Centerspace (CSR) 2009 Q1 法說會逐字稿

Hello and welcome to the Investors Real Estate Trust first quarter fiscal year 2009 conference call. All participants will be in listen only mode. There will be an opportunity for you to ask questions at the end of today's presentation. (OPERATOR INSTRUCTIONS) Please note this conference is being recorded. Now, I would turn the conference over to Mr. Kelly Walters. Mr. Walters?

--disclosure package has been finished on Form 8-K. In the press release and supplemental disclosure package InvestorsReal Estate Trust has reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with requirements set fourth in Regulation G. If you did not receive a copy, these documents are available on IRETs website at www.IRET.Com, in the Investor Relations section. Additionally an archive of today's webcast will be available on our website for the next two weeks.

At this time, Management would like to inform you that certain statements made during this call which are not historical may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although Investors Real Estate Trust believes the expectations reflect in the forward-looking statements are based on reasonable assumptions Investors Real Estate Trust can give no assurance that its expectations will be obtained. Factors and risks that could cause actual results to differ materially from those expressed or implied by forward-looking statements are detailed in Tuesday's press release and from time to time in Investors Real Estate Trust filings with the SEC. Investors Real Estate Trust does not undertake a duty to update any forward-looking statements.

With us today from management are Tom Wentz Sr, President and Chief Executive Officer; Tim Mihalick, Senior Vice President and Chief Operating Officer; Diane Bryantt, Senior Vice President and Chief Financial Officer; and Tom Wentz Jr, Senior Vice President, President of Asset Management and Finance. At this time, I will turn the call over to Tom Wentz Sr. for his opening remarks.

Thank you, Kelly, and welcome to IRETs earnings conference call for the first quarter of its fiscal 2009 year which closed on July 31. We will endeavor to explain our first quarter financial results in detail, outline our plans and goals for the remaining three quarters of fiscal 2009 and do our best to answer any questions that you may have. I will begin with a brief overview of our current capital and liquidity position, our first quarter financial results, our expected first future dividend policy, and our portfolio strategy.

IRET continues to have a very strong balance sheet. On July 31, cash on hand totaled some $42 million and in addition we have $32 million in unsecured credit lines none of which are currently in use. We also have little refinance or interest rate risk. Of IRETs $1.068 billion, of mortgage indebtedness, only 1% is variable-rate and only 1.5% will mature in the remainder of fiscal 2009 with 12% maturing in fiscal 2010. Most of our mortgages that will need to be refinanced are secured by apartments. As of July 31of this year, the weighted average interest rate was 6.36%. Thus, IRET remains in a strong financial position to acquire additional real estate; however we have yet to see compelling purchase opportunities develop and will continue to be patient until we do.

In the meantime, we have deployed our equity capital in self-financing the construction of approximately $42 million of apartment and medical office projects now under way, with permanent financing to be placed after completion. With our October 1, 2008 distribution, IRET continued its practice of regular increases in distributions to our share and unit holders. Cash distributions to shareholders have increased in each of the 38 years of IRETs existence. We will do our very best to continue this practice.

Turning to financial results, funds from Operations were $0.20 per share in unit, off $0.02 from our last quarter and $0.03 from the first quarter of our prior fiscal year. While the energy and agriculture driven economies in the upper Great Plains have been particularly strong, the Metropolitan areas in which we operate continue to experience a weakening economy. Many of our commercial tenants are facing a difficult business environment. As a consequence, our first quarter saw a decline in economic occupancy levels for four of our five property categories with only our multi-family segment showing an increase.

In addition, we experienced inflationary pressures on real estate operating expenses. While our revenues for the first quarter increased 10% from the year earlier figure, $58.8 million for the quarter compared to $53.6 million a year ago, real estate operating expenses increased 14% from $20.8 million to $23.8 million. All of this is not an unusual consequence of the fall out from the overheated real estate and capital markets of the past few years. IRET along with other real estate participants have previously experienced similar volatility in their operating results. Eventually, the real estate and capital markets will adjust with both occupancy and rents recovery.

