COPT Defense Properties (CDP) 2007 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third quarter 2007 Corporate Office Properties Trust Earnings conference call.

At this time all participants are on a listen-only mode.

We will conduct a question-and-answer session towards the end of this conference.

(OPERATOR INSTRUCTIONS).

I would now like to turn the call over to Miss Mary Ellen Fowler, Vice President and Treasurer.

Please proceed, Ma'am.

Thank you and good morning, everyone.

Yesterday our earnings press release was faxed or e-mailed to each of you.

If there's anyone on the call who needs a copy of the release or would like to get our quarterly supplemental package, please contact me after the call.

Or you can access both documents from the Investor Relations section of our web site at www.COPT.com.

Within the supplemental package you'll find a reconciliation of non-GAAP financial measures to GAAP measures referenced throughout this call.

Please refer to our Form 8-K or to our web site for definitions of certain financial terms referred to on this call.

With me today are Rand Griffin, our CEO; Roger Waesche, our COO; and Steve Riffee, our CFO.

In just a minute they will review the results of the third quarter and provide our first projection for 2008 guidance.

Then the call will be opened up for your questions.

First I must remind all of you at the outset that certain statements made during this call regarding anticipated operating results and future events are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Although such statements and projections are based upon what we believe to be reasonable assumptions actual results may differ from those projected.

Those factors that could cause actual results to differ materially include without limitation the ability to renew or release space under favorable terms; regulatory changes; changes in the economy; the successful and timely completion of acquisitions and development projects; changes in interest rates and other risks associated with the commercial real estate business as detailed in our filings from time to time with the Securities and Exchange Commission.

Now I will turn the call over to Rand.

Thanks, Mary Ellen, and good morning, everyone.

We are very pleased with our quarterly results delivering for our shareholders the increase in growth for the quarter that we projected earlier this year.

We were able to achieve results above the consensus estimate by continuing to bring leased development online.

In addition we made progress on several fronts this quarter.

First we closed on 56 acres of land, strategically located at the north entrance to Aberdeen Proving Ground that can support 800,000 square feet of office development.

We expect to start our first building on this site during 2008, continuing our strategy of positioning for [brack] relocations.

Second we were recently named as master developer for a 272-acre business park strategically located at the entrance to Colorado Springs Airport and adjacent to Peterson Air Force Base.

This park can support 3.5 million square feet of space of which about 1.3 million square feet will be office space.

As with Patriot Park, this location will have the benefit of a large demand driver -- Peterson Air Force Base.

There have been several large contracts awarded recently by the Base and we are starting to see evidence of demand as a result of these contracts.

Colorado Springs Airport Park, along with our other land control positions, will allow us to further grow our portfolio while at the same time having significant control over the new supply coming online in the market.

Also during the quarter, our Board approved a 10% increase in our common dividend, based upon our earnings and growth expectations.

This is the 10th year in a row of increased dividends averaging 10.5% per year increase.

As we look out to 2008, we are taking into consideration predictions of a continued slowdown in economy and are adjusting accordingly.

For example, we have tried to take a conservative view on development by assuming a slightly longer lease up with shift stabilization for some of these projects into 2009.

Despite this conservatism, our projections result in an FFO growth range that is still at the high end, compared to our peers.

This growth is coming despite assuming no acquisitions for 2008.

Similar to 2007, we project growth from lease development coming online, along with growth in our fee income business related to our government and defense sector and growth in average occupancy and same office operations.

We should note that, similar to 2007, earnings growth of these sources will be weighted to the last half of the year.

We believe upside in our 2008 guidance will come from our ability to harvest value creation from our land parcels that we started to see this quarter, along with the sale of other nonoperating assets and an increase in third party service fee income.

With these factors in mind our initial 2008 annual FFO guidance range is $2.40 to $2.49, which positions us for an FFO per-share growth in the 8 to 11% range for next year from our current 2007 range.

With that, I will turn the call over to Steve.

Thanks, Rand, and good morning, everyone.

Turning to our results, FFO of the third quarter totaled $32.4 million or $0.58 per diluted share.

Comparable quarter 2006 FFO was $24.3 million or $0.46 per diluted share, representing a 26% increase on a per-share basis.

As you may recall, results for the 2006 quarter included an accounting charge of $1.8 million, equating to $0.04 of diluted FFO per share for the write-off of original issuance costs for the redeemed Series E preferred shares.

Excluding the 2006 Series E write-off, FFO increased 16% per share quarter over quarter.

