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

Q1 2014 Earnings Conference Call

April 24, 2014 11:30 ET

Executives

Art Harmon - Senior Director, Investor Relations

Bruce Duncan - President and Chief Executive Officer

Scott Musil - Chief Financial Officer

Jojo Yap - Chief Investment Officer

Chris Schneider - Senior Vice President, Operations

Bob Walter - Senior Vice President, Capital Markets and Asset Management

Peter Schultz - Executive Vice President, East Region

Analysts

Craig Mailman - KeyBanc Capital

John Guinee - Stifel Nicolaus

Eric Frankel - Green Street Advisors

Ki Bin Kim - SunTrust

Jon Peterson - MLV & Company

Dave Rodgers - R. W. Baird

Operator

Good afternoon. My name is Hope, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Industrial First Quarter Earnings 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.

Mr. Art Harmon, Senior Director, Investor Relations, please go ahead, sir.

Art Harmon - Senior Director, Investor Relations

Thanks, Hope. Hello, everyone and welcome to our call. Before we discuss our first quarter 2014 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. 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, 2013 filed with the SEC and subsequent Exchange Act reports. 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. Since this call maybe accessed via replay for a period of time, it is important to note that today’s call includes time-sensitive information, that maybe accurate only as of today’s date, April 24, 2014.

Our call will begin with remarks by Bruce Duncan, our President and CEO, as well as Scott Musil, our CFO after which, we will open it up for your questions. Also on the call today are Jojo Yap, our Chief Investment Officer; Chris Schneider, Senior Vice President of Operations; Bob Walter, Senior Vice President of Capital Markets and Asset Management; and Peter Schultz, Executive Vice President for our East Region.

Now, let me turn the call over to Bruce.

Bruce Duncan - President and Chief Executive Officer

Thanks, Arthur and thank you all for joining us today. As we entered 2014, the clear focus for our company was the same as it always is capturing the long-term cash flow opportunities in our business. We made progress in some areas in the first quarter, but we have much work ahead of us in others.

Before we get into the specifics of the quarter, let me comment briefly on the overall market. The fundamentals in the industrial real estate sector are very healthy. The first quarter marked the 15th consecutive quarter of positive net absorption. New supply is in check and tenant demand is being driven by an economy that continues to move in the right direction. We finished the first quarter with our occupancy at 92.4%, down 50 basis points from the end of the fourth quarter and up 280 basis points year-over-year.

Occupancy came in a little better than we expected as some incremental leasing partially offset the impact of the known 400,000 square foot move-out in Atlanta that we told you about on our last call. As we look across our portfolio today, we are seeing solid activity, but we don’t consider a good activity until we have signed leases. As I noted in my recent letter to shareholders, one particular surprise and disappointment has been our 509,000 square foot acquisition in the Chicago market at I-55 and I-80 that we bought in the second quarter of last year. We have had a year lease up in our underwriting for this investment and we are fast approaching that one year anniversary. While we are seeing a number of prospects we have yet to ink a deal. So to be prudent we are moving the lease up for this building out to the end of the fourth quarter in our guidance.

For our reporting policy, the building will enter our in-service portfolio in the second quarter and could have an approximately 80 basis point impact on our in-service occupancy if we don’t bring home any tenants by the end of the second quarter. We adjusted our guidance range for every quarter in occupancy downward to reflect the impact of this building being in-service and vacant until the end of the fourth quarter. Our guidance still contemplates of ending the year with an occupancy of approximately 94%.

Our results on a real rate change and leasing costs were quite positive. Rental rates were up 3.1% on a cash basis. Our leasing costs were lower than typical at $1.97 per square foot. However, I would temper these results by noting that one quarter does not make a trend. Both of these measures were helped by the mix of renewal versus new leasing in the quarter that will be affected going forward as we execute on more new leasing. Our expectations for cash rental rates for the year are unchanged and roughly flat and leasing costs are expected to be higher the rest of the year.

