First Industrial Realty Trust Inc (FR) 2016 Q3 法說會逐字稿

Good morning. My name is Nicole and I will be your conference operator today. At this time, I would like to welcome everyone to the First Industrial third-quarter results call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions)

I would now like to hand the conference over to Mr. Art Harmon, Vice President of Investor Relations. Please go ahead, Sir.

Thanks, Nicole. Hello, everyone, and welcome to our call. Before we discuss our third-quarter 2016 results, let me remind everyone that our call may include forward-looking statements as defined by federal securities laws. These statements are based on management's expectations, plans, and estimates of our prospects.

Today's statements may be time-sensitive and accurate only as of today's date, Friday, October 28, 2016. 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 in our earnings release. The supplemental report, earnings release, and our SEC filings, are available at firstindustrial.com under the Investors tab.

Our call will begin with remarks by Bruce Duncan, our Chairman and CEO; our President, Peter Baccile; and 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; 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. And thanks to everyone for joining us today. As Art noted, we have members of our management team assembled today for this call, including one new addition -- Peter Baccile. Peter, welcome.

As you know, Peter will be taking over the reins as CEO on December 1, and we are very pleased to have him onboard. And I will ask him to offer a few comments before we get into the business of the quarter and the state of the industrial real estate market.

Thanks so much, Bruce. I'm honored and humbled to be chosen to lead First Industrial and build upon the accomplishments and track record that Bruce and the team have achieved. Bruce will leave some big shoes to fill, but he's also assembled a talented team of hard-working and dedicated people.

He has orchestrated a significant enhancement to the assets of this Company since he took the helm in 2009. And he and the team have worked diligently to reestablish a strong balance sheet and investment-grade credit rating. I look forward to working with the team to continue to grow our presence in our target markets, further enhance the portfolio, and maintain a balance sheet and credit profile that will outperform through the cycle.

Since I joined the Company on September 29, I've spent the vast majority of my time on the road, seeing our assets, and meeting with and getting to know our people. I'm about halfway through my scheduled travel, and in every market, I've been impressed with the First Industrial team. I thank them for such a warm welcome to the Company, and all their insightful observations about our assets and the opportunities ahead.

I've had the pleasure and the benefit of working with First Industrial for many years as a banking partner and advisor. Having now had the opportunity to see the Company from the inside, I'm even more enthusiastic about our prospects and, again, humbled to have this opportunity to lead such a first-class organization.

Thanks, Bruce.

Thanks, Peter. And as Chairman and as shareholder, I very much look forward to your stewardship. Now, back to business. We had a solid third quarter. Our metrics are flat, our team's strong performance and the continuing favorable fundamentals within our sector. Cash rental rate growth for the quarter was robust at 11%, and cash rents have now been up 11 consecutive quarters.

GAAP rents were up 20.4%, which marked the 19th positive quarter in a row. Cash same-store NOI growth before lease termination fees was 3.5%, and occupancy was 95.4%, which was a dip from last quarter. Scott will walk you through the details in a bit.

The industrial market continues to see broad-based demand across industries and markets, while supply remains measured. Through the third quarter, CBRE Econometric Advisors is reporting net absorption of 203 million square feet against completions of 132 million square feet. Against this favorable backdrop, our team is focused on pushing rents and driving cash flow.

Given this opportunity, our track record, and the opportunities we continue to see in the marketplace to create value through development, we started three new projects in the third quarter that we touched on in our second-quarter call. At First Park 94 in Chicago, we started our second building, a 602,000 square footer that is expandable to 700,000 square feet. This follows the successful lease-up of our initial 601,000 square footer at this multi-building park.

Estimated investment is $29.9 million, with a targeted GAAP yield of 8%. As a reminder, we define GAAP yield as first year's cash NOI divided by the GAAP basis at the property at completion.

In Phoenix, we started a 618,000 square-foot facility at First Park at PV303, with an expected investment of $32.8 million and an estimated GAAP yield of 7.7%. We are also adding to our portfolio in Southern California -- our largest market -- with the start of the First Sycamore 215 Logistics Center in Riverside. This 243,000 square foot distribution center has an estimated investment of $17.8 million and an estimated GAAP yield of 6%.

