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Executives

Sara Knapp – Corporate Communications

Phil Hawkins – Chief Executive Officer

Jim Cochran – President and Chief Investment Officer

Stuart Brown – Chief Financial Officer

Daryl Mechem – Managing Director Operations

Analysts

Paul Adornato – BMO Capital Markets

Chris Haley – Wachovia

Cedrik LaChance – Green Street Advisors

[Kybin Kim] – Macquarie Capital

DCT Industrial Trust Inc. (DCT) Q4 2008 Earnings Call February 13, 2009 12:00 PM ET

Operator

Hello and welcome to the DCT Industrial fourth quarter and year end 2008 earnings conference call. (Operator Instructions) Please note this conference is being recorded. Now I would like to turn the conference over to Ms. Sara Knapp.

Sara Knapp

Thank you, [Ryan]. Hello everyone and thank you for joining DCT Industrial Trust fourth quarter and year end 2008 conference call. Before I turn the call over to Phil Hawkins, our CEO, I would like to mention that management's remarks on today's call may include statements that are not historical facts and are considered forward-looking, within the meaning of applicable securities laws, including statements regarding projections, plans, or future expectations.

These forward-looking statements reflect current views and expectations, which are based on currently available information and management's assumption. We assume no obligation to update these forward-looking statements, and we can give no assurance that the expectations will be attained.

Actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks, including those set forth in our earnings release and in our Form 10-K filed with the SEC, as updated by our quarterly reports on Form 10-Q.

Additionally, on this conference call we may refer to certain non-GAAP financial measures. Reconciliations of these non-GAAP financial measures are available in our supplemental package, which can be found in the investor relations section of our website at dctindustrial.com.

And now I'll turn the call over to Phil.

Phil Hawkins

Thanks, Sara and welcome everyone. We appreciate you spending the time with us today. Joining me in presenting on the call will be Jim Cochran and Stuart Brown, and also in the room and available to answer any questions directed their way, our Daryl Mechem and Matt Murphy.

The economy continues to be at the forefront of our everyday lives, as well as the media's coverage, so I won't spend a lot of time recapping the overall business environment. Suffice it to say that the economy and the real estate markets continue to soften, and will likely continue to do so over the coming months – that isn't news, I don't believe.

What is important is how DCT is continuing to anticipate and respond to the challenges presented by our struggling economy, credit markets, and real estate markets. Our approach is both focused and straight-forward, and can be described in three words, leasing and balance sheet; let me expand on that.

First, with respect to leasing, I am pleased to report that we had another decent quarter with 2.5 million square feet of leases signed, tenant retention of 79%, rent growth of 6.8% on a cash basis, 10.4% on a GAAP basis, and occupancy in our operating portfolio of 93.2% at year end, up from 91.9% at the end of the third quarter.

We are pleased with the leasing volume, which was below the record level in the third quarter, but consistent with the first two quarters of 2008, and the fourth quarter of 2007. Leasing activity continues at a comparable pace so far this year, with 878,000 square feet of leases signed in January.

Not surprisingly, and as assumed in our forecast, leasing activity in the markets continues to slow and we'd expect that conditions will remain very competitive and in fact, increasingly so for the foreseeable future. We adapted our leasing strategy to this type of environment quite some time ago.

This is basic blocking and tackling, and includes an intense focus on early renewals, insuring that we are very competitive on rents, a strong bias toward the occupancy over rent, and a close eye on kind of credit, especially when material tenant improvements are involved. Simple, but important, and we are keeping our leasing team very focused on the goal of making every deal possible.

We are starting to see signs of an increase in tenant initiated requests for rent relief, in response to their own financial stress or at least alleged financial stress. Again, this isn't surprising given the economy as well as experiences in prior downturns.

Our approach to these requests is similar to any other tenant-related negotiation, and that is to evaluate the situation, assess their true financial condition, and then make a decision about what course of action, if any, is in the company's best interest. In short, a pragmatic approach to the situation.

Now with respect to our other primary area of attention, the balance sheet; as I think most of you are aware, we were fortunate to enter into this downturn with a strong balance sheet already in place, and we took a number of important steps during the year to insure that remains the case.

These have included an active disposition program, which thankfully began before the investment markets turned, putting in place the new term loan last summer, putting the brakes on new investment and development starts, and reducing our dividend to a level near our minimum legal payout and which is sufficiently covered by AFFO.

