Oct 25, 2013
Executives
Art Harmon – Senior Director, IR Bruce Duncan – President and CEO Scott Musil – CFO Peter Schultz – EVP, East Jojo Yap – Chief Investment Officer Chris Schneider – SVP, Operations and Chief Information Officer
Analysts
Brandon Cheatham – SunTrust Robinson Humphrey Craig Mailman – KeyBanc Capital Markets Dave Rodgers – Robert W. Baird Eric Frankel – Green Street Advisor Michael Mueller – J.P.
Morgan John Petersen – MLV & Company Eric Frankel – Green Street Advisors Bill Crow – Raymond James & Associates
Operator
Ladies and gentlemen, thank you for standing by. And welcome to the First Industrial Third Quarter 2013 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’d like to turn the call over to Art Hartmon, Senior Director of Investor Relations.
You may begin.
Art Harmon
Thanks, Victoria. Hello everyone and welcome to our call.
Before we discuss our third quarter 2013 results, let me remind everyone that 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 risk discussed in First Industrial’s 10–K for the year ending December 31, 2012, filed with the SEC, and subsequent Exchange 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’s important to note that today’s call includes time sensitive information, that maybe accurate only as of today’s date, October 25, 2013.
Our call will begin with remarks by Bruce Duncan, our President and CEO, as well as Scott Musil, our CFO 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, Bob Walter, Senior Vice President of Capital Markets and Asset Management, and Peter Schultz, Executive Vice President for our East Region.
Now, let me turn the call over to Bruce.
Bruce Duncan
Thanks, Art. And thanks to all of you for joining us today.
In the third quarter, we made additional progress and positioning our company for long term cash flow growth in the capital investments and asset management aspects of our business. Our progress on occupancy however took a pause.
So, we still have some work to do towards reaching our 92% occupancy goal for year end. We finished the quarter at 91.2% which was even with the second quarter and up 270 basis points from a year ago.
Sales contributed 16 basis points to our quarter–over–quarter occupancy results. So, the rest of the portfolio was down slightly consistent with our pattern in the past two years.
In 2011 and 2012, we also made significant strides on occupancy in the fourth quarter and our team is focused on repeating that pattern as well and achieving our 92% goal. Leasing activity remains good across the industry and size ranges throughout our market.
And we are encouraged by continuing growth and activity from smaller tenant which has been reflected prominently in our occupancy in markets like Denver and Tampa. On the capital side, we enhanced our financial flexibility without new $625 million line of credit.
We also retained all of our 7.25% Series K preferred stock and paid down $47 million of higher cost debt in the third quarter and fourth quarter to–date. These actions lower our cost of capital and help us move closer to our goal of being an investment grade rated company.
Scott will walk you through the details. On the investment side in the third quarter, we started two developments comprising 600,000 square feet in Southern California.
We broke around on our First 36 Logistics Center at Moreno Valley in the Inland Empire that we told you about on our last call. The building will be a 555,000 square foot distribution center with 36–foot clear height a differentiating feature that addresses the need for certain high throughput distribution customers in this market.
Estimated total investment is $32 million with expected completion in the first half of 2014. We also commenced construction on our 43,500 square foot First Figueroa Logistics Center in the South Bay submarket of Los Angeles with a total investment of $9 million.
Updating you on a few other investments, we wrapped up construction of our 489,000 square foot First Bandini Logistics Center in the Vernon Commerce submarket of Los Angeles. Industrial demand continued to be strong in Los Angeles overall with the market vacancy of just 2.2% according to CBRE.
We were excited to be able to show First Bandini to those of you who will join us on our Investor Day Tour in a few weeks. In Central Pennsylvania, we are in schedule to complete in the fourth quarter the 708,000 square foot First Logistics Center at I–83.
We have seen solid absorption of competing space in the market and companies are attracted to this key distribution locations to serve the East Coast. Consistent with all of our development underwriting, we allow one year for lease–up [indiscernible] by fourth quarter 2014.
We will keep you up to–date on our progress. In the fourth quarter, we added to our portfolio of 627,000 square foot distribution center in the Southeast Wisconsin submarket of Chicago for $28.3 million.
