Bruce W. Duncan
Good morning. My name is Bruce Duncan, President and Chief Executive Officer at First Industrial Realty Trust. On behalf of my colleagues, I’d like to thank you for joining us today, our Investor Day and for those of you listening on the web, I want to thank you for joining us as well.
This is our first Investor Day in many years. I joined the firm in January of 2009 and we haven’t any one since, and I don’t remember when our last one. But pro our title, our focus today is talking about delivering value and demonstrating value, and we want to demonstrate the value of our company in terms of our portfolio, our platform and our people. And our mission continues to be to execute on our strategy and deliver long-term shareholder value.
Before we start, let me refer you to our Safe Harbor language and for those of you that are listening on the web, I refer you to the presentation posted on the website and our press release regarding the webcast.
Our agenda today, again is aligned without seeing, but demonstrating and delivering value and we are going to show you a lot of information about the company. After my remarks, Scott is going to come up and talk about the good work that we’ve done in the capital side and what lies ahead. Bob’s and then come up and give you a very good overview and in detail on our portfolio; and we are going to have a short break; and then we are going to come back into a deeper dive in terms of the regional overviews between our Central, our Easter and our Western Regions; and we are going to talk about the top opportunities and challenges.
We are going to go through our top 10 large vacancies in our strategic portfolio and discuss them; and then, we are going to go through and talk about our investment strategy, our acquisition and development strategy, Jojo is going to talk us through that. And then, I’m going to circle back to discuss the FR opportunity, and then, we will open up for questions-and-answers.
The title of this section is reflective of the work we have done and the opportunities that we see ahead. Over the last few years, we have really strengthened our foundation; especially, our capital base and our operations and we are now positioned to capitalize on opportunities both with in our portfolio, as well as new investments.
When we look at First Industrial, we think we have two value propositions. The first is leasing up the portfolio, as we’re still only the 86.6% leased. As we could get this portfolio at 92%, but we’re saying here today, our goal is to get to 92% leased in the portfolio by the end of 2013. We pick up $0.20 a share in FFO, we did it today, tomorrow we leased it up, we pick up $0.20 in FFO, which is significant given our run rate FFO.
Our second value proposition is that we trade at a significant discount to our public peers, to sales comparables and to replacement costs. We’re going to go through that and again gives you data points, but our job is to close that gap. And one of the reasons we’re having Investor Day here is, we want to give you more information about our portfolio to really slightly and exactly and give you more date points for you to sort of look at it, make your own conclusions of what you think. But we think we represent good value.
So why FR? We have a tested leadership and platform, we strengthen the capital structure, we are primarily an infill portfolio in a major U.S. market. And we have a focused conservative investment and asset management strategy. We’re coming into favorable industry fundamentals, we’ll talk about that in terms of the supply (inaudible) in terms of new construction and we have a great occupancy opportunity.
For those of you that are new to this story, but those of you that are coming back, I’d like to just spend a few seconds to go through some of the achievements of the team over the last few years. We’ve reduced our debt by $563 million, we’ve improved our debt-to-EBITDA from 9.8 times to 7.2 times, we’ve aligned our expenses through our current business model, we are taking out over 70% of overhead, and even with that we feel our capacity for growth. We are executing on our leasing plans, that is since our bottom in the first quarter of 2010, we’ve increased occupancy about 520 basis points and we are executing on our plans to dispose off our non-strategic portfolio, this portfolio we outlined in October of last year and to-date we have sold about $85 million of that, at $24 a foot, which is above 20% of our book value.
And we return our investing, we bought out a partner in 85% interest in a property in Huston, and we are doing a development in Southern California, and both of those Jojo will talk about in detail.
Today you are going to hear from our leadership team and again as you could see on the grey here at the group, but we have a great experience with our team and you will hear from them. We also have an attendant, Chris Schneider, our Senior Vice President Operations; Chris Willson, our Senior Regional Director of Minneapolis; Jeff Thomas, our Senior Regional Director from Pennsylvania; and he will be with us on the bus tomorrow; John Strabel, our Regional Director from Detroit; Art Harmon, our Head of IR; we have Jen Jimenez of our Marketing Group and (inaudible) of our Operations Group.
As you know, we have a broad platform and presence, we expand the U.S., we go from LA to New Jersey, from Minneapolis to Miami and again, we think that’s great because it gives us diversity and also it gives us access to market trends and we’ve got boots on the ground in most of these places.
In terms of our public platform, most important thing you should note is we simplified it, we use to have a lot of different joint ventures, now we only have one, less than $200 million of assets, of which we own 15% of it and it’s in the disposition phase of over the next three to five years that will be going away. It’s hard to put together an industrial platform because the properties are so [biside], it’s hard to assemble a portfolio of what we have about 67 million square feet.
We have boots on the ground; we have a local presence as well as national experts. And again, we’ve been experienced across all real estate cycles, so we have talent that’s going to least operate few acquisitions, do development, do redevelopment and do dispositions and hopefully you’ll have a chance today you had, this morning to talk to some of our teams and at lunch too and also in the bus ride, there will be another opportunity.
But again, we think it’s great having a public vehicle, we think it’s great in terms of the access we have to the capital of those debt and equity markets and that’s been a big plus over the last few years in terms of having been able to spend the money in terms of capital improvements versus our private peers with more capital constrains. We’ve improved our capital structure again. A couple of years ago, we made a goal that we want to get our debt to EBITDA down to the 6.5 to 7.5 times. And we’re now at 7.2 times and again, we want to continue to delever.
We have access to both the secured and unsecured market. But our focus has been on the secured markets and Scott will take you through that because the pricing is so much better for us. We targeted capital availability of $100 million to $200 million because we want to make sure we always have capacity to take care of upcoming maturities, as well as grow our business and we are always mindful of dilution.
This slide shows geographically where our portfolio is. 15% of our portfolio is in the West, 22% in the Southwest, 13% in the Southeast, 33% in the Midwest and 17% in the Northeast. 84% of our properties are in bulk or regional distribution or light industrial. We are primarily in In-fill location. We have a portfolio of 66.9 million square feet. 745 property; the average size is 90,000 square feet.
We have a diverse tenant base, our largest tenant is 2.8% of net rent and that’s why we are going to talk about that, Bob, will take you though the data. Our top 20 tenants represents 20.9% of net rent and our average tenant size is 30,000 square feet.
And again as I look out and think about the industrial space, what we love about it is that has something that the other asset class doesn’t, which is user buyers. That is, we can sell our properties when a user wants space, they come and buy it, they don’t buy on the same basis that a industry does, much better pricing and that’s one of the focuses we've been selling the assets to sell to users.
Secondly, industry is very financeable; it’s always about the underweighted cash with most vendors. We had good experience with it, it spikes high in terms of – so there is many more finance companies and insurance companies are growing on it. In terms of our investment and asset management strategy, again owning and operating industrial real estate is our business. We’re looking to do this on a long-term, we’re looking for long-term NOI growth and we’re looking to constantly upgrade the portfolio and again, that’s the key.
This chart to me it says a lot, in terms of its showing the supply at United States over the last 20 years of industrial space and what it shows, is that the average over the last 20 years, the 164 million square feet of space per year. What you are seeing again in 2009, 2010 year-to-date 2011, construction is falling off significantly i.e. over the last five quarters, there has only been 26 million square feet of new space. That’s a great thing for real estate.
In my experience, the best thing you can have with when supply starts, good things happen and you’re seeing that right now because what you had over the last five quarters, you had positive, you know 133 million square feet of absorption and so you’re going to be stopping up the vacancy in the cities around the country and (inaudible) are stabilizing and starting to go up and you’re going to see that it discontinues.
I don’t see a lot of new construction over the next few years. You will see some new constructions and expect developments in Southern California like we are doing and Jojo will talk about it.
You will see some in Central Pennsylvania, we are going to show you a couple of sites we have tomorrow in the Bus Tour. And again those of you who are coming on the Bus Tour, we appreciate that and what we are trying to show you as much as we can that’s going to be a long trip, but we really want – we want to focus on (inaudible) just show you a lot. But when we look at it and you will see some development in Houston, some in South Florida. But you’re not going to see that in terms of relatively what you have seen in the past in terms of new construction for a number of years and it’s hard to get financing.
People aren’t doing spec construction. They need a real balance sheet to do it and what they need preleasing. So that we think that bodes well for their industrial industry getting broad portfolio.
Now the key NOI drivers again, again end of the day occupancy is very important and as you can see by this chart, we are coming back. We’ve grown from the third quarter of 2011 or 86.6% there is work to be done. We acknowledge that we’re focused on it and we set a goal. So we’re making progress.
The cash rental rates, they are getting better. But its still we’re still having a rental rolling down. There is no question about that – that’s and we think we will continue to have roll downs in 2012. We’re going to get guidance in the – on our fourth quarter call. But again risk, leases that we were done in 2007 it’s simply a five-year lease those are coming off the peak.
So you’re going to continue to see some roll down there, but the best news is in the fourth, I mean the third quarter for the first time since 2008, we had positive same store numbers. We are up 2.7% and as you bet you know things are getting better. We are not declaring victory, but we’re in the right trend and there is hard work to be done, but we are moving forward.
This chart is important because as I talk about our occupancy goal to get to 92% by the end of 2013 and being it where to 86.6% right now. It’s important to note that back in the first quarter 2008, we were at 91.9%. Now it’s not an identical portfolio, but it’s a pretty similar portfolio. A lot of the same assets, we sold some, we bought some, but it’s pretty similar. And we went down to 81.4% in the first quarter of ’10, so we’re on our way up. And again, our goal is to get to 92% by the end of 2013 and again, this chart shows that we were there before.
This chart is our top ten vacancies in our strategic portfolio. We want to just sort of show you those and again we’re going to go through that when we go through the regional presentations. We’re going to talk about each one of these vacancies. We have pictures of each one of these vacancies, we’re not hiding pictures. We want you to get a sense of what these assets are, where they are, and be the judge in terms of getting it laid, but at the end of the day the owners are going to get them leased.
But if we lease, these 10 vacancies and one of them is a redevelopment that Jojo – redevelopment potential that Jojo will talk about. We pickup 320 basis points in occupancies. So we go from the 86.6% to the 89% almost 90%.
So, what is the plan? The execution plan for the next 12 to 24 months is again the focus on leasing. We set a mark of 92% by the end of 2013. We’re going to continue to sharpen our portfolio focus that is we’re going to concentrate on bulk and regional distribution, in light industrial.
We are going to continue and execute and sell over the next two to three years. The remaining part of our non-strategic portfolio, we are making good progress. We’re going to do select acquisitions and developments and again, all with a goal of continuing to upgrade our portfolio. We’re going to reduce our Midwest exposure, we are going to continue to strengthen the balance sheet, the best way we can do that is lease up the space and increase NOI, but what we’re going to continue to we’ve made progress in terms of getting our debt to EBITDA down to 7.2, but we want to continue to get that lower part of the range.
We are going to remain vigilant on expenses, and we wanted to return to become a dividend paying stock. And again the milestones there that we are looking at is we need to get the letter of credit excuse me, the line of credit redone, which we set a goal at the first quarter of 2012. And we have to make continued progress on our leasing.
And again all of this is with a goal to strengthen the First Industrial’s position as a top tier U.S. focused industrial public company.
And with that, I’d like to turn it over to Scott.
Thanks, Bruce, good morning everyone. As Bruce mentioned in his comments, we haven’t had and then we didn’t have an Investor Day in 2009 or 2010, I am going to over our capital base, and I was thinking what would our Investor Day been like in 2009 and 2010, with what was happening with the company at that point in time, while let’s just look back, at the end of 2008 we had over $700 million of unsecured notes coming due through 2012, we had a $0.5 million line of credit fully drawn, that was coming due in 2012, we had a lot of leverage and we had some covenant issues that I am sure you’ve heard us discussed many times on our conference calls. While the great news that so thinking about it, the presentation will be 15, 20 pages, I’d probably be up here for 30, 45 minutes going through the Rubik’s cube. The great news I have for you today is my presentation is only five pages because of the progress that we’ve made over the last couple of years. And I’m going to walk you through that along with our next capital steps.
So the first slide here, goes over the deleveraging we have done over the last several years. So looking at this far right here, so we got our net debt listed our net debt-to-EBITDA, which is our leverage measure that we use, and we’ve got debt to total assets, that is our covenant within our unsecured notes. So if you look at the end of 4Q of 2008, we had $2 billion of indebtedness.
Our net debt-to-EBITDA is about 9.8 times, and our debt to total assets was 56.4% the covenant was 60%, cash flow over to the third quarter of 2011 we’ve delevered by $563 million, our net debt is about 1.466 million. Our net debt-to-EBITDA is now at 7.2 times please keep mind that when we put the range of 6.5 to 7.5 times out, a year or so ago, that was the goal to get to that by the end of 2012. And we’ve beaten that goal quite considerably.
