Duke Realty Corporation
Q2 2015 Earnings Call Transcript

Published: 30 Jul 2015

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to the Duke Realty Quarterly Earnings Conference Call [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Ron Hubbard of VP, Investor Relations. Please go ahead.

[Ron Hubbard:]

Thank you, Linda. Good afternoon, everyone and welcome to our second quarter earnings call. Joining me today are Denny Oklak, Chairman and CEO; Jim Connor, Chief Operating Officer; and Mark Denien, Chief Financial Officer. Before we make prepared remarks, let me remind you that statements we make today are subject to certain risks and uncertainties that could cause actual results to differ materially from expectations. For more information about those risk factors, we will refer you to our December 31, 2014, 10-K that we have in file with the SEC. Now for our prepared statement I will turn it over to Denny Oklak.

[Denny Oklak:]

Thank you, Ron. Good afternoon, everyone. Today I will highlight some of our key accomplishments for the quarter and then Jim Conner will give you an update on our leasing and development activity. I will review our asset recycling transactions and Mark will then address our second quarter financial performance and balance sheet. We signed 4 million square feet of leases and finished the quarter at 95.8% in service occupancy rate, the fourth consecutive quarter, we have been above 95%. Rent growth on renewal leases was very strong at 15% driven by our industrial assets which grew by 19%. Same property growth was near to mid 6% level. We started $257 million of new developments across 13 projects at solid yields and closed $1.4 million in dispositions in the second quarter both exceeding our expectations for mid-year. We also completed the previously announced $500 million bond tender offer that significantly bolstered our balance sheet. By all accounts, this represents a very strong quarter. Now I’ll turn it over to Jim to give a little more color on our leasing activity and development pipeline.

[Jim Connor:]

Thanks Denny and good afternoon everyone. From an operational standpoint, we had a solid quarter leasing at 4 million square feet as Denny noted, while this is down from quarterly historic norms, it’s a reflection of continued record high occupancies in our portfolio with little space left to lease. Total in-service occupancy ended at 95.8%, this is down just a bit from previous quarter as we expected due to development projects delivered during the quarter that were already 56% leased. Excluding these development projects that were placed in service, we actually increased the occupancy of our stabilized portfolio by 50 basis points. Rental rate growth rate on renewals continues to improve across the portfolio for the growth of 14.9% which reflects our continued pricing power. Now I’ll touch on some of the key activity within each of our product types. Nationally, the industrial markets strength continues with quarterly absorption of 40 million square feet. And we were pleased to learn that the year-to-date absorption pace is similar to the average of the previous two years, a good indication that the markets continue to absorb new supply. Nation-wide vacancies for logistics base dropped 20 basis points from the previous quarter to in the low 8% range. In our own industrial portfolio, we completed 3.6 million square feet of total leasing ending the second quarter at 96.3%. Occupancy dipped slightly from the previous quarter primarily due to a 937,000 square foot speculative facility that delivered during the quarter. Project in which we have good activity for all of the space. Rental rate continues to remain - rental rate growth remains extremely strong with growth in net effective rent on industrial lease renewals of 19% for the quarter. In medical office, the portfolio continues its positive trajectory with in-service occupancy at 94.9% that is 80 basis points above a year ago and at historic high for that portfolio. Same property NOI was up 5.7% on a trailing 12 month basis. The pipeline for prospects for new facilities in the medical office space is also seeing an uptick as healthcare systems continue to come into new expansions. In development, we had a tremendous quarter with $257 million of starts totalling 3.6 million square feet. Two of the larger projects commenced were speculative bulk industrial developments in the Lehigh Valley and in Atlanta totalling 1.1 million and 615,000 square feet respectively. These the sub markets in which both these projects are located are characterized by strong industrial demand fundamentals. In addition, we started eight other industrial projects across six markets comprising 1.7 million square feet which was 59% preleased in the aggregate. In medical office development, we had a strong quarter with $73 million in starts, we started two medical office facilities in Denver totalling 92,000 square feet both 100% preleased for 15 years to a venture between Emerus SCL Health. the third project was a 76,000 square foot on campus facility in McKinney, Texas that is 50% preleased to Baylor Scott & White Health, one of the leading healthcare systems in Texas, this represents our 17th development here we have executed with Baylor over the last six years a testament to our excellent relationship with Baylor. Our overall development pipeline at quarter end has 27 projects under construction totalling 6.5 million square feet and a projected 547 million in stabilized cost at our share and a 45% preleased in the aggregate. I will note that previous percentage has dipped a little below our recent average which is a bit impacted by the mix of projects coming in and out of the pool this quarter at a broader context, our development risk management goal is to be around 50% or greater of the overall pipeline to be preleased. These 27 projects have an initial cash stabilized yield of 7.1% and a GAAP yield of 7.8% which highlights the strong value creation being made for our shareholders. We also had a deep pipeline of development prospects including many industrial builder suit and substantially preleased MOB projects which will likely bring our leasing pipeline back above 50% in the third quarter even without considering new additional leasing in the pipeline. We also continued our strong progress in selling non-strategic land during the quarter, we sold another $35.7 million of non-strategic parcels at a booking of $16.2 million bringing our total land sales year-to-date to $71 million already exceeding our initial full year expectations. And now I will turn it back over to Denny to cover our asset recycling activities.