The building is a 100% leased and the in price yield is 6.7%. Chicago, the nation’s second largest industrial market has enjoyed a strong recovery with a 11.6 million square feet of net absorption year–to–date through the third quarter.
This investment along with our acquisition last quarter at the intersection of I–55 and I–80 position us to benefit from the continuing recovery. And combined with our targeted dispositions in this market over the past several years significantly enhanced our Chicago portfolio.
Lastly, we continue to execute on addition by subtraction through targeted sales that are essential part of our asset management strategy to improve our portfolio. Through the end of the third quarter, we have sold $68.8 million for the year, well on our way to our 2013 goals of $75 million to $100 million.
Third quarter sales totaled $16.2 million comprise of six properties and two land parcels. The buildings were 62% occupied at the time of sale with an in place cap rate of 4.6% including the land.
Thus far, in the fourth quarter we have completed a $1.6 million land sale which was our last asset in Columbus. So, before I turn it over to Scott, let me say that we have a clear path to continue to drive cash flow.
The biggest opportunity is in lease–up of our existing portfolio. Our next step is to get to 92% occupancy at year end.
And from there we have our sights set on stabilizing in the mid-90s. Lease–up will also enhance cash flow and tenant improvements and leasing commissions returned to normalized levels.
We can also drive incremental cash flow by leasing up our completed Bandini development, are soon to be completed Central Pennsylvania development and the Chicago property we acquired vacant in the second quarter. We have already deployed more than a $100 million in these assets but we have to see the benefits in our income statements.
We also have opportunities to improve cash flow by bringing down capital cost through repayment of higher rate, secured and unsecured debt. At our Investor Day, in Southern California on November 12, we will expand upon these opportunities in further detail.
With that, let me turn it over to Scott to walk you through some additional details from the quarter. Scott?
Scott Musil
Thanks Bruce. First, let me walk you through our results for the quarter.
Funds from operations were $0.26 per share compared to $0.30 per share in 3Q, 2012. Third quarter 2013 results included a loss of $0.02 per share related to the retirement of our Series K preferred stock and loss on early retirement of debt.
The four one–time items namely the impact of the early retirement of debt, the Series K preferred redemption, a NAREIT–complaint gains. Funds from operations were $0.28 per share versus $0.27 per share in the year ago quarter.
EPS for the quarter was $0.05 versus $0.04 in the year ago quarter. Moving on to the portfolio.
Occupancy was 91.2%, no change from the second quarter and up 270 basis points from a year ago. Regarding leasing volume in the quarter, we commenced approximately 3.9 million square feet of leases.
Of these, 1.1 million square feet were new, 2.2 million were renewals and 0.6 million were short–term, tenant retention by square footage was 70.8%. Same–store NOI on a cash basis, excluding termination fees was positive 2.1% due to the year–over–year occupancy growth and the impact of contractual rate bumps offset by rental rate roll downs and an increase in real estate taxes including refunds.
Same–store NOI growth including termination fees was a positive 2.5%. Lease termination fees totaled $378,000 in the quarter.
Cash rental rates were down 4% overall. Renewals were a positive 1.2% while new leases were down 12.7%.
On a GAAP basis, overall rental rate change was up 1%. Leasing costs were $2.40 per square foot.
Moving on to our capital market activities and capital position. Bruce already hit the highlights, but let me walk you through the details.
Our new expanded line of credit has a capacity of $625 million, $175 million more than our prior line. The maturity date is September 29, 2017 and we have a one–year extension option.
Our current rate is LIBOR plus 145 basis points, an improvement of 25 basis points. The spread can further improve with upgrades to our credit ratings.
We redeemed all of our 7.25% Series K preferred stock for $50 million. We paid off $14 million of secured debt at an interest rate of 7.5%.
We repurchased $0.8 million of unsecured notes comprised of $0.4 million of our 7.6% 2028 notes and $0.4 million of our 5.95% 2017 notes at an average yield to maturity of 5.3%. In the quarter to–date we paid off $32 million of mortgages with a weighted average interest rate of approximately 6.5%.
