First Industrial Realty Trust Inc

NYSE:FR

Earnings Call Transcript 2017-Q4

[Operator]

Ladies and gentlemen, thank you for standby, and welcome to the First Industrial 2017 Results Conference Call. At this time, all participants have been placed in a listen-only mode and the floor will be opened for your questions following the presentation. [Operator Instructions]

It is now my pleasure to turn the floor over to Art Harmon., Vice President, Investor Relations. Please go ahead, sir.

[Art Hartmon, Vice President-Investor Relations]

Thanks, Lori. Hello, everybody, and welcome to our call.

Before we discuss our fourth quarter and full-year 2017 results and 2018 guidance, let me remind everyone that our call may include forward-looking statements as defined by Federal Securities Laws. These statements are based on management’s expectations, plans and estimates of our prospects. Today’s statements may be time sensitive and accurate only as of today’s date, Thursday, February 22, 2018. We assume no obligation to update our statements or the other information we provide. Actual results may differ materially from our forward-looking statements, and factors which could cause this are described in our 10-K and other SEC filings. You can find a reconciliation of non-GAAP financial measures discussed in today’s call in our supplemental report and our earnings release.

The supplement report, earnings release and our SEC filings are available at firstindustrial.com, under the Investors tab. Our call will begin with remarks by Peter Baccile, our President and Chief Executive Officer; and Scott Musil, our Chief Financial Officer, after which we will open it up for your questions. Also, on our call today are Jojo Yap, our Chief Investment Officer; Peter Schultz, Executive Vice President; Chris Schneider, Senior Vice President of Operations and Bob Walter, Senior Vice President of Capital Markets and Asset Management.

Let me turn the call over to Peter.

[Peter Baccile, President and Chief Executive Officer]

Thanks, Art, and thank you all for joining us today. 2017 was another excellent year for First Industrial, with strong demand for industrial real estate across multiple business segments, we finished the year at 97.3% occupancy.

As you’ve heard in previous calls, industrial real estate environment remains healthy. On a national basis, new supply slightly exceeded net absorption in 2017, but with high overall occupancy levels, both market rents and rents within our portfolio continue to grow steadily. Our cash rental rates were up a 11.7% in the fourth quarter and 8.6% for the full-year.

In 2018, we expect this trend to continue as evidenced by our signed 2018 expirations to date. As of today, we have signed approximately 65% of 2018 expiring leases, and the average cash rental rate change is 5.9%, We are pleased to say these signings include the long-term lease renewal at our 1.3 million square foot facility in Eastern Pennsylvania. Thanks to all of my teammates for your efforts in delivering such strong results.

On the strength of this performance and our outlook, which Scott will discuss shortly, our Board of Directors has declared a dividend of $0.2175 per share for the first quarter of 2018, or $0.87 annualized, which represents a 3.6% increase.

Importantly, this represents a payout ratio of approximately 64% of our anticipated AFFO for 2018, as defined in our supplemental. We intend to deploy the additional retained cash flow into new developments and acquisitions.

Given strong industry fundamentals, we continue to view development as our primary means of new investment. We are building assets with strong cash flow growth profiles, while earning good risk-adjusted returns to create value for shareholders. We’ve done so with one eye on growth and the other on managing risk, both through our bottoms-up underwriting process and our self-imposed speculative leasing cap.

Based upon the strong fundamentals, our balance sheet strength and the significant growth opportunities we see ahead, we have increased our speculative leasing cap by $150 million to $475 million. When we first initiated this cap several years ago, it represented 9% of our total market cap. The new cap level represents a similar percentage.

In addition, we’ve improved our balance sheet metrics significantly over this period. Since we last increased the cap in the first quarter of 2015, our fixed charge coverage ratio has improved to 3.53 times from 2.59 times, and we have reduced our debt to EBITDA ratio from 6.1 times to 4.9 times. Since our last call, we have started two new developments.

Before I get into the details, let me remind everyone that when we talk about cash yields on development, we’re talking about the first year stabilized cash NOI over the GAAP investment basis.

First Nandina Logistics Center is a 1.4 million square foot distribution center in the Inland Empire East in the Moreno Valley submarket with a total estimated investment of $89 million. We are targeting completion of this speculative development in the fourth quarter of 2018 and a stabilized cash yield of 7.5%.

Recall that this is a site we assembled a few years ago near several of our prior successful developments. We are excited about this investment and feel good about the current supply demand dynamics in this size segment in the Inland Empire.

