STAG Industrial Inc (STAG) 2013 Q2 法說會逐字稿

Greetings, and welcome to the STAG Industrial, Inc. Second Quarter 2013 Earnings Call. (Operator Instructions)

It is now my pleasure to introduce your host, Brad Shepherd, Vice President or Investor Relations. Thank you, Mr. Shepherd. You may begin.

Thank you.

Welcome to STAG Industrial's Conference Call covering the second quarter 2013 results. In addition to the Press Release distributed yesterday, we have posted an unaudited quarterly supplemental information presentation on the Company's website, at www.stagindustrial.com, under the Investor Relations section.

On today's call, the Company's prepared remarks and answers to your questions will contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters that are subject to risks and uncertainties that may cause actual results to differ from those discussed today. Examples of forward-looking statements include those related to STAG Industrial's revenues and operating income, financial guidance, as well as non-GAAP financial measures such as trends from operations, core FFO, and EBITDA.

We encourage all of our listeners to review the more detailed discussion related to these forward-looking statements contained in the Company's filings with the SEC and the definitions and reconciliations of non-GAAP measures contained in the supplemental information package available on the Company's website.

As a reminder, forward-looking statements represent management's estimates as of today, Tuesday, August 6th, 2013. STAG Industrial will strive to keep its stockholders as current as possible on Company matters, but assumes no obligation to update any forward-looking statements in the future.

On today's call, we'll hear from Ben Butcher, our Chief Executive Officer; and Greg Sullivan, our Chief Financial Officer. I will now turn the call over to Ben.

Thank you, Brad. Good morning, everybody, and welcome to the Second Quarter Earnings Call for STAG Industrial. We are pleased to have you join us and look forward to telling you about our second quarter results and some significant subsequent events. We are happy to report that 2013 continues to be a good year for STAG and its properties.

Presenting today, in addition to myself, will be Greg Sullivan, our CFO, who will review our second quarter financial and operating results. Also with me today are Steve Mecke, our COO; Dave King, our Director of Real Estate Operations; and Bill Crooker, our Chief Accounting Officer. They will be available to answer questions specific to their areas of focus.

Our second quarter operational results provide continued validation of our investment thesis with significant acquisition and leasing activity by the Company. During the second quarter, the Company acquired 16 buildings representing an approximately 7% increase in the square footage of the Company's real estate assets over the previous quarter. On a year-over-year basis, the square footage of our own properties increased by 63%. At the end of the second quarter of 2013, the Company owned 194 industrial buildings totaling 33.3 million square feet, a significant increase from the 121 buildings owned at the end of the second quarter of 2012.

Some details of our strong acquisition activity in the second quarter are -- the 16 buildings that were acquired for combined all-in purchase price of approximately $109 million. This compares favorably to the $75 million in acquisitions we did in the second quarter of 2012 as reflective of the strong acquisition environment.

Total acquisitions for the first and second quarters were $170 million, versus $113 million over the same period in 2012. These acquisitions added approximately $2.2 million square feet to our portfolio. The 16 buildings are located in six different states. Their tenants reflect diverse industries including technology, automotive, office supplies, aerospace, and defense.

In addition, our pipeline of deals [that] meet our investment continues to be robust, with approximately $600 million-plus of potential acquisitions being reviewed and considered by our acquisition teams. As these acquisitions and our pipeline indicate, we remain very confident of our ability to maintain a vibrant acquisition pace through 2013 and beyond.

The Company has experienced strong leasing activities in the second quarter as well (inaudible). Tenant retention for leases scheduled to expire through the second quarter of 2013 was 72%. This is slightly below long-term expectations, due in part to the small sample size and one large known move-out by a Wisconsin tenant. In the second quarter, the Company renewed leases totaling slightly more than 750,000 square feet. In the quarter, we also leased approximately 412,000 square feet of our existing vacant space.

