Centerspace (CSR) 2009 Q2 法說會逐字稿

Hello, and welcome to the Investors Real Estate Trust second quarter fiscal 2009 earnings call.

(Operator Instructions).

Now, I would like to turn the conference over to Mr. Tim Mihalick. Mr. Mihalick, you may begin.

Thank you. Good morning, and welcome to Investors Real Estate Trust second quarter fiscal 2009 earnings conference call. The earnings press release was distributed over the wire on Wednesday, December 10th and the the release and supplemental disclosure package has been furnished on Form 8-K. In the press release and supplemental disclosure package, Investors Real Estate has reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with the requirements set forth in Regulation G. If you did not receive a copy, these documents are available on IRET web site at www.iret.com in the Investor Relations section.

Additionally, an archive of the webcast will be available on our website for the next two weeks. At this time, management would like the 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 reflected in the forward-looking statements are based on reasonable assumptions, Investors Real Estate Trust can give no assurance that it's expectations will be obtained.

Factors and risks that can cause actual results to differ materially from those expressed or implied by forward-looking statements are detailed in Wednesday's press release, and from time to time in Investors Real Estate Trust's 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 are Tom Wentz, Sr., President and Chief Executive Officer, Diane Bryantt, Senior Vice President and Chief Financial Officer, Tom Wentz, Jr., Senior Vice President of Asset Management and Finance. At this time, I would like to turn the call over to Tom Wentz, Sr. for his opening remarks.

Thank you, Tim. And welcome everyone to IRET's earning conference call for our second quarter of year fiscal 2009, which closed on October 31st. We will explain our second quarter financial results in detail, outline our plans and goals for the remaining two quarters of fiscal 2009, and do our best to answer any questions that you may have. I begin with a brief overview of our current capital and liquidity position, our second quarter financial results, our expected future dividend policy, and our portfolio strategy.

IRET continues to have a strong balance sheet. On October 31st, cash on hand totaled nearly $41 million, and in addition we had $17 million of undrawn, unsecured credit lines. IRET continues to have little refinance or interest rate risk. Of IRET's $1.066 billion of mortgage indebtedness, only 1% is variable rate, less than 1% matures in the remainder of fiscal 2009, and 12% in fiscal 2010. Most of these mortgages that will need to be refinanced are secured by apartments. As of October 31st, the weighted average interest rate on our indebtedness was 6.36%.

With our January 2009 distribution, IRET will continue its practice of regular increases in distributions to our share and unit holders. Cash distributions to shareholders have increased in each of 38 of the 38 years of IRET's existence. We will do our very best to continue this practice. Turning to financial results, funds from operations for the second quarter were $0.21 per share and unit, an increase of $0.01 from our last quarter, and a decrease of $0.01 from the second quarter of the prior year. As our FFO number demonstrates, IRET has not as yet, experienced a meaningful and direct impact from the national economic meltdown.

Our home state of North Dakota, as well as the surrounding upper great plains area in which much of our properties are located, continues to enjoy a stable economy based on agriculture and energy development of wind, coal and oil resources. The metropolitan areas in which we operate, particularly Minneapolis, are not as strong. Many of our commercial tenants are facing a difficult business environment, and we realize that this will eventually impact our commercial sectors. However at this point, our financial results from our office, industrial, and retail portfolio have not deteriorated in a significant amount.

We do continue to experience inflationary pressures on real estate operating expenses, as we noted in our prior earnings call. Our revenues for the second quarter increased 9.9% from the year earlier period, while real estate operating expenses increased 13.8%. Looking ahead, we anticipate continued stability in the performance of our multi-family segment, which is located primarily in tertiary markets in the great plains, as well as in our medical office and assisted living segment, which together represent just over one-half of our real estate assets.

However, while it hasn't happened yet, our commercial office, industrial, and retail segments in metropolitan markets are likely to feel the impact of the weakening economy. We are not unmindful of the daily drum beat of dismal job loss news. With respect to our real estate portfolio, we do not expect to make a great deal of changes in the immediate future. While we have additional equity capital, we are not in a hurry to acquire additional properties, until we see some evidence of the debt market stabilizing and compelling purchase prices. Likewise, while we continue to explore selling properties, in order to compact our geographic footprint, the disarray in the debt markets may slow down this process. We are, however pursuing (inaudible) transactions with assumable financing in place.

Our focus for the remaining two quarters of our 2009 fiscal year, will be on moving forward with our program of internalizing property management. We are making good progress toward that goal, with well over one-half of our commercial properties square footage now under our own management. I will turn to our Chief Financial Officer, Diane Bryantt, who will give you a more comprehensive look at our second quarter financial results. Diane?