[Denny Oklak:]

With respect to investment activity, we closed 1.7 billion of building dispositions during the quarter at an overall average in-place cap rate of 7.0%, these proceeds were primarily the result of the previously announced Starwood suburban office in Midwest industrial portfolio transactions. We have a number of other assets in various stages of the disposition process significant portion of our remaining suburban office assets in Cincinnati are under contract and expected to close in the third quarter. We are also marketing some office assets in other markets and a few additional non-core industrial properties. The current investment sales market remains strong and we believe that continuing to improving the portfolio is a prudent way to fund our development pipeline. With this activity, our disposition expectations for the year have increased which I’ll be touching in just a moment. One acquisition during the quarter was the newly constructed 233,000 square foot modern bulk industrial facility located West Hills Business Park in the Lehigh Valley, region of pennsylvania, which further expands our presence in that growing market for Duke Realty. I’ll now turn the call over to Mark to discuss the financial results and capital plans.

[Mark Denien:]

Thank you, Denny. Good afternoon, everyone. As Denny mentioned, I’d like to provide an update on our financial performance and review our capital transactions. Core FFO was $0.20 per share for the second quarter of 2015, compared to $0.31 per share for the first quarter of 2015. The increase in core FFO was primarily due to recurring a smaller based properties for the quarter that resulted in a significant dispositions Denny just mentioned. Lower interest expense from our significant debt reductions in improved operating fundamentals in our remaining base of properties partially offset this impact. I would also like to point out that core FFO excludes approximately $7 million of overhead restructuring charges which are primarily comprised of severance charges from staffing changes resulting from the significant reduction in the size of the office portfolio. Our annual guidance for general administrative expenses does not include these restructuring charges. We generated $0.25 per share and AFFO for the second quarter of 2015, which equates to an AFFO pay ratio of 68% compared to $0.28 per share in the first quarter of 2015. As we have said, we are more focused on AFFO growth than FFO growth. And even with the significant depositions and significant deleveraging our AFFO growth was for the full six months as 8% and we expect solid AFFO growth for the reminder of the year. Same property NOI growth for the 12 and three months ended June 30, 2015, was 6.3% from 6.2%, respectively. The same property results were driven by both increased commencement occupancy and growth in rent rates. Occupancy growth will slow in the latter half of the year, and we still expect strong rent growth, which led to our increase since property and like growth guidance of 75 basis points at the mid-point. Utilizing our disposition proceeds, we repaid over $1 billion of debt in the second quarter. this includes $431 million of unsecured notes that had a weighted average interest rate of 6.8% and severance secured loans totaling $137 million, which had a weighted average interest rate of 5.3%. We also repaid $453 million on a rent secured line of credit finishing in the quarter would no outstanding borrowings on the line and almost a $120 million of cash. All of these capital transactions coupled with our strong operational performance resulted in continued improvements in our key financial metrics. Fixed charge coverage for the second quarter improved to 2.9 times. Net debt to EBITDA for the 3 months ended June 30, 2015, was 6.3 times. We expect to see continued improvement throughout the year in these metrics as new development replacement services and speculative development leased up. To summarize the transactions results for the quarter, I would say that we believe we are in a very strong liquidity position and are well positioned to further development pipeline and next opportunity which is in March 2016 without any external capital needs. With that, I’ll turn it back over to Denny.

