PS Business Parks, Inc.
Q2 2013 Earnings Call Transcript

Published: 30 Jul 2013

[Operator:]

Good morning ladies and gentlemen. My name is Martina and I’ll be your conference operator today. At this time I would like to welcome everyone to the PS Business Parks’ second quarter investor 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) I would now like to turn the call over to Ed Stokx. Mr. Stokx you may begin.

[Ed Stokx:]

Thank you. Good morning and thank you for joining us for the second quarter 2013 PS Business Parks’ investor conference call. I’m Ed Stokx, CFO of the company, and with me are Joe Russell, President and Chief Executive Officer; John Petersen, Chief Operating Officer; and Maria Hawthorne, Executive Vice President, Chief Administrative Officer. Before we begin, let me remind everyone that all statements other than statements of historical facts included in this conference call are forward-looking statements. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond PS Business Parks’ control, which could cause actual results to differ materially from those set forth in or implied by such forward-looking statements. All forward-looking statements speak only as of the date of this conference call. PS Business Parks undertakes no obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. For additional information about risks and uncertainties that could adversely affect PS Business Parks’ forward-looking statements, please refer to the reports filed by the company with the Securities and Exchange Commission including our annual report on Form 10-K and subsequent reports on Form 10-Q and Form 8-K. We will also provide certain non-GAAP financial measures. Reconciliation to GAAP of these non-GAAP financial measures is included in our press release, which can be found on our website at psbusinessparks.com. Now, I will turn the call over to Joe.

[Joe Russell:]

Thanks, Ed. Good morning and thank you for joining us. I will start the call with some commentary on second quarter results to discuss the recently closed acquisition and then turn it over to JP and Maria to discuss operations. Ed will conclude with his review of company financial performance. In the second quarter PSB Same Park NOI was positive at 0.7%. Sequentially, occupancy debts in the Same Park assets by 10 basis points, while the non-Same Park pool improved by 180 basis points, with total portfolio weighted occupancy up 40 basis points to 89.7%. Leasing volume was a healthy 2.6 million square feet, a quarterly record for the company. Of note cash rental rates crossed in the positive territory at 0.3% the first positive quarterly increase since the second quarter of 2008. Rent change on spaces below 5,000 square feet was flat while we saw better traction this quarter and larger units above 5,000 square feet as rent increased 0.6% for the average large base lease is about 10,000 square feet. We are pleased with the continued trend and improving rent change which JP will go into more detail in a moment. On the acquisition front we closed a 389,000 square foot multi-tenant flex and office park located in Dallas comprised of 18 buildings not far from other PSB owned properties. We bought the park from a lender that had recaptured the asset. Well this process evolved a little attention was paid to the asset from a leasing and property management standpoint and occupancy dropped to 67%. Pricing was favorable at $40 per square foot well below replacement costs giving us plenty of room to make a material impact with our proven PSB repositioning and operational strategies. Our like assets in that sub market are 87% occupied today and we will deploy a consistent and straight forward process here as you have seen us do on other well located but underperforming acquired assets to bring occupancy in line with PSB Same Park assets. Additional capital will be required to achieve stabilized occupancy which could be as much as $7 per square foot or so. And we expect to ultimately achieve a high single-digit return or better on this investments. Dallas remains a vibrant business climate for existing and newly located businesses. So we are confident in our abilities here. Beyond this recent transaction there is more for sale inventory out in the market some of which has commanded unusually low cap rates with aggressive investment dollar chasing deals. As always it is tough to predict the timing and volume of our own acquisition activity but there are a number of assets we continue to underwrite across most of our markets. Finally I would like also make a personal announcement related to Maria Hawthorne’s role and level of responsibility at PSB. As many of you know Maria has let her efforts at PSB on the East Coast for more than two decades. Over time taking on additional responsibilities as we have grown in both Washington D.C and Florida. Most recently her involvement in companywide efforts has also expanded and with that level of responsibility we have enhanced Maria’s role entitled to now be Executive Vice President, Chief Administrative Officer. Maria will continue to work closely with me, JP and Ed on both East Coast and full company initiatives. And I want to congratulate her on her next level of responsibility that we’ll see. Now, I’ll hand the call over to JP.

