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First Industrial Realty Trust, Inc. (NYSE:FR)

Q4 2008 Earnings Call

March 3, 2009 12:00 pm ET

Executives

Art Harmon - Director, Investor Relations and Corporate Communications

Bruce W. Duncan - President and Chief Executive Officer

Scott A. Musil - Acting Chief Financial Officer

Johannson L. Yap – Chief Investment Officer

Christopher Schneider - Chief Information Officer

Analysts

Paul Adornato - BMO Capital Markets

[Ki Bin Kim] - Macquarie Research Equities

Vincent Chow - Deutsche Bank

John Petersen - UBS

Cedric Lachance - Green Street Advisors

Stephanie Krewson - Janney Montgomery Scott LLC

David Rodgers - RBC Capital Markets

David Taylor - David P. Taylor and Company

Michael O'Dell - Metlife

Mark Streeter - J.P. Morgan

Operator

Good afternoon. My name is [Kelly] and I will be your conference operator today. At this time I would like to welcome everyone to the First Industrial Realty Trust fourth quarter and year end results conference call. (Operator Instructions)

I will now turn the call over to First Industrial.

Art Harmon

Hello, everyone, and welcome to our call.

Before we discuss our 2008 results, let me remind everyone that the speakers on today's call will make various remarks regarding future expectations, plans and prospects for First Industrial such as those related to our liquidity, management of our debt maturities and overall capital deployment, our planned dispositions, our development and joint venture activities, continued compliance with our financial covenants, and expected earnings. These remarks constitute forward-looking statements under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. First Industrial assumes no obligation to update or supplement these forward-looking statements.

Such forward-looking statements involve important factors that could cause actual results to differ materially from those in forward-looking statements, including those risks discussed in First Industrial's 10-K for the year ending December 31, 2008 filed with the SEC.

Reconciliations from GAAP financial measures to non-GAAP financial measures are provided in our supplemental analyst report available at FirstIndustrial.com under the Investor Relations tab.

Now let me turn the call over to Bruce Duncan, President and CEO.

Bruce W. Duncan

Thanks, Art, and thank you all for joining us today on our fourth quarter and full year 2008 earnings call.

Let me introduce the other members of senior management who are with me today. Scott Musil, our Acting Chief Financial Officer, JoJo Yap, our Chief Investment Officer, and Chris Schneider, our CIO. And you just heard Art Harmon, our head of Investor Relations.

Since this is my first earnings call as CEO of First Industrial, I will briefly tell you what I see as the opportunity and challenges we have and how we, our senior management and the rest of our team, are going to work together to enhance shareholder value.

But before I do that, very importantly, I would like to thank all of the First Industrial team for their hard work and dedication to serving our customers, partners and stakeholders. They are doing an outstanding job in a very difficult environment.

As many of you know, I come to First Industrial with a lot of gray hair - that is, over 30 years of experience in the real estate business - having had the pleasure to serve as CEO of several industry leading companies. During my career I've experienced and led firms through a number of cycles, and although every cycle is always a little different - and this one is about the worst I've ever seen - there are some lessons I've learned.

First and foremost is to adapt your business plan to deal with reality and the mission at hand. I have spent my first 45 days here understanding the company. I have met with many of our people, visited a lot of our offices, and toured a great many of our properties and markets. I came away from my conversation and visits with a real appreciation for the quality and depth of our people and their real estate skills.

So what do I see as First Industrial's strengths? We have great people and an outstanding franchise. There are only a handful of industrial real estate companies like First Industrial with a broad platform, quality people with local market experts, a talented team at headquarters and a strong record of customer satisfaction.

We have a diversified portfolio of more than 900 buildings totaling 97 million square feet owned and managed, with 2,300 tenants spanning North America's leading markets across multiple industrial types.

Our customer base has been well served by the First Industrial team, as reflected in our industry leading customer satisfaction scores.

And I like the fact that Industrial is financeable. Industrial properties are typically much smaller in terms of the level of investment as compared to other commercial property types such as regional malls and office buildings, which makes them much easier to finance, especially in a market like this.