We also started First 290 @ Guhn Road in North West Houston, which is a 126,000 square foot facility on a site we acquired during the third quarter. Our portfolio in Houston and the market overall continues to show good depth in demand. Targeted completion is third quarter 2018. Our estimated and cash yield – our estimated investment and cash yield are $9.1 million and 7%, respectively.

With regard to development leasing in the first quarter to date, we successfully leased our 243,000 square foot First Sycamore 215 Logistics Center in the Inland Empire East. We leased this asset ahead of schedule and at a rate better than pro forma. Our cash yield is 6.7%, which translates into a very healthy profit margin of around 50%, considering that prevailing market cap rates for similar assets are in the mid-4% area.

Excluding the now stabilized First Sycamore 215, as of today, our completed and in process speculative developments totaled $322 million, comprising 4.8 million square feet with a targeted weighted average cash yield of 7.3%. More than half of this development investment is in Southern California and also includes projects in Central Pennsylvania, Chicago, Phoenix, as well as the Houston property mentioned earlier. We believe the weighted average cap rates in today’s market for these projects when stabilized would be in the mid-4s, which implies a margin of approximately 60%.

Just a quick update on The Ranch, our six-building project in the Inland Empire West. Construction is now slated to be completed for all six buildings in the second quarter, leasing interest has been good, but no signed leases to report at this time.

The market for acquisitions continues to be competitive. We were successful in acquiring two buildings this quarter. We discussed our 86,000 square foot $8.2 million acquisition in Orlando on our last call. We also acquired a 100,000 square foot facility via a sale-leaseback in the Kenosha submarket of Chicago for $7 million. Our weighted average combined cap rate for these two acquisitions was 5.9%.

For the year, building acquisitions totaled 1.1 million square feet and $112 million at a weighted average expected cap rate of 5.8%. We also acquired $62 million of land located in Southern California, Phoenix, Central PA, Chicago and Houston, the majority of which is already in production.

In the first quarter to date, we acquired a 35,000 square foot facility in Seattle for $5.6 million at an in-place cap rate of 5.7%, and we also added a development site in Dallas for $10 million that can accommodate four buildings totaling 727,000 square feet.

Moving on to dispositions. In the fourth quarter, we sold 30 buildings, totaling 2.8 million square feet, plus one land parcel for $136.9 million. These dispositions were across a number of markets and included portfolios in Minneapolis, Atlanta and Indianapolis. The weighted average in-place cap rate was 7.9% and the stabilized cap rate was 6.8%.

For the year, we sold 60 buildings, totaling 4.6 million square feet and one land parcel for $236.1 million. This significantly exceeded the $175 million midpoint of our 2017 sales goal by over $60 million. The driver of our sales program continues to be ongoing portfolio management. This won’t change as we continue to allocate capital into markets and properties that we believe offer superior opportunities for rental rate and cash flow growth.

These additional sales have caused about $0.03 per share of dilution on our 2018 FFO guidance. But we view this dilution as temporary as we redeploy the sales proceeds into high-quality developments and select acquisitions. For 2018, we are targeting sales in the range of $100 million to $150 million.

As we discussed at Investor Day last November, the shift in our capital allocation has been on average towards larger assets and away from management and CapEx-intensive multi-tenant properties, resulting in a lower tenant count. As a result of these efforts, it became necessary and prudent to align our personnel with the changes in our portfolio.

As such, in the first quarter, we have restructured our staffing, resulting in a reduction in headcount of 10 people. These actions are never easy, but we believe these changes were the right thing to do to better align our resources with our growth efforts. Scott will walk through the financial impact of our restructuring in a moment.

Let me conclude by emphasizing how proud we are of the results achieved by our team in 2017 by all measures an excellent year. Further, we remain enthusiastic about the prospects for our industry and our company.

With that, let me turn it over to Scott.

[Scott Musil, Chief Financial Officer]

Thanks, Peter. Let me start with the overall results for the quarter. Diluted EPS was $0.81 versus $0.20 one year ago. NAREIT funds from operations were $0.41 per fully diluted share, compared to $0.38 per share in 4Q 2016. Excluding a gain related to an insurance settlement, fourth quarter 2017 FFO was $0.40 per share.

Full-year 2017 FFO per share was $1.57 versus $1.45 in 2016. Excluding one-time items, such as the gain from a land sale, income tax expense associated with a property sale, the loss from retirement of debt, the settlement gain related to interest rate protection agreements, and a gain related to an insurance settlement, our 2017 FFO was $1.56 per share.

