to a user. This asset was on our list of top 10 key bulk opportunities at our November 2013 investor day.

In the fourth quarter to date, we completed two building sales totaling 35,000 square feet in the Detroit market, plus the sale of a small land parcel in Toronto, our last holding there. These sales totaled $3.3 million, bringing us to $62.3 million year to date, so we are well on track towards our target of $75 million to $100 million for the year.

As we continue to execute on targeted sales, we're being disciplined in redeploying that capital. Our team is certainly out in the marketplace looking for both acquisitions and development opportunities, but as we have noted many times before, finding acquisitions that enhance our portfolio and where we can achieve appropriate risk-adjusted returns is a challenging proposition in this market.

As a result, we have largely been making new investments using our development capabilities. As we redeploy a portion of our sales proceeds into development, we may have some near-term dilution from the timing of completions and lease-up, but we think that's the right long-term economic approach for our shareholders.

To that end, this quarter we will be starting our First Arlington Commerce Center at I-20 in the Dallas market that we told you about on our last call. First Arlington will be a 153,000-square-foot building with an estimated total investment of $9.5 million and a projected initial yield of 6.4%.

We also anticipate starting our two-building 585,000-square-foot First 33 Commerce Center in the Lehigh Valley in Pennsylvania shortly. You may recall that we purchased this land prior to 2009. Total projected investment is $44 million, with our targeted initial GAAP yield of 6.4% and a targeted return on our incremental investment of 7.6%.

During the third quarter, we also added to our development pipeline by purchasing two land sites for approximately $22 million that are likely first-half 2015 starts. One is a 47-acre parcel in Houston in the energy corridor in Katy, located on the Grand Parkway just north of I-10. We plan to do a phased development of three buildings, totaling approximately 828,000 square feet.

We also acquired a 16-acre site in southern California, in Oceanside, between Los Angeles and San Diego. There, we anticipate developing a three-building park totaling approximately 237,000 square feet.

Total combined potential investments for these two projects is estimated to be north of $80 million.

In other development news, we successfully completed the entitlement process for our First Nandina Logistics Center in Moreno Valley in the Inland Empire. Recall that this was an assemblage of 13 parcels that our local team put together that can now accommodate up to 1.450 million square feet in either a one- or two-building configuration.

We like the competitive position of our site and we're monitoring market demand for large buildings, including possible build-to-suits.

Before I turn it over to Scott, let me say we had an excellent quarter, and as a team, we are focused on delivering on our cash flow opportunities and creating value through active portfolio management. Given these opportunities and our valuation gap to our public peers and private comps, we believe we continue to offer investors good value. Our job is to deliver on those fronts and we're all over it.

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 $0.32 per fully diluted share, compared to $0.26 per share in 3Q 2013.

Third-quarter results included a $1 million portion of a one-time restoration fee that we have discussed the last few quarters. Before one-time items such as the restoration fee mentioned above, losses from the retirement of debt in both the third quarter of 2014 and 2013 and a loss from the redemption of preferred stock, as well as NAREIT-compliant gains in 3Q 2013, funds from operations were $0.31 per fully diluted share versus $0.28 in the year-ago quarter.

EPS for the quarter was $0.19 versus $0.05 in the year-ago quarter.

As Bruce mentioned in his earlier comments, we made quite a bit of progress in the third quarter towards our year-end in-service occupancy goal of 94%. We finished the quarter at 93.9% occupied, up 90 basis points from the second quarter and up 270 basis points from a year ago. Sales helped occupancy by 33 basis points on a quarter-over-quarter basis.

Regarding leasing volume, we commenced approximately 3.9 million square feet of long-term leases in the quarter. Of these, 1.5 million square feet were new and 2.4 million were renewals.

Tenant retention by square footage was 78.9%. Same-store NOI on a cash basis, excluding termination fees and the one-time restoration fee we recognized in 3Q 2014, was a positive 4.9%. Same store was primarily driven by higher average occupancy, as well as contractual rent increases. Including the impact of the one-time restoration fee, same-store growth in the third quarter would have been 6.7%.

Lease termination fees totaled $900,000 in the quarter and same-store cash NOI growth, including termination fees, but excluding the one-time restoration fee, was 5.7%.

As Bruce already mentioned, cash rental rates in the quarter were up 1.6% overall. Breaking it down, renewals were a positive 3.2% and new leases were down 3%. On a GAAP basis, the overall rental rate change was a positive 9.4%.