Included in this quarter's FFO results is a gain on the sale of land located in our White Marsh portfolio that equaled $0.02 per share.

With regard to other items for the quarter, term fees were comparable to the term fees in the third quarter of 2006 at $1.2 million and G&A increased as compared to the second quarter 2007 due to the write-off of dead deal costs during the quarter.

Regarding earnings per diluted share for the third quarter, we recorded $0.15 per diluted share versus $0.33 per diluted share for the third quarter of 2006.

Net income for the quarter included $3.4 million of gains on sales of real estate, net of minority interest which is substantially below the $12.7 million of gains on sales of real estate in the third quarter of 2006.

Turning to FFO, after adjusting for capital expenditures in the straight lining of rents our adjusted funds from operations increased 24% from $19.2 million in the third quarter of last year to $23.9 million in the third quarter of 2007.

We increased our common dividend 10% in September and distributed $0.34 per share for the quarter ended September 30th.

Our diluted FFO payout ratio was 58.3% for the quarter as compared to 65.4% FFO diluted payout ratio for the third quarter of 2006.

The diluted AFFO payout ratio was 79.1%, compared to 83% for the third quarter of 2006.

Next, I will cover same property results.

Excluding the termination fees, same office net operating income or NOI for the 160 comparable properties representing approximately 80% of our portfolio increased 2.6% in the third quarter of 2007 over the prior year comparable quarter.

Offsetting this growth in the same property NOI was a $1.3 million dropped in same property termination fees quarter over quarter.

Next at September 30th, our total market capitalization was approximately $4.3 billion with $1.8 billion of debt outstanding, resulting in a 41.5% debt to market cap ratio.

With regard to our debt capital as of September 30th, we had $623 million of debt scheduling to mature during 2008.

A little over half of this debt is our unsecured revolving line of credit, our revolver and on October 1st, we amended our revolver and extended the term from March 2008 to September 2011, as well as increased the line by $100 million to $600 million and with our accordion feature allowing further expansion to $800 million.

Through this amendment we were able to improve our covenant structure, to provide additional loan capacity as well as decrease our interest rate spread that is based on various leverage levels.

We also (technical difficulty) approximately $140 million of floating rate debt, a majority of which is construction debt maturing in 2008 that we plan to refinance by either using the revolver or placing permanent loans as the buildings are completed and occupied.

We also have permanent loans totaling $143 million maturing that we will refinance the permanent debt during 2008.

We are anticipating that we may see more contraction in the interest rate spreads and stability of spreads in the permanent market in the coming months.

Turning to construction funding, we plan to obtain short-term construction financing over the next several months for buildings under construction at ArundelPreserve in Colorado Springs, as well as new buildings at MBP.

With regard to our $200 million, 3.5% convertible debt issuance from one year ago we are waiting to see the final accounting standard from the staff of the FASB for convertible securities with net share settlement features.

We have reviewed the exposure draft that indicated that there would be a change in accounting to increase interest expense by an additional non-cash expense.

The change would be effective for 2008 with prior years restated when recorded in comparison to 2008 and future results.

We will wait for the standard before quantifying its impact.

However we expect the new non-cash expense to be approximately the same for 2008 as for a restated 2007.

Our guidance for 2008 at this point will not quantify the impact of the change as we do not have the final standard.

Turning to our interest rate structure.

As of quarter end, 20% of our debt was financed at a floating interest rate.

Subsequent to quarter end we executed a swap to fix $50 million of floating rate debt at 4.33% for two years, further reducing our floating rate debt to 18%.

With regard to equity capital, we do not believe we need to raise equity through 2008.

We can continue to use our equity in our land, coupled with construction financing to fund development through 2008.

In addition, we expect to generate up to $60 million through sales of noncore assets that include our remaining New Jersey properties as Roger will discuss.

For the third quarter 2007, our coverage ratios remain strong.

Our EBITDA to interest expense coverage ratio was 2.9 times.

Our EBITDA to fixed charge coverage ratio was a strong 2.4 times.

With regard to our 2007 FFO guidance, we are tightening the range to $2.23 to $2.25 per diluted share from the $2.20 to $2.25 per diluted share range we estimated last quarter.

This represents FFO per diluted share growth of 12 to 13% per 2007 over the $1.99 per share for 2006.

As Rand mentioned, our initial FFO guidance for 2008 is $2.40 to $2.49 per diluted share for an increase in the 8 to 11% range for 2008, based on the 2007 guidance range.

