Prologis Inc (PLD) — Q3 2017 Earnings Call Transcript

Thank you. Good afternoon, everyone, and welcome to our third quarter earnings call. Joining me today are Jim Connor, Chairman and CEO; Mark Denien, CFO; and Nick Anthony, Chief Investment Officer. Before we make our prepared remarks, let me remind you that statements we make today are subject to certain risks and uncertainties that could cause actual results to differ materially from expectations. For more information about those risk factors, we would refer you to our December 31, 2016, 10-K that we have on file with the SEC. Now for our prepared statement, I'll turn it over to Jim Connor.

Thanks, Ron and good afternoon, everybody. I'll start out with a few comments on the national industrial markets and then cover our third quarter results. Demand continues to be very strong across the US industrial markets; for 29 out of the last 30 quarters, we've had demand outpace supply. Nationally we saw 61.5 million square feet of net absorption. Third quarter completions totaled 50.8 square feet, resulting in vacancy dropping another 10 basis points to 4.5%. Year-to-date net absorptions are 160 million square feet with completions totaling 144 million square feet. We expect net absorption to finish well ahead of supply by 10 million to 22 million square feet for 2017. This continued strong demand will push expected equilibrium to mid-2018 at the earliest. Each sellers' market fundamentals coupled with the strength of our regional operating teams contributed to a robust 5.9 million square feet of leasing for the quarter. Some of the more notable lease transactions were with customers such as XPO Logistics, Ford Motor Company, Valvoline, GELS Logistics, International Paper, and Siemens. Of particular note is our continued success in leasing recently completed speculative projects, most notable is the 628,000 square foot lease with XPO Logistics in the Lehigh Valley, taking 100% of the new project placed in service. With the strong leasing activity and our stabilized industrial portfolio occupancy at 98%, we continue to be able to push rent, as indicated by our rent growth on new and renewed leases of roughly 16%. We reported 2.2% growth in same property net operating income for the quarter. Same property analog for the nine months ended September 30 was 3.9%. Occupancy in the same property fuller properties actually declined 30 basis points from the previous period quarter of 97.7%. The previously disclosed hhgregg bankruptcy had a roughly 80 basis point drag on same store net operating income for the quarter. We have one lease signed of the three hhgregg spaces, totaling 738,000 feet and the second and third lease executions are imminent. I'm happy to report that we were able to grow rents and extend lease terms in all three spaces. On the development side of our business, momentum continues to be very strong. During the third quarter, we generated $230 million of starts across five projects totaling 3.8 million square feet, that are 54% pre-leased in the aggregate. The new development starts include a build-to-suit project in Dallas with Wacker.com, a 65% pre-leased project in Indianapolis with a major 3PL that, subsequent to the end of the quarter, signed an additional lease bringing the building to 100% and two speculative projects in eastern Pennsylvania and Columbus, Ohio. One additional notable development start was a 737,000 expansion tied to a recently acquired 794,000 square foot facility in the Inland Empire market. Our client Décor Outdoor Corporation executed the lease for 100% of the space. We continue to see strong activity in the development pipeline and are confident to close our 2017 in a strong fashion and optimistic about 2018. Our overall development pipeline at quarter end has 21 projects under construction, totaling 11.1 million square feet and has a projected $696 million in stabilized costs at our share. These projects are 63% pre-leased in the aggregate and our margins on this development pipeline continue to be in the 20% to 25% range. Now, let me turn it over to Nick Anthony to cover acquisition and disposition activity for the quarter.

