Prologis Inc (PLD) — Q3 2018 Earnings Call Transcript

Thanks, Emily, and good morning everyone. Welcome to our third quarter 2018 conference call. The supplemental document is available on our website at prologis.com under Investor Relations. I'd like to state that this conference call will contain forward-looking statements under Federal Securities laws. These statements are based on current expectations, estimates, and projections about the market and the industry in which Prologis operates as well as management's beliefs and assumptions. Forward-looking statements are not guarantees of performance and actual operating results may be affected by a variety of factors. For a list of those factors, please refer to the forward-looking statement notice in our 10-K or SEC filings. Additionally, our third quarter results press release and supplemental do contain financial measures such as FFO and EBITDA that are non-GAAP measures, and in accordance with Reg G, we have provided a reconciliation to those measures. This morning, we'll hear from Tom Olinger, our CFO, who will cover results and guidance; and then Hamid Moghadam, our Chairman and CEO, who will comment on the Company's outlook. Gary Anderson, Chris Caton, Mike Curless, Ed Nekritz, Gene Reilly, and Colleen McKeown are also here with us today. With that, I'll turn the call over to Tom and we'll get started.

Thanks, Tracy. Good morning and thank you for joining our third quarter earnings call. First, I'll start with an update on our $8.5 billion acquisition of DCT. Our financial and operating results reflect this mid-quarter transaction which closed on August 22. The integration went exceptionally well and is complete, and we refinanced the $1.8 billion debt we assumed in the transaction at an average interest rate of 2.4% in a term of over 13 years. We've already hit our expected annual synergies run rate of $80 million, with the vast majority of that in cash savings. Now, our focus is on realizing the incremental $40 million of future annual value creation from development and revenue synergies. Turning to market conditions, fundamentals remain healthy and well-located space continues to be in high demand. There were several notable bankruptcies announced recently, and our exposure to these firms is minimal. These customers leased from us about less than 30 basis points of our net effective rent. We've been monitoring these companies for some time and are confident we'll be able to quickly lease up any spaces we get back from these customers at higher rent, given they're approximately 10% below market. Broadly, we feel very good about our business. Market rents across our portfolio are growing in line with our forecast with Europe slightly ahead. Switching to results, core FFO for the third quarter was $0.72 per share. Our share of cash same store NOI growth was 5.9%, led by the U.S. at 7.1%. Our share net effective rent change on roll was more than 22% and was also led by the U.S. at over 30%. Occupancy was up more than 120 basis points year-over-year to 97.5%, with Europe at 98%, up 260 basis points over the same period. Leasing volume totaled approximately 37 million square feet with an average term of more than five years. This includes 5.3 million square feet of development leasing. Development stabilizations in the third quarter had an estimated margin of 36%, bringing our year-to-date total value creation of $475 million. So far this year, we've realized $329 million in gains on the monetization of development projects. Disposition and contribution activity in the quarter was approximately $460 million. As previously announced, we closed the $1.1 billion sale to Maple Tree in early October, with our share of the proceeds totaling over $600 million. We expect to close the second phase of this transaction totaling $170 million by year-end. During the quarter, we reduced our weighted average interest rate to 2.7% and extended our weighted average term to six years through the issuance of long-duration tenors up to 30 years. Our balance sheet remains one of the best in the business, and we continue to access capital globally at attractive terms. Our $3.5 billion of liquidity and over $6 billion in potential fund rebalancing allow us flexibility to self-fund our development well into the next decade. This substantial amount of dry powder positions us to capitalize on attractive deployment opportunities as market dislocations arise. Looking forward, I know many of you are looking for 2019 guidance, but you'll have to wait until our fourth quarter call, as this is our normal practice. For 2018 guidance, I'll cover the highlights on our share basis. So, for complete detail refer to Page 5 of our supplemental. Also note, our guidance includes the impact of the DCT acquisition. We're maintaining the midpoint of our cash same-store NOI range of 6.5%. For net promote income, we're forecasting approximately $0.05 per share in the fourth quarter and $0.13 for the full year. Our share of net deployment proceeds at the midpoint remains unchanged at $350 million. We are nearing the range for 2018 core FFO to be between $3.01 and $3.03 per share. To put this in context, when we laid out our three-year plan at our investor forum in November 2016, we called for 7% to 8% annual growth excluding promotes. At the midpoint of our 2018 guidance, we'll have averaged 9.3% for the first two years, far exceeding this plan. Importantly, this will be achieved while completing the realignment of our portfolio and reducing our leverage by almost 500 basis points. With that, I'll turn it over to Hamid.