Thank you, Tom and good morning to everyone. I will give a brief overview of our second quarter results, and offer some comments. And then I will discuss other financial highlights of the three months ended October 31, 2008. For the three and six months ended October 31st, IRET's revenues increased by approximately 10%, compared to the same period last year. Primarily, the increased revenue was from new acquisitions. However, we did see increased revenue in our stabilized properties of $413,000 and $583,000, compared to the same periods last year. However, where we have seen a negative effect on our net operating income or NOI, due to an increase in operating expenses for utilities, maintenance, and property management in all of our properties.

Utilities and maintenance have increased, due to general increases in costs in various categories. For our commercial properties, these types of increases are generally covered by payment of additional rents by the tenant. But these are carried by the Company in the case of vacant space, and we have seen increases in vacancies in most of our commercial segments. As discussed in our 10-Q, the increase in property management expense was primarily due to an increase in our allowance for uncollectible rents, as a result of the write off of rents receivable of approximately $417,000 for our Steven Points and Fox River properties located in Wisconsin.

During the second quarter, IRET acquired one apartment building, one commercial office building, and placed two commercial medical development projects into service for a combined total of $23.8 million addition of income producing properties. We also close on two multi-family loans, one a refinance and one a new loan, for total cash out of $11 million. Interest rates on these two multi-family loans were 6.26%, and 6.38%, fixed for ten years. Cash remains strong at $40.9 million as of October 31st. Also as of that date, we had drawn $15 million on our credit line.

Each of these funds has been to cover the development projects we had just completed, and remaining project in process where financing has not yet been placed. On October 1st, we also paid our 150th consecutive distribution of $0.169 per share and UP unit to our common and limited partnership unit holders. And we also paid on September 30th, a distribution of $0.5156 per share on our preferred shares. Subsequent to the quarter end, the Company Board of Trustees also declared an increased distribution of $0.1695 for common share end unit payable in January 2009. We also declared a distribution of $0.5156 cents per share on the Company's preferred shares, payable this month on December 31st. IRET's dividend pay out ratio based on FFO per share is 80.5%.

Our quarterly and annual FFO and net cash provided by operating activity do cover the distributions paid. While fiscal '09 distribution paid for the two quarters to both common shareholders and unit holders, total approximately $26.7 million. FFO for the six months was $32.5 million. Of the total quarterly distribution, approximately $6.1 million has been reinvested into the Company, requiring no cash outlays for payments over that portion of the distribution. We have a 38 year history of increasing our distribution to shareholders each year, since we paid our first distribution in 1971. And as mentioned by Tom Wentz Sr., management without a doubt will do its best to preserve that solid record.

During the second quarter of fiscal 2009, we also filed an equity shelf registration statement to register shares for possible issuance from time to time. The shelf has a capacity of $150 million, and is replacement for Company's -- the Company's previous $150 million equity shelf that was expiring in December 2008. Current market conditions may not be favorable for an equity offering, but the shelf registration is effective and available should conditions change.

Finally, subsequent to the quarter end, we renewed two credit lines that had matured in the quarter, for another one year term each, with no material modifications or changes to the covenants contained within the agreements. Total borrowing capacity on the lines currently is $32 million, with only $10 million outstanding today, and available credit of $22 million. Thank you and now I will turn the presentation over to Tom Wentz Jr., who will comment on debts and operating results at IRET properties during the second quarter.

Thank you, Diane. In the departure from my normal order, I will start with an overview of financings and credit markets, as currently this appears to be the most interest to investors. I will then cover leasing and operation trends, and finally each IRET real estate segment, and then finish with a brief discussion of pending development and recent acquisition activity. Turning to financing and credit markets, as new addition to the 8-K supplemental data provided by IRET, we have provided a property by property break down of IRET's maturing debt, in an attempt to provide the detail necessary to confirm that absolute, that absent a complete collapse of the financial system, we do not face any material or problematic refinancing risk.

Even though IRET's leverage has been by design, higher than our peer group, our debt strategy has been basically the same since 1970, and very conservative. Except for our credit facilities which are unsecured, we secure our debt with individual or limited groups of assets, which are not cross-defaulted or cross-collateralized with other assets. We fix our debt for longer terms of ten years on average, and generally amortize principle opposed to interest only. The vast majority of the debt is nonrecourse, except for standard industry carve outs which present no material risks to IRET.

Absent a complete and full shut down of the debt markets, or an economic collapse greater than predicted, I don't see any liquidity or refinancing risk to IRET in the near term for the following reasons. First, IRET did not abandon it's core group of lenders over the past decade for the more competitive CMBS or Wall Street lending market. The majority of our lenders are operating and lending. We have provided a steady source of reliable and profitable business for these lenders, and they likewise to us. Additionally, we have a long relationship with a number of Minnesota and North Dakota banks, that appear to have avoided most of the troubled national real estate market, and also enjoy access to the state-owned bank of North Dakota, which of course, we have a very good working relationship with, as a North Dakota-based Company.