As a result, our fixed charge cover ratio remains strong at 2.8 times, and our available cash and line capacity of $304 million is more than sufficient to cover all pending cash obligations, including remaining funding of our development pipeline and scheduled debt maturities through 2010.

We remain in close contact with each of our lenders, as well as additional sources of capital with whom we don't yet have an active borrowing relationship. Believe me, this is Stuart's and Matt's top objective. We had a well attended and very successful lender's conference last month where we spent a fair amount of time communicating our results, forecasts and strategies.

While we don't anticipate any action in the immediate future, we are keenly aware of our line maturity at the end of 2010, and our debt maturities in 2011, and I can assure you we are spending considerable time today thinking about refinancing strategies, alternatives, and possible timing to stay ahead of the process.

These are certainly extraordinary times, unlike any of us have experienced before, but we've been through downturns in the past, and have learned valuable lessons from those experiences, which we have and will continue to apply to today's world.

I believe we have a realistic view of what to expect, a strong team that is up to the challenge, a portfolio of high quality assets, and an effective strategy to manage this company through the turbulence. There will no doubt be significant challenges, as well as more unexpected surprises, but we're prepared and I'm confident we will emerge from this downturn a strong company with exciting opportunities in front of us.

With that, I'll turn the call over to Jim Cochran, our President and Chief Investment Officer. Jim?

Jim Cochran

Thanks Phil. As Phil already mentioned, and as each of you no doubt understand, the economy and the real estate markets continued to weaken in the fourth quarter. At year end, the national warehouse vacancy rate was up 90 basis points from the beginning of the year, to 8.4% and is expected to continue to rise.

That being said, there is activity in the market and leasing in both our operating portfolio and our development pipeline are clear priorities for the company.

We continue to make progress with our development pipeline as we executed a 557,000 square foot lease just after quarter end, in our Southcreek IV building in Atlanta, bringing it to 100% leased and during the quarter, executed a 64,000 square foot lease at our Dulles project, including the stabilization of Southcreek and progress we made in Mexico, which I will discuss later, our development pipeline, including forward commitments, has decreased to 7.2 million square feet, down from 8.3 million square feet at the end of last quarter.

We remain cautiously optimistic regarding the level of leasing activity in the remainder of our development pipeline. The Inland Empire Market of southern California continues to slow, as vacancy has increased to 9.4%, up from 4.3% at the end of last year, as net absorption was down and 25 million square feet of new product were delivered over the year.

The positive news from a supply standpoint is that there are only 2.8 million under construction at quarter end, with few new starts expected in 2009. We remain encouraged by the level of activity at [SLE] for both our speculative product and land sales to users, but admittedly a bit frustrated with the time required to get the deals closed. We continue to be optimistic that the 55 acre land sale to Dr. Pepper Snapple Group will close in the near future.

Throughout the year, we successfully recycled capital through dispositions in a tough environment. For the year, we sold $143 million in ten transactions, at a U.S. stabilized cap rate of 6.5% and a cash cap rate of 7.2%, for a gain net of impairments of $20 million.

We continue to actively market assets which we believe are appropriate sale prospects and have a reasonable chance of success, although market conditions have obviously toughened. We are optimistic that we will get some sales done in 2009, although the cap rates will obviously be higher than achieved in 2008.

The industrial economy has slowed dramatically since the third quarter, which is not surprising given the strong tie to the U.S. economy. During the quarter, we reduced our leasing exposure in Mexico by selling a 261,000 square foot building back to our development partner and agreed to not fund a forward commitment on a 131,000 square foot building that was over-improved in our opinion and leased to an auto parts manufacturer, an industry which is on our watch list.

Thus, our development exposure in Mexico consists of three buildings totaling 354, 000 square feet that will be completed in March and April, and are structured with our partner as a full forward commitment.

Again, 2009 will be a tough year, but we have been anticipating the challenge. While cautious about the economy and the real estate market, we remain active in evaluating potential acquisitions. We are starting to see more attractive opportunities, but remain very patient and have not yet seen anything where the pricing is compelling enough to move forward.

That is likely to change given the challenges some owners will face in the debt and leasing markets, and with that I'll now turn it over to Stuart Brown.