On the capital market front, Bruce discussed the recent upgrades we received from both Moody's and Fitch. As we stand today, all three agencies have our unsecured debt rated investment grade.

Our next significant maturity is in early 2016, so we certainly have some time to access the senior unsecured market, but we are pleased to have the additional flexibility. To protect ourselves from interest-rate hikes in the meantime, in August we entered into a swap that fixes LIBOR at 2.58%, which effectively locks the 10-year treasury rate at approximately 2.43% through the end of November.

On the debt side, as we noted on our second-quarter earnings call, we paid off approximately $25 million of secured debt in 3Q at an interest rate of 6.7%. We did not use our ATM during the quarter.

Updating you on our leverage metrics at the end of 3Q 2014, our net debt plus preferred stock to EBITDA is 6.2 times, excluding the one-time restoration fee and normalizing our G&A run rate. This is within our target range of 6 to 7 times.

At September 30, the weighted average maturity of our unsecured notes, term loan, and secured financings is 4.9 years, with a weighted average interest rate of 5.6%. These figures exclude our credit facility.

Our credit line balance today is $198 million and our cash position is approximately $21 million.

Now onto our updated 2014 guidance, per our press release last evening. The midpoint of our guidance range remains the same, but we have tightened the range to $1.14 to $1.18 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 early mortgage payoffs, and acquisition costs. Excluding these items, FFO per share is expected to be in the same range of $1.14 to $1.18.

The other key assumptions are as follows, with ranges tightened to reflect year-to-date results and expectations for the fourth quarter. Average in-service occupancy end of quarter of 93% to 93.5% for the full year.

Average quarterly same-store NOI on a cash basis before termination fees of positive 3.25% to 4%. This is a reduction from our prior midpoint of 4%, primarily due to a lease termination fee we recognized in the third quarter that effectively covers the loss rental income for this lease in 4Q. So from an economic point of view, we were made whole, but since the economics were in the form of a termination fee and not rent, it is excluded from our same-store calculation.

Let me also point out that we were successful in re-leasing the space in the fourth quarter, although there is no impact to cash same-store this year, since we are in the free rent period of the lease.

Another factor causing the change was the impact of our third-quarter sales. Note that our same-store guidance also excludes the one-time restoration fee of approximately $0.02 per share recognized this year.

Our G&A is still expected to be in the range of $23 million to $24 million. Full-year JV FFO of approximately $400,000, which is unchanged. Guidance includes the costs related to our developments in process in Houston, Dallas, and Minneapolis and the incremental costs related to our completed developments.

Guidance also now includes costs related to the planned fourth-quarter starts of the First 33 Commerce Center and First Arlington Commerce Center at I-20.

In total for 2014, we expect to capitalize $0.01 per share of interest related to our developments.

Guidance also assumes we lease up the other half of the First Bandini Logistics Center by the end of the fourth quarter.

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; 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 I open it up for questions, let me say that we are focused on executing across all aspects of our business. While we have made great strides in leasing up our portfolio, we still have significant cash flow growth opportunities as we drive towards our goal of plus or minus 95% occupancy by the end of 2015.

We're also driving growth and enhancing our portfolio through our new developments. We have a solid pipeline and are replenishing that pipeline through new land acquisitions, which we can put into production quickly to meet tenant demand. We will also further enhance the long-term cash flow growth profile of our business through select acquisitions and targeted sales.

If we can continue to deliver on the opportunities that we laid out at investor day in November 2013 and close the valuation gap to our public peers and private comps, we can continue to create more value for our shareholders. That is our mission and we are focused on it.

We will now open it up for your questions. As a courtesy to 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.

Crystal, can we please open it up for questions?

(Operator Instructions). Craig Mailman, KeyBanc Capital.

A question on the developments you went through for 2015. Just curious on the Houston or the Katy planned development, how do you guys envision that? Is it one building at a time? Is there enough demand there where you want to go one or two spec? What are you thinking?

All right, well, I will have Jojo answer it, but really we're going to phase it -- into it. But go ahead and talk about the site.

Sure, sure. It has frontage on Grand Parkway and that's right close to the intersection of 10 and Grand Parkway, which is the new outer loop in Houston.