Thanks, Tom. I'll keep my remarks brief as our results were once again strong and straightforward. I'd like to address four key areas. First, I know many of you are focused on topics of trade, tariffs, and retailer bankruptcies, which have dominated the news lately. As you might imagine, we're keenly focused on these potential risks as well. But to date, we've seen no measurable impact on our business. Sure, if we search really hard, we can point to one or two companies that backed out of our lease negotiations in the U.S., but the impact of those isolated cases was negligible in the context of our overall leasing volume. There are plenty of other customers that are waiting in line for quality space and are frustrated by the shortage of suitable options. In fact, our latest forecast for the U.S. this year has revised up net absorption by 15% to 260 million square feet. Completions in 2018 will fall short of demand for the ninth consecutive year, this time by an estimated 10 million square feet. Second, I want to talk about Europe, which remains a bright spot for us. Our markets in continental Europe are strong and getting stronger; vacancies are at historic lows, customer sentiment is improving, and escalating replacement costs are driving up rental rates. In spite of somewhat moderating rents in the U.K., overall rent growth in Europe for the first three quarters has already made 2018 a strong year more than a decade. Looking to 2019, there's a real possibility that market rent growth in Europe could overtake that of a very strong U.S. market, which is great news for us in terms of continued same-store growth well into the next decade. Third, our multi-year disposition plan is now complete. Since the Prologis-AMB merger in 2011, we sold more than $14 billion in non-strategic assets and reinvested the proceeds into acquisitions and development, the combination of which increased our percentage of holdings in global markets from 79% to approximately 90% today. I'm very proud of our team who worked tirelessly to accomplish this long-term objective. As a result, our portfolio has never been in as good a shape as it is today. While we realize the benefits of this high-quality portfolio in good times, the real differentiation will become apparent in tougher market environments. Fourth, as we close this chapter in our Company's evolution, we enter a new era where we can capitalize on the tremendous benefits that come from scale. These benefits include one of the lowest costs to capital in the industry, unparalleled purchasing power, the most streamlined and efficient organizational structure, an intense focus on customer service, the ability to invest in innovation and technology, and down the road the opportunity to capitalize on proprietary data opportunities, all for the benefit of customers. We worked hard to create these advantages and look forward to putting them into action to create value well beyond the NAV of our underlying real estate. Emily, let's open the call to questions.

I know this question has been asked in the past, but just given where retention rates were this quarter, I think the highest in the past two years along with your commentary about the focus on proximity, just curious if you could provide updated thoughts here on the tenants' ability to absorb further increases and how hard your team is pushing? I'm surprised that you're able to push 11% cash-rent spread and still keep 82% of tenants. So, maybe just an update on the environment and where the mark-to-market is and how you guys feel that's trending?

The markets are really strong and that's why we're getting these increases. Not every discussion with every tenant starts out with the intention of them staying; in fact, many of them when they hear about the new rent get a little spooked, and when they go shop the market, they tend to come back and renew their lease because what we told them was an indication of where the market was. So, we're doing our best to push down retention, but obviously not hard enough. So, we'll work harder in future quarters.

Sticking with rents and your comments about Europe accelerating and potentially overtaking the U.S. next year, I was wondering if you could provide a bit more - perhaps some market-specific insights on where you're seeing the most acceleration in Europe and conversely where in the U.S. you're starting to see things moderate the most? Additionally, regarding the continuing trade fight, are you starting to see any impact from your tenants, particularly on the West Coast where you have more import exposure?

So, I don't know why that statement led to the conclusion that we've seen a couple of notes that have been published, and just because we think Europe is going to do really well on a relative basis, that means the U.S. is going to do less well. That wasn't our intent. The U.S. is doing extremely well. Europe was later in recovery and has more to recover, and we're getting it more all at once, we think, in 2019. 2018 was really the turning point for Europe, and we just see that spread accelerating going forward. We fully expect the U.S. to continue to be a strong market. And as I mentioned in my prepared remarks, we haven't seen, really, other than one or two tenants, and we sat around this table and discussed those examples, but we could come up with two that were possibly customers that decided not to go forward with the leases because of potential trade wars. Now, put that in the context of 289 leases that we signed last quarter. So…

Hamid, I was hoping you could talk about the development business and given the rise in import prices and steel and concrete, I'm curious how you're looking at the development business today and whether you feel like that volume could accelerate into next year?

