Prologis Inc (PLD) 2003 Q2 法說會逐字稿

Good day ladies and gentlemen, and welcome to the Catellus Development Corporation 2003 Q2 earnings call. (Caller instructions). I would now like to turn the program over to your host for today’s conference, Ms. Minnie Wright with Catellus Development. Please proceed.

Good morning everyone. Thank you for standing by for the Catellus Second Quarter 2003 Earnings Conference Call. With us today are Nelson Rising, Chairman and CEO, and Bill Hosler, Senior Vice-President and CFO. Both Nelson and Bill will be making a few comments regarding the highlights of our earnings release this morning. We will then open the phone lines for questions.

Before we continue, I would like to state that this conference call will contain projections and other forward-looking statements regarding future events and the future financial performance of the company. We refer you to the documents the company files from time to time with the SEC, including our Form 10-K for the year-ended December 31, 2002, our Form 10-Q for the first quarter of 2003, and the Registration Statement on Form S-4 of Catellus Sub-Co, Inc., which was filed with the SEC on May 2, 2003, and as amended by amendments number one and two filed on June 17 and July 28 of this year.

These documents identify important factors that could cause actual results to differ materially from those contained in the company’s projections or forward-looking statements. The broadcast of this call is the property of Catellus Development Corporation. Any redistribution, retransmission, or rebroadcast of this call, in any form, without the express written consent of Catellus, is strictly prohibited.

Thank you. And with that said, it gives me great pleasure to turn the call over to Catellus Chairman and CEO, Nelson Rising.

Good morning. I’ll spend a few minutes summarizing the results for the first quarter. And then Bill Hosler will make some additional comments, give an update on the REIT conversion process, and then we will take questions.

We are extremely pleased with our results for the second quarter. At quarter end our occupancy rate was 94.4%, compared to 93.9% at the end of the second quarter in 2002. Net operating income from the rental portfolio – and that would include equity earnings of operating joint ventures – increased 13% for the quarter.

We added 736,000 square feet to the rental portfolio, a 97,000 square foot building in Portland, Oregon, and a 468,000 square foot building in Rancho Cucamonga, California. Both of these buildings were built on a speculative basis, and are now 100% leased. We also had a built to suit of 171,000 square feet in Denver, Colorado. This represents a total investment for the quarter of $263m, with a projected return on cost of 10.8%.

Our construction activity for the quarter was also robust, with starts totaling 1.4 million square feet, of which 1.3 million square feet will be added to the rental portfolio. These include a 450,000 square foot build-to-suit distribution warehouse for Kellogg, U.S.A. at the Kaiser Commerce Center in the Inland Empire, California; a 250,000 square foot build-to-suit distribution warehouse for Ford Motor Company in Winchester, Virginia; and a 617,000 square foot speculative building at Kaiser Commerce Center, adjacent to the building we are evolving for Kellogg.

We are very pleased with the repeat business with both Kellogg and Ford Motor Company. And our 617,000 square foot speculative building is in one of the country’s best markets, where we have 6.8 million square feet of existing space that is 100% occupied. So we feel that that’s a very good move, to add space to our portfolio for rental – to our rental opportunities.

We have total construction in progress as of the end of the second quarter of 4 million square feet; 3.2 million square feet of this will be added to our portfolio. The projected total development costs of this 3.3 million square feet that is under construction is going to be approximately $110m. These buildings are 77% pre-leased. And when fully leased are projected to yield a return on cost of approximately 10%.

Subsequent to the second quarter end, and part of our stated goal to develop and operate in all of the country’s largest distribution markets, Catellus expanded into Northern New Jersey, with the acquisition of a 24-acre land parcel, which is off exit 12.

As stated in our press release, year to date sales activity has been down compared to the same period in 2002. But we anticipate that sales activity for the full 2003 will be in line with previous forecasts. And we confirm our guidance of 10% growth in earnings per share for 2003, as adjusted for REIT conversion items. With respect to our supplemental measure, modified FFO, we posted an 21.1% increase over the same period in 2002. And with that, I’ll turn it over to Bill.

Thanks Nelson. Good morning everyone. I’m sure many of you noticed that our income statement format changed this quarter. It will be this new format going forward. In the past we provided subtotal operating income for the rental portfolio and for the development operations. After some discussion with the SEC staff as a result of the review of our S4, we’ve reformatted our income statement to more fully comply with Rule 503 of Regulation SX.