That is where the growth is in Houston right now, towards the west. That's the energy corridor. There's a lot of rooftops, a lot of residential growth. We foresee a lot of growth in consumer demand there.

In addition, our vision for the site is a three-building complex. We have a building that is front part, rear load, right in front of the Grand Parkway. We are looking at a crossdock, also, that accesses off Grand Parkway. Also, we have a rear load, so those are three buildings. We envision that to be in phases, but that's our vision for that site.

We will let you know when we -- next quarter in terms of specifics.

Okay, all right, so we will get yields and those kind of things next quarter or do you guys have a sense of -- okay.

We will give yields out on the project when we start them next quarter.

Okay, and then just more general, you guys have been a buyer of land, but prices have been moving in a bunch of markets. How are you guys viewing the underwriting there, with construction costs possibly going higher? What type of rent growth do you need to pencil? How far ahead are you looking to bank land?

Let me ask -- Jojo, why don't you just talk about -- take a couple markets and talk about what we are seeing in terms of costs and --

Sure, sure, and in terms of construction costs, year-over-year construction costs in general have increased by about 5%. Of course, that varies market by market. Going forward, too, we expect construction costs to grow anywhere from 3% to 5%.

There is a little bit more growth in terms of construction left in California because of code revision. So you can add about 2% to 3% more than the 3% to 5% that I mentioned to you.

The way we underwrite deals is that we factor all those cost increases in the total investment, and when we give you the GAAP -- projected GAAP yield, we factor those in.

In addition to that, what we do is that we underwrite based on current market rent, so when we give you GAAP yield, that is what we think we're going to achieve based on some inflationary growth, which is more inflationary than a big bump from current market rents.

Then, finally, what we do is we add the downtime, which is a minimum one year from substantial completion. Does that answer your question?

I guess more what I was getting at is what type of yields are you guys finding to be justified here to be buying the land to put to work in the near term, relative to what you have traditionally looked for from a yield perspective?

Sure, sure, a good question. Currently, we are still targeting a minimum of a 100-basis-point spread between what Class A properties would sell for, but so far we have been exceeding that.

Okay, thank you.

It's consistent with what we have done in the past, which is we want a minimum of 100 basis points in terms of doing that.

Okay, thanks, guys.

Ki Bin Kim, SunTrust.

Could you just quickly talk about the one big moveout that you expected to occur in the fourth quarter that you re-leased? How big is that space and did you end up marking up that rent?

It's Peter. That's a fourth-quarter moveout in Minneapolis of a tenant that is in two buildings.

No, no, no, he's talking about the lease termination fee, I think.

Yes, yes, that's right.

talk about the lease termination fee.

Sure. The lease termination fee that Scott touched on, we viewed as a net positive. That was an existing lease that is due to expire mid-2015, and the tenant had already made plans to move out and we proactively terminated that to accommodate a new lease that we signed in September and will commence in a couple of weeks in November. The economics were very similar, but more importantly, the new lease goes into 2020.

Keep in mind that new lease, even though Peter mentioned it starts in the mid fourth quarter, it is in its free rent period, so there is no impact on our cash same store.

Okay. Just in general, if you look at your expiring rents in 2015 and what you have in the pipeline, what kind of trajectory should we expect in terms of occupancy growth throughout next year and in terms of lease spreads?

Again, we will give you that guidance when we do the fourth-quarter call on the next -- next call. But directionally, just as you have seen, rents are going up and we're feeling pretty good, but we will give you the details when we do our guidance for next year.

Okay, that's fine. Just last one, is there any material difference between leased percentage versus occupancy percentage for your portfolio?

No, it's not materially different.

Okay, thank you.

Dave Rodgers, Baird.

Wanted to ask about the expiration schedule. Obviously, it's down to a fairly small amount in the fourth quarter, but I also think that it is your highest average rent that remains on your schedule, what your fourth-quarter expirations are.

So I just wanted to double check in terms of any hiccups that you would expect to see in spreads, or can spreads really slow in the fourth quarter, and any reason to think, then, that they wouldn't be back up or at least accelerating into 2015 as the average expiration rent continues to fall.

No, I don't think there is any hiccups that we are anticipating there. Overall, we are seeing trends of rent rates going up, so we don't anticipate any hiccups.

Dave, I would just add, as we mentioned in our prepared remarks, in any given quarter your population of leases could have a rollover that affects that number because it's not a big population. But as Bruce has mentioned several times, general direction is positive.