[Denny Oklak:]

Thanks, Mark. In review the first half of the year with an outlook for the second half and given the strong execution on development sides starts by our team and our ability to take advantage of a continued strong investment sales environment, yesterday we raised our development starts guidance to $550 million to $700 million, that’s up $175 million from the original mid-point. We also raised disposition guidance to $1.8 billion to $2 billion, up $250 million from the previous mid-point. Land sale guidance was increased to $80 million to $120 million, that’s up $35 million from the previous mid-point. And due to continued strong overall operating fundamentals we raised our same property NOI growth guidance to a range of 4.0% to 5.5%, up 75 basis points from the previous mid-point. As noted in yesterday’s earnings release additional detail on revisions to certain guidance factors can we found in the Investor Relations section of our website. So in closing I would like to point out that the second quarter of 2015 was another transformational quarter for Duke Realty. The closing at the Starwood office sale as well as our strong level of development start significantly advanced our goal are being a primarily a bulk industrial company with an excellent value creation medical office development business. By year end 2015 those two product types will comprised well over 90% of our business with excellent growth prospectus. We also have an excellent value achieved that we intend to maintain into the future. Thanks is always to our great team and our loyal shareholders. We’ll now open up the lines for questions and we ask the participants keep the dialogue to one question or perhaps two very short questions. You are of course, welcome to get back in the queue. And with that we’ll take questions. Okay, Linda.

[Operator:]

[Operator Instructions] and we’ll go directly to the line of Juan Sanabria. Please go ahead.

[Juan Sanabria:]

Hi , good afternoon. I was just hoping you could speak a little bit about further dispositions you may have planned beyond 2015, what other assets may be considered non-core and if you could try to help us frame dollar value around that and if you have any sort of update on the possibility of having an pay a special dividend and kind of some other gains were deferred whether the transactions were structured.

[Denny Oklak:]

Well, first of all I think when you look at dispositions we’re not compared to give 2016 guidance yet because its still quite always way but you can see us I think continued to sell the remaining office product that we have and as we said we’re really downsizing that business not will be a tremendous left after the end of 2015 but there will still be some and some of those will be are in joint ventures which will just going to roll out over time and not necessarily in 2016 and also I think you’ll see us perhaps strategically take advantage if the markets stays where it is today to harvest some value from the existing industrial portfolio in a few cases. So and that’s a general trend again I think we have to way to we get closure to 2016 to give you real guidance. And the as far as special dividend goes I’ll turn that over to Mark to answer that once.

[Mark Denien:]

Yes, its as we early said for the last two to four months its going to be difficult to really pin a number down so we get really out in the September which is when the 1031 period expires on some of the proceeds but I would say as that’s not a material portion of it. I think you comment about deferred in the substantial portion of the gain on the Starwood transactions through the solid financing is the point that lot of people loose side of that does differ significant portion of the gain in the 16 it really helps our position. The other point that I think people don’t clearly understand, here is the tax strategies we have available to us to accelerate some depreciation and take advantage of something’s like that so long storage sort we don’t have a number yet but I would tell you that if there is a special dividend I don’t think it will be significant at all.

[Juan Sanabria:]

Thank you.

[Operator:]

Thank you. And our next question comes from the line of Manny Korchman. Please go ahead.

[Manny Korchman:]

Hi, guys good afternoon. Just looking at your development schedule in your supplemental and you often - the projected value creation with the blended 594 cap rate I was wondering if you could share with us assumptions by property type but what you think that cap rates from value creation perspectives.

[Denny Oklak:]

Well, I’ll start and then I let Jim as well Manny, I mean I guess I would tell that from, you look at from a margin perspective and I would tell you that probably the highest margin right now in that value creations on the office side but it’s obviously a very low number, it’s really one or two projects and suspect project we have down in Florida but when you look at both the medical office and the industrial, they’re really pretty consistent, they’re in the high teens to low 20% range.

[Jim Connor:]

Yes I would add to that, it’s not only driven by the product type but it’s driven by the specific market, so clearly exit cap rates in Southern California are going to be different then perhaps Indianapolis, the on-campus 100% leased medical office are going to be different than those that have a reset component to it, but we go through a building by building breakdown to come up with that and the point is we’ve shared with you guys consistently in all of our investor meetings is we have got a great track record of basically producing about 20% margins on all of our development year-over-year and we continue to see that trend.

[Manny Korchman:]

Okay. And then if you could switch to your land position based on the geographic perspective do you think you’re appropriately positioned or should we see buying more lands over the next quarters or months?