Certain items are merely moved around. But no bottom line numbers are changed. It’s just a geography issue on the income statement. The primary difference is that revenues are now subtotaled separate from expenses, allowing everybody to quickly determine our total revenue, but making it a little more difficult to arrive at NOI from the face of our income statement. We still provide substantially the same supplemental information going forward. And I’d be happy to walk people through any questions or changes after the call, or even at the end of the call.

I also want to point out to everyone the new term modified FFO. It’s important to note this is merely a new term, and not a new method of calculating our FFO. We’re calculating FFO the same way as we’ve been presenting it. We try to make it more clear to everyone that this definition is different from the standard typical REIT, complying with the NAREIT white paper FFO definition.

In our presentation, we reconcile net income first to NAREIT FFO, and then to our modified FFO. We believe the modified FFO is useful, as it removes the effects of our REIT conversion costs, taxes we’re paying this year as a C corporation that we wouldn’t pay had we been a REIT, and the effects of winding down of the residential and urban activities. We exclude all that from NAREIT FFO.

NAREIT, of course, didn’t address such a conversion as ours as part of the white paper FFO definition. And we’ve decided to present both NAREIT FFO as defined by that, as well as our modified FFO. So all of that reconciliation is now in here.

I do want to talk about in the first six months of this year and into July, the company has issued approximately 2.2 million shares of stock, due to stock option exercises of previously granted options. Over half of these have been related to three company executives – myself included, where we’ve converted the in-the-money value of the vested stock options into actual shares of stock, in a way that is meant to be cash neutral to the option holder. In practice, options are exercised, and amount of stock is sold to pay the strike price of the option and the tax generated by the exercise.

I will give you a specific example to me. I purchased 392,000 shares, per my existing option awards, at an average price of just under $15 a share. This generated a taxable event to me of about a little over $7.5 a share, representing about $3m in taxable income, of which I paid tax of about $1.3m. The resulting after tax value is just under $1.7m. It’s held by me in the form of Catellus stock, approximately 74,000 shares. The net result is I bought 392,000 shares, sold 318,000 shares, for my net purchase of 74,000 shares.

Now a lot of the trade papers and reporting organizations are quick to report the sales activity. And these are frequently listed as insider sales. Very few report the purchases of the exercise of options, which has led to a little bit of a distorted picture. All this information is filed on our Form 4’s. And I’ll be happy to walk people through the math in detail at the end of the call or after the call. And again, sorry for any confusion this caused, due to lack of communication, either on our part, or the inadequate reporting on the part of some of the reporting organizations.

There is a benefit, as an aside, to the company to have stock options exercised this year as opposed to future years when we operate as a REIT. Catellus this year is a full taxpayer. So the company benefit from the tax deduction at 100% this year. And that deduction was generated by the stock option exercise.

On the REIT front, we continue to make progress internally and externally. We filed an amendment to our S-4 last week, and hope to be effective in the next couple weeks. At that point we can set the shareholder meeting date – hopefully early October – and proceed with the third quarter dividend and the E&P distribution to occur this year. We hope to receive our Private Letter Ruling some time this month. That’s the anticipated original schedule. Now remember both the S-4 and the Private Letter Ruling timing are clearly heavily dependent on the SEC and the IRS.

I’ll talk just a little bit about the performance in the quarter. The rental portfolio showed same store growth, minus 1.7% Q2 this year versus Q2 last year; minus 2% year to date versus last year. The drop was almost entirely due to the office portfolio, where we fell about 100,000 feet of occupancy, resulting in about 4% of the office portfolio same store occupancy decline.

Sequentially, over first quarter ’03, same store NOI dropped about 2%, again primarily due to the office portfolio. And a lot of this relates to the MCI space we had in San Jose. They, as a result of their bankruptcy, rejected some of their space, and dropped the rent on the rest of it. I think we talked about this on the last call.

On the industrial side, same store was flat compared to last year. The 1.7% increase in revenue was offset by increases in repair and maintenance, and operating costs. At quarter end we were 94.4% occupied overall. We expect to stay in the 93-95% range through this year. We currently have about 2.1 million square feet of vacant space, and another 1.7 million square feet rolling in this last half of 2003. Committed or anticipate leasing about 700,000 feet of the rollovers, and expect to lease about a million feet of the currently vacant space. That will keep us about flat to where we are.

