First Industrial Realty Trust's CEO Presents at Citi Global Property Conference (Transcript)

Mar. 5.14 | About: First Industrial (FR)

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

Citi Global Property Conference Call

March 5, 2014 10:50 AM ET

Executives

Bruce Duncan - President and CEO

Scott Musil - CFO

Peter Schultz - EVP - East

Analysts

Michael Bilerman - Citigroup

Michael Bilerman - Citigroup

[Call Starts Abruptly] 10:50 AM session at Citi’s Global Property CEO Conference on Day 3. I am Michael Bilerman. This session is for investing clients only and if media or other individuals are on the line, please disconnect now. Disclosures are available up here and on the webcast on the disclosures tab. We are very pleased to have with us Bruce Duncan, CEO of First Industrial. Bruce, I’ll turn it over to you for introduce your management team and for some opening remark and then I am happy to kick it off with some Q&A.

Bruce Duncan

Perfect. With me today Scott Musil…

Michael Bilerman - Citigroup

It feels like tonight after three days…

Bruce Duncan

Right, it does feel like tonight, but thank you very much for hosting us. It was a great three days, so thank you, Scott Musil, our CFO; Peter Schultz, who runs our Eastern Division, Executive Vice President; and Art Harmon, the Head of Investor Relations. As you know First Industrial is a nationwide player in the industrial business. We have about 66 million square feet under ownership or under development. From our perspective in terms of our all major markets, our largest market is Southern California a little less than 10% and with our new developments there it will probably be up to over 12% in the next year or so. From our perspective, things are pretty good. If you look at it in Investor Day in November of 2011, we were at 86.6% occupied and we set a goal at that point to get to 92% by the end of 2012 and we ended the year at 92.9%, so we had a big increase over the last two years.

The stock has done well and really the real issue is that’s all behind us is what’s next and we had our Investor Day in November of 2013 just a couple of months ago, and we set out new goals for the Company. Our new goal is get to 95% plus or minus by the end of 2015 and what we think is interesting is that we set out the potential opportunity to grow our AFFO over the next four years to 70% to 90% which we think is a very good goal for us and we broke it down, so investors can look at that and see what they think is the probability of our new goal internally that we are going after. But we are encouraged that in the industrial space demand is very good across all markets. If you ask where we are today versus a year ago, we are feeling much more bullish today than a year ago in almost all markets, even some markets such as Atlanta that were laagered, if you are starting to see a pick up a little bit.

So, again we are encouraged and we will open it up for questions.

Question-and-Answer Session

Michael Bilerman - Citigroup

Great, thanks for that Bruce. So, we have been opening up each of these sessions with the same question to each CEO which is, what you think is the most misunderstood thing about First Industrial specifically and what are you doing to address it?

Bruce Duncan

From our perspective a; I think what we think again even with what our stock price has done, we still think we are trading at a higher cap rate than our competitors by a decent margin. But we don’t think that the market understands the growth that we think is potential in terms of the AFFO growth that I just talked about. In order to being able to potentially increase AFFO by 70% to 90% over 4 years it’s a pretty good rate and we think that’s misunderstood. And again, this whole thing for management is, we had this demonstrate quarter-by-quarter and how we are doing in terms of going after that and increasing our AFFO. But we got a great opportunity if you look at what’s on our balance sheet right now. We have completed about $110 million worth of new construction or bought properties that were vacant that we haven’t leased up. By the end of last year 2013, we have got another $50 million of stuff that will be completed, projects that will be completed in the first quarter of this year, 555,000 square foot in the Inland Empire. And from our standpoint, if you can lease that up that’s very significant growth in the cash flow by itself. It’s probably $0.08 to $0.09 a share, so we are on it but it’s our job to make it happen.

Michael Bilerman - Citigroup

You said 70 or 17, what’s that growth in AFFO?

Bruce Duncan

70% to 90%, over 4 years.

Michael Bilerman - Citigroup

70% to 90%. Okay, so the current -- I don’t know what basis, so current consensus is $0.81 for ’14 or do you dial back to ’13?

Bruce Duncan

Yes, we did ’13 we were at like $0.65, $0.66 or something like that.

Michael Bilerman - Citigroup

And so a lot of it’s already coming in.

Bruce Duncan

Yes, so this year will be a decent increase in it and hopefully it will keep going overtime.

