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

Q1 2010 Earnings Call Transcript

April 28, 2010 11:00 am ET

Executives

Art Harmon – Director, IR

Bruce Duncan – President & CEO

Scott Musil – CFO

Jojo Yap – Chief Investment Officer

Chris Schneider – SVP, Operations and Chief Information Officer

Analysts

Ki Bin Kim – Macquarie

Steven Frankel – Green Street Advisors

Paul Adornato – BMO Capital Markets

Dan Donlan – Janney Capital Markets

Ben Mackovjak – Rivanna Capital

Stewart Henley [ph]

Operator

Good morning. My name is Julianne and I will be your conference operator today. At this time, I would like to welcome everyone to the First Industrial first quarter results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) Thank you. I would now like to turn the conference over to Mr. Art Harmon, Director of Investor Relations.

Mr. Harmon, please go ahead.

Art Harmon

Thanks Julianne. Hello everyone, and welcome to our call. Before we discuss our first quarter 2010 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, portfolio performance, our overall capital deployment, our plan 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, 2009, filed with the SEC and subsequent reports on 10-Q. Reconciliations from GAAP financial measures to non-GAAP financial measures are provided in our supplemental report available at firstindustrial.com under the Investor Relations tab.

Our call will begin with remarks by Bruce Duncan, our President and CEO, which should be followed by a review of our results, financial position and guidance by Scott Musil, our Acting Chief Financial Officer after which we will be pleased to open it up for your questions.

The other members of senior management in attendance today are Jojo Yap, our Chief Investment Officer, Chris Schneider, Senior Vice President of Operations and Bob Walter, Senior Vice President of Capital Markets. Now, let me turn the call over to Bruce.

Bruce Duncan

Thanks Art, and thank you all very much for joining us today. Today, my comments will center on our view of our markets in terms of leasing as well as invested demand. I will also review our capital plans for the year as we continue on our mission to deliver our balance sheet, and then I'd like to update you on the status of our joint ventures.

On the leasing front, as noted last quarter we've experienced a pickup in traffic and demand and virtually all of our markets in spaces. Industrial real estate demand tends to lay GDP growth, so with projects for continued economic recovery we may be seeing above the light at the end of the tunnel.

We believe that most markets are at or close to bottoming out, and we are seeing market win stabilize, but lease negotiation still remains difficult given in the level of competing available supply in most of our markets. Give tenant many choices with the national industrial market at roughly 86% occupied.

Within our own portfolio, some of the markets we have picked some occupancy over the past two quarters include Central Pennsylvania helped by our Diapers.com lease as well as New Jersey, Ohio, Phoenix, and Los Angeles. In addition Seattle, Houston and Northern New Jersey continue to remain strong from an occupancy standpoint.

For our overall portfolio, we expect our occupancy to be relatively stable for the next two quarters and then turn upwards in the fourth quarter. We continue to aggressively pursue tenant to improve occupancy. We are using everything in our tool box, location, functionality, our reputation for great customer service, free rent and our ability to fund TI and we are trying to keep lease terms short, so we could benefit from a recovery in rent and protect the long-term prospects for our property. While our business depends on the healthy economy, we are doing what we can to control our own destiny by blocking and tackling.

Our team is doing a great job, day-in and day-out, and I thank them for their hard work. They are doing everything they can to drive occupancy such as executing our programs to make our vacancies lease ready working with our appropriate partners to find properties that meet customers' needs, making unsolicited lease offers, being creative with lease structures and finding users with temporary space needs to pick up incremental cash flow.

One positive regarding to current level of availability is that there is virtually no do supply coming online. New delivery in the United States for 2010 are expected to be below 30 million square feet, compared to 70 million square feet in 2009, and 184 million square feet in 2008. Additionally investment demand for industrial properties continues to improve as there is significant capital on the sidelines speaking as a whole.

We expect that the bid-ask spread should continue to narrow, which should ultimately results in improved sales volumes and higher pricing for sellers. Obviously, a better sales environment would be helpful for us as additionally sales are an important part of our capital management plan, which I would now discuss.