I don't think the volume would accelerate into next year. But give us another quarter to really refine our numbers and come back to you on that. We're not ready to talk about that yet, but when we talked about our thesis for rent growth many years ago, a lot of it was recovery from the global financial crisis. If you may remember, we talked about the next leg being escalating replacement costs that are providing an umbrella for pricing product, and that's happening right now. Construction costs have gone up at double-digit rates in the U.S. We don't like it, but it translates into higher rents. And as you can see from our margins, they roughly doubled. The margins on completions are double the margins on starts because as good a job as we try to do on figuring out what margins are on starts, we've been surprised by rental growth beyond our projections and, to be perfectly candid, more CapEx compression than we ever hoped for. So, so far, the construction costs are not affecting margins or development decisions.

Hamid, with respect to tenant discussions, has there been any changes in the pace of leasing, especially for developments or spec developments and the time that it is taking tenants to make decisions on whether to take a spot or not?

That's a very good question. So, we track the time it takes from when we commence a conversation with a customer through the entire leasing process to completion. There are four steps, and I won't get into the details, but basically that time frame is about 46 days at this point and it has stayed relatively stable over time. So that's something we watch really carefully: how long is the gestation period for a deal? So, so far no change to it.

I just wanted to focus on the guidance. So, if you add up the other assumptions from the press release, it looks like those items add up to about a net almost a penny of higher guidance. So, I'm just curious what was the offset or the drag that kept your number as it is? Additionally, as you think about the DCT integration, can you just talk about things that were better than you expected, and things that were worse than you expected as you put the two portfolios together?

Jamie, this is Tom. So, on your first question on the guidance, I think when you think about guidance, you need to look at it for the full year. We've increased guidance meaningfully over the full year, both on core and on promotes. As we get into the back half of the year, particularly Q4, we've got very little role. So your ability to move that number with higher market rents and the like is limited. As it relates to DCT, we hit our synergies right on the mark. We did outperform on the cash piece of interest, but when you look at actually what's running through the GAAP income statement, we were again right on the mark. So we feel good about hitting those synergies and particularly how well and quickly we've integrated the portfolio.

Yes, we also had about $0.06 of extra severance and other charges related to some turnover which was anticipated and planned for. So, actually, I think we did better than we thought we would do, and if we didn't have that, we would have done even better than that.

Hamid, can you provide an early glimpse into some of your big data initiatives and some of the services you're working to develop for your customers and how you see that evolving and potentially impacting your business over time?

Yes, it's too early to talk about the data stuff; that's more of a three to five-year thing. We're working right now on revenue management, that's the first initiative for big data. On that one, we'll have something to talk about early next year. But regarding the other initiatives for customers, let me ask Gary to talk about some of those.

We have set up a procurement organization, and I think we discussed this in the past, and that is up and running today, focused both on sort of G&A, OpEx, and CapEx activities. We're also focusing on our construction supply chain, leveraging the sort of $2 billion-plus in hard cost spend. We're looking at providing support to our customers—particularly the smallest customers regarding their pain points and anything they might need concerning moving into a facility. We're in a process right now of rolling out an MVP product and testing it in a couple of markets. More to follow on that next year regarding what that really means for earnings and revenues.

Sticking to rent growth—this is really more of a six-month to year question. You talked about the first leg being recovery and the second leg being higher costs. I wanted to get a bit more color on your rent growth versus the market, which assumes no market rent growth. But it also assumes that logistics as a percent of the real estate, as a percent of the supply chain, does not really change. Can you talk about whether you were able to see more efficiencies in either transport or warehouse operations, and how could that rent growth spectrum be elongated? If you can give us some sense of any sensitivity you may have done?

That's an excellent question. I really invite you to look at the last three papers that Chris Caton and his team have put out, as that really addresses the heart of your question. I'm not going to do it justice right now. But fundamentally, 3% to 5% of supply chain cost is warehouse rent. There are lots of savings because of eCommerce; you're eliminating some retail rents. Not everything is going into eCommerce, but some of it is. Over time, transportation and labor costs are probably going to go down. In the short term, they're actually going up because of oil prices and labor costs, but in the long term, they will likely decrease due to renewables, autonomous driving in trucks, and more automation in these buildings. We think for locations that are special—close infill stuff that has no substitutes—customers can pay not 5% more, or 10% more, but they can pay double or triple. Think of it like retail pricing sensitivity because the turnover of those spaces is really high, and there is very little availability. They won't look like a traditional 36-foot clear warehouse with doors galore; they will consist of all kinds of spaces that are funky, and maybe older, and much more infill, and we have lots of those in our portfolio. In those segments, price sensitivity is low—all about service levels and serving the customer in a quick window. There, we could have significant rent increases; we're seeing some of that as we roll over in those spaces. As we build new multi-story infill products, the rents have been very encouraging.