At the end of the third quarter, we had six projects under construction, totaling 2.5 million square feet, with a total estimated investment of $157.8 million. They are currently 19% leased with a weighted average estimated GAAP yield of 7.2%.

We also had two projects completed but not placed in service -- First Park Tolleson in Phoenix and First Arlington Commerce Center II in Dallas. These two 620,000 square feet were 50% leased at quarter-end. They have a combined estimated investment of $35.9 million with an estimated GAAP yield of 7.7%.

Here in the fourth quarter, we recently signed a full building lease for 234,000 square feet at First Arlington II. So today, with First Park Tolleson at 81% leased, we have just 74,000 square feet available at these completed developments. I refer you to page 20 of our supplemental for details on our developments.

Up next in our pipeline is the Ranch by First Industrial, which we plan to start by the first quarter of 2017. Recall that this $86.5 million six-building 936,000 square foot park is located in the Chino Eastvale market of the Inland Empire. We love this submarket of Southern California, due to strong demand and a vacancy rate of just 1% at the end of the third quarter.

Moving to acquisitions, the heavy competition for quality assets continues. However, we were successful in acquiring two buildings in the third quarter and another in the fourth quarter to date. As discussed last time, we acquired a 99,000 square-foot building in San Diego that is 100% leased for $11.9 million. Our initial GAAP yield is 6.1%.

We also acquired a recently-completed 121,000 square foot vacant development in the I-55 submarket of Chicago for $9 million. Our team's job there is to add value through lease-up and our expected GAAP yield is 6.5%.

In the fourth quarter to date, we acquired a 63,000 square-foot building in the Doral submarket of Miami in close proximity to the Miami International Airport. We like this asset due to its infill location in a very tight market. We paid $8.4 million for this building and our GAAP yield is 7.4%.

We also added a development site in Dallas during the third quarter for $3 million. This site can accommodate a 420,000 square foot single or multitenant building.

On the disposition side of our portfolio management efforts, we had a very active quarter. We sold 19 buildings totaling 653,000 square feet for $38.5 million. These had a weighted average in place cap rate of 6.3% and a stabilized cap rate of 7.5%. This brings our year-to-date sales total to $139 million, on our way to our $150 million to $200 million goal for the year.

So, we are working hard toward a strong finish to 2016 as we continue our focus on capturing opportunities to drive long-term cash flow.

With that, let me turn it over to Scott to walk you through some more details on the quarter and our guidance. Scott?

Thanks, Bruce. Let me start with the overall results for the quarter. EPS for the quarter was $0.27 versus $0.13 one year ago. Funds from operations were $0.37 per fully diluted share compared to $0.35 per share in 3Q 2015. Funds from operations before one-time items, namely our acquisition costs in 3Q 2016 and 2015, as well as our gain on sale of non-depreciable real estate in 3Q 2015, were unchanged.

As Bruce noted, we finished the quarter with occupancy at 95.4%, down 40 basis points from the second quarter and down 10 basis points year-over-year. Sales helped occupancy by 15 basis points since June 30.

Regarding leasing volume in the third quarter, we commenced approximately 3 million square feet of long-term leases. Of these, 638,000 square feet were new; 1.4 million square feet were renewals; and 934,000 square feet were developments and not-in-service acquisitions. Tenant retention by square footage was 63.4%.

Same-store NOI growth on a cash basis, excluding termination fees, was 3.5%, primarily reflected in-place rental rate bumps, rental rate growth on leasing, and a decrease in free rent. This was partly offset by lower average occupancy. Lease termination fees totaled $11,000 in the quarter and cash same-store NOI growth, including termination fees, was 3.4%.

For the quarter, cash rental rates were up 11% overall, with renewals coming in at 8% and new leasing at 17.3%. On a GAAP basis, overall rental rates were up 20.4%, with renewals increasing 17.4% and new leasing up 26.6%.