The assumptions for our 2008 guidance are as follows.

First, for our wholly-owned portfolio average occupancy is estimated to be between 92 and 93% for the year.

We project average occupancy will be the lowest in the first quarter when we will average slightly less occupancy than the ending 2007 occupancy due to lease expirations.

Occupancy is expected to build throughout the remainder of the year and reach 94% by the end of 2008.

Our retention rate for 2008 is expected to average 70%.

Second, we estimate development placed in service in 2007 to contribute $11 million of NOI growth for 2008 and development placed in service during 2008 to contribute approximately $4 million of NOI.

The 2008 deliveries are expected to come online in the second half of the year.

Third, same office NOI which accounts for 75% total NOI is projected to grow from 2% at the low end of the range of guidance to 3% at the high end.

The increase in same office results is estimated to be lowest in the first quarter and grow over the year.

And, fourth, lease termination fees are projected to be in the $4 million range for the year or 41 million per quarter.

Given these four variables net operating income is estimated to increase in the 7 to 8% range.

Continuing, my fifth assumption is that we have projected no 2008 acquisitions but we will continue to underwrite opportunities.

If these were to occur they would move us beyond the upside range of our guidance.

Sixth, gains on sales of nonoperating assets such as land could add between $800,000 at the bottom end of the range of guidance and up to $4 million at the top end of the range of guidance during 2008.

Seventh, service income is projected to increase by $1 million to an estimated total of $2.7 million that will be back end loaded with 65% expected to be coming in the last half of the year.

Eighth, G&A is expected to increase by $2.7 million for the year with a quarterly run rate of $6 million per quarter.

Ninth, interest expense was based on a projected average LIBOR rate of approximately 5.5% or 75 basis points above LIBOR today.

And once again, our 2008 guidance at this point does not quantify the impact of the anticipated accounting change for the convertible securities via an additional non-cash interest expense increase, as we don't have the standard yet.

Then, finally again, we anticipate no new equity issuance during 2008.

We do not give quarterly guidance but these assumptions indicate that revenue growth through occupancy, development placed in service and fees are back-end loaded.

So our lowest quarterly results per FFO should be the first quarter of 2008.

This is our initial look at 2008 and we expect to further refine the details next quarter and throughout the year.

Our FFO per-share growth for 2008 is once again projected to be a healthy 8 to 11% in a year that we do not assume acquisitions.

With that I will turn the call over to Roger.

Thanks, Steve, and good morning, everyone.

Turning to our operating portfolio at September 30th, our wholly-owned portfolio consisted of 229 properties totaling 17.7 million square feet that were 92.8% occupied and 93.2% leased.

Our occupancy has remained five for the year even after absorbing the Nottingham portfolio which was 86% occupied at acquisition and one-third of the space maturing during 2007 and is still currently 86% occupied.

In terms of leasing statistics, we renewed 73% of expiring leases at an average capital cost of $5.58.

Rents and renewals increased 7.8% on a straight [nine] basis and 2.1% on a cash basis.

Total rent for the renewed and retenanted space increased 7.5% on a straight nine basis and increased 1.7% on a cash basis.

For all renewed and retenanted space the average capital cost was $8.21.

From a tenant credit perspective about 7.4% of our revenue come from the financial services sector.

We have exposure of .9% of our revenues to the mortgage sector.

Looking at our lease expiration schedule across our portfolio for the remainder of this year at September 30, we have 4.5% of our revenues expiring, representing about 757,000 square feet.

Of this total about one-third will be extended with an existing government tenant in several locations.

For 2008 we have 10.1% of our revenues expiring, down from 12.4% at the beginning of 2007.

Turning to acquisitions for the quarter, we have closed on a 56-acre land parcel located at the north entrance to Aberdeen Proving Ground that we purchased for $10 million.

This site can accommodate 800,000 square feet of office development.

Aberdeen is projected to have a net increase of approximately 8200 new Department of Defense jobs on the base.

Most of the new jobs moving to Aberdeen will be related to command control, communications, computers, intelligence, surveillance and reconnaissance.

Currently based at Fort Monmouth, New Jersey.

The majority of the jobs will transfer in 2010 and early 2011.

The conservative estimate of additional contract or related employment projects 12,000 to 16,000 new private sector jobs.

We plan to have buildings under construction in 2008 to accommodate this demand.

Turning to acquisitions, besides the Nottingham acquisition at the beginning of the year, as forecasted we have not acquired any operating properties this year.

The acquisition environment remains challenging with pricing still above replacement costs.