Thanks, Jim. We had a very active quarter on both acquisitions and dispositions. I'll start with dispositions. Building dispositions totaled $301 million in the third quarter, including seven medical office buildings and three suburban office properties in Indianapolis, which completed our exit of the Indianapolis office market. After these transactions, there are two remaining medical office properties, one of which should close this year. Turning to acquisitions, we closed $390 million during the quarter, including a 156,000 square foot facility in the middle and sub-market of New Jersey, two facilities in Southern California totaling 1 million square feet in the mid-county and Inland Empire west markets, and one facility totaling 300,000 square feet in Chicago. In addition to these properties, we also closed the first tranche of an agreement to ultimately acquire a 10-building, two land parcel portfolio in some of the nation's best sell markets from Bridge Development Partners, a transaction that was in the media three weeks ago. The first tranche closed at the end of September and consisted of five leased-up facilities, with two in Southern California, two in South Florida, and one in Northern New Jersey, all of which totaled $290 million and 1.7 million square feet and are 71% pre-leased in the aggregate. The remaining five buildings to be acquired in the Bridge portfolio comprise 1.8 square feet with a total of just under $300 million. All are located in Northern New Jersey and are expected to close later this quarter. These remaining five products are showing just under 70% leased. The portfolio also includes two land parcels of undeveloped land in Northern New Jersey, Midland, and New York sub-markets, for a total purchase price of $62 million, upon which construction of two additional properties will commence later this year or early next year. The entire portfolio, when construction on the two land parcels is completed, will ultimately total 4.3 million rentable square feet with a total investment of slightly under $700 million. We agreed to the terms of the acquisition in April, at which point the properties were 58% leased in total. After assuming leasing responsibilities in July this year, we executed additional leases to increase the portfolio to 69% leased. In addition, we believe that rental rates have continued to increase while cap rates have also further compressed. Finally, I should note the definitive and future leasing prospects involve in the lease escalators at 3% and a couple of long-term market conditions that produced favorable long-term total returns. I'll now turn it over to Mark Denien to cover our earnings results and balance sheet activity.

Thanks, Nick. Good afternoon, everyone. Core FFO was $0.30 per share for the third quarter of 2017, compared to $0.32 for the second quarter of 2017. The expected and temporarily dilutive impact of selling our medical office properties was fully reflected in the third quarter. We continue to use disposition proceeds to reduce indebtedness, paying off $149 million of debt in the third quarter, which included the previously announced repayment of $129 million, 6.7% unsecured notes that were originally scheduled to mature in 2020. We have significant built-in capacity to fund our growth over the near and immediate term. In the near term, we have $513 million of proceeds from our medical office dispositions holding us to grow, which should be used in the next couple of months to fund the acquisitions Nick just mentioned, along with development activities while completing tax-deferred 1031 exchange transactions. Over the longer term, we have $426 million of notes receivable from these property sales, due to mature over the next three years to provide a source of funding for future development or acquisitions. They are currently at leverage levels that are much better than our credit ratings would indicate and have the capacity and intention to fund our growth with incremental debt. Our debt ratio is slowly rising back to pre-MOB sell levels and high triple-B levels by the end of 2018. I am also pleased to announce that a few weeks ago, we renewed our $1.2 billion unsecured credit facility and a 5 basis point reduction in our borrowing rate and a term extension to January of 2022, which provides further financing flexibility. Given our optimistic outlook for long-term AFFO growth and given our excellent balance sheet position, yesterday we were pleased to announce a $0.01 per share, a 5.3% increase in our regular quarterly dividend. Even with this increase, our AFFO coverage ratio remains at a very considerable level of approximately 70%. Lastly, we plan to finalize and announce our special dividend by late November or early December and expect it to be within the range of previously communicated estimates. Now, I'll turn the call back over to Jim.

Thanks, Mark. Let me re-emphasize once again how pleased we are having monetized the MOB portfolio and redeployed the capital into very high quality, strategically well-located industrial business, including the Bridge portfolio. As we stated a few times before, the blended stabilized yield we are achieving on the acquisitions approximates the MOB dispositions cap rate. When combined with the proceeds being used to fund our development pipeline at significantly higher yield, our total redeployment will be highly accretive to FFO with better risk-adjusted growth prospects. We expect to have the majority of MOB proceeds reinvested by year-end with an under-levered balance sheet to fund a substantial portion of our growth in 2018. Lastly, I am pleased that our overall strong performance has allowed us to raise our quarterly dividend by 5.3%. This is the third consecutive year we are increasing our dividend in excess of 5%. We'll now open up the lines to the audience; we would ask that you keep the dialogue to one question or perhaps two short questions and of course you are always welcome to get back in the queue. With that we'll take questions.

Yes thanks, can you guys talk a little bit about the company's acquisitions strategy going forward. After the completion of the Bridge portfolio and as we move into 2018 and beyond, will you remain aggressive acquiring assets or do you just want to redeploy the MOB disposition proceeds?