[John Petersen:]

Thank you, Joe. I will start with an overview of current market conditions and follow with specific results of PSB’s portfolio. Maria will then give an update on progress in our D.C. portfolio. From a macro perspective, the leasing environment continues to demonstrate solid fundamentals across most of our markets. Tool velocity is active and lease concessions are trending more favorable to landlords. Additionally activity for our typical small user is vibrant and small business America is gaining more confidence. Net absorption was positive in the second quarter in 10 of our 13 markets, only Portland, Northern Virginia and Maryland had negative net absorption in the quarter. Blended market occupancy, where we own assets, was 88.4%. I will now take you through PSB results for the quarter. Joe mentioned we completed 2.6 million square feet and 616 lease transactions, with a blended term of 3.1 years in the second quarter. Southern California continue to generate momentum, executing 514,000 square feet, from 166 deals on an average deal size at 3100 square feet likewise Northern California had good volume primarily with small users as we signed 470,000 square feet. Florida remained strong paying nearly 400,000 square feet including 125,000 square foot renewal. Now to occupancy. Same Park occupancy dipped 10 basis points from the first quarter to 91.9%. Occupancy increases occurred in Northern California was up 200 basis points improved to 92.3%. Orange County gained 170 basis points to 87.9% as we were able to complete 190,000 square feet of transactions. Fees through occupancy by 120 basis points to 91.1%. Miami was up 70 basis points to 97% and Portland increased occupancy by 30 basis points to 90.8%. Seattle took 100 basis points to still solid 93.9%. As Joe discussed earlier cash rental rates increased 0.3% over expiring rents in the second quarter, continuing the trend of improving rents in our parks. The trend was broad based as rents were positive in nine of our 13 markets. Positive rent changes were seen in Austin 13%, San Diego 6.9%, Portland 3.5%, Phoenix 2.1%, Dallas 1% and Northern California 0.3%. Orange County still lagged as rents dropped to 7.7%. Seattle rents slipped to 1.8% and in Washington Metro rents declined slightly were at 1.6%. As I had mentioned before rental rate changes can fluctuate quarter-to-quarter and I’m confident our teams will continue to have the ability to push rents higher as we come off leases signed in 2009 and 2010. Retention in the second quarter was 70% bringing year to-date retention to 63%. Retention was solid in our all major markets with Portland and Seattle leading way at 81% and Washington Metro at 74%. Florida retention was 72% and Northern California 67%. This strong retention was led by a few of the larger renewals I mentioned earlier plus our typical small users confident in their businesses growing within our parks. Within our non-Same Park portfolio we continue to see solid improvement in occupancy. Sequentially occupancy improved from 80.9% in Q1 to 82.7% in Q2. And as of the end of the quarter occupancy was at 83.4%. Well occupancy continues to improve sequentially we saw a temporary decrease in non-Same Park revenue tied to the partial releasing of a 113,000 square foot first quarter exploration within the Northern California acquisition. Within Northern California leasing volume remains healthy and our team has generated an occupancy backlog of 300 basis points that will take effect later in Q3. Current occupancy within the Northern California portfolio is 87.6% up from 86.2% in the first quarter. Now I will give you an overview on our acquisition in Seattle 212 Business Park. Since our acquisition in August 2012, we have finished a repositioning plan of demising larger industrial vacancies into smaller units between 14,000 and 25,000 square feet where the market is more active and we have the ability to achieve higher rents. To-date the market is responding favorably to the strategy and we have signed 429,000 square feet and taken occupancy from 52% in acquisition to 59% today with a backlog that will take occupancy to the mid-60s later this quarter. For the remainder of the year we have approximately 3.5 million square feet expiring with an average customer size were approximately 3300 square feet precisely where we are seeing most of our activity. Of that flex represents 63%, industrial 22% and office remaining 15%. With majority of our parks close to or above 90% and fundamentals continuing to improve PSB’s portfolio is well-positioned to benefit from these expirations, based on this and the activities so far this year I believe 2013 expirations as an opportunity to push rents and continue to move occupancy higher through the balance of the year. Now, I will turn the call over to Maria.

