Jul 26, 2012
Executives
Art Harmon - Senior Director, IR & Corporate Communications Bruce Duncan - President & CEO Scott Musil - CFO Jojo Yap - CIO Chris Schneider - SVP Operations & Chief Information Officer
Analysts
Mike Miller - JPMorgan John Stewart - Green Street Advisors Daniel Donlan - Janney Capital Markets Ki Bin Kim - Macquarie
Operator
Good morning. My name is Steve and I will be your conference operator today.
At this time, I would like to welcome everyone to the First Industrial Second Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise.
After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions) Thank you.
I would now like to turn it over to Art Harmon, Senior Director of Investor Relations. Please go ahead.
Art Harmon
Thanks Steve. Hello everyone and welcome to our call.
Before we discuss our second quarter 2012 results let me remind everyone that the speakers on today’s call will make various remarks regarding future expectations, plans and prospects for First Industrial. These remarks constitute forward-looking statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.
First Industrial assumes no obligation to update or supplement these forward-looking statements. Such forward-looking statements involve important factors that could cause actual results to differ materially from those in forward-looking statements, including those risks discussed in First Industrial’s 10-K for the year ending December 31, 2011, filed with the SEC and subsequent 1934 Act reports.
Reconciliations from GAAP financial measures to non-GAAP financial measures are provided in our supplemental report available at firstindustrial.com under the Investor Relations tab. Since this call may be accessed via replay for a period of time, it is important to note that today’s call includes time-sensitive information that may be accurate only as of today’s date, July 26, 2012.
Our call will begin with remarks by Bruce Duncan, our President and CEO and our CFO Scott Musil, after which we will open it up for your questions. Also on the call today are Jojo Yap, our Chief Investment Officer; Chris Schneider, Senior Vice President of Operations; and Bob Walter, Senior Vice President of Capital Markets and Asset Management.
So let me turn the call over to Bruce.
Bruce Duncan
Thanks Art and thank you to everyone for joining us today. As you saw in our press release, we had a productive quarter on many fronts.
I’ll begin my comments by talking about an important new lease and then discuss the new developments we have launched in the third quarter. We know that many of you have had your eye on our 692,000 square foot First Inland Logistic Center development in the Inland Empire.
Rest assured, our management and regional agent teams have too. We’re delighted to announce that we recently signed a 15-year lease agreement with the facility with a leading specialty retailers.
First Inland Logistics Center would serve as one of their critical distribution facilities on the West Coast; due to its proximity and access to the ports of LA and Long Beach. The lease also includes the excess truckyard which was the unique feature of our property that’s been our tenant need.
The lease is expected to be reflected in our occupancy statistics in the fourth quarter. When we last spoke to you, we discussed how we believe additional developments could provide us with better investment opportunities and acquisitions and contribute to our goal of upgrading our portfolio.
First Inland Logistics Center is a great example of the type of property in which we want to invest. To that end, in late June, we closed on the acquisition of three development ready land sites in our target markets and have launched those developments.
Two of the sites are in Southern California and were acquired as a package. The first site is located in a constrained infill location in LA County, adjacent to the 710 Freeway, approximately 25 minutes directly north of the Ports of LA and Long Beach.
There we are building First Bandini Logistics Center, a 489,000 square foot distribution center. We believe it will be a perfect home for a company located in the South Bay or Vernon Commerce sub-market that we want to upgrade to a state of the art [clock stop] facility with abundant trailer parking that is scarce in the submarket.
Total investment is estimated at $54 million with an estimated yield based on first year’s stabilized NOI over our GAAP basis of 6.5%. The facility is expected to be completed in the third quarter of 2013.
The second site is located in Chino, California; an infill submarket in the Inland Empire West. The site will be the home of First Chino Logistic Center; a 300,000 square foot distribution center.
The building will offer expert functionality with double stag trailer lots that are difficult to find in the market. Users attracted to the Chino submarket want to take advantage of lower rental rate relative to nearby Los Angeles locations and lower transpiration costs compared to Eastern Inland Empire options.
Total investment is expected to be approximately $20 million. The estimated yield based on the first year stabilized NOI over our GAAP investment basis is 7.1%.
We are targeting completion in the second quarter of 2013. We also acquired a site in Central Pennsylvania, in New York that will be the home of our first logistic center at I-83.
