STAG Industrial Inc (STAG) 2014 Q2 法說會逐字稿

Greetings, and welcome to the STAG Industrial, Inc. second-quarter 2014 earnings conference call. (Operator Instructions). As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Brad Shepherd, Vice President of Investor Relations. Thank you. Mr. Shepherd, you may begin.

Thank you. Welcome to STAG Industrial's conference call covering the second-quarter 2014 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 informational package available on the Company's website.

As a reminder, forward-looking statements represent management's estimates as of today, Thursday, July 31, 2014. 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 will hear from Ben Butcher, our Chief Executive Officer, and Geoff Jervis, 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.

Presenting today in addition to myself will be Geoff Jervis, our Chief Financial Officer, who will review our second-quarter financial and operating results. As you may remember from our call last quarter, we were deep into the process of the search to identify the right candidate to fill the CFO position here at STAG. While we were fortunate to have the chance to meet many qualified candidates in the process, Geoff was the clear choice for the role.

Also with me today are Steve Mecke, our Chief Operating Officer; 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.

We are happy to report that 2014 continues to be positive business as usual for STAG and its properties. 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 nine buildings for a combined all in purchase price of approximately $82 million. The 2.1 million square feet acquired in the quarter increased the Company's portfolio of square footage to 41.2 million square feet, a 24% increase in the square footage from the end of the second quarter last year.

The nine buildings acquired in the quarter are located in six different states, have a weighted average lease term remaining of five years and represent diverse industries including industrial equipment, household durables and air freight and logistics.

With these second quarter acquisitions the Company has purchased a total of 13 buildings for a combined all-in purchase price of $119 million year to date. Subsequent to the end of the quarter the Company closed on a property for approximately $9.8 million. In addition, the Company has entered into contracts to acquire 11 industrial buildings for a combined purchase price of approximately $118 million.

Our pipeline of deals that meet our investment criteria continues to be robust with approximately $1 billion of potential acquisitions including small portfolio deals being reviewed and considered by our acquisition teams. We remain on track to reach our significant 25% per year growth for 2014 and beyond.

The Company produced strong leasing activity in the first quarter as well. In the quarter the Company signed seven lease renewals totaling approximately 1.1 million square feet. Five of the renewed leases were set to expire in 2014 while two are expiring in 2015. In the quarter we also executed new leases on approximately 200,000 square feet of existing vacant space.

Occupancy declined in the quarter from 95.3% to 94.5% primarily as the result of one 300,000 square-foot nonrenewal. Our tenant retention was below our long-term norms at 35%. We expect tenant retention for the remainder of the year to come in at approximately 80%. With this retention expectation we project our total occupancy to remain in this range, mid-94%, throughout the remainder of the year.

For the expiring leases that did renew in the quarter we continue to see significantly larger increases in rental rates. Cash rollover rent change was a positive 13.5% for the three retained leases and over 13.7% on a GAAP basis.

The general outlook for industrial real estate leasing continues to be very positive. Perhaps the most important factor is the continuing general economic improvement evidenced by yesterday's GDP announcement up 4% in the second quarter after the first-quarter disappointment. In addition, the other positive victors were evident in 2013, growth in e-commerce, shortening and fattening of supply chains, and the onshoring of manufacturing will continue to drive demand for industrial space over the coming years.

Over the quarter the media focus on the potential for oversupply in industrial properties has seemed to wane a bit in all but a few specific markets, notably Dallas and Southern California. The broad range of markets that we are active in continues to generally have positive net absorption well in excess of supply. This will lead to further reductions in availability and improving conditions for landlords to achieve rent growth and backfill vacancy more profitably when it occurs.

We continue to expect to see cyclical rent growth above long-term norms for the next three to four years. This was evidenced in this quarter's rollover rent increases.