Stuart Brown

Thank you, Jim and thanks to everyone for joining us today. Our [inaudible] of operations in the fourth quarter of 2008 was $0.15 per share, excluding the impairment charges which I will discuss in a moment. For the year, FFO was $0.60 per share, excluding the impairment charges, compared to $0.69 of FFO per share in 2007, which included $0.08 of gains on the sale of development buildings. As Phil mentioned, our operating and leasing results for the fourth quarter were solid, especially given the weakening environment.

For the year, we signed 10.4 million square feet of leases, with an average cash rent growth of over 4.3%. Turnover costs averaging $1.66 per square foot, and an average lease term of almost 49 months. Occupancy at the end of the year was 93.2% for our operating properties, down from 93.8% at the start of 2008, but an increase from third quarter's 91.9%. Our average occupancy was 92.5% in 2008, compared to 93.1% in 2007.

We feel good about our fourth quarter operating same store performance in light of the market conditions. Average occupancy in our same store properties held consistent with the third quarter at 92.6%, but dipped from 92.9% a year earlier.

Despite this decline, same store net operating income rose 3.4% on a cash basis, and 2.3% on a GAAP basis. This was driven by growth in cash based rents, higher recoveries of operating expenses, and lower bad debt expense.

The operating income results exclude termination fees and a non-cash gain recognized in 2007 of $2.1 million, related to an early lease termination in Brisbane, California, which we discussed and excluded from our same store figures last year. For the full year, our same store net operating income increased 1.3% on a cash basis, and 0.2% on a GAAP basis.

As you saw in our press release, we recorded impairment charges of $9.6 million in the fourth quarter. Approximately $500,000 of this impairment resulted from the sale of a building in Salt Lake City for less than our carrying value.

Additionally, we recorded $4.7 million of impairment charges related to three land parcels held in unconsolidated development joint ventures, where we believe that market conditions warrant conservative assumptions on future rents and development activity.

Further, we wrote down the value of two building for a combined $4.3 million. The two buildings were purchased as part of a larger portfolio in 2005, and while we have recognized gains from the sale of a number of properties purchased in the same portfolio, the future cash flows from these buildings did not support the value assigned.

We performed an analysis of all our operating and development properties, and believe that anticipated cash flows support the carrying values of our other assets.

In other income and expense we had a couple of unusual items to note. First, our general and administrative expense included the write off of $600,000 of pursuit costs, mainly related to a land acquisition opportunity in Mexico that we have decided not to pursue at this time, given the changed economic and market conditions. Excluding this, G&A expense would have been in line with previous quarters.

The other items to note is a $700,000 currency loss on peso-denominated tax receivables in Mexico. This loss is net of reserves related to these receivables and is reported as part of interest income and other in our income statement and reduces our funds from operations.

Our earnings from unconsolidated equity investments increased $700,000 over last year, to $1.1 million this quarter, due to both increased income from our unconsolidated development joint ventures, including the lease up of [second mark income B], as well as increased operating income in our capital management business, where assets under management reached $772 million at the end of 2008, up from $686 million at the end of 2007.

Our interest expense in the fourth quarter was $13.8 million, while down $400,000 from a year ago due to the lower rates interest expense increased $800,000 from the third quarter, due primarily to the $200 million draw on our term loan in October, used to pay down our credit facility.

While this portion of our term loan is based on floating rate, the effective interest rate is about 70 basis points above our credit facility. I want to touch on our capital expenditures in the fourth quarter, which are higher than our normal run rate.

We spent $7.8 million on building improvements in the quarter, bringing our total for the year to $14.3 million or $0.28 per square foot. This increase is due to our decision to accelerate the timing of several major roofing projects, to take advantage of significant discounts being offered by vendors. In total, we spent $4.7 million on roof work just in the fourth quarter, so our normalized expenditures in 2008 would have been closer to our $0.20 per square foot annual run rate, which we expect to maintain.

Further, on leases signed in 2008, our turnover costs averaged only $1.66 per square foot, which is below our earlier comments that we spend around $2.00 per square foot on average lease up. This discrepancy is due mainly to the performance of make ready work, on spaces before we have a perspective tenant identified.

While you might think that committing capital to a space before having a lease is risky in this environment, we believe it actually gives us an advantage over competitors who are trying to attract the same tenants and we want our spaces to be ready for move-in quickly, and therefore, get rent started earlier.

We also had two large tenant allowances paid in the fourth quarter of 2008, which related to leases signed in 2007, but that tenants have just recently submitted their paperwork for payment. We believe that the average turnover cost of $2.00 per square foot remain an appropriate run rate.