We are developing a 708,000 square foot distribution facility to meet market demand; with the supply of buildings greater than 500,000 square feet is limited. As you all know this area is what we refer to as the back door to the Eastern Seaboard, as it serves to the very popular distribution location for large companies and 3PL to transport their goods to the key population centers on the East Coast.
We like the investment characteristics of this market and have a successful track record having developed approximately 9.4 million square feet there since 2000. Recall that we also required a distribution centre in New York in the first quarter leased on a long term basis than Navistar.
We expect to invest a total of $34 million in its development and are targeting a yield of approximately 8.4%. Again, this yield is based on our first year stabilized NOI over our GAAP investment basis.
Our plan is for the facility to be completed by the end of 2013. Finally, we also recently commenced an expansion in Minneapolis as part of a long term lease renewal.
We are investing approximately $8 million to add 156,000 square feet to our existing 425,000 square foot building. We were pleased to help serve our customers needs through this mutually beneficial investment.
By executing on these developments we will add value for our investors, make progress on our mission to upgrade our portfolio and further demonstrate the strength of First Industrial’s team and platform. Leasing is essential to our execution for our new building as well as for our existing portfolio, so let me discuss our leasing results for the quarter.
We increased occupancy 50 basis points since the end of the first quarter to 87.9%. Compared to a year ago, our occupancy was up a 180 basis points.
Same store cash NOI growth was good at 5.3% excluding termination fees on the heels of our 6.7% gain last quarter. The growth was driven by increased occupancy year-over-year and rental escalations on in-price leases and was also helped by other one time items.
Scott will walk you through the details shortly. Regarding our top 10 vacancies which we discussed at the time of our Investor Day last November that some of you were tracking, we gained about 180,000 square feet of occupancy within this group during the quarter with vast majority of the gains coming from short-term leasing.
While these properties currently represent approximately 200 basis points of occupancy opportunity compared to 325 basis points at Investor Day. We still have ample work to do to stabilize them with long-term leases to drive internal cash flow growth.
Regarding the state of the overall leasing markets, the national industrial market showed positive absorption for the eighth consecutive quarter. Demand has been moving along with the economy and new supply remains low by historical standards.
We continue to see leasing activity across our market where tenants remained deliberate we are making decisions. Historically, we have seen a (inaudible) and we are currently experiencing a similar phenomenon.
Much like last year at this time, we have mixed economic and [pivotal] news which further cloud our visibility on the leasing environment. Environment aside, our team continues to push to win new tenants.
As we telegraphed last quarter, sales activity was light as expected. We sold four buildings totaling a 127,000 square feet for $3.8 million.
Three of these buildings were in Detroit and one in Atlanta and all were sold to users. The second quarter sales were completed at more than 60% above book value.
Subsequent to the quarter, we completed another sale totaling $3.4 million in Detroit to an investor. In total, we have completed $27 million of sales year-to-date.
Our sales target for the year remains $75 million to $100 million. So we have work to do.
On the balance sheet side, given the low interest rate environment as well as our ability to prepay some higher interest rate mortgage debt later this year and next we decided to access to this secured market. We’ve received a new loan commitment for a $100.6 million from a life insurance company at an interest rate of 4.03% with a 10 year term.
One last item I would like to touch upon, as we noted in our press release last night, we have reached a preliminary agreement with the IRS related to our 2009 tax refund which totaled $40 million. Assuming final approval of the agreement, we expect to repay the IRS approximately $5 million.
Scott will walk you through the details. Before I turn it over to him, I would like to extend many thanks to my team mates at First Industrial for their contributions across all aspects of our business.
We have work to do but I know they share my excitement about our opportunities, and are focused on our mission to deliver value to our shareholders. With that Scott?
Scott Musil
Thanks Bruce. First let me walk you through our results for the quarter.
Funds from operations for the second quarter of 2012 were $0.15 per share compared to $0.24 per share in the second quarter of 2011. Second quarter results reflect a $0.07 per share loss in the retirement of debt due to our tender offers we discussed in our last call.
Second quarter results also reflect a one-time charge of $0.06 per share related to our preliminary agreement with the IRS related to their audit of our 2009 tax year of our taxable re-subsidiary. I’ll discuss this in further detail shortly.
Comparing 2Q 2012 to 2Q 2011 before one time items such as losses from early retirement of debt, restructuring costs, impairment of undepreciated real estate, and our tax agreement, funds from operations were $0.27 per share versus $0.21 per share in the year ago quarter.