During the quarter we announced the Board of Directors approved a 5% increase in the Company's annual common stock dividend from the current annual rate of $1.26 per share to $1.32 per share commencing with the July 2014 dividend. The increase equates to a dividend of $0.11 per common share per month and represents an annual distribution rate of 5.5% based on the coordinating share price of $24.01. This is the second $0.06 per share increase since year end 2013, evidence of our stated policy to review our dividend and payout ratio more than just annually.

In an effort to continue its policy of sharing our growth and per share financial metrics with the Company's stockholders, the Board anticipates evaluating its dividend policy periodically throughout the year.

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

Thank you, Ben, and good morning, everyone. As Ben mentioned, the second quarter continued our trend of progress on both the operational and acquisition fronts. From an operational standpoint, starting with property level cash flow, our portfolio wide cash net operating income, or cash NOI, was $33.7 million for the quarter representing growth of 6% from the first quarter and 24% when compared to the second quarter of last year.

Compared to Q1 cash NOI was impacted by portfolio acquisitions as the $37 million of acquisitions from Q1 were owned for the full period and the $82 million of Q2 acquisitions contributed for a partial period. The impact of acquisitions equated to a $1.5 million increase to cash NOI with the balance of the increase coming from $700,000 of new leasing activity partially offset by $400,000 of lost revenue and increased expenses from new vacancy.

On a corporate level, adjusted funds from operations, or AFFO, was $20.6 million for the quarter, an increase of 6% and 36% compared to the first quarter of 2014 and the year ago period. Adjustments from cash NOI to AFFO are corporate level of cash G&A and interest expense, recurring capital expenditures and renewal of PIs and LCs. We believe that AFFO is a proxy for recurring free cash flow and the best metric for setting our dividend.

Looking forward we expect corporate level G&A to be in the $5.7 million range per quarter as we continue to grow our platform to address the market opportunity.

On the dividend front, we paid monthly dividends of $0.105 per share during the quarter and raised the dividend to $0.11 per share commencing with the July dividend. From a coverage standpoint our dividends represented 88% of our AFFO, a level with which we are comfortable and a level in line with our past experience.

Looking at the balance sheet, immediately available liquidity was $276 million at quarter end comprised of $6 million of cash and $270 million of immediate availability on our unsecured credit facility and unsecured term loans. In addition, we had $44 million of additional capacity on our unsecured facilities for future acquisitions.

In addition to cash and credit availability we had $46 million of capacity under our ATM program at quarter end and expect that the program will satisfy our third-quarter equity needs. That said, we plan on refreshing the program in the near future.

Leverage continued to be low with net debt to total real estate cost basis of 37% and total debt to total enterprise value of 27%. Net debt to annualized adjusted EBITDA was 4.8 times at quarter end and our interest coverage for the quarter was 5.3 times. We continue to strive for a defensive balance sheet and believe that we have achieved our goal to date, as evidenced by Fitch's June affirmation of our investment grade rating and positive outlook assessment.

Looking at our outstanding debt at quarter end, we had approximately $559 million of debt outstanding with a weighted average remaining term of 4 1/2 years and a weighted average interest rate of 3.76%. During the quarter we executed a $100 million private placement of senior unsecured notes consisting of $50 million 10-year notes and $50 million of 12-year notes. Borrowings under both traunches of notes bear interest at a fixed rate of 4.98%. The 12-year notes were funded on July 1 and the 10-year notes are expected to fund in October.

As we look to manage our liabilities we strive to have multiple credit relationships, to minimize calendar year maturity concentrations and to match the long duration of our assets. The private placement margin accomplishment on all fronts, in particular the addition of the private placement, will increase the weighted average duration of our liabilities by nearly 12 months or by 22%.

On the equity front the ATM program was again effective in the second quarter as we issued 1.8 million shares of common stock at an average price of $23.79 per share, receiving net proceeds of approximately $41 million. The ATM allows us to raise just-in-time equity capital for our granular acquisition strategy at an extremely low all in cost of approximately 1.5%. As such we expect to continue to utilize the ATM going forward and match fund our acquisitions with roughly 60% equity.