And our debt to total assets is down to 45.8%. We’ve got plenty of room when it comes to covenants. Really good thing that I think that we’ve done is this $563 million of delevering we’ve done it a couple of different ways. The first thing that we’ve done is we – a little over 50% of it was done by the issuance of equity, and instead of doing a large equity offering in 2009 when the markets weren’t looking kindly upon us we did it in increments.
We did three equity offerings. We are very judicious in doing that. Our stock price we dollar cost average very good from the stock price point of view. So that was obviously very good. We used our ATM program also about 40% of the delevering came from property sales and about 6% of it came from Uncle Sam. We had a large IRS refund at that point of time. So when we delevered it, we did it by equity, we did a couple of different deals, we did do a massively dilutive deal, we used property sales and then IRS refund, so we used all the tools that were available to us.
The next slide I’m going to walk through, it’s another way of looking how much the delevering has occurred over the last couple of years. So this is what our market cap looked like at that point of time. It was about $2.7 billion. And as you can see, leverage represented about 76% of the capital stack. Again, fast forward to the third quarter of 2011, that represents about 56%. So again, another (metro bend) that folks looks at that goes through the delevering that the company has made.
The other benefit that we have is, we have a very laddered debt maturity schedule. Our average maturity for our indebtedness, excluding our line of credit is about 7.1 years. If you look over the next couple of years, we got a very, very clear runway here. We got about $62 million of debt coming due in 2012. We’ve got about a $148 million of capacity in our line of credit to take care of that so we’ve been taking that debt maturity off. We still have about $85 million of available capacity in our line of credit to either take out other indebtedness that’s coming due or to fund investments.
We got a small amount of mortgage debt coming due that’s primarily due from principal payments on secured indebtedness and in 2013 we also have some secured debt coming due. And again, that’s primarily from principal payments that we have there required to make unsecured indebtedness.
The blue here will take care of this with cash flow from operations. But again, if you look from now until 2013, we got a very, very clear runway. We’ve got line capacity to take care of it or we’ve got cash flow from operations to take care of our maturities.
So our next big piece of debt coming due is in 2014. We've got a little over $60 million of mortgage debt coming due here, and that's something that we could refinance in the market very easily today. And keep in mind that when this debt was originated, it had higher coupon interest rates and it also had higher debt yields.
So if we were to refinance in this – in the market today, we would get lower interest rates and we'd get a higher, better use of our collaterals. We also have coming due about $92 million of notes in 2014. So we've got a couple of options that we can use to take care of that. We've got a non-strategic portfolio that we want to sell over the next couple of years. Bob's going to walk you through that after my presentation.
Depending upon what the – what our investment pipeline looks like, we can either use those proceeds of our investments or we can park them at our line of credit and build up additional capacity to take care of it. That's one option.
The second option is, we've been saying all along, we want to get back to investment grade rated status. As you see, we've got a couple of years to get through that. We've made some traction with the rating agencies over the last year. We got an upgrade from Fitch, S&P upgraded our outlook, so we've got a couple of years.
We could issue in the unsecured debt markets today, we just don't like the pricing differential between that and what the secured debt markets are. So as our rating improves that differential between what we can issue in the unsecured market and the secured market will be less, and we'll be able to tap that market at that point of time.
And also, lastly we want to keep our secured indebtedness to range around 20 percentage or so points. But if we have to, we can also take care of this; we've got the available dry powder to take care of this with secured indebtedness.
The other opportunity I want to point out is just down here. We've got about $200 million of debt either coming due, or that's pre-payable with fixed repayment penalties – fixed prepayments in 2012 to 2015, 16% to 22% debt yields, again, these were done in 2009 at a rate of 6.5%.
You look at what we've done over this year, interest rates were sub-5%, so if we were to refinance all this debt today, it would be accretive to the company from an interest expense point of view and we are doing our deals around a 12% debt yield. So if I took this $200 million and went to the secured market today, and I took the same collateral package based upon a 12% debt yield, I get $65 million more of proceeds, which possibly could help me take out this $92 million.
Or if I just wanted $200 million of secured debt, I would have to give the lender less collateral. I would give them $100 million of less collateral, and that helps us with further dry powder when it comes from a secured debt point of view, and it helps from a rating agency's point of view as well. The higher amount of unencumbered assets you have, the better the rating agencies look at it.
Okay. The next slide are the major capital actions in 2011. In the first three quarters, we made considerable amount of progress and I'll go over what we've done on the delevering front, refinancing higher cost debt and providing liquidity for future debt maturities. From a delevering point of view, we did a March equity offering, a June equity offering, and we did some property sales for about $274 million. 50% of the delevering that we've done since 4Q of 2008 was done in the first three quarters of this year. So we made significant progress.
The other thing that we're doing is refinancing higher cost debt. We issued some secured debt in May at a 4.45% interest rate. We issued some secured debt just recently in this quarter at a 4.85% interest rate. What have we been doing with those funds? We took out some mortgage debt that we are able to prepay early, had an interest rate of 7.3%. So again, over 200 basis points of accretion from an interest point of view.
We also took out $67 million of (inaudible) notes and $29 million of some of our 2017 notes. And if you look at the average coupon rate it’s about 7.5%. So again over 200 basis points of accretion by doing that and we still see that there is opportunities in the market for us to take out some of that – some of that indebtedness.
Okay, the last stage, I’m going to sum it up. So, the progress we’ve made has been considerable since the fourth quarter of 2008. I’ll use the baseball analogy. I think we’re in the eighth inning. I think when I met with a lot of you folks, over our last meeting it was the seventh innings and I go over the next steps that we have take. But first, the number one line item that we have to take care is the line of credit.
It’s due in September of 2012. No, I’m not going to go into details about what we think we’re going to get as far as economics or what the covenant package is going to look like. Like what I will always say a couple of comments. One, is we’re paying 3.25% of the LIBOR spread plus the facility fee and what we’re seeing in the bank market now is we’re going to be able to beat that. As far as the covenant package is concerned we think we’ll have less covenants. When we amended our deal in October of 2010 there were a number of covenants that were added to our unsecured line. We think on a net basis we’ll have less covenants there as well.
The bank market is still very strong at this point of time and we got very, very good relationships with our bank group. So, by the end of the first quarter of 2012, we’ll get a deal done. Another thing I want to point out here as well is we’re going for a $350 million to $400 million capacity. So, we have a $152 million drawn on the line now. I’m going to draw another $62 million of April of 2012. It gives me about $214 million pro forma balance.
The range of what we’re going for is $350 million to $400 million in our new line, again no term loans, full line of credit.
I would have after that draw to pay down the debt, I would have capacity of a $135 million to $185 million. And that’s the capacity that we haven’t had the luxury over the last couple of years and as Bruce mentioned we want that capacity. We want to be able to the ability to take out debt before that’s coming due or take out debt when it’s coming due.
We want to fund investments on a go forward basis, which is what Jojo is going to go for, go through. As I mentioned additional secured financings, we’re in the low 20% level when it comes to our covenants under our notes and our line of credit, but we may look to issue more additional secured financing because we got $13 million of debt coming to a 7.6% that we can prepay in 2012 and another $52 million at a 7.5% coupon rate that we going to prepay in 2013.
We're going to see what property sales look like with dollars come in, what we're going to reinvest but there is a possibility that we might have the secured markets again. We’ll stop before a year of a little bit dilution say we get secure debt in the 5% and we paid down our line, which is currently 3.5% all in. We’ll suffer that delusion for a year because I’m going to be able to take these, the difference between that and what I can lock into now is over 250 basis points.
Asset sales proceeds, we're not giving guidance for 2012 at this point of time but I’d say a decent assumption would be we probably sell another $75 million to $100 million of properties in 2012. What are we going to do with that? The interim home is to pay down the line of credit. Then what we're going to do is we're going to look at our investment pipeline. If we like what we see on the investment pipeline we’ll use those proceeds to buy properties.
If we don't like what we see on the investment pipeline as I mentioned before we’ve got opportunities to take out some secure debt prior to maturity in high interest rates and we also could repurchase of our bonds in the open market. And we have had success doing that in the third quarter of this year.
Lastly, I want to remind folks that we had an ATM program, it has got a $99 million capacity, it matures in February of 2013. Depending on what our sources and uses would like, if for instance, our investment pipeline of deals that we want to do is greater than sales proceeds that are coming in, if we like our stock price, we may use the ATM to fund those investments. It’s a possibility that we may use it to reduce indebtedness as well. Again, that’s dependent upon stock price.
The main point is, Bruce mentioned before, we are always very mindful of dilution. And again, I go back to what I said earlier. When we delever the company with a mix of items, one of it was with equity offerings, we just didn’t do a $300 offering in October of ’09 at $5.25 per share. We were very judicious. We issued it when we needed it and we did it when the stock price is at a very good level for us.
So in the end, from a capital point of view, as I have said, we are in the eighth inning, we are in good shape. This is the key, we feel very confident that we are going to be able to get this done based upon our banking relationships and what we see in the banking market. So we feel very, very good about our capital plan.
So now I am going to turn it over to Bob Walter, who is the Senior Vice President of Capital Markets and Asset Management. And Bob’s going to do a deep dive into our portfolio in our properties. Bob.
Thanks Scott. As Scott mentioned, as we are putting together our program for today, we felt it was appropriate to, given the progress we have made in the balance sheet, spend a fair bit more time talking about the portfolio or the left side of the balance sheet versus the right, which has been a big topic of conversation over the last number of years.
What I am going to try to do today is give you a brief overview of each of our property types. What makes them tick, where they are, what are the key characteristics, and frankly, where we have some challenges? I'm then going to take our whole portfolio and break it down into the strategic and non-strategic buckets that we currently have, and Bruce has touched on that a bit earlier, but we think it’s important to give you a deeper understanding of what those portfolios look like. Then we'll talk about land, where that portfolio is, what kind of development potential we have on the drawing boards and what the outlook is for new development going forward, I'll set the stage a little bit for Jojo later on.
Finally, we’ll talk about ADESA. ADESA is a very significant and unique part and important part of the FR portfolio. And again we think it's very important for you to have a good understanding of it. In terms of the pictures you're seeing here, I'll point out a couple. For those of you on the tour tomorrow, Diapers.com on the upper left hand corner of slide 27 for those of you on the web, will be the catch tone of our tour. We’ll spend a fair bit of time touring that asset. Rustoleum and Vi-Jon were both builder suits that we completed, Rostoleum being in suburban Chicago and Vi-Jhon in Nashville.
Finally, United Natural Foods in Eastern Pennsylvania that's actually in New York, was a spec development that we did that United Natural Foods took over complete buildings a number of years ago. So the key here is to make sure you understand our portfolio as much as we can in 15 to 20 minutes with 745 buildings, and most importantly the components that constitute to both our strategic and non-strategic portfolios.
First of all, Bruce touched on this in his remarks, about 84% of our portfolio is focused on the Bulk and a Regional Distribution and Light Industrial Property types, the balance being comprised of R&D Flex about 9%, Manufacturing is 1%, ADSEA and Inland.
Now the property types. The first, bulk industrial – bulk distribution. As you can see by a variety of measures, its about half of the FR portfolio. Now they keys in the bulk distribution space generally are clear height, access, truck parking, and truck turning radius.
As you can see in our portfolio, clear height is about 27 feet. We define bulk distribution as buildings that are over 22 feet clear height and over 100,000 square feet in the building envelope. As you can our average size is about 234,000 square feet, this property type has the lowest ongoing capital needs of requirements and it also has the lowest average rent.
These properties have very little in the way of average office. The user base here is primarily focused on Consumer Goods, Fortune 500 Companies, 3PL, Logistics Distribution Companies as well as other large users of distribution space that typically will distribute to a regional multi-state type area.
Again a couple of points to make, the building here in Milwaukee, Shawn Circle on the left hand side second from the top is a builder suite that we completed in suburban Milwaukee for Quad/Graphics, it’s a large distribution facility for them We also did this development down here in Baltimore at Bengles Road which is located just a little bit north and east of Baltimore of I-95. Greenwood Industrial here at Atlanta is a building that’s 100% leased to Ford. And they actually use it to distribute parts throughout the Southeast.
Regional distribution, we often times are ask the question what are the key differences between regional and bulk distribution. And the best way to characterize it is that, regional distribution buildings are smaller versions of bulk buildings. Whereas bulk buildings are over 100,000 square feet, regional distribution is under a 100,000 square feet. You’ll see it’s about 12%, 13% of our overall portfolio depending on a variety of measures.