On the capital side in the first quarter, we continued to have good execution on several fronts that we discussed on our fourth quarter call. We closed a 7-year unsecured term loan totaling $200 million that we swapped to an affected initial fixed rate of 4.04%. We also retired our remaining $75 million of preferred stock. Lastly, we obtained an investment grade rating on our unsecured notes from Standard & Poor, but still have some work to do with the two – other two agencies. While we have limited near-term maturities and significant capacity on our line of credit, returning to investment grade is an important part of our capital plan. As we discussed at our recent Investor Day, by doing so we hope to capture some of the long-term savings opportunity in the unsecured market while interest rates remain low.

On the portfolio management side, sales were light. We sold three buildings totaling 73,000 square feet or $3.5 billion. As we said on our last call and consistent with past practices, we expect sales to be backend weighted toward our goal of $75 million to $100 million for the year. Acquisitions continue to be challenging as pricing for the types of buildings we want to own is very competitive. We did acquire one building during the first quarter that we discussed on our last call, a 252,000 square foot distribution center in Minneapolis, that’s 100% leased for $13.4 million at 7.3% cap rate.

We added to our development pipeline in the first quarter in Houston and Dallas, where the business environment and tenant demand is robust. We started our First Pinnacle Industrial Center in Dallas, a two building complex comprised of a 376,000 square foot distribution center and a 222,000 square foot facility. The total estimated investment is $26 million and the pro forma yield is 7.5%. In Houston, we commenced the 351,000 square foot First Northwest Commerce Center. Total investment is estimated at $20 million with a pro forma yield of 8%. We expect to complete these two developments by the first quarter of 2015 and are including a year for lease up in our assumptions.

Regarding our developments in process, this quarter we will complete our 550,000 square foot First 36 Logistics Center at Moreno Valley in the Inland Empire and our 43,500 square foot First Figueroa Logistics Center in the South Bay of Los Angeles. In total, we have approximately $195 million of completed or committed prospective development plus vacant acquisitions. We like the competitive position of each of these assets and we are seeing activity, but we need to get them leased.

Our other development investment is $8.8 million, 250,000 square foot expansion to 600,000 square foot facility for Rust-Oleum in the Chicago market. That will be completed and placed into service in the third quarter. So before I turn it over to Scott let me say that we have the opportunity to grow cash flow through lease ups, build in rental rate bumps, lower CapEx and lower capital cost. And along with it grow the dividend as we did in the first quarter with a 20.6% increase. And we’re encouraged by the increased activity across our markets, the direction of market rental rates and the current state of supply. Our job is to capitalize on our opportunities in this environment by executing our plan and our team is focused on it.

With that let me turn it over to Scott. Scott?

Scott Musil - Chief Financial Officer

Thanks, Bruce. First let me walk you through our results for the quarter. Funds from operations were $0.24 per diluted share compared to $0.24 per share in 1Q, 2013. First quarter results included a loss related to our Series F and G preferred redemption, acquisition cost, loss from retirement of debt and a portion of a one-time restoration fee. Before one-time item funds from operations were $0.25 per fully diluted share versus $0.25 in the year ago quarter.

Also included in our first quarter results is $0.01 per share related to a non-cash write-off of a straight-line rent receivable for a tenant that vacated one of our properties prior to its lease expiration. There was a sublease in place that we assume so on a go-forward basis in 2014 there will be minimal impact from an in-place cash rent perspective. EPS for the quarter was $0.02 versus a loss of $0.05 in the year ago quarter.

Moving on to our portfolio. Occupancy was 92.4% down 50 basis points from the fourth quarter and up 280 basis points from a year ago. Regarding leasing volume we commenced approximately 4.3 million square feet of leases in the quarter. Of these 0.8 million square feet were new, 2.5 million were renewal, and 1 million were short-term. Tenant retention by square footage was 65.8%. Same-store NOI on a cash basis excluding termination fees was a positive 2.3%.