As I outlined my letter to stockholders, our goal for the remainder of 2010 is to reduce our leverage by $200 million, and we will continue our focus on our near term maturity namely are $147 million of converts during September of 2011, and $78 million of our April 2012 unsecured note that is still outstanding.

As noted in our press release, we recently completed the retirement of approximately $71 million of our notes during March of 2011 to the available make-whole provision. We chose to use this provision as it is been difficult to acquire this bonds on the open markets, and as part our plan we are clearing the runway of our near term maturity.

The first source of capital for deleveraging is asset sale. Here our focus is on selling vacant building and land to users. During the second quarter, we completed $45 million of asset sales including $22 million of user sale, the largest been the $14.5 million of land parcel sale to a user in Toronto.

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Now we should note that net all of the sales proceeds will go towards deleveraging as we have one property for which we will be doing a 1031 Exchange. As a result of our success in the first quarter, we are increasing our targeted sales range by $20 million to $100 million to $120 million for the year. So, given that goal the lease roughly an $80 to $100 million funding gap to fill towards our overall deleveraging plan for this year.

We have capacity for additional secured financing, but our ability to buy back debt at a substantial discount has been eliminated by the improvement in the pricing of our bonds and the strong performance to the overall buying markets. We are raising more secured debt to buyback note would not have a major deleveraging impact, but we are not planning for much in the way of secured financing for the remainder of the year especially given that we only have $18 million of maturity debt and regulatory scheduled principle payments this year.

Our secured financing pipeline is roughly $27 million, and we would expect to close this transaction in June. So that leads us for the equity as the main source to meet our delivering goal. As we have stated before, we are very mindful of dilution, but we are also very mindful of the fact that we believe this is in the best interest of all of our shareholders to reduce our debt levels and create more cushion relative to our line and no covenant.

Equity could be raised through a few methods including filed offering or through a continuous equity program also known as an ATM. Moving on to our joint ventures. As we noted last quarter our various ventures with our partners CalSTRS had approximately $350 million in total of debt maturity later this year. We and our partner had an active dialogue on how these maturities should be handled. In the context of ventures intent, market conditions and our partners publicly stated desire to delever.

At this time it is clear that the desire to the partners with respect to the size and pace of deleveraging do not match. Given our focus on deleveraging our balance sheet, we do not want to commit additional equity to these ventures at this time. Thus, we would anticipate that our FirstCal joint venture relationship will be significantly reduced in the coming months.

We are working with our partner to structure a solution that works for all parties. And at this point, I cannot provide more specific details on the economics of the potential separation. I will tell you that our projected share of NOI fees and promotes from the FirstCal ventures for the second, third and fourth quarter of 2010 were expected to total approximately $2.5 million. Any revenue loss in these ventures would be offset by commenced risk overhead reductions such as any change in this joint venture will have a negligible impact on our earnings this year and allow us to continue to pass our debt covenant.

Unfortunately, changes to the joint ventures will require some difficult decisions that would affect some of our team member. Also the current book value of our FirstCal joint ventures is approximately $1.5 million. Even with the potential adjustment in overhead as we look to the future, we maintain a broad infrastructure and institutional knowledge to execute new joint ventures, our co-investment programs in the future.

We would expect any future ventures to be acquisition focused as we believe that acquiring properties or portfolios who offer the best investment opportunity in the coming year as opposed to the new development. As we talk about capital, I would like to again cover our dividend policy in our financial covenant.

With regard to the dividend, as we discus previously our policy is to distribute the minimum amount required to maintain our restatus. If we were require to pay common dividend in 2010, we may elect to satisfy this obligation by distributing the combination of stock and cash. We will monitor this throughout the year and keep you updated.

Taxable income levels are in part dependent upon the level and nature of our sales. As a read, we know that dividend are important to our investors and we look forward to the day when we could be instate them, where they will be aligned with our recurring cash flow.

As we caution in our press release last night and previously, we continue to operate with a little cushion in certain of our financial covenants under our line of credit agreement and unsecured debt indenture. If we meet our plan for 2010 including our target level of asset sales under favorable terms, we believe we will continue to be in compliance to our financial covenants throughout 2010.