We believe the quality transactions are still trading at levels that do not meet our IRR hurdles.

We do expect that sellers will adjust to the new credit environment and that cap rates will move up 50 basis points during 2008.

We expect to see some acquisition opportunities in the second half of 2008 but have not included these in our guidance.

With regard to dispositions, during the quarter we disposed of three buildings for approximately $11 million.

This included two small New Jersey buildings, to an eight center drive, and a non-core BWI asset, 7321 Parkway Drive.

Also as Steve mentioned we sold a 3.5 acre parcel of land in White Marsh.

Looking ahead we are projecting to close on the sale of 429 Ridge Road in New Jersey by the end of this year or early in the first quarter 2008.

With the sale of 431 and 437 Ridge Road, expect it to take place in the third quarter of 2008.

All three of these buildings are located in New Jersey and will generate about $40 million in proceeds.

Turning to our markets, with regard to the BWI submarket as of September 30th within the total market of 6.4 million square feet, vacancy including sublease stood at 14.8%, up from 10.1% one year ago.

Approximately 664,000 square feet has been added to the market in the past year.

Our BWI portfolio totaling 4.3 million square feet and representing 67% of the BWI submarket was 94% leased at September 30th.

Turning next to the Columbia submarket and Howard County.

At September 30th, vacancy with sublease was 14.2%, up from one year ago at 11.3%.

In Columbia, 232,000 square feet of new development has been added to the market in the past year.

Our properties in the Columbia submarket total 3.1 million square feet and are currently 93.3% leased.

Our suburban Baltimore occupancy has not improved which relates to four of the six Hunt Valley buildings we acquired from General Growth Properties in December 2005.

We have invested money in the core and shell of each building and have strong activity on three of the buildings.

Recall we acquired the General Growth Properties portfolio for $112 per square foot and are still on course to achieve our IRR targets.

We anticipate earnings growth from these assets in the latter half of 2008.

Within [COPs] northern Virginia submarkets the direct vacancy rate was up to 12% versus 8.4% one year ago.

Orderly absorption was 618,000 square feet?

Approximately 2.5 million square feet was added over the past year.

Our portfolio of 2.5 million square feet is 99.3% leased at September 30th.

Looking at the Dulles South submarket in northern Virginia, the direct vacancy rate ended the second quarter at 16.9% up from 8.5% one year ago.

Within the Dulles South submarket there was 2.1 million square feet added to the market within the last year [with] the majority built on spec.

Currently another 840,000 square feet of specialist space is under construction that will come online soon.

Our operating portfolio of nine buildings totaling approximately 1.5 million square feet is 99.6% leased; and we have minimal lease rollover for the next three years.

Therefore we believe we are well protected from the impact of any potential overbuilding in this submarket.

Within the Colorado Springs submarket, leasing activity is increasing and office vacancies remain steady in the third quarter at 8% compared to one year ago at 8.4%.

Our properties in the Colorado Springs submarket total 822,000 square feet and are currently 96.1% leased.

[Asking] rental rates are continuing to rise due to demand without significant supply coming online.

Like others we have seen a deceleration of demand for space in several of our submarkets over the past several months but believe our position in the market and our operated platform will allow us to maintain our occupancy levels.

With that I'll turn the call back over to Rand.

Thanks Roger.

Turning to our development activity at September 30th, we had eight buildings with 856,000 square feet under construction for a total cost of $182 million.

Although our construction pipeline is 43% leased as of September 30th, we expect to execute a lease shortly for a majority of the space at our 103,000 square foot space Center Drive building in Colorado Springs.

We also have good leasing activity for the balance of 302 MBP.

During the quarter we placed 106,000 square feet into service and as of September 30th, our total square footage placed into service was 92.7% leased.

By year end 2007, we expect to deliver another three buildings for 288,000 square feet that are already 100% preleased.

Our development pipeline includes buildings that are permitted, designed and ready to start construction.

We currently have 12 buildings in development with a total of 1.3 million square feet for a cost of $262 million.

Four of these buildings will move to under construction during the fourth quarter of 2007.

Four additional buildings will start in the first quarter of 2008, two additional buildings in the second quarter of 2008, and the remaining two in the third quarter of 2008.

In addition we have another four to six buildings that we would expect to add to our development list in the first quarter of 2008.

Importantly, we believe that almost 70% of the square footage and the development pipeline will be sorted based on demand coming from the government of defense sectors.