[Maria Hawthorne:]

Thanks, JP. The news regarding the D.C. market is that there is no new news. Sequestration is in effect and public and private sector tenants continue to proceed cost to fleet when approaching their leasing needs. Despite the federal slow down there is moderate top growth and activity with small businesses especially in the technology sector. Unemployment is approximately 4.3% in the suburban counties where we own our properties. PSB had a strong second quarter in Northern Virginia in Maryland. We completed nearly 521,000 square feet of leasing in 108 transactions, 150,000 square feet of which were new deals. This activity was comprised mostly of our bread and butter small users in addition to one GSA renewal of over 110,000 square feet. Even with the GSA renewal included the average deal size was 4800 square feet. Occupancy in our markets declined to 83.9% while PSB ended the second quarter at 89.8%. This was a 50 basis point slip from the end of first quarter due to the move out of four tenants ranging between 10,000 and 25,000 square feet. As we mentioned last quarter one of our assets in Tysons, Virginia is a vacant 124,000 square foot building which we have intentionally put strong repositioning on. This asset sets on a five acre park pool adjacent to and within the 45 continues acres we owned in Tysons. With the tremendous transportation upgrades taking hold around Tysons this particular fight has advantages for a broader set of users due to its proximity to the metro lines which is scheduled to open in the first quarter of 2014. From time ago it became evident that the location and flat rectangular situation of the park pool is an ideal match for a multifamily community. This appears to be a viable higher embedded used opportunity for PSB and to pursue the best options we have formed a JV partnership with the locally based multifamily expert will assist in our efforts to bring forth the best alternative as we rezone this park pool. The first stage of the process to take up to 24 months with the step necessary to meet all county approvals. We have now begun in earnest to this process we will keep you posted as we reach important milestones on this redevelopment opportunities. Now, I will turn the call over to Ed. Thank you, Maria. Adjusted FFO as outlined in our press release for the second quarter of 2013 was $1.19 per share compared to $1.18 per share for the second quarter of 2012, an increase of 0.8%. For the six month ended June 30 2013 FFO per share was $2.39 compared to adjusted FFO for the same six months of 2012 and $2.35, an increase of 1.7%. The increases in FFO were both the three and six month comparable periods were driven by increases in total portfolio NOI of 2.2% and 3% respectively. Partially offsetting the impact of the increases in NOI are higher preferred equity distributions as the company has increased the amount of perpetual preferred equity outstanding while reducing the amount of mortgage and bank debt outstanding by more than 50% to just $340 million. Comparable Same Park NOI increased 0.7% in both the three and six month period ended June 30 2013. The increases were driven by a revenue increases of 1% and 1.2% respectively tied to occupancy increases. Expenses during these periods increased to 1.7% and 2.2% respectively. During the second quarter we had recurring capital expenditures of $12.1 million compared to $14.2 million incurred in the second quarter of 2012 and for the first six months of 2013 recurring capital expenditures were $21 million compared to $24.2 million incurred in the same period of 2012. Our focus on maintaining capital costs remain high and we continue to see opportunities to lower our transaction costs on a per square foot basis. Our total free cash after all capital cost and debt service for the six month ended June 30 2013 and 2012 was $24.7 million and $20.4 million respectively. This free cash combined with our uncapped $250 million credit facility and solid coverage ratios provides us with the flexibility to pursue value creating opportunities. With that we will open the call for your questions.

[Operator:]

(Operator Instructions). Your first question comes from the line of Craig Mailman from KeyBanc. Your line is open.

[Craig Mailman:]

Hey guys, Jordan Sadler along with me as well. Maybe just want to start on the acquisition side it sounds like there is more parks available in the market place but you guys typically haven’t then buyers have stabilized product here and adjacent cap rates down. Just curious what kind of competition you are seeing for the value ad product that you guys typically go after and maybe if your underwriting has changed at all what’s the prospect of rates moved a little bit higher here?

[Joe Russell:]

So Craig, yeah, this is – I noted not only this on today’s commentary but in the last few conference calls no question that competitive environment has changed and there is more activity I think along the entire spectrum of different asset types and the interest in even un-stabilized or value-add asset. So, there is more competition out there. There is no question. For us the angle and the strategy of still focusing on value-add seems to continually play through as our best option. We are seeing some interesting opportunities out there. Sometimes it takes higher degree of patience and timing this deal that we just closed on we literally identified this almost two years ago and then once it was recaptured by the lender it’s in order and amount of time to come back to the market and we were well prepared to capture it very quickly. So, we’ll angle our efforts around those kinds of opportunities and overall we have the kind of ebb and flow relative to cost of capital issues and whereas may or may not play out even in the competitive arena relative to what may have just changed in the interest rate levels little too soon to tell how much yet change might take place. But again we feel confident that – that we’re our zone of most profitable or accretive opportunities continues to be this value–add options out there and we continue to see more frequently than most that’s the way that we make sense of additional acquisitions. So, as I noted, we’ve got our eyes set on a number of opportunities out there. We’re busy looking at a lot of stuff but it is as I also said it’s difficult to predict timing and ultimate volumes so.

