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Executives

Art Harmon – Senior Director, IR

Bruce Duncan – President and CEO

Scott Musil – CFO

Jojo Yap – Chief Investment Officer

Chris Schneider – SVP, Operations

Bob Walter – SVP, Capital Markets

Analysts

Steven Frankel – Green Street

Ki Bin Kim – Macquarie

Suzanne Kim – Credit Suisse

Daniel Donlan – Janney Capital Markets

Mike Gallagher [ph] – RBC Capital Markets

Dave Rogers – RBC Capital Markets

Michael Mueller – JP Morgan

Stuart Hindley [ph]

First Industrial Realty Trust, Inc. (FR) Q1 2011 Earnings Call April 28, 2011 12:00 PM ET

Operator

Good morning, afternoon. My name is Symond and I will be your conference operator today. At this time, I would like to welcome everyone to the First Industrial first quarter earnings 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 call over to Mr. Art Harmon, Senior Director of Investor Relations. Please go ahead, sir.

Art Harmon

Thank you, Symond. Hello, everyone, and welcome to our call. Before we discuss our first quarter 2011 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 planned dispositions, our development and joint venture activities, continued compliance with our financial covenants, and expected earnings.

These remarks constitute forward-looking statements under the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. First Industrial assumes no obligation to update or supplement these forward-looking statements. Such forward-looking statements involve important factors that could cause actual results to differ materially from those in forward-looking statements, including those risks discussed in First Industrial’s 10-K for the year ending December 31st, 2010 filed with the SEC and subsequent reports on 10-Q.

Reconciliation from GAAP financial measures to non-GAAP financial measures are provided in our supplemental report available at firstindustrial.com under the Investors Relations tab. Since this call may be accessed via replay for a period of time, it is important to know that today’s call includes time-sensitive information that may be accurate only as of today’s date, April 28, 2011.

Our call will begin with remarks by Bruce Duncan, our President and CEO; to be followed by Scott Musil, our Chief Financial Officer, who will discuss our results, our capital position, and guidance, 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; 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 to everyone for joining us on our call today. The First Industrial team continued to execute our plans and make progress towards our goal in the first quarter. Our bottom line results were better than expected, primarily benefiting from lower bad debt and landlord expense, as well as lower interest cost.

Our leasing results were in line with our expectations as occupancy was 84.7%, down slightly from 85% at year end, as we telegraphed on our fourth quarter call. However, compared to the year-ago quarter, occupancy is up 330 basis points, indicative of the positive direction of the recovery in the industrial markets.

Factoring in our first quarter results, before the impact of our first quarter equity raise, we are effectively raising full-year guidance for funds from operations before one-time items by $0.03 per share, which offsets the $0.03 per share of net dilution from the equity offering.

So net-net, our full year FFO per share guidance range, before one-time items, is the same as we provided you in the February. Scot will walk you through the details of our guidance. In the quarter, we saw new demand across a spectrum of tenant sizes and industry, including traditional and Internet retailers, consumer products and food related company and 3PLs.

Our forecast continues to be for improved demands and occupancy gains throughout the year, given the expected GDP growth, even if the first quarter was slower than some had forecasted. Part of that growth is being driven by a resurgence in domestic manufacturing. From a fundamental point of view, demand has been helped as companies transition into growth mode, helped by record corporate profits. Businesses have been running with tight inventories and many are looking to gradually increase these levels to meet demand from the US consumer.

These trends are reflected in moderately increasing retail sales and in improving container traffic volume. The consumer is also being helped by the improving employment picture. While demand is positive, continued business and consumer confidence is important for growth in the economy and for industrial real estates. Major events like the unfortunate Japan earthquake, budget uncertainties in the United States, raising fuel costs and the uncertainty around the end of QE2 are a few factors that will weigh in on prospected tenant leasing decisions.

So, we are in the right story, remains the same since we spoke to you at the end of February. Rents have stabilized in most of our markets, but since we are rolling up leases signing better years, we anticipate roll-downs this year. We came in at the better end of our expected range this quarter at minus 10%. This is primarily driven by our tenant retention which is very good at 78%.

Most markets still need to see absorption of some vacancies, before we would see market rents improve. Notable exceptions right now are the Inland Empire, Houston, and Salt Lake City, which are seeing some rent growth.