So what are our challenges? We have built up an organization to handle annual transaction volume of a couple of billion dollars per year. Unfortunately, given this current economic environment, we do not anticipate anywhere near that same volume of business over the next few years. Hence, we need to rationalize our business model and take cost out of our organization and make it more lean and efficient not only to survive this downturn but also to allow us to come out of this recession much stronger.

More importantly, we need to make sure everyone understands our mission and give people clear accountability and authority to get their job done. To that end, as discussed in our press release last night and in our 8-K filing, we announced a change in our organizational structure to ensure clearer accountability and responsibility for our assets. We will focus geographically rather than functionally and drive down responsibility and accountability to our market leaders in each of our cities across North America.

Our market leaders generally are people who grew up in the industrial business and were leasing stars in their local markets who have been spending their time the last few years focused on new acquisitions or developments. They will still have those responsibilities, but with the capital markets as they are, their main focus with their team will be on keeping our existing tenants and filling up our vacant space.

As part of this reorganization we have reduced the number of people dedicated to development and transactions. We will now have one regional head for each of the East, Central and West regions who will have responsibility for all aspects of operations for the markets in their region. This group will report to me.

We have a vigorous focus on cost reduction as every dollar counts in this environment. To that end, no one received a year end bonus for 2008 and we are looking hard at every expense line.

This isn't a fun time, but in our view it is important for us competitively to be focused on the backtobasics mission at hand and have our cost structure in line. The next two to three years will be all about hand-to-hand combat in the marketplace for tenants, and we will be aggressive both in attracting them and retaining them. We need to know who is responsible for every asset in our portfolio and with our new structure there is no confusion.

Additionally, as part of these restructuring actions as announced in December, the company is discontinuing its European operations. The economic and industry environment in Europe is as challenging as that in North America. As a result, the Board and management did not expect to reach the levels of investment and profitability needed within the next several years to justify continuing our operations there.

As a result of our restructuring and cost reduction plan, in total we have reduced staffing by 43% since the end of the third quarter, with our current headcount of 295. These actions resulted in restructuring charges in the fourth quarter and we will have additional charges in 2009. Importantly, excluding the restructuring charges, this brings our projected G&A for 2009 to approximately $37 million, which would represent a reduction of 56% compared to 2008.

Our results for the quarter and the year were also impacted by an impairment charge related to our investments in joint ventures. Scott will discuss these in more detail shortly. Regarding investments, we do not expect to pursue any new investments on our balance sheet in 2009, and we will be very selective in our joint venture investments.

In managing our diversified portfolio, we monitor customer activity in our facilities and are in regular discussions with them in advance of renewals and throughout the year, and in these economic times, we are stepping up that effort. Like most industrial and other commercial firms, the malaise in the general economy has affected some of our tenants. One such customer was Circuit City, which in December rejected its lease for the 1.3 million square foot build to suit we recently completed for them in Central Pennsylvania. This news was disappointing; however, we are moving forward on plans to market the vacancy to one or multiple tenants and for sale.

Now, moving on to our capital position, managing our liquidity is obviously a key priority. As noted before, we have $125 million in senior debt due in June. Placing secured debt on some of our properties is part of our arsenal to manage this upcoming maturity as we have flexibility to raise debt in the secured market with 96% of our assets unencumbered. Additional asset sales also remain part of our plan to enhance our liquidity position and we currently have several assets under contract or letter of intent.

Now I'd like to discuss the dividend. We plan to retain capital by adjusting our dividend policy to distribute the minimum amount required to maintain our REIT status. We will not pay a dividend in April of 2009 and may not pay common dividends in future quarters in 2009, depending on our taxable income. If we are required to pay common dividends in 2009, we may elect to satisfy this obligation by distributing a combination of cash and common shares.

Now let me turn it over to Scott to review the year and quarter for you as well as our guidance for 2009. Scott?

Scott A. Musil

Thanks, Bruce.