Note that this figure excludes the portion of the one-time restoration fee we mentioned on our fourth quarter call that we also excluded from our same-store guidance. Including the first quarter impact of this restoration fee, same-store would have been 3%. These termination fees totaled $108,000 in the quarter and same-store cash NOI growth including termination fees was also 2.3%. Cash rental rates in the quarter were up 3.1% overall with renewal a positive 5.2% and new leases down 4.6%. On a GAAP basis the overall rental rate change was a positive 8.2%.

Moving on to our capital market activities and capital position, Bruce already reminded you of our new $200 million seven year unsecured term loan we fixed at 4.04% effectively taking care of 37% of our total maturities through 2017 we discuss at our November Investor Day. He also covered our preferred redemptions.

Quickly moving on to our leverage metric, at the end of 1Q, 2014 our net debt was preferred stock to EBITDA at 6.8 times within our target range of six to seven times. In March 31, the weighted average maturity of our unsecured notes and secured financing is 4.8 years with a weighted average interest rate of 6.1%. These figures exclude our credit facility. Our credit line balance today is $72 million and our cash position is approximately $12 million.

On the rating agency front we’re making progress. S&P currently rates our unsecured notes investment grade. Both Moody’s and Fitch rate our unsecured notes one notch below investment grade but both have positive outlooks. We are hopeful that with the progress we have made and continuing execution that we will reach our goal of obtaining these last two upgrades by the end of the year.

Now, on to our updated 2014 guidance, we put out press release last evening. Our FFO guidance range is now $1.10 to $1.20 per share. Guidance includes the $0.01 per share net impact of income from the one-time restoration fees, partially offset by losses from the redemption of our Series F and G preferred shares, loss from retirement of debt related to our planned early mortgage payoffs and acquisition costs. Excluding these items, FFO per share is expected be in the range of $1.09 to $1.19, which is $0.02 per share less than our prior midpoint. $0.01 of the difference is due to the non-cash write-off of straight-line rent receivables in 1Q that I just discussed. The other $0.01 is due to pushing back the lease up of our Chicago asset to the end of the fourth quarter.

The other key assumptions are as follows. Average in-service occupancy ended quarter of 92% and 93%, a reduction of 50 basis points at each end of the range primarily reflecting the revised projected lease update for the Chicago asset. Average quarterly same-store NOI on a cash basis of positive 3% to 5%, again excluding the aforementioned one-time restoration fees of approximately $0.02 per share being recognized this year, G&A of $23 million to $24 million which is unchanged. Please note that in the second quarter, we may recognize approximately $1.5 million, or $0.01 per share of expense related to accelerated vesting of incentive compensation if our stock incentive plan is approved.

Full year JV FFO is expected to be approximately $400,000. Guidance includes the costs related to the new development starts in Houston and Dallas and the incremental costs related to our other developments in process and completed development. In total for 2014 we expect to capitalize $0.01 per share of interest related to our developments. Guidance assumes lease up of First Bandini Logistics Center and First Logistics Center at I-83 in the fourth quarter. Recall that each other pro formas assumed one year for lease up.

Lastly, guidance assumes the payoff of $44 million of secured debt at an average interest rate of 6.8% split between the end of 2Q in 3Q and our 6.42% 2014 notes in the amount of $82 million due in June. Guidance now also reflects our plan to payoff two secured loans totaling approximately $22 million in June with an interest rate of 4.8%. Other than what I have noted our guidance does not reflect the impact of any future debt issuances, the impact of any future debt repurchases or repayments, any additional property sales acquisitions or further developments any future NAREIT-compliant gains or losses for the impact of impairments, nor the potential issuance of equity.

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

Bruce Duncan - President and Chief Executive Officer

Thanks Scott. Before I open it up for questions, let me thanks that the industrial real estate environment continues to be good as tenant demand is growing along with the economy. New supply while increasing is still moderate compared to historical level and net absorption is positive. And we acknowledge that we have work to do towards our 2014 goals particularly in capturing our leasing opportunities to drive incremental cash flow. But rest assured, we are all over it. We look forward to updating you in future quarters on all – on our progress.