Looking at our land inventory with the addition of ground at Aberdeen Proving Ground, we now control a total of over 1700 acres that can support approximately 14.6 million square feet of entitled office space.

With regard to our Colorado Springs portfolio, we have ramped up our development with two buildings under construction for 164,000 square feet and three buildings under development for 279,000 square feet, along with a fully leased redevelopment property for 75,000 square feet.

As I mentioned earlier we were recently named as master developer for the Colorado Springs Mixed-Use Business Park and anticipate investing close to $800 million over the next 10 to 20 years to development the park and we will also overstate not only construction, but also leasing and management of the park as it is built out.

We plan to execute long-term ground leases with the city of Colorado Springs that will eventually cover the entire site.

However we will sign a separate ground leased for each particular parcel as a building starts under development.

In summary, we are laying the groundwork in 2007 and 2008 for long-term sustainable growth.

We are in the long-term value creation business and plan to continue generating earnings for our shareholders through opportunistic real estate=related activities.

We are now able to generate consistently strong growth due to our diversification of growth drivers and market locations.

For example, even though we have not added to our portfolio in northern Virginia over the past year, we were able to offset this through our activities in Colorado Springs and San Antonio.

As we did for 2007 we have laid out a conservative 2008 plan that we are confident of achieving.

We continue to move forward with our construction activity that coupled with improved operations from our core operating assets and fee income business will generate 8 to 11% FFO growth during 2008.

As is the case this year, 2008 FFO growth coupled with strong AFFO dynamics will place us in the upper group of our office peers.

We fully expect this growth to both continue and accelerate in future years and remain confident that this growth eventually will be recognized and rewarded by our shareholders.

With that, we will open up the call for your questions.

(OPERATOR INSTRUCTIONS).

John Guinee.

I think you guys did a great job of articulating the story and the plan for '08.

One quick question.

In our minds one of the positives here is AFFO or [FAD] which you are running for '07 at about $0.40 to $0.42 a quarter.

Can you maintain that into '08?

I think, John, we are relatively confident that we can maintain that pretty close to that number.

If the market were to soften a little bit obviously the TI packages we would offer would go up a little bit.

But we don't see anything on the horizon for the next 12 months that would put our markets totally out of this equilibrium.

So we feel relatively confident in that number.

And then the second question, on the asset dispositions can you just [give] this in a tax efficient manner or is there a special dividend possible?

No.

Most of the properties we have for disposition we've held more than four years.

The Safe Harbor under the REIT rules, so we wouldn't have to have any tax consequences.

(OPERATOR INSTRUCTIONS).

Michael Bilerman.

Good morning.

Jon Litt is on the phone with me as well.

Rand, in your opening comment you talked a bit about preparing looking at '08 and being a little bit more conservative in thinking about a [swelling] economy.

And one of the ARIES the top about was pushing out the stabilization dates of some of the developments in 2009.

What sort of change did you make in the underwriting of those developments and what sort of impact are you looking at?

Well, we look at -- let me just give you kind of the overview, Michael and Jon, on how we approach development.

I think we are quite conservative.

We are not trying to growth just for growth's sake.

Really if we look at each of our markets, really, our submarkets and we look at a number of factors, we want to make sure what the demand is so we look at demand.

We look at our occupancy.

We look at the vacancy in the overall market.

We look at the supply coming on and then we look at any other sublease trends or things like that and we evaluate each of those markets accordingly.

And I am happy to say that with really the exception of northern Virginia and Hunt Valley, the rest of our markets are in a position where we can continue to add additional product.

And then of course we factor in some of the sort of advanced indications of demand we get from our tenants particularly in the government and defense sector.

So when we looked at that a few other projects slipped slightly.

For example Rockville, just because permitting is very difficult in the city of Rockville to get permitting and (inaudible) Johnson where we are sorting through the water rights there to allow us to start.

The rest of them really are starting on time.

As I indicated in my remarks where four have moved into the fourth quarter of this year and then, four, the first quarter of next year and so on.

And then when we look at the date of operations we are looking at stabilization which is over 75% leasing.

And so what we really did was simply try and take from start time, the year of construction.

Probably added one quarter of lease-up assumptions to those projects and that's what moved some of them to 2009.

At the same time I think as you saw from Steve's comments to have a growth range of 8 to 11% of FFO growth and only have $4 million of our NOI coming from developments placed in service in 2008, we think positions us on a very conservative basis and of course that loads 2009 very, very heavily.