Regarding our leverage metrics, at 3Q 2013 our net debt plus preferred stock to EBITDA is 6.7 times in line with our target range of 6.5 times to 7.5 times. A weighted average maturity of our unsecured notes and secured financings is 4.9 years with a weighted average interest rate of 6.2%.
These figures exclude our credit facility. Our credit line balance today is $255 million and our cash position is approximately $24 million.
Before moving on to guidance, I would like to briefly discuss the impairment charge during the quarter. The total charge was $1 million related to a property which we planned to sell that is currently under contact and where the fair value was less than book value.
Moving on to our 2013 guidance. Our FFO guidance range is now $0.94 to $1 per share an increase of a penny at the midpoint.
Guidance includes $.06 per share related to the losses from the debt we retired to–date and $0.05 per share related to the losses from the redemption of our Series K and K preferred stocks. Excluding these losses and the NAREIT–complaint gains related to our land sales, FFO was expected to be in the range of $1.05 to $1.11 per share.
The key assumptions are as follows. Average in–service occupancy ended quarter of 90.5% to 91.5%, a narrowing of the range reducing the midpoint by 0.25%.
Average quarterly same–store NOI on a cash basis a positive 1.5% to 3%. G&A of $21.5 million to $22.5 million.
Full year JV FFO is expected to be approximately a $0.5 million. And as noted last time, guidance includes the incremental cost to complete the two developments that we launched in 2012 and the and the incremental costs related to the new First 36 Logistics Center at Moreno Valley and the First Figueroa Logistics Center we started in 3Q Note that in total for the year, we will capitalize roughly $0.03 per share of interest related to our developments.
Guidance also reflects the impact of the 100% leased Chicago acquisition in the fourth quarter. Guidance does not reflect any potential lease–up of our completed First Bandini Logistics Center were in process First Logistics Center at I–83 for the unleased Chicago Distribution Center we acquired in the second quarter.
Recall that each other pro formas assume one year for lease–up. Please note that our guidance also does not reflect the impact of any future debt issuances, the impact of any future debt repurchases or repayments, any additional property sales, acquisitions or further developments and any future NAREIT–compliant gains and impairment charges, nor the potential issuance 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 say the growing cash flow is our top priority.
And we have a number of levers to pull to do so. Our existing portfolio offers the main opportunity as we push towards our 92% occupancy goal by year end and drive onward towards the mid-90s.
By executing our development investments, we enhanced our portfolios cash flow profile and quality and create value using our platforms. We also will work to acquire properties like our two REITs in Chicago acquisitions.
That contribute towards these objectives in a disciplined fashion. Our sales efforts target assets that have limited or low cash flow growth opportunity.
And our balance sheet is strong and flexible, yet still offers additional opportunities to further reduce cost. We are very excited about the opportunities we have to grow cash flow and enhance value.
At our Investor Day on Tuesday, November 12, in Southern California, our objective is to expand upon and help crystallize these opportunities for you. From there our job is to deliver.
As it is these knock word as all of our team knows and embraces. We hope that you attend whether in person via live webcast or the replay which will be available on our website.
On the tour which follows our formal presentation, we will see some of our new and existing assets that represents some of our cash flow opportunities. If you’d like to attend or have any questions about our Investor Day program, please contact Art Hartmon.
With that, operator, we’d like to open it up for questions. As a courtesy to other callers, we ask that you limit your questions to one plus a follow–up in order to give other participants a chance to get their questions answered.
You are of course welcome to get back in to the queue. And so now Victoria, may we please open it up for questions.
Operator
Certainly. (Operator Instructions).
Your first question comes from the line of Brandon Cheatham with SunTrust Robinson Humphrey.
Brandon Cheatham – SunTrust Robinson Humphrey
Good morning. Thanks for taking my question.
So many articles you’ve thrown during the quarter, was there any timing related issues with why it was flat quarter–over–quarter? And then if you could break that out in your markets, are you experiencing weak demand in some segments versus others?