Looking ahead we anticipate continued modest improvement in performance of our multi-family segment as well as in our medical office and assisted living segment which together represents just over one half of our real estate assets. We're not optimistic about our commercial office and retail segments due to the weakening economy in our metropolitan markets. For the current fiscal year, we will continue to concentrate on expanding our apartment and medical portfolio, internalizing property management, and compacting our geographic footprint to facilitate in house property management. Our Chief Financial Officer, Diane Bryantt, will now give a more comprehensive look at our first quarter financial results.

Thank you, Tom, and good morning to everyone. My discussion today will give a brief outline of the primary factors affecting the comparative quarterly periods and significant items included in IRET's fiscal 2009 first quarter. During the first quarter of fiscal year 2009 IRET's revenue increased from the year earlier period by $5.2 million. This increase is due primarily to rent collected on properties which we acquired in fiscal 2008, mainly in the commercial medical segment. Although results vary by segment, the overall stabilized portfolio of rental revenue was $183,000 over the prior period.

For comparative periods, the significant factors for discussion are as follows--Net income was affected in comparison with the first quarter 2008 by lower lease termination fee income in the first quarter of 2009. The prior year included lease termination fees approximately in the amount of 380,000. We have had no lease termination fee income during the first quarter of the current fiscal year. Also vacancy in the first quarter of 2009 coupled with associated carrying costs such as real estate taxes, maintenance expense, insurance being higher, had a negative impact on net income for the first quarter of 2009 compared to the first quarter of 2008. Overall, vacancy increased by 804,000 across all segments in the just concluded quarter compared again to the year earlier period. Specifically, the impact of the first quarter 2009 vacancy at our Interlocken Corporate Center building in Edina, Minnesota, negatively impacted our commercial office segment NOI by approximately 692,000 or $0.01 per share. Upon vacancy, not only do we lose the rent but the carrying cost in operating expense are the full responsibility of the owner.

We are also seeing an overall increase in our cost performance and maintenance and increase in utility rates. For the majority of our commercial properties, these increases will be recovered from the tenants in the form of additional rent provided the space is occupied. In our multi-family segment, those costs will need to be recovered in the form of general rent increases. In our stabilized portfolio, maintenance expense increased 556,000 and utility expense increased 308,000 compared to the year earlier period. Changes reflected in the balance sheet from the year-end include the acquisition of a parcel of unimproved land in Bismark, North Dakota for approximately 576,000 and four small apartment buildings with a total unit mix of 52 in Minot, North Dakota for a total purchase price of approximately $2.5 million. This purchase included the issuance of limited partnership units valued at approximately $2 million. The Company had no dispositions in the first quarter. New mortgage debt placed on two prior year acquisitions was $11.3 million during the first quarter. The interest rate range on this new debt was 5.5 and 6.02%.

The issuance of up REIT units continues to be a source of capital in our acquisition strategy. The multi-family apartments purchased in the first quarter were acquired by issuing approximately 2 million of partnership units and in addition, apartments purchased in (inaudible), Minnesota as described in the subsequent events paragraph of our quarterly report on 10-Q form for purchase with the issuance of 1.8 million partnership units.

Under our dividend reinvestment and share purchase plan, approximately 3.2 million of common shares were issued in the first quarter. The cash purchase option which is a new component added to our debt plan about a half a year ago was 320,000. Funds from operations increased on an absolute basis from the year earlier period but declined slightly on a per share unit basis. This is primarily due to the dilution following the Company's October 2007 public offering of 6.9 million shares. Finally, a comment on new accounting pronouncements. We are currently evaluating and preparing for the implementation of the new accounting standard SFAS Number 141R, business combination. Business standard which goes into effect for IRET on May 1, 2009, requires that acquisition related costs be expensed rather than included as part of the basis of acquisition. We have enacted this standard to materially impact our future results to the extent that we acquired significant amounts of Real Estate as related acquisitions costs will be expensed as incurred compared to our current practice which is also followed by others in the industries of capitalizing such costs and amortizing them over the useful life of the asset acquired. With that, I will turn it over to Tom Wentz, Jr., Senior Vice President of Asset Management and Finance.

Thank you, Diane. I oversee the property management and financing operations covering the IRET property portfolio. This morning I will review the apartment and commercial operations by segment including recent commercial leasing trends as well as a brief update on recent acquisitions and development projects. Finally, I will conclude with on overview of IRETs activity in the debt and credit markets.