Before I turn it back to Ben, I wanted to give an assessment of STAG after my first 30 days on the job. I took this job because of my belief in the business model, the dynamic stage and the lifecycle of the Corporation and the quality of the people. After 30 days I am even more convinced that this was the right decision. The more I learn about the model, the Company and its people the more I am impressed with STAG. With that I will turn it back over to Ben.

Thank you, Geoff. It was another successful quarter for the Company with good leasing results and acquisition progress. In particular our acquisition total for the year closed and under contract of $247 million should serve to dispel any concerns that we'll reach our annual goal of 25% growth.

We will continue to move forward with a low leverage strategy for the execution of our differentiated 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 a spread investment basis.

General market conditions remain favorable with relatively low and stable interest rates, continued strength in the leasing market and a relatively stable cap rate environment. 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 returns for our shareholders. Our second-quarter operational results provide continued validation for this [contention]. Going forward we will maintain our investment discipline and focus on shareholder returns. We thank you for your continued support.

(Operator Instructions). Mitch Germain, JMP Securities.

Geoff, curious -- I appreciate the thoughts I think you laid out a bit in terms of the balance sheet. I'm just curious looking at the balance sheet today and maybe reconciling that with your strategy going forward.

With respect to the capital structure?

Exactly.

I think that when you look at the maturity profile of the debt I think that we are going to continue to lengthen out the maturity profile. And when you look at the sources of capital that we look to tap I think you probably would likely see us continue to tap the private placement market until we reach the scale to where we can tap the public market and reduce our reliance on the bank market.

Great. I know that we have seen or we are reading about increased competition in secondary markets. And I am curious, Ben, your commentary. I know you get this question every quarter, but are you seeing the institutional capital more and more when you are bidding for properties or is there still really more private landlords?

I don't think that the -- I think the headline is it continues to be small -- we are competing primarily with small buyers obviously who have -- don't have the access to capital or perhaps the cost of capital that we do. Certainly we hear about and there continues to be verbiage about additional competition coming in, it is not evident that that is occurring, our pipeline remains very robust.

We continue to grow our machine to better attack and/or approach those markets that we are finding opportunities in. So I don't think there is anything meaningful in terms of increased competition and we are continuing to increase our capacity to compete in those markets.

Great. And then last question for me. I think, Ben, you mentioned some of the market trends. Should we see a similar lift in rents in the back half of this year and next year? Or was there something specific that caused the rents to increase to the (multiple speakers)?

Well, I think the backdrop is the cyclical above normal cyclical rent growth going on across virtually all markets. Excluding some tertiary markets, et cetera. But in the secondary and primary market you have this underlying rent growth.

So to the extent that you have static or excuse me rent bumps that are lower than underlying rent growth we have seen rent growth in every quarter for some time now and larger rent growth in most recent quarters. So I am sure if you ask our asset management team they would tell me not to be too optimistic. But, yes, we continue to expect to see rent growth across all markets.

Thank you. Great quarter.

Sheila McGrath, Evercore Partners.

Ben or Geoff, in the first half of 2014 you raised almost as much equity on the ATM as acquisitions closed. I am just wondering, we typically model in about 60% of volumes blended with equity. Should we moderate our assumption because some of the equity was frontloaded this year? Should we moderate our back half?

Yes, I think that we will be -- our stated intention is to raise around $40 million a quarter, we obviously got well ahead of that and raised about twice that in the first quarter. That was a little bit opportunistic in that we had some big reverse inquiries that we decided to take advantage of. And so, we did frontload a little bit.

I think that your thoughts generally at the margin funding deals with about 60% equity are accurate. If you look at our pipeline of announced deals under contract in excess of $100 million, $40 million of equity doesn't get that done. So to the extent we frontload it we will be catching up and obviously we will -- as we get through the third quarter into the fourth quarter our ATM issuance may need to increase the [math] that increased acquisition volume.