Bruce Duncan
Let me just say, in terms of the quarter occupancy, again we were flat to last year. And if you looked at what happened as I said in the prepared remarks, we’ve historically lost the occupancy here that has been the third quarter hasn’t been that good for us.
The good news is, if you look to the fourth quarter over the last three years, we picked up I think two years we picked up a 130 basis points and one quarter we picked up a 140 basis points. So, we typically we’ve had strong fourth quarters, we’ve seen good activity but it’s our job to bring these deals home but we’re seeing as I said in the remarks good interest from tenant both large and small.
Peter, maybe you can talk about what you’re seeing in some of your markets.
Peter Schultz
Sure. This is Peter.
We’ve continue to see as Bruce had said broad based activity across the portfolio from a variety of users. In the larger spaces, we continue to see e–commerce, consumer products, traditional retailers, automotive 3PLs.
From a smaller tenant standpoint, we’re seeing housing a variety of manufacturers, tech and medical. And on the smaller tenant side, if you look at our portfolio in Denver as an example, occupancy is been accelerating, this year we’re up over almost 800 basis points from the beginning of the year capturing a lot of that demand.
Brandon Cheatham – SunTrust Robinson Humphrey
Okay. Looking so far in the fourth quarter, have you seeing any increase in demand?
Bruce Duncan
We don’t update the fourth quarter but what we’re saying is I guess the big thing is our occupancy goal at 92% continues to be our occupancy goal for year end, we haven’t changed that. It is good activity and it’s our job to bring home the [indiscernible].
Brandon Cheatham – SunTrust Robinson Humphrey
Thank you. I’ll jump back in the queue.
Bruce Duncan
Thank you.
Operator
Your next question comes from the line of Craig Mailman with KeyBanc Capital Markets.
Craig Mailman – KeyBanc Capital Markets
Hey, guys. I was just hoping that driven on the change the occupancy guidance a little bit here.
Maybe just flush out little bit what change because I’m just curious of buying that fully risked asset in Chicago I thought that, that would have been a benefit here going to the end of the year. The other thing too I noticed Exel kind of dropped off the top 10 list, maybe just update it there.
Art Harmon
Musil, you have to take the first part?
Scott Musil
Sure. Craig, on the occupancy guidance from the midpoint point of view, we dropped about 0.25% compared to the guidance we issued last quarter.
And again we’re seeing great activity in our spaces, there were just a little bit of delay and decision making in the third quarter. As a result, we reduced our guidance by about 0.25%.
On the Exel, I’ll turn it over to Jojo who has an update there.
Jojo Yap
Yes. In terms of Exel, they were our clients our 3PL clients in the building we owned in South Bay is a 213,000 square foot in South Bay is very well located vacancy there in the low 2s.
They had an unexpected loss of a client and so they moved on the building. We have activity on that building today as they might could stay but our job is to get that leased.
Craig Mailman – KeyBanc Capital Markets
So, it really just sounds like the guidance is a timing issue and maybe that’s on expected loss of Exel? Is that kind of a fair way to characterize it?
And we shouldn’t be too worried about core demand for product or sort of the trajectory of the portfolio relative to where you were last quarter?
Scott Musil
Now just what we said I mean again we are [indiscernible] second quarter, we picked up a 160 basis points, in the third quarter we were flat typically we’ll go down in the third quarter. And we’re expecting that, there is good activity in the marketplace and our job is to get the leases signed and bring them home but we are – our goal is to hit 92% occupancy by the end of the fourth quarter and we’re focused on it.
Craig Mailman – KeyBanc Capital Markets
Great. Thank you.
Scott Musil
Thank you.
Operator
Your next question comes from Dave Rodgers with Robert W. Baird.
Dave Rodgers – Robert W. Baird
Hi, good morning guys. I guys on the idea of kind of tenancy and occupancy, where are you – besides what Jojo just mentioned, where you losing tenants?
And kind of what are the reasons you think that you’re kind of struggling to kind of gain additional pace here, obviously year–to–date activity has been good but are you feeling like you’re losing more tenants on the small side due to interest rates or current economic activity. Can you give some color there?