We finished the year at 97.3% occupancy, up 10 basis points from the prior quarter and 130 basis points from a year ago. Regarding leasing volume, approximately 1.9 million square feet of long-term leases commenced during the quarter. Of these 980,000 square feet were new, 763,000 were renewals, and 136,000 square feet were for developments or acquisitions with lease up.

Tenant retention by square footage was 53.7%, reflecting a 366,000 square foot move-out in the Inland Empire that we backfilled within the quarter at a healthy cash rental rate increase of 28%. For the year, we commenced a total of 11 million square feet of leases and tenant retention of 76.4%.

For the quarter, same-store NOI growth on a cash basis, excluding termination fees was 3.9%. Lease termination fees totaled $138,000 and including termination fees, cash same-store NOI growth was 3.8%.

For the year, same-sort NOI growth on a cash basis, excluding termination fees was 4.4% and including termination fees was 4.6%. In the fourth quarter, cash rental rates were up a 11.7% overall, with renewals up 9.4% and new leasing up 14.5%. On a straight-line basis, overall rental rates were up 20.8%, with renewals increasing 18.6% and new leasing up 23.6%. For the full-year 2017, overall cash rental rates were up 8.6% and on a straight-line basis, they were up 18.2%.

Moving now to the capital side. We just closed on our private placement of $300 million of senior unsecured notes. This is comprised of $150 million with a 10-year maturity at a rate of 3.86% and $150 million with a 12-year maturity at a rate of 3.96%. We also settled a treasury lock in the fourth quarter for a gain of $1.9 million, which effectively reduced the weighted average interest rate on the loans from 3.96% to 3.83%.

We have used the proceeds to pay down our line of credit to zero, which leaves us with approximately $100 million of additional cash. We will use the excess cash along with borrowings on our line of credit to pay off $150 million of mortgage loans on or around March 1. Upon retiring these loans, our secured debt as a percentage of gross assets will fall below 10% to approximately 8%.

Moving on to a few balance sheet metrics. At the end of 4Q, our net debt plus preferred stock to adjusted EBITDA is 4.9 times, which gives us plenty of dry powder for new investments. Adjusted EBITDA excludes income related to an insurance settlement. At December 31, the weighted average maturity of our unsecured notes, term loans and secured financings was 4.7 years with a weighted average interest rate of 4.55%. These figures exclude our credit facility.

Now moving on to our initial 2018 guidance per our press release last evening. Our initial NAREIT FFO guidance is $1.54 to $1.64 per share, with a midpoint of $1.59. Excluding the $0.01 per share restructuring charge, FFO per share guidance is $1.55 to $1.65 with a midpoint of $1.60 per share.

As Peter noted, our 2018 guidance included $0.03 per share of a temporary dilutive impact related to 2017 property sales that exceeded our targeted sales range. The key assumptions for guidance are as follows. Average quarter-end occupancy of 96.5% to 97.5%.

Based on our rollover in the first quarter, we anticipate first quarter occupancy will have a typical seasonal dip, which could be approximately 50 basis points; same-store NOI growth on a cash basis of 3.5% to 5%; our G&A guidance range is $26 million to $27 million. This guidance range excludes the approximately $1 million restructuring charge. Guidance includes the anticipated 2018 costs related to our completed and under-construction developments at December 31.

In total, for the full-year 2018, we expect to capitalize about $0.04 per share of interest related to our developments. Our guidance does not reflect the impact of any future sales, acquisitions or development starts after this call, the impact of any future debt issuances, debt repurchases or repayments other than the $300 million private place we just closed and the expected payoff of the $158 million of secured debt in March that I just discussed.

Guidance does not reflect the impact of any future gains related to the final settlement of two insurance claims for damaged facilities and guidance also excludes any future NAREIT-compliant gains or losses, the impact of impairments and the potential issuance of equity.

With that, let me turn it back over to Peter.

[Peter Baccile, President and Chief Executive Officer]

Thanks, Scott. 2017 was an excellent year, and I know the entire FR team is focused on capitalizing on the favorable environment to drive success in 2018. We will do so by taking care of our portfolio and our customers and investing to create value and generate future cash flow growth for shareholders.

With that, operator, please open it up for questions.

[Operator]

[Operator Instructions] Your first question comes from the line of Rob Stevenson of Janney.