[Craig Mailman:]

That’s helpful. And then just on the Dallas acquisition that’s helpful going through what you guys are going to spend but what’s the leaser timeframe you guys are assuming to get this stabilized?

[Joe Russell:]

Yes, there is a bit of upfront work to do because again it’s been undercapitalized for a long enough period, that we’re going to have to go and do some of our traditional make ready improvements. So, that could take us say a quarter or two just to get it reset to a PSB standard. The good news however is as I noted Dallas is a very vibrant market for us and our team there has got a lot of good activity on the full range of asset types. We’ve got there particularly as we look at this asset, which is going to continue to cater to smaller users. So, like I said, we like our prospects but like always it’s going to take a few quarters for us to get the momentum moving. But again Dallas is one of our strongest market so we’re confident we can get started there pretty quickly.

[Craig Mailman:]

Okay. And then just lastly, you guys talked about the repositioning in Tysons as you guys look at the portfolio and maybe you have some expirations down the road are there any more of these opportunities to repurpose properties for multifamily or other?

[Joe Russell:]

Well, it’s an interesting question and a tough one to answer to point you to a specific asset but many of our properties in that market and frankly in others overtime have become more and more valuable because of the inherent improvement in location attributes and infrastructure upgrades and that kind of thing. Tysons in particular is kind of in hyper mood right now because of the $7 billion of infrastructure that now nearly complete. I mean, as Maria noted the metro line, which is the last piece of this huge upgrade is about ready to go live. And the beauty of our site there, this 45-acres we’ve got there as we’ve got again a beautiful site and that we’ve got 45 contiguous slot acres and we’ve a lot of surface parking and other things that could play out very interesting overtime. The more immediate and most obvious thing that we’re focused on is this first parcel but as an enterprise, we’re going to continue to look for this kind of opportunities. I wouldn’t tell you there a big part of our overall portfolio but on the quality and location of our parts may over time give us more opportunities like this.

[Craig Mailman:]

And what did you guys, what’s the incremental cost you think you’ll spend on repurposing with your JV partner?

[Joe Russell:]

Well it’s early and it’s too soon to start that particular dialog. As Maria noted, we’re going to need to go through a number of quarters here, where we’re going to be working directly with the County to figure all those things out. The embedded costs on the front of this are not strong at all I mean it’s really related to lot of design and effort tied to again working through County processes. So, once we get to that, we’ll have a much stronger view of a lot of things including the ultimate size of the project and particular cost et cetera so we’ll also keep you posted on that.

[Craig Mailman:]

Great. Thank you.

[Operator:]

Your next question comes from the line of Josh Attie from Citi. Your line is open.

[Josh Attie:]

Thanks. Good morning. As you mentioned earlier there can be some volatility in the rent spreads quarter-to-quarter but based on the direction of market rents and what you have rolling do you think it’s all positive going forward?

[Joe Russell:]

Well, again, Josh, we’re hoping that the trend continues to get to 0.3 positive again that’s a five year mark meaning again the last time, we were in that zone was the second quarter 2008. We’ve seen kind of continued improvement quarter-by-quarter. It can like always fluctuate a bit. But the thing that JP noted relative to the broader based level of activity that we’re seeing and market improvements and then still coming off of some good concepts in our own level because many of our leases were signed in that 2008, 2009 and even 2010 timeframe. We’re again seeing those benefits play through and we were pleased that since its positive this quarter and we’re going to work hard to continue that trend.

[Josh Attie:]

Okay. Thanks. And on occupancy and kind of same store revenue, listening to the prepared remarks and also seeing that you ended the quarter with a least percentage that was well above the weighted average occupancy and it seems like there is a good backlog of activity is it fair to say that if you just kind of look at what commenced at the end of the quarter and what kind of it was close to commencing that you could see an acceleration of revenue and occupancy growth in the back half of the year. And I know that you don’t give guidance but are we thinking about that the right way like when we looked at the quarter, it just seem like a lot commenced towards the end? And then in the prepared remarks you kind of said you had a good backlog are we thinking about that trend correctly?