Well, Mike, we're always looking for value-added acquisitions offered at acquisition opportunities. I think, given the cap rates have continued to compress, you'll likely see a slowdown in 2018. We are not giving guidance just yet, but I think logically as long as our development pipeline continues to be as large as it is and we can create substantially higher margins. I think you'll see us scale back a little on the acquisitions side, continue to look for value-add places, but try and fund most of the funnel, most of the proceeds into development opportunities.

Okay, then what's the lease-up expectations on completing these acquisitions of the development projects, does that going to - how many - how long is it going to take?

Yeah Mike, we generally underwrite around a year on average to lease up our speculative elements and/or spec acquisitions. I would tell you over the past 12 months or so, just given market conditions, we've been doing a lot better than that, but when we do or disclose underwriting yields, we're generally averaging about a year for lease-up.

Thanks.

Yeah Jim, just looking at the sort of lease roll, how much harder do you think you can push lease rollovers, even at the expense of retention?

Manny, that's a very good topic around here. I think we, like many of our peers, have said we are going to continue to try and push even more at the expense of some of our retention. We were at about 70% this quarter, 70.1 I think, which is down a little bit for us. But I think in reality when you have basically 4.5% vacancy across the country, there aren't a lot of alternatives. Like everybody is, I think the opportunity to put up some pretty good rent growth numbers, so we keep pushing.

That was all I had. Thank you.

Thanks, good morning everyone or good afternoon. I had a couple of quick questions on your capital deployment. So, what's driving you to buy in the key closer markets? And I know that's not specific to Duke; other guys are doing it too. But what about buying in LA or New Jersey at mid to high four cap rates? That's much more appealing versus buying something like in Chicago or Atlanta or Indianapolis at higher cap rates.

Well, Ki Bin, there's a couple of reasons. Let me answer I think your second point first, which is Chicago or Dallas or Atlanta. We've been in those markets for a substantial period of time and we have a very large possession of approximately 15 million square feet in each of those markets. We much rather redeploy our capital there into development, where we are making substantially better margins; we've got land and development teams on the ground there. One of the things that we identified is our need to grow in these Tier 1 high barrier markets, and that's really the region you'll see us focusing our investment dollars in those markets. And those are the markets that will consistently give you the highest rent growth and the lowest occupancy just simply because of the barriers to entry. And we found that opportunity in the Bridge portfolio and a couple of the other assets that we've acquired this year, to do just that, to redeploy capital into really good, brand new, high quality state of the art industrial in three high barrier locations. It's very unusual to buy a portfolio of that size and not have to get some second, third tier markets. So, when the opportunity presented itself, the timing lined up really well with our MOB sale, and we decided to step up aggressively. And as Nick alluded to in his comments, from the time we shook hands in April of this year, we continue to see cap rates compress and we continue to see rents grow. So, my expectation is at the end of the day we'll beat our projected underwriting when we get these buildings—all these buildings in service and all these buildings built and fully leased up.

Okay, and if I look at your lease expiration schedule, compared to peers, it's obviously a little bit lower. And some of that creates a little more challenge in terms of keeping up the things for NOI growth phase, right, because you just have less expirations. Is part of the reason you have less expiration because lots of assets that you own today are development-related assets, where the lease terms are originally just much longer? Or have you guys still been signing longer leases so that you might be able to change more proactively?

Your observation is absolutely correct. In a rising market like this, we would love to have a little bit more space available to be able to push rents, as some of our peers do. But you are absolutely right; when you look at the makeup of our portfolio which is primarily larger bulk buildings, many of which run as a result of our development activity, ten-year leases in the case of our million square foot facilities, 15-year leases. We are happy to lock in that income with good annual rent escalations built in, but the downside of that is, at times like this, you don't have as much roll. That's unfortunate. We've talked about that at meetings and conversations with our investors in the past. We are working diligently to engage anybody we can and early renew people and continue to push rents. And I think our guys have done a nice job at that. But I think, on the defensive side, this portfolio will outperform our peers over the long haul because we've got a lot less downside risk, given the quality of the buildings, given the length of the lease term and the annual escalations we've got built in. So, a little tough today in the short term, but long term will be fine.

Yeah Ki Bin, I would just add one more thing to that. The tenants that we have in these newer bigger buildings generally want the longer lease terms as well, so they will simply follow these terms and most certainly not to outturn our people to those existing leases right now, thinking of the cycle.

Yeah, I get that. You can win on both sides. Alright, thank you.