The rental rates on renewed leases in the second quarter increased 1.4% on a cash basis and increased 5.9% on a GAAP basis. This slightly muted continuation of the first quarter uptick on these metrics.

Occupancy declined for the quarter from 95.4% to 93.9%. This decline is principally the result of the previously disclosed move-out in Sun Prairie, Wisconsin on May 31st, 2013. There has been significant tenant interest in this building, and we are in preliminary negotiations for lease of the entire space.

We continue to experience strong leasing results without having to offer significant rent concessions or by incurring large capital expenditures. That is simply a feature of our investment focus on large single-tenant industrial buildings.

One Board of Directors matter to mention -- one of our founding directors, Alexander Fraser, has resigned from our Board so that he can focus on his partner responsibilities at GI Partners. That includes fundraising and investing on behalf of both their new general fund and management of their infrastructure fund.

On behalf of the Board, the other officers and myself, I'd like to thank him for his contribution to Company during the period prior to our IPO and over the past two years. We wish Alexander all the best in his future endeavors. The Board is actively considering how best to fill this vacancy with a director who can further broaden the Board's composition.

I will now turn it over to Greg to review our second quarter financial results and provide some further detail on our balance sheet and liquidity.

Thanks, Ben.

As Ben mentioned, we had another solid quarter from an acquisition and operations standpoint. Our cash NOI was up 59% over the second quarter of 2012. This growth was driven primarily by our strong acquisition activity. Our core FFO increased by 83% over the second quarter of 2012. We think that these non-per-share metrics are important because they convey our ability to grow the business, while the per-share metrics are heavily influenced by our financing and liquidity decisions.

As I mentioned on our last call, we are adopting a more conservative capital structure over time because the profit margins in our business enable us to do so. As a point of reference, we delevered our business from 35% debt-to-enterprise value at June 30th, 2012 to 29% at June 30, 2013. As a result, this deleveraging with additional equity generated additional debt capacity and liquidity but reduced our growth in core FFO per share.

One of the other results of this deleveraging was that despite our relative newness as a public company and our relatively small size, we secured an investment-grade rating from Fitch Ratings due to the strength of our credit metrics. This milestone should enable us to gain better access and enhance pricing as well as terms on future debt financings.

Our AFFO for the quarter increased 76% over the second quarter of 2012. We view this as one of our key valuation benchmarks, as it is a cash metric which reflects the low CapEx nature of our portfolio. Because of the single-tenant focus of our business, our leasing and CapEx costs continue to be quite modest.

As in the past, we had a number of acquisitions close towards the end of the quarter. Of the $109 million that closed in the second quarter, $58 million closed in the last two weeks of the quarter. As a result, the growth rates that I have mentioned, while impressive, are somewhat understated compared to the actual run rates.

Our occupancy was 93.9% at the end of this quarter compared to 95.4% at the end of the first quarter of 2013, largely due to the 427,000-square foot move-out of Brown Shoe in Sun Prairie, Wisconsin. For the same reason, same-store occupancy also decreased, from 95% to 91.7%, a larger difference of 3.3% since the same-store pool is only around 50% of our portfolio. Same-store occupancy dropped by only 1.5% on a day-weighted basis, which we believe is a more accurate occupancy metric. As Ben mentioned, we are in preliminary negotiations for lease of the entire space.

Our debt metrics continued to be quite strong. Our interest coverage for the first quarter was 5.1 times, our total debt to total assets was 39%, and our debt-to-enterprise value was 29%. Our net debt to annualized adjusted EBITDA was 4.6 times at quarter end. That figure is somewhat overstated, since once again a sizable portion of the acquisition income occurred late in the quarter, yet we counted the full debt balance on those acquisitions. If these acquisitions were acquired on the first day of the quarter, our annualized adjusted EBITDA would've increased by $6.1 million on an annualized basis.

In general, the capital markets continue to be attracted to our properties' ability to generate high cash yields with limited leasing costs. We sold $70 million of perpetual preferred at a coupon of six and five eighths, a significant reduction from our previous preferred stock issue priced at 9%. As of quarter end, we had approximately $20 million of cash, zero drawn under our revolver, and total liquidity of $250 million.