On the development side, we’ve started a little over 1.3 million square feet of new buildings, most of which we plan to keep in the portfolio, bringing our total build-to-suit development pipeline to 3.2 million square feet, with 77% currently occupied. Included in this is the 600,000 foot speculative space in the Inland Empire that Nelson had mentioned.

Yields on new development have been coming under pressure, although we’re still projecting a 10% return on costs for our current pipeline under construction. Low Treasury rates and correspondingly low financing costs at the end of the second quarter were beginning to have a significant impact on competitive development returns.

In terms of guidance, we haven’t changed since the beginning of the year, and still anticipate our modified FFO per share at the high end of our $1.50 to $1.55 range. Although we’ve significantly seeded that run rate in the first half of ’03, several factors leading us to a lower FFO rate in the second half, including interest expense, G&A, slight declines in NOI for the remainder of 2003, due to just a variety of factors.

We’re expecting in the last half of ’03 virtually no activity from our hypothetical taxable REIT subsidiary in terms of contributing FFO. And we’ll have a slightly higher average share count, due to the option exercise I talked about. At this point I’d be happy to open it up for questions.

(Caller instructions). And our first question comes from Greg Whyte with Morgan Stanley. Please proceed.

Hi. This is [Ajhid Kamur]. Have you guys decided on the timing of the dividend? It seems like it will now be in the fourth quarter. And secondly, just by the fact that it will be in the fourth quarter, does that mean that investors or shareholders should expect lower cash, because they’ll be paying those lower taxes on those dividends? And finally, what is the status of the Private Letter Ruling?

Okay. A lot of this hinges on two things. One, we have to become effective with our S-4 with the SEC, which again we hope to do in the next couple weeks. That triggers a timeline of declaring our record date for the annual meeting, and setting the annual meeting date, which realistically is going to be in early October at this point.

Once the annual meeting happens, and presuming the – assuming the shareholders vote for the conversion, and the Board votes to continue, then we would proceed at that point with the announcing the E&P distribution. So you’re right, it will likely be in the fourth quarter.

The other factor clearly is that we – the shareholders will benefit from the new tax law that was enacted, if we put this distribution in 2003. It will generate a lower tax rate this year than it will in coming years, because we’re being taxed as a C corp. The – I don’t remember the other part of your –

So does that imply that the cash component will be lower?

No. The cash component, we haven’t really changed our thought on that. The current anticipation is the $300m distribution. And assuming the Private Letter Ruling comes through, we’re going to limit that distribution to $100m in cash.

As we had previously.

That’s been the way we’ve been thinking. And our thinking continues along that line. With regard to the Private Letter Ruling, we applied, I believe, in February. And I am told these things take six months. We’ve been in discussion with various people at the IRS. And we’re hopeful that it will come out in the next – well, this month, August.

Okay. Thanks.

And our next question comes from David Copp with RBC Capital. Please proceed.

Hi. Good morning guys. Here with Jay Leupp as well. Can you talk a little bit about the New Jersey land purchase, in terms of how that deal came to you, and what the timeline is there, and what you expect to do there?

Well, we have been looking, as you know from prior conference calls and other conversations, at the New Jersey market. And we think it’s a terrific market. Southern California is the largest distribution market in the country. Suburban Chicago is second. And we’re in both of those, and very happily so, and then Northern New Jersey third, Atlanta fourth, and Dallas fifth in terms of overall square footage.

We have been looking to enter that market. And we have acquired the site. It would be able to accommodate a 324,000 square foot building. And it’s just been a lot of time looking. And you know our philosophy is that we like to know a market very well before we enter it.

What are your thoughts on exit markets? You’ve mentioned some of the larger hub markets as obviously where you want to be. What are your thoughts on markets like Kansas, Maryland, Oregon, Kentucky, where you’ve got just a handful of assets?

Well we have two basic philosophies regarding that. One, we will be opportunistic to go with tenants into markets on a build-to-suit basis, if we think the overall market is going to have growth or is a good distribution market. It does not have to be one of the top five for us to do that.

We have looked, when we’re buying land for future development without going with a build-to-suit tenant, more focused on the larger of the markets. But the markets you mentioned we think are very important for distribution.

Okay. And then finally, could you talk a bit about your plans for the speculative development you announced in Kaiser? Obviously you just sold a spec development to CV with a profit margin baked into you guys that’s obviously going to be baked into their asking price as well. Where do you see your, in terms of a marketing position, where do you see your rents falling out there, compared to what they’re going to be asking?