As you know our fourth quarter is typically our largest quarter for acquisitions on a cyclical basis, typically being as much as 40% of the year. So I am not promising acquisition totals of 40% in the year, our acquisition people are getting ready to stone me now.

But you would expect that quarter to be the biggest quarter and obviously the third quarter is going to be a pretty big quarter. So our equity need will match -- our equity rate will likely match our acquisition totals at or around that 60% rate you are talking about.

Okay. And then just on same-store NOI, it was modestly negative in the quarter. I'm just wondering as Sun Prairie lease turns cash in the back half of the year, do you think that metric is poised to turn positive again or will that other tenant rollout in Illinois kind of drag that impact?

Yeah, there is always a number of factors going on. At the margin I think that the same story is a little bit indicative of some things, but obviously the full portfolio is what is important to us in terms of delivering returns. Bill Crooker who is here may be able to provide a little more granular color.

Yes, Sheila, I think going forward from Q2 to Q3 our same-store numbers will -- same-store NOI will probably remain flat, the Sun Prairie increase offset by the Illinois and some other small occupancy changes.

Okay, thank you.

Brendan Maiorana, Wells Fargo.

So what was the drop in the office or flex portfolio that happened this quarter? It just seemed like it was a little bit more outsized than normal.

Well, we -- first of all, that portfolio was very small. So things that happened in that portfolio are magnified by the small size of the portfolio. Dave, do you have any -- Dave, can you give any color for us?

Yes, that was the result of one lease that rolled -- actually it was a downsize and we retained the tenant but in a smaller square footage. So as Ben said, it is a small sample set that large ripples across but in small moves.

And over time -- Brendan, just over time, as you know, we will eliminate that asset class from our portfolio. But it is a gradual process that we harvest as appropriate.

And, Ben I think you mentioned that you expected occupancy for the remainder of the year to remain about flat. Just given that rents on the flex or office side are about almost 3 times what they are for the warehouse or manufacturing, is there any mix issue or is that just kind of flat across -- even the three types of your product type?

I don't think for the remainder of the year that we expect any mix issue -- there's certainly not anything known on the office flex side that is going to cause an unusual drop. I think the mix will remain about the same.

Actually the mix might change in that the -- there could be some change in the mix and leasing performance is more likely to occur in our more generic areas -- in the manufacturing warehouse areas than it is in the office area. So there could be a mix change but it will be to the positive. It would be an (inaudible) positive -- the mix might not be positive but the increments would be net positive.

Okay. And just on capital deployment acquisitions that are out there. I apologize if I missed this, but did you guys provide what the average cap rate was on the deals that you did in the quarter? And as we've talked about in the past, I think you guys have looked at maybe some -- potentially thinking about some larger portfolio deals. Is that still a possibility? And if so would we expect to see compression if you did any of those larger deals that may happen?

I get on my soapbox from time to time and talk about the fact that cap rates are a point in time measure not really indicative of the quality of the investment in terms of stability to produce long-term cash flow. We are more interested in IRR's or an average cash flow derived over a 10-year period or something like that.

But, having said that, our cash flow -- I mean our cap rates remain in or around the 9 range for the year. We have a portfolio that we are going to close in this quarter, it is a little bit -- a little bit over $50 million, there is a little bit of a hit there in cap rate but it is 25 basis points or something like that versus buying those assets individually.

No more than that versus buying the assets individually. So I don't think that -- we are not, again we are not focused on cap rate as a measure of the quality of the acquisitions, we are more focused on these longer-term measures because we intend to deliver returns to our shareholders for a long period of time.

Okay. And then just last one, Geoff, I think you mentioned G&A guidance $5.7 million quarterly. Even as you kind of grow the portfolio is that still a pretty good guidance level as we would think about G&A forecasting out for -- even for several quarters out?