Again clear height over 22 feets or 23 feet in our portfolio. Average size of our buildings are about 78,000 square feet. The rest you’ll note are over a dollar per square foot higher than our bulk buildings. This is driven by a couple of factors. First of all, higher average office percentage. Secondly, these buildings are given that they are smaller generally are a little bit more in-fill locations, which translates generally into higher rents.
And your user base here is very similar to bulk buildings, but with the added dimension of more localized businesses and all of our users tend to distribute with from this product type to more of a city or multi-county area versus a regional area.
A couple of things to point out, the Vista Bella buildings, this is a 40,000 square foot building in the South Bay of Los Angeles. There is actually a sister building that’s off a picture that’s 80,000 square feet. These two buildings became vacant in December of 2010 and we have been successful in releasing the entire complex in a last couple of months.
2900 technology driver I point this out not to steal days thunder in the next part, but to give you a representative sample of what a lot of our buildings in Detroit look like. And this is very, very typical of both our regional distribution states across the country as well as our portfolio in Detroit.
Light Industrial, the key characteristics in Light Industrial, generally again are small buildings under a 100,000 square feet, our portfolio averages about 44,000 square feet, little bit lower clear height 18 feet, generally it’s based at under 22 feet clear, average office percentage you can see a fair bit higher than both bulk and regional distribution at almost 30%. You’ll also note the average rents are a fair bit higher. Again, not quite $1 per square foot more than bulk distribution buildings.
Tenant space here tends to be more sales and service organizations, IT, healthcare and those types of tenant that need more of an office use along with some more modest warehouse space that are not really focused on major distribution users. You’ll see tomorrow, for those of you on the tour, 2,400 Worlds Fair Drive is part of our Worlds Fair Complex in Northern New Jersey.
We’ll spend some time there walking the buildings and you’ll get a very good feel for what these asset classes like from that experience. I’d also point out up in the upper left hand corner, 1011 Rancho Conejo in, which is actually in Southern of California is a late industrial building at a 100% lease to Amgen.
R&D/flex. For those of you on the webcast, I’m on slide 32. This is an area Bruce alluded to where it will be an area of our portfolio, where we’d like to sharpen in our focus, I’ll touch on it in a moment in terms of the non-strategic parts of our portfolio. But in totality right now R&D/Flex constitutes 9% by book value. You can see a much relatively lower percentage by GLA. R&D/Flex is definitely a lower clear height used generally under 16 feet against smaller buildings. But you can see the rent profile is much higher than any of our other uses about $7.75 per square foot.
That's driven primarily by heavier office in our portfolio about 71%. You can see we got some work to do here. We are under 75% leased and the good news here is that as we lease this space up given the rent profile, it will make a dramatic impact on the NOI profile of the company. The bad news from an occupancy perspective, you are not going to see that needle move dramatically because these spaces are by and large but small.
This is an area that I would like to spend a little bit more time talking about from a non-strategic perspective. We have parts of our R&D/Flex portfolio that we think are very good fit both within the portfolio as well as within the markets they are located. Couple of examples Northern New Jersey again for those of you on the tour you will see our shape in road complex which a very good R&D/Flex portfolio. Southern California specifically San Diego, Minneapolis, Denver, Baltimore, Washington are all examples of parts of the country where R&D/Flex portfolio is very good, very competitive, we like it. It’s strategic. Other areas however are less appropriate for the marketplace, and they make-up a big part of our non-strategic portfolio.
In fact by book value about 28% of our R&D/Flex space is on the non-strategic versus the other categories as I just mentioned both regional and like industrial. With that number generally is around 7% or 8%. So clearly, a bigger focus here on sharpening the focus of the FR portfolio.
Manufacturing, if there is an apart of our business that’s probably more misunderstood I would say it’s this one. We define manufacturing buildings. Not by the building itself, but by the use that’s in the building. Generally it’s over 50% of the use is deemed as manufacturing, we classify that building as such.
First of all I’d point out only about 1% by book value of the FR portfolio is in this asset class, its eight buildings out of 745. What you will know is that if you look at these characteristics, the clear height, size, average rent and offers percentage they are very similar to both bulk distribution in terms of all those characteristics. And in fact if you look at the tendency here and you would take out, whatever improvements they have in the building, it’s very easy to make the case that any of these buildings could be converted to either bulk distribution, regional distributions or light industrial uses very readily.
For example the building up here in Detroit, 4400 Purks is actually leased to Chrysler and they use it as a facility to fit our concept cars. Now reasonable people can debate whether or not that’s truly manufacturing, but I think that’s the conservatism of our definition here and thus its put in that category.
So that backdrop of all of our property types, which constitute both the strategic and non-strategic parts of our portfolio. Let’s move over to breaking those two components apart. In terms of the exercise that we went through and we did this in about the third quarter of 2010, we identified a group of non-strategic assets for disposal.
At that time, we marked those portfolios to just under $350 million in book value on a 195 properties, and $70 million in book value on 724 acres of land. Obviously there have been some adjustments, since then, but those are the numbers as of 3Q of 2010. The objectives were to refine and upgrade the portfolio, as well as to monetize properties for debt retirement and reinvestment.
The characteristics of this portfolio really across all of our markets, clearly there was a higher concentration in the Midwest. A higher proposition as I mentioned of R&D/flex properties, clearly properties with functional challenges, either that could not be corrected or where the property perhaps wasn’t in the right for the market in which it was located.
And finally land, without visibility on near term development. Now that the key here is that this is an ongoing part of our strategy. While we did this exercise a year ago, it is hardly stack. It is an ongoing part of what we do everyday at FR and in fact we go through our portfolio on a quarterly basis to update and refine this to us.
Unfortunately that means this process is somewhat untidy, but it also means I think we are extracting the best value we can for the shareholders out of this exercise. A couple of examples; we had a property in Southern California land parcel about 38 acres, where we originally put this list together, it was designated as non-strategic. What we saw since we did that designation is that market came back very quickly and very rapidly. We pull that out of the non-strategic bucket and (Joe) will touch on it, it’s our development in Southern California.
Likewise, we have another asset in Southern California; very similar location that currently has an asset on it that have some functional challenges. We look at the asset and said it probably makes more sense as a redevelopment to upgrade and expand our exposure in the Inland Empire market. The goals here obviously improve the overall quality of portfolio, maximize rental growth and in the case specifically R&D/Flex minimize our ongoing capital expenses.
The strategic portfolio, there are lot of data on this page, let me point you to a couple of key points on slide 35, it’s about 55.5 million feet. That 55.5 million feet is 88% occupied, its 24 foot clear, the average rent is $4.27.
With that backdrop, the non-strategic portfolio, about a 11.4 million square feet in 135 buildings, 79% occupied, 22 foot clear, about $258 million in book value rents which is probably the most the biggest takeaway from this page, about $3.18 more than dollar per square foot less than our strategic portfolio.
So the key takeaway is less occupied, its lower clear height, bigger disparity in rent and a significant portion as I mentioned of R&D/Flex portfolios are in this bucket.
So how we’ve been doing on sales? As Bruce touched upon, about $85 million over the trailing 12 month period in non-strategic sales from a geography perspective, the preponderance of that number was in the Midwest with the other parts of the country also represented. Perhaps the other important takeaway is the fact that about 8% were located in other markets.
They will touch on our other market exposure a bit, but these are basically areas of the country were for a variety of reasons we generally don’t have a substantial concentration or in tertiary markets, a big part of our non-strategic focus has been to exit a number of these markets. And need of our other exposure about, which is about 4% of the overall FR asset base. About 36% of those buildings are on the non-strategic list as well.
In terms of sales history, about $2.7 million feet, we sold it, as Bruce mentioned to $24 million, which is about 20% over book value. The balance of the portfolio here is marked at about $20 per square foot.
Land, a little permanent here, I’m on slide 38, for those of you on the web. The blue boxes are currently non-strategic courses. The white boxes are either strategic or a combination of strategic and non-strategic. Key takeaway here, as we stand about 6 million square feet excluding our Southern California development, our development potential going forward.
Southern California in either the first, the fourth quarter rather or the first quarter that number will drop to 12 acres, as we deliver our development project. For those of you on the tour tomorrow, you’ll see both of our sites in Eastern and Central Pennsylvania, which will account for about another million two square feet of potential development with 78 acres as in a side, constitute a residual piece of our larger land development that’s part of one of the sites will see tomorrow, that’s currently zoned as residential. So, it’s obviously non-strategic from our perspective and it is not in that number.
The key here is about 745 acres about $82 million in book value again that number will come down, as we deliver this building with about 6 million square feet of potential development and growth capacity currently on the portfolio.
Finally, ADESA. This is, as I mentioned and Bruce alluded to, a very interesting and unique part of the FR portfolio. ADESA is an auto auction business and it has a number of locations around the country. A little quick backdrop here, we had, our acquisitions team had a long-standing relationship with ADESA and in 2008, started a conversation to do a larger sale-leaseback with them. We looked at each of ADESA’s 59 locations at that time, we chose to do a sale leaseback with them at eight of the 59.
The key criteria were really driven by what kind of access, locational and other advantages those eight sites had as a risk management tool in the event ADESA had financial problems and we could then revert to more of a development program. Since we’ve done the deal, ADESA, which has about 1.7 million, 1.7 billion rather, of current market cap has paid down a significant amount of debt that are publicly traded. The parent, rather is publicly traded, KAR and KAR guarantees our lease and they paid down about $700 million of debt since we did the deal. So the currently rated, basically B flat B+, we feel very good about their credit quality.
From a lease perspective, 684 acres of land, the sites are improved primarily with large parking lots and very modest building coverage, generally less than 3%. Average rents in place, currently total about $6.5 million of our rent profile and book value at $77.3 million. Idea of question is, well what are these worth, they’re a little bit of a different animal. The best comp I can give you is that we sold one asset of our original eight, so we have seven remaining in middle of California for nearly $22 million, about 18 months ago it’s 7.3% cap rate.
Give you a little bit more color on that, on the site, this is slide 41. Going from left to right, Houston is located in a very active part of their industrial market in the Northwest part of the, very close to the outer loop. Seattle is located in the Kent Valley, Atlanta is just to the south and a little bit west of the Hartsfield airport. In fact you can see in the picture, a plane coming in for landing, that’s not air brused in, that was actually the area that we were able to get.
These three sites constitute not quite 50% of our overall adjusted exposure. And as you think about an auto auction company, things like access, visibility all very important given that car dealers are bringing car inventories to these sites, and you could see here in Houston, it’s very much of an infill type location given some of the surrounding development, Seattle very well located, nice site and obviously in Atlanta you’re very close to the airport there and with some development adjacent.
So each of these sites in addition to currently being a very good and solid income stream for the company represents an alternative view scenario all good industrial uses, however given the credit quality of adjacent car holdings that probably isn’t a large concern at the moment. So with that I think we’re at a point for a break. And then we come back, Dave Harker come up and talk about the Central region a little bit more? Thank you.
I could take it, like a 15-minute break, let’s start it.
All right. I hope you’re working on something with that. Let’s get started. Okay. Now we’re going to go into sort of a breakdown in the regions in terms of the Central, the East and the West and go through opportunities, challenges and cover part of that our top ten vacancies, strategic portfolio and to start it off, we’re going to have David Harker, who is the Executive Vice President that runs that Central region. David?
Well, thank you, Bruce. What I’m going to try to do is, briefly if possible go into what do we own in the Central region, what are the opportunities and challenges that we face. Central region consists of about 31.5 million square feet of property, just over a $1 billion of book value. We’re currently 88.9% at least and we have had increases in occupancy in every one of our markets over the last 12 months.
As you can see, we’re fairly evenly diversified between the eight major markets that we cover, Chicago, Milwaukee, Indianapolis, Detroit, Dallas, Houston, St. Louis and Nashville. And then we have about 9% of our properties in other markets, and I’ll go into more detail on those in a second.
Chicago, Milwaukee. Our Chicago Milwaukee portfolio totals 6.5 million feet, that’s approximately 4.2 million in Chicago and 2.3 million in Milwaukee. It’s currently 90% occupied. Our Chicago portfolio is spread all the way from Alsip in the south all the way up to Kenosha, just over the Wisconsin border.
Our Milwaukee portfolio is primarily in the western suburbs, New Berlin. But we also have some property down near the Milwaukee airport. Our largest concentrations in Chicago are in O'Hare and I-55. The largest property we have in the Chicago market is the 600,000 square foot build-to-suit that we did for Rust-Oleum in Kenosha that was on Bob’s slides earlier.
Our largest property in Milwaukee is the 389,000 square foot build-to-suit that we did for Quad/Graphics in Menomonee Falls. Our largest vacancy in Chicago is a 160,000 square feet in Forest Park and install instant location in Chicago. That is number eight on our top ten vacancy list, and I will go into more detail on that in a second.