And did the movement from one quarter, looked like none of the cost change -- you are not expecting any additional cap interest in the projects or any additional costs to lease up the projects and so effectively what you are saying is the returns are not changing?

It's just a matter of time?

Right.

Looking at the fourth quarter deliveries can you just give us a sense?

They are all 100% leased, the timing of those coming into the quarter?

Technology drive would be November 1st, 320 MBP would be December 15th and North Newport Road in Colorado Springs would be also December 15th.

Perfect.

And then I, think, Steve you mentioned in your opening comments that there was some dead yield cost in the third quarter?

Could you elaborate a little bit on what those were and the amount?

They round up to $0.01 a share and they were for some costs that -- of projects that we pursued or underwritten and we kept watching the probabilities of the deals coming back to us, etc.

So for instance there were some costs related to the EUL at Fort Meade and that are part of that number.

And then just a clarification on guidance.

You said the landfill gains $800,000 to $4 million.

There's no other gains like the track manager gain that you had last quarter in guidance.

right?

That's right.

That $4 million would accommodate something like the track manager or perhaps a condo sale from one of our joint ventures or whatever but those are -- that's really nonoperating assets that that range provides for.

And it sounds like you guys are being very explicit in saying there is no acquisition and guidance different from last year where I think you included the Nottingham acquisition but didn't publicly talk about it.

Is that a fair comment?

Correct.

That is correct.

Again I think as we said there might be (technical difficulties).

In fact our view is that acquisitions were to incur that opportunity for a potential upside above our 11% (inaudible).

Right.

Thank you so much for the detail.

Rich Anderson.

On your sort of more conservative approach to 2008, would you say the majority of that is sort of weighted towards your conditional office portfolio as opposed to the defense-oriented portfolio or does it sort of run the gamut?

No, I think we see the government of defense as still being healthy.

We haven't seen delays in that.

I know I've heard some other calls some comments on that specifically, but we have not seen that and as we mentioned you'll see some -- we expect to announce some very positive things in Colorado Springs which are government- and defense-related and so it's not -- it's more of a -- you know I was at general -- I was at the Urban Land Institute a week or so ago?

And you have the opportunity there to listen to a number of economists and, uniformly, all of them are saying the economy is slowing in a number of ways.

Starting to see some accelerated job loss reports in New York City and so on and -- .

No!

Yes.

And we are really sitting there trying to be very conservative.

You know when you are projecting for the year those are numbers that you all are counting on to make investment decisions.

And so we've taken that into consideration in our projections and we think we will be rewarded for the (inaudible) .

You mentioned zero acquisitions but that if you were able to complete some, that that would be accretive to your guidance.

So with that in mind did you talk about cap rates and if you did I missed it and what would be your cap rate thought process if you were able to accretively acquire assets in 2008?

We've put all acquisitions through several benchmarks.

First is its comparison to replacement cost.

We made it clear over the years that we do not buy above replacement cost.

Secondly we have an IRR hurdle over -- we look at it both at a five-year period and a 10-year period and we have a benchmark there.

And then, third, we look at initial accretion and obviously before we even get to those metrics we look at the strategic nature of any acquisitions.

But it's -- it would be hard for us to buy anything below a 7.25 to a 7.5 cap rate.

But to say it would be accretive would be implying sort of financing it with more debt than maybe what your ballot sheet would suggest today?

Higher percentage of debt?

Not necessarily.

I think we try to maintain the Company's leverage at a specified amount and that's really driven by debt service coverage ratio.

So I don't think we are suggesting we are going to lever the Company up significantly.

Last, just wanted to make sure in the fourth quarter your full year '07 outlook, just one quarter remaining.

Is there anything in there that is one-time-ish in nature?

We do anticipate that you'll have some offsetting effect of $0.03 of gains on land sales and $0.02 left to turn fees.

So about net net about a $0.01 benefit from those two sort of nontrended transactions.

$0.03 of land, more land or absolute dollars?

$0.03 of gains on sale of land and then we normally have a run rate of $0.02 of term fees that we will not have in the fourth quarter.

Other than that, that would add a penny to a normal trend.

There are no further questions.

I would now like to now turn the call over to Mr.

Rand Griffin.

Please proceed.

Thanks, everyone, for joining us today and I know it was a long call but we wanted to make sure we covered 2008 in a lot of details so you can do your modeling.

As always we appreciate your participation and support and we are available to answer any other questions you might have.

Thanks and maybe we will see some of you at NAREIT next week and we can continue the dialog.

Thanks, everyone.

Thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect.

Good day.