Hey guys, Jim I just want to go back quickly in acquisition, you mentioned obviously, you signed the Bridge portfolio during April, and since that time you've seen a lot better rent growth, Nick mentioned it earlier, so just managing to put an offside buyers on those expected yield. So, I guess is that the right way to think about this in current expectations or maybe just in-conservative at this point, maybe settling how much rent guards were you underwriting to get to those yields that's so they are actually higher now, given what we've seen on rent side.

Well, let me clarify a couple of points. When we agreed with DEO and we underwrite the DEO, the terms of the DEO and our underwriting is frozen at that time. So, as we said, we agreed to terms on the Bridge portfolio in April, and those are the reported numbers that we put out. We know that the rents have continued to grow, and our internal expectations have all set; we will sign those leases at higher rates. We are not re-publicizing or re-evaluating the underwriting; we're going with the original underwriting that we have, which is why sitting here today we are fairly comfortable we're going to beat those expectations by leasing it up sooner or leasing it up at higher rents.

Yeah, in the 300,000 square feet that we have so far has done about that performer, so that is optimistic.

And that consistent journey you probably underwrite in respective element as well. And we do our course effective element; we also come to space with base run; we don't think future anticipate rental growth in those yield, and we hope we get it and in often cases, we do the best we have in underwriting.

Which is still the case on the two land parcels.

Very good, appreciate the clarity guys. Thanks.

Great, I am looking at your balance sheet, Jim and Mark, and there must be a typo, because you are down to a $140 million of undeveloped land and another 27 non-strategic land. Are those accurate numbers?

Yes, they are John, I think in total, we are under $200 million—for the first time anybody around here can remember and you might think that inventory is getting too low. We've actually acquired $120 million of land this year; we've just put more of it into production than we originally anticipated. So, in most markets, we are out looking to take down additional land.

And when this all set and done, how is land—a plug figure on any development budget? What are people underwriting their development pro forma in order to arrive at a land value these days?

Well, John, I guess it depends on who's doing the underwriting and what their alternate goal is. You know, we are trying to create as much value for the shareholders over the long term as possible. If you're a small local developer that's looking to sell the building either on substantial completion or lease it, you can probably live on much less than a margin, so it's all driven by the expected margin you want to receive at the end of the day, at which you can prepare to pay for the land. And we've commented before, land is more challenging today and it's more expensive and the entitlement and approval processes are more costly and time-consuming. So, we have to look at a lot of land sites and do a lot of homework for everyone that we do require and ultimately put into production, because there's a lot of challenging sites out there that you can't opt out.

Yeah, the reason I asked the question and then on wealth is that your development yield for '17 are still 6.8, 6.6 cash and 7 GAAP, which seems extraordinarily high given what we are hearing is going on in the land evaluation world. Is this employing legacy land or is this all new land recently purchased at market?

Well, John, thank you for the compliment. We start to think that was a compliment. Well, it's a combination of both. There is some legacy land in there, we probably had on the books, could be as long as 10 years I suppose, but a lot of the land that we had was just bought, that virtually never hits the box because it's acquired, it's put into production inside of the same quarter. And we've talked about points about this in years gone by. But, part of our goals is to not to amass a $1 billion land portion but to take land down in much smaller pieces and put it into production. And if somebody wants to buy a piece of land and they can't commit to putting a building into production inside the first year, then our attitude is you don't really need the land. So, it's a combination of having changed the culture and some development activities by our local teams that I may have forgotten.

Great, thank you, talk to you next quarter.

Thank you, Jim you had commented on the equilibrium getting pushed out to sometime in '18, do you have high visibility on that number or is it just because it's next year not this year? And how do you talk about the risks, could it even be '19 at this point?

It certainly could be, but our visibility is the same as yours. We get market data from all the service companies CBRE, JLL, and Cushman, plus the market reconnaissance we get from our own development and leasing teams around the country. I'm looking at demand exceeding supply by 10 to 25 billion square feet this year, looking at what the quarter-by-quarter numbers had been. I think while we see the gap narrow from three years ago, that's why I'm saying, I think that will be the earliest it will be in mid-18. But you know if we can actually do something right and we as the collective we in this country can actually stimulate GDP growth and keep the subtle going on a little longer. You're absolutely right; it could easily be '19 or '20. And another point that I've made about equilibrium, equilibrium isn't necessarily a bad thing, particularly when you reach equilibrium at 4.5% vacancy.