First let me review quickly for you our results for the year. Funds from operations per our methodology - that includes the impact of net economic gains - were $2.05. These results reflect $0.55 in charges related to our expense reduction plan in the fourth quarter, $0.36 of which was cash and $0.19 was non-cash.

In addition, after a thorough review of all of our investments on our balance sheet and at our joint ventures, we recognized impairment charges for some of our joint venture investments. As noted in our press release, these impairment charges were as follows: $26 million for our development and reposition joint venture; $10 million for our strategic land and development joint venture; $3 million for our 2005 core joint venture; $2 million for our 2006 net lease joint venture; and $1 million for our 2003 net least joint venture. These resulted in an additional one-time charge in the fourth quarter of 2008 of $43 million or $0.86 per share.

EPS for the year was $0.50, including those charges.

Fourth quarter and full year results also resulted an approximately $0.06 non-cash loss resulting from the marked-to-market of an interest rate hedge related to the coupon reset of our Series F preferred stock. In the second quarter of 2009 the coupon on our Series F preferred stock will reset quarterly. This hedge will effectively lock our coupon at 7.59% until September 2013.

Excluding the restructuring and impairment charges, FFO per share was $0.52 for the fourth quarter and $3.46 for 2008. As a reminder, in 2009 we will be reporting our FFO per NAREIT's definition, excluding gains from previously depreciated properties. For 2008 our FFO on a NAREIT basis was $0.42, including the restructuring and impairment charges. Excluding the above-mentioned charges, NAREIT FFO was $1.84.

Moving on to our portfolio results, overall they were good. Our occupancy at quarter end was 93% and averaged 93.6% for the year. Tenant retention for the fourth quarter was solid at 76%. Same-store NOI was 0.7% for the quarter and averaged 1.5% for the year excluding lease termination fees. Run rates for the quarter increased 4.8% and for the year were up 4%. Leasing costs averaged $2.32 per square foot for the quarter and $1.94 per square foot for the year.

As noted in our press release for 2009, we are modifying our definition of our inservice balance sheet portfolio to include all developments and redevelopments at the earlier of one year following shell completion or redevelopment construction completion or achievement of 90% occupancy. The in-service portfolio will also include any newly acquired properties with occupancy greater than 75% upon acquisition. If a building is acquired at less than 75% occupancy, it will be placed in service at the earlier of one year or achievement of 90% occupancy.

In the first quarter of 2009, this change will result in the inclusion of a number or properties currently classified in our supplemental as out of service or as completed developments not in service, with both categories including properties that were below 90% leased. As of December 31, 2008, the out of service and completed developments not in service were 41% and 16% occupied, respectively, so including them will reduce by definition our 2009 occupancy figure. On this basis, First Industrial's average occupancy for 2008 was 90.4%.

To help you with your modeling when comparing 2009 to 2008, looking at our portfolio on an all in basis - that is all properties, whether in service or not - total occupancy for 2009 is projected to be on average 81% to 82% compared to an average of 85% in 2008.

As Bruce stated, we are focused on overall occupancy as a way to drive value for the company and do not plan on new investments on balance sheet. This change in methodology will provide enhanced clarity on our overall portfolio performance over the long term and will highlight the opportunities we have and the progress we make in improving the value through leasing.

As we have mentioned today and in the past, our debt maturity schedule is manageable. Our weighted average maturity is 7.2 years, significantly longer than many other companies in our industry. All of our long-term debt is fixed rate debt; 96% of our assets are unencumbered by mortgages. We have very little debt maturing in the next two years, only about $150 million, $125 million of which is senior notes due in June.

As Bruce noted, we are looking at various tools to handle those maturities. Secured debt is part of that solution. With most of our assets unencumbered, we have the capacity to raise secured debt, which is achievable in today's markets as there are lenders for sizeable industrial property pools. [Esteel] Secured has been selected as a placement agent for a package which we are currently marketing and we have received a great deal of interest. We also anticipate that we will be able to raise capital through select asset sales, as Bruce noted.