Scott Musil
Dave, I think we feel pretty good about where we are I mean again I would say that we picked up 270 basis points over the last 12 months. The second quarter we’re up 160 basis points, we’re flat this quarter but we anticipate that things are going to pick up in the fourth quarter.
And again we’re seeing good demand and interest in the space. And so, it’s all up to us to get it done but we don’t feel – the owners doing okay and there is good demand for our products.
So, it’s up to us to get the job done.
Dave Rodgers – Robert W. Baird
And I guess the follow–up to that, just in terms of the ability to push rents, I know there is a big diversified portfolio out there that you’re managing and operating but can you talk about the ability to get those leasing spreads pushing high or do you feel like you’re gaining any more pricing power in the market broadly. And give some color on that be helpful.
Bruce Duncan
I would say that it’s a market by market and submarket by submarket in terms of pricing power. But overall the world’s getting better, rents are firming up.
You’re seeing – we’re feeling pretty good, we feel good, Texas is doing well, you’re feeling about the West Coast, you’re feeling good about places like Indianapolis and doing just fine. So, we are – again things – we need to pick up on the occupancy but we’re feeling pretty good about the supply demand fundamentals.
As long as the world keeps expanding and the economy keeps growing, up here it’s not a bloom economy but business is good in the industrial sector and we’re seeing decent demand.
Dave Rodgers – Robert W. Baird
Great. Thanks.
Operator
Your next question comes from Eric Frankel with Green Street Advisor.
Eric Frankel – Green Street Advisor
Thank you. Can you just mention what the yields you’re expecting on the two development projects in Southern California?
Unidentified Company Representative
Sure the one Bandini is about 6.5% and the First Figueroa is about 3.7%. The incremental on First Figueroa is about is about 6.7%.
Eric Frankel – Green Street Advisor
And then on the First 36 Logistics Center that’s going to be in the 6.8%, 6.9%.
Unidentified Company Representative
Yeah we look – go ahead.
Eric Frankel – Green Street Advisor
No, no go ahead.
Unidentified Company Representative
No, no go ahead.
Eric Frankel – Green Street Advisor
No I was going to have a follow–up question because you have other comments to say.
Unidentified Company Representative
No, no we’re alright. If you’re on the tour we’re going to show you these we look forward you being on the tour.
But go ahead with your next question.
Eric Frankel – Green Street Advisor
I’m in well. My next question just relates to the addition [indiscernible] attraction maybe you just talk about financing availability for some more lower quality properties you’re trying to dispose of and what your activities been there?
Unidentified Company Representative
I can tell you that activity for I’ve seen B product is more robust. The buyers are cap rates have compressed for our B product and there are more buyers out there and the financing is more really available for them.
In addition users also are getting the ability to get more financing more banks are trying to increase their SBA loans and we’re seeing – a good place. Does that answer your question?
Eric Frankel – Green Street Advisor
Yes thank you. I’ll get back in the queue.
Operator
(Operator Instructions) Your next question comes from Rob Stevenson with Macquarie.
Unidentified Analyst
Hi this is [indiscernible] for Rob. Can you talk about cap rates and competition for assets in your core markets?
Bruce Duncan
Sure, I mean Jojo will comment but again there is a lot of money in the space and cap rates for existing lease product is pretty aggressive, why don’t you give some specific detail in terms of the, couple of markets?
Jojo Yap
Sure, sure and then that’s the drive what Bruce said is competition. If you look at class A lease assets on the West Coast you are looking at mid-fours cap rate when you go to the East you’re looking at in the fives, fives to mid-fives and when you go to the Mid-West you are looking at mid-fives to sixes these are for class A distribution assets.
And in addition to that the class B assets that has come down but the class A has continued to come down as well.
Unidentified Analyst
Okay great. And given what you’re seeing demand wise in your various markets how impressive do you expect to be with development starts over the next few quarters?
Bruce Duncan
Well we’re going to talk a lot about that at the investor day in terms of what’s on the potential pipeline. But again what we have going right now we only have, we are finishing up Bandini and our York, Pennsylvania site that’s about $90 million between First 36 and First Figueroa we had to about $128 million.