We will now open it up for your questions. As a courtesy to other callers we ask you limit your questions to one plus a follow-up in order to give other participants a chance to get their questions answered. You are of course welcome to get back into the quarter. So operator may now we open it up?

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Craig Mailman with Keybanc Capital.

Craig Mailman - KeyBanc Capital

Good morning guys. I was just wondering if maybe give us a little more color on Chicago. Is it a product or location issue or did you guys have the tenant maybe that was on the work that kind disappear what’s going on what’s delay?

Scott Musil

Craig, this is Scott react we like a location or again, it is right at the I-55 and I-80. We like the quality of the building very high quality building. We like the market. The market – the Chicago market improve considerably and this great activity and we like the basis we bought it at, we are in $42 foot that we do very good about that. So again we had good activity on – we have activity on the site. We just have been able thing on the late but we are still seeing lot of interest in it. Again its been a disappointment as I said in the script we – I’m surprise it is not leased by now but there is activity on it and that’s good building and we are glad have it in the portfolio.

Craig Mailman - KeyBanc Capital

What was the initial learning on from the yield perspective, what is the kind of the drag on leasing due to that?

Bruce Duncan

Ask the question again, I didn’t quite hear the first part.

Craig Mailman - KeyBanc Capital

The original underwriting in terms of the yield expectation and what is the delayed lease up due to that expectations?

Bruce Duncan

We saw where we get about a mid six in yield on the investment and that was used in the rate that was probably just up $3. We think we do better on the rate than what we underwrote. But the late that would be elaborate of the drag.

Craig Mailman - KeyBanc Capital

Okay. And then just on follow up on the Bandini and Central PA, do you guys feel about that? I know you saw three quarters left in the pro forma underwriting but. Is there chance that may need to be pushed out as well or you guys seeing really good activity here?

Bruce Duncan

I certainly hope not because we love those assets. Let me ask Peter to comment on I-83 in New York and our 700,000 foot development there and Jojo to talk about Bandini.

Peter Schultz

Craig, it’s Peter. Yes, we feel good about the activity following completion of building in the fourth quarter and seeing accelerated activity following the weather improving here. And others have been no change in the competitor supply and certainly no new supply since we started the building. We are seeing good interest from a variety of users in the market.

Jojo Yap

We do guys First Bandini we feel good about pro forma lease up and leasing assumption. Again the market is activity to be able very, very high quality product just great access really all the functional as it is exceeding any competition out there. So, but our job is to get it leased.

Craig Mailman - KeyBanc Capital

Great, thank you.

Bruce Duncan

Thanks, Craig.

Operator

Your next question comes from the line of Dave Rodgers with R.W. Baird.

Dave Rodgers - R.W. Baird

Hey guys. Wanted to follow up on development, a lot of your competitors are going forward with build-to-suit activity for the development pipeline and have been growing it that way. You have elected to go more on the speculative side. I guess maybe focusing on Houston and Dallas, can you talk about what gives you confidence in those two markets? There has been a number of broker reports suggesting those are two of the more overbuilt markets from a spec perspective. And so maybe go through a little bit of your confidence in those assets?

Bruce Duncan

Sure. Let’s take them one at time. In terms of Houston, Houston again we started the 351,000 foot in the Northwest part of the city just strong as sub market with you very good about good asset, good location and again as we look the Houston there absolutely has been new construction there in terms of lot of stuff starting to be built. But again, absorption is stronger than what has been started. And I think if you look at our portfolio used 100% lease. So we like the Houston market are very excited about this building and we feel good about its prospects. In terms of Dallas, and Dallas has probably been more started relative the start then any place.