You know, I think that it is probably a pretty good estimate for the next two quarters and we will get some further guidance going forward. I mean obviously we are continuing to grow the platform in order to address the opportunity, certainly trying to look at the acquisition capabilities here in other parts of the platform. But I think $5.7 million is pretty good for the next two quarters.

And I would say also that the growth in G&A is more related to growing the platform than it is to scaling to the size of the portfolio. It is very minimal dollars that are required to scale to the size of the portfolio. It is more a conscious decision, as Geoff just mentioned, to increase the size of the machine, if you will, to address the opportunity.

Okay. All right, that is helpful. Thanks, guys.

Jamie Feldman, Bank of America.

So talking about -- thinking about the $1 billion of potential acquisitions and even the ones you have under contract. Can you talk a little bit more about how those compare to your current footprint, kind of the types of market and the types of quality where you may be growing?

Yes, I think that the easiest thing to say is this stuff that is on the pipeline looks a lot like what we own already. We remain very vigilant in terms of our portfolio composition in trying to minimize the introduction of correlated risk. So our internal metrics -- our internal metric caps on geography, industry, lease year expiration, we are paying attention to that on a dynamic basis as we go forward.

I think that the asset quality has remained fairly constant throughout. We're certainly cognizant of -- I think I have said in the past that we didn't spring fully formed from the loins where 10 years ago our model and our understanding of capital costs on certain types of assets, etc., has improved over time. So I think that nothing is really changing and frankly we are pretty good at buying the kind of stuff we bought.

So you are saying no new markets, just kind of spreading it out across (multiple speakers)?

No, we remain agnostic as to market. So if we can find a great transaction for us in terms of cash flow to be derived that sits in the middle of the Inland Empire we will buy it, it is just not that likely that we will find a deal in the Inland Empire given all the buying pressure on a market like that that we are going to find an asset there.

But we will continue to look in places -- I mean we'll look in the Inland Empire, it is just unlikely we will find something there. But we are in 34, 35 states now. I mean I would not be surprised if that expanded out to 40 states over time. We are not anxiously looking to expand in the markets but we're evaluating assets in all markets.

And as we build our machine we're potentially adding two new acquisition people who will have targeted to some -- some of them will be targeted to end markets that we have not been terribly active in. Where the Southwest through Southern California may not be the most fertile ground for us, but there are deals we can do there, we just haven't applied a whole lot of manpower to those markets over time.

We -- in places where we are more active we spend more time on the ground looking for deals, we have been more reactive in the Southwest to deals that are brought to us. So as we increase our on the ground activity in those markets we would expect to have be able to develop more transactions that make sense to us on the basis of cash flow to derive going forward.

Okay. So how many people are you adding and where are they going to be located?

That is still in process. We currently have five outward facing people, I think we'll probably hire two more.

And you will have them in regions or you will have them in the home office?

Yes. I mean everybody -- our acquisition focus now is based on regions. And we will re-divide the regions as we add people. Basically everything is covered today, it is just a question of intensity of coverage.

Got it. Okay. And then can you talk through some of the large just vacancies in the portfolio, like the move that in the second quarter and then just some of the others that are out there, what the prospects are to backfill?

I will start off by saying as an overview, before I turn it over to Dave King, as an overview we can see not surprisingly continued improvement in the leasing market. On a national basis there is a lot more square footage getting absorbed than is getting supplied. So vacancy rates are declining, rents are increasing, it is becoming -- there is a general shift in the favor of the landlord. So I will turn it over to Dave to talk more specifically.

Jamie, as far as the second-quarter vacancies, the 500,000 square feet that became vacant was attributed to two leases in three buildings, one in Chicago metro area and one in Wichita, Kansas -- or two in Wichita Kansas.