As Phil mentioned, our balance sheet remains in excellent shape. Our $300 million credit facility was undrawn at year end and our leverage and fixed charge coverage remained strong. Our fixed charge coverage was 2.8 times in the fourth quarter, and 2.9 times for 2008.

Further, we have added additional annual disclosure related to our debt covenants on page 13 of our supplemental. As calculated under our debt covenants, our leverage ratio was 47%, compared to a limit of 60%, and our fixed charge coverage was 2.6 times, compared to a threshold of 1.5 times.

In short, we are in great shape with respect to the capacity in our covenants. Looking to future liquidity, the capital needed to complete our development pipeline is only $24.5 million, and our maturities to the end of 2010 are only $53 million, plus another $91 million for our share of construction loans in unconsolidated joint ventures.

This assumes that we exercise options to extend maturity. These total needs of $168.5 million compares to a $300 million of capacity on our line of credit and cash on our balance sheet. In addition, we generate positive cash flow after payment of our dividend, and maintain and active disposition program.

Further, we maintain active discussions with all of our existing lenders; they're not relying solely on this group for working hard, cultivating new relationships as well. While our next significant maturities are not until 2011, this is something we are thinking about and planning for today.

Regarding our guidance, we are reaffirming our 2009 FFO guidance we issued last quarter, of $0.50 to $0.54 per share, plus $0.00 to $0.04 per share of gains from land sales at SCLA and sale of development assets for total funds from operations of $0.50 to $0.58 per share.

Our underlying assumptions that we presented last quarter, for same store growth of flat to a 3% decline and average occupancy of our operating properties of 88% to 92% also remain unchanged.

In terms of leasing activity required to meet targets, guidance allows for the average occupancy of our operating portfolio to decline up to 400 basis points, from the 92.3% at the start of 2009. We have $9.6 million square feet of leases expiring in 2009. Assuming that 75% of 2009 lease expirations renew, we would need to sign approximately 2.5 million square feet of new leases in order to meet the midpoint of our guidance. This compares to 3 million square feet of new leases signed in 2008.

We also remain very watchful of our existing tenants, and will allow for a large increase in bad debt and early lease terminations from what we experienced in 2008. The impact of bankruptcies, early renewals at lower rents, and rent relief this year will be more pronounced.

While leasing activities so far in 2009 has held up, we expect first quarter occupancy to be between 89 and 90%, due the higher tenant rollover in the quarter, the burn off of month-to-month leases, and the anticipation of early lease terminations.

With that, we'll now turn the call over for questions.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from Paul Adornato – BMO Capital Markets.

Paul Adornato – BMO Capital Markets

I was wondering if you could talk about those leases that were not renewed. I see that you had a very high renewal percentage, but what was the reason behind those tenants that chose not to renew? Was it because you could not accommodate their needs or because they were shrinking their space requirements?

Daryl Mechem

Yes. Concerning the expected customers not to renew in the first quarter two of those lost their accounts. They were 3PLs and had given us notice far in advance and another was they were downsized and we could not accommodate their need. So those were the three biggest ones that drove our dip in predicted occupancy first quarter into the second quarter.

Now I'll also add, though, that of those same customers they did hold over and/or sign two to three month extensions upon their expiration so our occupancy is a little higher going into the first quarter than we expected because of that.

Paul Adornato – BMO Capital Markets

And what about the new leasing activity, what are some of the circumstances behind some of those tenants?

Daryl Mechem

Activity so far this year, Paul?

Paul Adornato – BMO Capital Markets

Yes.

Daryl Mechem

Sure. We signed 900,000 square feet of leases in January 200,000 of which was new deals. We've also signed 240,000 square feet of new deals so far in February. A little more color on that I think would come from our lease negotiation tracking. We follow all leases in negotiation at the lease document stage, which once it gets to that stage it's very likely to close. We have 2.5 million square feet being negotiated today; 1.9 million is renewals for 2009 and the balance is new deals. So there's still activity out there. We're pleased with that.

Paul Adornato – BMO Capital Markets

And have you touched base with all of the '09 scheduled expirations at this point?