So, we still have a lot of room to go here we’ve got a site in Houston that I think you could anticipate that we’ll start next year and then we’ll talk about we got some other potential sites in Dallas and Pennsylvania that we’ll talk about in Southern California we’ll talk about it in investor day.
Unidentified Analyst
Okay, thank you.
Operator
Your next question is from Michael Mueller with J.P. Morgan.
Michael Mueller – J.P. Morgan
Yeah I was wondering like on the three – I guess two plus development you were talking about Bandini 83 in the Chicago vacant asset. I mean can you kind of characterize how the activity levels have been throughout the marketing process I mean is it as much interest as your thought better not as much I mean just, what’s going on there?
Bruce Duncan
Sure let me just talk about, number one I hate talking about our jobs is getting easy but in Chicago there is very good activity on our 509,000 facility again that market is firming up very nicely and we’re encouraged and so I would say we feel even better to–date than we did when we made the acquisition. I would say on Bandini we love that asset there is good activity but again we got to bring something home but it’s a great piece of real estate and very excited about its prospects.
And then the project in Central Pennsylvania in York are 708,000 foot again – you will follow up some of our competitors probably doing a nice job they leased up their 1.2 million and 700,000 whatever the market is firm there is not a lot of space here and we got a great mobility – that’s very well located. So we’re pretty excited and we have some tax benefits in terms of some alert out there that are vantage Peter you want to say a little bit about Pennsylvania.
Peter Schultz
Sure Mike the demand has continued to be very active from a variety of users particularly those looking for larger spaces 500,000 square feet and up in quality distribution buildings. Year–to–date there has been about 3.5 million square feet of positive absorption as well as a couple of recent announcements on some big leases and build the suites as you’re probably aware.
But the good news is there is no new supply since we started our building last summer. The competitive availability continues to go down.
And as Bruce said we really like how our assets positioned both from a location and labor stand point as well as the tax benefits we have that our competitors don’t have and we’re very positive about the demand supply balance there and we have seen some activity and we’ll keep you up to date on our progress there.
Michael Mueller – J.P. Morgan
And I forget do we get a follow–up or no?
Bruce Duncan
Sure we’ll love it.
Michael Mueller – J.P. Morgan
There you go it is Friday right. I think you mentioned occupancy typically dips in the third quarter, why is that what typically happens there?
Peter Schultz
This is Peter one of the things we’ve seen is just slower decision making during the summer month with a lot of vacations and as we said in our earlier remarks we had a great second quarter and the summer was just a little bit slower in terms of decision making. But we’re bullish on getting to our 92% by the end of the year and that’s where we’re focused on.
Michael Mueller – J.P. Morgan
Okay, got it. Thanks.
Operator
Your next question comes from the line of John Petersen with MLV & Company.
John Petersen – MLV & Company
Great thank you. I don’t think I heard you guys talk about your same store expenses they were up 9.8% in the quarter 7.3% year–to–date.
Can you kind of just give us some insight into why the expenses are up so much year–over–year?
Scott Musil
No, John this is Scott Musil in the third quarter 2013 compared to 3Q 2012 taxes, real estate taxes were higher due to two factors one is a real estate tax refunds in 3Q of 2012 or higher than they were in 3Q of 2013. The second piece of it is we had some reassessments of more properties in 3Q 2012 which lowered our taxes compared to what we had in 3Q of 2013.
So, that’s the big beta is real estate taxes. So, if we didn’t have that increase our same store from the quarter would have gone from 2.1% to 3.2%.
John Petersen – MLV & Company
Okay and I guess if we were to look back 4Q 2012 were there any those kind of rejections in 4Q 2012 that’s going to reflect in next quarter?
Chris Schneider
This is Chris just a couple of things through the year we talked about the restoration fees and the real estate tax refunds for fourth quarter we don’t have any of those bigger numbers as we’ve had in second quarter for the rest of the piece or this quarter for the real estate taxes.
John Petersen – MLV & Company
Okay so fourth quarter should be a more normalized number?
Chris Schneider
It should be.
John Petersen – MLV & Company
They put time duration, okay. All right.
Thank you.