[Jim Connor:]

Well I think you’ll see our long-term trend is to continue to try and reduce our overall land holdings. We’ve got approval of land that we’ve determined to be non-strategic that we’re holding for sale that is not being actively marketed, that is a lot of what you saw sell this quarter and we hope to continue to report significant sales like that in the second and third quarter and then we’re also monetizing additional land through our new development. We have been buying land but the good news is we’re selling and developing a lot more land that we’re buying. So net-net we are reducing our overall land holdings that we hope to continue to be able to do that.

[Manny Korchman:]

Thanks guys.

[Operator:]

We’ll now go to the line of Vance Edelson. Your line is open.

[Vance Edelson:]

Great, thanks for taking the questions. So your own occupancy already very solid on the industrial side as you mentioned, would you say that competitor occupancies are starting to catch up especially among some of the more mom and pop or local type players in your markets and is that part of what is driving the strong rental rate growth on renewals, is that helping at all?

[Jim Connor:]

Yes Vance I think so, I think w could say a rising tide rises all ships as everybody’s occupancy continues to grow up, demand continues to outpace supply nationally we saw overall industrial vacancies declined another 20 basis points. So everybody is taking advantage of that opportunity, it’s just a function of how aggressively you want to push on a rental rate side, we just come off a great quarter where our teams have been - have really been able to push particularly on the renewal side, you saw with those numbers we posted.

[Vance Edelson:]

Okay, fair enough. And then just a quick follow-up, the retention rate was a little lower at 67% versus recent quarters, when you do lose tenants, can you give us a feel for the mix of reasons is this increasingly you nudging them out or they telling you, they are moving to cheaper space or they struggling in this economy, what are some of the more typical reasons?

[Jim Connor:]

Probably the number one reason for us which is again a function of the high occupancy is not having available space to be able to accommodate just the organic growth or consolidations of existing tenants. That is why you see in some of the markets where we have extremely high occupancy, we have to build spec space just to be able to handle organic growth within the portfolio. We do have some tenants that are - that are not comfortable with the rental rates that we’re able to push and those are seeking less expensive space alternatives but we are able to backfill that space at today’s market rents. So we’re comfortable taking that risk which is but we’re - our guys are out there doing every day.

[Denny Oklak:]

Vance I would point out to the 67% as a raw as a percentage is a bit lower than we were running up but the amount of space we had rolling was also very low, so I wouldn’t read too much into that number, the gross square feet - is not a big number.

[Vance Edelson:]

Okay and that is good color. Thanks guys.

[Operator:]

And we’ll now go to Brendan Maiorana, please go ahead.

[Brendan Maiorana:]

Thanks good afternoon. I don’t know if this is for Mark or Denny but so you guys have more assets that sounds like you would like to sell and then maybe you are going to be opportunistic and sell into strong pricing market. Your debt to EBITDA is in the low six now, which is what I think you guys have targeted a few years ago when you had thought improve the balance sheet. As you think about balance sheet going forward leverage outlook, do you think leverage maybe moved even lower over the next year or two and you kind of head into whenever the downturn in this cycle hits with the even lower leverage or do you think you kind of hold platform where you are now.

[Denny Oklak:]

Well, Brendan, I’ll start and Mark, join me and I would say a lot of it probably depends on the level of our development pipeline. Because we still think today that it’s a really good use of those disposition proceeds to put it back into the development pipeline so as long as that pipeline holds up, I think our sales are kind of going to be in line with that going forward for at least the near term future here. And then just as far as the overall balance sheet, I’ll let Mark comment.

[Mark Denien:]

Yes. I agree with Denny. I think I have to agree with Denny, but I do...

[Brendan Maiorana:]

He’ll have you fired.

[Mark Denien:]

So I said I think I have to agree, yes. I think you could, Brendan, see it getting a little bit better from all this right now over the next 12 months or so like Denny said and ultimately depands how quickly or how much that moves based on the development pipeline is probably the biggest factor right now. I don’t think you will see it going north of where it is but you could see it going, getting even better from where it is now and then we’ll be positioned when the next downturn comes whenever that is to take advantage of other opportunities.

[Brendan Maiorana:]

So if I hear you guys right, it sounds like you are disposition outlook is driven may be a bit more by the opportunities that are on the development pipeline not about maybe selling assets that you think or have value that’s maximized, if you don’t really have a great use of those proceeds.