Michael Bilerman - Citigroup

So, we are talking about a midpoint of a $1.20 in that, we want to get to a $1.20 in AFFO?

Bruce Duncan

Yes.

Michael Bilerman - Citigroup

Okay. So, and you said last year was $0.67?

Scott Musil

$0.66 was last year 2013.

Bruce Duncan

Internal consensus is about $0.81 for this year.

Scott Musil

And we are around $0.79, so if you look at the growth rate in our AFFO for our projections, it’s about 20% which is one quarter of the midpoint 80% growth that Bruce just discussed.

Bruce Duncan

Which is sort of consistent with the dividend increase that we just announced last week of about 20.6%.

Michael Bilerman - Citigroup

So you have, walk me through sort of the growth, where is that growth coming from in ’14 in terms of about $0.15 and then the next $0.40 to go, what are the categories that drive those pieces?

Bruce Duncan

Scott why don’t you do it?

Scott Musil

Right, well the main driver for 2014 is the same-store growth. We gave guidance of 3% to 5% midpoint, 4% that’s coming from a growth in occupancy, our goal is to hit 94% by the end of the year. The other growth driver that we have for this year and the next couple of years are rent bumps embedded in our leases, so last year about 75% of the leases signed that had over a year of term had rent bumps that average about 2.9%. Those are the main growth drivers in 2014, which is causing the increase in AFFO.

As you look farther down the road you’re going to have a little bit of the same, in increase in occupancy, our goal is to hit 95% plus or minus by the end of 2015. We plan to refinance some high cost debt that we have coming due the next four years, so we’ll have lower interest expense. We’ll have lower capital expenditures of about $0.07 per share, and that’s because once we hit a stabilized occupancy of plus or minus 95%, we’re not going to have to spend as much capital TIs in leasing commissions on new leasing.

And then another big piece of it as Bruce mentioned as we have got some developments that we completed this year that in 2013 rather that we’re going to complete in 2014 and we also have an acquisition that we bought last year vacant, that we’re going to lease up, we’re going to have some cash flow growth from those properties as well.

Bruce Duncan

And that would be the biggest increase in 2015, is the lease up of those properties in ’14 the impact will be fully felt in ’15.

Michael Bilerman - Citigroup

So $0.40 if you break it out between those five categories between occupancy, across I guess rents, refinance the debt, CapEx you said was 7, development and acquisitions which -- and I apologize is this information has already been…

Scott Musil

I mean here are the thesis that we laid out is about say $7 million from balance sheet and that’s basically refinancing some of the higher cost that we have got coming due next several years. Small credit opportunity rent bumps and TIs and leasing commissions are about $33 million and then the rest of it of say 22 million or plus is going to be leasing up some of our top-10 key bulk vacancies as well as these developments that we have been discussing.

Michael Bilerman - Citigroup

Is there no negative offset from selling more assets or higher G&A, because I know you don’t work for free?

Bruce Duncan

Almost, from my standpoint in terms of if you look we have not factored in sales but we haven’t factored in new investments too, for instance we’re starting two new developments one in Houston of about 350,000 feet and one in Dallas a two building complex just under 600,000 feet. So we haven’t factored in both sales or new acquisitions or developments, we said that will be -- they will offset each other. So in terms of that -- and in this analysis we also didn’t factor in rental increases.

Michael Bilerman - Citigroup

So there is no growth in market rent?

Bruce Duncan

No but we do factor in that you’ll get bumps in leases as we have it but no…

Michael Bilerman - Citigroup

No net positive rent on rollover.

Bruce Duncan

Yes.

Michael Bilerman - Citigroup

But you are leasing up the space effectively flat, basically leasing it up and then the existing rents that are rolling over you’re basically rolling over at flat?

Bruce Duncan

Yes.

Michael Bilerman - Citigroup

And then the G&A snarky comment I made.

Bruce Duncan

Yes that was a snarky comment and I am sure you want to retract it but from our standpoint our G&A is in line with our peers and we don’t see a big increase in it going forward.

Michael Bilerman - Citigroup

Okay. And so just, you have done a lot of restructuring since you have come onboard to the Company. Where do we stand now in terms of how much is left? And I guess from the perspective of this plan I would have just thought that you’re still in a dilutive nature if you sell an asset versus where you were reinvesting or certainly in a lag. Right, so certainly if you were to sell an income producing asset today in reinvestment development it just takes time.