With respect to the debt service covenant under our line of credit agreement, if we were otherwise unable to meet that covenant we believe we could meet it by choosing to suspend dividends on our outstanding preferred stock for one or more quarters. As you saw we declared and paid our preferred dividend for the first quarter.

Before I turn it over to Scott, let me say it again that our focus is squarely on leasing, deleveraging and managing expenses. While our stock prices improved as we sold last, we believe our valuation continues to be interested reviewed relative to our peers particularly given our opportunities to improve cash flow overtime by reaching our current vacancies as demand for industrial space from customers continue to improve with that. Scott?

Scott Musil

Thanks Bruce. First, let me walk you through our results for the quarter, which contain a number of one-time items. For the quarter, funds from operations were $0.11 per share compared to $0.38 per share in the year ago quarter.

FFO results were affected by a few one-items including an impairment charge of $0.14 per share related to one balance sheet property and $0.01 per share gain from early retirement of debt. Results for the quarter also included approximately $0.02 per share of neighboring-compliant gains.

If you exclude these one-time items, FFO per share would have been roughly $0.22. I would also like to know that G&A expense for the quarter was higher than our projected run rate that we provided last quarter largely due to $0.02 per share cost related to the settlement of certain legal matters. EPS for the quarter was a loss of $0.35 per share as it was in the year ago quarter.

Moving on to the portfolio. Our occupancy for in-service portfolio was 81.4% down from 82% last quarter. As we noted on our last call, our in-service portfolio is now comprised of all, but one property, a 55,000 square foot redevelopment in the Baltimore market.

In the first quarter, we commenced 4.9 million square feet of leases on our balance sheet. Of this 4.9 million, 1.9 million were new leases, 3 million were renewals and we had 800,000 square feet short-term leases. For the quarter, tenant retention was a solid 69.4%, particularly in the line of the 657,000 square foot move out in Atlanta that we discussed in our last call.

Same-store NOI on a cash basis was negative 6.9% which exclude termination fees and rental rates were down 13.1% cash-on- cash. These metrics were in line with our expectations and reflective of the competitive market conditions.

Leasing costs averaged $1.81 per square foot for the quarter, and we expect leasing cost to be roughly $2.20 per square foot in 2010. First quarter leasing cost were lower than average to in part to the high percentage of renewals with many on an as is basis.

Moving on to our capital market activities and capital position; asset sales in the fourth quarter totaled $44.5 million. Sales were comprised to four building totaling 266,000 square feet including three buildings to customers one of which was vacant. We also sold one lease land site in the land partial and trial that Bruce mentioned in his comments.

On the secured financing side, we closed four transactions with one lender generating $27.5 million of proceeds secured by four properties totaling about 800,000 square feet. Each loan was at interest rate of 7.4% with the maturity of five years.

For the first quarter, we also issued approximately 900,000 shares of common stock raising approximately $6 million to the direct stock purchase feature of our drip program. We now have approximately 1.1 million shares remaining under this program. Regarding our debt management activities, in the quarter we completed our tender offer in which we purchased a total of approximately $160 million aggregate principle amount of notes comprised of $73 notes of the March 2011 notes, $66 million of the April 2012 notes and $21 million of the June 2014 notes.

As Bruce mentioned, we recently completed the repurchase retirement of the remaining $71 million of a 7.375% notes due March 2011. Since we retire this bonds at a premium of 6% or roughly $4 million, second quarter and full-year EPS in FFO will have the impact of $0.06 per share loss and the retirement of debt.

After completing this repurchase, our next senior note maturities are $147 million convertible debt due at September 2011, $78 million of the notes due April 2012 and $92 million of the notes due June 2014. And I remind you that our $5 million line of credit matures in September 2012.

Quickly summarizing our capital structure in position our weighted average maturity at 7.4 years; our secured debt is approximately 10% of our total assets for the calculations of our credit line and note covenants. Our maximum secured leverage and both of these covenants is 40%. We've less than $80 million of maturing debt and scheduled principle payments for the remainder of 2010.

In our cash position plus line of credit availability as of today is approximately $32 million. With regard to our loan covenants, we were in compliance in the first quarter of 2010 and expect to be in compliance for the remainder of the year subject to achieving our 2010 plan.