Leasing activity remains good in most markets, with the exception of Columbus, Dallas, and Denver which continued to lag.

Moving now to the capital side of the business where we have made great strides. Using the baseball analogy, we are in the later innings of our deleveraging network and have a clear path to care of near-term maturity.

We successfully raised a $100 million and $11.30 net through our March equity offerings. We also put in place a new ATM program in March, but did not issue any shares through it in the quarter. We continue to progress on our disciplined sales of non-strategic assets with our focus on achieving appropriate pricing and value for our shareholders and refining our overall portfolio.

During the first quarter, we completed $18.6 million in sales, all from our non-strategic pool. Importantly, based on dollar volume, about half of the sales were to users, which helped us achieve total proceeds that exceeded the written down book value of those assets by about $4 million or about 25%.

I would like to spend a moment telling you a bit more about these sales, as I believe they are indicative of our efforts to refine our portfolio quality through our asset management process. In total, we sold just under 700,000 square feet at an average price of approximately $27 per square foot. The average clear heights was 18 feet and the average office percentage was 27%.

The properties we sold were a flex building located in suburban Milwaukee, three manufacturing buildings located in Abilene, Texas, Stratford, Ontario and Grand Rapids, Michigan, our warehouse property in Wichita, Kansas, our light industrial facility in Detroit and a five building flex complex in suburban Denver.

Second quarter to date, we have completed an additional $11.6 million in sales. These were light industrial facilities in Detroit and one manufacturing building in Cambridge, Ontario. We continue to work towards our $100 million goal for sales from our non-strategic pool in 2011 while ensuring we get appropriate value for these properties.

Moving on to discuss our progress towards our key leverage goals of debt to EBITDA of 6.5 to 7.5 times, if you annualize our first quarter EBITDA, we were 7.9 times which improved from 8.3 times as we discussed on our last earnings call. We will look to continue to reduce that ratio by increasing our EBITDA via leasing of our vacancy and reducing our debt through property sales, as well as equity which continues to be part of our plan. While we are benefitting from the current low interest rates, we will continue to position the balance sheet for long-term stability and growth, and equity will help us do that, both for deleveraging and capital for future investments.

While our main focus remains on enhancing the value of our company through leasing and deleveraging, we have improved our capital position enough to more actively think potential investment opportunities. We will target high quality distribution facilities and higher rent growth markets to generate long term cash flow growth.

We also have a few select land sites that we are preparing for development when appropriate. One in the Inland Empire is at the top of our list, where the recovery in rent and values has been quite strong. This is especially the case for large distribution centers greater than 600,000 square feet which are in short supply and for which market rents have increased 30% over the past twelve months. I want to conclude by thanking the FR team for their contributions and efforts.

We have significantly strengthened our balance sheet, have achieved great things on the expense side and continue to make progress in leasing. We will keep executing our plans to drive value for shareholders with our goal for part of that value to eventually be returned in the form of a common dividend.

So with that, Scott?

Scott Musil

Thanks, Bruce. First, let me walk you through our results for the quarter which had a few one-time items. For the quarter, funds from operations were $0.20 per share compared to a $0.11 per share in the year ago quarter.

FFO per share results were impacted by a few one-time items during the quarter, $0.02 restructuring charge related to the sublet of a portion of corporate office space and a $0.01 loss on early retirement of debt. Comparing 1Q 2011 before one-time items to the year ago quarter, excluding impairment charges on the balance sheet, gains and losses from debt repurchases and restructuring charges, as well as $0.01 per share of NAREIT compliant gains in the year-ago quarter, funds from operations were essentially flat at $0.23 per share.

EPS for the quarter was a loss of $0.12 per share versus a loss of $0.35 per share in the year-ago quarter.

Moving on to the portfolio, as Bruce discussed, our occupancy for our in-service portfolio was 84.7% versus 85% last quarter and 81.4% for the year-ago quarter. In the first quarter, we commenced 5.3 million square feet of leases on our balance sheet. Of these, 1.3 million square feet were new, 2.6 million were renewals, and 1.4 million were short-term.

Tenant retention by square footage was very good at 78%. For the remaining quarters of 2011, we expect retention to average approximately 65% to 70%.

Same store NOI on a cash basis was down 1%, excluding lease termination fees. These results reflected new leasing offset by rental rate declines. Termination fees totaled $300,000 in the quarter.