We did use the ATM program a bit this quarter and expect to continue to utilize the ATM going forward. Given our extremely strong credit statistics, our financing strategy is to continue to emphasize unsecured financings, extend term generally, given the attractive rate environment; and maintain credit metrics consistent with an investment-grade rating and the financial flexibility that comes with that as we continue to grow.

Because of the ongoing high positive spreads between our going and cap rates and our financing rates, our existing portfolio has been able to generate a dividend yield that is roughly twice the average REIT dividend, which I would expect would continue even if we didn't buy another asset. Yet, as Ben mentioned, our pipeline is quite large, so we expect to continue to deliver attractive income plus growth for our investors.

I'll now turn it back over to Ben.

Thank you, Greg.

A busy and successful second quarter has continued what we expect will be a great 2013 for STAG. We will continue to move forward [with the] strategy for the execution of our differentiated and investment thesis. STAG continues to benefit from a combination of factors that provide a significant volume of quality and accretive opportunities for acquisitions, both on a relative value and spread investment basis.

General market conditions remain favorable. Market forecasters such as [Nayop] project industrial space absorption for the US to be well in excess of development for the next couple of years, which would positively impact our own portfolio in terms of occupancy levels and rental rates.

Thus we continue to be optimistic about the future for our company, for our owned assets and for our investment thesis. We believe that our business plan to aggregate and operate a large portfolio of granular and diversified industrial assets will produce strong and predictable terms for our shareholders. Our second quarter operational results provide continued validation for this contention.

Going forward, we will maintain our pricing discipline and focus on shareholder returns. We thank you for your continued support.

(Operator Instructions) Jamie Feldman, Bank of America Merrill Lynch.

I'm just wondering -- can you guys talk a little bit about what you're seeing on acquisition yield, both in the pipeline and what you've done since the end of the first quarter?

In the pipeline remains pretty much where it's been sort of over the last six months. We saw some variability down probably towards the end of last year. But as interest rates start to kick up in the first quarter and beyond, I think we saw leveling out and maybe even slight rises in cap rates.

So I think the headline is not much. We continue to see about -- we continue to maintain our pricing discipline and see about the same environment out there. We have noted, as mentioned in previous calls, the increase in availability of assets for us to underwrite and consider for acquisition. We believe this may be engendered in part by the rising interest rates, perhaps leading to a diminishment of people's expectations of continuing reduction of cap rate. But maybe the long-term decline in cap rates will bottom out, and some people are perhaps looking to sell in advance of rising cap rates.

But that's just supposition on our part. The headline, again, is not much has changed.

And again, for the acquisitions in this quarter, the average cash cap rate was still 9%-plus.

You're supposed to let them ask that question, Greg.

And then, are you seeing in the pipeline is similar -- 9%-plus?

Yes.

Okay.

And then, how are you guys thinking about your investment spread right now? What's changed in your mind since the 10-year has moved?

Well, obviously, with the type of investment spreads we're talking about, between acquisition cap rates and cost of debt, as a portion of our cost of capital, that remains extremely wide. So if our average cost of debt is, say, circa 4% or a little above, we're still talking about 500 basis points. If our average cost of debt -- and again, we're not refinancing at the end of the day, so our average cost of debt is not moving as much as the 10-year has moved -- but the marginal cost of debt -- if that's moved 50 basis points, 75 basis points, our marginal spread could've gone down 50 or 75 basis points. And our marginal cost would've been lower than 4%. But say it was 4% -- and so we've gone from a 500-basis point spread to 425. Still very healthy, still very accretive.

For example, in our recent seven-year unsecured term loan that we put in place, we drew down a bit under that, at high 3s. That's [fully] swapped out.

Okay.

And what are you guys thinking about dividend growth from here?

We believe it's a good thing.