Scott Musil

You’re absolutely right. There is a time to development. The reason we focus on that we think on a risk adjustment basis we’re getting a pretty decent returns. But looking at the product we want, we’re not overbuilding the site and we’re doing a lot of in terms of excess trailer parking and parking lot more fells and whistles because we own these assets long-term, but there is a lag. But if you look at what we sold last year, in the fourth quarter it’s about $75 million worth of assets in terms of the cap rate on that was probably was about 65%, 67% so we thought that was descent and with that we called in our preferreds -- we had some preferreds 50 million securities and with 25 million securities, so we got a great way to use those excess gross, and like what the old preferreds and like 8 and 5, 8 or something?

Bruce Duncan

I wish they are 8 and 5, some of these were in the 7 and some of them were floating in the mid-6s but again what we have said before on the Investor Day, as we want to get to an investment grade, we made good progress on that but again it’s part of the strategy of being able to lower our cost of debt. We’ve got a pretty high cost of debt relative to our peers and we think that’s an opportunity as Scott alluded to in terms of what the benefit is. He might talk about where we’re on investment grades.

Scott Musil

Yes so one of the goals that we laid out at Investor Day November of last year was to obtain investment grade on our unsecured debt by the end of 2014. The last three months we’ve had a lot of traction on that front, first at the end of December Fitch upgraded us to BB+ and they kept us at a positive outlook, so they’re one rating away from investment grade. And again they are at a positive outlook which is we like having that, because that means they can convert us to the next rating level very quickly.

Two Fridays ago Standard & Poor’s upgraded our unsecured debt rating to BBB-, so it’s the first rating agency that has us at investment grade so we’re very excited about that. And then yesterday afternoon Moody’s upgraded us from BA2 and BA1 and they kept our outlook positive as well. So if you look at our goal S&P we’re there at a BBB- the other two agencies were one notch away and both have us at positive outlook so we feel very good about being able to reach our goal at the end of 2014.

Michael Bilerman - Citigroup

Take questions from the audience.

Unidentified Analyst

Do you guys still own the ADESA assets and if so do you consider it like long-term cohorts?

Bruce Duncan

Yes, we still are in the ADESA asset these land leases, the land that we own that we leased to ADESA which is sort of a car lot type operation we like the location some of them might have been used to and we’d love to get back, Atlanta we’d love to get back. So we continue to have discussions about them and see if we could find other sites for them and to get some of these back because it was a 20 year lease with annual bumps and they’ve got some options with them. So we like those and -- but right now we’re not in control of their destiny they can do what they want.

Michael Bilerman - Citigroup

Go ahead.

Unidentified Analyst

On the balance sheet activity for 2015, can you talk about the quantum of the spread between in-place debt and what you’re planning what you think you’ll refinance that again?

Bruce Duncan

Sure if you look at what we’ve talked about in Investor Day we had between 2014, ’15, ’16 and ’17, we had about $550 million worth of debt coming due, the rates on that debt average was…

Scott Musil

6.3%.

Bruce Duncan

And what we’ve been able to accomplish is a good work that Scott and his team at the end of the first quarter we did a seven year term loan with the banks and we locked that in we swapped that out like a 4.04%, so that’s worth a descent amount of savings you can talk about. And then our goal is to get to investment grade by the end of this year and if the markets still are favorable we’d consider going out and do another 10 year financings and savings and if I go through the numbers and what we outline at Investor Day.

Scott Musil

Right so well the first with the $200 million our plan there was we had some debt that we can prepay or is maturing this year about $125 million average interest rate of 6.6%. Got another $23 million in 2015 at a 5.6% rate, so if you take the first $150 million of the term loan and you allocate it against those two maturities in ’14 and ’15 you save about $3.5 million okay so that we had a good head start. The other remaining $50 million of liquidity is paying down our line of credit we could use that to help attack some of our maturities in 2016 and 2017 or we can do it for new investment to the extent we see that.

So as Bruce mentioned what we have coming due between ’14 and ’17 or prepayment opportunities about 543 million, this term loan represented about 37% of that. At Investor Day what we did is, we did a sensitivity analysis say what would the savings be if you refinanced at a 4.5% to 5.5% interest rate let’s just first ease, let’s just assume it’s a 5% you would save about $0.07 a share. As we mentioned before this term loan is at 4.04% so we’re about 45 basis points below the low-end of the range that we gave there. So we have a very good head start and we’ve got work to do most importantly is getting our rating back when we get our rating back that should reduce our cost of capital as far as issuing 10 year unsecured debt by at least 50 basis points.