Rental rates were down 10% cash on cash which was improved from last quarter helped by the higher percentage of renewals, but still reflective of the competitive leasing market. On a GAAP basis, rental rates were down 6.9%. Leasing costs were $2.01 per square foot for the quarter which was lower than our full year 2011 projection due to the mix of renewal versus new leasing.

For 2011, we continue to expect leasing cost to be approximately $2.20 to $2.50 per square foot.

Moving on to our capital market activities and capital position, Bruce already discussed our March equity raise. Next Monday, we expect to close a secured debt package we previously discussed that is expected to generate approximately $175 million of proceeds.

Recall that this commitment carries a 4.45% interest rate, 70% loan to value, a 7-year term, and 30-year amortization. Note that there could be no assurance that it will close or generate the proceeds we anticipate. As mentioned in our last call, all of our capital plan was to prepay mortgage debt par to maturity where it made economic sense.

In the quarter, we paid of a 6.75% $14.5 million mortgage loan. As we told you last time, this was partially funded with an $8.6 million mortgage loan receivable payoff we received in the first quarter.

In March, we also paid off an $18.7 million mortgage loan with an interest rate at 7.5%. Subsequent to the end of the quarter on April 1st, we paid off a $27.4 million mortgage loan that had an interest rate of 7.5%. In total, we had paid off and retired $60.6 million at an average rate of 7.3% with prepayment fees of approximately 2%.

In the second quarter, we also have executed a commitment to modify a $23.3 million existing mortgage loan which will lower the interest rate from the weighted average of 5.83% to 4.83% with a new five-year term subject to customary closing condition.

Bruce already walked you through the $80.6 million of the asset sales we completed in the first quarter, plus the $11.6 million of sales in 2Q to date.

On the user side, focusing on our major capital requirements through early 2012, we have $129 million of the 4.625% September 2011 converts remaining at 62 million of our 6.875% April 2012 notes. These maturities will essentially be covered by the anticipated proceeds from the secured financing I just discussed.

On the sources side, in addition to the secured financing, we expect to generate approximately a total of $81 million of sales in the last three quarters of 2011 which is based on our $100 million goal for the year. And as Bruce said, equity will continue to be part of our mix. So, these sources exceed uses by $65 million. As we think about our capital roadmap, reducing the amount outstanding under our credit facility remains priority.

We are targeting having a new facility in place by the end of first quarter of 2012. We believe continuing to reduce our leverage will better position our company for the long term and help when we renew our line, as well as for future capital market activities. Deleveraging is still a significant focus, but as Bruce noted, we are prepared to deploy some capital and new investments if we can find opportunities that meet our portfolio objectives.

Quickly summarizing our capital structure and current capital position, our weighted average maturity of our unsecured notes and mortgages at 7.2 years with a weighted average interest rate of 7.1%. These figures exclude our credit facility. Our cash position today is approximately $48 million. Our credit facility balance stands at $339 million and our debt to EBITDA ratio is approximately 7.9 times.

Before I review guidance, I would like to call your attention to one disclosure item. In our supplemental, we provide a breakdown of our assets by property type classification, both distribution, regional distribution, light industrial, R&D, flex and manufacturing which I know some of you track. I would point out to you that we changed the classifications and in about 50 of our properties since our 4Q supplemental. These changes were based on our asset management review related primarily to shifts in the tenant use and office build-out since we acquired these facilities. These changes did not significantly change the relative percentages under each property type versus last quarter.

Moving on to our guidance, from our press release, our FFO guidance range for 2011 is now $0.78 to $0.88 per share, which is $0.3 per share reduction from prior guidance. This is primarily due to $0.3 in charges related to the early retirement of mortgage debt as discussed earlier. For Bruce’s comments, our results for the first quarter were ahead of our plan, so despite the full year net dilution of $0.3 per share from our March equity offering, we are able to keep our guidance range for 2011 before one-time items such as, restructuring charges and losses from retirement of debt unchanged at $0.83 to $0.93 per share.

Other key components of guidance are largely unchanged from last quarter. We expect average occupancy of 85% to 87%. Same store NOI on a cash basis for the year is projected to be negative 1% to positive 1%. G&A of $23 million to $24 million, JV FFO of $1.3 million, primarily related to our net lease joint venture. This is up from the $1.1 million prior guidance due to additional economics in first quarter related to joint ventures we would down last year.