Regarding 2010 guidance, as noted in our press release, our FFO per share guidance range is out $0.76 per share to $0.86 per share from our prior range of $0.95 per share to $1.05. Due to the following one-time items from the first quarter as I discussed a moment ago, neighboring $0.02 per share of neighboring compliant gains and the $0.14 per share impairment charge all recognized in the first quarter.

Guidance also reflects the impact of the $0.06 per share loss and retirement of debt through the exercise of the make-whole provision related to the repurchase and retirement of the 2011 notes we just completed which will be recorded in the second quarter.

Our guidance does not reflects the impact of any further debt buyback nor the impact of further asset sales and neighboring complaint gains that may occur in the remaining quarters of 2010. Guidance also does not reflect any potential additional equity issuance, but includes the impact of one secured financing transaction totaling approximately $27 million expected to be closed in the second quarter.

In addition, I would note that our net income in FFO guidance reflects an additional $0.03 per share loss to be recorded in the second quarter related to provision for state income taxes resulting from the reversal of a tax court appeal. This change does not impact our covenant calculations.

I will now reiterate some of the other key components of our guidance for 2010, which is also found in our press release. Please note that these components are unchanged from our last call. For the year, we expect average in service occupancy to be 81% to 83%. Our forecast for same store NOI for the year is projected to be negative 5% to negative 7%.

Our estimate for rental rate change for the year is negative 11% to negative 13%. JV FFO is expected to be between $6 million to $8 million and G&A expense guidance remains unchanged at $31 million to $33 million. Please note our joint venture FFO and G&A expense guidance does not reflect any potential changes to our joint ventures.

As Bruce discussed, any changes to our JV earnings stream would be roughly offset with related overhead reductions. With that let me turn it over to Bruce.

Bruce Duncan

Thanks Scott. Before we open up to questions let me state that in terms of tenant demand and occupancy, we are encouraged by the activity and interest in our facilities. We are working hard every day to get our vacancies leased and to retain our existing tenants.

We remain focused on deleveraging our balance sheet and mitigating risk related to our covenants and our energies are dedicated to enhancing the value of our portfolio to leasing and executing select asset sales, particularly vacant buildings and land. While we are disappointed with the possible changes to our current joint ventures, our platform is valuable and difficult to assemble or replicate. Currently, our main focus is on leasing and reducing our balance sheet leverage but we will look for appropriate future joint venture opportunities to utilize the expertise and experience of our organization to add value for our shareholders.

Now with that we'd be happy to take your questions. As a courtesy to our other callers we ask that you limit your questions to one plus a follow-up in order to give the other participants a chance to get their questions answered. Of course you're always welcome to get back in to the queues.

And so now Julianne, could we please open it up for questions?

Question-and-Answer Session

Operator

(Operator Instructions) Your first question is from the line of Ki Bin Kim with Macquarie.

Ki Bin Kim – Macquarie

Hi, thanks guys. To the extent possible, could you just talk about the stated JV with CalSTRS dissolution process as part of the contracts?

Bruce Duncan

Well Ki Bin, I would say that in terms of -- right now we're having discussions with, that's what we -- we have it very formerly, no one is formerly going buy or sell something like that. We're just trying to negotiate a solution that there is, in each of the documents a mechanism subject to certain requirements. You can dissolve the partnership through a buyer or sellers or similar type mechanism.

Ki Bin Kim – Macquarie

And so if you had this -- dissolved your JV and sell their assets to fit their party and if in a scenario where the asset sales price is below the debt associated with it, what would happen then?

Bruce Duncan

Let me be clear. Remember, this debt, these ventures we're laying to the intent that they have their 65% financing. The financing is subscription debt. It is not recourse debt or secure debt. So there is no recourse to First Industrial on any of this debt. And the debt is not secured by assets, okay. So there is no exposure to us.

Ki Bin Kim – Macquarie

Okay if interest cost -- is that part of our total covenants from the JV?

Bruce Duncan

No. The interest covenants are not part of the line of credit covenant.

Ki Bin Kim – Macquarie

All right. Thank you.

Operator

Your next question is from the line of Steven Frankel with Green Street Advisors.