I would say when we look at our Dallas portfolio, we are 94% leased and what were building the First Pinnacle is two building one about 222,000 square feet, the other by 376,000 square feet we are not building the big bombers. If you look at what typically have been built right now, the new supply is over 400,000 square feet – 400,000 or 500,000 square feet. So we were going to what we think is a pretty strong market. And again, as Jojo said, it’s up to us to get these things built and leased, but we feel good about both of these assets?

Jojo Yap

And in terms of build-to-suit is in all of our sites, is there a requirement that fit – that our site was bid, we would respond to RFPs but we got to balance that with the projected deals that yields and returns that we can get build up between both the suits and spec. Build-to-suite has been primarily a low yield business. And so in one situation like in First Pinnacle the development in Dallas we started we like to go expect because we feel that we can get higher risk-adjusted return there.

Dave Rodgers - R.W. Baird

Okay, thanks for that color. And then maybe a follow-up for Scott, Scott I guess as we look at the seven assets or so in the development pipeline most of which wouldn’t really be ready for leasing to late this year or early next, and then pro-Atlanta and there as well, I am assuming that there would be no additional downside to guidance throughout the year if none of those spaces are leased, is that correct?

Scott Musil

Well, I would say the two developments that we completed last year, it’s first logistics center at I-83 and First Bandini logistics center for our guidance, we have them leasing up in the fourth quarter that’s the one year. And if you look at all the other developments in process at March 31, this is page 20 of our supplemental we do not have anything baked into our guidance as far as NOI is concern related to those developments.

Dave Rodgers - R.W. Baird

And Atlanta?

Scott Musil

Which Atlanta are you referring to, Dave? I’m sorry.

Dave Rodgers - R.W. Baird

The move out, the backfilling of the move out that you noted in the first quarter.

Scott Musil

I will leave that up to Peter to answer that.

Peter Schultz

So Dave, this is Peter. In Atlanta as we talked about on our call last quarter we had move out 400,000 square feet. That’s 32 foot clear across both buildings and activity continues to improve and we are actually just finished expanding one of our existing tenants in that building. So we are one our way to backfill in some of that space.

Dave Rodgers - R.W. Baird

Okay, great. Thank you.

Scott Musil

Thanks.

Operator

Your next question comes from the line of John Guinee with Stifel Nicolaus.

John Guinee - Stifel Nicolaus

Great, thank you very much. First or whoever, I was just looking quarter-over-quarter for the last four quarters and it looks like your rental revenue is basically $64 million, or $65 million trending down a little bit. And then when I will look at property expenses offset by tenant recoveries it looks like you have fairly consistent $8 million or $9 million a quarter loss there. So a couple of questions, was the first quarter here an aberration in terms of high OpEx but high recoveries. And then second given the big gap between OpEx and recoveries, do you just have a lot of gross rents in the lease in your portfolio that allows there to be such a difference between OpEx and recoveries?

Chris Schneider

Okay. John, this is Chris. The first question as far as the recoveries, yes, this quarter obviously we are hit by the severe winter weather, our snow removal expense talk about $2.5 million. So you have obviously there you have an offset of recoveries, so your recoveries went up also, recovering about 90% of that num. So that’s the reason for that change. And just overall as far as that we have in the gross , as far as gross leases, it is a plenty small percentage but we do have gross and we also have some industrial gross leases where you have a base here for instance on real estate taxes and insurance. So that – so you have a little bit more impact from the true triple net.

John Guinee - Stifel Nicolaus

Okay. And then the second question is it appears to me midpoint of your – midpoint of your new guidance, doing the quick math and subtracting $0.24, gets you $0.30 quarters for second, third and fourth quarter which is pretty healthy number. How do you get from $0.24 this quarter to $0.30 on average quarters two, three and four? And is there a little bit of hockey stick ramp up there or down or how does that $0.30 actually break out quarter-by-quarter?