Okay, and then maybe your question we get a lot is just where are the restrictions on new development? Can you just, I know that your conversation changes now to talk about the challenges of getting land, but maybe just frame how hardly it really is to find new land sites and get development in the process or maybe that's eased up more recently, if you could talk about that?

No, I said we wouldn't tell you it's eased up. I think everybody is encouraged by the strong numbers that everybody continues to report quarter after quarter and the market dynamics that we are seeing out there, continued absorption. You know from many of our customers that, there are real shortages of available sites around the country. So, people are continuing to build, which is why you'll see the supplies of equations probably in the year and the 190 may be up to 200 million square feet of new supply this year. But the demands are just significantly outpacing it and our guys do a pretty good job of diligently outsourcing land and being able to put that into production pretty quickly. We also, internally we do, we also get a jumpstart; we've got infrastructure and pads and things like that, so that we show it at the relevant time, up on some projects. And that's, those are some of the things that keep us more competitive on the building the suite as opposed to some of our working building competitors that have to go out to acquire sites. You know, we've got a site that's ready to go, designed pad built and we can deliver building inside of 120 days.

Okay, thank you.

Thank you, I was hoping to dig into the Bridge portfolio more detail. I know you talked of the stabilized yields replicating the cap rate on the medical office portfolio sale? Is that the cap rate that your team quoted when that tells the price, what the buyer quoted?

No, we have our own sale numbers, Eric. So, each one is a different sense; we have a watch at great news, Eric.

Understood, understood thank you, I appreciate that. And then the 70% previous what I didn't appreciate when the sales and acquisitions were announced was that include the two land purchases, the ones that the ones that will get without; I can understand why they are in pretty tight market. Is that included in the pre-leasing number though, the two buildings to be built?

No, Eric. The land parcels are not included in that previous numbers.

It's not, okay but effectively more at 40% to 50%, call it pre-lease or maybe more than 50% pre-lease if you include that.

Perhaps this land parcel is not placed in service until the fourth quarter of next year.

Okay, okay so, and is there the yield numbers for those are not included in the medical office comparable year?

They are not included. We are just, they are just like any other portfolio land, that we would go out and which we are doing over time now and then starting development right away. So, that'll be in our development numbers, once they get started.

Okay, I think the only other resource to confusion is related to the development land as we use the map, and how much we are allocating to both tranches. I'm getting to an estimated value of roughly $185 million for those two developed parcels and you're paying $62 million of land that looks like a $140 per square foot for the construction cost. So, I'm just trying to understand about the value number and not the construction cost number that $185 that I'm computing, and if my numbers are just completely screwing?

It's a value on the land and construction cost on the construction cost.

Construction cost seems expensive, a $140 to an affordable square foot, is there like a lot of inside work we have to do, or it's just a–

Yes, there's a lot of side work and these are in very tight markets, one of them in the New York suburb and the other one is Midland on a very short note.

Right a bit construction causes, and that's different generally between those areas in any developed country, I'd like also some extraordinary light mannerism or something. But is there something there that I'm missing?

But there's also side work involved.

Okay, okay, I will jump back in the queue, I'm sure you'll have a lot more questions, thank you.

Thanks, good afternoon. On the hhgregg, you mentioned you got one of the three, one of the 738, and you mentioned also there's been an 80 basis point head to the same store number. Jim, you mentioned also, that you relieved at higher rates, can you give some color on how much higher and how long those lines? Does that mean in 80 that will have a full reversal of the same store impact such that it won't be an 80 basis point head but maybe a 100 basis point opportunity or upside?

Well, let me try to cover part of that, which I think we'll have a full reversal for the second half of '18 because essentially we are looking at the last half of '18 will cover no rent from those buildings. And we got leases either signed or out for signature right now, such that rents will come in from all the spaces like early '18. So, when you get into the last half of '18, you will recover all of that 80 basis points decline, then you should have a little bit of decline. But on a full year basis, you are going to be pretty close to even. So, we did have five months with the rent from the hhgregg buildings in the first half of this year. I would say the wrinkles on those three deals; we haven't got a couple of them signed yet, they're out for signature, but it's going to be pretty close to the average rent falls closing on everything else in our portfolio, we haven't run so close.