[Joe Russell:]

Well, I mean again there is for the reasons, I just noted there is some additional positive things in our mix and as always it’s dependent upon the continued volume that we’ll see in the second half of the year, where it takes place again we’re kind of confident that’s what going to come off of. But we’ve got what JV about 3.5 million square feet of expirations between now and the year so we’re very focused on getting through that expiration scheduled coupled with all the things that we continue to do to drive new tenancy and new occupancy into the portfolio. This quarter – in the second quarter, we saw the benefits of that big leasing volumes did and it’s got some boost tied relative to the backlog of occupancy that we’ve got. But we’ll continue to need to work hard through the second half of the year. But again assuming market conditions play through, we’re again confident that we continue to do some good leasing volume towards the year.

[Josh Attie:]

Okay. And then just lastly on the joint venture in North Virginia can you give us some details on what the structural characteristics are is it a 50/50 JV or did you just – do you have most of the economics and you are just offering the partner to kind of advice you and provide management services?

[Joe Russell:]

Yes, what I’ll tell you at this point it’s more heavily weighted to us. Its multifamily obviously it’s outside of our day-to-day competency set and we felt it was an amazing and very opportune time to think about this kind of value-add for that particular site. And the way that it’s structured is, as we play through it and lot of this is dependent upon ultimately where we – what we’re able to do on the site. We’ve got a stronger percentage of the upside on this but we’ve got a very good partner, who is also highly motivated and I think the structure is going to play well.

[Josh Attie:]

And I know that this site was part of an acquisition that you made a couple of years ago but is there any way that you can tell us or estimate what your basis is in this part of the side?

[Ed Stokx:]

Josh it’s just a little bit north of $15 million and you can see that you saw that re-class in the first quarter on our balance sheet to assets held for development.

[Josh Attie:]

Okay. Thank you.

[Joe Russell:]

Thanks, Josh.

[Operator:]

Your next question comes from the line of Michael Mueller from JPMorgan. Your line is open.

[Michael Mueller:]

Great. Thanks. Going to these non same-store pool for a second. JP I know you have kind of walk through a little bit about that some expiration taking down the revenues a little. Can you by the end of the third quarter was all that released or just can you walk us through the timing of the quarter just we can get a sense as to the Q1 to Q2 dip if that how that should trend back in Q3?

[John Petersen:]

In terms of non-Same Park.

[Michael Mueller:]

Yeah.

[John Petersen:]

Yes, sure. So as I’ve discussed earlier we did we moved occupancy up and we have got a backlog that will occupied throughout the quarter mostly towards the backend of the quarter of the third quarter. And we’ve got, we had two real situations that we are in the process of releasing there wide of Northern California about a 100 a little over a 110,000 square feet. We released 39% of that and we are working on backlog your rents and that.

[Michael Mueller:]

And with that and was that, was that in place during the quarter or is it leased but not occupied?

[John Petersen:]

The 39%.

[Michael Mueller:]

Yeah.

[John Petersen:]

That what you are referring to.

[Michael Mueller:]

Yeah.

[John Petersen:]

Yes, yeah you are correct.

[Michael Mueller:]

Okay. Okay. And then okay now I think that’s it, that makes clear. Thanks.

[John Petersen:]

Okay.

[Operator:]

Your next question comes from the line of Rich Anderson from BMO Capital Markets. Your line is open.

[Rich Anderson:]

Thanks. Just on that last point if you can remind me. Was that a 110,000 square feet how much of that took you off guard surprised you or did you see it coming pretty far in event?

[John Petersen:]

We saw it coming in advance and it was of a surprise and it’s we know the portfolio that we will have for a long time and there is a sub tenant in there that took some space down and there is, there are maybe potentially others too of it. Good activities, good park and we are confident of our ability to get back.

[Rich Anderson:]

This is part of the 5.3 million result of bigger portfolio right that’s what you are talking about?

[John Petersen:]

That’s right.

[Rich Anderson:]

Okay. Just want to make sure. Okay. Back to the rent role can you, you are not going to give guidance but can you talk about the components of that change you went from mid negative 3.4% last quarter to positive this quarter slightly positive. How much of that was a function of markets getting better and how much of it was really just better comps I mean was it the lion share of that switch sequential improvement a better comp issue?

[John Petersen:]

Yeah, good question, Rich. A little of both it always helps when you get 70% retention as well. You can work with your existing customers a little harder but markets as I mentioned they are improving. And also I mentioned I mean we think we are going to come off some leases that were done in the recession that we are going to go take advantage of it and again our teams as I mentioned earlier we are going to try take advantage through retention and I know I mean given when markets are improving like they are we are able to capitalize to0 with the new customers that we bring into the portfolio.