Our current available cash plus availability on our line of credit totals $30 million. The last point with respect to liquidity is that we need only $16 million to fund the remainder of our developments in process and that includes our balance sheet and our pro rata share of joint ventures.

Briefly now regarding our loan covenants, our covenants are based on leverage and coverage ratios. For 2008 we are in compliance with our covenants and we intend to remain in compliance. As we noted in our 10-K filed yesterday, reductions in net operating income below our projections, limitations on our ability to sell properties, or ability to refinance our debt coming due in 2009 may inhibit our ability to meet our financial covenants.

We have also provided some additional detain in our supplemental on our JV debt maturities, which we hope you will find helpful. Total debt for our JVs is $1.4 billion. Recall that we have 10% to 15% of the equity, depending on the venture. For 2009 we have a total of $478 million maturing, with only $95 million maturing without a unilateral extension right. $61 million relates to our [First Kell] ventures, which we have capacity under other existing facilities. The remainder is mortgage loans related to our net lease ventures that we are looking to extend or refinance. As a reminder, none of these loans have recourse to First Industrial.

Regarding 2009 guidance, we are now providing guidance pursuant to the NAREIT definition of FFO. We expect FFO per share to be between $1.23 per share to $1.33 per share. Here are the key components of that guidance for 2009: From the portfolio point of view we expect average occupancy to be 83% - 85% - again, this is under our new definition of our operating portfolio that I discussed previously; same-store NOI to be negative 3% to negative 4%. Rental rate change is expected to be negative 1% to negative 2%.

As far as G&A is concerned, as Bruce mentioned, as a result of our restructuring we expect our G&A expense for 2009 to be about $37 million. Also, we will incur additional restructuring charges of approximately $6 million, $3 million of which are cash.

For JV FFO, we expect this to be in the range of $8 to $10 million. Approximately 75% of this is expected to be from our share of NOI fees from our income-producing properties.

Again, we do not expect to pursue new investments on balance sheet for the foreseeable future. We will also be very selective for our joint venture investments.

With regards to asset sales, we are targeting dispositions of select properties, but we are not providing specific guidance. As a result, the impact of any sales activity is not included in our NAREIT FFO or EPS guidance.

With that, let me turn it back over to Bruce.

Bruce W. Duncan

Thanks, Scott.

Before we open up to questions, let me conclude by saying that there's a lot of hard work to be done. There will be challenges and we will work hard every day to serve our existing customers and, importantly, win new ones. That is our focus and our people at First Industrial, both in the field and at the head office, know and embrace that mission.

And with that, we'd be happy to take your questions. As a courtesy to other callers, we ask that you limit your questions to one per person in order to give other participants a chance to get their questions answered, and you're more than welcome to get back into the queue.

And so now, Kelly, can you please open up the lines for questions?

Question-and-Answer Session

Operator

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

Paul Adornato - BMO Capital Markets

I was wondering if you could talk a little bit about the decision to have three regional managers. It sounds like something that might be more appropriate for an apartment company, but I was wondering if you could just kind of walk us through why you think it might work for First Industrial. I guess I'm curious just because some or many of your tenants might be national in scope.

Bruce W. Duncan

Well, it's a couple of things. What we want to do is to bring great focus down at the property level and the regional level. So if we take each city, the market leader there is responsible for the P&L of that region. They report up in three regions. And what we've done is sort of take layers out so there's now just three - JoJo, David Harker, and Peter Schultz - running that and they're reporting to me, so there's just four of us. We have people that are involved with all aspects of the business in terms of tenants, our national tenants, so we know who they are and deal with that.

Operator

Your next question comes from [Ki Bin Kim] - Macquarie Research Equities.

Ki Bin Kim - Macquarie Research Equities

Could you give a little more breakdown on your same-store NOI projected for 2009 in terms of what are you projecting for your cash-on-cash marked-to-market and what kind of tenant retention you're looking for?