Operator
Your next question comes from Brandon Cheatham with SunTrust Robinson Humphrey.
Brandon Cheatham – SunTrust Robinson Humphrey
Yeah just a follow-up to that change in expenses. The 3.2 does that have any restoration fees in it, once you back out the taxes same-store NOI.
Scott Musil
It does but they’re 3Q of 2013 compared to 3Q of 2012 there wasn’t a large change in – with a lot of restoration fees in either of those quarters. I think where you saw the big change in restoration fees was last quarter comparing 2Q 2013 to 2Q of 2012.
Brandon Cheatham – SunTrust Robinson Humphrey
Right okay so 3.2 is a more normalized number.
Scott Musil
If you take out the tax piece, yes.
Brandon Cheatham – SunTrust Robinson Humphrey
Okay, thank you.
Operator
You have a follow up question from the line of Craig Mailman with Keybanc Capital Markets.
Craig Mailman – Keybanc Capital Markets
Hey guys on the same store Scott how was the bad debt had been churning are you seeing a reversal now or is that still coming in below your expectations?
Scott Musil
Craig, it’s still very low compared to historical levels the third quarter our bad debt expense was about $200,000 so very consistent with the prior quarters. And Craig, keep in mind as we’ve said in prior quarters for the fourth quarter from a guidance and a modeling point of view we assume a more normalized level of bad debt expense of about $750,000 for that quarter.
But again, third quarter results were very low comparable to the past quarters.
Unidentified Analyst
Then I know you said that the delay in some decision-making kind of changed your outlook and occupancy, but just in general, are you guys seeing tenant decision-making speeding up at all as occupancies across most markets are increasing and rents are going higher or people still kind of taken their time?
Unidentified Company Representative
I would say that – you know they taken their time I don’t think they’re speeding up dramatically I would say the couple of things that in terms of concern whenever you have things like the government shutdown that comes around you know a month ago or whatever people will worry about that and some larger tenants may be hoard off doing something to wait and see how that comes so I mean you worry about confidence in terms of uncertainties. So I think that to me getting that done and just moving it down two months or three months is not good I mean like the other permanent solution that kind of – you know put that to better not worry about.
But I will say the decision-making is you know is not fed up in terms of as revolved.
Peter Schultz
Well then the other, this is Peter, the other thing I would add to that is to smaller deals generally have shorter transactions cycle so the decisions tend to happen. But there the larger deals generally are more deliberate and take a little bit longer.
Unidentified Analyst
Okay, great. Thank you.
Operator
(Operator Instructions) You have a follow-up question from the line of Eric Frankel with Green Street Advisors.
Eric Frankel – Green Street Advisors
Thanks. For the sale during this quarter, could you state Scott, what the – how that – how they sold as a percentage of book value in OREO and cap book value?
Scott Musil
Eric, I don’t have that information in front of me, but I can get back to you later with that.
Eric Frankel – Green Street Advisors
Okay, great.
Scott Musil
But the cap rate was…
Eric Frankel – Green Street Advisors
And then…
Scott Musil
Very well.
Eric Frankel – Green Street Advisors
May be just from a value creation standpoint, do you find you get better value you know waiting to reset and building up and then selling it or is – or can you get pretty good value for selling vacancy today why don’t you use or through investor?
Scott Musil
I think if it’s a single tenant vacant building I think the user execution is better than a multi – than an investor just because the pricing is better. If you have a multi-tenant building that’s a little bit tougher to sell to a user so I would say that leasing that up is better to get value creation.
Eric Frankel – Green Street Advisors
Okay, but our investors in general they – are they willing to pay more for vacancy whether it’s a user or investor?
Unidentified Company Representative
As we sit today you’re getting more of value in selling a higher occupied building than more vacancy. And so if you have more vacancy is better to sell to a user.
Eric Frankel – Green Street Advisors
Okay, thanks and my final question just regarding your unsecured debt during 2014, what’s the date of that maturity?
Scott Musil
June, 1.
Unidentified Company Representative
And $92 million.
Eric Frankel – Green Street Advisors
Okay, any particular – any plans on how you’re going to roll over that debt?
