First Industrial Realty Trust Inc (FR) 2014 Q4 法說會逐字稿

Good morning. My name is Felicia and I will be your conference operator today. At this time I would like to welcome everyone to the First Industrial fourth quarter and full-year 2014 results conference call. (Operator Instructions). I would now like to turn the conference over to Mr. Art Harmon, VP of Investor Relations. Please go ahead, sir.

Thanks a lot, Felicia. Hello everyone and welcome to our call. Before we discuss our fourth-quarter and full-year 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, February 20, 2015. 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.

You can find a reconciliation of non-GAAP financial measures discussed in today's call in our supplemental report and in our earnings release. None of today's statements constitute an offer of any securities for sale. The supplemental report, earnings release, and our SEC filings are available at FirstIndustrial.com under our Investor Relations tab.

Our call today 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; Peter Schultz, Executive Vice President for our East region; Chris Schneider, Senior Vice President of Operations; and Bob Walter, Senior Vice President of Capital Markets and Asset Management. Now let me turn the call over to Bruce.

Thanks, Art. Thank you all for joining us today. The fourth quarter capped off another good year for our Company. We grew occupancy 40 basis points to finish the year at 94.3%. That was 30 basis points ahead of our 94% year-end goal. For the year we gained 140 basis points.

These occupancy gains help us deliver strong same-store cash growth of 6.2% for the quarter and 4.2% for the year. So, many thanks to all my FR teammates around the country once again for their outstanding efforts and execution in 2014. And I know that they are laser-focused on delivering on our 2015 goals that we will discuss in a moment.

Industry fundamentals are good. The economy is growing, driving net absorption which continues to exceed new construction. And that has been the case for 18 quarters in a row, and we don't believe the supply/demand picture will become imbalanced anytime soon.

Rental rates also continue their upward trend. We see that in our own results. Cash rents were positive for the fourth consecutive quarter, and gap rents have now been positive for 12 consecutive quarters.

In addition to adding value through leasing, we also continued to enhance our portfolio through active portfolio management using our platform for targeted investments and dispositions. On the acquisition side, in the fourth quarter we were pleased to add five new distribution buildings totaling 554,000 square feet, for $40.8 million. Two of the buildings, one in the Inland Empire and one in Minneapolis, are 100% leased.

We also acquired three assets in Phoenix within a park where we already own the other two buildings. Two of these are 100% leased and one is vacant. So there is a value add component to this investment. We like the competitive positioning of these assets and the activity in the market.

We also bought a development parcel in Atlanta for $2 million that we have targeted for build-to-suits that is adjacent to our ADESA site near the airport there. So, in total, we invested $42.8 million in acquisitions in the quarter. For the year, we acquired 1.1 million square feet of property for $67.4 million, plus $28.3 million of development sites, for a total of $95.7 million.

As we have noted in the past, while we were pleased with our one-off acquisitions, given the highly competitive pricing environment we are putting our platform to use and focusing more on development. In doing so, we can build the type of buildings we want to own long-term to grow and enhance our portfolio and our cash flow.

So now, let me walk you through our development activity. For the year we placed in service five developments. These projects totaled 1.6 million square feet and are all fully leased, with a total of investment of $115 million at a 6.9% initial GAAP yield. As a reminder, when we talk about GAAP, yields it's the first year stabilized NOI over the GAAP investment basis.

Let me quickly remind you of these developments placed in service. In Los Angeles we successfully leased the remaining half of our 489,000 square foot First Bandini Logistics Center. Earlier in the year, also in L.A., we completed and fully leased our 43,000 square foot First Figueroa Logistics Center.

The other projects placed in service were our First Logistics Center at I-83, which is our 708,000 square feet building in Central Pennsylvania leased to Federal Mogul, our 250,000 square foot expansion for Rustoleum in the Chicago market, and the 97,000 square foot facility at our Interstate North project leased to Goodwill Industries in Minneapolis.

We also completed three additional developments in 2014 in the Inland Empire, Houston, and Minneapolis, respectively, that are in the lease-up phase. These totaled more than 1 million square feet with an estimated investment of $62 million and a stabilized GAAP yield of 7.2%.