Steven Frankel – Green Street Advisors

Thank you and good morning. Can we just talk a little bit more about the deleveraging plan? You guys share price is done really well this year. I think you've outperformed your peers by 40% o something. What's held you guys back from raising equity over the last couple of months when you guys are now trading at a pretty hefty premium to our NAV?

Secondly with the JVs, why aren't you turning the keys on the debt there? Why are you not tending the keys on the properties. Those ventures are pretty levered at this point. It would seem -- that would be an effective way of handing it in. And then kind of third of all your sales target for year is 100 to 120 but you've already done 50 this year. Is there a reason why you're not anticipating if the large jump of sales is ending and more and more buyers are coming into the market and that aspect is narrowing as opposed to widening, why sales wouldn't be higher during the year?

Bruce Duncan

I think there are three questions. So let's try and take them one by one. In terms of equity sales, I think that we're pleased with the way our stock has performed this year and I think from what we're seeing is I would anticipate that we will be reaching out of the equity market between now and the end of the year to fit our goal to deliver by $200 million.

So I think you could anticipate that. In terms of giving back the keys to the lenders, the lenders don't have any security for the keys and from our standpoint, the business, the long the guarantee by CalSTRS, but again we're working with CalSTRS and trying to figure out something that works for the partnership and works for the partner.

So that's really our goal. And the final question was, on sales, again we were pleased with what we were able to tell in the first quarter. We're pleased -- we love the way the market is, the demand for product is pretty strong. That's why we increased our goal by $20 million. And again we'll have to see if we fall along through the year in terms of how we do.

Remember, we do have a requirement that if we don't have debt or losses, its affects our covenants. So that's a governor if you will in terms of what you could sell and what you can't sell. So that's our focus and our focus again still is to sell vacant land and vacant buildings. I would note that we had a great sale of that piece of land in Toronto at a profit. We got that just two years ago and it was a very good sale of $14.5 million. So then we'll look at how, what the market gives and we'll report back in the next quarter. But we're going to stick with what have of $100 million to $120 million.

Operator

Your next question is from the line of Paul Adornato with BMO Capital Markets.

Paul Adornato – BMO Capital Markets

Thanks. Good morning. Bruce you said that one of your strategies would be to try to have shorter lease terms. I was wondering how flexible the potential tenants are to those shorter terms since they do have so many choices. Are they willing to entertain shorter terms?

Bruce Duncan

It's a good depends. It depends. Some people see this as a great opportunity and are locking this in for longer term. Our goal is, if we're being real flexible on the rates is to keep short as possible. If you look at the states we did in the first quarter, our average lease term was a little over three years. So it was pretty short and you're very positive about that.

Paul Adornato – BMO Capital Markets

And so do you think that's why your cash on cash comparisons are perhaps a little bit worse than some of your peers?

Bruce Duncan

I would say, I think we're very much in line with some of our peers in terms of this. Another major period I guess we're not stating, they were about negative 12% and we said we're going to see rental rates from a cash on cash perspective. We are going to be rolling down for the next two to three years. On the flip side we're seeing like market rents or asking rents are starting to stabilize. So it's pretty consistent, what we're seeing.

Paul Adornato – BMO Capital Markets

Okay, thank you.

Operator

(Operator Instructions). Your next question is from the line of Dan Donlan with Janney Capital Markets.

Dan Donlan – Janney Capital Markets

Hi, good afternoon. So Bruce, can you guys just, can you just not recognize the $112 million you have in debt with CalSTRS. Can you just basically not pay that anymore?

Bruce Duncan

Yes, Dan. Those investments and ventures are equity method and investment. So the debt is not carried in our balance sheet. The debt is not counted toward our covenants as well and as we mentioned, the debt is non recourse to First Industrial.

Dan Donlan – Janney Capital Markets

Okay, so for any of these purposes we can just take that away if you guys decide to just go that way. And then also, thinking about your fixed charge coverage ratio, which you guys just said you're close on, I'm just curious as to, and I'm probably not going to make any friends with the preferred shareholders here but why won't you just go ahead and cut the preferred instead of selling assets which is reducing your NOI's. Has there been any thought process behind that?