Thanks. Related to that, I just wanted to get some color on asset pricing here. It seems we've seen cap rates holding steady or even continuing to decrease in the infill and coastal markets, given the wall of capital that continues to flow into those locations. So, I’m wondering if you're seeing any markets where there has been an inflection and you're seeing cap rates increase at all, as interest rates have crept up recently.

Blaine, this is Mike. We’re certainly not seeing any isolated markets where we’ve got any issues; conversely, we continue to see additional cap rate compression. In fact, for some other portfolios out in the market, we’re quite encouraged about the pricing trajectory.

I have a multi-phased question. First, your thoughts on Prop 13 in California. Second, I believe you retrofitted an industrial building and delivered a powered shelf for Amazon Web Services in Northern Virginia, a while ago sold it at a sub-five cap. Are you active in the data center build-to-suit market at all? Finally, what's your current thinking on Amazon's newest prototype, which I've heard is maybe a 100 to 150-foot floor plate but 120-foot vertical for their infill distribution business?

Let me try to hit those questions quickly and maybe the guys can elaborate. Prop 13 not this time, probably in the next election, we're going to see it in 2020 or 2022 at some point; that's where the money and competition are. I think you will probably have a split actual, that is my guess. In Northern Virginia, we don't really start out building data centers; we even begin with a traditional office warehouse product, and customers come to us because of the unique attributes of those locations, and we have much better rent, better credit, and longer-term leases. They put in all the improvements for data centers. So, nice to see that, but not because we’re particularly smart; it’s just because that location has some unique characteristics. Lastly, regarding Amazon's prototype, I won't specifically discuss Amazon, but generally, any company that needs distribution space in major cities has to go more vertical to utilize less land because these markets are totally out of land. Those who can go multilayer and squeeze more density on smaller pieces of land will try to do that.

Yes, we’re obviously staying very close to what's happening with Amazon because they lead the market in terms of trends. We have plenty of activity underway to understand their ever-changing needs, and we’re on top of it, as you'd expect.

I want to return to the tariff issue. The data shows that the LA Long Beach ports are the most exposed to the Chinese tariff issue, net import markets, by a wide margin, and it also has more exposure to Chinese imports than the rest of the U.S. So, as we consider your Southern California portfolio, your largest market, could you dig into that regional bit and explain how tariffs could potentially impact demand for space over the next year? I imagine it's not an issue for your entire portfolio there, but only some portion of it. I'd love to hear your thoughts.

We’d love to buy more real estate in LA. If you think anybody is spooked by the tariffs, turn them our way; we’d like to increase our position. That is the most dynamic market in the U.S., and the LA base accounts for well over 50% of what comes into that region. California is now the number five economy in the world. We love that market, and every day costs are going up; entitlements are getting tougher; there are real supply constraints—not just in terms of physical land, but in terms of all the other hoops that you have to jump through to build a building. We love those markets.

Could we follow up on the densification? Can you talk about your multilevel warehouse strategy and give us an update on the lease-up of your Seattle project, and how are approvals going for your project in San Francisco? Are there any updates to the six markets that you feel could be potential candidates for these types of developments in the future?

Let’s start with the last one. No, our feeling is that the real opportunities in those six markets, along with a couple of other global markets, would be London and Paris in Europe and, in Asia, primarily Japan. It's a limited number of markets, but with a fairly substantial opportunity. The development approval process for San Francisco is a multi-year exercise. We’re going to have to go through a significant EIR process, but our San Francisco team does want to preserve those kinds of jobs because a lot have been eliminated by conversion of those buildings to office space and the like. That's where they're looking at these jobs in buildings as a good opportunity. You can’t predict these political issues, but while we wait, we’re clipping in 5% to 6% return on that site, and we’ll be very patient in securing the ultimate approval. It’s a big project, so it’s going to take a while. With respect to Seattle, substantial completion is going to be at the end of the month, and we have activities for well over 100% of the space. So, I would expect by the end of the first quarter, we will be full up there at very strong rents—much stronger than we underwrote. Remember, this is a three-story product; nobody has experience with that, so you really need people to see the product up and running. If you haven’t seen it, I would encourage you to take a look; it's pretty impressive.