Lastly, at year end, we had three developments in process totaling 1.3 million square feet, with a combined estimated investment of $79 million. Included in this category is our two-building 598,000 square-foot First Pinnacle Industrial Center in Dallas, which is 87% preleased. Total estimated investment is $25.7 million and the estimated GAAP yield is 7.5%.

The other two in-process developments commenced in the fourth quarter. The first is our 153,000 square foot First Arlington Commerce Center at I-20 in the Dallas market, which is already 41% preleased. Estimated total investment is $9.5 million and the projected initial GAAP yield is 6.4%.

We also started our First 33 Commerce Center in the Lehigh Valley of Pennsylvania. This is a two-building complex totaling 585,000 square feet with a total projected investment of $43.8 million and a targeted initial GAAP yield of 6.4%.

Next month we plan to add to our development pipeline by starting our First Park at Ocean Ranch in Southern California. Ocean Ranch will be a three-building park totaling approximately 237,000 square feet. We anticipate completing this project by year end. Total investment is estimated to be $27.5 million, with a projected GAAP yield of 6.7%.

Moving on to fourth-quarter sales, we sold 967,000 square feet of buildings plus two land parcels for a total of $43.6 million. That brought our total sales for the year to $102.6 million comprising nearly 2 million square feet.

In the first quarter to date, we sold a six-building flex and light industrial portfolio in the Atlanta market comprised of 299,000 square feet for $12.9 million. Overall in 2015 we anticipate selling a total of $75 million to $100 million as we continue to refine our portfolio. Sales are expected to be weighted toward the back half of the year as usual.

As we look to deploy and recycle capital, our focus is on the long-term cash flow growth of our portfolio. We have been happy with the results of our development leasing, as evidenced by our track record of largely meeting or exceeding pro forma. We continue to prudently assume at least a year of downtime from completion.

As we have stated previously, we may suffer some near-term dilution from the timing of completions and lease-up versus sales. If we do suffer short-term dilution, we will do so because it's the right long-term decision for our shareholders.

In looking back on the year, I want to revisit our last Investor Day in November of 2013. There, we discussed our potential opportunity to deliver total AFFO grow growth of as much as 70% to 90% by the end of 2017, from year-end 2013. We realized some of this opportunity as we delivered approximately 22% growth in AFFO per share in 2014 through leasing, contractual rent bumps, interest savings, and lower leasing costs. We were excited about our ability to capture more of that opportunity in 2015 and beyond as we strive toward our goal of 95% occupancy for year-end.

On our way to that goal, we expect our typical first-quarter dip of approximately 50 basis points. But then we expect to grow occupancy from there for the balance of the year.

On the strength of our performance, and, more importantly, our 2015 outlook, the Board of Directors declared a dividend of $0.1275 per share for the first quarter. This is an increase of 24.4% from the prior rate of $0.1025 per share. It is expected to be within our target AFFO payout ratio of 50% to 60%.

So, before I turn it over to Scott, let me say we had a good quarter. And as a team, we are focused on delivering on our various 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 very good value.

So 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 $0.27 per share in 4Q 2013. Fourth-quarter results included the final $400,000 portion of a one-time restoration fee that we have discussed the last few quarters, plus $849,000 of acquisition costs. Before one-time items such as the restoration fee and acquisition costs mentioned above, as well as NAREIT compliant gains and losses from retirement of debt, funds from operations were $0.32 per fully diluted share versus $0.28 in the year ago quarter. EPS for the quarter was $0.17 versus $0.18 in the year ago quarter.

For the year, AFFO per share was $1.16 compared to $0.98 for 2013. Before one-time items such as the restoration fee recognized throughout the year, acquisition costs, losses from retirement of debt, loss from the redemption of preferred stock, and NAREIT-compliant gains and losses, FFO per share was $1.16 versus $1.08 a year ago.

EPS for 2014 was $0.42 versus $0.24 in 2013. We exceeded our 94% occupancy target, finishing the year at 94.3%, up 40 basis points from the third quarter and 140 basis points for the year. Regarding leasing volume, we commenced approximately 3.9 million square feet of long-term leases in the fourth quarter. Of these, 1.4 million square feet were new, 1.8 million were renewal and 700,000 were development leases.

Tenant retention by square footage was 63.9%, reflecting two sizable move outs in the Minneapolis and Baltimore-Washington markets. For the year, retention was 69.5%.