Starting with multi-family operations. Our apartment investment plan remains unchanged as we focus on a select number of communities in our target geographical area of the upper Great Plains with a plan of creating a strong portfolio of apartment units covering all classes in the select market. Our strategy also includes the acquisition of larger standalone projects in or near larger metropolitan areas to provide further diversification and price appreciation potential. Fiscal year to date apartments continue to remain stable with slight year-over-year improvement. Multi-family is currently the only segment in the portfolio that remains largely unaffected by current economic conditions including the stress due to the ongoing volatility in the credit markets. While occupancy levels increased only slightly as compared to the same period a year earlier, we entered the historically stronger fall leasing period in the best position from an occupancy and scheduled rent perspective than any point in the last two fiscal years. As reported in previous periods the continued modest improvement is due to an expanding range of factors including stable economic conditions in most of our apartment markets, lower rent concessions, rent increases and some positive impact from our focus on expense control.

While it is still too early to confirm as the apartment market is positioned for a sustained period of positive results and continued improvement, the fact that we continue to make modest gains despite the increasingly stiff opposing forces of inflation, deteriorating economic situation nationally including job losses and increasing uncertainty in the financial markets is confirmation that at present, most IRET apartment markets are exposed to a slightly different economic drum beat than the balance of the country. There is no change in our plan to carefully monitor the positive trends that are specific to our market as a driver for additional apartment development and acquisition opportunities; however increased operating costs remain a major concern as IRET enters the fall and winter months. Increased prices for utilities and other basic materials continue to be a major concern in all markets.

IRET is focused on replacing and upgrading mechanical systems in an effort to at least contain utility costs as we are of the opinion that even with the steep recent price declines, energy costs will remain elevated for an extended period as compared to earlier points in this decade. We plan to continue to move toward managing our multi-family assets internally using the same multi-year strategy as we had implemented on the commercial side of the operation with the migration for internal management commencing this fiscal year 2009 at select apartment communities. Similar to our experience on the commercial side of the business, we expect internal management to provide modest improvement to our bottom line with little to no overall decrease in costs. We still see the migration to internal management on multi-family side as a two to three year process to do it properly and profitably.

Now turning to the commercial operations. Despite some positive activities in certain markets, the prior period was relatively quiet as continued economic issues and credit market volatility continue to weigh heavily on all aspects of our commercial operations. The stress created by the poor economic environment combined with the disruption in the credit markets have also slowed on a limited basis both our senior housing portfolio as well as our off campus medical office assets; however despite the increasing number of issues, we do continue to see some positive activity in the commercial market as commercial leasing is occurring on rates which on average are accretive to our operation and at transaction costs lower than in previous periods of economic stress. Some of the few remaining positives are the lack of excess supply on the commercial office side and our exposure to a number of markets for commodities and exports are a meaningful part of the economy. As we move into the second and third quarters of our fiscal year and consistent with past practice, we will be evaluating our portfolio for those assets that may be good candidates for sale. At this point no assets have been definitely identified for sale.

Now moving on to each commercial segment specifically. Starting with industrial. The industrial segment is IRETs smallest commercial segment by square footage. Despite the failure of two large users we've been able to backfill both spaces at only a slight reduction to previous rents as opposed to having the spaces go completely dark. Outside of these two credit related events now the industrial portfolio outside the Minneapolis market remains stable; however the Minneapolis market continues to remain flat to weak as it pertains primarily to smaller industrial uses. This trend is market driven and not related to the quality or condition of IRETs assets as the vacancy and revenue issues are basically confined to three buildings which are targeted towards smaller, non-national industrial units. In spite of economic weakness, we continue to see potential transactions and a reasonable demand for industrial space. We have a good price point in all of our industrial assets which will allow us to meet market rates while still achieving an acceptable return on investment. However as with all real estate, eventually the larger macroeconomic issues will be resolved and growth returns to the market before we will get back on track in the industrial segment.