Great, thanks. Bruce, what's left to sell in terms of the assets? Are you getting through the non-core and now just really repositioning for better growth? What's that number and what's in the market today?

I would say that in terms of what we anticipate selling, we probably have about $85 million left of the pool we identified a few years ago, and then it's just ongoing portfolio management.

I would say that we were pleased with the sales in the third quarter. I think that our goal for the year is to get to $75 million to $100 million. I will be disappointed if we don't get near the top end of that range, and again, it is really in each market we're going through and selling the assets that we don't think have great long-term growth opportunities and redeploying that capital into better assets.

Thanks, and last question, and maybe this is for Scott as well, but as you ramp up development, and it sounds like you'd like to ramp up development if you can find the right opportunities next year, and you've talked about some potential dilution between asset sales funding that and the cash going out the door. Given that you just received your debt ratings and that was hard work to get there in the first place, I don't imagine you want to see those going higher, and it's really difficult to sell assets and build buildings and not lever up. So do you see a transitional leveraging-up period as you move forward, one?

I guess the second would be is, do you just want to get more active on the ATM to manage that? Or, three, can that all be handled through just growth in the core portfolio NOI metrics?

Dave, this is Scott, you are right. As to the extent that we sell properties, we are -- to the extent they are occupied, we're definitely losing EBITDA.

As we redeploy those funds in development, our leverage will increase, but I thought you brought up a really good point and I will bring this back to investor day of November 2013. With the expected cash flow growth that we have the opportunity embedded in our portfolio, that should balance out that leverage increase.

I think the other important thing that we have in place on development is the $250 million cap, so I think we should be fine funding our development with sales.

I think the area where possibly you might use the ATM if that gets out of whack a little bit, so to the extent that your investments outsize your sales, that might be an area where we would use the ATM, but again, it would depend on price as well.

And we are always mindful of dilution.

We appreciate that. Thanks, Bruce.

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

Thank you.

Private investor, I'm impressed.

I guess they didn't ask for a company name, so. (laughter). Going back, you were talking about the valuation of your Company, you believe, is attractive relative to the private market comps. Maybe can you touch upon what private-comp transactions have occurred over the past couple of quarters that give you that confidence?

I would say, Eric, you probably follow this more than anybody, but if you look at what's reported -- Cobalt to me -- again, we have to wait and see the numbers come out, but I think I saw some numbers like 6-1/4% cap rate or less. And when I look at the portfolio quality of theirs versus ours, we are much -- we're a higher quality. We have big exposure in California; they have nothing.

So I think if you just look at what's going on in the space, there is great demand for industrial assets, and our cap rate, even now -- our stock has picked up a little bit. We're still probably today trading at the annualized -- the third quarter -- of a 6.8% cap rate.

You look at that, I think it's great value relative to our peers, especially when you think of the growth opportunities we still have available to us.

But that's one man's opinion and I do admit that most CEOs think their stock is undervalued.

(laughter). I guess that would be an unusual occurrence if it worked the other way, although I guess Elon Musk might qualify as the exception there.

I guess talking about the sale environment, though, it seems that every other industrial REIT has pretty much picked up their disposition guidance. They figure they can sell their non-core assets at a faster pace at more attractive pricing.

It's interesting you guys haven't picked up your pace that much, and even if you had more sources than uses over the next couple of quarters, aren't special dividends or buybacks in the work, especially if you believe your stock is undervalued?

I would say that here we just got the investment grade, so I wouldn't count on a buyback in this short run here.

But in terms of asset dispositions, again, we have a plan. We put it in place. We continue to upgrade the portfolio. We haven't given guidance for next year, but my guess is it will be near the same amount we're doing this year in terms of $75 million to $100 million. But again, it's systematic and our goal is to maximize the value of these dispositions and I think we have done a good job to date, but there is always more work to do. But we are focused on our plan.

Okay, great, I will jump back in the queue.

Mike Mueller, JPMorgan.

Going back to the asset sales again, you talked about the $85 million left on the identified pool. You also mentioned a few more -- you would like to -- your shot at getting to the upper end of the range or you would like to.

So if you strip that out, that takes you down to about $30 million, $35 million in what's left in that pool. So if we do the look forward to next year, is it not an unreasonable assumption to think that asset sales are probably a little less than they are this year?