When you add together the loss from retirement of debt of $0.07 per share and the income tax charge of $0.06 per share, this sums to $0.13. The difference is due to rounding.
EPS for the quarter was a loss of $0.16 per share versus a loss of $0.06 per share in the year ago quarter. Moving on to the portfolio, as Bruce discussed, our occupancy for in-service portfolio was 87.9%, up 50 basis points from 87.4% last quarter and a 180 basis points from 86.1% at June 30, 2011.
In the second quarter, we commenced approximately 3.5 million square feet of leases. Of these, 0.5 million square feet were new, 2 million were renewals and 1 million were short-term.
Tenant retention by square footage was 71% inline with our expected average retention for the year of 65% to 70% and consistent with our long-term track record. Same store NOI in a cash basis excluding termination fees was positive 5.3%.
3.8% was related to occupancy, rental rate bumps and lower rent concessions with the remaining 1.5% due to restoration fees, real estate tax appeals and other onetime items. Including termination fees, same store NOI was positive 5.9%.
Rental rates were down 3.2% cash-on-cash and on a GAAP basis they were up 2.5%. Leasing costs were $2.23 per square foot for the quarter reflecting the high percentage of renewals.
For the year we continue to expect our average to be in a range of $2.40 to $2.60 per square foot. Lease termination fees totaled $735,000 in the quarter.
Moving on to our capital market activities and capital position, as noted on our last call, during the quarter we retired $87 million of senior notes at an average yield of maturity of 7.08% approximately $78 million were longer dated notes with an average yield of maturity of 7.4%. As we have discussed in previous calls, we can prepay a total of approximately $63 million of secured debt in 2012 and 2013, of this amount we can prepay $30 million in the fourth quarter and another $50 million next year with an average coupon of 7.5%.
As Bruce discussed, we obtained a loan commitment from a life insurance company for a new 10 year $100.6 million secured financing, the interest rate is 4.03% with the 30 year amortization and the loan is anticipated to close in the third quarter, a portion of these proceeds are expected to be used to retire the $63 million of secured debt and a positive spread of approximately 3.5%.
As we noted last quarter, our goal for this ratio is approximately 6.5 times and we plan to get there through leasing and capital market activities. Thinking about our liquidity, we currently have $123 million under credit facility of availability.
In addition to our credit line, we expect to have approximately $100 million for the new secured loan plus approximately $64 million of gross proceeds from asset sales in the third and fourth quarter assuming the midpoint of our sales guidance. So our total liquidity is $287 million.
We also have access to the equity markets including our ATM for growth, opportunities or deleveraging. On the usage side of the ledger, we have approximately $70 million of incremental costs related to the new developments in the expansion plus another $63 million to retire the secured debt I just mentioned for total usage of $133 million.
This would leave us with a $154 million of excess liquidity. To update you on a few additional balance sheet items, our weighted average maturity of our unsecured notes and secured financings is six years with the weighted average interest rate of 6.6%.
These figures exclude our credit facility. Our cash position today is approximately $18 million.
I wanted to provide some details in the tax refund matter that Bruce mentioned. After further discussions with the IRS, we have reached a preliminary agreement related to our 2009 $40 million tax refund, which as you recall was related to the tax liquidation of our former taxable REIT subsidiary.
The total adjustment to taxable income based on this preliminary agreement was approximately $30.7 million which equates to approximately $4.8 million of tax. We also owe the IRS a crude interest which approximates $0.5 million as of June 30.
There are no anticipated penalties related to this matter. While the local IRS office has agreed in writing to this settlement, you should note that the settlement amount is subject to final review and approval by the joint committee on taxation.
There can be no assurance that the settlement amount I just discussed will be approved at the level we currently anticipate. Moving on to guidance, our FFO guidance is now $0.86 per share to $0.96 per share.
Excluding the estimated $0.07 per share loss from retirement of debt related to the tender offer and the $0.06 per share charge related to the anticipated IRS payment, guidance for 2012 FFO is $0.98 to $1.08 per share. The key assumptions are average and service occupancy of 87.5% to 89%, same-store NOI on a cash basis is now projected to average positive 3.5% to 5% for the four quarters of 2012 reflecting the benefit of the second quarter performance.
G&A for the year in the range of $22 million-$23 million, an increase of $0.5 million at both ends of the range due primarily to professional fees related to the IRS settlement. JV FFO of approximately $1 million, an increase of $0.2 million due to a lease commission expected to be recognized in the third quarter.