David, I expect them to be comparable. We clearly have an advantage of a slightly lower cost, since we did book a profit on the sale. Those are two properties in a very large market. So we’ll clearly be some competition with each other. But there’s other buildings that are competing there as well. We’re not involved in all in the leasing of that space, or really knowledgeable of where they are in their process.

We – as I mentioned – have almost 7 million square feet in that market. And it’s 100% occupied. I think it’s important for us to be able to – when we have a couple million more square feet, a little more of that, maybe three million more square feet to develop in Kaiser. So it’s important for us to have product in the market.

Also, we’re building it with great cost efficiencies, because it’s adjacent to the building we’re building for Kaiser. So we’re not sure where the market is going to end up on that. We are planning to lease that and hold it in our portfolio. That is our plan. And we are very pleased with our position in the market in general, and the success we’ve had at Kaiser Center in specific, whose proximity to I-10/I-15, and the rail access both to U.P. and [South Bay] [ph]. So I can’t tell you what I think the rents are going to be until that gets – before we’ve got it in the marketplace. But we’re very optimistic.

Great. Thank you.

And our next question comes from Don Fandetti with Wachovia Securities. Please proceed.

Good afternoon. Nelson, can you provide an update on the progress with the Victorville project?

I don’t think there’s –

Bill’s going to answer that, because he is a little more up to speed than I am.

Yeah. I don’t think there is much of an update there. That’s a position where we essentially have a kind of the option to be the developer for the land owner. And it’s being marketed as a build-to-suit site. We don’t anticipate doing an speculative development out there in the near term. So as of right now, we haven’t landed any build-to-suit tenants out there.

And it’s all part of our goods distribution strategy in the Southern California marketplace, that is further out than our location. We have locations very close in, in the City of Industry, City of Commerce. Then we have the sites in the Inland Empire.

And Victorville, of course, is further out on the Eastern perimeter. And we have properties we’re looking at on a joint venture basis on the Northern perimeter, towards San Joaquin Valley. It’s just because basically our philosophy is to try to be able to deal with tenants who have all kinds of needs, that service that greater marketplace.

Thank you.

And our next question comes from David Harris with Lehman Brothers. Please proceed.

Yeah. Good morning. Bill, sorry to get you to repeat this. But did you reaffirm your guidance of $1.54 for the full year?

Yeah. I think what we had said at the beginning of the year was $1.50 to $1.55. I think in the last call we talked about a point estimate on the Web site of $1.54. And our guidance really doesn’t change from that.

Okay. So it’s $1.50 to $1.55.

Yeah. And the higher end of that range is more likely. And I think last time we gave a point estimate at $1.54, just to give a single number.

Okay. If I could just press you a little bit more on your Northern New Jersey project. Are you – could you just address how you’re dealing with this from a personnel perspective?

We have a team in Colorado, which has really been central to our overall Western operations, that deal generally in land development.

And then we – our – we have a Chicago operation, as you know, with a great deal of development there. And so we have the centralized overall development, under the commercial group, under the direction of Ted Antenucci. And then he has centralized people, as Bill pointed out, that are based in Colorado. And then we have organizations in suburban Chicago. So for this initial site, and in fact for the acquisition, that was handled out of Chicago’s office, with the oversight of Denver and Ted.

So right now we are flying people in and out to do the initial searching, the due diligence. If the market becomes a larger market for us, and we make more acquisitions, we’ll eventually have to make personnel moves.

And we’ll do the same thing in Northern New Jersey that we’ve done in Chicago and Dallas, Southern California and Denver. And that is to have a presence that is justified by the level of activity.

Okay. If I could just perhaps press you on the cap ex issues. Is the Q2 number that you’ve given this nice disclosure on, is that a fair run rate? Or was there a bit of a blip there in terms of perhaps bunching of leasing activity?

You’re talking about basically the second generation type?

Yeah, the full disclosure that you gave, both in terms of buildings, as well as TI and leasing commissions. And straight lining sort of seems to be on a rising trend.

Yeah. I think the – it’s probably more bumpy than necessarily a rising trend, other than the portfolio continues to increase in size. I think we’ve spend somewhere around $10m in what we kind of call recurring rental portfolio cap ex in the first half of the year. And I think that’s probably a reasonably fair run rate - $20m for the year.

Okay. Let me hand you over to the other David.

Yes. Two things with respect to the leasing and rising rates. Are you noticing any change in bid offers for industrial property in the past month, given the rise in interest rates?