[Denny Oklak:]

No. it’s not what I meant to say, if you understood that way, Brendan. I think we know kind of the assets we want to sell but whether we use that, those proceeds to pay down debt or fund development is the real questions. So again it really depends on how big our development pipeline is. So it could go either way.

[Brendan Maiorana:]

Okay. All right. Thanks for the clarification. I’ll get back in the queue. Thanks.

[Operator:]

Thank you. [Operator Instructions] And we’ll not go to the line of John Guinee. Please go ahead.

[John Guinee:]

Hi. I was just looking at your joint venture page and you sold one of the Texas Dugan JV I guess. Where are you on chambers street, I think they are about to be merged in with Gramercy and you’ve got up 80/20 JV with them.

[Denny Oklak:]

Yes, John. I mean, we paired that joint venture down pretty significantly too over the last couple of years. They bought a cloud of some of the assets. So now own them a 100% and the joint venture sold some assets so for the most part it’s just some industrial build - tenant industrial buildings left in there. I have to say that at this point in time we really havent hand any detailed discussions with whoever is going to be running the new combined company as to what’s there and again so almost everything in there with I think you are still maybe a couple office buildings left about most of it is, built to suite industrials so our sense today is joint ventures is going to keep going.

[John Guinee:]

Is there a buy/sell take certain.

[Denny Oklak:]

No. There isn’t. not an overall buy-sell there is some provisions that at one part, once we sell there is provisions that’s how it works but that is not really a buy/sell.

[John Guinee:]

Okay. Thank you very much.

[Operator:]

And we do have a follow-up from the line of Juan Sanabria. Please go ahead.

[Juan Sanabria:]

Hi, thanks again for taking the question. Just with regards to your current landback, how much development opportunities does that allowed you to do overtime. And at the current land prices, if you had to grow on the market and sort of replenish keeping in mind you are trying to sell some land. What type of returns would you be able to generate at the current market rates?

[Denny Oklak:]

The Mark is flipping pages to pull up the development capacity notes.

[Mark Denien:]

So, yeah from the development perspective we could develop about $37.5 million square feet. On the land that we have and I guess I’ll start with the value perspective and Jim - I don’t really have a yield number or anything like that because as Jim said earlier on another question that really various market-by-market but I will tell you from the value perspective we believe that’s our book based in that land is probably, under market value by 15%, 20% or so give or take.

[Denny Oklak:]

Well, I wanted to answer differently I would tell you that if you look at the gains this quarter based on the sales, we’ve have got a great basis in all our existing land. Your question about opportunities to buy land in the future for future development. I would tell you again, if you look at our development track record on the overall margins we’re not interested in buying a land going forward and reduce in those margins, so any land that we buy, the development models and the rents that are supporting those that we are putting together have to be consistent with those margins which is, we’ve been able to show you guys have been 18% to 20% over the last few years and we don’t anticipate buying a land it’s going to reduce that.

[Mark Denien:]

One thing I would add is that virtually all that land those that develop per square feet that Mark mentioned is industrial, 35 square feet

[Juan Sanabria:]

And just a quick question on the MOP leasing spread anything unusual that drove that pretty high number this quarter, anything or is that just a small sample size that we shouldn’t necessarily read too much into it.

[Denny Oklak:]

I think it’s, that such a stable portfolio it’s a fairly small sample size, so I would read much into it beyond that.

[Juan Sanabria:]

Thanks.

[Operator:]

Next we will go to the line of Ki Bin Kim. Please go ahead.

[Ki Bin Kim:]

Thanks, could you just comment on your projected lease spreads throughout this year or maybe I think more importantly next year, does advantage of leases become more favorable in next year versus this year just trying to get a grasp of, how things might trend going forward.

[Denny Oklak:]

Yeah ki, I will take that - that, the deals that we did in the second quarter about 55% of the deals that we signed in the second quarter or rollovers that we originally signed between 2009 and 2011, so little over half. As we look forward to the next 18 months which is, how we look at and I think we’ve said pretty consistently. The advantage of leases from 2009, 2011 for the next 18 months represent 38% of the leases rolling. So you can see that the, what I call the [indiscernible] leases are starting to get smaller as a sample size that what we are going to be doing. So, I think it’s fair to the thing from debt 19% industrial renewal rate that we had this quarter, it will be hard to sustain probably 19% but I would also point out that even the deals that we did that we are not signed 12 we still getting good record from all the deals. But 19% is probably going to be hard to be for the next 12 to 18 months.