For the quarter, same-store NOI on a cash basis excluding termination fees and the one-time restoration fee we recognized in 4Q 2014 was 6.2%. Same-store was primarily driven by higher average occupancy as well as contractual rent escalations.

Lease termination fees totaled $245,000 in the quarter and same-store cash NOI growth, including termination fees but excluding the one-time restoration fee, was 5.8%. For the year same-store NOI was 4.2% excluding termination fees and the one-time restoration fee. Including termination fees but excluding the restoration fee, same-store NOI was up 4.4%.

Cash rental rates in the quarter were up 3.1% overall. Breaking it down, renewals were a positive 5.6% and new leases were down 0.5%. On a GAAP basis the overall rental rate change was a positive 10.8%. For the year, rents were up 2.2% on a cash basis and 9.1% on a GAAP basis.

Regarding our balance sheet, let me update you now on our leverage metrics. At the end of 4Q 2014, our net debt plus preferred stock to EBITDA is 6.2 times, normalizing G&A and excluding the one-time restoration fee and acquisition costs. This is well within our target range of 6 to 7 times.

At December 31, the weighted average maturity of our unsecured notes, term loan, and secured financings is 4.6 years with a weighted average interest rate of 5.6%. These figures exclude our credit facility. Our credit line balance today is $200 million and our cash position is approximately $24 million.

Now, on to our 2015 guidance per our press release last evening. Our NAREIT FFO guidance range is $1.22 to $1.32 per share. The key assumptions are as follows: average in-service occupancy of 93.5% to 94.5% based on quarter-end results. As Bruce mentioned, similar to prior years we expect a dip in the first quarter given a few known move-outs. This will also impact our first quarter tenant retention. We expect occupancy to ramp up over the balance of the year towards our year-end target of 95%.

Average quarterly same-store NOI on a cash basis before termination fees of 3% to 5%. Note that this excludes the one-time restoration fee in 2014.

Our G&A is expected to be in the range of $24 million to $25 million. Please note that first-quarter G&A will be higher than the implied quarterly run rate by approximately $1.3 million or a penny per share due to accelerated expensing of incentive compensation.

Guidance also assumes the anticipated issuance of approximately $250 million of unsecured debt in the second quarter, with proceeds assumed to pay down the line of credit. In light of the interest rate production agreements we put in place in the third quarter related to such a debt issuance, guidance assumes the effective interest rate of this unsecured debt is expected to be approximately 4.5%.

The short-term dilution associated with this scenario would be approximately $0.03 to $0.05 per share. The expected permanent home for this capital will be to pay off $218 million of maturities in the first quarter of 2016 at an interest rate of 6.3%.

Guidance reflects the fourth quarter 2015 no-cost prepayment of approximately $23 million of secured debt at 5.58%. This loan was originally scheduled to come due in the first quarter of 2016.

Guidance includes the costs related to our developments in process in Dallas and Pennsylvania, and our planned first quarter start in Southern California. We expect to capitalize about a penny per share of interest related to these developments in 2015.

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 to questions, let me say 2014 was a good year. But it's onward and upward as we seek to capture more of our cash flow opportunity in 2015 and drive toward our goal of 95% occupancy by year end.

The impact of our new investments and sales is additive to the long-term cash flow growth profile of our portfolio, even if there is some modest dilution in the short-term. We also think it is additive to our efforts to further close the valuation gap to our public peers and private comps.

Our capital base is strong, and we aim to solidify it further, bringing down our long-term cost of capital. And, as a team, we are excited about what lies ahead. But there is work to be done.

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 the other participants a chance to get their questions answered. You are welcome to get back into the queue.

So now, Felicia, may we open it up for questions?

(Operator Instructions) Craig Mailman, KeyBanc.

Just curious, the $75 million to $100 million -- just want to get a sense of where cap rates and demand are for those assets, kind of vis-a-vis the fact that you guys are focusing more on development, less on stabilized acquisitions. Just trying to get a sense overall of whether the dilution we've seen from the capital recycling starts to narrow, or are you guys going to be buying that much more land, that maybe it is a little bit wider initially?

Well, let's talk about the dispositions. If you looked at what we sold, we sold a little over $100 million last year. The yield that we gave up was about 6%. That is the in place yield. Again, that had some vacancy in, so on a stabilized basis you are probably in the -- like 7.3%, 7.4%. So there is a little dilution as it relates to the stabilized yield, but not on the going-in yield.