JV FFO guidance assumes no property sales in this joint venture or attritional economics from the concluded JVs. Guidance also assumes that we are able to issue the $175 million of secured debt mentioned earlier at an interest rate of approximately 4.45% in the second quarter.

Guidance also reflects $0.o2 per share of restructuring charges we recognized in the first quarter, primarily related to the office space sublease I mentioned earlier and $0.3 per share due to the losses from the early retirement of debt. Our 2011 guidance does not reflect the impact of any further debt issuances, property sales or any NAREIT Compliant Gains. Guidance also does not reflect any potential additional equity issuance.

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

Bruce Duncan

Thanks, Scott. Before we open it up to questions, let me offer a few final comments. We had a good first quarter which enabled us to effectively increase our full year funds from operations guidance before one-time items by $0.3 per share, offsetting that dilution from our March equity offering.

We’ve come a long way on the capital side in reducing our leverage close to our targeted range of debt to EBITDA of 6.5 to 7.5 times. With occupancy just under 85%, we have a great opportunity to drive incremental cash flow from our portfolio. On a price per pound basis, we traded just $43 per square foot, substantially less than our peers and below replacement costs and private market sales comparables. And we have a valuable platform and team to drive value from our current portfolio through asset management as well as future investments. In sum, we are very excited about our future and look forward to keeping you up-to-date on our progress.

And with that, we’d now be happy to take your questions. As a courtesy to other callers, we ask that you to limit your questions to one, plus a follow-up in order to give other participants a chance to get their questions answered. Of course, you’re welcome to get back in the queue. And so now operator, can we please open it up for questions?

Question-and-Answer Session

Operator

Certainly (Operator instructions) And your first question comes from the line of Steven Frankel with Green Street. Your line is open.

Steven Frankel – Green Street

Good morning and thank you. Just have a few questions for the quarter. First of all, can you comment on the sales during the second quarter, I know the cap rates that was reported for 1Q was 8.2, what’s cap rate for the second quarter sales?

Bruce Duncan

Well, we really would like to do it. Yes, we finished the whole quarter, but, just as a general base, it’s pretty similar to the first quarter.

Steven Frankel – Green Street

Okay. And that cap rate reflects to what’s the in-place occupancy or to the stabilized kind of cap rate?

Bruce Duncan

In-place.

Steven Frankel – Green Street

In-place. Okay. You guys are mentioning, also talking about doing potential acquisitions, I don’t know if that is this year or next year, is that because of your 1031 money, or you are actually thinking about deploying new capital in addition to the 1031 money to go on the offensive?

Scott Musil

Steve, we guys – we’re thinking about employing new money, not 1031 money. If we find the right opportunity, we will – we will make an investment. And I would say that we would hope that we will make an investment between now and the end of the year.

Steven Frankel – Green Street

And this would be in coastal markets predominantly given your comments –?

Bruce Duncan

Yes, we market where we think there’s good opportunities and good growth.

Steven Frankel – Green Street

Does it have to be – as you are going to – have to be like a core building or what kind of quality are you looking at?

Bruce Duncan

I would think it will be more of core buildings.

Steven Frankel – Green Street

Okay. Were there any kind of one-time expenses during the quarter or it looks like there is an elevation and (inaudible) weather that snow or anything?

Chris Schneider

Yes. Steve, this is Chris. A majority of that increase was as normal to us. And so that was – were the increases.

Steven Frankel – Green Street

Okay.

Bruce Duncan

It was a bad winter.

Steven Frankel – Green Street

Right. You guys recently reduced the amount of space you have in your headquarters quite a bit, it looks like – I think you only have that one-sixth of space you had a few years ago, what are you – have you – you guys are talking about expanding the company that potentially from here, it sounds like with development and acquisitions and how does that reduction and where – headquarters based and putting all the sublease reconcile what is long-term plans for the company?

Bruce Duncan

I think if you look at our sublease in terms of where we are, we used to have three floors here in about 66,000 feet here in downtown Chicago. What we have now is about a little less than a third of that, if you will, and what we’ve also done is, again, again we moved some people out, we’ve got an office building out in suburban Chicago which – which is our Chicago Midwest . We’ve got plenty of space and again either with the reductions that we’ve seen, we got capacity to grow our business.