Moving on to our balance sheet metrics. At the end of 3Q, our net debt plus preferred stock to EBITDA is 5.5 times, adjusting EBITDA by normalizing G&A, and excluding acquisition costs, and adjusting debt by adding back loan fees. This is below the low end of our target range of 6 to 7 times.

At September 30, the weighted average maturity of our unsecured notes, term loans and secured financings is 4.2 years, with a weighted average interest rate of 5%. These figures exclude our credit facility. Our credit line balance today is $204 million and our cash position is approximately $13 million.

Now, reviewing our 2016 guidance per our press release last evening. Our NAREIT FFO guidance is now $1.42 to $1.46 per share. Excluding acquisition costs associated with our investment activity, our FFO guidance is $1.43 to $1.47 per share, which is a reduction of a penny compared to the midpoint of guidance we discussed in our second-quarter call, and a tightening of the range.

The reduction in the midpoint of the guidance is primarily related to an increase to our projected performance-based incentive compensation costs, as well as incremental compensation related to our CEO hire. The key assumptions for guidance are as follows. Average in-service occupancy of 95.25% to 95.75% based on quarter-end results, reflecting a narrowing of the range.

Cash same-store NOI growth for the fourth quarter of 2.5% to 4%.

This implies a quarterly average same-store NOI range for the full-year 2016 of approximately 5.5% to 5.9%. This represents a midpoint of 5.7% compared to the midpoint of 5% in our second-quarter results release.

Our G&A guidance range is now $26.5 million to $27.5 million, an increase of $1.5 million at the midpoint related to the projected incentive compensation and incremental CEO compensation that I just discussed. As a reminder, our prior G&A guidance did not reflect the impact related to the compensation of our new CEO.

Note that guidance includes the costs related to our developments under construction at September 30.

In total, for the full-year 2016, we expect to capitalize about $0.03 per share of interest related to our development projects. Guidance also includes the impact from the acquisition we made in the fourth quarter to date. Our guidance does not reflect the impact of any future sales nor any acquisitions or developments other than those we discussed, nor the impact of any future debt issuances, debt repurchases or repayments. Guidance also excludes 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. The industrial marketplace continues to be strong, enjoying broad-based demand helped by the secular tailwind of eCommerce. We will continue to capture the opportunity to serve this tenant demand throughout our portfolio, and through targeted new developments and acquisitions.

Since this will be my last earnings call, I'd like to take a few moments to publicly thank my teammates around the country. Together, we have accomplished many great things. And I know there are many more to come, because as I always say, there is work to be done, and we have a team here at FR that gets it done.

I didn't join First Industrial expecting to be doing this nearly eight years later, but it has truly been a great ride and great fun working together with all of you. And I'm excited about what lies ahead for our Company. You are in very capable hands with Peter and the leadership team.

I'd also like to thank our customers for the opportunities to serve your supply chain needs. We will continue to strive to provide you industry-leading service and the right properties to support your business objectives. Thanks also to all of our financial and business partners for your past and continuing support. We appreciate it very much.

And I also thank all of you analysts on the sell-side who have followed our transformation over the years. While we may not have always seen eye to eye on every matter, as I've often said, great minds can differ. I have greatly appreciated your efforts to get to know our business and our team. Although I must admit that I might not miss the Q&A session of the calls during my retirement, but I know Peter and the team embrace it.

Lastly, I would like to thank our shareholders for your confidence and your investment in us. We will keep working hard for you to drive cash flow and shareholder value.

Thank you. And now we will 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 the other participants a chance to get their questions answered. You are, of course, welcome to get back into the queue.

Nicole, may we open it up for questions?

Certainly. (Operator Instructions) Craig Mailman, KeyBanc Capital Markets.

Just want to first start congratulate you, Bruce -- well-deserved retirement here. You've done a great job over your tenure. And it's not often that you hear a thanks to the sell-side, so much appreciated.

You're welcome and I appreciate all your work and your help. Thank you.