And again, the market has been pretty strong for asset sales. In terms of buying, again, last year you saw what we bought. The stabilized properties were probably in the mid-sixes all in, in terms of -- and then we bought some land for development.

So we are going to continue again, as we said in the prepared remarks, to continue to focus on development. We have a number of projects that we could start depending on the market. But right now, the only start we are announcing is the Ocean Ranch project in Southern California.

And then just a follow-up to that, you guys, I think, have about $8 million -- or sorry, 8 million square feet of buildable land in the bank. Just curious your thoughts on whether you guys would be a buyer of additional land, kind of what the market looks like for that. And maybe of that 8 million square feet, how much of that is sort of this cycle versus next cycle?

Craig, that's a great comment. I'll let Jojo comment on it. We've got, again, capacity to do about 7 million square feet and they are all good sites. But Jojo, why don't you talk about the sites?

Sure, Bruce. You mentioned 7 million square feet, Craig. If you look at -- some are more immediate. We already mentioned to you First Park at Ocean Ranch in Southern California -- that's about 237,000 square feet. We expect to build another in Southern California that's another 189,000 square feet.

Some of the potential larger developments, we mentioned to you before First Nandina Logistics Center -- that's in the Inland Empire for about 1,450,000. We have -- just recently mentioned to you today that we acquired a land site in Atlanta that can accommodate a 924,000 square-foot built-to-suit. You've heard already in the past that we have land in the energy corridor at Grand Parkway in Houston that can accommodate 828,000 square feet.

In Nashville, we have a site that can accommodate about 1.5 million square feet. And in Northeast PA, our Covington land, we can accommodate about 500,000 square feet. But like you mentioned, we continue to look for sites that we can immediately develop on, and once we do that, we will let you know.

Craig, we like our portfolio in terms of the land we have, but we are always looking for well-located land at good prices that we can place in service fairly quickly.

Makes sense. And can you guys just comment on what the pricing looks like for land in some of the tighter markets you are looking at?

It keeps going up. It keeps going up, unfortunately. So, again, it's market by market. But again, there's good competition for that. It's less competition for that than existing leased buildings, but there is definitely more competition for land sites.

Perfect. I'll yield the floor. Thanks.

Ki Bin Kim, SunTrust Robinson Humphrey.

Just a quick question on your same-store NOI and same-store revenue. Could you just help me break that down to see what the components of that growth was for the quarter and how that translates into your guidance for 2015?

Sure, Ki Bin, this is Chris. On the quarter we were up about 6.2%. So if you kind of break down the components, our average occupancy was up about 1.3%, and that, combined with rent concessions going down, that contributed about 3.4%.

The contractual rent bumps and the cash increases -- rent increases provide another 2.5%. And then finally we had landlord expenses that dropped a little bit more.

I think you also talked about the revenues for the same-store. They were up about 7.2%. Part of that number -- a big part of that number is that our expenses were up. So, of that 7.2%, the recoverable income was up about 3%. So that kind of describes that.

And then looking forward to 2015, just the midpoint was about 4% for the same-store. And again, to kind of break that down if you look at the impact from the average occupancy increases and the drop in free rent that we are expecting for 2015, that was about 2% of the NOI increase. The bumps again in their rent increases contributed another 2.2%, and then that's offset slightly by a little bit higher assumption for bad debt, similar to our historical runs.

Okay. Thanks. That's helpful. And just a quick question, Scott -- the 4.5% in assumed cost of debt that you are going to raise in 2015, how much of that is the cost of the interest rate hedge that is in that number? And -- because if I look at your spread of what your debt is trading, it's probably closer to 200, I believe. Just curious what the differential was to make you say 4.5% for 2015.

Sure, Ki Bin. This is Scott. As we mentioned on the last call, we entered into a hedge in the third quarter of last year. That basically locked the 10-year treasury at 2.5%. So if you take that 2.5% plus 200 basis points of a spread, and that's based upon what we think we would trade at based upon other comps, that's how we get to the 4.5%. So I think I saw in your note, the beta between your rate and our rate is probably that hedge that we have in place, because it sounds like our credit spreads are very similar.

Okay. Thank you.

Eric Frankel, Green Street Advisors.