[Robert Stevenson, Janney Montgomery Scott]

Good morning, guys. If you are ranking your markets top to bottom based on expected 2018 operating fundamentals, what are the three that would be at the top of the list? And where would be the three at the bottom of the list do you think as you sit here today?

[Peter Baccile, President and Chief Executive Officer]

Yes. Well, there’s a lot of things you can measure in operating fundamentals, but let me just use rent growth as the barometer. I would rank top markets, LA, South Bay LA would be there. I would say, some other markets like Northern Jersey would be there. And I would say coastal markets are in general and there’s a lot of submarkets there are pretty strong.

And I would say that South Florida market, those three markets in terms of rent growth. And in terms of softness, I mean, I would just say that there are some markets where supply still has to be worked on by demand. And so I would put out there that the bulk market in Indy might be, you probably won’t get much rent growth there, Northeast Atlanta, you probably might not – you probably not get rent growth there until some of the supply gets consumed. And I would say I-45 corridor, South Dallas, you probably won’t get much rental there as well.

[Robert Stevenson, Janney Montgomery Scott]

Okay, that’s helpful. And then when you guys are looking at the 2018 to 2018 lease expirations. Anything big that’s a known non-renewal at this time?

[Christopher Schneider]

Yes, this is Chris. If you look at our remaining lease expirations in 2018, it’s a pretty minimal number. There’s no anticipated move-outs that are greater than 200,000 square feet, so nothing material out there. And 2019, obviously, we’ll give you more information later on that.

[Robert Stevenson, Janney Montgomery Scott]

Okay. And then last from me. Peter, you said in your comments, $150 million of dispositions targeted for this year. What’s driving that in your mind? Is that basically going to fluctuate based off of what you need to fund on the development pipeline as well as acquisition opportunities that come to you? Is that fluctuating based off of what you guys get decent offers on and where the perceived value to somebody else is significantly higher than what it is to you? How are you thinking about that?

[Peter Baccile, President and Chief Executive Officer]

So there are a lot of factors involved in coming up with that range. But the bottom line is that it’s really just a focus on overall portfolio management and continuing to monetize assets where we think the cash flow growth opportunity is lower and redeploy that capital into higher growth markets, some of the high-growth market that Jojo just went through. And for 2018, we think that range is $100 million to $150 million. Of course, if we find outstanding opportunities above and beyond to dispose of some of our other assets, we’ll certainly consider numbers that go beyond that range.

[Robert Stevenson, Janney Montgomery Scott]

Okay. Thanks, guys.

[Operator]

Your next question comes from the line of Craig Mailman of Keybanc.

[Craig Mailman, Keybanc Capital Markets]

Hey, guys. Congrats getting the Amazon renewal done. Just curious, you said 5.9% mark-to-market on the 2018 expirations you kind of signed so far. Where would the Eastern PA renewal mark-to-market come in?

[Peter Schultz, Executive Vice President, East]

So, Craig, it’s Peter Schultz. Yes, we were pleased to get that long-term lease signed with them. As you probably know, we’re under very tight confidentiality provisions with that tenant that really prohibit us from disclosing any of the terms. It is in the 5.9% cash rental rate change that Peter talked about. And if you think back to where we were kind of Investor Day, you can probably think about what the impact of that is.

[Craig Mailman, Keybanc Capital Markets]

Right. I guess, maybe another way to ask it is, if you take out that deal, where is the mark-to-market on the other leases that you signed?

[Peter Schultz, Executive Vice President, East]

Yes. Again, we can’t give you the specific color on the Amazon deal. But I would just point you back to what we talked about at Investor Day, which was a little bit higher than that number.

[Craig Mailman, Keybanc Capital Markets]

Okay. And then, Scott, just curios, you guys have traditionally layered in some bad debt expense into your same-store number for guidance, kind of what do you think is baked in, in the current 4.25%?

[Scott Musil, Chief Financial Officer]

Well, Craig, we have budgeted in our guidance for 2018 $2 million of bad debt expense. That’s about $0.5 million less than 2017’s guidance and again, that’s based on our long-term metrics of the company. 2017, our bad debt expense was only $200,000. So when you look at our same-store midpoint guidance range of 4.25%, that’s – that increase in forecasted bad debt expense is about 60 basis points of impact taking that percentage down. So to the extent that we’re able to have lower bad debt expense than that. All other things being equal, we should be ahead of the 4.25% midpoint same-store guidance.

[Craig Mailman, Keybanc Capital Markets]

Great. Thanks, guys.

[Operator]

Your next question comes with the line of Ki Bin Kim of SunTrust.