Just -- you know, first starting out on Phoenix, you guys have a little bit more work to do in Tolleson, and you guys started a new development. One of your peers seems to be seeing a little bit of softness in demand in this market. Just curious if you guys are seeing anything similar to that?

Sure. Let me ask Jojo to answer that.

Yes. Hi. Basically, in Phoenix, net absorption continues. You know our vacancy that you referred to, we actually created a vacancy -- one of the major influence of the current 88% occupancy was a vacancy we created as we grew a tenant from 79,000 square feet to 170,000 square feet. But nevertheless -- and so that really got us out of the chute on First Park Tolleson at 81% pre-leased.

But there's still a job to do for us to do in terms of leasing that space that was vacated, that functional space. We like that space. You know it's competitive in the marketplace. And we have another space -- a 74,000 square feet at First Park Tolleson that remains to be leased.

Overall, we continue to get good prospect activity for those -- both of those spaces, Craig, but our job is to get that done. And we'll let you know as soon as we get those leased.

In terms of the 618,000 square feet, at First PV303 that you mentioned, we are very excited about that project. Once we are done with that, we would be the highest-quality building in that size range because of a number of things -- clear height, loading, freeway frontage. That's right -- just less than a mile from the junction of I-10 and 303, the new Beltway, and it's right between two interchanges, which is Camelback Road and Indian School Road.

And we are very excited about that project. And there are already some bigger tenants in the marketplace looking for a space. So that would be done next year and we'll report back to you when we get it leased.

That's helpful. If you compare to 6 to 12 months ago, you're not seeing any kind of changing demand dynamics in the market?

Craig, no. No, we have not seen it -- in fact, if you look at the last nine months, I would say most of the large boxes have been consumed or tenanted.

All right, great. Thank you.

Thank you.

John Guinee, Stifel.

Peter, welcome aboard. Big shoes to fill. Tell us a little bit about yourself, what your background is, where you are going to be living, all that sort of thing.

Sure. I'm going to be -- I have an apartment here in Chicago. And so I'll be living here for the most part. Look, I've been a banker obviously for 30 years. I started out at Morgan and spent 26 years there, and had the opportunity over my career to work in this industry from the days when the market cap in REITland was about $5 billion. So obviously a lot has happened between then and now.

I've been involved in a lot of the consolidation that's happened in this space over the years, as well as the creation of new markets, like the CMBS market as well as getting -- bringing what I would call corporate finance to real estate companies, getting investment-grade ratings, et cetera. So, I've had a lot of opportunity as well to work with a lot of the leaders of our businesses before they were leaders of our businesses in this industry.

So, I've had management opportunities over the years. For the last 15 years or so, I've had the good fortune to be a global head of a couple of different businesses. And so, I'm looking forward to this challenge. We have a great team here. It's a super opportunity for me and the future looks bright. Thanks.

Great, thank you.

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

Hey, Bruce, congratulations. Peter, welcome. And Bruce, we'll leave value to the historians, but I think you -- (laughter)

I like that. Value to the historians. Now you're not being rude.

We were ready for that question, though.

I don't even know what you prepared as an answer, but I'll leave it at that. (laughter)

You don't want to know.

You know, I did -- I don't know if this one to go to Jojo or, Bruce, to you -- you clearly saw a little bit of retention decline here in the most recent quarter, occupancy decline. So kind of wanted to know the strategy that you pushed. Because clearly we've seen a lot of rent growth. The spreads were extremely healthy.

So I guess is that the strategy to continue to push rents? Or have you kind of hit the point where it's time to maybe moderate the pushing of rents to kind of maintain the occupancy level? Just thoughts around that, please.

Our thoughts is, number one, we'd like to have both. We'd like to have both great rental rate growth and increased occupancy. So, again, we are pushing rents. We had a dip in the quarter. I would say as we see -- look around the country, we feel very bullish about supply demand; we feel very bullish about the opportunity to continue to push rates as well as increase occupancy. So this is a temporary dip, and hopefully will continue to show some growth.

Peter, do you just want to comment on a couple of the vacancies?