Moving to labor for a second, in September you announced a community workforce initiative in Southern California, with unemployment at its lowest in 50 years. How do you incorporate workforce capacity into your investment decisions? Are you seeing your tenants either look to different markets to gain access to labor, or make additional investments in automation to make up for a smaller employee base?

We think it's so important that we've added a section to our investment committee memos, which directly covers labor availability. On our community workforce initiative, let me turn it over to Ed Nekritz, who has been running with that.

We introduced our first program in LA, and we’re moving the conversation with customers beyond rent to how we can make their lives better. We’re helping them with jobs by creating internship programs in our communities where we’re developing assets and ensuring that our customers are tied into labor needs. We are focused on providing students the ability to get jobs in their communities to create better economies for labor.

We’re not setting up nonprofits all around the country to improve the labor situation; we’re supporting the best NGOs in this business with capital and employment opportunities following graduation and completion of the program. It’s really about building bridges and supporting it with capital, and we’re quite serious about this. It’s important for us to take leadership on this initiative, considering the limited opportunities for our high school kids and the traditional jobs going away.

Can you talk a little about your initiative to pursue more gross leases compared to the marketplace today versus net leases? How aggressive is Prologis in the market right now in pursuing those, and what has been the tenants' response? Have they appreciated the new structure of transitioning to gross versus a net lease structure?

The lease you're referring to, we call the clear lease, and it is effectively a gross lease structure. 100% of all leases in the United States today, and in Mexico soon, across Europe are proposed as clear leases. We’re taking this very seriously. I think we have around 70% to 75% adoption at this point, so we've completed hundreds of these leases already. In terms of customer reaction, it’s been overwhelmingly positive—more so than we expected. This is really about simplifying the lives of our customers and the lives of our people who manage these properties.

The reason Gene said this clear lease is because the property taxes are excluded from that calculation. In other words, the tenants get the bills for property taxes directly because we’re not in a position to control those better than they are. When you look at the structure of our business, it’s inefficient. We’re asking a tenant who may have one location in one city—a 100,000-square-foot small to medium-sized business—to underwrite for snow removal, fixing our dock levelers, and maintaining our air conditioning units. They gladly pay the rent, which is a big number, and then we spend a lot of time negotiating nickels and dimes on these other items. We’re in a much better position to underwrite those costs because we have a significant portfolio that allows us to spread it out. We also have good purchasing power to drive economics with vendors by aggregating all this demand. Historically, the way the business was done was when the industry was fragmented and landlords had one or two buildings. When you get to our scale, we need to put it into use for our customers, which ultimately translates into rents that flow to our investors.

Just a few quick questions. First, regarding development, you mentioned this quarter's margins were a little better than the last three quarters. Is that due to a mix issue related to build-to-suit? My second question is related to G&A; can you comment on the severance and turnover within your team? Finally, I noted your same-store statistics showed your operating expense increased over 5%, so I'm curious if that’s all real estate taxes and would it not be affected by your new gross lease structure? Thank you.

I'll start with your last two questions. On the increase in expenses in the same-store forward, what you’re seeing is the impact of reimbursable expenses, which hit both revenues and expenses. If you back that component out, I think you’ll see rents grow at around 4.5% and expenses grow like 60 basis points. It’s all reimbursement noise you're seeing. On the G&A question, it was primarily, as Hamid mentioned, we have done some restructuring and made investments in personnel around technology. As a result, we’re bringing in people, and some have left, which is driving the expenses you see—that would be the main component of G&A.

I'm not going to discuss the details of our personnel decisions during our earnings call. Regarding margins, I’d take mid-30s margins every day, and we’re thankful for that. We go into this expecting to get around 15%, so the fact that we’re getting more than double that is good news. However, it won't last forever; historically, margins in this business have been in the low to mid-teens, and that's what we’re assuming in our activities. The better-than-expected margins are a blessing.

If the market rent growth in Europe goes ahead of the U.S. next year in 2019, how long until the same thing happens with rent spreads and NOI growth?

A while, because you need many years of rental growth to create that spread. The mark-to-market in Europe, the last time I checked, was around 10%—it’s 9% or 10%—and obviously it's in the high teens in the U.S., about 19%. The U.S. is double what Europe is, and you need a couple of years of steep rental growth not captured by the rollover releases to widen that gap. So, it will take a while—I haven't done the math, but it will take some time.