Scott Musil

Oh, no. Again, to the extent we can continue to pay the preferred we will. At the end of the day, if we don't pay the preferred at some point, we have to make it up and pay that because we're paying dividends down the road to shareholders and we've got to make sure the preferred are all caught up by then. So again our philosophy, what we're going to continue to do is go about running our business and (inaudible) preferred to show that we've got cushion here. If it gets close to not pay it, we will make sure we don't continue the covenants in the line of credit.

Bruce Duncan

Plus Dan, the other benefit of the sales is delivering. We're using that proceed to pay down debt.

Dan Donlan – Janney Capital Markets

Understood. I'll go back in the queue.

Operator

Your next question is from the line of Ben Mackovjak with Rivanna Capital.

Ben Mackovjak – Rivanna Capital

Hey, guys. Thanks for taking my call.

Bruce Duncan

Hi Ted.

Ben Mackovjak – Rivanna Capital

The guidance you gave at the end of last quarter for FFO's does that include the two step charge for the legal fees and also the six step charge for the retirement debt?

Bruce Duncan

The legal fees was embedded within the guidance within the $0.06 of costs related to the retirement of debt in the second quarter. We've not included in the guidance for the fourth quarter.

Ben Mackovjak – Rivanna Capital

So you took up guidance versus where it was last quarter? Is that allowed?

Scott Musil

Well if you net all the plusses and if you take out all the onetime items then we're pretty close to what our guidance was in the fourth quarter for FFO.

Ben Mackovjak – Rivanna Capital

Okay, thank you.

Bruce Duncan

Thank you.

Operator

Your next question is a follow-up from the line of Ki Bin Kim with Macquarie.

Ki Bin Kim – Macquarie

Thank. Just wanted to go back to your commentary about, that you're expecting occupancy to bump in the fourth quarter. So what gives you confidence that will happen? Is it more based on the timing and the general economy or are you guys in some things of these sizeable [ph] of these negotiations outcomes in the fourth quarter.

Chris Schneider

Ki Bin, this is Chris. A couple of things that we're seeing as far as in that and again what we're anticipating that we see stabilization of occupancy in the third or second and third quarter, then an uptick in the fourth quarter and what we are seeing is that first of all our retention rates for the first quarter as I mentioned it was relatively strong as 69% and of course that includes our move out of 657,000 in Atlanta and we had anticipated that previously. So, we feel going forward that's at our negotiations with tenants, they were anticipating relatively strong retention for the remaining three quarters.

Another thing that we are seeing too is as Bruce has mentioned, definitely the traffic or the activity and prospect of tenants is up. Another thing we are looking at is just – we are seeing the amount of tenants that are not asking for an expansion of space, suppose to reduction a space over the last the three quarters, third quarter 2009 for instance we had about 200,000 square feet in expansions and about the same number in reduction so, it's about net zero.

Last quarter we saw about 70,000 in expansions about 90,000 reductions for a net negative service to about 21,000 but in this quarter we saw about 180,000 square feet in expansions and reductions were about 70,000 square feet. So, we saw a net absorption from that perspective about a 120,000. So, those were the couple of the factors that we're seeing that we see some good factors out there and we think we will have the slight increase in the fourth quarter.

Bruce Duncan

And also we only have one tenant over 200,000 square feet that is somewhere due between now and at the end of the year. So, we are going for a big rollover of large tenants.

Chris Schneider

And obviously at least the retention is huge factor; we can retain the tenant and versus have the lease side out. So, if I am positive factor that we are seeing.

Ki Bin Kim – Macquarie

Are you seeing a return of any fixed ball figures in a big way like any new leases that you are negotiating 100,000 square foot plus for new tenants.

Bruce Duncan

We are constantly negotiating with people but we'd like to talk once we find leases.

Ki Bin Kim – Macquarie

Okay thanks.

Operator

Your next question is from the line of Stewart Henley [ph], a private investor.