Sure, Dave. The major part of the decline in retention really happened in Central Pennsylvania where we had a handful of tenants move out, the largest of which is 178,000 square feet. But as Bruce said, in this environment, we continue to feel good about overall demand and continue to focus on pushing both rent and occupancy.

Great. That's helpful. And then maybe follow-up to that on the development side of the equation. And Jojo, I think I calculated something like $235 million of capital at risk if you start the Ranch, but maybe you can correct me if I'm not right. Also maybe provide the updated denominator to that overall.

And then I guess just more broadly with the development, you have a number of vacancies in there. What size tenant are you seeing activity on in the development pipeline? And what are you really going after with the buildings that you are building today?

Oh, sure, sure. Okay. In terms of the $325 million internal revolving cap that we've set, we have $68.4 million in capacity. Okay? So I just want to make sure everybody understands, that includes the most recent lease that we did in Dallas, First Arlington Commerce Center. But that also includes the acquisition of the vacant property in Chicago, the 121,000 square feet in the large submarket of the I-55 Corridor in Chicago. And that includes the to-be-built Ranch.

To your next question of what we're trying to build, as you can see, we are building what we feel really fits the market and where we think the fundamentals are greatest. So case in point, example, Dallas -- we have built a multitenant product right in the middle of Great Southwest, wherein the mid-sized tenant is clearly underserved. And so now we are very pleased to be able to announce that we have a full building lease for that 234,000 square feet.

In addition, so another example, so we've targeted, for example, in the Inland Empire East that the midsized tenants are underserved as well. As you know, we built 187,000 square feet. First San Michelle, we got that leased at completion. And so now we are basically building a 242,000 square feet a little bit north of that.

But overall, all our buildings are very functional in the sense that it gets good clear, good access. That's a minimum. Good loading and good storage, trailer storage, and parking. So again, it really fits a multitude of tenants. Because the demand from industrial real estate right now is broad-based. Not only eCommerce. It comes from auto. It comes from food. It comes from 3PLs. And of course the migration of retailers to omnichannel to be included in there too.

I hope that answers your question.

It does. Thanks, guys.

Eric Frankel, Green Street Advisors.

First, Bruce, congratulations on a -- obviously, a phenomenal tenure at First Industrial. I can only hope to retire twice like you, though. (laughter) So -- and Peter, welcome aboard and look forward to getting to know you better.

My primary questions are, one, I think you obviously outlaid how solid demand has been this year relative to supply. We have seen some pipelines pick up in a few couple different markets, and I was hoping someone can comment on that, specifically some of the larger markets with no larger populations such as Chicago and Atlanta.

Sure. Jojo, do you want to take that?

Sure. Sure. Eric - yes, there is a supply pickup, but at the same time, again, the demand continues to significantly exceed the supply. So for example, CBRE-EA just for Atlanta, you are looking at year-to-date 16 million square feet of -- 16 million square feet year-to-date of net absorption. That of course doesn't include the last quarter.

If you look at 2015, that already exceeded 2015. In 2015, Atlanta had about 14.8 million square feet of net absorption. Chicago, year-to-date, 16 million square feet -- year-to-date. And last year, Chicago brought in 18 million square feet. So it's on track again to exceed the last year's net absorption.

Finally, you mentioned maybe Dallas. Dallas, year-to-date absorption 20.7 million square feet. Last year's net absorption was 23.4 million square feet. So it's on track to match or exceed last year's absorption.

So, anyway, what I wanted to paint to you is a picture wherein this year has been a good year and may exceed last year. Supply has picked up but demand continues to outstrip supply.

Is there any concern that this is some sort of one-time surge related to demand and where there's developers that are building, that they are trying to forecast something that may not be there, though? I mean I'd just like to maybe understand better if there is a solid list of prospects that are kind of known that can fill up that space, and then have a better understanding of how that might impact market rent growth fundamentals.

Sure, Eric. Overall, again, the product that's being built, again overall and across markets is being leased, again, they are basically, primarily, you have to focus on some product. Some product may be at equilibrium, but most products, especially the mid to midsized tenants is still underserved.