This core of banks is the source for our credit facilities. We added an additional partially secured credit facility from Dakota Bank of $5 million at prime, variable monthly, with no floor and a 12 month term. We have renewed the $10 million First International Bank facility for another 12 months, and expect to shortly increase the capacity to $14 million. The terms are 50 basis points over prime, variable monthly, with a floor of 5.3%. We have extended the Bremer unsecured credit facility through September 2009, at $10 million at prime, variable monthly, with no floor and subject to certain financial covenants that are all well covered. The final larger credit facility of $12 million with First Western Bank and Trust does not mature until 2011, as the original term was 60 months.

Second, in the coming 12 months, the majority of maturing debt is secured by multi-family assets. Our multi-family markets are performing as well as at any point in the last decade. Additionally, the multi-family loan market is still functioning with numerous lenders, and of course the recently nationalized lenders of Freddie Mac and Fannie Mae. IRET has completed loan agreements with Freddie Mac, covering three apartment complexes in Topeka, Kansas, as well as one project in Billings, Montana, Castle Rock apartments.

IRET lowered its interest rate from 7.55% to approximately 6%, for the Topeka apartments and from 6.66% to 6.5% on the Billings project, fixed the term for ten years, plus one year variable, increased the amortization from 25 years to 30 years, eliminated all funded escrows and reserves, and will pull out approximately $9.5 million of cash. The net result is additional cash to IRET for other corporate purposes, or to address commercial debt maturities, all while improving every performance metric covering our Topeka apartments and the project in Billings.

Third, even assuming the commercial debt market shuts down completely in the near term, IRET does not have any commercial maturities which until August 2009. However in our experience, the commercial loan market appears to be functioning for those borrowers with proven industry experience, understandable balance sheets, and reasonable leverage requests, all profiles which IRET meets. I certainly expect higher interest rates, lower leverage and a return of traditional prudent lending practices that disappeared over the last six years or so.

At IRET, in October, IRET brought one previously unencumbered commercial building to market. We locked debt on a smaller medical office building in Kansas City at approximately 6.5%, fixed for ten years, at 60% loan to value. Just to be absolutely sure we are not surprised by changes in the commercial debt market, we have started the process of placing new or renewing debt on all commercial loans maturing in the next 18 months. To further protect ourselves, we plan to dual track some assets for sale, just in case selling makes more economic sense.

We see this increased sale activity as a very limited strategy, to simply hedge against further deterioration in the commercial loan market. While assets may be formally listed for sale, many will have an internal reserve price that must be achieved before we actually sell. We do not need to sale any assets to cover any pending or fixed obligations. I believe our consistent debt strategy has positioned IRET well, to weather any further economic or credit market deterioration, as well as to take advantage of any development or acquisition opportunities that may appear over the coming quarters.

Moving to leasing trends and internal management project, I have been with IRET for only ten years, I have certainly seen worse apartment and commercial real estate conditions in that time. However, never do I recall the current level of predicted gloom, doom and pending disaster. While the conditions in IRET's present markets do not match the news reports, our approach is not to ignore the warnings. As a result, we have adjusted our business operations accordingly to focus capital on renewing current tenants and attracting new quality commercial tenants.

Additionally, we will continue our measured move toward internal commercial and multi-family property management, as a further means to improve results. In the coming quarter, we plan to transition the management of another group of externally managed commercial assets, to our internal property management department. As well as commence the start of internal residential property management for our soon-to-be completed apartment complex in Minot.

Moving to each individual segment, and starting with apartments, our apartments have performed very well. And I see this trend continuing through 2009, and absent a significant and prolonged increase of unemployment in our markets. While some slowdown has started to occur, there does not appear to be any forces yet visible, that would negatively disrupt the strong fundamental in basically all of our multi-family markets. We have declining energy prices, reduced competition from single family, town and condo homes, due to the disruption in the mortgage market. And there appears to be significantly reduced development activity due to tighter capital markets, and a reluctance by investors to deploy equity capital in real estate.

Of course, job losses directly and immediately impact apartment fundamentals, as there is a correlation between where job losses generally occur in our market and our renter profile. Otherwise, we have a very good affordable housing alternative, and one that has now seen a return of a vital part of a healthy apartment market, and something that has been missing for the past seven years or so, the renter by necessity. Those are renters that are either saving to go buy a house, can't afford one or don't qualify. I believe we have finally emerged from the prolonged period of the only renters being those who rented by choice.

I certainly expect the larger national economic problems to make their way to our market. As a result, to be on the cautious side, we have scaled back on discretionary capital improvements designed to drive occupancy, as well as our previously discussed energy efficiency capital programs. Both will return as they make long term sense. I would stress that on the apartment side, we do not anticipate occupancy exceeding its current level of approximately 95%, as our normal management plan considers 95% as fully occupied.