Stewart Henley

Hello, good morning. I would like to make brief comments since we all our $0.02 worth on the stock price and as a private investor I personally would like to say that I view that the NAV of the stock is well above the current rating price and as an investor I try not to use how well a stock has done year-to-date of rationalization of any of my moves and I am sure that you will do the same. My question to you Bruce the detail you gave about the capital plans, do you feel that there is anything specific that you will be able to do with the 2011 convertible notes prior to their maturity given that their probably dull.

If I own that security I would probably be picking up a phone and talking with you.

Bruce Duncan

Again from our standpoint, we got capital in terms to buyback debt and we will look at that thing on the pricing up as we look at all of our how we are going to allocate our capital. We will look at that and again there is a lot of time between September 11th. So, we may have an opportunity to buy back some of that but who knows?

Stewart Henley

Have you had conversations with those holders since you bought back that piece of it last year?

Bruce Duncan

We continue to have discussions with holders. The dates in terms of, the pricing of what they been willing to sell at that hasn't being what we saw very attractive.

Scott Musil

And the sales activity of our bonds has been pretty light since the tender offer that we closed in early March, in early February.

Bruce Duncan

And again I mean all of our bonds as well but we just have not seen a lot of activity in terms of willing to sell it in those price.

Operator

So, next question is from the line of (inaudible) AIG Asset Management.

Unidentified Analyst

Hey guys thanks for taking the question. Just trying to get some color in terms of who the buyers are in the vacant buildings and all these local players and just any additional detail you can provide there?

Scott Musil

Let me add something and then Jojo can jump in, in the land in Toronto it was a user that had some property of various within probably two or three miles of us and they were getting somewhat moved out by zonings in terms of its getting too dense around them and it was amazing in terms of that they were able to move so quickly to buy this land and close and we are still flat getting its own but they are getting some help from the locals people and expediting. So, it's a very good sale for us. Do you want to talk some of the other Jojo?

Jojo Yap

Excuse me, for the three other sales to our customers all of them wanted to own the building rather lease and they were planning significant improvements to the state and they wanted to take control of the state and I mean in that case it was still a win-win situation. Selling properties through them and we are very pleased with the price and them basically buying the building.

Scott Musil

Some of them are in Dallas and one with the vacant building is really sold in and singled it.

Unidentified Analyst

Again in terms of the JVs, is there anything that you are seeing now where you could work in the same situation as you are really with CalSTRS in terms of getting back the keys with the lenders?

Scott Musil

First its CalWest and next CalSTRS

Unidentified Analyst

Sorry.

Scott Musil

But in terms of aside from the CalSTRS venture we have eventually equated finance policy and that our certain launch of net leases and this time the processes and gets over the next three to five year, that partnership will advances profitable for you long period of time.

Jojo Yap

Investment period on that expires a bit ago.

Unidentified Analyst

Thanks.

Operator

(Operator Instructions). Your next question is a follow up from the line of Steven Frankel with Green Street Advisors.

Steven Frankel – Green Street Advisors

Thank you, can we just talk about the two secured debt offerings you guys have pointed to in the result there is each diversions in interest rate and is the LTV just materially different between both loans where you are able to get 100 basis points of a lower interest rate on a five longer maturity.

Bruce Duncan

Let me have Scott comment on this.

Scott Musil

Sure Steve, the transactions that we have closed in the first quarter were four individual loans on single asset buildings now across (inaudible) across the fall bid. They also contribute a favor bid of prepayment flexibility and we are committed in the later part of 2009. So, I think was reflective of the market then. The new transactions rather that we are pursuing is clearly reflective of what we are seeing in the debt markets in terms of interest rate dropping and advance rates increasing use for longer-term.

Steven Frankel – Green Street Advisors

Is there an LTV there on the new loan that you guys are working on?

Scott Musil

The new loans are in the range of 70% LTV.

Steven Frankel – Green Street Advisors

Have you guys talked to your line lenders just about covenants and what you guys are doing in 2012 and that each of leg of that comes to?

Scott Musil

Steve we constantly talk to our line banks and they confirm it to afford it but do you know we have a liner of credits that's expired in September of 2012, a 100 basis points of the LIBOR. So, it's very attractive to me, to the extent we could get them flexibility on our covenants and also give us the ability to saw the FX that have losses that will be helpful because we are starting it out with the banks and works for them and for us it's something that we consider but we have gotten into conversations with them and we will keep you focused on.