Scott A. Musil

Yes. We stated that same-store is going to be trending down 3% to 4% next year. As far as the retention numbers, we've actually felt that we're maybe a little bit concerned around that. In the past we've always experienced tenant retentions in the high 70s or the mid 70%. This year in the numbers we forecasted in the 50% range, so we think we'll actually beat that.

As far as the marked-to-market on our overall rental rates right now, our in place rents compared to the market rents were actually probably about 20 basis points higher, so those are just kind of the overall assumptions that we did for the same-store.

Operator

Your next question comes from Vincent Chow - Deutsche Bank.

Vincent Chow - Deutsche Bank

I just had a quick question just on the taxable income, the EPS projection that you've given. Excluding the restructuring charges, it looks like about $90 million plus net income and you're projecting minus $90 million or so in 2009. Can you just talk about exactly what's driving down that much? I mean, is it just the JV? The JV FFO obviously is down quite a bit year-over-year, but that's offset by G&A savings. And I think you said that there's no asset sales assumed in that guidance?

Bruce W. Duncan

Can you do me a favor? We had trouble hearing that. Can you just repeat that a little bit louder?

Vincent Chow - Deutsche Bank

Sure. Is that better?

Bruce W. Duncan

Yes.

Vincent Chow - Deutsche Bank

Okay, great. We were just trying to get a better understanding of how you're getting to the sort of minus $90 million-ish range for net income for 2009 from 2008 from $91 ex the charges that you've taken. And I think you said that there was no asset sales assumed in that guidance, so I'm just trying to figure out how that's coming down. And obviously, JV FFO is down, but the G&A seems like it offsets that.

Scott A. Musil

Okay, I'll try to answer the question. The question is we issued 2009 guidance in our October '08 press release and we just reissued 2009 guidance, and there's a drop off. Our midpoint was $1.50 in our 2009 guidance issued in October of '08; our midpoint is now $1.28 for 2009.

So there's a couple of plusses and minuses that went into the change. The first minus was on our JV FFO we are projecting less than what we assumed in October of '08, and this has to do with the fact that there's a lot less transactional activity in the market.

We also are seeing a little bit of decline in our NOI of our portfolio since that October '08 timeframe. Some of that has to do with the Circuit City bankruptcy and other just has to do with a further decrease in occupancy we're projecting.

This is offset by a decrease in G&A expense which was due to the restructuring that we did in December of 2008 and the one that we just did in February of 2009.

Operator

Your next question comes from John Petersen - UBS.

John Petersen - UBS

I was hoping you could talk more about the mortgage debt that you guys are hoping to raise, specifically what pricing is in the market today and in what amounts you're able to get mortgage debt.

Bruce W. Duncan

What we've done is we've put together a bunch of pools that are going out to the marketplace, and I would say the pricing that we're seeing ranges from probably mid to high 6s to the mid to high 7s. And we'll report back in next quarter in terms of what we achieve, but that's sort of what we're thinking about now.

Operator

Your next question comes from Cedric Lachance - Green Street Advisors.

Cedric Lachance - Green Street Advisors

Scott, could you give us a little more precision in regards to your covenants in terms of how much room you have for additional borrowing on your LTV covenant? And in addition to that, in terms of your secured debt, how much more secured debt can you place on the company?

Scott A. Musil

Okay, as far as the covenants are concerned, as we mentioned in the text, any decreases in NOI and a reduction in property sales could impair our ability to meet our covenants. That's all we're going to say about that.

As far as secured debt is concerned, 96% of our assets are unencumbered. We are allowed to have 40% of our total cap in secured debt and obviously we're way below that at this point in time.

Operator

(Operator Instructions) Your next question comes from Stephanie Krewson - Janney Montgomery Scott LLC.

Stephanie Krewson - Janney Montgomery Scott LLC

One question with two parts to it. What happens theoretically if you do not have money to retire the $125 million of senior unsecured notes in June? Doesn’t that cause an acceleration of your other outstanding unsecured debt in terms of maturity?