Scott Musil
Yeah I would say at this point of time we’re going to use our line of credit to refinance that we’ve got plenty of capacity again when we recast our line in July our capacity increased a $175 million to $625 million so we do have plenty of capacity. As we get more of traction with the rating agencies and get back to investment grade rating and again our goal is to do that by the end of the 2014 we might at that point in time do something in the bond market to permanently refinance that maturity.
Eric Frankel – Green Street Advisors
Okay, so I’ll get back in the queue I have – I do have one more question.
Unidentified Company Representative
Oh, go ahead, it’s Friday.
Eric Frankel – Green Street Advisors
Thanks. I’m just curious what you’re taken on the development environment just seems just as a little bit more [indiscernible] being built everywhere PA notwithstanding I just want to get your thoughts on your development plans going forward?
Unidentified Company Representative
Sure, no I think we still think supply and demand is in check throughout the country I would say in terms of markets you know Central PA is a good example if you’re very good about that I would say Houston there is some – there is some new construction but relative to demand and the total supply in that marketplace we don’t think it’s an issue and we’re excited about our – our 350 development in northwest Houston that we hope to start next year or in the first half year. I would say the one market Eric that – that ideal more I’m worried about more than like two or three years ago the Inland Empire that is when we did first in the logistics 2.5 years ago or so and we started that you know first mover advantage and there was no one half there today you know we’re starting first we’ve leased that up it was great I would say today that there is more construction out there more development and there is some land.
So there is a there is a, is probably more risk in doing that development today than that was two or three years ago and again how we handled that is we raised the equity to sort of fund that development and as we look at it we’re putting in some you know sometimes that some of the additional features like the 36 clear heights and you know a lot of more parking and trailer parking and – and…
Unidentified Company Representative
Employee parking.
Unidentified Company Representative
Then and I think we have a very good product. So, again but they own it that I have to get it leased but that’s the one market to me where I think there is you know there could be you know more construction than I would like.
Eric Frankel – Green Street Advisors
Great, thanks. I’ll look forward to next month sure.
Unidentified Company Representative
Right, thank you.
Unidentified Company Representative
We look forward to see you there.
Operator
And your next question is from Bill Crow with Raymond James & Associates.
Bill Crow – Raymond James & Associates
Hi, good morning guys. Not to beat the subject to death but on the delayed decision-making two points, one of your Sun Belt peers already reported that they had fairly robust and in fact surprising these strong leasing them at a quarter and I’m just trying to figure out if that’s Sun Belt versus northern markets you indicated that large deals versus small deals so that may be part of it, any anything that we should take away and then the second point on that is they also mentioned about the government shutdown isn’t helping to speed decision-making, so should we take away from that that fourth quarter to-date there has been no acceleration in that decision-making process?
Unidentified Company Representative
Yeah Bill that I would say is that again, in our view you know we typically in the third quarter have not – really brought home a lot of that occupancy, typically our occupancy is in the fourth quarter driven and we’re seeing good activity so we would anticipate you know we anticipate that continuing now. We do thing – things like the shutdown was then positive in terms of you know people making decisions again to Peter’s point earlier it’s more than a larger tenant and then smaller tenants.
But I would say this we’re pretty encouraged by what we see in the marketplace in almost all markets in terms of activity. So we’re we feel pretty good about where we are and feel pretty good about supply and demand and you know we’ll see at the end of the quarter but I mean our goal did 92% we’ll disappointed if we don’t.
Bill Crow – Raymond James & Associates
Got it, thank you.
Unidentified Company Representative
Thank you.
Operator
And there are currently no further questions. I will now turn the conference back over to Mr.
Duncan for any closing remarks.
Bruce Duncan
Thank you, thank you Victoria and again we thank you for being on the call. Scott, Art and I around if you want to ask questions or – mailing questions to ask them.
And then we look forward to seeing you out in Southern California we think it will be a worthwhile trip and we got lot to cover and lot more to showcasing some of our new developments for you. So yeah thank you very much.
Bye.
Operator
Thank you for your participation in today’s call. This concludes today’s conference.
You may now disconnect.