We're going to continue with our policy of paying out 90% of AFFO. Obviously, as we've discussed in the past, we have a lot of confidence about where AFFO per share is going. And we have a lot of confidence about our ability to continue to pay strong dividends.

All right, thank you.

David Toti, Cantor Fitzgerald.

With regard to the pref, Greg -- I guess you touched on it a little bit, but why now? Is it just because the rate was attractive? Is it somewhat of a call on a directional movement in overall cost of capital? Do you feel this is the sort of right time to hit that yield?

Well, I think that -- and just put it in context, he's asking about the recent preferred offering that we did. I think that it was part of our overall capital strategy to continue to extend out our debt maturities. The preferred transaction was a perpetual preferred. So obviously, that's very desirable from that standpoint. Typically issuers don't want to have more than 10% or 15% in preferred.

And right now, I think we have the advantage of having a relatively profitable platform. You may find that several companies actually won't choose the preferred route because it's relatively expensive compared to, say, seven-year financing. But in our case, we have enough profitability that we can afford to do that. And we think that creating the most stable balance sheet is in everyone's best interest.

And we view it also as leverage to the equity, although it may be expensive relative to the seven-year financing. We think it's relatively cheap in the long run to our equity.

I would agree. How was the demand on the offer?

Very strong.

Okay.

And then I just got a couple of general questions about the portfolio. When we look at your sort of geographic map, and there seems to be kind of an Eastern US concentration -- is there a strategy around geographies and actual physical concentration relative to operational synergies? Or is it really just driven by the yield and the opportunity set?

We are agnostic as to markets. So we're not -- we don't follow some macro prognosticator that says Memphis is the best market to be in and then we rushed down to Memphis and try and buy assets. We're really looking for the best deals on a fully considered and underwritten basis for our shareholders. So we're spread out across the map based on where we find the opportunities.

We don't believe that there are significant operational efficiencies to us by concentration. We have consciously vertically integrated only through asset management. We hire the best-in-class leasing brokers and property managers where we need their services and feel confident we get better service that way.

The other thing I would point out is that although we are concentrated east of the Mississippi, so is the US population. Our assets tend to be near population centers. So the fact that approximately 73%, I think, of US population is east of the Mississippi -- it's not surprising, therefore, that the preponderance of our assets would be east of the Mississippi.

The big population nodes west of the Mississippi -- in particular, California and, probably to a lesser extent, Texas -- have been very difficult places for us to find adequate returns. The people who are bidding on those assets -- we're bidding against on assets in those locations are bidding to lower returns or using more aggressive assumptions in their underwriting. We pride ourselves on maintaining pricing discipline and sort of doing our best to understand the cash flow that we derive from owning an asset in any particular location.

That's helpful.

And my final question is just sort of a sub topic to that last question. When you're looking at acquisition opportunities, how important is the industry concentration, given that especially you're mostly exposed to automotive, and tech is somewhat limited? Do you think about how the tenant and the lessee sort of fit into the overall portfolio sort of [longer term] --

Very much. And I apologize, I should've included it in the answer to the first question. Although we are agnostic as to the markets and agnostic as to industries, we're very conscious of minimizing correlated risk in our portfolio. So we're not out seeking, for instance, fracking companies as tenants or cloud computing companies as tenants, or anything that particular. But we are very conscious of not over-committing to any particular industry.

So at this point, I believe we have two industries that have over 10% concentration in our portfolio. Obviously, there are a lot of individual companies underneath that, so the concentration on an individual tenant credit basis is more diverse. But we are very conscious on every important metric that would introduce correlated risk. We have internal caps that we won't violate -- geography, lease expiration, industry, individual tenant credit, et cetera.

Okay, very helpful. Thank you.

Gabe Hilmoe, UBS.

Ben or Greg, just looking at the occupancy in the quarter -- obviously that was influenced by the move-out in Wisconsin. But I'm just trying to get a sense, for the back half of this year, kind of how you see that same-store pool trending. I think you mentioned it was roughly 50% of your asset base. I think the past, you've mentioned potentially some other larger move-outs this year?