Scott A. Musil

Yes. If we are unable to refinance that at maturity, we wouldn't be in compliance with the covenants for our notes or our line of credit and at that point in time we would have to work with the banks and the lenders to rectify that situation.

Bruce W. Duncan

But that's got to be a pretty remote thing, if you look at it, when you have all these assets that are unsecured. So that shouldn't be a problem.

Operator

Your next question comes from David Rodgers - RBC Capital Markets.

David Rodgers - RBC Capital Markets

With respect to your JV impairments, should we read into any of those impairments that those were driven by any type of change in agreements or change in whole period expectations, etc., related to those ventures? And on the joint venture FFO, you said 75% was NOI and fees. Should we assume the remaining 25% are merchant build and related gain?

Scott A. Musil

Okay, the first question was regarding our JV impairment. The majority of that related to impairment charges that we had to recognize under APB 18, so it didn't have anything to do with any agreements or things of that nature. APB 18 requires us to fair value our joint ventures and compare that fair value to our carrying value of the investment. By doing that, that caused the impairments. So, again, that analysis relates to net value at that day, so it doesn't take into account any future value that may occur in the future because of values increasing or cap rates going down.

As far as our JV FFO, yes, the remaining 25% relates to our share of economic gain and promotes that we would earn from sales related to our joint ventures.

Operator

Your next question comes from Ki Bin Kim - Macquarie Research Equities.

Ki Bin Kim - Macquarie Research Equities

Just a follow up on that impairment question, it looks like your expected development yields on your development properties didn't change much from last quarter and I was wondering were the impairments more based on operating properties versus development and how that breaks down?

Scott A. Musil

Sure. The majority of the impairment occurred in our strategic land joint venture and our land and redevelopment joint venture, so more of it was development related as opposed to operating property related.

Operator

Your next question comes from Paul Adornato - BMO Capital Markets.

Paul Adornato - BMO Capital Markets

Again on the impairments, did you review the entire portfolio for impairments and was it done on the same basis as the JV impairments?

Scott A. Musil

We reviewed First Industrial as well. The accounting rule is FAS 144, which is different than APB 18 when you review impairment. So we did review the REIT's properties for impairments and there weren't any impairments that we recognized relating to our balance sheet properties.

Operator

Your next question comes from Stephanie Krewson - Janney Montgomery Scott LLC.

Stephanie Krewson - Janney Montgomery Scott LLC

How many term sheets from banks, from different banks, are you reviewing right now for new mortgage debt with which to refinance your senior unsecured in June or do you just have the book out?

Bruce W. Duncan

What we said was that we've gotten great interest and we anticipate having refinancing done by the time we get to it in three months.

Operator

Your next question comes from Cedric Lachance - Green Street Advisors.

Cedric Lachance - Green Street Advisors

Can you give us a little more color as to which property types you see as faring relatively better in this environment? So you own warehouses, regional warehouses, and some flex assets, some manufacturing. Where do you see occupancy holding best? Where do you see your greatest challenges? And address maybe the same question from a rental rate perspective.

Johannson L. Yap

In terms of product type, the bulk midsized warehouse and light industrials are holding better than R&D flex in general and that is across the nation.

In terms of markets where you're seeing on average a bit stronger would be the markets of Dallas, Houston, L.A., for example, Minneapolis. But overall in terms of activity, velocity is down. There is activity, but much less than last year. And at the same time, rental rates on those few markets that I mentioned to you have been stable, but across the country have been trending down a bit.

Operator

Your next question comes from David Taylor - David P. Taylor and Company.

David Taylor - David P. Taylor and Company

Bruce, you've sort of made it plain that you're not going to pay out any cash in 2009. How about beyond 2009? What's your vision on cash dividends?

Bruce W. Duncan

My vision on cash is I like it and I like retaining it, and in this environment having it around is good. We'll review it for 2010 when we get there, but right now we're retaining cash and we want to make sure we have as much cash around as we can and shore up our balance sheet.

Operator

(Operator Instructions) Your next question comes from Stephanie Krewson - Janney Montgomery Scott LLC.