No, I think again, Mike, it is active portfolio management. We're going to continue going through and continue upgrading the portfolio throughout the country, and I would anticipate that will be an ongoing -- every year, we will sell $75 million to $100 million. But we will give you guidance of what we are planning for next year in terms of active portfolio management.

Okay, that was it. The other stuff was answered. Thanks.

Ki Bin Kim, SunTrust.

Scott, going back to your opening remarks about the swap that you guys got into just regarding the 10-year being so low, I think you said it was going to expire in November. I'm not sure if you meant this year or next year.

Yes, it is basically a $220 million notional value and we are locked effectively into the 10-year treasury of 2.43% and that's to the end of November. Now we have the ability to extend that swap to the end of May of 2015. It would cost us about 0.8 basis points per week to do that.

Okay. Just given the duration of that swap -- well, I should say expiration date of that swap, is that a sign that maybe the unsecured bond issuance might be more of the nearer-term event than 2016?

Yes, I would say what we look at as far as issuing unsecured, and again, this could be public/private market as well, we look first at what the credit spreads are doing in the market, and I would say the last four to six weeks credit spreads have popped out about 20, 25 basis points, so we'd like to see them come in.

Then we look at our sources and uses as well and what needs we have for the cash, and to the extent that those two line up, that is probably when we would do some sort of execution. But again, with the swap in place, we have ability -- treasury is effectively locked until the end of May 2015.

Okay, and what would the reasonable deal terms look like (multiple speakers)

Are you talking spread, covenants?

Not the covenants. All-in interest rates.

I would say right now for us, again, with the gapping out of the interest rates, it is probably 200 to 210 basis points is what the credit markets are right now. I would say four to six weeks ago, they were probably 20 basis points inside of that.

Okay, thank you.

(Operator Instructions). Eric Frankel, Green Street.

Just a couple of questions regarding the new development projects. Can you perhaps speak to demand in Houston at this point, especially given how oil prices have come down a little bit over the past three months and the threat that maybe it starts slowing oil production if the oil prices go down any further, especially given that your development is in a emerging, I guess, submarket of Houston where energy is a big factor?

Sure, Jojo, you want to handle that?

Sure, just to start off, Eric, as you know, we have a pretty sizable portfolio in Houston and it is one of the highest leased portfolios in the country.

We just -- we are just going to ramp up the First Northwest, which is 350,000 square feet that is cross-dock multitenant in northwest.

Absorption in Houston continues. Year to date, we see like 8.5 million square feet of net absorption. We think that is going to exceed 10 million, the rate it's going, net absorption by the end of the year, so it's positive net absorption.

To the recent investment, we really like the energy corridor towards the west because that's where a lot of the growth is, and growth due to employment demand and consumer demand.

We are not seeing yet really any major pullback of customers or users due to energy prices. We haven't seen that. We don't know if it's going to be short term, long term, and what the impact would be. But what we can tell you is that if you look at just the recent net absorption, it still exceeds projected supply and under construction.

Have your customers ever mentioned, if they are vendors to oil companies or other energy producers, where issues start occurring -- at what price of oil?

No, Eric. No, most of our customers are two or three industries removed because they are the retailers that supply to -- the 3PLs who supply to consumer goods that are being bought by people who are -- some of them might be employed in the oil service and gas exploration industry.

Our customers are more of the distributors than the 3PLs, and they are not seeing that consumer demand taper off yet. We don't lease to a lot of the oil service, oil rig, gas exploration companies. As we said, they are more of the office type, flex type, and crane type building users.

Eric, we love this site and we look forward to showing it to you when you get down there because (multiple speakers)

I'll look forward to seeing it. Final question, just regarding the southern California development. I think there was some reported news about that. Is that going to be built in the JV or what is the financial arrangement exactly of that deal?

No, it's not. Eric, it's not going to be built on a JV. It is wholly owned by First Industrial, 100%. We have a developer. We have hired a developer to build the building on a guaranteed maximum price contract, GMP.

Okay, thanks for the clarification.

We have no further questions at this time. I will now turn the call back to Mr. Bruce Duncan for any closing remarks.

Thank you, Crystal. Again, we appreciate your interest. If you have any questions, please call Scott, Art, or myself, and we look forward to seeing some of you down in Atlanta next week. Thank you.

Thank you for participating in today's First Industrial third-quarter results conference call. You may now disconnect.