Steven Frankel – Green Street

Okay. And then, finally my last question just on joint ventures, last year you were receiving payments from for selling assets on that behalf , is that still something that you got to receive going forward?

Bruce Duncan

No, what we have said in the remarks don’t anticipate anything more than what we’ve seen in the first quarter.

Scott Musil

And what we got in the first quarter was $200,000 to $300,000 of additional fees, Steve.

Steven Frankel – Green Street

Great. Thank you.

Bruce Duncan

You are welcome. Thank you. Next question operator.

Operator

Your next question comes from the line of Ki Bin Kim with Macquarie.

Ki Bin Kim – Macquarie

Thank you. Going back to your comments about your debt to EBITDA if you annualize the first quarter the slide number eight and given that the momentum you are seeing and your occupancy rates and the fact that you are getting pretty attractive refinancing rates, I mean, I would expect that 7.9 to go to the low 7 or maybe even break seven times by 2012 and that seems like a comfortable range, what do you think about that and how does that – what do that mean for – how much equity appetite you have?

Scott Musil

I will first, again, we do believe we can – bring that ratio down by growing cash flow growing by leasing up the space and that’s the number one priority. And again, our viewpoint – business is tracking, we are feeling good about getting within the range that where we want to get by the end of 2012. We always mind for dilution. So, rest of share is on the fore front of our mind. What we do want to have some capital for offensive acquisition and potential development, so we look at everything but we are very mindful and we’re making good progress on getting our – down the debt to EBITDA to the range we want.

Ki Bin Kim – Macquarie

And in terms of offensive capital, would it be fully on balance sheet via FR or maybe partner up with a JV partner?

Scott Musil

I think it depends on what we buy, but in terms of – we’re buying one-off buildings, it probably will be put on balance sheet, buy a big portfolio will be in combination with the

joint venture partner.

Ki Bin Kim – Macquarie

I was referring to EFM land holdings in LA and then Empire. Are those privately talking about when you said there’s some development opportunity and things like that?

Scott Musil

Yes. The development opportunity – we have, again, we got a land portfolio of about just under a $100 million which has some good land in it that is great lands to develop. If we develop it, I would hope we develop it ourselves versus bringing in a partner because, I think the returns will be pretty good.

Bruce Duncan

And last question, any chance (inaudible) that could help us get more clarity in terms of leasing or occupancy?

Scott Musil

I would say it’s more of the same. I think that again there’s – I think all the talk over QE2 out of interest and see if that closed down people – decision making process, but we’re making progress and our guidance shows that we think that we’re going to continue to increase leasing and occupancy over the balance of the year.

Bruce Duncan

Okay, thank you guys.

Scott Musil

Thank you.

Operator

Your next question comes from the line of Suzanne Kim with Credit Suisse. Your line is open.

Suzanne Kim – Credit Suisse

Hi, I’ve a couple of questions regarding your dispositions. You said 81 million for the second quarter half. I’m just wondering what’s sort of driving sort of second half number? Do you anticipate somebody to take out a lot of the properties at once or what’s sort of giving you that sort of comfort level?

Bruce Duncan

No. What we said is, again, beginning the year our goal is to do a 100 million of sales from our non-strategic pool. In the first quarter, as you’ve seen we did $18 million that we’ve done $12 million or so in the second quarter to date which is only one month in. So, we’re on track to the $100 million. Again, we’re not looking to do packages or big packages of properties. We’re doing one off and again we’re selling our non-strategic assets, assets that we do not want to hold long-term. And, we feel comfortable with where we are. Again, for the balance is – next three quarters, not just one quarter.

Suzanne Kim – Credit Suisse

So, given what’s the color provided in certain markets for instance, in Inland Empire and how your 4Q verses this quarter, your releasing spread sort of came down remarkably, what do you sort of expect for the next three quarters? Do you expect to get into the negative single digits by the end of the year?

Bruce Duncan

We didn’t change our guidance overall. We had a good first quarter in terms of came in at a better range – better end of our range at minus 10%. But, that again was a more a function of – our retention was so good of 78%. So, we haven’t changed guidance. We hope – the world, as it continues to get better, we should do alright, but we haven’t change our guidance as it relates to that.