[Ki Bin Kim, SunTrust Robinson Humphrey]

Good morning, guys.

[Peter Baccile, President and Chief Executive Officer]

Hey, Ki Bin.

[Ki Bin Kim, SunTrust Robinson Humphrey]

Hey. Can you go back to that 5.9% cash renewal rates or less. I think you said 60% or plus leases that were set to expire in 2018 that would have been completed. I don’t want to make a big deal about it, but it’s a little bit lower than what you posted for 2017. Any color on that?

[Christopher Schneider]

Yes, Ki Bin. Overall, we are still looking at overall cash rents in 2018 to be in the range of 5% to 8%. So it’s not much lower than that. So but we still see the retention market in as far as renewing tenants and be able to push rents is overall pretty strong market.

[Scott Musil, Chief Financial Officer]

Yes. And I think Ki Bin, when we did the call last year around this time it was a similar statistic. I think it was about 60% around the same rate. We have a guidance range of what we can think we can do on cash rents of 5% to 8%. We hope to beat our budgets, but that’s kind of where we are seeing things right now.

[Ki Bin Kim, SunTrust Robinson Humphrey]

Okay. And bigger picture in regards to the development pipeline. It seems like good development sites and good submarkets are maybe hard to come by? Could you talk a little bit about that and where your kind of new rounds of development should be?

[Peter Schultz, Executive Vice President, East]

Sure. I’ll start out and then I’ll hand it over to Jojo for some more. Look, yes, there is no question that it’s getting tougher and tougher to buy great development sites certainly in the high-rent growth markets. Land values are going up significantly in those markets as well. Luckily, they’re going up, because rents are going up commensurate, so the yield margin opportunity still remains.

But you can expect to see us invest in the markets that we have been in the last couple of years. That would certainly include all the West Coast markets, and let’s not forget, we have added resources in San Francisco and Seattle, and you noticed that we just acquired a building in Seattle. So you will see us invest more capital there. And then on the East Coast as well, New Jersey, Pennsylvania, Washington area and South Florida. Jojo, do want to?

[Johannson Yap, Chief Investment Officer]

Yes, Just to add to what Peter said. Remember that we do have great land parcels in our portfolio. Right now, we’re pleased that we could have – we’ve started First Nandina and First 290 @ Guhn Road in Houston. But we do have existing land right now that we can build on, but nothing new to announce other than those two developments yet.

And at the same time, it’s really coming down to the local platform. That’s where we basically leverage our platform with our relationships to find those off-market situations and development or non-widely marketed or in a lot of cases, you’ve seen us assemble land too. Takes a bit of time. But when you do it right, it’s very, very accretive once you develop and lease those buildings.

[Ki Bin Kim, SunTrust Robinson Humphrey]

And does – the Nandina site was assembled through multiple sellers, right?

[Johannson Yap, Chief Investment Officer]

Exactly, and that’s where we really ended up at way below market price in terms of land fully entitled, yes. And that’s what is contributing to the 7.5% projected cash yield.

[Ki Bin Kim, SunTrust Robinson Humphrey]

Okay. Thank you.

[Operator]

[Operator Instructions] Your next question comes from the line of Dave Rodgers of Baird.

[David Rodgers, Robert W. Baird & Co.]

Hey, good morning, guys.

[Peter Baccile, President and Chief Executive Officer]

Good morning.

[David Rodgers, Robert W. Baird & Co.]

Peter, I want to start, if I could. Just on the development pipeline obviously, what you have under construction now still sits at 0% leased, and I realize it’s still under construction and you have some time to lease that. But listening to your comments, you talk about very high margins on the spec developments that you are doing. But you guys have clearly put yourself on a little bit of an island in terms of going out full spec on the whole pipeline at this point and raising the development cap.

So I guess notwithstanding the size of the development cap which does keep the risk mitigated. I guess, how do you get comfortable continuing to put maybe more money into some of that realizing 2016 developments were fully leased? But how do you get comfortable putting more money today to work without having leased any of that up?

[Peter Baccile, President and Chief Executive Officer]

So look, we’re constantly evaluating opportunities not only for speculative developments, but also build-to-suits. They are a bit lumpy, and we certainly hope to be able to report some build-to-suits in the future. As far as the spec development pipeline is concerned, we feel like the opportunities that are out there for us in the markets where we want to be are pretty significant. And we – and as you pointed out, and thank you for that, we’ve had a good track record for leasing up those projects not only quickly, but well within the 12-month projected lease-up time that we put in our underwriting.