Scott Musil

John, this is Scott. Our guidance is midpoint $1.14 that’s before one-time items. And you are correct, there is going to be ramp up. A couple of different reasons for that, one is just increasing occupancy in the in service portfolio throughout the year. So we expect increases in that. As you know the first quarterly we generally have a drop off. And we dropped off about 50 basis points in the first quarter. Other things as we got a couple of developments, First Bandini and First I-83 which in our guidance we plan to have leased up in the fourth quarter so that’s causing an increase as well. The other item that you had is we have these debt prepayment opportunities that are happening in the second and third quarter. So, as we prepay that debt refinancing and on the line of credit, and as a result their interest expense is going down and that’s causing a growth in our FFO per quarter as well. And I would say the last item that caused a little bit of decline in our FFO for the first quarter is we sold $75 million of properties in the fourth quarter most of those were back-ended.

And we used those dollars to pay-down our line of credit. That money stayed paying down the line of credit for the month of January and February we redeploy that money taking on our preferreds, our Series F and G in March. So once the second quarter comes through we shouldn’t have any of that sales dilution just because those preferreds had about an average coupon yield about 6.6%. So when you look at those four factors that’s what’s causing the increase in our FFO in the remaining three quarters of 2014.

John Guinee - Stifel Nicolaus

Okay. And then lastly anymore low hanging fruit on the financing side or is that pretty much played out with the debt repays or early prepay earlier this year?

Scott Musil

I mean you always have - sure John. This is Scott again. You always may have opportunities in our unsecured notes in the open market. The 2016s and 2017s are pretty expensive. We do have 2027s, 2028s and 2032s a little below $50 million. There really hasn’t been much traded there. So that leaves our secured debt. Basically if you look at what’s left in our secured debt everything is we’re able to pay it off has a yield maintenance premium associated which is pretty onerous. The only other piece of secured debt that we have open for prepayment at a fixed prepayment penalty is at the end of fourth quarter of 2015 and that’s about little under $40 million. So that’s really the only other opportunity that we have that fixed prepayment penalty on our secured debt.

John Guinee - Stifel Nicolaus

Great, thank you.

Operator

(Operator Instructions) Your next question comes from the line of Eric Frankel with Green Street Advisors.

Eric Frankel - Green Street Advisors

Thank you very much. Scott, I was wondering if you maybe could quantify how the weather impacted same-store NOI growth?

Chris Schneider

Yes, this is Chris. Yes as mentioned the severe weather had an impact, our snow removal costs were up about $2.5 million, we also had some increases in the utility. So the combination of those is not recovered at about 0.8% impact on the same-store this quarter.

Eric Frankel - Green Street Advisors

Okay, thank you. And I was wondering if - in your spec development pipeline seems to be building up a little bit. Bruce could you remind us what you think your limit is and how big that spec development pipeline can be without any additional leasing?

Bruce Duncan

Sure. Right now we got about $175 million of spec development including the two developments we just started in Houston and Dallas assuming they’re fully funded. So its $175 million, we got about $20 million from the Chicago acquisition so it totals about $195 million. We have an internal self-imposed cap of about $250 million so we got about $55 million of asset capacity in there and hope we’ll be leasing up some of these properties pretty quickly so we’ll have even more capacity under that half.

Eric Frankel - Green Street Advisors

Thank you.

Bruce Duncan

Thank you.

Operator

Your next question comes from the line of (indiscernible) [Ki Bin Kim] with SunTrust.

Ki Bin Kim - SunTrust

This is actually Ki Bin and Eric asked the question I was going to ask right now but maybe I can ask it a little bit different way. Is that a hard cap and if you don’t get the leasing that you are expecting, would you basically self-impose a slowdown in new development starts?

Bruce Duncan

Yes Ki Bin I mean we think $250 million is a good level for us and we got $55 million more cap something we don’t get any lease. We’ve got good activity, we like the projects, we’re building the lights of development, we’re going to continue to develop, but we’re going to continue to going to lease up these developments we have to. So we think we have capacity, we do $55 million more of new starts, but we’re going to lease up some of the properties we built.

Ki Bin Kim - SunTrust

And I mean obviously.