In Chicago this year, we were successful in improving the quality of our portfolio by selling off our two most functionally challenged assets about 360,000 square feet of space.
Minneapolis, St Paul; Minneapolis is 4.4 million square feet, it's currently 85% leased. So we have some opportunity there, but most of that vacancy is in one 413,000 square foot building. We have over 200,000 square feet available in that building and that is number two on our top ten-vacancy list. So I will go in some more detail on that in a second. Minneapolis has always been a good market for us. We have had as much as 7.5 million square feet of property in that market. We’re currently down to 4.4 million, but it’s one of the markets that we’re very strong in and very happy with our portfolio.
Our biggest tenants in Minneapolis is Best Buy, and they occupy our 425,000 square foot of distribution building in Bloomington
Detroit; I’ll go into a lot more detail on Detroit in a second. Our Dallas/Ft Worth, this is probably where we have the most opportunity in the central region. We have 5.5 million square feet there, we’re just a little bit over 80% occupied, 80.7% occupied. But that includes 950,000 square feet of space that is in our non-strategic. That non-strategic portfolio in Dallas is all R&D / Flex base and it’s currently only 66.6% occupied.
Our largest tenant in Dallas is Fossil the retailer, they are in 270,000 square feet in a building that we own in Garland, a classic building that we built in 2008. Coincidentally our largest vacancy is also in that same building 166,000 square feet that too in the remainder of the building.
The bulk of our portfolio in Dallas is in the Great Southwest and Lone Star market, which are the large distribution market located between Dallas and Ft Worth. It’s an infill market and it’s a market that we’re convincible come back strong as we timely picks up.
Houston, next quarter are very bright spot, our Houston portfolio is 3.6 million square feet, it’s currently 96.4% occupied. Houston was the best market for us in the central region over the last few years. Rental rates have held steady, our portfolio has held up in to mid 90s percent occupied as the market as a whole. So that has been a very much a bright spot for us. Our largest tenant in Houston is Michelin 664,000 square foot building in the Northeast that is an acquisition that we did earlier this year and Joe is going into more detail on that building when he gives his presentation on investment strategy.
Our two smaller markets St. Louis and Nashville smaller by book value and also smaller markets but also very well leads as you can see. St. Louis is a total of $2.4 million square feet, one million of that is single tenant building, the Ozburn-Hessey Logistics building that was on top slide at the beginning of the presentation. There in the Gateway Park in Southern Illinois.
The rest of our portfolio in St. Louis is concentrated in the North County market around the St. Louis airport and it is primarily built distribution with about a 170,000 feet and our St. Louis portfolio is 95.2% time to time.
The Nashville portfolio two million square feet that is all in eight different buildings, five of them are both distribution buildings and the other three are light industrial buildings clustered around the Nashville airport that total about 280,000 square feet. Our largest tenant in Nashville is Vi-Jon, 700,000 square foot (inaudible) that we did in 2007. In Nashville asset Vi-Jon location for Indy was called I840 East market. We have built six buildings totaling 2.5 million square feet. Vi-Jon is the only one that we still own, we still left everything else. We also own 100 acres of land adjacent to Vi-Jon where we can build an additional 1.5 million square feet.
The remaining bulk distribution, buildings are fully leased through tenants on Dorman Auto Parts, Quanta Computers (inaudible). Now other, as I said 9% of our portfolio in the central region is in other markets. These are all one-off transactions that we got into either to a sale-leaseback or a builder suite. Just to give you some flavor of what we own. The largest in the other category is Pure Fishing in Kansas City; Pure Fishing is the name of the company. It’s a 400,000 square foot builder suite; we did for them in 2008, it is right near the Kansas City airport.
The second is we own one property in the Louisville, it's a 140-door truck terminal, that was a builder suite for Penske in 2007. That Penske client is Ford and this is a central distribution terminal for all Ford’s manufacturing plants. The third largest one in the other category in Winchester, Virginia, we did the 300,000 square foot builder suite for Ozburn-Hessey Logistics. This is an I-81 corridor just outside Washington about 45 minutes from Dallas airport. The property is very close to Intermodal and their client needs to be right at the Intermodal.
Now, I'm going to go into more detail on the three properties in the central region that made the top ten-vacancy list. Number two on the list is property in Minneapolis currently have 239,000 square feet available. Currently is a key word here, because this is a property that we have had numerous public warehouses in and out of on short-term leases for the last couple of years. This property was a 100% at least earlier this year, but the occupancy at 9 at the end of the third quarter was down to 42%.
In 2009 we took the tenant out of this building and we did a builder suite for them to the South in Lakeville 285,000 square foot build a suite for tenant called Uponor. Since then we’ve been able to keep the building fairly full and cash flowing with six to nine months leases with public warehouses, but we have – yet to find a tenant to stabilize the building.
This is a functional, bulk distribution building, it’s a great in-fill location if you note the location down there, geography is sort of the harder the Minneapolis bulk market Lakeville is just of our map to the South here. It’s a great location right on the highway 13 right near i35. The building is plenty of back doors if you have good trailer parking. You only (inaudible) on the building as its only 21 foot clear that’s something that we can compete on rates with other newer buildings, but the building is already subdivided into three different spaces and the suite spot for both distribution in Minneapolis is a 100 to 150,000 square feet.
It’s not a market where you are going to do a tremendous amount of much larger deals and are still and that’s already subdivided. Based on the activity that we’re seeing there is a shortage of 100,000 square foot space in Minneapolis right now, most of the stuff has gotten leased up and we are confident we are going to be able to find a tenant to stabilize, at lease the portion in this property in 2012.
Moving on, this is the property I mentioned in Dallas. Miller Road this is number six on our vacancy list. As you can see, this is a Class A property built in 2008, all the bells and whistles 30 foot clear across that. We build this in a twin building in, well the twin was in ’07, this one is solid in ’08 we were successful in leasing up the twin immediately and we sold out of that one. As we were building this one we put [fossil] in a portion of the building, they have since expanded, but we still have a 166,000 square feet in this building that we need to finish off.
Garland is an in-fill market, it was substantially over built during the last cycle and it’s still in the process of working off that excess space. It’s not a market that people who are coming new to Dallas are going to move to. It’s more of a market that – there is organic growth in it, there is some big users in Garland, fossil I mentioned, crafts, depth, Navistar, [Valspar] those are the major users in the market and the market has filled up as they have grown over time. The market has tighten substantially there is only one competing vacancy in our sites range left in new product, and we also feel confident that we’re going to be able to find a tenant for this in 2012.
Our largest vacancy in Chicago and number eight on our top 10-vacancy list is Industrial Road in Forest Park. And for those of you listening on the web I’m on page 46 right now. This is a 150,000 square foot bulk distribution building. We acquired it in 2005 as part of a sale lease back transaction. The building actually also have the twin, the tenant was occupying 250,000 square foot buildings. We staggered the lease rates knowing that they were gong to lease (inaudible) under their term and consolidate it into one larger building. When the twin became available in 2009, we were able to immediately lease that up to a neighbor. We still own that building.
This building came available a little less than a year ago it would be a year in December, it’s a good functional in-fill building and when I say, in-fill this is kind of a definition of in-fill here. Those of you know should probably go. This is downtown, this is O'Hare, Midwest down here, we are inside the 294 loop. We are right off at 290, pretty much smart thing in the middle of the Chicago metro area. The tenant that is going to occupy this building is more than likely a tenant has out grown their space in the city. We still see an expedisim businesses from the city.
Many of them are going out here to center of the page here in this 355 Corridor. If the tenant wants to retain the existing workforce or if they’re distributing within the Chicago Metropolitan area, it’s a great location. We did complete when that building came available in the summer, we went through our very expensive what we call the hoops renovation where we did all the office space, we put all T5 lighting throughout the building. So we substantially upgraded the building and we’re confident we're going to find a tenant for that in 2012.
Okay. Now I'm going to go into detail on Detroit. Detroit is a market that we get a lot of questions about. It's a market that a lot of people don’t cover, and it's misunderstood by a lot of people. The first point I want to make about Detroit is our portfolio in Detroit, 117 properties, 117 buildings, the average size is just 135,000 square feet and of those 117, all but a handful are single tenant buildings.
So with the unique property type, it’s smaller single tenant buildings. The second point I want to make about our portfolio is we are outperforming the Detroit market by 500 basis points. We're 90% leased and we have consistently done that. And I’m going to a little bit more detail line in a second with some pictures of what we own up in Rochester Hills up in the high I-75 Corridor.
One of the reasons that we’re outperforming the market is, if you look right here, 60% of our portfolio is in Oakland County. Oakland County is more of the light industrial higher finish tech portion of the market. Our portfolio is perfectly for that market. Wayne County is metropolitan Detroit and it is also where most of the bulk distribution market is in Detroit. We don't have a lot in the bulk distribution market and mater effect of the you see 30% of our portfolio is there, but 600,000 square feet that is the one development called airport [park].
Airport [park] is a unique creature. It’s 26 separate buildings, but it’s really designed for freight forwarders. It’s right next to the Detroit airport. It suffered in the downturn because the freight forwarding business took a hit, but we are comfortable the debt the market is going to come back strong. We also have a competitive advantage and that we have a (inaudible) door ratio of one door for 1800 square feet.
All the zoning for any new property that would go in is one door for 10,000 square and that’s what freight forwarders are looking for. They don’t need warehouse space, what they need is doors, so that’s a property that we are bullish about. It’s on our strategic list that will come back overtime. Macon County is the other market, we have a very small presence there, there is a number of manufacturing plants up there.
Two points about the Detroit market as a whole, one is, it’s a huge market. It’s the sixth largest industrial market in the country, 537 million square feet, the SMSA of Detroit is 5.7 million people, so it’s a big market. And secondly, since the Chrysler and General Motors bankruptcy has got resolved. It’s been a, the market taken a dramatic turn from better. There has been 6 million feet of positive absorption, since the beginning of 2010 rates have firmed substantially. So there is life in Detroit.
Finally, let me talk about our strategy, once again I mentioned 117 buildings, as you can see that bulk of them are Light Industrial located in Oakland County. Our strategy is to sell down our portfolio in Detroit by a third over the next three to four years. We are going to do that entirely through user sales, our portfolio, the type of buildings we have lend themselves very easily to user sales, and the reason we’re confident we can do that is we’re already doing it. We have sold since the beginning of the year, 9% of our portfolio 10 different transactions all user sales totaling about 400,000 square feet.
Finally, to summarize essential region, goal number one as everywhere else in the country is leasing. We’ve got some good opportunities to lease up our space, good space that we’re confident that we can get leased in 2012. Just as in the slide, this is the Pure Fishing build-to-suit in Kansas City and this is the Uponor build-to-suit in Greater Minnesota that I mentioned earlier.
Job number two, continue to upgrade the portfolio for selling off our least functional properties, focus on some of the other markets, focus on R&D flex especially in Dallas and just focus on getting rid of our lease functional properties in the major markets.
And then finally there is going to be growth, we have already started looking for projects in Houston and we have had our first acquisition. So with that I will turn it over to Peter.
Good morning everybody. The East region is made up of 11 cities extending from Northern New Jersey, South Miami and then two including Ohio and Indiana represents about 27.5 million square feet for the company just under $900 million of book value contributes approximately 40% of the company’s NOI, our Q3 occupancy leased was 84%. Our largest markets by book value include Central PA, Atlanta and Baltimore.
Looking at the portfolio breakdown approximately 85% is bulk, regional distribution or light industrial. In fact 50% all that 50% is represented on the bulk side. From a performance standpoint looking at our Q3 performance the chart is on the left nine of our 11 cities showed an increase in occupancy and we had declined in two of those cities. Our strongest markets include Central PA, Indianapolis, Philadelphia, Southern New Jersey and Cleveland.
Our weakest and most challenged market continues to be Columbus.
I'm going to spend just a few minutes touching on each of my markets and I'm going to go left or right on the chart for those on the web, go on page 53. First, Central PA, 4.5 million square feet, largely located along the IV1 quarter and in the Harrisburg area. 84% of our portfolio in Central PA is bulk with a balance between regional distribution and light industrial where 90% occupied in Central PA today.
The market continues to show positive absorption, very active particularly with bulk users. And we are seeing some spec construction in Colorado and in the Lehigh Valley. We have good functional product in Central PA, we like the market we are in and it’s a market we plan to grow in.
Next moving to Atlanta, and I'm going to cover this in more detail in a few minutes. The Atlanta portfolio is 5.6 million feet and continues to underperform the market and we certainly have some work to do there. The key is really leasing our large strategic vacancies as you will hear from me in a minute. But the market continues to show improving activity and positive absorption, although, it continues to be a very competitive environment.