Bruce Duncan

Did we answer your question?

Unidentified Analyst

Yes, thank you.

Michael Bilerman - Citigroup

Go ahead please.

Unidentified Analyst

Yes so you’re going to wait until you the rating agencies come back before you issue that’s the idea of what you said?

Bruce Duncan

Yes.

Michael Bilerman - Citigroup

So you won’t do like a private offering now?

Bruce Duncan

No.

Scott Musil

I mean we would if they want to give us money at the rate…

Michael Bilerman - Citigroup

Just going back to everyone so I want to make sure I get a good number from that sale perspective you said 75 million in the fourth quarter I guess what is that leftover, I am stealing from my rapid fire but I mean what’s left at non-core right so I go back to the whole thing of like the…

Bruce Duncan

Right, about three or four years we talked that we’d probably have another I’d say $100 million left to sale in the non-core.

Michael Bilerman - Citigroup

On a base of…?

Bruce Duncan

3.5 billion.

Michael Bilerman - Citigroup

And hardly anything?

Bruce Duncan

No.

Michael Bilerman - Citigroup

Right and that goes back to your whole comment of what people don’t realize First Industrial maybe it’s changed the name?

Bruce Duncan

Well there you go.

Michael Bilerman - Citigroup

Commonwealth is still think it was HRPT so I don’t know if they have to change it completely but maybe I mean is that even domed on is it now?

Bruce Duncan

Hopefully we could just keep doing what we’re doing at the 10 point the light bulb goes on and it will be first. Right, we’ve got and again I think the team has done a great job I think to-date we’ve accomplished a lot of things so there is still a lot more to do and we just we’ve outlined what we need to accomplish and we have got the target on our back and we’re going after it so adjusting how we do it.

Michael Bilerman - Citigroup

Right, as you think about reinvesting capital it’s obviously a much more competitive environment today to put out new capital either through development or acquisitions how do you sort of feel your competitive advantages relative to others?

Bruce Duncan

I think it’s tough, I think it’s very difficult. If you look at it in the last nine months and across three buildings I mean we’ve bought two buildings in Chicago, one building was leased and about 1.7% yield $45 a foot we like that we bought one that was vacant at the I-80 and then I-55 we love the building it’s unfortunate it’s still vacant and if it’s still vacant in three more months I’ll be very disappointed but that we bought at $42 a foot and it’s a mid 2000 vintage. And we bought a building in Minneapolis 252,000 feet about a 7-3 yield. It’s very Tavy and we’re out there looking at lots of stuff, and we’re not great auction bidders and again our view of it, is there’s so much money out for industrial and it seems there’s more and more money looking for industrial, we’re better off just focusing more on our development because we think we can get the product we want in the markets we want, at attractive risk adjusted returns but again it’s up to us to -- there’s risk in the development, you got to quote it on time on budget and you got to lease it up, so judge us on how we do in terms of doing it.

Michael Bilerman - Citigroup

We’ll return to fundamentals for a moment, can you talk in this plan about not having sort of rent growth or rent on rollovers, Prologis has put out it has put out a big target in terms of market rent growth of 20% to 25% next few years. What’s sort of your mindset?

Bruce Duncan

From [indiscernible], who knows what the number is but directionally if you look at where we are right now in terms of the market, everything, things are getting better. In fact in every market as I said earlier, even at Atlanta things are getting better. So we’re encouraged, again that’s why they pay you the big bucks in terms of what rents we should be doing in each market but from our standpoint we think they need to be…

Michael Bilerman - Citigroup

Maybe I can -- can you, you sent a note to my director recently?

Bruce Duncan

We’ll do what we can, we’ll do a great job but no, but things are good. Things are good and who knows whether it’s 25%, 20%, 15%, 30% I mean, but things directionally are good, you’re not seeing supplies in check, again that will change overtime but right now, things in the industrial space you have to be pretty encouraged and in five or seven years we’ll figure out a way to, the banks will start lending money and there’ll be a lot more development and then it won’t be as pretty but I think we’re in pretty good shape for the next few years.

Michael Bilerman - Citigroup

So, on, speaking about things getting better, I mean…

Bruce Duncan

Yes, if you are talking about my comps as if a check that on this is a webcast so I just want to make sure that it’s.