Moving on to retail. This is IRETs third largest commercial segment, by investment. The retail segment continues to remain flat which again in the current environment is good news. Our focus is on aggressively pursuing only transactions that make economic sense and have a strong likelihood of long term success based on the credit worthiness of the tenants. Additionally, we have undertaken the remodel and renovation of certain assets with good success in resolving the last remaining vacancy or in many cases ensuring a positive outcome on tenant renewals. The current plan is to focus on what we have in place by not losing renewal opportunities as well as keeping the assets competitive physically. While continued economic problems have heightened the risk to retailers in general, we don't see any significant change to IRET's retail segment in the near term outside of perhaps a further softening in occupancy, as there is simply no demand presently from large retail users or national retail chains. There has been no change in the two large vacancies that continue to drag on IRETs retail segment and given the current large box retail environment as in previous quarters, I simply do not see or forecast any pick up in demand or potential users materializing in the near term.

Moving on to the medical segment. This is IRETs second largest commercial segment by investment. Medical office and senior housing will continue to be an area of current focus due to the continued good underlying demand for medical space in senior housing facilities. This past quarter our senior housing operation did experience its first problems related to our tenants inability to refinance maturing debt and extend certain credit facilities resulting in the tenants to be unable to fund 100% of their obligations to cover lease up and development costs at our two Wisconsin projects. We see it as a temporary issue at the facility in Stevens Point as that project is now approximately 80% leased and is projected to be fully stabilized early in calendar year 2009 which does match our original budget. The other project in Appleton, Wisconsin has been suspended and we're evaluating our options which include holding until that segment of the senior market improves or selling the underlying project. The remaining 19 projects are fully current and have not been impacted by the tenants liquidity issues.

The vacancy in the medical building portfolio has been primarily related to the disruption caused by the two medical building expansions currently under way. Both projects are now complete with rent payments expected to commence later in this second quarter. The only other increased vacancy has been in our off campus medical buildings where the slow down in single family household growth appears to have now caused a pause among medical users in setting up or maintaining as large of a presence in these newer suburban commnities. However, renewal and new lease rates are expected to continue to increase as IRET benefits from the low market lease rates on existing medical assets as well as the absorption of competing medical office space combined with a higher price of construction and lack of easy credit has elevated the barrier to entry into this segment.

Moving on to the commercial office segment. This is IRETs largest commercial segment by investment. On the positive side commercial office users are still in the market and we are completing new leases and renewals at rates and terms that are slightly better than in previous challenging economic times. The primary reason to date there is not an excess amount of vacant commercial space and new construction costs remain high, as compared to IRETs investment in our assets which allows us to be competitive. Our primary focus in the current market is maintaining our assets by concentrating on existing tenants and taking all reasonable steps necessary to keep the assets functionally and aesthetically competitive by upgrading the systems or exteriors and interiors as necessary. While this strategy may increase our capital investment in the near term, over the long run this strategy will put IRET in the best position once economic conditions stabilize.

Our main concern is that continued negative conditions may create excess space due to tenant contractions of space being returned to the market, thereby prolonging any economic recovery in the commercial office segment. Despite the recent pull back in commodity prices, most of IRETs commercial markets do have a meaningful economic exposure to the commodity segment of the United States economy so I would expect to see some positive counter balance to the weak demand from other commercial tenants. As previously announced, we continue to move toward internal management as a core part of our plan of improving both occupancy as well as net income by allowing us to focus directly on our tenants rather than through an intermediary and to capture the previously outsourced management revenue stream.

Now turning to acquisitions. In the past quarter IRET completed a small apartment portfolio acquisition as a complement to IRETs existing multi-family projects in our home market of Minot, North Dakota. This project was 100% leased at the time of acquisition and remains so today. Additionally, we required some land for future building activity in other markets most notably Bismark, North Dakota.

Moving on to development projects. Even though we have a number of possible development projects in the evaluation phase, we have not formally committed to any projects at this point. We are evaluating additional multi-family industrial and senior housing projects and the three uncompleted development projects disclosed previously are all expected to be completed in the coming quarter with the exception of the commercial phase of our mixed use development in Minot, where we expect the commercial space which is primarily for our own corporate use to be completed early third quarter fiscal 2009. Additionally, we undertook the conversion of a small commercial building to an apartment complex, again as a complement to our existing portfolio in Minot, North Dakota. As previously confirmed, the Cottonwood IV apartments in Bismark, North Dakota are now complete and the project is fully stabilized with depth to be placed later this month. In addition to the current projects, there's been no change in our plan to actively pursue continued internal development of multi-family medical and senior housing projects in the range of 50 million to $75 million annually subject to no material further declines in the overall economic situation in our markets.