Suzanne Kim – Credit Suisse

Okay, great. Thank you so much.

Bruce Duncan

You’re welcome.

Operator

Your next question comes from the line of Daniel Donlan with Janney Capital Markets. Your line is open.

Daniel Donlan – Janney Capital Markets

Thank you. Just first question on the discontinued ops, revenue versus expenses. If I do the math there to get to kind of an NOI, it looks like the NOI actually went up first quarter versus the fourth quarter. But, you guys sold some properties. I mean, did you really see an increase in rents in the discontinued ops portfolio or what’s going on there?

Scott Musil

No, actually the discontinued operations would be lost NOI, meaning we took NOI out of the core and reclassified it down disc op, Dan.

Daniel Donlan – Janney Capital Markets

Okay. All right. And, secondly, on your acquisitions – excuse me – your dispositions for the quarter, where any of those properties vacant?

Scott Musil

Yes, one property was vacant in Abilene, Texas.

Daniel Donlan – Janney Capital Markets

If you strip that out, what was the cap rate?

Scott Musil

I haven’t done that. It wasn’t that meaningful.

Daniel Donlan – Janney Capital Markets

You say it was so small?

Scott Musil

Yes.

Daniel Donlan – Janney Capital Markets

Okay, okay. Perfect. And then, Bruce, in your comments you mentioned that you thought FR was significantly undervalued versus private market sales values on a price per square foot basis, and I guess, probably on a cap rate basis. Could you maybe give us some examples of some certain sales? It just seems to be so spotty in the market. I guess where do you think replacement cost is for the portfolio, is there any another portfolio sales that you can point us to?

Bruce Duncan

Again, if you look at our portfolio, again nation-wide so good markets, I mean properties in California and we build some of the ones over a 110 bucks a foot or something like that. So, we got a great portfolio in Southern California which is really – which are getting $15 net rent. So, it all depends where you are in the Midwest and condos higher rent and things values are low. So, it’s hard to say but if you look at what has been sold through different packages, I guess I would look at what our competitors are priced at per square foot as it relates to us, I think, were good value. But, beauty is in the eyes of beholder, so you got to make that judgment. And I think if you look at what they sold the package, the big package in Minneapolis, I think that went for about a little $50 a foot. So, I think maybe $52 a foot. So I mean, again you look at different points, but you all should look that. I’m just saying that one person’s opinion I think we get good value.

Daniel Donlan – Janney Capital Markets

That’s helpful. I’ll circle back in the queue.

Bruce Duncan

Great, thank you.

Operator

Your next question comes from the line of Dave Rogers with RBC Capital Markets. Your line is open.

Mike Gallagher – RBC Capital Markets

Hi guys, this is Mike Gallagher [ph] Longer-term, how large would you like to see your development pipeline?

Bruce Duncan

It depends on what the opportunity is. I don’t think we should say we want to see it as, we don’t want land as to be more than maybe 10% of our portfolio. But, from our standpoint, we’ve got some good land out. We’ve already paid for it. And, if we can develop it as the markets comes back, and again, I don’t think you’re going to see much new development around the country. There’s only a few markets where it makes sense. But, Southern California and the Inland Empire has come pretty strong, so I think that gives an opportunity.

Dave Rogers – RBC Capital Markets

Hi guys, Dave here with Mike, and I had a question. Missed some of the call early but Bruce, your comments about the stock and the value, obviously something that might make that value better would be the return of the dividend and I think that’s something you’d like to do. Can you give us some context and maybe color around the hurdles that you’d like to see to get there and then to be able to reinstitute that dividend subject to board approval?

Scott Musil

Sure, I’d say a couple, we do want to get our debt-to-EBITDA down a little bit from where it is today. We want to get in terms of where we are with the ability to do that. We’re making good progress on that. I would say that we want to make sure – we have capital to do some acquisitions and development and a little bit of that. But, we’re making progress on that and it is on the forefront of our mind. Let’s see what we need to do to make that happen.

Dave Rogers – RBC Capital Markets

The net result of the sales, I guess, how does the impact on, I guess, the overall leverage metrics of the company particularly the fixed charge coverage.

Scott Musil

We sold $19 million in the quarter. It has an impact but it’s not a massive impact from a leverage point of view. As far as the impact on fixed charge coverage, it’s probably pretty close to a breakeven considering the debt that we paid down with those proceeds.