So we feel good about it. We feel good about the overall volume relative to our capital strength and it’s working. We think it will continue to work. Jojo, do you want to add anything to that?

[Johannson Yap, Chief Investment Officer]

Yes. And then just – and Dave, one thing we will commit to is that we would always develop to our spreads. And that’s been – that’s what we’ve been doing for the longest amount of time and we will continue to do that. And so in addition to the markets that Peter mentioned, It has to meet our investment criteria. So despite the fact, we increased our capital $150 million. It has to meet our investment criteria as well.

[Peter Baccile, President and Chief Executive Officer]

So that cap is a cap not a target. So obviously, we’ve got more room to operate now, but we’re going to continue to be diligent in the way that we underwrite these opportunities.

[Scott Musil, Chief Financial Officer]

And, Dave, I would say one last thing. If you look at our supplemental for developments completed, we did lease First Sycamore 215 subsequent to year-end. We have 50% left on First Park 94. But if you look at the developments under construction, the earliest completion is Q2 2018 and it goes to Q4 2018. There generally isn’t a lot of leasing in the buildings until the buildings are complete. So that’s one of the reasons that we’re 0% leased in our development pipeline.

[David Rodgers, Robert W. Baird & Co.]

Great. Thanks for that color. And then maybe one follow-up. You said a couple of times temporary dilution from the asset sales and certainly understand that. You gave guidance I think to more expectations of additional asset sales this year. You didn’t really talk about acquisitions or at least I didn’t hear if you did. Can you talk more about acquisitions, the color there? Is the dilution temporary, because you will buy more, or are you really saying it’s temporary as we are going to put that money back to work in development, so temporary might mean a couple of years?

[Peter Baccile, President and Chief Executive Officer]

It’s really kind of all of the above. We don’t have specific targets that we disclose, because we’re not going to go after opportunities just to meet numbers. When we find opportunities to invest our capital and new developments in select acquisitions in a profitable way, we’re going to do it. And we do think we’re going to have an opportunity to reinvest those proceeds in a timely basis and be able to generate cash flow quickly. So I don’t know if that answers your questions specifically, but that’s kind of how we look at the whole process.

[David Rodgers, Robert W. Baird & Co.]

Yes, I think, that’s helpful. Thanks, guys.

[Peter Baccile, President and Chief Executive Officer]

Thank you.

[Operator]

Your next question comes from the line of Eric Frankel of Green Street Advisors.

[Eric Frankel, Green Street Advisors]

Thank you. Just touching upon 2018 operating guidance, I just want to confirm the amount of leases that are rolling over, including the ones that you signed early in your guidance. Is it roughly 15% of net rents, or is it something a little bit lower?

[Christopher Schneider]

Eric, overall, the leases that are commencing in 2018, again, we took care of 65% of those leases that are commencing in 2018.

[Scott Musil, Chief Financial Officer]

Yes. Eric, I think that our supplemental discloses what’s left in leasing has leases already signed. But I think if you were to look back three or four quarters, that number probably was at 15% or 16% roll that you’re referring to. But let Art and I call you after the call and we’ll get you the exact number, but it should be right around there.

[Eric Frankel, Green Street Advisors]

Okay, that’s helpful. Thank you. Just a question on the reorganization. Is that, obviously, these transitions are difficult, perhaps necessary given your business strategy. But are those people in the filed, or is that people at headquarters that are just processing more transactions? What exactly is involved in a reorganization?

[Peter Baccile, President and Chief Executive Officer]

It was all of the above. It was a mix of people in the field and more senior executives. It was, as we said, largely driven by the way the portfolio has evolved over time. We found ourselves with some extra capacity. And look, we’re going to look to potentially reinvest those – that money into growth opportunities not only directly into assets. But as we have the opportunity to add more people over time, we want to remain flexible and make sure that we are prudently managing our overhead.

[Eric Frankel, Green Street Advisors]

Okay, thanks. That’s all I got.

[Operator]

[Operator Instructions] At this time there are no further questions. I will now return the call to Peter Baccile for any additional or closing marks.

[Peter Baccile, President and Chief Executive Officer]

Thank you, operator, and thank you all for participating on our call today. We look forward to seeing many of you in Florida in a couple of weeks. In the meantime, if you have any questions, please feel free to reach out to Scott or me. Take care. Thanks for joining.

[Operator]

Thank you. That does conclude today’s First Industrial 2017 results conference call. You may now disconnect.