Okay, alright got you. Second short question is on the special dividend, you said in the range of what you said, could you say if you are tethering towards the $0.70 or the $1.15 based on what's going on within the company?

If you have an hour and a half to listen to our catch skies,

I do, go ahead, I am ready, good.

I am joking; I think it's going to be probably pretty close to the middle over range. I would call it middle range, or maybe lower half, but at least we still got some moving pieces out there from these 1031 exchanges, which is pretty high capital that we have lined up, that's going to happen, but we just need some passage of time to get a couple of things knocked off the list. And then hopefully later in November, we'll be able to disclose something, but I think it will be not too far from the middle point range.

Okay, great thanks very much.

Yeah hi, just a quick question on Bridge. The 70% pre-lease number when does most of that become rent paying and/or start to impact the financials?

A lot of it is now; there will be a couple of months of burnouts, but by the end of the year, most of them will be paying rent on 70%.

Got it, and then what's the anticipation for Tranch 2, when that comes on?

We're actually closed on two developments yesterday and we expect to close the rest in the fourth quarter.

Yeah towards I would say, Michael, towards the end of the fourth quarter.

Got it, okay, that was it. Thank you.

Hey, good afternoon guys, just looking at the assets that you've completed on the development pipeline, high quality big box assets, what are your thoughts about taking some of these to market with cap rates compressing, are you guys still going to focus on similar non-core industrial asset sales?

Hello Richard, I'll start and then Nick can chime in. So, historically we've got a bit of that, we've taken some chips off the table so to speak. We've sold a couple of the big Amazon deals and some others. With all this dispositions we've done this year and having to pay special dividends, you know we are really looking to minimize that. We are in the final stages of putting together the disposition target list for next year. And again, you know managing that against redeployment of capital and the special dividends. So, for now we can give you any local call around the other markets or things like that.

Yeah, they put a lot of value creation on the development pipeline, but for the most part, we are just looking at improved non-strategic asset account forward in the marketplace and frankly we are seeing great pricing invests for non-strategic markets as well.

That's helpful, thanks guys. And on last quick question for me, I noted in the real estate alert this week that CABED is bringing a 21 million square foot warehouse portfolio, this prices may be 1.8 billion or larger? Is it something that you guys are taking a look at or is that just too big, on the acquisitions focus on the development pipeline from here?

Well, we look at everything obviously, just to stay abreast of what's going on in the marketplace. And I would tell you, given our size, I personally don't think it's too big. I think when you look at the makeup of the markets and what percentage of the assets are in the high barrier tier 1 market and the tier 1 markets, it's about maybe 25%. I know the high barrier tier 1 was 17%; it's probably not the best fit for us. By coincidence, there are some assets in there that we sold them in the last five years; I don't generally like to buy stuff back at premiums. So, it's probably not a real good idea.

Sure, sounds good, thanks guys.

Hey, it's Michael Bilerman here. So, Jim, I don't know, maybe a theoretical question, but if at the impact in April, you weren't going to plan on selling the medical office and the Bridge portfolio came to you, would you've done it at that pricing and issued equity to fund it?

I think so, Michael, absolutely. I mean, if you look at what we're strategically trying to do, grow in the high barrier tier 1 markets and quality of this portfolio and what's happened since then, absolutely we would buy it.

And then would you say the same thing going forward, using your equity currency and issuing equity to buy assets, or continue that as a, I recon as a catalog portfolio that does not mean, but given the cap rate environment, there's probably a lot more stuff that's going to come out of the good work given the pricing levels especially your office. Would you entertain using your cost of equity? You sold the medical office at an unbelievable price and exited out of that, and used that as your proceeds to rotate, de-lever, give money back to shareholders and invest in these Bridge assets. I'm just curious how do you think - what your cadence will be in using your common equity to further this expansion?

Michael, we will certainly look at it, we are trading at a premium to NAV. We like generally where the price is. I liked it a little better two weeks ago than this morning, but generally if the quality assets and the markets that they are in fit our profile and we are comfortable that we're not overpaying and that we could lease for a long term and continue to grow rents with annual escalations, we would certainly think about it.

And then did Stockert actually attend the board meeting yesterday or you put-on, as he physically gone through a process?

Is this one of those highly theoretical questions?