Scott Musil

He’s listening.

Michael Bilerman - Citigroup

Scott, right?

Scott Musil

You’re director, research.

Michael Bilerman - Citigroup

Yes.

Scott Musil

As things get better what we have seen in prior cycles, right is that things start to look good all this development starts and all these new…

Bruce Duncan

Can you please start?

Michael Bilerman - Citigroup

What are you seeing in terms of people mobilizing to take advantage of this next up leg in the cycle, are you seeing it, is it too early, will we see it 12 months from now and particularly in your markets.

Bruce Duncan

And you’ve seen again, there’s more construction this year than last year alright, so the construction’s ramping up and still not at the pace and where demand is, so that occupancies nationwide it’s still going up market-by-market, so that’s good. We got to worry about, and the one you should check, it’s just keep talking to your friendly banker and see how aggressive they are in lending, to-date they’ve been pretty disciplined and overtime that changes, but right now things are pretty good and supply is in check.

Michael Bilerman - Citigroup

Is the lending the gaining item right now?

Bruce Duncan

Yes, absolutely, it’s always been a gaining item.

Michael Bilerman - Citigroup

What’s your appetite or what’s your capacity for development starts, can you ramp it up further from where you guys are now?

Bruce Duncan

We have an internal cap of $250 million of spec development or buying buildings that are vacant and at one point. If you look at where we are today we’re about 150, the two new buildings we’re starting, we’re starting again as I mentioned the 350,000 foot building in Northwest Houston and we’re doing a two building 600,000 foot development in Dallas. You add those together we’re close to $200 million, so we’re, we still got about $50 million left in that but hopefully our goal is to, during the course of this year to at least have a bunch of big properties and that’ll be a larger number. We have got a number of developments we could do, Peter you could talk about the ones in Pennsylvania.

Peter Schultz

Sure, we have a couple of sites around the country, so we have the opportunity on land that we own on balance it’s due between six and seven million square feet, two sites in Pennsylvania, one in the Lehigh Valley that we could do, two buildings of 600 that we would consider doing on spec of 500,000 square foot build two sites in our Covington Park where we own a 1.3 million square foot building that’s leased to Amazon and diapers.com, we have a site in Nashville where we could 1.1 million on, we’re entitling a site in Marina Valley in the Inland Empire and that we bought last year as an assemblage, then we could about a 1.3 million and we would consider starting that next year, depending upon the status of leasing of the 555,000 square foot building that Bruce discussed and then we have a site stock in California that’s probably a couple of years off, that needs entitlement.

Michael Bilerman - Citigroup

Are there questions? It is very good audience but it’s basic procedure we have to carry this entire session so I’m very happy that people are participating, even though it’s like late in the conference. Now I’m lost for words which I never an loss for words, I want to ask you Duncan, Bruce you’ve been on a number of Boards and you’ve been a CEO of different companies, and I’ve asked a couple of CEO’s and so I’m curious what is the most common mistake you see leaders make?

Bruce Duncan

Not acting quick enough i.e. when things need to changed or things need to be dealt with, you sort of say, well we are close. We don’t have to really worry about this. So keep fine, things that maybe they are not that great but we are keeping the organization go and not, when things are going the wrong way, saying it’s time to make some decisions and do what needs to be done. There is new right to shift.

Michael Bilerman - Citigroup

And as you think about First Industrial on your business, if you had the ability to instantly change something what would it be and why?

Bruce Duncan

I think, again from our standpoint, we think we’re on a course here to be able to continue to show decent returns. I would say we’re in pretty good shape with the portfolio, with the new product, we’re very happy with in terms of debt. The balance sheet, which was a major problem, we gad debt taken in, preferreds EBITDA of 11 times, 11.5 times back in 2009 and ’10. We are at now 6 to 6.5 times, 6.6 times; so that’s in good shape. So I would say that things are pretty good. I would say if I could effectuate anything I’ll just keep to the market environment like it is now. And it’s I’ve told you last year, a good demand and not a lot of supply and I think it bodes well for all of us in the industrial space.

Michael Bilerman - Citigroup

You don’t think supply has more of a risk when you can go on site cope for a while flap on the roof and put some concrete that it…?