[Ki Bin Kim:]

Okay that’s helpful. And second question can you comment on the IT portfolio that GLP’s and talks to take down I mean obviously that’s a big portfolio for your company to have observed but just curious if you had a chance to look at on any thoughts on regarding that will be helpful.

[Denny Oklak:]

Yes Ki Bin, we did take a look at that, they been working I would say IIT has been working on and trying to get something done but I would say at least 18 months maybe a little longer than that, so back early on in that process we were either ask or invited or how we want to put to look at it and we did look at it, but at the time and we, the pricing wasn’t that they were expecting really wasn’t in the ballpark what we, we well into pace, so we are familiar with portfolio I would say it’s a good portfolio and generally speaking so, good transaction I guess what I would say.

[Ki Bin Kim:]

Yes.

[Denny Oklak:]

I think it’s sort of again sort of sets the pricing what is going on in the industrial space today, there has been a lot of significant and smaller transactions out there and certainly shows I think that these cap rates are definitely holding in the industrial space today.

[Ki Bin Kim:]

And just hypothetically if you did end up buying a portfolio that similar size, would it be in theory just on fully on balance sheet or would you typically seek a capital partner for such a size to that kind of value?

[Denny Oklak:]

Well I think that’s pretty hypothetical Ki Bin. So I’m not sure how to answer that but I guess I would say it depends, it would depend on the portfolio, it would depend on the pricing, it would depend on the timing where our share prices were trading and what our net asset value was and a lot of different things as to what we try to do with the portfolio out there or like that?

[Ki Bin Kim:]

Okay. That’s it from me. Thank you.

[Operator:]

All right. And next we will go to line of Brendan Maiorana, please go ahead.

[Brendan Maiorana:]

Thanks, Jim. So on the developed - you mentioned development pipeline, you like to keep it around 50% preleased and you’re little bit below that now. Is that - does that 50% threshold or target or whatever vary by property type because it feels like your MOB stuff is largely build-to-suit and looks like you’ve done a little bit more on the spec side with industrial just over the past couple of quarters?

[Jim Connor:]

So that goal is a goal in aggregate and it is made up of those two components, the medical side is historically much higher, we haven’t seen, I don’t think we have seen any development opportunities in medical where the preleasing component was less than 50%. Most of those are really averaging probably 75% preleased by the hospital system, anything that we would contemplate off-campus but aligned would still have to be 100% lease, so that is the trend that we’re seeing going forward in our healthcare portfolio. So I think you’ll continue to see that at those same kind of levels and in the industrial we’ve gotten comfortable with where our portfolios are in some of these different markets, we continue to see demand outpace supply, so the timing was such that we had a couple of more spec project this quarter and a couple of large ones. So we saw that that was going to dip down, I think we alerted most of our analyst, investment committee to that in NAREIT that that was probably going to dip down this quarter but looking at the pipeline, I think we expect that to comeback in the third and fourth quarter to levels that we’re comfortable with.

[Mark Denien:]

The other thing I would point out on that preleasing. We quote those numbers on a square foot basis. So and because we have a high dollar per foot investment in the MOB, and if you looked at it on a dollar invested basis, it’s actually higher than the way we reported as far as our preleasing percentages. So that’s another thing we kind of keep in mind to.

[Brendan Maiorana:]

Okay. That’s a good point. Thanks Mark. And then Jim, maybe just a follow-up on that. From a market perspective, are there any markets where you feel like you would be uncomfortable doing spec either from a market or submarket perspective, just given where the supply and demand dynamics maybe.

[Jim Connor:]

Yes. There is a few of them out there. A lot of it is first and foremost it’s driven by the performance of our overall portfolio, where we are as an entire company, where we are in that particular city and where we are in that particular submarket. But we’ve been asked that question from time-to-time. We would be a little uncomfortable right now doing a big spec project in Dallas for example. We are watching Houston and the [indiscernible] fairly closely, yes, with most of those - in all three of those markets, they posted very good net positive absorption numbers for the second quarter. So the trend line continues to be good but there is a lot of specs based out there in those markets. So we’re watching them.

[Brendan Maiorana:]

Sure. Okay. Thanks, guys. End of Q&A

[Operator:]

[Operator Instructions]

[Denny Oklak:]

I would like to thank everyone for joining the call today. We look forward to reconvening during our third quarter call tentatively scheduled for October 29. Thank you everyone.

[Operator:]

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.