Moving to Baltimore, 70% of our assets in Baltimore are in the bulk and light industrial space. The assets are located primarily north, west and south of the city, together with two of our high quality assets in Northern Virginia. And as Bob mentioned some quality flex product outside DC that performs well for us.
Our occupancy in Baltimore just dropped into the low 80s has resulted the Q3 vacancy, that one building represents about half the vacancy in our Baltimore portfolio. And we are already seeing some initial activity on that.
Active industries in the Baltimore market continue to be logistics manufacturing, service in IT companies. We like our assets in Baltimore a lot and it’s another market that we plan to grow in.
Moving to Indianapolis, our occupancy here as I mentioned one of our stronger market at 92%, this continues to be a very stable market for us over 75% of our assets in Indy or in the bulk space, and most of those are located on the East side of town.
Our leasing in Indy has been greater and in fact we have positive releasing spreads in Indianapolis in the third quarter, which is certainly a highlight for us. We’re pleased with our assets here, you will see us reduce our exposure in Indy to some of our small day product which is on the non-strategic list that Bob discussed earlier.
Northern New Jersey, our strategic assets in Northern New Jersey for those of you on the tour tomorrow, you‘ll see all but two, two you wont see we built their new and highly functional, but those are located in three parks high performing good markets our occupancy in Northern New Jersey at Q3 was 86% down a little bit on a year-over-year basis, but with the leasing that we’ve already completed in the fourth quarter you’ll see that pick up before the end of the year.
Active industries in New Jersey health and beauty care, pharmaceuticals, 3PLs, food and pet supplies. And as we see our assets tomorrow you’ll see that we can accommodate a variety of those users.
Philadelphia and Southern New Jersey as I mentioned another strong performer, almost all but one of our assets are in the bulk of that industrial space through one remaining assets is a flex building, which is on our non-strategic portfolio.
Our occupancy recently dropped into the high 80s in Philadelphia resulting from a vacancy addressed in the third quarter and we actually already have a lease out on the majority of that building that were negotiating and expecting to get timed here in the next couple of weeks for year end occupancy.
Philadelphia is a marked we like. You are going to see us continue to execute on user sales on some of the buildings that are non-strategical that we’ve been very successful with at very high values.
Moving to Ohio, and Ohio is made up of three cities Cleveland, Cincinnati, Columbus. We have about 6.5 million square feet across those three cities just under 3 million in Columbus, just over 2 million in Cincinnati, and about a 1.4 million in Cleveland.
Starting with Cleveland, and working south Cleveland, our occupancy is 97%. Class A assets that market continues to be very, very stable for us particularly in the, it’s tightest in the quality spectrum of those buildings which is where all of our buildings are, and we’re very pleased with that.
Cincinnati is made up as I said about 2 million square feet. Most of those are on the North side of Cincinnati. The portfolio make up a couple of bulk buildings at first, industrial developed a number of years ago and acquisition we did few years go of a newly completed light industrial multi-tenant park, that’s doing well. And then we have a couple of less functional challenge buildings, but we are actually seeing some activity on those today as well.
And finally, Columbus continues to be our most challenged market. You know there is very little demand in Columbus, rents remain under significant pressure and our properties are largely less functional, non- tax abated and we compete with more functional, fully tax abated, which is a very tough dynamic. So, Columbus is certainly going to continue to be a challenge. The other dynamic we’re seeing in Columbus is companies are vacating existing property for new builder suites which again are fully tax abated and in fact more spectators moving out of our largest building in Columbus at year end of about 700,000 square feet, so that will be on our radar for next year.
Moving to Florida, we’re in two markets in Florida, Tampa and Central Florida and Miami and South Florida. Florida as you all know certainly had the struggles over the last couple of years given the economy. The majority of our portfolio in Tampa is in the flex and service, R&D space primarily located north of the Tampa Airport and then also in Pinellas County. Our occupancies are about 81% and we still have some work to do there, it has been improving, we’re having more conversations with tenants about taking more space as compared to ’09 where we’re having a lot more conversations about less space and you’ll see us reduce our exposure to the flex product in Tampa.
Miami is certainly a different story and first just a comment on why it’s or you might ask why our occupancy is so well. Our square footage in Miami is only 500,000 square feet, so we have a small presence there, and we have one building that’s 142,000 square foot that’s vacant, that really impacts that number. And then, one of the other projects was a small bay condo project that we develop for sale a couple of years ago, and so we’ve sold or leased about 40% of units and you’re seeing the balance of the space that we’re holding on in the portfolio that impact the vacancy.
Miami continues to improve positive absorption, a lot of activity, particularly in the Airport West and [modalities] submarkets where the majority of the quality product is, which is where both of our properties are in Miami. The other assets that we have in South Florida are six Bread and Butter industrial buildings in Fort Lauderdale weighed up 95 of Commercial Boulevard and our occupancy there also has improved substantially in the last couple of years.
Miami is another market that you're seeing speculative construction in and there are core projects expected to break ground on the next couple of months totaling about 1 million feet which should deliver the end of next year. Miami is a market that we like and you’ll certainly expect to see us grow there.
Next I'd like to turn to Atlanta. And this is really the land of opportunity for us. Three of the largest vacancies on Bruce’s list are in Atlanta, and I'm going to go into detail about those in a minute. But Atlanta represents the largest – the company's largest market by square footage, and as I said, a couple of minutes ago at 76.5% occupied continues to trail the market.
This is a big map, I have a couple of comments here. In terms of the overall Atlanta market, it’s about 540 million square feet, certainly one of the biggest markets in the country and the population center of the south-east. The drivers here are a couple things, we have great transportation infrastructure. So if you look at the confluence of the highways, you have the 75 Corridor running Southeast, Northwest, you have the 85 Corridor running Southwest, Northeast, you have I-20 which runs East, West right through the city as well as the parameter around the market.
In addition to that confluence of highways, you have a very busy Atlanta airport, which is right down here at 6’o clock and that’s on the south side of town, three intermodal facilities in Atlanta and of course, the seaport in Savannah, which falls a lot of goods into the Atlanta market.
You’ll see these bubbles like we did on Dave’s chart, these represents a nine principal submarkets in the Atlantic area, First Industrial has a presence in seven of these.
The two largest and historically most active submarkets are first in the Northeast and then the second is South side on new side of the airport.
The majority of our assets 80% of First Industrial’s assets are in these new markets again the Northeast and the South side. As I said vacancy remains elevated in Atlanta and it continues to be a very competitive environment, there has been good activity, we’re seeing some positive absorption and in fact the availability rate on buildings that can accommodate tenants of 250,000 square feet or more has dropped from what was over 50 buildings last year to just over 40 building this year.
So we are headed in the right direction but as I’ve said it’s still very, very competitive. Good news like most markets no new supply. From the portfolio standpoint, I am now on page 57 for those on the web the things to really focus on are 90% of the assets in Atlanta are in the bulk regional and light industrial space with the majority being bulk and then I will draw your attention to this number right here, this is where all the vacancy is and in fact the two largest vacancies in Atlanta which are two of the top vacancies in the country, will move our occupancy needle in Atlanta from the mid-70s to the high-80s, just those two buildings and then they will add over 100 basis points of occupancy for the company.
The five flex buildings here which are – are low occupied are all on our non-strategic list and you will see us exit those, and if you look at as Bob did early kind of the occupancy rate between the strategic and the non-strategic or strategic portfolio in Atlanta is about 80% and non-strategic is about 60%, the overall market vacancy in Atlanta is in that high teen. So our strategic portfolio is performing a little bit closer to the market.
Now I want to talk about – I’m going to talk about six key vacancies – all six of one – the list that Bruce discussed earlier about top 10. The first three are going to be in Atlanta and then the next three will have in a couple of other markets where you.
So, the first one is our South Park asset. This is 5’o clock on the dial, very close to the airport Great Highway Access. Highly functional good location on the south side. Features include 31 foot clear secured truck court ESFR sprinkler which is the state-of-the-art sprinkler system that those types of users need as well as real capable.
This building was bought in the sale lease pack from Oracle a couple of years ago. They vacated the building in December ’09. We put Jacobson in the building in Q4 of last year on 246,000 square feet, we expanded them by another 150 this year. So, we’ve made some significant progress on this asset.
When I’ve said multiple proposals and multiple prospects for this building that we’re in the hunt for. So, we certainly feel good about our opportunity this year. The next building is Bonnie Valentine which is 2’o clock on the dial. So up to 85 Northeast Corridor and I would tell you that this was our best physical asset in Atlanta.
It is a class A building 32 foot clear, energy efficient lighting, all the bells and whistles that the demanding users are looking for today. Cross-docked, great truck court, great access, great truck (inaudible) and this building was bought as a newly completed vacant shelf late ’07 below replacement cost, last year we leased about half the building to two different tenants and then we have about half the building remaining and our activity here has been a little bit disappointing. It’s in a market where we certainly have a number of other comparable buildings but the activity in Atlanta recently has been more in the south side than it has on the north side.
So we haven’t seen as much activity as we like but the building is moving ready and every deal is in the market we certainly see. So still some work to do here. The third one is our Southmeadow Complex called (inaudible) as you move around the city again close to the airport. This is a group of three buildings front loaded 20 foot here. So a little bit different product and this was a product where we have to really compete on price for those of you that know the Atlanta area it competes with the industrial sub market which is a lot of older less functional space endusers there are cheap.
So we have had a series of 3PO and other folks in and out of this project over here and we are in a off cycle at the moment at that 70% activity we have a couple of things working on that but this is another project that we need to make some headway on. Again it’s highly functional, low located, no real challenges other than if you want a front loaded product there is lots of space in that sub market.
So those are the three vacancies in Atlanta. The next one is in Central Pennsylvania along the I-81 corridor in Carlisle and this is a building that 300,000 square foot building that we developed just a few years ago, right next to a number of builders that we did over the last several years for people like Johnson lacks and institute temper. Front loaded building you can actually see this building from a high lake again clear high sub parking, loading all good. We leased a 165,000 square feet in this building at the end of last year and we have a 135,000 square feet to go. I’m sorry activity has been choppy in this market for this size range. So great asset location, functionality certainly as the economy picks up, we’re seeing an improvement in activity of this space.
The next one and again, so we’re not sure at picking assets, you might say this isn’t as pretty as some of the others. We actually have more activity on this building than we have on the brand new building that I just showed you. This is a building that we have closer into Harrisburg, it was just vacated this summer by (inaudible) who is on a long-term lease. They operate as a freezer cooler facility. The building is in the process of being renovated, including we’re moving the outdated cooler freezer on the energy efficient light, new darks, new interior, new exterior, when we have the opportunity show the – show you this building again, I think another a remarkable change with the work that we are doing and as I said, we have more activity here than we do on our newer space, given that it highly functional in good location.
And then lastly in North East Philadelphia, Red Lion Road, this is a building as I mentioned earlier in my market comments that impacted our fully Southern New Jersey occupancy pertain moved out of this building. This summer, they moved into a builder suit that they needed actually more space and we have in just a few short months, we’re getting the building back. Jeff Thomas, our Senior Regional Director of Pennsylvania is working on a lease for this building. So we feel pretty good about that. So I just talked to you about our six largest vacancies and all six of those are on (inaudible) list and you heard me mention that we did some leasing in the last 12 months in the South Park building in Atlanta and the Valentine building in Northeast Atlanta excluding and excluding this building.
But if you look at what we did over the last 12 months, we leased about 1.1 million square feet in those buildings. We have in these six buildings about another 1.3 million square feet. So we’re actually more than about half way there. And then with this building, you can see we’re making really good progress.
So it’s not that these buildings can’t lease, we’ve demonstrated that we actually have leased them with some pretty good results. But we still have some more work to do. In conclusion as David said and we’re focused on driving value and cash flow through our leasing principally with our largest strategic asset that we’ve talked about this morning.
Second, we’re focused on executing on our non-strategic sales, which is really reducing our exposure to flex product in a couple of market as well as reducing our exposure in Columbus. And then finally, we’re looking at growing in our target markets of Northern New Jersey, Central PA, Baltimore, and in South Florida.
With that, I’d like to turn it over to Jojo.
Thanks, Peter. Lot of information there. Here is the good news for FI, no I’m just kidding. We are in the whole stretch. Okay. Let me I’m Jojo Yap, Chief Investment Officer and Executive Vice President of Dallas region and what I want to do is give you a service in summary and move on to our largest market in terms of rental income and western regions in Southern California, give you a brief overview of that market and then move on to investment strategy and busy answer to questions, well some of you have asked (inaudible) executing investment strategy.