Chicago we have high hopes for. We have got an adjacent tenant who is likely to take some if not all of the space and the market reception has been very positive. In Wichita it is had a decent quarter of negative absorption but in general it is a strong market, mid-single-digit vacancy rates. So we are also hopeful on leasing that asset up in pretty short order.

In regards to our larger vacancies, we don't really have anything that is persistent and troubling, we have some big buildings that are marketed for lease or sale and we expect to transact in one direction or the other on all of them.

Okay, thank you, Dave. And as you look forward to 2015 what does your rollover schedule look like in terms of known move outs? Or is it too early to tell?

For 2015 we have one known move out, it's about 300,000 feet. As Ben said, through the remainder of the year we expect to renew about 80% of our tenants for next year. We are expecting to be in the 75% range, so that 300,000 feet will be a large chunk of the 25% vacating.

All right, and then just your comment on rent growth. Can you talk a little bit more about maybe in the second quarter you had sounded like things have really picked up. So what types of tenants and in what locations? Maybe what industries are you are starting to see the most life?

It is across the spectrum, we have done a few logistics deals, manufacturers continue to demand more space. In our existing portfolio we have two building expansions currently underway and we are discussing around some of negotiation on another six. Part of the beauty of the portfolio is a lot of our buildings have excess land so we can build on what is essentially free land and satisfy the growth needs of our tenants. But as far as demand, it is across the spectrum.

And same as across all markets too?

Yes.

All right, great, thanks, guys.

Dave Rodgers, Robert W Baird.

This is Matt here with Dave, just a question on the pipeline. Can you maybe quantify for us of the $1 billion what is portfolio?

I think portfolio is around -- somewhere around $150 million to $175 million of the $1 billion.

Okay. And then you just talked a little bit about the development, in the past you've talked a little bit about development for adding on to an existing facility. Is there any spend, dollars that you could maybe quantify for us either back half of the year or 2015?

It is not going to be -- if we buy $350 million to $400 million this year it is a de minimis amount relative to that.

All right, thanks, guys.

This is Dave here with Matthew. I wanted to ask another question. With regard to the pipeline for acquisitions that you are looking at, I mean it is 2 to 4x bigger than it has been in the last couple of years, yet volume year to date has been down. And I know that it usually weights to the back half of the year.

But is there something that is happening this year that's causing this delay in terms of the overall closing ratio or are there specific things in these assets whether it be credit, whether it be lease maturity schedules that have kind of kept the deals in the pipeline as opposed to kind of moving through more quickly?

I think the pipeline has been -- this year has been slightly more static, i.e. deals have stayed on a little bit longer than they have in the past. I don't have probably a reason for that. I do think our conversion rate of deals that make it through initial triage to get on our pipeline -- our conversion rate historically on that has not been -- it has been on the order of 10%. So maybe a little bit higher during sometimes and a little bit lower during sometimes, but so the pipeline is also very dynamic.

So assets come on and off on a fairly frequent basis. I think they are not coming on and off as quickly perhaps this year. Some of that is we are just better at identifying deals that might make sense for us and the pipeline is bigger because we have more outward facing salespeople who are spending more time in the market developing opportunities for us. So that has increased the size of the pipeline, but it may have also increased the size of the -- or the number of assets on the pipeline that are not moving as quickly to sale.

For instance, the pipeline probably contains more today of non-marketed transactions where there is an opportunity -- we know a lease has been signed because we've approached the seller about selling. That is going to take longer to trip -- for that deal to transact. If it transacts then a deal with the seller has listed and it is on the market and getting ready to sell.

So the quality of the opportunities -- that particular type of opportunity is probably slightly higher than the average pipeline asset, but it is just going to take longer for that deal to work through.

All right, thanks, guys.

Andrew Schaffer, Sandler O'Neill.

With where your stock is trading today can you talk about how you weigh dispositions from the flex/office assets versus the ATM?

I think today we are opportunistically selling assets in the flex arena as we sign leases or as a user shows up or whatever the dynamic might be. So I think we are just going to continue to sell those opportunistically, not look at them as really -- look at that capital as a strategic source of capital to fund acquisitions.