Stephanie Krewson - Janney Montgomery Scott LLC

Scott, taking occupancy for your portfolio down to 81% to 82% by year end of '09, that looks like it would make you go into technical default on your maximum leverage coverage ratio on your line of credit. What would you anticipate happening to your cost over LIBOR if that should happen?

Scott A. Musil

Stephanie, first, as we mentioned, based upon our projections we wouldn't be in default under any of our loan agreements, so that's not an issue.

Bruce W. Duncan

Secondly, I would say that, again, when you're looking at that occupancy of 81% - 82%, that's all in. What we've tried to do is show you a new number which is probably, I think, as an investor or an analyst would be the most important number, which is how much space do we have in our portfolio that we can lease?

And that's the sort of thing when I'm looking at it in terms of we're looking at the business and managing for increasing NOI and cash flow. We've got almost 20% of our space that we can lease up. Even though, if we hit on the same basis we did it last year it would have been 93% or 91% occupied, this is just giving you another number to show what the opportunity is if we lease that up.

Because, for instance, if you just increase the occupancy by 10 points, from 81% to 91%, that's another 7.8 million square feet. And if you take our average rent of $4.50, that's about $35 million in NOI that we pick up.

So that's really the purpose of why we wanted to show you that number and how we're changing our inplace and our all in.

Operator

Your next question comes from Cedric Lachance - Green Street Advisors.

Cedric Lachance - Green Street Advisors

As per the 10-K, you had not sold a single property in 2009 at the time you wrote the 10K. What's your confidence level in being able to market the properties that you need to sell in order to repay the June debt? And on top of that, can you give us a sense of the kind of cap rates you might be able to achieve nowadays versus what you got last year?

Johannson L. Yap

In terms of sales, we have several assets that we have on the market and we're targeting the most active part of the market today. As we all know, transaction volume is down from last year, but there remain pockets of activity out there. And they're primarily from users, so you'll see even in the fourth quarter of last year the predominant buyer of our properties. In fact, about 70% of the buyers last quarter - Q4 of '08 - was between users and 1031 exchanges. So there continues to be user and 1031 exchange buyers.

In addition to that, in order to gain maximum pricing what you want to do in this environment is to not sell large portfolios. What you want to do is sell portfolios under $10 million. If you look at our average size in Q4 of '08 and going forward, we might actually trend below $5 million as an average selling.

So those are the selling tactics and techniques and focus that we're having to achieve the highest price and lower cap rates.

Operator

Your next question comes from Michael O'Dell - Metlife.

Michael O'Dell - Metlife

Just a couple of points of clarification on liquidity profile. What's your plans for any development spending? I know you said you're not going to start any developments, but the remaining development spending in the pipeline?

And then in terms of your liquidity going beyond 2009, what are you looking to do about your heavy debt load in 2010, 2011 - 2011 [inaudible] 2012, rather.

Bruce W. Duncan

Yes, very little in 2010.

Well, the first question was on the -

Scott A. Musil

Development spending we've got $15 to $16 million related to completing developments and that's all we have in our 2009 requirements.

Bruce W. Duncan

And then on repaying the debt that comes due in 2011 and 2012, again, we've got a lot of assets that we can sell or finance, and we'll be working on that.

Operator

Your next question comes from Stephanie Krewson - Janney Montgomery Scott LLC.

Stephanie Krewson - Janney Montgomery Scott LLC

Does your G&A guidance include joint venture level G&A?

Scott A. Musil

Yes.

Operator

Your next question comes from Ki Bin Kim - Macquarie Research Equities.

Ki Bin Kim - Macquarie Research Equities

Could you just give an update into the leasing activity you've seen in January and February in terms of pricing and volume.

Christopher Schneider

Yes. So far this year we've leased about 1.9 million square feet. As JoJo had mentioned before, the velocity's definitely down from a year ago. A year ago we were at about 3.8 million square feet, so there's some loss of velocity, but we are still seeing some activity.