Eric, it's -- I'm sorry, Jojo -- Eric, it's Peter. I would just add to what Jojo said. The best news is that demand continues to be very good and broad-based across a number of different industries and size ranges. And everybody talks about eCommerce, but it's not just eCommerce.

As we said, we are seeing a lot of activity from the third-party logistics providers, the parcel carriers, auto, food and beverage, a number of different verticals. And there's certainly more supply but there's also been some discipline about the supply. And if you look at most of the markets, as Jojo said, demand continues to exceed supply. We are seeing record absorption in just about every market.

But overall, I think that there are always a lot of tenants in the market. You know we discount some of that. You never know if it's duplicative. But I think the best thing is that most of the activity that we are seeing continues to be growth and additive. It's not just moving from a lateral move from one building to another. Almost all the deals we are seeing today, particularly in our development pipeline, are real growth.

And Eric, just when you look at things, we have -- we underwrite like a year's downtime. And if you look at what we've been able to accomplish, we've been able to lease these up quicker than that. And we continue to be very encouraged by the demand, the strength of the demand in the marketplace across all regions basically.

Very helpful color. I appreciate that. Just one quick follow-up. Looking at your development summary on First Park 94 in Wisconsin, congrats on getting the first building leased. I did notice that the first -- the second building seems comparable in size and presumably functionality to the first, yet the construction cost on a per-square-foot basis is roughly 8% higher. Can you comment on construction cost trends or whether there is some other costs thrown into the second building that was different than the first?

Sure. Yes. Just overall, it's the cost of the added infrastructure we added to the site, and an inflationary increase in basically building materials and labor.

Could you provide a rough breakout what that inflationary pressure is?

Yes, it's about 4%.

4%? Okay.

And that's on the additional infrastructure, because you know again our basis on that site is very low, and as a first class facility, as you know. And so we just added a little bit on the infrastructure.

But we like the size and we are seeing good activity there. So we are encouraged. But again, as we always say, it's on us to get this up, built on-time, on-budget and get it leased.

Absolutely. No, that's obviously, it's -- that project seems like it's on a good path. So, thanks. We'll jump back in the queue.

Thanks, Eric.

(Operator Instructions) Ki Bin Kim, SunTrust.

Bruce, congratulations and it's been an amazing ride with FR. And Peter, welcome. So just a couple quick questions. If I look at your guidance and what it implies about the fourth quarter, it's not much of a material change from where you ended the third quarter. If I typically look at a lot of the industrials, it's small seasonality, the fourth quarter is a little bit better.

So just curious, what are you seeing for the couple of vacancies that you have? And is the fourth quarter this year going to be a little bit different than what we've seen in the past?

Well, I mean, in terms of vacancies in terms of coming up, we don't -- in terms of -- we've got the stuff in Central PA, which we are doing some backfilling and --

Yes, Ki Bin, and the others -- no large vacancies that we see coming up in the fourth quarter. It's just we've got work to do to backfill some of these vacancies. And on the retention Peter had mentioned earlier, we had 250,000 square feet of move-outs in Central PA, so we are from that standpoint, but no large vacancies coming up in the fourth quarter.

And Ki Bin, when you look at our guidance for -- if you figured out with the fourth quarter with the guidance we had for 2016, it's midpoints plus or minus 96%. So it's -- there's showihg a little bit of growth there compared to where we ended in the third quarter.

Okay. So -- and how is the -- I know it's probably pretty early, but how does the prospect list look like for some of your bigger vacancies?

Ki Bin, it's Peter. I would say our larger vacancies around the country continue to be in Minneapolis as we've talked about on some prior calls in the northwest quadrant where demand there has been a little bit weaker than supply. We did do some seasonal leasing with the post office in that building which contributed to a pickup in occupancy in the third and will be in place for the fourth quarter as well.

We have our acquisition that we did last year in the I-95 North Corridor north of Baltimore that's 348,000 square feet. That will be in service in the fourth quarter and is in our numbers, so that's a building that we have nothing to report on today. But good activity in that submarket where there's been some absorption, both in a larger building and a smaller building. And we have some work to do there, as we acknowledge.