Steven Frankel – Green Street Advisors

Thank you.

Operator

Your next question is also a follow-up from the line of (inaudible).

Unidentified Analyst

Just had a question on the starting off with the margins you are operating expenses is here, it looks like they have picked up quite a bit from the fourth quarter to the first quarter. I think there is probably some seasonality to that and I don't know if you comment on this in the beginning part of the call was like getting on. Could you give us maybe a run-rate of where do you think operating expenses might be for the last three quarters. Is it some of what that isn't in 2009?

Scott Musil

I think the margins that in the first quarter there were a lot of expenses related to cell removal in the first quarter, some of the winters out east. We are a little bit worse. As far as the margins are concerned, Dan we will get to you on that.

Bruce Duncan

And Dan also what Scott mentioned as far as the – there is definitely a seasonality with the snow removal and in out east we were hit pretty hard with that but keep in mind majority of that is recoverable. So, its minimal impact on the net NOI number.

Unidentified Analyst

What are the termination fees in the quarter?

Scott Musil

$249 million.

Unidentified Analyst

Okay and could you breakout what your GAAP declines in GAAP rental rates for new versus renewal leases?

Scott Musil

We report everything on a cash on cash basis so the breakdown for the 13.1% for this quarter were on new deals the drop was about 25% and the new deals is about 7.7% and that's cash on cash versus the GAAP.

Unidentified Analyst

Do you have for GAAP?

Scott Musil

For GAAP we have an overall number, the GAAP drop was about 9%.

Unidentified Analyst

Okay and then you talked about $80 million to $100 million in sales. You anticipate potentially for the last three quarters of the year, any sense of how of that would be land versus occupied building versus vacant buildings.

Scott Musil

No we will keep you posted as we go. Again the focus if we can is probably the unoccupied buildings and lands where see where the market gets is.

Unidentified Analyst

Okay.

Bruce Duncan

It's still 100 points for the year.

Unidentified Analyst

Okay and then just and maybe I am missing something here, the developer win inventory win from $90 million at the end of the fourth quarter to about $90.3 million this year but you guys are assuming it at the end of this quarter. But you guys saw the 55 acres of land I mean the Inland Empire. I know you have said something been leased. Why didn't that go down by more?

Scott Musil

Well first thing as we the land Inland Empire was not part of that because that was leased land. But we did sell some land in Toronto, so that reduced the fair value of land compared to the fourth quarter but then there were some other land parcels that the value increased that's how we got to the first quarter. For instance the land we sold in Toronto we got a very good price it was greater than what we had valued at and we also own another parcel next to it, so the value of that went up as well. So, again, last quarter went down because the sale in Toronto and then we had some new mark-to-markets and some other land parcels that we had that population.

Unidentified Analyst

And the two more if I may, you deferred rank calculation keeps steadily rising. Is that one particular tenant or can you maybe talk about what's driving that?

Scott Musil

What do you mean, are you talking about the straight line rent income, is that what you saying?

Unidentified Analyst

If you look on the liability side of your balance sheet it says deferred rent and maybe I am looking at it incorrectly.

Scott Musil

It's deferred leasing intangibles but on the liabilities.

Unidentified Analyst

Maybe read it wrong, okay and I guess I read it wrong. And then lastly how are you determining what property you used to sell to reduce leverage, what is the criteria. Is it something that you can achieve to gain on, is it stuff that maybe not necessarily core or what's your general criteria there?

Scott Musil

Well right now in terms of our number one things is going, properties that we are going sell through post to break even we are working but given that caveat we are looking to sell empty building and vacant land our top priority.

All right, next question Operator?

Operator

There are no further questions at this time. I will now turn the floor back over to Mr. Duncan for any closing comments.

Bruce Duncan

All right, well thank you very much. Thank you Operator. Thank you all for participating on our call today. Please feel free again to call us with any questions and we look forward to seeing many of you at Chicago in early June. Thanks a lot.

Operator

Thank you all for participating in today's conference call. You may now disconnect.

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Source: First Industrial Realty Trust, Inc. Q1 2010 Earnings Call Transcript
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