I would also like to note that we expect to capitalize interest of approximately $1.5 million to $2 million or $0.02 per share for the remainder of 2012 related to our new development project. We do not expect to capitalize any G&A related to these developments.
Please note that our guidance does not reflect the impact of any future debt issuances other than the approximately $100.6 million loan commitment we discussed earlier; the impact of any future debt repurchases or repayments prior to maturity other than the $13 million of mortgage debt we plan to pay off in 4Q as we discussed earlier; any additional property sales or investments during 2012 other than the impact of the developments and expansion we discussed earlier; and every compliant gains or impairment charges, nor the potential issuances of equity. With that let me turn it back over to Bruce.
Bruce Duncan
Thanks Scott. Before we open it up to questions, let me just say that we are excited about leasing our First Inland Logistic Centre.
We are also excited about our new developments, both from a growth perspective and for their contributions to our mission to upgrade our portfolio. Leasing is at the heart of the value creation proposition for our new developments and our strategy to drive cash flow growth from our existing vacancies and enhance the value of our portfolio.
We have work to do here and our team is up to the challenge. Lease up of our portfolio is also our path to reinstating the dividend.
We will continue to evaluate our position with our Board as we execute our plan. And finally as I like to say to my FR colleagues, it's deeds, not words.
We have a great team and platform. We have been executing on our plan and we look forward to continuing to show you our progress.
We will now be happy to take your questions. As a courtesy to our other callers, we ask you to limit your questions to one plus a follow-up in order to give other participants a chance to get their questions answered.
You're welcome to get back in the queue. And so now operator may we please open it up for questions.
Operator
(Operator Instructions). And your first question comes from the line of Mike Miller from JPMorgan.
Your line is now open.
Mike Miller - JPMorgan
Scott, first a question on the same-store NOI guidance increase. How much did the increase of a 50 to a 100 basis points is attributable to kind of the one-time stuff that you mentioned that was in the same-store number for Q2 versus how much of it is a more of a recurring increase.
Scott Musil
Yeah Mike as I mentioned on my comments, about 3.8% of the 5.3% change was due to occupancy-less free rent and rental bumps and 1.5% of the 5.3% change was due to restoration fees, real estate tax appeals and one-time items. So if you were to look at our first quarter same-store NOI guidance, we anticipated about 2.4% of same-store NOI growth, second, third and fourth quarter.
If you look at our new same-store guidance this quarter and you do the averaging, we are expecting about 2.5% on average for the third and fourth quarter related to same-store growth, but that's at the midpoint.
Mike Miller - JPMorgan
Up marginally on more of a kind of core operating basis?
Scott Musil
Up 21% compared to last.
Mike Miller - JPMorgan
21% got it, okay. And then I guess also on core growth thinking about the leasing spreads, low single-digit negative this quarter and last quarter, can you tell us what you are thinking about and what you are seeing for the second half of the year and then what were your expectations heading into 2012?
Bruce Duncan
I would say our expectations for the year, we have a minus 5 to minus 10% spread and we have done better in both in the first and second quarter. So we are pleased with that, we are making progress there.
I think some of it also is related to we have been doing more renewals, so that has an impact too. But we are encouraged, the market seems to be firming up and let’s see how we do the balance of the year, but we have kept our guidance as minus five to 10.
Operator
Your next question comes from the line of John Stewart with Green Street Advisors. Your line is now open.
John Stewart - Green Street Advisors
Bruce, could you give us a bit of color on the terms of the lease you signed on the logistic center in the Inland of (inaudible).
Bruce Duncan
I would say that let's just compare it to in terms of our pro forma, we achieved our pro forma rate on that.
John Stewart - Green Street Advisors
Which was?
Bruce Duncan
Well Jojo, in terms of rents in general in that market, why don’t you just talk about in general in terms of what we were thinking?
Jojo Yap
Yes rents in general is in the low 30 per square foot per month, low 30s for the building only and just like as Bruce had mentioned we had leased an 8.34 acre truck yard. So that rent is in addition to the low 30s.
John Stewart - Green Street Advisors
And any free rent on the deal?
Jojo Yap
Yeah there is going to be free rent of about five months.
John Stewart - Green Street Advisors
One more and I will jump out of the queue. Just Bruce, for those of us who don't have the benefit of being a fly on the room, a fly on the wall in the boardroom, how would you characterize your discussions with the board when the dividend policy comes up.