And then the comments I made about Pennsylvania and the third quarter move-outs, the largest space was 178,000 feet. And we'll certainly keep everybody posted on our next call on our progress there.

Okay, and then just last quick one here. The new development project in Phoenix, the 600,000 square feet property, from what I understand, and I might be wrong here, is that maybe this is -- Phoenix is not the big-box healthy market that perhaps it once used to be. Maybe some of the early occupiers of bigger space had more of a tax incentive to be there versus California, and maybe that demand profile changes going forward. So just curious, what was the investment rationale for building a big-box space in Phoenix?

Sure. Ki Bin, this is Jojo. If you look at the last nine months, there has been quite a bit of good absorption in the large box activity in Phoenix. And what I define as large box -- 300,000 square feet to 600,000 square feet. In fact, if you go -- if you are a user of over 400,000 square feet today and wanted to do a -- wanted to find a Class A building, you are virtually kind of out of choices.

Now this building that we've designed, we've provided the ability to -- in addition to being the highest quality 600,000 square feet to 625,000 square feet when it's done -- we have the ability to actually demise it to four spaces. Because we have provided four points of access. We can actually provide even secured truck course at each of every tenant. It is a very, very functional building and hopefully we'll get a -- you'll get a chance to see it.

And so we are very excited we're going to be able to offer this building to multiple tenants or a single tenant. But again our job is to get it leased and now we're making a bet that we think it's a high-quality location and -- but our job is to get it leased, Ki Bin.

Yes, Ki Bin, we are very excited about that. Location is great and Jojo's point about the functionality of the building, we think it is going to be a great building. But it's all on us to get it leased and be pro forma, and we are all over it. So we'll report back.

Okay, see you guys soon.

Thank you.

Eric Frankel, Green Street Advisors.

This is Vince Tibone. Could you discuss your refinancing plans for the roughly $150 million of unsecured notes that are maturing in 2017? And can you also touch on how you think about public versus private debt and the length of term that would be best at this time?

Vince, it's Scott. We've got just a summary we've got about $157 million of bonds coming due in 2017. It's higher cost debt, the weighted average interest rate is about 6.5%. So we've got nothing baked into our guidance or capital plan for 2016.

What we're thinking more of now is probably an early 2017 execution. Having said that, we constantly look at the financing markets, and if we see a pocket in 2016 we want to go, we will. We're looking at a couple of different markets. We're looking at the public bond market. We are looking at the private placement market. We are looking at the bank market.

The benefits of the public bond market are going to be size. You can do a really big deal in that market. I would say the benefits of the private placement market are you can do a smaller sized deal. You can do sub-$250 million and not take a hit on rate. You can do a delayed draw on that market as well.

The bank market is a good market as well. I would say the downside on that is you are not going to get the same tenor that you are going to get in the bond market or the private placement market. And you're not going to be able to get a 10-year deal in the bank market. So, we're looking at all three markets at this point in time and we've got a lot of choices, which is a good thing to have.

But our bias will probably be a longer-term.

Great, thank you. That's all I have.

John Guinee, Stifel.

It's Erin Aslakson. Bruce, congratulations as well from me. Quick question on the continuation of the asset sales. You guys have done a good job of continuing to sell out or reposition your capital out of older assets into new. Do you, I would assume, plan to continue that effort into 2017 and perhaps increase it?

Well, you know, asset management is an ongoing process, and I'm sure the team is going to have a lot to report on when they give guidance in terms of in -- on the fourth quarter call in February.

Okay, thank you.

Thank you.

And we are showing no further audio questions. At this time, I would like to hand the conference back to Mr. Bruce Duncan.

Great. Well, thank you very much. We appreciate it. And we look forward to seeing many of you out at NAREIT in Phoenix. And go, Cubs. We need to bring it home. Thank you very much.

Thanks, everybody.

This does conclude today's conference call. We thank you for your participation and ask that you please disconnect your lines.