Bruce Duncan

And first year is (indiscernible). If you think about it we’ve got you take the $195 million, that $195 million and leases up in the 7% or 7.5% cap rate that’s worth 12 (indiscernible) in terms of – on our – (probably) $0.12, $0.13 a share. So again it’s a great opportunity for us and as I said we’re focused on it and we’re going to get this stuff leased.

Ki Bin Kim - SunTrust

Okay. And just on that same line of questioning, you mentioned spec versus build-to-suit, could you just quickly talk about what kind of incremental yield you get for going to spec versus build-to-suit? And it’s probably little early but obviously your cap rate expectations on your development pipeline have been changed. And is it basically what’s taking longer that you’re holding firm to the kind of rent and tenant quality you want to get for those properties or is that a little bit slower than expected demand profile or I was just wondering what would you attribute this you want to speculate to?

Bruce Duncan

Let me start and then Jojo can have it. Let’s go down here. We – let’s review the bidding what we accomplished. Couple of years ago we did a 692,000 square foot building, we built it in the Inland Empire, we leased it up to 15 years to Harbor Freight. We did a 3,000 foot building in Chino last year that finished up in like May and we leased it in May to kind of grow on a long-term basis, right. So then the other builds we have we just finished in the fourth quarter of this year, Bandini which is 489,000 square foot, great asset right of 710 in LA and Peter talked about I-83 the 708,000 square foot in New York Pennsylvania. These are great assets and we just put them in service in December. So we feel good about those. It’s now April so we got plenty of time to get these things, lease this good activity.

So then in the first quarter we will start this quarter I mean this quarter, the second quarter we will finish the 555,000 square foot First 36. Again it’s a great quality building, Jojo talked about some of it’s attributes in terms of fee in the First 36 with player, spec property in the area. And then the 43,500 square foot First Figueroa. So again that completes this quarter. So we’re not off target. The only thing we did as I talked about is Chicago that’s – planning to have at least by the second quarter.

We’re pushing back guidance because we think it’s prudent, but there is activity on it. So we feel good about what we’re doing because we like the assets, the yields we’re developing to were substantially higher than what you could buy this type of product for. And we feel very good about the quality of the assets and the location. So and again we acknowledge, it is all on to get these things leased but we’re very encouraged by the market and where we are right now.

Ki Bin Kim - SunTrust

Okay.

Jojo Yap

Ki Bin, just to address your build-to-suit versus spec, in today’s market if you have a build-to-suit for a quality, high functional warehouse distribution product. The yields are being driven down. The spreads are being almost driven down to zero. What typically happened unless you have the unique site, if you have a site where you’re competing with three or four other sites what would happen is that the structure is being priced almost at a point where it’s almost like a sale of our existing leased assets because the process is very, very efficient. So utmost I would say maybe you can get zero to 50 spread. Now in a spec deal today you get spreads anywhere from 100 to 175 depending upon the market. I hope that gives you an idea.

Ki Bin Kim - SunTrust

Okay. Thank you.

Operator

Your next question comes from the line of (indiscernible) with JPMorgan.

Unidentified Analyst

Hi, good morning. I am not sure if I missed this certainly. You had a pretty light quarter on disposition. Is your earlier guidance still the same I think was 75 to 100?

Scott Musil

Yes, our guidance stayed the same, it’s 75 to 100 is instead on the last call that it’s going to be back-end loaded but yes there is still guidance is coming back to 100 million.

Unidentified Analyst

Okay. Thank you.

Operator

(Operator Instructions) Your next question comes from the line of Jon Peterson with MLV & Company.

Jon Peterson - MLV & Company

Great, thank you. I think you touched on Atlanta a little bit already but I was looking at a broker report that came out a week ago, net absorption there is at levels back to what we haven’t seen since 2007. So before you put I kind cross my fingers that we would see a little more movement in your Atlanta portfolio. I mean can you kind of talk about how you guys are positioned in that market and how you are going to take advantage of I guess the strength that we’ve seen in recent quarters in the Atlanta industrial market?