Is it – we just need to make a little bit more progress on some of these large vacancies or let's continue to batten down the hatchet as things look uncertain and we will put up a dividend as long as we can.
Bruce Duncan
I think people are encouraged. I think that if you look at where we are though, we picked up 50 basis points in occupancy in the second quarter, but that just brought us even to what we lost in the first quarter.
So we are even to what we were at the end of 2011. So we need to make more progress.
As you know we have got a goal to hit 92% occupancy by the end of 2013. So we got to make some progress on where we are right now, but I think we are encouraged.
But we want to see more, the board would like to see more [leases].
Operator
(Operator Instructions). And your next question comes from the line of Daniel Donlan from Janney Capital Markets.
Your line is now open.
Daniel Donlan - Janney Capital Markets
Just real quick Bruce for Jojo, what's driving the difference in your development yields between different spots in California and then PA, so just your going in land cost?
Bruce Duncan
Sure, Jojo you want to handle that?
Jojo Yap
We are a total return investor, so well the price is our estimation of rent growth, so we expect higher rent growth in California, we would develop at a lower return. We expect rent growth in Central Pennsylvania as well, but not as much as in California.
In addition to that, when we look at our yields we want to look at exit values, so for lease part for example in the LA County market those properties have a lease in the five to 5.25 range; and thus in the Empire property it stays in a 5% to 6% range and then in the Central PA it should reflect a 7% range. We are long-term investors, but we look for total return at the end of the day, but we also want to jump post that to where the value is today.
I hope that answers the question.
Daniel Donlan - Janney Capital Markets
That more than answers the question. And then just what gives you confidence to build the spec ability and is this that do you expect as a percentage of online retailers potentially moving into California.
I know Amazon has talked about it, but what gives you the confidence that you can build these and lease them up by the time you deliver?
Bruce Duncan
Well, here, number one, we had success first in logistics, number two, if you look at these site, the Bandini site is a fantastic site right off of 710 and if you look at the competition you know first off it’s a very tight submarket in terms of the market that (inaudible) you know the occupancy is very high, the vacancy is very low and this is a new facility, state of the art and so we are very bullish on this piece of real estate, I mean it’s a great long term add to our portfolio and Chino too is an infill sort of left in the Empire Market and the markets tied there, so we like that. And in Central PA that market’s tied and there is not a lot of buildings over 500,000 square feet available and we've got a good track record there.
We developed as I said in my comments over 9 million square feet here very successful in 2000. So we are very excited about that opportunity as well.
But again, the proof is in the pudding; its our job to get these up built and leased as we did with First Inland Logistics.
Daniel Donlan - Janney Capital Markets
Right; and just a quick follow-up to that, do you have a couple of tenants on mind, you think you can pick off of the buildings or are you still just that confident in the market?
Bruce Duncan
We feel confident in the market.
Operator
Your next question is a follow-up from the line of John Stewart with Green Street Advisors. Your line is open.
John Stewart - Green Street Advisors
Scott, could you give us a bit of color on the decision not to capitalize G&A on these new projects?
Scott Musil
Sure John, and basically we looked at what the dollar amounts would have been and the dollar amounts for immaterial, so we decided not to capital G&A related to those projects. So it’s basically a decision on the cost for material.
John Stewart - Green Street Advisors
Okay, and Bruce, I was hoping you could give us a bit of color on the -- or help us understand how you are feeling about the disposition target based on what you've got in the queue for the second half?
Bruce Duncan
I feel we kept the guidance the same John at $75 million to $100 million. We like to hit what we say, so we know we have work to do.
But our guidance $75 million to $100 million, we will let you know when we close that.
John Stewart - Green Street Advisors
Okay, and then lastly I was just hoping you could share with us your thoughts on -- we've heard from several of your industrial peers this week kind of I guess mixed messages in terms of the momentum on the ground. I was wondering if you could share with us what you are seeing real time sort of last 30 to 60 days?
Scott Musil
I think when we come into the summer and there is a little bit of slow down in activity, again we’ve seen this last year too but if you look overall, there are people out there looking for space and we’re working hard on it. I would say tenants taking longer to make decisions and commit and we had a couple of situations where we thought we’re at the finished line and they’ve come back and say we are going to take another look.
We are going to delay it another two or three months and not finalize it. So I mean that was frustrating but that happens but the good news is when you look at it in these markets across the country, occupancy is going up.