Dave Rogers – RBC Capital Markets

And, will that be consistent for the rest of the year?

Bruce Duncan

Depends on what price we sell them at.

Dave Rogers – RBC Capital Markets

Fair enough. Thank you.

Operator

(Operator instructions) And your next question comes from the line of Michael Mueller with J.P. Morgan. Your line is open.

Michael Mueller – JP Morgan

Great, thanks. Scott, I think I missed this in the comments. When you were talking about the sources of cash being greater than the uses in 2011, but I think it was $65 million. Was that before any additional equity raise?

Scott Musil

Yes. I’ll just run through them quickly again, the sources were $256 million, which is our $175 million secured financing that we’re planning on closing on May 2. Another $81 million of sales second quarter to the fourth quarter, that gets your $256 million. $191 million of uses which is a $129 million of our 2011 converts and $62 million of our 2012 notes. That gets us down to an excess of about $65 million. As we – in the past, our goal on our unsecured credit facility was to get it down to about 300 million. We need about $39 million from where we stand today to do that. That gives us another $26 million of excess proceeds that we can either reinvest in other assets. Acquisitions are potentially development as we mentioned before or we can take those funds and pay down other debt.

Michael Mueller – JP Morgan

Got it. Okay. And then the second question, you talked about CapEx, TI leasing commissions being about 220, 250 a foot for this year, in terms of range. We look at a gross number that factors in tenant improvements, leasing commissions, CapEx reserves etcetera. I think last year, the gross number was little north of 40 million bucks, 42, 42 million. Where do you see that gross number penciling out for 2011?

Bruce Duncan

Yes. Where we’re going to end up probably about the same and on the building improvements we’re going to be right in that range of about $0.20 to $0.25 a square foot. And, then TI probably a little bit up over where they were in the previous year. But, overall, the range we’re going to be pretty close to that same range in the CapEx.

Michael Mueller – JP Morgan

Okay, great. Thank you.

Bruce Duncan

Thanks.

Operator

Your next question comes from the line of Stuart Hindley, [ph] who is a shareholder. Your line is open.

Stuart Hindley – Private Shareholder

Yes, thank you. If memory serves, it was just over a year ago that you’ve got some rating agency downgrades. And, I’m wondering if you could update if you’re in the process of having those annual reviews again and maybe what your goal is to get to, say, BBB and as you think you’ve done to get there? Thank you.

Scott Musil

Sure. Stuart this is Scott Musil. In the fourth quarter, two of the rating agencies S&P and Fitch took us off its negative watch and put us on a positive outlook. In the first quarter, Moody's put us on a positive outlook, so that’s where we stand there. As far as getting our rating back up to the investment grade level that we’re at, 2008 prior. As we like to say the rating agencies can take you down several notches in a very quick period, but to get back those notches, it’s going to be a couple of year process. We continually work with them and communicate with them on our deleveraging plans. We will continue to do so and hopefully we’ll see some traction at some point in the future in getting our rating back.

Operator

There are no further questions at this time. Actually, wait, we do have another question and it comes from the line of Dan Donlan with Janney Capital Markets. Your line is open.

Dan Donlan - Janney Capital Markets

Thank you. I guess, (inaudible) forward looking I guess, Scott. So, just a quick question on the future asset sales. Do you think you guys can maintain this since you’ve sold pretty much everything between a high sevens and kind of high eights, do you think you can maintain that cap rate range?

Bruce Duncan

Alright. We anticipate we can, but we’ll let you know each quarter how we’re doing. Again, we have $100 million, we use the fund to meet our goals.

Dan Donlan – Janney Capital Markets

Okay. And, then lastly, I just like to say, keeping supplemental below 30 pages was a welcome surprise, so thanks.

Scott Musil

Thank you very much.

Dan Donlan – Janney Capital Markets

Alright, thanks.

Operator

And, there are no further questions at this time. I turn the call back over to our presenters.

Bruce Duncan

Great. Thank you operator and thank you all for participating on our call today. Please feel free to call us if you have any questions and we look forward to seeing some of you at the NAREIT Conference in June in New York City. Thanks a lot. We appreciate it.

Operator

Ladies and gentlemen, this concludes today’s conference call. You may now disconnect.

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