So, for people in the web, I am on page 66, I am going to start on the right hand side, the book value basically we have about $663 million of book value, in the western region about 50% of that is in the western region. Moving down to property side about 75% of the investment in the western regions bulk region or light industrial and what I would like to do now is move on the occupancy chart for those in the web, you can start from left and go on to right.
Let me start off with Southern California market. Southern California market its primarily, light primarily a regional warehouse a light industrial product and some bulk in the Salt Lake market of LA in Inland Empire in light industrial product in the San Diego market.
I will go into detail a little bit more on the color market, this information I want to spend a time here. The reason for the increase in occupancy is exactly due to the strong net absorption in the Salt Lake market of LA and Inland Empire and somewhat possible absorption in San Diego.
These properties in the California sub market are all located in supply constrained market and vary into a sub-markets and our San Diego properties are primarily in master plan business part. We believe that the markets of LA and Inland Empire will lead the market as it run away through in next couple of years.
Moving on to Denver, that’s about 2.9 million square feet that we own there Denver is primarily a light industrial market, there is also regional warehouse, but very significant amount of light industrial. The business is there of professional services, medical that’s heavily influenced by government as well. Technology, biomed and our portfolio reflects that.
On a market share basis, we have a quite bit of light industrial product there. And if you follow the U.S. economy, the mid size to small business actually have suffered more than large businesses, because of the balance sheet. And that is reflective of what’s going on in our Denver portfolios in significant amount of mid-sized small businesses. But recently that might get us picked up. That’s why in the Western region, Denver is not a high performance region right now. But, we’re seeing that activity come back.
Moving onto Salt Lake, our property in Salt Lake we were about $1.1 million square feet there, property in Salt Lake is primarily bulk, regional and light industrial. And it’s really reflective of the diverse industries in the Salt Lake City market. The Salt Lake City market overall benefits from above average balance sheet strength of its businesses, and it’s a consumer, and that has driven consumption. So if you look at our Salt Lake City market, it has registered some of that absorption and increase in occupancy. Due to the balance sheet strength of these consumers and these businesses, we think Salt Lake City as a whole will perform better than average than the U.S. market.
Moving on to Phoenix, lot of red – by the economy of Phoenix, Phoenix we have a portfolio is represented primarily regional warehouse in most of the markets. We have above 1.1 million square feet in Phoenix. As a whole, Phoenix suffers from one of the highest unemployment rates in the country, but what’s interesting about Phoenix is that, this year it's actually the tough quartile in terms of net absorption.
This year the market absorbed about 2.5% of its industrial stock in fact, the occupancy increased by about 240 basis points in Phoenix. So given that net absorption plus the quality of our product, that's why Phoenix is our best performing market in the West region.
Finally moving on to Seattle, we don’t have a big investment there. We have about slightly under 400,000 square feet. Now in Seattle, all our products are in infill areas primarily in Kent Valley if you know Seattle, it’s just east of the Sea-Tac Airport. And that vacancy that could bring up the portfolio from 80% to 100% is really only due to one building, it’s 84,000 square foot, highly functional building at Kent Valley.
Fortunate now if you go to Seattle, and serving the market, the 50,000 to 100,000 square foot market is soft. And that’s why we’re competing, and we have about 600 comparative buildings out there, good competitors. But I can tell you that our building is in the top quartile, so when that market comes back, we expect to lease that space.
Now I’d like to move on to our largest market either by portfolio or by western region, in Southern California market. This give you some stats, business first of the largest market by rental income. It's the fifth largest by a number of properties and 10th largest by gross leasable area. In terms of occupancy of 81.2% that’s really because of two vacancies. One is the redevelopment opportunity that Bruce and Bob spoke about that’s about 380,000 square feet of which 60 – only 60,000 square feet is occupied. So 320,000 square feet on that 384,000 square feet is vacant. So one project and 88,000 square foot vacant R&D flex building in the Ventura County. Those were familiar with LA area that’s North outskirts area I’ll talk a little bit more about that.
But here is one of them show you a picture one of the one – put also the web on your left hand side is a picture of a building it’s East Ana Street this is – a represent a building we have in South Bay and South Bay is the most in fill market in Los Angeles and it’s 213,000 square foot building leased to Excel Logitics, a third-party logistics firms that really handles a lot of the distribution needs of retailers and other manufactures.
And on your right here is a represent of building in San Diego which is slightly smaller it’s a 28,000 square foot it’s the Spectrum Lane building, 28,000 square foot building leased to a license contract manufacturer of apparel business.
Moving on page 69 for those on the web, let me now just briefly talk about the LA industrial market. If you combine all of the markets here as shown in graph. It’s about 1.9 billion square feet of industrial stock of which about 1.36 billion in Inland Empire and LA. So take away point here is that LA, Inland Empire is your largest (Inaudible).
Let me now briefly talk to you about drivers. LA, l will start with LA is primarily a Southern California – LA Mike is consumption zone. There is about 925 million square feet of industrial stock in this area and its primary purpose is to really serve the LA economy, which is big. And what you – a lot of people don’t realize too is there is a lot of exporters. LA right now is one of the largest exporters of product as well.
And the next largest market is Inland Empire, which is over 400 million square feet. The driver is that is primarily importers and distributors of imported growth. The U.S. is the net importer and about 60% of the goods coming in from overseas come through the port of LA and Long Beach and that’s a significant amount of containers coming in.
A lot of the large importers cannot really locate themselves into a market of LA because they need bigger buildings; they need more efficient spaces. And what they do is they basically get their container share, put it in trucks or rail. If it is put in trucks, it really goes up North LA and goes east either on I-10 or 6-10 and hit the Inland Empire market.
For those who are familiar with the LA market this is the location of the entire airport right close to where for those on the web, right exactly where the Ontario word appears that’s close to the Ontario Airport and that’s where Inland Empire starts and basically goes east.
Okay, now I just want everybody to take a note from the word Ontario, there is another there is another highway that goes 215 just remember that, because I’m going to be talking a little bit about that and if you understand where the system and I can move quickly to our development and redevelopment. So, now from the Port to LA through the Inland Empires is about 50 to 75 miles. So this will give you advantage point of distance. So that’s what’s driving Inland Empires.
What drives Orange County and San Diego was primarily light industrial. Again, you got a predominance of light industrial users, special services, medical, technology, light assembly, and what drives it into our market, that’s an upscale neighborhood without a lot of R&D manufacturing.
In fact, it’s just an example in Ventura, that’s where Amgen’s headquarters are and where do you occupy the most amount of space. Now, our investment in terms of book value in the Southern California market 68% of that is in my book value is in the LA and Inland Empire. Basically, located in the largest market and we’re happy about that and we’ll continue to grow that presence.
Here I just want to note, I’ve spoken to you about the occupancy and the reason for that occupancy. I want to just note the two things here. By the way I did feel the mention that western region 98% of our buildings by book value strategic. I just wanted to tell you that we’re very pleased with our western region portfolio and we feel that that’s the portfolio going forward. Of course, the asset management process is ongoing as Bob had mentioned, but 98% of our investment by book value at the western region is strategic.
Now, yeah I just want to point out is that despite the fact that the 2.9 million square feet, there is about $15.7 million of NOI. We also achieved on average the highest rents in Southern California, our average rents there if looking at this annualized NOI is approaching $7 per square foot net. And again that is the reason behind this because of the in-fill locations, supply constrained locations and the higher rents did our buildings vacant for man.
Now let me just summarize, we’ve heard this from David, and from Peter, our goals in the Western Region, so Western Region is the same is to drive cash flow, lease the space and expand through the region.
So before I go to our investment strategies, I just want to mention again I am on page 71, on your left hand side for those in the web, this is a building 18201 Sante Fe, this is a 141,000 square foot new development we embarked in late 2000 and it’s now Class A construction, great lowering. It’s now leased to [Matson] logistics which the 3PL owned by Alexander the business owned by Alexander & Baldwin New York Stock Exchange rated company. The thing I want to mention is that since we had to tear down the existing building that’s how supply constraints some of the [South Bay] and you could see that’s not going forward doing that that’s sort of redevelopment and development again.
On your right, is the again another building it’s a 48,000 square foot building San Diego kind of correct that’s a sample, good sample of properties San Diego it is pretty smaller but the rent source at San Diego is outstanding in terms of – because of the highly in fill-areas and master plan parks. We are leasing this building for about $12 net per square foot.
Now, I would like to basically go into our investment strategy and really answer some of the questions you’d ask what are you looking to do to the extent that you have sales processes to reinvest just like Scott did mentioned. That is our primary use our proceeds for new investment. Where are you looking to buy, build, where and have you done it lately. So let me just start it off. In order to understand First Industrial’s investment strategy is really pretty simple. You have to understand our philosophy and it’s all about long-term hold with a long-term increasing cash flow in mind.
So that’s really basically everything, whatever we invest in our mindset is that we are going to focus on holding the property for long-term and we should be prepared to hold it for about 10 years or more and does that it mean, if you are focusing that then, you are going to focus on drivers of the long-term cash flow growth.
And the one determinant, the big determinant of cash flow growth is rent growth and so these are the things that you should expect and we expect our team to look at, the rent growth drivers, again sharpening our focus there. In-fill market, that’s the number one enemy of rent growth, supply and so to extent that you can focus your future investments in-fill markets or [supply] markets who will do well, in terms of rent growth.
Functionality focus on functionality reduces downtime and maintains your rents. So that’s very important in long-term cash flow, expect us to compete and monitor our business investment and business demand, and business climates because that really drives local demand. There are some markets the U.S. is not growing significantly, population growth but that are markets that have a slightly above average growth in population.
Growth in population drives consumption, consumption drives imports, imports drives use and so increased rental demand. And finally the U.S. is going to be net exporter for a long time and we do expect import activity to grow faster than GDP over the long-term. So that’s another driver of industrial markets. So we wanted to come up with some of these and look at and take home and what really summarizes First Industrial’s strategy and we expect ourselves and we would expect you to look at it and check the box.
Okay, the first thing is that if you are really serious in investing in product that will deliver stable cash flow, you want to invest in product that has a lower CapEx need over the life of the investment and that’s why we are going to emphasize book in regional.
If you want to have stable cash flow you want to invest in a product that doesn’t have significant amount of downtime and volatility. And therefore, you want to really focus on functionality that has actually appropriate for the market, meaning that is not too large, it is not too small for the market and if your prototype meets quite a bit of tenants, quite a bit of good market share with a sub-market to operate, thereby again reducing downtime.
Again, if you want and capture these verticals, I spoke about rent drivers already, so where do you want to invest in supply constrained markets. We have a big investment in Midwest that was primarily from our non-strategic as primary a source for our sales, we are going to diversify away from Midwest and then our targeted coast, but it is enough to write offers and make investments from an office either here or elsewhere. But that is not how you increase your risk adjusted returns. If that was the only thing that First Industrial needed to do is to make offers on fully stabilized properties, we don’t really need our platform.
So the way First Industrial going to invest the future dollars is to maximize some leveraged platform. We have boots on the ground. We have local management in leasing and we have core competencies and development and redevelopment. So expect us to focus not on bidding on client, it’s based on large portfolios, but one-off transactions. That’s the more of the inefficient part of the marketplace.
Expect us when we go in is that we will leverage off our property management and leasing teams to acquire properties, which has some leasing opportunities. Expect us to buy one-off size to develop, and then that’s one way you can basically build to a very nice functional product upgrading our portfolio, but then use always our core competency of development and also redevelopment.
Expect us and I expect our team, we expect our team to basically use their local relationships whereas broker relationships and tender relationships to directly market to midsize users of space to do sale-leasebacks.
These kind of techniques are not really available to financial buyers, which are very aggressive today, because we really need boots on the ground and then the core competency of development and redevelopment and that’s we don’t want to compete with them. So we want to compete with is the local private investor, who is less capitalized than we are. So that the – our strategy.
And lastly upgrades, we just have a structural advantage over some private investors. They can offer upgrades; they are going to be sellers or primarily tax motivated and want to contribute our properties for diversification purposes for larger portfolio. If we find that seller and the properties fit our investment criteria, we have no competition, because these are the only ones who are going to operate, so that’s been our back pocket. Of course when we do this, we are very mindful of our stock price and the exchange price we’re going to do, we’re going to exchange a property with. So overall if you apply all these, we should be able to maximize risk adjusted returns and then in July long-term in increasing cash flow.
So I just wanted to give you a sense of where we’re going to initially focus our investments. All of these markets except for Houston actually share one common theme they are very supply constraint. Houston actually benefits from above the average business demand. As David had mentioned, we have a 96% occupied portfolio there, because business has gone well in Houston.