[Rich Anderson:]

Okay. On Portland registered as a positive from a cash rent role perspective but it was one of the three that you had negative net absorption what’s going on there why is it, why are they kind of going in opposite directions?

[Joe Russell:]

It’s a good question the negative net absorption was very slight I mean it was a, it wasn’t even it was really technically negative but it was actually negative. So Portland is being more active than normal but the way we track it was slightly negative in the quarter nothing you would be concerned about from a trend standpoint at least in Portland.

[Rich Anderson:]

Okay. On D.C you mentioned 4.3% unemployment in your suburban markets. How is that compared this but what’s the comp how much better is that unemployment rate relative to the broader D.C market place?

[Maria Hawthorne:]

The boarder D.C market is about 5.4% unemployed.

[Rich Anderson:]

Okay.

[Maria Hawthorne:]

That includes the district itself and a couple of the other counties that I was referring namely the Fairfax and Montgomery County.

[Rich Anderson:]

Okay. And then last question from me maybe an Ed question with tapering branchy all that stuff. How is the market changed at all for you in terms of the preferred market? And I know you don’t you can’t call anything until 2015 but just curious what that changed for you?

[Ed Stokx:]

Well, Rich that market has moved quite a bit our most recent series that we did earlier this year is trading today at a yield probably in the 6.3% range.

[Rich Anderson:]

Okay I guess I could look at it. So what was it, what was it, it was five what was it five?

[Ed Stokx:]

That’s five, seven 5.7 phase.

[Rich Anderson:]

Okay. And so now it’s showing six, three.

[Ed Stokx:]

So I think that gives you a pretty good indication how much that market is moved.

[Rich Anderson:]

Okay. That was easy. Okay. Thank you very much.

[Ed Stokx:]

Okay.

[Operator:]

(Operator Instructions). Your next question comes from the line of John Stewart from Green Street Advisors. Your line is open.

[John Stewart:]

Thank you. Ed just following up on Rich’s last question there a year or so ago you felt pretty comfortable that rates were not going to be moving against you and you felt comfortable leaving more footing rate debt outstanding then you have traditionally done in the past. How do you feel about taking out the remaining balance on the term loan at this point?

[Ed Stokx:]

Well, John I think we are comfortable with the balance that we have on the term loan that’s 90 million outstanding. So we’ve repaid that from down from 250 million down to 90 million. So we are very comfortable with the balance outstanding. We can repay that between now and maturity basically with free cash we got the unpath credit facility. So it’s not concerned for us but we’ll continue to watch the markets and look at all of our options.

[John Stewart:]

Okay. Thank you. And Joe sorry if I missed this but did you identify at least in board rush terms the nature of your JV partners is that a local developer is it a national REIT?

[Joe Russell:]

Yes, it’s locally based well regarded D.C headquartered entity. So very strong, very confident we are we went through a pretty extensive bidding process. So we feel very comfortable with the skill set and definitely look forward to the skill that we are going to bring into this opportunity.

[John Stewart:]

Okay. And JP it sounds like you’ve got a descent backlog in Seattle but I couldn’t help notice that Seattle was also one of the markets you mentioned when you are ticking off markets where you saw both expense slip and negative mark-to-market during the quarter. Are you having to give up more on rent then you expected and how is that playing out relative to underwriting?

[John Petersen:]

No, in fact we are seeing rents holding the slight different occupancy was exiting park that went from 95 to 93.9 or something. So what happened was a company outgrew our park and moved out because we’ve been having a space lift. So that we can’t do anything about that and then in regards the rental rates slippage for the asset that work we’re instead of get above where rents are there and the strategy is that we’ve undertaken it is working very well in the market, markets receiving it well and we are able to achieve or we are hoping to receive the rents that we underwrite that 212 park.

[John Stewart:]

Okay. Thank you.

[John Petersen:]

Yeah.

[Ed Stokx:]

Thanks, John.

[Operator:]

We have no further questions at this time. I turn the call back to Mr. Stokx for closing remarks.

[Ed Stokx:]

Okay. Thank you and thank you everyone for your interest in PS Business Parks and we’ll look forward to speaking to you next quarter. Take care.

[Operator:]

This concludes today’s conference call. You may now disconnect.