Daryl Mechem

Yes we have and we track the progress of the negotiations with those customers in our lease proposal pipeline. We have 6.8 million square feet being negotiated at the proposal level, first round proposal all the way to final negotiation. Of that 6.8 million square feet of activity, we have 3.2 million square feet at the renewal level for 2009. I'll also add to that that we have 1.6 million square feet in that 6.8 million that pertains to 2010 renewals. So we are very aggressive getting in front of our customers to try to get deals done early.

Paul Adornato – BMO Capital Markets

And you guys mentioned that you had a lender's conference recently? I was wondering if you could give us a little bit of color on that gathering. How many money center banks were in the group and how many regional banks and I guess we're interested in hearing about changes in appetite among the lenders?

Stuart Brown

This was actually the first sort of group lender's conference that we've done like this. We had all of our existing lending relationships there from the banking side that are in our term loan and credit facility. We had a couple of life companies and things that are not currently lending relationships with us and basically provided them with a business update where we are, sort of view of covenants going forward and this is us trying to get in touch with our banks even though we don't have any near term maturities, for us to get a feel for where they are, their exposure to DCT.

Again with the banking consolidation you know that we're anticipating that some of our larger lenders which include the merger of Wachovia and Wells Fargo. We may want to be downsizing so we're in the process of just keeping people up to speed with where we are. I think this is probably one of the first times that keeping close eye on the balance sheet is, you know, keeping equity investors are completely in line with lenders these days. So it's good to have the one story for both groups.

But things are going well. I mean I think the view from the lenders that we had were very positive and again we're not in active negotiations today but in the process of building for that.

Paul Adornato – BMO Capital Markets

And related to that I was wondering if you could provide an update on your relationship with the Dividend Capital Group and your JV there? What's the status of their business? How is their money raising going and do you see perhaps an increased role with Dividend Capital as other sources dry up?

Jim Cochran

Our formal arrangement with – it's called Dividend Capital Total Realty Trust – has expired. That being said we still have a good working relationship and have looked at opportunities together here in January. They've been successful in raising money throughout the year and they are very well capitalized right now so we do see that as an opportunity to grow our business with them in 2009. It's just got to be the appropriate opportunity and both groups are monitoring the real estate markets, investment markets closely. But they're clearly a great partner and a potential for 2009.

Operator

Your next question comes from Chris Haley – Wachovia.

Chris Haley – Wachovia

Morning. Darryl, wanted to see if you could offer some, a little more color on Phil's comments regarding rent relief. Over the last couple of weeks we've heard similar comments from regional managers, not so much at DCT but other organizations that rent relief requests are not only for the current year but also extending potentially into a second year, meaning looking for a longer term rent relief.

So while we haven't yet seen it yet in terms of occupancy declines and that rent relief would limit the delinquency and therefore reserving. I'd be interested in your big picture view as to what you would expect to see from your tenants and how willing you are at DCT to break rent or renegotiate versus let go?

Daryl Mechem

As it relates to requests we've had, we have had a slight increase than what we would expect in a normal period. How we approach that we engage all the customers to come into us to discuss it, but we do not make a decision to grant any kind of relief until we have a very thorough understanding of their financial condition, condition of their business and if their credit still warrants that we will work with our customers to renegotiate the best solution we feel we can offer.

As it relates to reserves and whatnot, Stuart, would you like to comment on the reserve aspect?

Stuart Brown

Yes. So overall I mean we've been, as I said, we've been quite realistic at looking at our guidance next year in terms of what we've allowed for rent relief and early terminations. We've had a great 2008. Our bad debt expense in 2008 was only $900,000 and that includes the impact of the Wicks deal that we had earlier in the year. So we are expecting an increase in that. We're not going to put magnitude out but we've built that into our expectations.

Jim Cochran

Chris, one addition to Darryl's comments and perhaps even redundant, but our view remains very pragmatic and very focused on occupancy. As we've said before with respect to challenged tenants to me, my view is if necessary, and we have to convince ourselves it's necessary, and if we convince ourselves also that wherever we can make a difference in their outcome, then the likely conclusion is we'll attempt to accommodate them rather than lose them.

If we conclude it's not necessary or we conclude it won't make a difference at that point you're then thinking in a different mode and how to maximize recoveries and we may move in a different direction, so again, very pragmatic. And again back to focused on occupancy and some cash flow in an environment where neither can be taken for granted.

Chris Haley

Just to follow up and wrap up, is there any common theme regionally or tenant type in the requests?

Daryl Mechem

No. There’s not any regional and/or tenant type. I will say the smaller customers are asking more often. The smaller users are asking more often for the relief.