There are some markets here that are actually benefiting from other drivers like a demographic growth. Overall, we would expect that still despite the slower economy and bad economy in Southern California, we will experience somewhat above the average population growth Houston as well and Miami put all of them in a one planet, but that’s probably going to implement that. And then there is one driver which has a productivity in Southern California, Houston, and Northern New Jersey, we’ll benefit from that. Of course, your Central PA market I-81 as Peter had mentioned, that’s the back door to the east, that’s I-95, so productivity coming from Northern New Jersey will filter through Central PA, so those are additional drivers.
So, how it will be done? And we implemented this investment strategy, and I’m going to talk about an acquisition and development and a potential re-development. So let me start-off with an acquisition. Bruce had mentioned this already and then Dave had mentioned it already how tight and how strong this market is.
For those on the web on page 76 and if you look at Houston, the first ring is very in-fill, very supply constrained and they were in the North East market and the only thing before I go into this – the only thing I want to add to what David said, this is over 450 million square feet industrial base. So, Houston is a big industrial base.
Moving on, it’s a very functional building. It has about 200,000 square feet expansion capability. The North East market is about 5.4% vacancy highly-occupied market; 100% leased to Michelin.
Store investment here is $30.6 million, we acquired 85% interest from a partner through a $5.3 million cash investment in the assumption of 24.4% non-recourse debt and so that is non-recourse. And then, our returns are quite attractive. The unlevered cash yield is 8.4% and levered yield is 14%.
Let me now move into the development. In the case of development, this is a rendering of the first inland logistic center and this would be the main office pod on the building and we are progressing well in this building and let me go into details.
Let me discuss with you why we built this building on the land that we already own. In the Inland Empire market, which the primary drivers importing of goods to a significant amount of consolidations in the market we are in users want to get more efficient. And so, the demand for 600,000 square feet and over is very, very strong. In fact there is about 18 deals totalling 14.3 million square feet, done on that size range since 2010.
Year-to-date alone if you include all the space above 20,000 square feet absorbed in Inland Empire. Year-to-date, they absorb about 12.5 million square feet net. So Inland Empire, it has very, very strong absorption. If you are a user and you wanted a Class A new building – a newly constructed building about 600,000 square feet, you know how many building are available, if it’s newly constructed zero.
Now there are existing spaces over 600,000 square feet, but if you wanted all the bells and whistles without getting too late or there is really only this building, rents have increase about 30%. I mentioned, I notice in earnings call the question was asked and so and where the market rent is.
Today, on California speed because they quote the rent per square foot per month. It’s about anywhere from $0.30 to $0.33 per square foot, per net per month. And that’s approximately four bucks now. About a year to about 18 months ago, there were deals being signed at about $0.23 per square foot per month net, just roughly about 23 to 24, 25, which is roughly about 2.75 net.
So if you look at how the markets come back from 2.75 to 4 bucks net that’s significant. I do not know of any other market in the U.S. that has this much of a rental increase. Anyway, so we are developing a 692,000 square foot building there is 11 acres for excess trailer parking I’ll show you that later. You’ve seen a picture, but I’ll show up in the screen. It will be a LEED certified for those consumers that are discriminate in terms of environmental issues and occupancy and we expect it to be available for lease shortly after the New Year in the first quarter of next year.
Total investment is $44 million, we already own the land, our incremental investment is $29 million. And as with any investment, we do a pro forma and/or vacancy pro forma first quarter 2013 leasing. The yield on total investment unadjusted for any impairment is 6.6%. Just I want to give you some goalpost here, some bookends. And then the yield on incremental dollars of $29 million is about roughly 10%.
Here is the plan of the building, for those on web, I’m on page 80. If you look at the left hand side this building 32-foot clear, its cross dock, which again a lot of users may or may not need, but we provide the cross dock capability basically you can load on both sides. We made this building accessible for a four different locations. You can access this building from the North to South the West and the East so offer the maximum flexibility.
We put in a ESFR sprinkler system, which is an early suppression fast response system, which is the state-of-the-art. We’ve separated the parking from the private car parking from the truck loading, believing or not you would think for safety issues that standard whether there are some buildings not designed that way or in they put parking right between the docks, that’s [important for it].
You can actually low this building and then go to three sides of the building without leaving the part, which a lot of the truck drivers like. You will see some building design where in you have to go out in the site in order to load on one side, as a driver you can go around three quarters of the building.
And just clearly this is the one I was talking to you about. This adds about 250 additional trailer stores that somebody might need. But if they don’t need, we were entitled here to build a 180,000 square foot building. So we’ve maintained flexibility here. We have approval for that. But right now, we are going to fully pay with the flat and it’s not a significant amount of investment. But we think it could be a competitive advantage in the marketplace.
I mentioned 215 a while ago, this shoots up straight to I-10 and then an I-10 goes straight to – around page – it was in the page 81. If look at 215, you go north and shoot straight to 10 (inaudible) go in the west, basically brings you straight back to LA. So the reason I want to show this is map is a couple of reasons is that we are not building on a totally Greenfield area, just already established tenants in this Moreno Valley market.
We have Roche stores; we have Haynes in the apparel business. We got Whirlpool. We got Lowe’s, Komar a big distributor as well and Roche again has more than one building here. So you can see major Walgreen, we don’t mention Walgreen’s volume are not here. You’ll see that Walgreen has a big facility here as well.
The other thing I want to show you is that write-down here south of First Industrial’s First Inland Logistics Center, we own a project that really comprises of about 11% of our vacancy and this was in Southern California, this was for the redevelopment we were telling about and it appears on your prior slides. I wanted to show you this because this site over the long-term as long as the absorption continues would enjoy the same kind of dynamics that First Inland Logistics Center would have. So let me go to that potential redevelopment.
This is a 384,000 square feet of building, like I mentioned to you, it is only 16% lease, it has some functional issues to it and it is sitting on underutilized site, which could accommodate a larger building. We acquired this building through sale-leaseback and the tenant left the building and right now, it was originally slated as a non-strategic property. We didn’t expect Inland Empire to come back that strongly and the need for over 600,000 square feet to be that title. Now we are working on entitlement of a 650,000 square foot bulk distribution building in there.
For those on the web, on the top left is the picture of the building and on your right is a site plan that it could accommodate that 650,000 square foot building on that site. So, right now, we are maximizing our options in terms of creating value of this site. We will go through entitlement – entitlement would take another year and so, I will see what the margin is then, but at least at the end of one year what we would like to have is another 16 buildings so that we can lease or a building that we can develop either (inaudible) depending on where the market is.
So that concludes my presentation. At this point, Bruce will come up to wrap up.
Bruce W. Duncan
We are more than half way.
Bruce W. Duncan
Thank you. I hope that you found more interest and we tried to sort of lay out a lot of information in terms of the portfolio, what it is? What the opportunity is? What the challenges are and be very straightforward in terms of what we are and where we are going. What I would like to do is give you chance to showcase our team, again this is all team in terms of executing on the strategy and we’ve got a great group of people and you have seen some of them and I hope that you have a chance at lunch to meet everybody.
And we have got our whole team around the country, which I would like to thank for their great efforts. All right, let’s go back to the value proposition that we talked about in the beginning and just summarize.
Again, we’ve got two great opportunities. One it leads up the portfolio and we have drawn a line in the standings that our goal is to get to 92% occupancy by the end of 2013. And we’ve got the team and strategy in place to execute that, we have gone through the vacancy. When you think about that you can say okay, how can you do this? Again, we’re at 86.6 over the next three years, two to three years we anticipate disposing of the non-strategic pool.
So, if you just look at the strategic pool that Bob talked about, the occupancy there is about 88.1% today. If you look at the lease, our top 10 vacancies and again there are some challenges out there, we acknowledge that but there is focus. We could gain another 320 basis points to go from 88.1 to 91.3. So, we got in terms of, and then we’ve got more leasing we got to do to get to the 92, but there is a path there.
And the second thing to do and again, this management has to do. We trade at a significant discount to our public peers, to sales comparables and to replacement cost, and that’s our job to deliver that value and narrow that gap. But we want to just give you some really sort of some evaluation metrics in terms, as we look at our portfolio in terms of what we are trading at and then, just give you some data points.
And again, for those on the web, I’m on page 86 on the left-hand side. If you look at the FR valuation summary and look at today’s values and the total value and this is taking our stock price as of November 4 of $9.96 of share. And you add our – take our equity value there, market value there, add our net debt, deferred stock you get an enterprise value of $2.65 billion and that’s on a portfolio of $66.9 million square feet, so that’s $40 a square foot. And our capital rate basis that’s an 8.5% cap rate.
All right now, let’s go to right-hand side and what we are trying to do is look at the value as we execute our sales in the non-strategic buildings, what the portfolio looks like and what the evaluation looks like. So let’s take our enterprise value again here of $2.65 billion.
We going to subtract out our land and this is both the strategic and non-strategic at book value of $82 million. We are going to sell our non-strategic buildings at book value at $230 million and again that replaces – if you look on a our per site, per square foot basis, the non-strategic portfolio, I think it’s about $22.52 or something like that, all right.
Take out mortgage receivables at book at $52 million and take out ADESA, Bob described ADESA to you at book value at $77 million. You get a value of our strategic portfolio of the buildings in our strategic portfolio, up $2.21 billion, which on the remaining strategic portfolio of 55.5 million square feet is $40 a square foot or an 8.6% cap rate. So let’s keep going and give you some break that down even further or remember those numbers $40 a square foot 8.6% cap rate, right.
On the left-hand side on slide number 87, if you look at breaking it down our portfolio, somebody help me. I think Joe, Joe you talk to too long. If you look at it in terms of the bulk and regional square footage, we’re at a 38.7 million square feet, okay.
Just to break it down between bulk and regional, and then we’re going to break it down between light industrial and flat, but in the bulk and regional portfolio of 38.7 million square feet, our average rent is $3.70, our occupancy is at 89.7% and our average building size is a 165,000 square feet.
The closest public comp the DCT, and again these are not perfect, they are just data points, but if you look at DCT’s numbers and look into the supplemental as of the third quarter and do the same valuation as of November 4, they trades and again its imperfect, but on a price throughput of about $45 and an implied cap of 7%.
Now remember they are almost on top of us, they are 371 and we are 370. And their, average building size is a bit less than ours about a 143,000 square feet versus 165,000 feet for us like the one data point.
Again let’s look at the comparable sale and this is data from real capital ownership – data from real capital analytic. Okay real capital analytic on that $22 billion worth of sale. And what you see is the cap rate over the last year, the last 12 months as rates were about little over 7.5 to a high about October of 10 and about 8.5, 8.4, 8.5. Okay and the price per pound the price per square foot ranged from about $50 to about hardly $75 per square foot. Okay just stay there, but lot of sales just to put it back in the United you think about the valuation of what we should be valued at, again you are the experts. If you breakdown what we have in light industrial and R&D/Flex again we got 16.1 million square feet in the non-strategic portfolio, I mean in the strategic portfolio.
Our average rent in inside is $5.71, average occupancy of 84.9% and average building size of 44,000 square feet. Any public comp, but I don’t think it’s that great one, but EGP they do a great job, but (Inaudible) but this is just an example what they trade at again using their third quarter supplemental. They trade at an average price per foot of $70 a foot and a 6.3% cap rate. Again their average rent is $5.20 versus our $5.71. Their occupancy is much higher 93% versus 84.9%, but their building size, this is like it’s not the greatest comp, this is more like industrial and Flex is 113,000 square feet versus 44,000 square feet.
But the chart on the right again is real cap analytic talking about what’s happened in the Flex market on over the last 12 months? And this is about $6.6 billion for the transaction. And again the cap rate has ranged from about a low of about 7.4%, so in the high of probably 8.75% now it’s back in October of ’10. And if you look on our price report, the range is it’s probably about $70 that maybe $85. So we’re going to exclude this one, which was about $180 in September of ’10 of $108 (inaudible) but again we’re seeing a price per foot of $70 to $85 for Flex space.
So again we come down – you break down our portfolio, I think it’s an interesting opportunity and again it’s the management here it has to bring that valuation alike in terms of to show some narrow that GAAP, because when we look at it again from a public comps, we look at it from sales comps, we look at reproduction costs, again we’re doing this building in Southern California for the low $60 a square foot, it includes the land.
You’re going to see some sites we have in Pennsylvania tomorrow, but if you look at what’s going to cost to build just takes the building, for getting the land value, your cost of $40 to $50 a foot for the sale in terms of in leasing it up. We’re doing a couple of expansions for existing tenants, we just have bids on and the pricing of the Shale is in the $40 range, $45. And that excludes land. So again we think it’s an interesting valuation, so we trade in our job it’s not let to be interesting but be able to target deal need and get our (inaudible). All right, so concluding when you look YFR, we are going to use these strength to capitalize on the opportunity.