With respect to dispositions in light of the DCT deal, should we expect disposition volumes to increase next year because you have those assets within DCT that you want to sell? Do you think that pace will be consistent with what you've done in the last couple of years?

So, Manny, as I mentioned in my prepared remarks, we've sold $14 billion in real estate over the last seven years since the merger, averaging about $2 billion a year or $0.5 billion a quarter. DCT includes $560 million in non-strategic assets. We're in no hurry to unload that, and historically, that’s a quarter's worth of work. It’s not a big deal, but we’re not in a rush to do this—our strategic disposition program is done. With the Maple Tree transaction recently announced, that part of the program has come to an end. Even if you turn over 1% to 2% of a $90 billion portfolio, you could have $1 billion to $2 billion in sales every year, which we'll do in the normal course of business when someone approaches us with a price we can't refuse. We will always look to cherry-pick opportunities to optimize the portfolio profitably, but that’s different from a non-strategic disposition program, which has concluded.

It's uncertain whether we will get a hard Brexit or a soft Brexit. Could you explain how you're positioned around this and what your contingency planning is? Furthermore, if we encounter a hard Brexit next spring, how would that affect your view that Europe will be as positively positioned as you originally outlined?

Well, I wish I knew all those answers with precision. I don’t know. Our U.K. portfolio is in the high 90% leased, and the average lease term in the U.K. is well over 10 years. The credit is exceptional, as you know; getting entitlements in the U.K. is a tough task and can be a multi-year exercise. Our outlook for the U.K. has been incredibly strong, allowing us to put U.K. at the top of our list in terms of rent recovery since the global financial crisis, comparing to the best markets in the U.S. You would expect the growth to moderate eventually; I don't know if it's directly related to Brexit or not, but I still view the U.K. as one of the best markets in Europe or even globally.

The other side of that is that we have significant liquidity and financial capacity on our balance sheet and in our funds. If there's an opportunity for us to take advantage of, we'll certainly do that.

I don't think we'll get that chance.

Just a clarification and one more follow-up question. Concerning development, referring to development starts this quarter, I believe you have development profit margins of 17%, which seem to be the lowest in recent cycles. I am trying to understand how that is impacting you; is this a construction cost issue, or is it just that the development environment has become more competitive? Additionally, while I don't want to dive too deep into projections for next year, that rationale for the DCT deal implies better external growth opportunities. I would assume this also suggests there would be higher overall development volumes due to your enlarged asset base and more customer growth opportunities. I was hoping you could comment on that? Thank you.

As you go through the cycle, a couple of things happen. You use up the older, low-basis land at book value, which, all else equal, results in margins going down. So, you would expect margins to decrease in the coming months because we’ve used more old basis land, and you’re buying more at market rates. Pro forma margins are indeed the lowest they’ve ever been, but that number is twice as large as it should be. So we don't lose a lot of sleep over that. And in every case, it has come in higher than what we performed on. I'm not sure I got your second question. As for the DCT part, it’s easier to analyze the development that we’re doing with the DCT land and compare that to our previous activity, which will help you understand the volume increase.

Yes, just to put some numbers around it: In '18, we’re likely to do about $100 million more in development than we would have without DCT. We also have a land bank that supports $500 million to $600 million in additional development. When we provide guidance for 2019, that volume will further be outlined.

We feel great about the DCT deal; we did it because we believe it's very accretive to our business in the long-term. We love the quality of the portfolio, and you will see those numbers through our growth rate, which will look pretty good.

Just a few follow-ups. Regarding guidance for development starts and dispositions, it seems you have some work ahead in the fourth quarter. I just want to know what your pipelines look like there. Additionally, Tom, you noted it would have been approximately 4.5% same-store revenue growth this quarter if you pull out the reimbursable impact. Do you have an idea of how that has trended over the last two to three quarters on the same basis?

Craig, I’ll take your second question first; we've been around 4% when you strip out. That makes sense when you look at our rent change, which would be similar to what you’re saying. Regarding starts and disposition guidance, remember, we just closed a $1.1 billion Maple Tree transaction in early October. We have another $170 million in the second phase that is expected to close this year, which brings us ahead of our historical pace. In terms of development starts visibility, we have good confidence in our development at similar volume over the last couple of years, around a $1 billion in each of the four quarters.

Yes, development is always back-end loaded into the fourth quarter; that's just the way the business works. Anyway, thank you for your question, Craig. This will be the last one, and I want to thank everybody for joining our call. I look forward to chatting with you in May.