Chris Haley – Wachovia

So your small box shallow bay versus big box?

Daryl Mechem

Correct.

Operator

Your next question comes from Cedrik LaChance – Green Street Advisors.

Cedrik LaChance – Green Street Advisors

My first question is for you, Jim, and you mentioned that you did not fund one of your forward commitments in Mexico. Can you give me a little more detail on that and whether it was with the same partner that you’ve had so far, and what are the implications for future investments there.

Jim Cochran

It was with our existing partner in Monterey and part of it was we were concerned about the auto parts industry, but nevertheless it was more of a valuation issue on an over improved building. Basically the valuation that our development partner wanted did not fit into our formula.

We underwrite to amortize above standard improvements and the developer can’t really capitalize them and so we had disagreement on price and we felt the best thing to do was to not acquire the building. It doesn’t affect the relationship negatively and we felt we reduced risk by doing that.

Cedrik LaChance – Green Street Advisors

And there are no penalties to you for not acquiring the building?

Jim Cochran

No. Absolutely not. Again, we agreed to not fund it so it was a mutual agreement.

Phil Hawkins

It was also per the agreement that we had in place upfront it is a valuation issue that was covered in our agreement, thanks to Jim’s and our team’s thoughtful negotiation in advance and thinking through something like this.

Cedrik LaChance – Green Street Advisors

The lease term length has come down a fair bit in the fourth quarter. Is that related mostly to some of the month-to-month leases that you had to sign with some of the tenants that may be departing soon or is there anything else related to that shorter lease term.

Daryl Mechem

The fourth quarter term length is really driven by 300,000 plus square foot deals we did shorter term. One is 28 months and the rest were right there at the 32-month term. We did three larger deals that are probably the shorter terms.

Phil Hawkins

Cedrik, month-to-months are not in those numbers. Month-to-months and holdovers we don’t treat in the lease economic summary on the supplemental.

Cedrik LaChance – Green Street Advisors

So what explains the 2.5 years terms that you sign with the tenants? Is it just it’s the best thing you can do in the current environment or is there anything in their business that suggests they wouldn’t be in the portfolio in a couple years from now?

Daryl Mechem

Nothing to indicate they won’t be on the portfolio in a couple years. It’s really driven by the uncertainty in the economy driving our customers to be a little less committal to longer terms. It’s the conditions of the market.

Phil Hawkins

Any insight, Daryl, on January and early February do you see the lease term about where it was in fourth quarter or extending out and maybe where it’s going.

Daryl Mechem

So far in January and February the terms will be back up to the four-year range.

Phil Hawkins

Cedrik, I wasn’t surprised to see it shrink but just given the way people would logically think about their business in this uncertain time. But I was pleased, frankly, that the term appears to be going back up a little bit in the fist quarter of ’09. No promises that that’ll continue and, again, our view is pragmatic. If a tenant wants two or three years and that’s all we can get, we’ll take what we can get but we probably would push a little more in the term if we can.

Cedrik LaChance – Green Street Advisors

Stuart, question for you. On page four where you show same store and consolidated operating data, obviously the same store NLI is up, but if you look at the top of the page your total operating income is down versus last year. So what explains the big difference essentially between the same store and the non-same store here?

Stuart Brown

We talked about it a little bit on our last earnings call. It’s really the impact of dispositions that we’ve had and that’s one of the things overall that’s driving FFO for the total year in 2009 to be down from 2008 because the dilutive impact of dispositions. We haven’t talked about it a lot on this call, but obviously in this era heavy focus on liquidity and balance sheet and declining real estate values, we’ve had a very active disposition program. So we’ve been taking those out of the numbers.

Cedrik LaChance – Green Street Advisors

But the square footage is up by about a million feet, though, right?

Stuart Brown

Yes. And so the other part of that’s going to be some of the development properties last year that have moved into the operating portfolio that were basically unleased last year was just driving up the square footage. I can give you in detail which exactly those are off line.

Cedrik LaChance – Green Street Advisors

Okay. Final question, perhaps not today, but in the current environment would issuing stock be something that you would consider in order to take advantage of opportunities that may come in later in the year or in 2010?

Stuart Brown

Not to say never, but at our current price that’s an implied double-digit cap rate in our portfolio haven’t seen opportunities that get us excited about returns similar to where our stock is currently trading. So I don’t think it’s likely from an offensive perspective with current price and current economics that we’re seeing in the market.