I have a couple of follow-ups as well, but first, you have about roughly 1 million square feet rolling as of December 31. Do you have a rough -- do you have a view of how much of that space you could fill in the first quarter?

I'm sorry, I didn't hear your question, Eric.

You have 1 million square feet of space that's rolling, where tenants are not renewing according to your lease rollover schedule. Do you have a rough idea of how much of that space you could fill?

Yes. I mean obviously we are always talking to the tenants as far as the renewals, so it should be pretty evenly spread throughout the year. But obviously we are in ongoing talks with our tenants.

They are not automatically vacating?

Not necessarily all of them are vacating, obviously.

Okay. And can you just comment on how much -- (multiple speakers)

Don't make us worried, Eric.

Can you comment on how much your dispositions influence occupancy this quarter?

I think this quarter it was 40 basis points.

So all of the occupancy increase was as a result of your dispositions?

Yes.

Okay. I'll jump back in the queue. Thanks.

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

Thanks. Good morning. This is actually Stephen Dye here with Dave. Could you just give some color on where you are seeing traction between smaller and larger spaces in your portfolio, and then on a broader level, kind of regional strength across your markets? Obviously industrial in general has seen low vacancies across the board. But just talk more specifically about the recovery in certain markets. Thanks.

Great. Peter, why don't you -- (multiple speakers)

Sure, Stephen, this is Peter. We continue to see good fundamentals. Demand is broad-based across the country, both in terms of geography and in terms of tenant size and continues to be diversified by industry.

On the larger spaces, we continue to see demand from e-commerce, from consumer products companies, from retailers, and of course transportation and logistics companies. And on the smaller tenant side, manufacturing, service, technology, healthcare, medical and a series of others. We continue to see progress across the entire portfolio from leasing, and I would point to Denver as a good example, where our occupancy is now in the mid-90s, largely a smaller tenant portfolio. So we continue to be pleased with that activity.

In terms of markets overall, I would say we still have some work to do in Atlanta. The Atlanta market, as everybody knows, has struggled, has certainly improved -- strong absorption in 2014 and vacancy rates now just under 10%. Our occupancy is trailing that by a couple percentage points, so more work to do there.

Great. Thanks. And I know we touched a little bit on the lease-up at the Dallas development, but any other commentary specifically to Houston and Dallas markets -- Dallas obviously on the supply there, and then Houston with the energy impact? Any color would be great. Thanks.

Okay. Well, let me just talk about Dallas, and Jojo can talk about Houston. But in terms of Dallas, we are pretty encouraged. You know, our development there, our First Pinnacle, we are not even finished and we are 87% preleased. And the project we started last quarter, it's a 152,000 square foot building; we are 41% preleased. So the market there is pretty good, especially in the size range we are doing it.

But we think even the big boxes in Dallas we think are going to have a decent first quarter in absorption. So we are encouraged by Dallas. Houston -- again I think everyone is waiting to see what happens in terms of the impact. But Jojo, why don't you talk about that and what our plans are?

Sure. In terms of Houston we entered the market in Houston portfolio at 96.9% occupancy. We have very little rollover. About 7% of our portfolio rolls over this year and we think we are going to have above average renewal rates on that as well. So, in terms of our portfolio, it's doing well.

We have not seen any immediate significant drop in demand. But of course like Bruce said, we are watching what the oil price dynamic is doing.

Vis-a-vis First Northwest, we just started a 350,000 square foot building. That's right in the Beltway in the Northwest market, which is the largest submarket in Houston. We like that location. We've designed that building to be multitenant to a single tenant, so it can accommodate various sizes. And we are seeing activity from consumer companies in that, but we haven't done a lease and we will let you know once we get a deal done.

As you know, we also own this really nicely located site in Grant Parkway, which is State Highway 99, which is the third Beltway Loop in Houston. So we are excited about that location and site. We like that. But we hit the pause button there for right now, because we want to see what would go on in terms of consumer demand in the Houston market given the oil price dynamic. So we'll let you know what we do with that project.

We could start that this year. It all depends on the market and all depends on if we want to get some leasing and see what our leasing goes at First Northwest, which we are encouraged by.

Great. Thank you.

Michael Mueller, JPMorgan.