Finally, moving to financing and the credit markets. While credit markets have become more uncertain over the previous quarter, IRET still has been able to place new debt on acceptable terms or refinance maturing debt on terms, rates and leverage consistent with, or in most cases, better than our expiring debt. I fully expect that all fiscal 2009 maturing debt will be refinanced or extended on rates and terms that are equal to or better than our maturing debt. We do have certain assets where we will not elect to replace the maturing debt with new long term debt due to necessary renovations or otherwise shortening the hold period to provide better sales flexibility going forward. IRET's multi-family debt has primarily been placed with Freddie Mac so the recent development involving Fannie Mae and Freddie Mac are a great concern as the ultimate impact on future lending is uncertain at best. IRET will very closely monitor this situation and we do have approximately $60 million of multi-family debt coming due late fall calendar year 2009 or approximately 12 to 14 months from now. Thank you, and now I will turn the presentation back to Kelly Walters.

Thanks, Tom. At this time, we will take the questions that were submitted to us as has become our standard practice for these calls. I'll read the questions and then the appropriate member of the management team will provide the answers.

The first set of questions were provided by [John Hells] of [Schroeder] Investment Management. I'm interested in the noticeable trends in your pre-leasing activities for each of the various property classes if you feel they are meaningful? Tom?

Thank you, Kelly. In response to that question, really the only trend in the commercial market is an increased level of caution by all the tenants. We're not seeing a full scale pull back at this point. Again, many tenants even though their businesses is off or they are under increased stress are doing okay; however the uncertainty especially that pertains to credit availability has resulted in very slow and careful committment to additional space. Renewals for the most part of existing tenants have been fine.

Very well. Could you supply additional pre-leased percentages on your other construction projects beginning with 2828 Chicago Avenue which is 73% leased and how is the pipeline for additional tenants and/or fee interest?

As it pertains to the 2828 Chicago Avenue medical project in Minneapolis, Minnesota the prospects appear good. The two tenants are in occupancy, the building is currently 73% occupied, and it's just going to be completed this month. We expect to be at or above 90% occupancy on an on campus basis which includes the existing medical building, 2800 Chicago Avenue by the end of this fiscal year and 100% occupied at our new development at the South Dale medical which is in Edina, Minnesota.

How about IRET Corp., how much has been pre-leased including the space which we are taking?

Formal commercial leasing has not commenced on the main level at the IRET Corporate Plaza, in Minot, North Dakota and our focus now is on completing the apartments that are n the top two floors of the project and this is due solely to the very strong demand for multi-family apartments in Minot. We will be occupying approximately 40% of the 56,000 square feet on the main floor and while we have engaged a number of prospective commercial tenants and have issued leasing proposals no pre-leasing has been finalized other than space we will be occupying on the main floor.

Stabilized vacancy rates in the retail segments seem to have deteriorated the most from fourth quarter 2008, i.e., down 130 basis points, changed from fourth quarter '08 to 87.9% whereas the industrial segment increased 120 basis points linked. Might these be trends or can they be, can this be lumpy quarter to quarter?

Well, in response to that question, I don't see these as trends just yet. Certainly our large industrial users are the most active groups in the market, the industrial side, and most of our retail space is not focused on national retailes, and is not traditional retail space, it's more destination oriented or anchored space; however, we really are not seeing any meaningful activity in the retail market so to the extent we lose a tenant or a tenant vacates or goes out of business there really is very little in the market for a backfill opportunity at this point. So I would again as I mentioned earlier, see retail as flat to weak until the national economic trends resolve themself.

The next question kind of in those same lines. Are you finding it harder to find retail tenants these days to fill the space or do you feel that it's just taking more negotiation to get tenants to sign leases?.

Yes. All tenants are being very selective on the commercial side and this is especially so for retail. There is some retail activity. It's smaller tenants, maybe more regionally as opposed to national tenants but I would say yes, there's certainly a lack of retail tenants out looking for expansion space or new space.

All right let's move to John's last question here. It seems the non-stabilized portion is up in the overall mix as well, which looks like good news.