Yes. One of the stats our asset management folks came up with -- year-to-date through the second quarter, there's been 2.2 million square feet of lease expirations. At this point -- either through lease renewals, new leases negotiated or preliminary agreements underway or in place -- 98% of that 2.2 million has been spoken for.

So this is consistent with our sort of long-term -- we expect our tenant retention normally to run higher than it has. But this is consistent with our long-term contention that we buy and manage fungible assets. So the assets may not always have the benefit of that 85% renewal, but they are reusable by other people.

So as I said, 98% of the 2.2 million so far has been spoken for, at least on a preliminary basis. I'll let Dave answer -- Dave King, our head of Real Estate Operations, answer the second half of the year question.

Yes. Through the end of the year, we've got a relatively small subset of assets of tenant leases rolling -- 100,000 feet, with eight tenants. And some of those are known go's, some of those are still speculative, and some we have renewed. Everything that is not yet renewed is on the market for lease. And we have strong interest on those assets.

So the headline would be we're very happy with sort of the revitalization of tenant interest and industrial assets across the US.

I guess the other point I might add is on the new leasing front, we leased about 412,000 square feet in new leases in this quarter. That represents about 29% of the available space we had in the portfolio, which I think is the highest ratio we've had since we've gone public.

So again, to reinforce the leasing activity at the Company -- it's quite good.

Okay.

And then, just one more -- looking at the, I think you said, roughly $600 million in the potential acquisition pipeline -- just trying to get a sense of what's the governor on that in terms of doing more sooner? Is it pricing, is it manpower?

We constantly -- I guess incumbent on us as managers is to look at the constraints in, if you will, the machine, and try to figure out ways to make the machine more productive, or increase the capacity of the machine. And we've done some of that. You may get at some point -- or we may at some point get some questions about our G&A loan. We've been adding to the fixed costs of the machine and adding analysts and other people in our acquisitions area.

And I think we've moved sort of the capacity to close, on a granular basis, up significantly. I kind of probably came into the year thinking the practical capacity was somewhere in the 400s. I think it's probably closer to -- again, not saying we're going to do this much, but the capacity to close on a granular basis is significantly larger than that today.

Okay. Thank you.

Dave Rodgers, Robert W. Baird.

Hey, Ben, I know you've benefitted from kind of a lack of competition in the acquisition market. But I think portfolio transactions have been more difficult due to some of the bigger buyers. With the movement in rates, have you seen, or do you expect to see, maybe less competition for some of those assets? And are you able to underwrite larger portfolios to bolt on at a faster pace?

Well, we absolutely have seen some, and expect to see more, of the financial buyers being [chilled] by rising interest rates, or even more importantly, chilled by the expectation of rising interest rates. We know that there are a number of our large competitors who use floating-rate financing -- the Kool-Aid, if you will -- to craft very large cash flows out of industrial portfolios. Obviously, though short-term interest rates remain low, those structures continue to turn out the large cash flow. But I think people are beginning to worry about how long that gain can be played. But we've seen, we think, a little bit of diminished demand for the portfolios.

Having said that, we still believe that for the most part, pursuing individual granular transactions will continue to produce extraordinary returns for our shareholders relative to the portfolio purchases. Having said that, further, we also are looking at a number of $30 million to $60 million portfolios, where the pricing is not dissimilar to the granular asset purchases.

But if you get up into the couple hundred, $250 million portfolios, there's still some giants walking around that we choose not to compete with.

That's fair.

And then, Greg, maybe on the balance sheet side -- do you anticipate taking leverage even lower, given your preference or the like that you have for preferred, to try to get that preferred rating up even further? Is that a goal? Or are you happy where you are today?

I think we're pretty happy where we are today. We've got a pretty good balance of debt and preferred. Obviously, we've got the investment-grade rating. I think we're in a place that's where pretty comfortable for the foreseeable future.