Real quick, just given the comments on sequential occupancy I was wondering -- before the question -- can you guys call out in the press release going forward how much of a sequential change is driven by the mix portfolio -- mix changing versus more same-store in nature? So that's first.

And then I was just wondering on the two acquisitions that were 100% leased, what was appealing to you for those properties? Was it the cap rate was attractive, rents below market or something else?

The first question you wanted was, what? (multiple speakers)

We will definitely consider that going forward in terms of the changes related to our portfolio change in the portfolio. And just a correction for you guys, Eric Frankel had a question about the impact of occupancy. In the quarter that change was 15 basis points of the 40 basis point increase.

From dispositions -- 15; I misstated and said 40 basis points. Go ahead, Jojo.

In terms of the acquisitions, the two 100% leased acquisitions, basically we believe that both of those acquisitions will give us good long-term cash flow growth. We like our cost base and those were all below replacement cost, and we like the returns as well.

Specifically in Minneapolis the asset is located in the Eagan submarket, the largest submarket just southeast of the airport. It's a very, very infill market and we like that, because in infill markets like that, we would expect future rent growth.

In terms of the acquisition in Inland Empire, it's in Ontario at the southwest corner of the 10 and 15 -- Main and Main, for all of those who know the Inland Empire market. And this asset, it's also in an infill corner that we think we can grow rents in the future. So we are excited and we like these assets we bought.

Okay. That was it. Thank you.

Bill Crow, Raymond James & Associates.

Sorry, I thought I had pulled myself out of the queue. I'm all set. I was going to go into Houston, but you already took care of that. Thanks, guys.

(Operator Instructions) Ki Bin Kim, SunTrust Robinson Humphrey.

Thanks. If I heard you correctly, Bruce, you said your AFFO payout ratio in 2015 would be 55% to 60% off the new dividend run rate, which would basically imply like a $0.86 FFO -- or FAD per share in 2015, which is similar to the number you are going to end up with in 2014, right? So just curious if that is correct, that math, and I guess a more basic question is what do you think your CapEx will be in 2015?

Well, let me hand that over to Scott, because the math is a little off.

Right. In Bruce's comments we said 50% to 60%. I think you said 55% to 60%.

Right.

So if you just look at our annualized first-quarter 2015 dividend, that's $0.51. If you do the math on the 55% payout ratio -- that's the midpoint -- you get about $0.92 a share of potential AFFO for 2015, which compares to about $0.82 a share of AFFO in 2014. So we are growing at about $0.10 a share.

And is the delta basically the CapEx?

The delta -- it's a lot of pieces to it in that growth rate. A lot of these apply to our FFO change as well. I'll run through the items here. Development is about $0.08 a share of that growth, and about $0.05 of that $0.08 has to do with our I-83 Logistics Center and our Bandini development, just because we are getting a full 12 months in 2015.

Bumps are about $0.04 a share. Increase of occupancy is about $0.02 a share. We are starting to see a little bit of increase in cash flow because of rental rates -- old rate to new. That's about $0.01 a share and that's offset by an increase in bad debt of about $0.01. We are factoring in about $3 million in our guidance compared to $1.5 million actual in 2014.

Interest expense is up about $0.01, and then there's a couple of pieces of miscellaneous in there. CapEx, though, 2015 compared to 2014 -- we think that will add about $0.01 a share to AFFO as well. So there's a lot of different pieces to that increase, Ki Bin. If you want to talk off-line, we can as well.

Thank you.

Jon Petersen, MLV & Co.

Thank you. I was just curious on the timing of the expected debt offering in 2015 at $250 million. What's the thought behind doing that in the second quarter rather than waiting towards the end of the year, when you don't have to have the overlap for when it more closely matches your maturities?

Jon, this is Scott Musil. You are right; we do have some maturities -- $218 million first quarter of 2016 at a 6.3% rate. One of the things that we learned from the downturn is you don't want to space too closely together maturities with capital raises. That's one thought of it.

The second thought of it is when we entered into the hedge last year in the third quarter, we liked where we looked from an all-in rate with the hedge, in the spread point of view. So those were the couple of factors that we considered to do the debt offering in the second quarter.

Okay. And then, did you say how much you expect occupancy to decline in the first quarter? It always kind of declines in the first quarter, anywhere from 30 to 60 basis points over the last few years. So -- or should we expect something worse than that, than what we've seen in recent years?