I think we will also look to sell some of our, if you will, more plain-vanilla assets in the warehouse manufacturing area when we sign leases that -- let's say a long-term lease to an investment grade credit where there is an opportunity to perhaps have that asset value more outside the portfolio than in the portfolio.

But all of that stuff is more opportunistic as opposed to design in terms of producing the required equity capital to continue our acquisition effort. We are committed to being an external growth story although we are having internal growth and expect to have internal growth going forward. I think that that equity capital is going to continue to come from external sources and primarily from common equity.

Okay, so we shouldn't really expect any meaningful decisions in the second half of 2014?

No. It will be over the next couple years there will be a couple of dispositions a year, but more -- again, more related to the opportunity involved with that asset than it would be related to any strategic decision to try and raise capital that way.

All right, that is it for me. Thanks.

Michael Salinsky, RBC Capital Markets.

Most of my questions have been answered. Just had a quick question in terms of competition. Given the size of the deal pipeline at this point are you seeing increased competition as investors chase yields?

I'm sorry -- so increased competition for assets?

Yes, are you seeing more -- you typically have not had a lot of competition chasing in the secondary markets. Are you seeing any kind of pick up in competition for assets there?

Steve Mecke. Yes, we were -- while we are still seeing the same sort of player group that is in there competing we are definitely seeing more and more people bidding on deals -- on individual deals. But once again that just [requires that are leverage players are trying to get] (inaudible) and the whole bit. So it is not like an apples-to-apples competition when we are bidding versus a single user bidder.

Yes, and then our transactional certainty, which we've talked about on previous calls, remains a huge advantage that we have versus the small bidders that Steve was just referring to. And does allow us to frequently prevail when we are not the highest bidder.

You know, failed deals -- and I have talked about this obviously many times before, failed real estate transactions are very painful especially for a small seller. So we are -- we will continue hopefully to take advantage of that of our size, strength and reputation for transactional certainty.

Thank you much.

(Operator Instructions). Emil Shalmiyev, JPMorgan.

Just real quick, what were some of the reasons for the leases that weren't renewed this quarter?

You know, we continue to look to see if there is anything in particular, any theme. And as I've said in the past, we have never had -- to the best of my knowledge, we have never had a tenant leave because they wanted a higher, cleaner building or they wanted a cross stock building or something like that. It is generally a strategic decision or very frequently they just need a bigger building.

That is the most common -- the most common reason for leaving is that they have -- through consolidation, M&A activity, simple growth of their business they need a bigger building. So that is the most consistent theme and then changes in logistical patterns, etc. But there is no sort of consistent theme out there that is troubling to us versus our assets.

Okay, thank you.

There are no further questions at this time. I would like to turn the call back over to manage for closing comments.

Thank you very much all today for your interest and good questions. The one question I kind of expected to be asked this morning given the 10 basis point rise in the 10-year yesterday is how do you feel about rising interest rates. And obviously the first answer to that is they haven't really been -- obviously we had a little blip but they continue to stay low and it kind of feels like there's a lot of reasons why we may not be facing that environment.

Having said that we are in a position versus our competition in most of these markets, again as Steve had mentioned earlier, who are leveraged buyers where we are operating at 40% of the margin, 30% versus enterprise value, so we are a very low levered entity. So increases in interest rates would actually make us more competitive in the market or more importantly would hurt our competition in the market far more than it would hurt us.

And so, we actually think a 100 basis point rise in interest rates probably provides a pretty significant competitive advantage to us. Obviously it may affect our cost of equity capital, but I think the results that we will produce will correct that -- any short-term hit on our equity cost will be more than are outweighed over time by our performance in that type of environment.

So again, thank you for your questions, thank you for listening in on the call today. And thank you for your continued support.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time and thank you for your participation and have a great day.