No, no I'm just curious - I mean, I'm curious what his mindset is? Having lost the company seventeen years ago, right, coming back in, his perception is what it was versus what it is, is just a really interesting thing to have? And I'm sure if Ray Weeks came back, he would have a pretty interesting view of where this combined company is, sitting by the office assets, but.

Yes, David did attend the meeting; our crack is when we are bringing a new director on, is we do invite them to that first meeting even though they are not officially on the board, they don't have the opportunity to vote, but we do get them inducted in, so Dave in fact was here yesterday and it's great to welcome him back. He's been gone for 17 years.

And is there anything, any sort of insight that he was able to bring to the table, having the perspective - having been in the business a long time ago and sort of seeing where the company in the industry is today?

We brought Dave on not because of his history with the company 17 to 20 years ago, but for his more recent experience running post, his M&A experience, his perspective on corporate governance, so that's really what we look at in terms of Dave's skills to round out our board.

Last question, any purchase options, how many sort of exist within the portfolio? Was that some name should be mindful of at all?

Very, very few. I would tell you that we probably had about one a year exercise for the last three years. So, we are generally not good at giving purchase options.

Yeah, I didn't know if any of these merchant developers may have given that right - and from the leases, you've inherited more?

No, that really impedes the value for a buyer, ourselves included, if somebody's built that into the deal, so we and most of our competitors find that pretty difficult.

Thank you, just a follow-up here. So, you're looking at your guidance for $700 million to $900 million of starts in '17. When you look around your markets, do you think that's the number you can hit again next year?

I think if market fundamentals are consistent next year with what they did this year and what our outlook is, yeah, I think that's realistic. If you look a little higher, then our last few years we've been running probably closer to 700, the last few years. But we've been able to rent a few more build-to-suits and our leasing has been a little bit better than we expected. So, I think that's why we were able to increase our guidance at the July meeting. That helps.

Yeah, definitely and what do you - of the starts you have this year, what percentage is the build-to-suit and do you think that goes up or down next year?

I don't have that handy, Jamie; we just track the pre-lease percentage of build-to-suits partially pre-lease buildings and then leasing is done while the buildings are under construction is included in that 63%. My guess of it is probably 40% to 45%.

Anything that's sustainable?

Yeah, we are, you go back and look at the last three or four years—the reason our preleasing percentage has been as high as it has and higher than most of our peers is because of our build-to-suit activity. That's good land and the quality of the people that we've got on the ground, as opposed to spec development. We've consistently told our investors, we are going to keep that pre-leasing percentage about 50% and being able to do build-to-suits and substantially pre-lease buildings certainly helps that.

Okay, and then thinking about the building blocks for next year, the color on hhgregg was helpful, but did you say 3% advance for the Bridge portfolio or across the entire portfolio, on a cash basis?

Jamie, that's consistent with both today; that's what we are getting on Bridge, that's what we're getting really everywhere today. Our existing portfolio is close to the 22 in the quarter, the legacy leases within our portfolio, we average about two a quarter; obviously that average is trending up a little every day as we keep building leases at three.

And what would you say is the blend for the entire portfolio, closer to like 275?

No, no, right now, it's a two and a quarter today. So, it all depends on leasing activity from here until whenever you're looking at it, but on a 130 million square feet, it will take a while to move at 75 basis points.

Got it, okay and then what do you think your mark-to-market is for your '18 expiration?

For '18, it's probably going to be somewhere to what we are at today, in fact in the high teens.

Oaky and then Ray, you feel like you are pretty fully occupied at this point, right?

I think so, it's hard. As Jim said, our same property occupancy went down to 97.5% or whatever it is, it went down 30 basis points. So, I think on what I would call that stabilized portfolio, 124, but we do have a lot of upsides in the newer development and acquisition properties. That's just putting our overall occupancy down. So, I think we are a little bit different than a lot of peers, only about 80% to 83% of our NOIs in that same property pool. We had a lot bigger pool of these newer properties to have a lot of NOI outside. So, I wouldn't say we are full up on occupancy overall; we're probably full up on occupancy on our current same property. That makes sense.

Yeah, that makes a lot of sense. Okay, great thank you.

I would like to thank everyone for joining the call today. We look forward to re-convening during our fourth quarter and full year call generally scheduled the same time on Thursday, February 1, 2018. Thank you.