Clearly, it’s all about uses of capital and as the world changes and we sense that there’s a way to increase shareholder value by issuing stock we certainly would think about it, but currently I don’t think that’s the case. I don’t know if that’s helpful or not.

Operator

Our next question comes from [Kybin Kim] – Macquarie

[Kybin Kim] – Macquarie Capital

It looks like you had a pretty strong cash-on-cash mark-to-market in your fourth quarter leasing. What do you plan projecting for 2009, and from the leases that you already signed into the year, how has that been looking?

Daryl Mechem

Kybin, it’s Daryl. As it relates to the leases we signed in January and February, flat to slight rent growth on a GAAP basis is what we’re seeing so far.

[Kybin Kim] – Macquarie Capital

And on a cash basis?

Daryl Mechem

Cash is flat.

[Kybin Kim] – Macquarie Capital

Okay. And what are you projecting for the rest of the year?

Phil Hawkins

That’s basically in line with what’s built into our guidance is sort of flat to sort of low single-digit rent growth.

[Kybin Kim] – Macquarie Capital

And following up on a previous question, from your comments it seems like you’re pretty well liquid and you don’t need to make a dissolution so are you going to continue to have an active dissolution policy?

Jim Cochran

This is Jim. Yes, we are. We are thankful that we have a strong balance sheet but we want to maintain the strength of our balance sheet and continue to recycle capital and have that capital available for potential investments, so absolutely. It’s a tough environment and we may have to do transactions like we did this year as kind of one deal at a time as opposed to portfolios, but we do have an active program and we have product in the market right now.

[Kybin Kim] – Macquarie Capital

And what would your main use be for that capital if you can just give a little color about that.

Phil Hawkins

It’s building liquidity for a variety of different reasons, both in terms of reinvesting that capital into higher return opportunities, as well as defensively being ready to be in solid shape, great shape for renewals in 2011.

What we’re really doing with our disposition program is trying to sell assets that we believe are, not strategic from our perspective, but of strong interest or a reasonable interest in the marketplace and there for that will be priced reasonably well.

Clearly, we’re not pricing as if we are on a different planet, but where we get decent pricing where we can redeploy that capital some day, and hopefully some day soon, into assets that we believe we are well equipped to address and to add value or extract value whether it be for distress situations or opportunistic buys to increase returns further.

[Kybin Kim] – Macquarie Capital

So are share repurchases kind of out of that equation, then?

Phil Hawkins

It’s kind of like the issue in stock it’s sort of the opposite. I’m not sure many people are happy with the stock price I certainly would be in that category. When I look at the price per foot and the implied cap rate, I’m not sure it’s consistent with where the markets really are.

But on the other hand, liquidity is so important and the ability to refinance is so uncertain in many ways that I think giving up that asset, if you will, that asset of liquidity would take probably a more compelling opportunity than today. I don’t think we’ve got stock repurchase on the radar, certainly not in the next month or two.

That may change, obviously, as we look at deploy in capital the first place we look is our own stock, we like in a portfolio and certainly know it very well so essentially buying it back certainly doesn’t concern us at all.

Operator

(Operator Instructions) Our next question comes from Cedrik LaChance – Green Street Advisors.

Cedrik LaChance – Green Street Advisors

In regards to DHL, what’s your exposure in terms of lead flanks to DHL and where’s it located, what are your expectations there?

Daryl Mechem

As it relates to the division at DHL that’s really in question, we have 64,000 square feet of exposure to that division and it is in Columbus, if I’m not mistaken, so very little exposure to the division that’s sort of in the news today.

Daryl Mechem

So the rest of it is part of their hub and gateway that they plan to keep in their global operations?

Daryl Mechem

That and the Logistic Solutions Division, which is not under question, you could say.

Operator

That does conclude our question-and -answer session. I would like to turn the call back over to our conductors.

Phil Hawkins

I appreciate everybody taking the time to join us. Pleased also to talk about a quarter that we consider to be good and I think the company remains well positioned, although we’re certainly mindful of the challenges ahead. Look forward to keeping everybody as up to speed as possible in future earnings calls like this. So look forward to that and perhaps seeing you at NAREIT in a few months. Take care.

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Source: DCT Industrial Trust Inc. Q4 2008 Earnings Call Transcript
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