And Greg didn't mention his achievement of getting the investment-grade rating out of Fitch. Not only is it an investment-grade rating, but it's investment grade A with positive outlook. And think that's [despite] the fact that our metrics are -- the absolute credit metrics are very strong and perhaps are tempered a little bit by our newness to the market and our small size. But the absolute metrics themselves remain very strong for the type of rating that we have.

Okay.

And maybe for David, or Ben, you can chime in here -- it sounds like you're in negotiation on the Sun Prairie asset, so maybe you don't want to talk economics. But do you have at least a vision on kind of when that lease would start?

At this point, we are in negotiations. We are optimistic that we'll reach a favorable conclusion. When we go onto these things, you can't -- there's no set timeline that you can really follow. We expect it to happen in the next quarter, I guess, if pressed.

Yes. I will note that our investment strategy, our investment thesis, is not one of -- we'll never have vacancy, we'll never have a tenant leave, we're underwriting to sort of perfection. We expect in the execution of our thesis to have tenant move-outs. And occasionally, that tenant defaults. We don't have any tenants on our credit watch list today. But if you're taking sort of judicious risk, occasionally, the probability is going to hit you, and you're going to have those things move out.

I will note, on the Sun Prairie deal, in our underwriting of that transaction, we underwrote a downtime, I believe, of 18 months. And we're satisfied with the economics of the deal, even though in our expectations it would take up to 18 months to lease that deal. Our expectations are that it's going to take considerably less than that, so that transaction should provide economics in excess of what our original expectations were.

Great. Thank you.

Brendan Maiorana, Wells Fargo.

Ben, I was trying to follow the 98% of leases signed, tenants taking the vacancy, and then, I think you said, maybe under negotiation. So if I look at that 98% of 2.2 million, that's -- I think it's 45,000 square feet, if I'm doing that math right.

Yes.

And you guys have had, to date, net absorption of negative 530,000. So does that sort of suggest that you got kind of 500,000 square feet of positive net absorption in the back half of the year?

You certainly could make that case. Obviously, preliminary negotiations are LOI or something close to LOI. [Certainly know] those are guaranteed to result specifically in a transaction. We have high expectations or good expectations. But certainly, obviously, the other party, the counterparty, has to sign the lease as well as us.

Okay. Fair enough.

Probably for Greg -- the operating expenses were up a bit in the quarter. That kind of caused your same-store to turn negative. Is that expected to continue as we go forward in the remainder of '13 and into '14? And if so, can you can recover some of that, so it could benefit your NOI going forward?

Yes. So what happened was we had one fairly sizeable tenant that was paying on a triple net basis. And when that tenant left, it was replaced by three different tenants who paid on a gross basis. So what happened was there was basically a flip between the tenant paying the expenses -- and it was in the amount of about $400,000 -- and it flipped to us paying the expenses. Obviously, we were reimbursed for those expenses, which shows up on the revenue line. But it was really just a shift in the mix, if you will, that would not be expected to be continuing going forward.

But it sounds like those leases are full-service, and that's in place. So the economics that were in the second quarter continue forward, right? The increase wouldn't continue.

That's right.

But the -- yes, okay.

Brendan, what happened was there was a prime tenant that departed that had subtenants underneath that didn't depart. And so the building remained the same sort of physical occupancy, but just the nature of the lease has changed.

Yes. Got it, okay.

CapEx you guys have had -- it's been really low for a long time. It looked like the maintenance CapEx picked up a little bit in the quarter. And you're at about 4.5% of NOI this quarter, which is very low relative to every other industrial company, but it's high relative to historical performance for you guys. Is that a level that we should expect going forward? Or was there something that maybe drove that maintenance CapEx up a little bit more in this quarter versus the recent past?

Yes, there were a couple things that happened in this quarter. There was one lease that was actually for a call center. We have some legacy office assets from our prior days as a private fund which rolled into the REIT. So there was a case where one of the office TIs was in the order of about $8 a square foot. That pushed up the new TIs, if you look in the supplemental.