I would say we’re not – I personally am not going to be that close to it, to talk about anything that’s happened in the last month. You know, we’re not particularly active buyers and sellers of built out industrial properties.

I think where it’s going to have its impact, David, is more in the capital markets area. We had – when rates got to the historic low of the 3.3 range, you had the feeling that there might be some changes in response to that in the leasing. But it wasn’t there long enough to have that take place.

And now, with the rates going back up to a more sustainable level for the ten year, I think you could – it might have some impact on capital markets transactions, which were going on in some markets, without regard to fundamentals, partly induced by the unusually low tenure.

We did see – I mentioned we did see some, just the beginnings of some development yield pressure toward the end of the second quarter, when the tenure was very low. We were seeing people go lower and lower on their development yields. But I think that’s been moderated a little bit here in the last month.

All right. And then also, could you give us some color on your residential lot sales and residential business for the second half?

We maintain, as we said in the release, a view that the course of this year will be about where we thought we would be. And, as we stated, David, in the past, that after we made the announcement of the REIT conversion, we are looking to exit that business in an orderly process over the next 18 months. I can’t really comment yet on what the impact of that will be on the second two quarters. But it will not decrease what we think we will be selling.

We have recently entered into a transaction. As you know, we have the Alameda Naval Air Station under contract and development for years. In the second quarter, we closed on the first take-down of a loss of 190, and did a contract with Wilmington to be the purchaser and developer of that. That contract is not reflected itself in our numbers, because of the construction costs it receives. It’s being finalized. But the market remains robust in California, and partly driven by the supply constraint as much as the low interest rates.

Yeah. Overall, from the joint ventures, the large one in Southern California, in San Clemente in Orange County, has been – continues to be, I will use the term very robust. The partnerships up in Sacramento, we’ve seen some definite slowing. But we, last year in the first half, we sold so many lots up there, that we are still in the process of actually completing the joint venture partner – still in the process of completing some of the infrastructure too. So we’ve seen a little bit of a slowdown up there east of Sacramento. And as Nelson mentioned, the Bay Area continues to be – all indications very good.

[Inaudible] particularly.

Yeah.

Okay. Thanks a lot guys.

Thanks David.

And our next question comes from Steve Sakwa with Merrill Lynch. Please proceed.

Good afternoon. Nelson, I guess just given your outlook on the economy, can you just kind of help us walk through what your starts may look like on the commercial side for the second half of this year? And I’m just trying to get a sense for what you may be putting into production from a stabilized basis in ’04?

Okay. Let’s just deal with what we’ve completed in the first quarter, and what we have now. As I pointed out to you in the press release, we had 4.4 million square feet of starts, of projects under construction. We will be adding 3.2 million to our portfolio out of that – 3.3 million.

And I can’t really give you a level of how much more than that we’re going to be able to start this year. We are very pleased with where we are, particularly in the Southern California market, where the activity is, I think, the best in the country for industrial. But I would be hesitant to give you a number at this point for the total year, other than to say that what we’ve got right now represents an extraordinarily good pipeline, given the overall market conditions. And we’d obviously like to improve on it. But Steve, today I would not want to give a number.

Yeah, Steve, we’ve done just under – well, between two and a half and three million feet through the first part of this year. I think our internal goals for the year were to hit a little over three million feet. So we’re pretty much there. So I don’t see the first half activity repeating itself in the second half, not because our goal was set low, but just because of the way the activity came in this year.

But what has happened us historically, as you recall, is that leasing activity in the fourth quarter, for example, ends up in starts in the first or second quarter for next year. And so we are going to be pushing very hard to continue the momentum of our leasing. But whether that results in starts or not is another question.

I guess I’m just looking at the Supplemental, page 33. You’ve outlined basically what’s under construction. And if you add up what’s sort of expected to be delivered in ’04, it’s about 2.3 million square feet of wholly owned projects.

’03?

No.

’04 starts.

Well these are just what’s under construction, where you’ve got completion dates with ’04, basically from January through November. And I’m just, I guess given your outlook, it sounds like you may not really be starting much in the second half of this year. So it’s possible that even if you start new projects next year, there may be late ’04/’05 deliveries?

Well yes. If you start something in that timeframe, then you’re correct. But we’re not saying we’re not going to enter into transactions the rest of this year. I was focused more on your start question.

I think, Steve, reasonable assumption, half a million, a million feet for the last half of the year is probably a right thought right now. I don’t think we have any plans to be dramatically different than that.