I would say that's true. This is certainly the plan that our acquisitions and development projects be accretive so to the extent those non-stabilized assets come on line, that's the plan and that's our expectation, that these will benefit the bottom line.

We'll move on to questions then from Carol Kemple from Hilliard, Lyons. First question, looking at the real estate rental line of 47.657 million, 44.093 million a year earlier, can you tell me how much of the year was derived from stabilized and non-stabilized property? Diane?

Yes. Of the $47.6 million in fiscal 2009 first quarter, that amount was $42.9 million, and I'm sorry, and of last year, 852,000 was from non-stabilized this year first quarter $4.7 million was from non-stabilized, but the rest all being from a stabilized property position.

Thank you. Next question we'll direct to Tom Sr. What percentage of the total purchase price of an acquisition do you expect to pay for with limited partnership units going forward?

Our program has been a significant source of property acquisitions but obviously each transaction is different so it's not possible to predict, but I think we intend to be quite careful with our cash and we are looking to complete appropriate transactions. So a significant portion of future acquisitions I think will be funded in that manner.

Tom, will you take the next question from Carol which is do you plan to issue any additional preferred or common shares?

While we're filing a new shelf registration for our shares, we do not have any current plans to issue either preferred or common at this time, and until credit issues nationally come to some resolution, I don't see that happening in the near term, but obviously going forward it is our intention to grow this Company and that would include issuing additional shares for the attraction of equity capital.

Okay, thank you. Next series of questions were provided by Chris Lucas of Robert W. Baird. First question, please comment on the economic conditions and employment situation in your junior program?

Well, as previously discussed, for the most part the economy in all of our markets except Metro Minneapolis area is actually pretty good, and even Minneapolis I would say is really only flat to slightly down, and again, I think it really goes back to what is the main driver in certain portions of the economic activity in our markets and that's agriculture, commodities and to a certain extent exports which all are doing okay to good.

Next question, please provide us with a perspective regarding tenant demand for each of the segments including changes necessary to induce tenant committments such as changes to brokers fees, tenant improvement allowances, free rent, et cetera.

Well, on the commercial side, we certainly have not seen a material increase in concessions, free rent, or increased tenant improvement allowances or higher broker fees. While those may be coming we certainly have not experienced it yet and again as I've stated previously, I think that this is due primarily to the fact that there is not a significant amount of excess commercial space in most of our commercial segments, and additionally I would say that most landlords are facing significantly higher costs from an operating standpoint and as a result, they have really no choice but to hold the line on concessions and the cost of completing commercial deals, and so at this point, there really hasn't been any dramatic increase in transaction costs.

Next question, can you provide expectations by property segment for stabilized NOI performance in the coming quarters?

Well, outside of the trends that we've discussed here today, and our expectations on particular segments strengthening, weakening or being flat, we don't prepare or provide specific NOI guidance on a number basis.

Are there any large tenant lease maturities or credit risk that IRET faces over the coming year? Tom?

Well, fortunately, we're well diversified across not only property types but also across credit exposure on the commercial side, But I would definitely say we're watching everyone very closely and the credit volatility really has turned the world upside down from the standpoint of stability on a business front, and we really don't have any significant or critical renewals but we take the position that every tenant is very important and we focus on every renewal and try and make that successful but so far we don't see any major departure from our historic success rate or a dramatic increase in credit issues involving our commercial tenants.

The last question from Chris Lucas before we turn it back over for the live, the question and answer session is in regards to IRET corporate plaza is the estimated project completion date of second quarter '09 our fiscal quarter, second quarter '09 for the shell correct and do you expect tenant move-ins during the coming quarter?

To answer your question, we're really building even though this is one building we're really kind of building it as two projects with a focus on the apartment portion as a top priority and we do expect full completion, certificate of occupancy and apartment tenants moving in, perhaps as early as yet this quarter or early next quarter with the commercial occupancy right behind it so I would say that we're expecting to complete the building in full in the next few months.

Well, thanks to all of you on the management team. I'll turn it back over now to the Operator, and begin the live question and answer session.

(OPERATOR INSTRUCTIONS) Our first question comes from Jim Bellessa of D.A. Davidson & Company.

Good morning.

Good morning.