And then, the other thing is we spent about $400,000 in one particular situation to do a series of sort of make-ready work, to make it more appealing to potential tenants. So that number bumped up our recurring CapEx. I would probably characterize both of those as a bit unusual.

Okay, great. Thank you.

Sure. Thank you.

Michael Mueller, JPMorgan.

Going back to occupancy -- do you have a year-end target where you expect to be, I guess, looking at this 93.9 basis, assuming you don't buy anything else -- so thinking of that as the same-store metric?

I think we've said in prior calls that our expectation is that the year will be relatively flat overall in terms of occupancy. I don't think we really have deviated from that expectation.

Okay. You mean, flat on a same-store basis, year-over-year?

I only think in totals. But I think, probably, reasonably flat same-store also, by the end of the year.

Okay. And you're starting off down 300, is that right, right now?

From that one move-out principally, yes.

Yes. So you expect to make it back by year end, it sounds like.

Yes. As we've said, we have that preliminary negotiation statement, where we have reasonable expectations of that being completed.

Got it.

And then, I may have missed this -- did you say what leasing spreads were in the quarter?

They're in the Press Release.

Yes, it's up 1.4% and up 5.6%, cash and GAAP, I think.

Okay. That was it, thanks.

Hey, Mike?

Yes?

Good morning. You didn't start with good morning. I felt very left out, so I thought I'd say good morning.

Well, it's almost good afternoon, so, there you are.

All right.

Thank you.

(Operator Instructions) Michael Salinksy, RBC.

First question -- can you talk a little bit -- I know you're in preliminary negotiations, but how does the rents you're discussing on the Famous Footwear space compare to the vacate there? And what is kind of the mark-to-market?

The economics are basically on par with the prior tenant (technical difficulty).

That's helpful.

Second of all, at the beginning of the year, you talked about pricing being flat to down on renewals, yet you're tracking ahead. As you look at the re-leasing for the back half of the year, do you expect that to continue? Is it more of a mix, or are you seeing a little bit more market growth than you anticipated?

I think we've seen a continued uptick in kind of demand in terms of showings and proposals issued in letters of intent. I think, obviously, the trend cannot continue up indefinitely. But we're optimistic about the continued leasing [in] portfolio.

Okay.

Third question -- the back half of the year, pretty much known at this point -- as you look ahead to '14, any large vacates similar [to date], where we should be aware of at this point?

Yes, we've been in contact with all of our tenants, really, next year and some into '15. And to date, we haven't found anything that is as sizeable as Brown Shoe. Obviously, there's a significant amount of uncertainty surrounding those situations, both from the tenant side and from our marketing side.

Okay.

Then, as you think about legacy office and flex recycling in the back half of the year, what's kind of the plan at this point?

Well, we sold one small office building this quarter. We're under contract to sell another one next quarter, or this current quarter. Very small dollars involved in those. But we will continue to take opportunistic sell opportunities to -- once we have terms or lease terms, we'll sell or find a user that the building works for very well -- we will seek to sell those office assets.

Thank you much.

Thanks, Mike.

Thank you.

(Operator Instructions)

Mr. Butcher, it appears we have no further questions at this time. I would now like to turn the floor back over to you for closing comments.

Thank you very much. And thank you, everybody, for joining us this morning. I think -- I was just remarking to some of the folks here in the room that we use the word "continue" too often in our press releases. But the fact of the matter is we are continuing to deliver on the promises, and hopefully on the expectations, that you all have. I think 2013 is going to be a very important year for the Company in terms of its demonstration of its ability to manage and lease assets through the year, and as the revitalization of tenant demand continues.

So we're looking forward to a very successful back half of 2013, and we thank you for your support.

Ladies and gentlemen, this does conclude today's Teleconference. You may disconnect your lines at this time. Thank you for your participation.