Bruce Duncan

Absolutely, supply is a big issue and I have said that repeatedly and from my standpoint I look at this space, I look at apartments, you can build a lot, you can build this product type pretty quick. So absolutely I worry about it, but right now things seem to be in check. So I think that things are pretty good for the next two, three, four years. But it will get overbuilt, but right now things are pretty good.

Michael Bilerman - Citigroup

Do you have any ambitions globally?

Bruce Duncan

No.

Michael Bilerman - Citigroup

Zero?

Bruce Duncan

No, we believe in God bless America, and that goes in Canada. About Canada too being my wife is Canadian like you.

Michael Bilerman - Citigroup

Exactly, so yes come on. How do you think that maybe you talked about stock price performance and my star key G&A comment, but you have provided strong returns clearly off the lows when you came in to investors in terms of the Company, how is it set up from a composition program to induce continued strong TSR. Do you have elated programs in place, you have…?

Bruce Duncan

We have elated programs in place that I am saying in order to hit the benchmark, where the math is like 700 basis points you got to outperform our competitors and in the industrial space as well as the REIT index.

Michael Bilerman - Citigroup

What you think is the biggest challenge that First Industrial faces in terms of within the Company that you sort of have to motivate or change or drive your employees and so I will give you an example in the regional Mall space, right. There is this constant battering at the Mall debts, that everything is going on in line, and if you are a Mall’s CEO, you have all your employees and are hearing this every single day, and it’s a challenge, right how do you keep people motivated when every time they pick up a newspaper or watch TV, that they say their business was going away; even though the people in the Mall can see it when shopping. So I am just curious if there is an analogous situation, or any challenge that you feel?

Bruce Duncan

There is always challenge I would say in terms of the actual space, the industrial space community is one of the best food groups you can be in right now, because just as you mentioned the disintermediation of the Internet on retail we are a beneficiary of that. So I am very bullish on our space relative. In terms of motivating troops the hardest thing in environments like this is to say no on investments, because you only find -- there is billions of dollars get transacted every year in the industrial space, there is -- but to buy something at the right price, you have to be disciplined, and from our standpoint we’re being disciplined in that and it’s slow going and you feel like sometimes it’s too slow. But you got to give what the market is going to give you. And so for us we have been over focused on development versus investments because it’s just we don’t think the pricing is that attractive for us.

Michael Bilerman - Citigroup

What do you see transpiring with M&A in the space, and clearly there is one large private portfolio that’s in the market today, do you have good feel that it’s built up a platform through three acquisitions and they have come into the space. You still have some couple of real smaller operators, you have Prologis that’s just put them over here and then the EU EastGroup DCT, sort of in that midcap area and how do you think this sector evolves?

Bruce Duncan

I don’t know, I mean I think it’s no question that Prologis being the size of deal, where that it must own in our space. I think it is sort of nice to be for us DCT EastGroup, if we continued to effectuate our business plan and continue to grow and do a good job for shareholders we should be fine. But to the extent, we can’t or whatever, you’ve got lot of optionality, that is there is a lot of people in the industry, they want to be in the industrial space, they want to have an industrial platform, and if we can’t do something to shows good value to our shareholders in terms of growth and good share price, a different alternative to maximize shareholder value.

Michael Bilerman - Citigroup

You don’t feel that you need to be a lot bigger?

Bruce Duncan

No, I mean to be big, just to be big, it doesn’t really help. It really doesn’t. I mean too many people get big, and you know life it’s much harder to double your stock price when you get to be big at cash flow. And so I am not sure the economies of scale are that great, maybe in the Mall business at the top-end, but I am not sure that it’s worth, I think you’d a much more optionality being on our side, being $20 billion.

Michael Bilerman - Citigroup

Alright three rapid-fire, what will same-store NOI growth be for the industrial property sector in 2015?

Bruce Duncan

3.5 to 4.5.

Michael Bilerman - Citigroup

If you could snap your fingers and sell a portion of your assets today with no strings attached, you can just leave them here at the conference, in order to create your ideal portfolio, what percentage would you sell?

Bruce Duncan

3% to 5%.

Michael Bilerman - Citigroup

Cap rates for your -- you think after three days I can say this -- are cap rates for your assets higher or lower, one year from today?

Bruce Duncan

Same.

Michael Bilerman - Citigroup

If they are at the lean, slightly higher or slightly lower?

Bruce Duncan

Probably slightly lower.

Michael Bilerman - Citigroup

Okay. Thank you very much.

Bruce Duncan

Thank you.

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