The narrative in the 10-Q and the discussion today, you've talked about the heightened risk because of the conservativeships of Freddie Mac and Fannie Mae and then in the Q, you go on to say that there's two unclosed mortgage loans pending with Freddie Mac for $18.6 million. What are you doing there? What, have you expected to refinance something that was coming due with Freddie Mac and now you may not have them as a source of funds?

Jim, this is Tom Wentz Jr. I can answer that. Those two loans pertain to the Cottonwood apartments in Bismark and the Evergreen apartments in (inaudible), Minnesota. Both those loans were locked probably about 30 days ago and both are scheduled to close. In fact we're expecting the Cottonwood loan for $16.6 million to close early next week. We've signed all of the loan documents, all indications from Freddie Mac is it's business as usual at this point, that's all the indications we're getting and I would also note which is confirmed really by the larger financial press is that the apartment financing activities of both Freddie and Fannie are one of the sole profitable operations that they have. So in the near term we would expect to be able to complete the financings we have scheduled with them. Longer term, 12 to 18 months and what the conservatorship by the United States government ultimately means for these entities is really anyones guess at this point. So our strategy is to try and move as much through Freddie as we possibly can because they still are best source for multi-family financing. There certainly are other lenders out there but Freddy at this point still has the best terms, rates, dollar amounts and other aspects of loans so that is our plan.

If the door is closed to these federal agencies, what's the next source of debt? What other entity would you turn to?

Well, there's like companies that are certainly in this space, like Cottonwood we did get quotes from like companies that were legitimate sources of financing and you have the traditional banks. I would say at this point a number of the National Banks are out of the market for any type of competitive long term commercial funding but there are a number of regional banks especially those centered in the Midwest that have the capacity and the ability to offer loan terms that are acceptable to us and while not as good as Freddy and Fannie currently, are competitive and are pretty consistent with what our average debt looks like right now. In the narrative of the Q, you talk about purchasing a property in Bismark. It was the former location of Bank of North Dakota and you're saying that you're going to demolish the existing four story building. Why would you be doing that? What's the reason?

Jim, this is Tom Wentz Jr. again. That building is economically obsolete. That parcel had two structures on it and a newer single story building of approximately 22,000 square feet which is leased to the state of North Dakota. That building we're retaining for the near term and it's occupied and the rental rate on that really negates our holding cost on this project while we take down the tower and we're exploring the redevelopment of that location either on a commercial basis or from a multi-family basis and that parcel happens to be in a very good area next to both hospitals in Bismark, North Dakota but the building is obsolete and really has no functional use.

Thank you very much.

You're welcome.

Our next quern comes from Chris Lucas of Robert W. Baird.

Good morning guys. Tom, can you, if you can't provide and I understand but could you give us some sense as to what your expectations in terms of positive or negative are flat for four quarter NOI is by segment? Just give me a sense to what's working and not working right now.

Well, Chris just to stay consistent with the way we've answered the analysts in the market community is, is we provide guidance on the trends and I think really what we see at this point is certainly a lot of uncertainty on the commercial side of the business but for the most part, multi-family is good, medical senior housing will be stable given the length of lease terms there, and really I think it's probably too early to make a prediction one way or the other on the balance of the segments. Because there's just a lot of uncertainty out there but given our lease role and given everything else, I would say that we're probably poised to be flat to even going forward.

Okay. This may be the last time I ask this question but on the previously announced acquisition of the senior housing facility in Minot, North Dakota, what's the status on that?

Well, at this point, that's still unresolved and the underlying lender is Fannie Mae and this is their senior housing portfolio or lending group and again, it has terms associated with it that are just not acceptable on the assumption and so at this point that project still remains available to complete but the underlying debt either assumption or pay off has to be resolved and so again, we're unable to determine whether this will close, when it will close, but the overall senior housing portfolio, while it's a nice transaction, provides a nice return to the bottom line, it's not critical or central part of the overall senior housing portfolio acquisition.

Okay, great, thank you.

(OPERATOR INSTRUCTIONS) We show no further questions at this time. I'd like to turn the conference back over to Mr. Kelly for any closing remarks.

I don't think we have any closing remarks. Thank you all again for participating and we look forward to talking to you again in another quarter. We should note as well our annual meeting will be next week and I think that will be webcast, so you can tune into that if you like and all of the details will be of course on our website. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.