No. What we're seeing is again, we typically have a decline of about 50 basis points. If you look at where things are, we could do better than that or worse than that depending on how we finish out the quarter. But we are anticipating the 50 basis points.

Okay. And then, Bruce, you mentioned in your comments about the discount that First Industrial trades at relative to peers. I guess at a very high level, how do you feel as the CEO of the Company who closed that gap between you and peers? Given the large industrial portfolios that we've seen out there for sale, the obvious question is, is First Industrial -- would the sale of the Company be a quick way to close that gap?

Well, here, I think we've embarked on a strategy of upgrading the portfolio and growing cash flow. We've outlined it last time at our Investor Day in 2013. We think there's a great opportunity to grow our cash flow. We think there's a great opportunity to continue to upgrade our portfolio, and if we do that, at some point the light bulb goes off and people say, you know what, this portfolio is pretty good and shouldn't trade at a discount to some of our brethren.

And we are closing that gap, but we've got work to do. And we are going to continue to do it. Again, our focus has been more on development than buying existing assets, because we think -- again, it does two things for us. We think we get a better risk-adjusted return and we think that it improves the quality of the portfolio. So we are going to continue to do that, and we are going to continue to focus on execution.

If we're right, that gap will continue to narrow. If the gap is big then someone else may come in and close that gap for us. But our view is industrial -- we've got a great platform. Our view is that the markets are very good, and if we can continue to execute on what we've put in place, we are very confident we can -- the stock will continue to do well relative to our brethren. But there's work to be done on our part and we know we have to do it.

Got it. Thank you. Appreciate it.

Eric Frankel, Green Street Advisors.

Thank you. Can you go into a little bit more detail on the Atlanta transaction? It appears that the land site is in that kind of ADESA location, so I'd like to understand if there is going to be -- how much of a rent reduction ADESA is going to achieve for giving up some land as part of that deal?

Great. Eric, good question. We'll go through it, but make sure you've got the correction on the occupancy for the sales.

I did. Thank you.

Jojo, do you want to talk about this?

Yes. So basically we acquired an adjacent site, and what we will do with that is that there is some unused portion of the current ADESA site, we will reconfigure that. We will take that back and basically move some of their operations to a further portion of the site that is not affecting this 923,000 square foot built-to-suit. So, at the end of the day, when we are all done it is going to be an efficiently used site.

But we reduce ADESA (multiple speakers) some of their land.

Yes. That's right.

Okay. Is there a good way to understand the economics behind the rent reduction and how that translates to the land basis?

Sure. So, if you look at our supplemental we can build 923,000 square feet, but we bought 24 acres of usable site. So what you do is the way we value the remaining area of the site, which we corresponded with the reduction in rent, is almost exactly the same as how much we bought the adjacent site. We acquired the adjacent site at roughly about $1.87 a square foot. We kind of applied the same valuation factor for the rest of the ADESA site through a rent reduction.

(multiple speakers) Sorry, Bruce, what was that?

We'll give you more color when we see you next.

That sounds good. And you are just marking the site for a built to suit, not spec development?

Yes.

Okay. A final question for you, Bruce -- obviously at Starwood there's been some big news that's happened in the last couple of weeks. I'd just like to understand, as chairman of that company, how you are managing your time effectively between your role here and your role there.

Eric, I promise you I am all over First Industrial. This is the First Industrial call. I'm all over it. You can talk to the team here. We've got management in place at Starwood that are doing fine.

Okay. Obviously the CEO got let go, so you obviously have a little bit more work to do publicly in the last quarter or so, so I'd just like to understand that a little bit more clearly.

I don't know what to say.

Well, I'm just wondering how much time that role is taking relative to what you are doing at First Industrial.

Well, it takes time and that. But 24/7 we do whatever it takes to make sure we don't miss a beat here at First Industrial. So I promise you this is my number one job, this is my focus and we are working on it. There's more -- there is a lot of time in the day.

Okay. I appreciate the color. Thanks.

And there are no further questions at this time. I would like to in hand the conference back to Mr. Bruce Duncan for closing remarks.

Well, we appreciate your interest. If you have any questions please call and talk to Art or Scott or myself, and we look forward to seeing lots of you down at the fun in the sun at the Citi conference next week or so. Thanks a lot.

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