There is less space available and you are seeing activity but you know, it’s less than it was three months ago. But this is the summer and it slows down a little bit.
So we’ll have to wait and see. But our mission is lease up the spaces and we made progress in the second quarter.
We want to make profits this coming quarter.
Operator
Your next question comes from the line of Ki Bin Kim from Macquarie. Your line is now open.
Ki Bin Kim - Macquarie
If we go back to the development side, what are your longer-term plans for financing those projects and given that interest rates are low, at least temporarily would you be willing to maybe let your (inaudible) right up a little further instead of share equity?
Bruce Duncan
Ki Bin Kim - Macquarie
Did you [tap] ATM in the third quarter?
Bruce Duncan
We have not tapped the ATM in the third quarter.
Ki Bin Kim - Macquarie
Okay. And just last question when you look across your land bank I know the new deals you bought land but how much of the land bank you have currently is close to the enviable for may be involvement?
Bruce Duncan
We have got a number of great sites. Joe, do you want to just talk about those ones in Pennsylvania and the other?
Jojo Yap
Sure, what Bruce mentioned is our site which we are positioned to build. So we are waiting for the right time, we want to make sure just like when we identify developments and Bruce announced here that, that we'll wait for the time in the market where demand is exceeding supply and that’s too large [DCs] in the market.
Bruce Duncan
Totaling about 600,000 square feet.
Jojo Yap
Totaling about 600,000 square feet and then again in a number of sites that we have the demand does not exceed supply and there is not an acute shortage so we will wait for the right time.
Chris Schneider
We -- when the time is right we will put it in the development but right now in terms of --- the out of town site we know there is something about that will be available for (inaudible) tenants were.
Operator
(Operator Instructions) And your next question is a follow-up from the line of Daniel Donlan with Janney Capital Markets. Your line is open.
Daniel Donlan - Janney Capital Markets
Just real quick going back to the development, I'm sorry if I missed it. Did you guys provide a first-year yield, GAAP yield on that project?
Bruce Duncan
On which one?
Daniel Donlan - Janney Capital Markets
Sorry, First Inland.
Scott Musil
First Inland, we did not provide it. If you look at our written down basis, I think it's about 8.1 and if you look at our non-written down basis, our total cost, it was about 6.6.
Daniel Donlan - Janney Capital Markets
And then you had mentioned some talk about short-term leases. I think you said 200 basis points.
What needs to happen to get those to be a long-term tenants and how much of that is just your typical short-term, you know tenant occupancy, your 3PL stuff like that?
Bruce Duncan
Well, a lot of it is a typical 3PL occupancy in terms of people doing that and sometimes though they get more comfortable at times where actually they want to sign a longer-term lease with you. So it's a lot of that, but you know again these are relationships you had where a lot of them goes up and down over time.
Daniel Donlan - Janney Capital Markets
Right well I guess the question of how many of these short-term leases that do you keep signing them or they have been in place for you know over well over a year?
Chris Schneider
You know the overall as far as the short-term, it's – our run rate, it's pretty typical you know as far as that, we are typically in the short term, but a 1 million, a 1.2 million square feet and then month to month another 900,000 square feet. So you know it's been historically right around there.
You know while those turn into longer-term deals.
Daniel Donlan - Janney Capital Markets
As you look out to the back half of the year and into 2013, what percentage of the leases that you have rolling do you think are subject to the high escalators that you guys have been able to achieve, call it 4%-5%-6% or even more than that, could you maybe give us a ballpark number there.
Scott Musil
Yeah. What I can give you is in 2012 all the leases that we have signed there for that population, the annualized rent [there] is about 3.6%.
So again compared to our long-term historical average of 2.5% to 3%, we are still higher than that historical average. So that's probably pretty difficult going forward.
Daniel Donlan - Janney Capital Markets
Okay, in terms of the expiring leases or excuse me leases that are renewing or just leases that are currently in the pipeline, how many of those are subject to the higher escalators?
Scott Musil
Historically, they have been about 65% leases of that and had the box built into them.
Operator
And there are no further questions at this time. I will turn the call back over to Bruce Duncan.
Bruce Duncan
Great, thank you operator and we thank you all for participating on the call today and please feel free to call us if you have any questions. Thanks again.
Operator
Ladies and gentlemen, this concludes today's conference call. You may now disconnect.