And then actually on the overall rates, even though we have projected overall for the year to average negative 1% to 3%, the activity so far in January and February we're actually showing a positive of about 2%. So we're actually pleased with what we've seen from that perspective so far.

Scott A. Musil

And so far - I just wanted to add - and so far it's within our plan of lower average occupancy and lower NOI.

Bruce W. Duncan

And our retention rate's higher than we put in budget.

Scott A. Musil

Yes, our retention rate is about 10 basis points higher - sorry, 10% higher than what we've had in our plan for the first two months.

Operator

Your next question comes from Stephanie Krewson - Janney Montgomery Scott LLC.

Stephanie Krewson - Janney Montgomery Scott LLC

Just out of curiosity, why did you buy assets in the fourth quarter rather than buyback some of your senior unsecured notes that are maturing?

Johannson L. Yap

Yes. The assets were funded from a 1031 exchange funds that, if not funded, we would have paid a significant amount of taxes, so that was a good investment. In addition to that, they were 100% income producing assets - 100% leased.

Operator

Your next question comes from Cedric Lachance - Green Street Advisors.

Cedric Lachance - Green Street Advisors

This question regards your line of credit. On the 10-K you revealed that there's about $6 million left in borrowing capacity on the line. I see about $3 million in cash as of December on your balance sheet. How do you finance your development commitments? How do you finance the business with those lines?

Scott A. Musil

We have about $6 million on our line and we've got $25 million of cash on our balance sheet right now, so that gives us the capacity to finance those development dollars.

Operator

Your next question comes from Mark Streeter - J.P. Morgan.

Mark Streeter - J.P. Morgan

Wondering, given all the focus on the unsecured note maturity this year, as a contingency is there anything that would stop your ability from taking your unencumbered assets that, for whatever reason, you can't sell or can't raise secured debt from in, say, the life insurance company market, is there anything that would prevent you from offering the public bondholders new secured notes, some sort of exchange in order to, in the event you need to, refinance that debt?

Scott A. Musil

You know what? We haven't looked into that possibility.

Bruce W. Duncan

We're pretty confident we're going to get this done.

Scott A. Musil

Right.

Operator

Your last question comes from Stephanie Krewson - Janney Montgomery Scott LLC.

Stephanie Krewson - Janney Montgomery Scott LLC

Scott, if you don't mind I'm going to circle up with you on a few small details after the call, but my final question is just organizationally, let me make sure I understand your new triregional corporate structure, which looks a lot like the company looked back in 1999. Specifically, do you still have senior level transaction officers at the VP level such as, oh, I don't know, Kevin Czerwinski our in Phoenix, or have you eliminated that entire layer?

Bruce W. Duncan

No, no, we have that. We have acquisition people, development people in the field. Again, most of our market leaders in the markets we serve have development people, acquisition people, leasing people.

So Kevin Czerwinski's a great example - he can do it all. And that's the type of people we have focused on our portfolio and will continue to focus on that. All's we've done is instead of having Kevin report to one development person, one acquisition person, one something else person, he reports to one person such as JoJo, who's done it all, or David Harker, whose done development, acquisition and leasing, or Peter Schultz. So I think it makes it easier.

One of the reasons we're doing it when we were out in the field asking people who they reported to, there was a little bit of confusion as to who they reported to because there were so many different silos we had to deal with, and this makes it much simpler. And Kevin's going to be running his region and is responsible for the P&L, so we're in great stead with the people we have in the field running each of their portfolios.

Operator, may I just spend a minute and just conclude, which is first and foremost to thank you all for taking the time and participating on the call, and we'll look forward to keeping you updated on our progress in future quarters. And always, if you have any questions, please feel free to call Art, Scott or myself, and we'd be happy to answer any and all questions.

So, again, thank you very much for your time and your interest in First Industrial. We look forward to talking with you in the future.

Operator

Thank you. This concludes today's conference call. You may now disconnect.

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Source: First Industrial Realty Trust, Inc. Q4 2008 Earnings Call Transcript
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