We do have a tested in great management team. We were great people I hope you’ve seen that today and because that’s one of the main purposes of today. We strengthen our capital structure; we are primarily an in-field portfolio in the major U.S. market. We are improving fundamentals and again no (Inaudible) supply we don’t see much going forward. We have a focus conservative investment and asset management strategy. And we’ve got a great occupancy opportunity.
And the key we laid out some goals to you, and again we tried ourselves on when you say something to do what we say, it’s all up to us to do it. So, with that I’d like to call the management team up and then let’s open it up for questions. Thank you.
Unidentified Management Representative
(Inaudible) Okay, hold on here everybody. Always good when Scott brings his calculator to the podium. See Paul has got his hand up in the back.
Thank you. I appreciate all of the detail, it seems like a lot of the difference between you and your peers is in the non-strategic pool of properties. But if we look back over the last cycle, it seems like the occupancy gap was perhaps let’s say 400 bps between you guys and the peers. I was wondering how much of that gap is due to the non-strategic pool and how much is due to other factors and what those other factors might be?
Unidentified Company Representative
All right, anybody – Bob you want to start...
Robert J. Walter
Let me take a [step], I think, I hand it over to Dave or Jojo but I think part of that gap clearly and I think you just broke it down perfectly. Part of that was the strategic, non-strategic differential in some of the assets that we’ve acknowledged, we have to move and we have to and doing so we will upgrade the portfolio. But I think the other part that it’s important to note is as we came into this recent unpleasantness, we had a prior strategy where we were buying buildings with more of a lease-up or a short-term lease in place due to our prior strategy. Dave or Jojo you want to expand upon that.
Unidentified Company Representative
I’ll just stick with what Bob said I mean the prior strategy was value add, which meant we are buying vacancy and we are buying short-term leases. And also important, we were selling it once it was stabilized. So when the downturn hit, we had sold off a lot of our stabilized properties and what we had coming down the pike was properties that we purposely bought with short-term leases because we were able to buy at the right price.
Unidentified Company Representative
But again we acknowledge, again our mission is to lease up the portfolio and getting up to the 92%. If we do that, we think a lot of these questions in terms of our portfolio would go away, yes.
Chris, if I understood your comments there at the end, you seem to suggest that your strategic portfolio is roughly 90% leased and your target is 92%. So should we infer that on a same-store basis, you’re talking about 200 basis points of occupancy pickup? And then, could you please speak to the budget for the CapEx? Are you expecting any spend to get there?
Sure. If you look at the strategic portfolio is 88.1% leased, okay versus where we are right now at 86.6%. So it’s about 1.5 points higher than where we are to-date. So the difference between 92% and the 88.1% is about 3.9% or whatever. And that’s where we got do to the work in terms of leasing it up. And again that assumes, we sell the non-strategic pool and our goal is to get that sold over the next two to three years. In terms of CapEx, Chris do you want to talk about that?
Yeah, sure. On the CapEx, from a total lease cost standpoint, you were running about $2.50 a square foot. On the CapEx that number is highly influenced by the mix of the properties that we lease up for instance, the range on that CapEx on those leasing costs, both warehouses are $1.40 a square foot and TA and commissions and R&D/Flex is closer to $7 a square foot.
So, as part of what you’re looking forward as we execute on our asset management and we have a little bit less emphasis on the R&D/Flex that those lease costs could go down as you look forward. From a land and building perspective, we are running about right in the range of $0.20 to $0.22, $0.25 a square foot and we expect to see that going forward. Question?
Yeah, right here, thank you. If you look at page 18 you guys outlined your top ten vacancies, does that represent about doing the 20 basis points of overall vacancy. In aggregate, what does traffic look like for those places and what do you think the timing of lease up will be?
Well, the timing has got to be within the next two years or we are in trouble, all right. So, I mean and I would say that we think to talk about in the markets what you were seeing is, we are seeing traffic, where there is businesses, there is activity. It’s just as Peter pointed out in Atlanta, you have got competition, there a bunch of competition and you have got to top some of the space, and we are out there fighting for that. But you want to add something in terms of that?
Sure Dave. If you look at the six buildings that I covered, Valentine is the best physical building in Atlanta, activity is okay as I said. Now the excellent South Park activity is very good and we should – I would expect that we’ll get something wrapped up there in the next couple of quarters. We mentioned the lease that is out on number nine on the list, we are number six on the list rather in North East Philadelphia.
And they know it’s coming.
The lease being out.
Right. The other two buildings in Central PA, Jeff has a couple of active prospects on the one that we’re renovating and the other one the activity is not great. So I would say on the margin 60% to 70% of the space has good activity. David, you want to add?
Yeah, I would add to that. Of three spaces in the Central region, we have got active prospects for two of them.
And Jojo is trying to make it easy, because he is trying to convert the vacancy to build a new building on it.
So right, yeah you are correct. I just have a quick second question. The $0.20 of FFO accretion that you expect, if you get it 90% leased by 2013, does that include accretion from refinancing your higher costs at lower costs?
No, if we lease up the portfolio tomorrow to 92%, we pick up the $0.20. It has nothing to do with the benefit you’re going to see from refinancing and rates coming down lower and replacing debt. And again we’ll go through that when we do our fourth quarter call if you go into next year. Yes sir.
Thank you, Chris. Detail presentation, appreciated. In terms of capital allocation Jojo, can you go into more detail just maybe return expectations and the types of dealers that you kind of looking at now if you are?
Sure. Bear in mind, the source of the investment would come from primarily sales of our non-strategic assets. And so just bear in mind the source of funds were taken out from what we think our properties are not going to perform as well as their strategic portfolio. And the opportunity cost they are quite low because they are under leased.
So if you take those dollars and the opportunity yield in that are very low, because they are long [tied]. SO we’re focused on reinvesting those high-quality properties in those locations. So it’s really hard to say really what at the end of day, we’ll tell you our return expectation as when we do it.
So why don’t you just go through some examples, some things we’re working on? Again, when we buy something we’ll let you know, but just sort of some things sort of return expectation.
Right, so for example we’ve done one so far, which is the Michelin acquisition that we did. So that’s the 8.4% going-in yield and a 14% levered cash, levered after debt service yield. And for the First Industrial Logistic Center, I gave you some capital at 6.6 bucks assuming a $0.325 – (inaudible) per month. Now we expect that rent to grow and in an unlevered basis that would be over 7%, 8%.
Unidentified Company Representative
Okay. And in terms of a new things that we are looking at in terms of I would say look at the return in terms of IOR, 7 to mid 8 depending on where it is and what it is, but again what we’re trying to do is the things we’re buying is going to continue to upgrade the portfolio and there is could be more one-off acquisitions versus looking at buying big packages.
Great. Given the substantial upside from lease up and the apparent mandate to get it done within two years, will you be leasing below market in order to capture that upside or maybe give us some sense of…
Unidentified Company Representative
I would say we’re going to continue to do what we’ve been doing which is trying to lease up this space and we’ve been successful leasing up the space at market rates and we’ve been able to get decent bumps on it. But we’re going to try to continue to – I mean, the goal is to lease up to 92% so we’re going to lease up at fair rates, we’re not going to lease up for $0.50 and declare a victory. We’re going to lease up at market rent.
And in the past you’ve spoken I think more so than your peers in terms of doing shorter term leases in order to capture more upside, is now the time to capture that upside?
Unidentified Company Representative
We don’t mind shorter term leases because again you haven’t seen the rent in terms of really spike yet. So from our standpoint, we’d much rather, we think rental rates are going up. And in certain markets, again for instance, we had a – well, I will give you an example.
In Southern California, we had someone that wanted to sign up a lease for a longer-term and we bought hard and so we are not going to do in it. We are happy to do a shorter term lease and we’ll see what the market is in terms of three to four years versus 10 years we did want to lock up the space.
Other markets in terms of we would – we may do a longer-term but all depends on the market, depends on the space, but our goal here is to fill up the space at market rents, but again you had to fill up the space.
What’s your timeline for your non strategic portfolio sales you like to get that done by year end ’13 or kind of...?
Unidentified Company Representative
Well I would say is again we think that we are going to sell the non strategic sales over the next two to three years. I should assume that.
As you look at page 13, where the portfolio stands now from a geographic breakdown maybe do you have any expectations about market ownership probably in the completion of disposition program and any capital reinvestment that you guys might do?
Unidentified Company Representative
Well, again the capital reinvestment is going to be away from the Midwest. Right now the Midwest is about 33%, it will go down through the sales of the non-strategic assets and they will continue to go down as we reinvest in things like First Inland logistics in Southern California the Houston transaction and other new – add new investment.
But do you just have any general guidelines where you want to be on the West Coast versus New Jersey?
Unidentified Company Representative
No, it depends on the opportunity. I always hate to say it’s going to be this percentage, because again what we likely think that is all good markets. It depends on the risk adjusted return in terms of and we look at those markets, if we can buy better in Southern California than we can buy in New Jersey. We’d probably go there and we like that market. If we can develop it depends on – but it would be a higher concentration in all of those markets and where they are now.
And then just one quick follow up assuming conditions allow how much or how large would you want the development pipeline to be versus your $100 to $200 million of capital cushion and you guys, on the going forward?
Bruce W. Duncan
That’s a good question. I would say in terms of development, I’d never, I don’t think that’s ever going to be the major driver of this business actually as I said. I want to go over the short term. It’s going to be that much the way of new development. You’re going to see tomorrow on the tour, two sites that can do a 1 million 200,000 square feet, different locations once more we build the two location, we do the other we could do spec that if we lease. It’s – the other than 2 billion complex. If you got to tend up with one, we might go spec with the balance of that. So but again, in terms of the monopolies under development, I don’t think onetime be more than probably a $100 to $150 million. Yes.
Bruce you mentioned that the outset how difficult it is to build an industrial platform. Is anyone in the market for a national industrial platform and if so can you give us a sense in broad brush stroke terms, the profile of the investor that’s looking for platform?
Bruce W. Duncan
I think – I think there is an interest in industrial platform. I think that again, it’s been a one of my previous slide with pens management company. We had trouble assembling a lot of industrial, it’s hard to put together 10 million or 15 million square foot portfolio. If you look at, so I think there is interest out there. We see some of the big entities that have real estate platforms and they don’t have industrial i.e. and I got what field or like. I mean those – I think there’s an interest from that and I think some of the Australian have some potential interest and I think at the end of day, it make sense. If you’re in the real estate, you’re pension plan. If you’re in the business like cap rates did with center point.
If you’re in the business of investing real estate and industrial has been a very good performance as you know asset class within the real estate group is in the probably the partners and probably the best in the risk adjusted basis. And you want to invest in dollars having the is platform very important and companies like Morgan Stanley in past that going out and bought it like [AMLI] and cutback and growing it. And I think you’re going to see some more interest, but we’ll see.
Perhaps on our related point, First Industrial hasn’t traditionally had a huge presence in the fund management business. But you have historically at a couple of co-investment vehicles. Now that you pretty well right at the shift, are you having any discussions with institutional partners or is that a business that you intent to entirely see the prologues?
Unidentified Company Representative
I would say in the short-term, yeah that business to me is a – in the short-term, we’re going to be focusing on our own balance sheet and doing with the balance sheet. We think it simplifies what we have. We think we equate value in our existing platform that we can show and we look at the valuation, if we can get people to understand our company better and our asset quality better. In terms of it, not sort of do it as we get the data. But in terms of doing all these different ventures and no one knows what’s in your portfolio versus what in venture we only have a 10% or 15% interest. We think its better. So that’s going to be the initial focus.
We have and have a lot of people that are interested in doing ventures with us in that. My feeling on that business is, I’m not sure you get paid enough, when you get easier to your platform, to make it with our [offers] the value we can get by really clarifying what we have, what we are, what our portfolio is in attacking that and I think we get better returns in that.
One more question if I may.
Unidentified Company Representative
How about your first limpers, how long do you expect to be at First Industrial?
Unidentified Company Representative
Half of my life. You know, I think I’m having a great time. We have a great team and as you know, we have a great team and our job, I always say, you are going to have fun, make money and do something, it’s interesting. I think we’re doing something interesting. And I think that we just started in terms of if you are now in the growth phase and I think it’s a good opportunity for the team and our shareholders.
Unidentified Company Representative
We have time for a couple more.
All right, that’s it. We really appreciate, we appreciate you’re being here. We hope you found this useful. We’re happy to get your feedback or what you like or what you didn’t like. We hope you are on the tour tomorrow, if you are again what we’re trying to show you as much as we can, because we don’t want a charity of it, we want to see as much as we can in New Jersey and Central PA and we appreciate your interest. So thank you very much.
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