Bruce Duncan

Sure.

Peter Schultz

Sure, Jon. This is Peter. The vacancy in our Atlanta portfolio is primarily in two bulk buildings, one in the Northeast and one in the Southwest, not too far from the airport. The one in the Northeast is where we had the tenant move out of 400,000 square feet in the first quarter. And as I mentioned a few minutes ago, we have already made some headway with a substantial expansion of one of our existing tenants and we will update you on that further with our Q2 results, but we feel good about activity. There is really no new supply to speak of in Atlanta, particularly in those sub-markets and these are both functional buildings if we like the leasability and locations. It’s just up to us to get it done.

Jon Peterson - MLV & Company

Okay, so these aren’t buildings that – are they ones that once you get them leased up they might get put in the non-core portfolio and sold or it kind of sounds like that’s not the case?

Bruce Duncan

Well, these are both buildings that we will continue to own and operate in our portfolio, both good clear height, loading, trailer parking and so forth good quality assets. It’s just up to us to get them leased.

Jon Peterson - MLV & Company

Alright, it sounds good. Thank you.

Bruce Duncan

Thank you.

Operator

Your next question is a follow-up question from the line of Dave Rodgers with R. W. Baird.

Dave Rodgers - R. W. Baird

Yes, thanks guys. I think maybe Scott in your comments you talked about and maybe it was Bruce sorry, but there was short-term leases that amounted to about 1 million square feet in the quarter. If I heard that right, can you talk about when those expire, when we should expect to see those roll back out?

Chris Schneider

This is Chris. As far as the volume of short-term that’s pretty consistent with what we have in most quarters. So they vary in lengths of six months to eight months. So there should be no real impact quarter-over-quarter as far that is concerned.

Dave Rodgers - R. W. Baird

Okay. Last question, can you remind me maybe Bruce if you have it, what the impact from dispositions this year would be to your year end occupancy number or target?

Scott Musil

Dave, this is Scott. We don’t – basically, our occupancy target that we gave is without sales. And based upon what we sell throughout the year we will want to figure out whether there is any impact to that occupancy number.

Dave Rodgers - R. W. Baird

Alright, thank you.

Operator

Your next question comes from the line of Eric Frankel with Green Street Advisors.

Eric Frankel - Green Street Advisors

Thank you very much. I was wondering given the amount of investment products that seems to be out in the market whether there is any consideration to some type of change in portfolio mix, is there any type of combination that can potentially work especially as an investor interest in all types of assets increases?

Bruce Duncan

Eric, again Jojo can add to this, but I mean, we look at a lot of things, the quality of what we are seeing in the pricing is to us is very aggressive to what we always we thought is a better way to spend our dollars more in the development side than investing. But Jojo, you want to talk about that?

Jojo Yap

Yes, just to add to what Bruce has already said, I mean, we see all the large packages out there. And then when we make an investment, a lot of things have to fit. Number one it has to fit for our core strategy a functional product in the markets that we want. And second of all, the returns have to meet our own criteria. And at this point, we haven’t seen any of the packages meet them. And so rather than again like Bruce said, the returns are very competitive and we are getting good risk-adjusted returns on development and that’s why we are pursuing, but of course look at this to continue to pursue one-off quality acquisitions just like the one we did in Minneapolis for the quarter.

Eric Frankel - Green Street Advisors

Okay, thank you.

Operator

And there are no further questions at this time. I would now like to turn the conference back over to Mr. Bruce Duncan for closing remarks.

Bruce Duncan - President and Chief Executive Officer

Great. Thanks operator. Again, thank you for your interest. We will be around if anyone has any questions, Art, Scott or myself and we look forward to seeing some of you at the Baird Conference next week I guess in Chicago. Great, thank you very much.

Operator

This concludes the First Industrial first quarter earnings conference call. You may now disconnect.

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