I am sorry Bill. What was that number you said?

Half a million to a million feet for the rest of the year.

So you can get to where we thought the year was going to be, about three million square feet. Our most robust year was last year, where we had 6.1 million square feet of deliveries. And if you look at what we’ve done over the past several years, the three to four million square feet has been more the norm. I think that there’s no reason to think that would be any different this year.

Okay. And I guess Nelson, maybe just – I know you’re not very active on buying and selling of assets. But maybe can you just talk about land prices a little bit? And obviously this transaction in New Jersey is one. But what are you seeing in terms of sellers and land prices? Are they still pretty firm?

Well the interesting thing in my experience over the years has been that land prices lag. And when the economy is – when fundamentals aren’t that great, land prices seem to stay high. And then oftentimes you find the anomaly when the fundamentals are getting better, the sellers finally reduce their prices. So there is never a direct correlation – at least I’ve never seen a direct correlation to fundamentals being weak, and land prices being lower.

We have tried to be extremely careful in any of our acquisitions, for the simple reason that the cost of the land is a very significant component of the cost of a completed building. And so we think that – again, I don’t want to put a prediction out. But we are very active in looking. And we intend to be as selective as we have been in the past. We haven’t seen major movement, to answer your direct question.

Okay. Thank you.

And our next question comes from [Frank Braywit] with McDonald Investments. Please proceed.

Good morning guys. I was wondering if you have any comments on Proposition 13.

Well Proposition 13 – in the 70s, well the history, property taxes were getting out of whack, because of the fact there was no cap on it. And it was increasing 10-30% a year at that point. The voters acted in such a way that, to express a very strong protest, which is very much a product, I think, of the political culture in this state that’s going on today.

I would think it’s not very likely that you would see an amendment, the balancing of the state budget through a Prop 13 change. The local property tax as a result of Prop 13, before Prop 13 it used to be basically the property tax stayed within the 58 counties where it was incurred. Now, because of the Prop 13 issues back in the 70s, it is now a part of the state budget.

But I just don’t think the culture is such that it would – it’s likely to be the solution to the problem, the budgetary problem. But on another point, that if you look at most of our portfolio is triple-net based. And so that’s all passed through to the tenants, if in fact that happens. And the current rule is that you basically – you cannot have a tax increase of more than 2%. That also probably [inaudible] if you down [inaudible].

You know, there’s so many things going on today in the discussion of how the state is going to deal with its financial crisis. Prop 13 periodically appears, as it did the day before yesterday, in national articles who’re saying this is going to happen. But I think it’s so ingrained in the political culture in this state that I’m not thinking it’s going to happen in this cycle.

Thank you. A couple of [my line] [ph] questions too. Can you explain the rise in management and fee income for the quarter?

I’m sorry?

There was a rise in management and fee income. I was wondering if you had an explanation.

We negotiate with a counterparty who had an obligation to do some building that they didn’t want to do. And as a result they paid us some fees, which we incurred in the second quarter.

Okay. And the interest income line item, where was this located before? It looks like it popped up this quarter.

It has always been one of the other net line items.

Okay. Would that be other net sales, or other net – just depending?

Potentially in both.

Okay. Thank you.

And our next question comes from Gary Boston with Smith Barney. Please proceed.

Good afternoon. Just quickly on the office segment. I was wondering if you could – if there was any update on releasing the WorldCom space. And, in addition, you’ve got about almost 10% of the office portfolio, it looks like, still to go this year in terms of leasing. And just any color you might have on the progress that’s being made there.

Yeah. I mean the leasing focus is really around that five building complex in San Jose, which is where MCI had about 120,000 square feet, and went down to about half that, and cut their rent. There is another tenant rolling out of that building in the second half of the year. But we’ve actually re-leased that space. I can’t think right now what that rent is. But I’m sure it’s not particularly exciting one way or the other.

I think we do expect the office side to continue to hold flat to deteriorate at best over the next several quarters. We’ll concentrate so much on just a few buildings. We have a – it’s kind of a barbell. We have some buildings that are just fully leased, credit tenants, long period of time. And then a couple of buildings that have been struggling a little bit more.

Great. Thanks.

(Caller instructions). And please stand by to see if there are any further questions. There are no further questions at this time. Mr. Rising, please proceed.

Well thank you all for your continued interest. And we look forward to our next call. Thank you.

This concludes your Catellus conference call. Thank you for your participation today. You may now disconnect.