Once we reach 95% consistently in a market, without a high level of concessions or other incentives, that signals either rent increases are necessary, new construction, or both can be supported by the market. Some vacancy is necessary to maintain an understanding of the multi-family markets. However, again, current circumstances seem to recommend being more cautious, so we are closely evaluating this long held strategy of raising rents to cap occupancy at 95%, as well well as considering additional development.

Turning to commercial segments. Previously I have discussed each commercial segment in detail, but with the enhanced information in our 8-K, I will provide a more broad overview. We are certainly seeing downward pressure on all commercial segments, but overall this still appears due to economic conditions rather than fundamental problems with the portfolio. Clearly, the current economic conditions are placing more stress on commercial office and commercial retail, and we certainly see that continuing. Contrary to previous downturns however, on the commercial side we are still experiencing demand for space across all segments, including retail and commercial office on a limited basis.

Commercial tenants are certainly being more cautious in their approach, but there is activity by the tenants in the markets for new or expansion space. Retail and commercial offices clearly experiencing the most downward pressure, and I expect that to continue until unemployment bottoms out and consumer spending rebounds. The strategy for at least the remaining fiscal year will be to focus our capital on retaining current tenants and securing new tenants. This can be very dollar intensive process, but one which secures our ability to ride out what may actually be coming.

In past period, we have intentionally passed on commercial deals, due to the economics being below our targets and a well-based opinion on when the market would recover. We simply held out for higher rent, based on our calculation that the down time hold cost, would be exceeded by the higher rents when the market returned. Even though I believe that the current market is giving some signals this is again, probably the proper long term strategy, right now the sheer level of dire predictions, has prompted us to shift our focus to an agressive "here and now" leasing strategy. We have the capital to do this, and it will take the form of TI dollars, concession, commissions and lower rents. However, when we employee this strategy on the commercial side, we tend to seek shorter lease terms, even though it may result in lower returns or trapped investment deal costs.

Looking at each segment in detail, and starting with industrial. Industrial was relatively stable in the prior quarter, with the exception of the default of the Wilson's Leather at our large Minneapolis facility. We immediately released a portion of the facility to a new tenant, that had purchased a portion of the Wilson's retail business. This default accounts for a large portion of our decline. The building is a strong asset with a low cost basis, so for long term we do not anticipate this to be a financial issue. On the other end of the spectrum, we've had a large tenant in the Des Moines industrial market expand and extend, providing us with good occupancy in that market at least through 2009. I would anticipate that in the near term our industrial assets may experience further pressure.

Moving to our medical portfolio which includes senior housing, is holding basically even, despite the credit issues plaguing one of our senior tenants -- our senior housing tenants affiliated with Sunwest Management. On the medical office, our medical office is primarily on-campus, so even though we fully expect reduced capital spending and other cost reductions by healthcare industry, we believe such reductions will come to the on-campus locations last. The off-campus medical market appears to be in more immediate stress, but again IRET has a very diverse medical office building portfolio, with only a few off-campus assets, that have only modest vacancy risks at the present time.

On the senior housing side, the Edgewood portfolio is fully current under the lease terms through December, as the Sunwest affiliated tenants have relinquished their ownership to another operator, with which IRET has had a long standing business relationship. The Sunwest affiliated tenants at Fox River, Wisconsin have defaulted and we are proceeding to take the location back, and will most likely sell that the location, and pursue collection under the various guarantees. The final location for senior housing in Stevens Point, Wisconsin is still in lease up, with the tenant paying the the cash flow toward the lease obligation. We expect the Stevens Point location to be fully back on track by spring 2009, with any past due receivable fully repaid by the end of 2009 calendar year.

Turning to the retail segment, which is under the most stress. Even though our portfolio is mostly destination retail in more established locations, we have improved occupancy slightly over prior periods at the expense of net rents. We expect further contraction of existing tenants, as the current economic environment is forcing more store closings, and it appears that the rent levels and transaction costs to convince retailers to remain in or enter locations, makes no risk adjusted sense at this time. As a result, it is more likely that any sales which take place in the coming quarters, will be retail assets, as these assets are generally more expensive to release and reposition after experiencing vacancy. IRET may seek to avoid this capital cost for certain retail assets in order to allocate the capital to the commercial office sector, or forego aggressive retail, releasing efforts until market conditions improve, or in the case of a strong credit anchor tenant.

As a result commercial retail is expected to trend down further in the coming quarters. Finally, even though -- finally turning to commercial office, Again, this segment is under a significant amount of negative economic pressure. Unlike retail there is still fair to good demand among users. Additionally, the economics of retaining and securing commercial office tenants still works economically, as contrary to the prior office downturns in 2002 to 2004, there is not much new development space coming online. Most competition is from existing vacancy -- vacant space or newly vacant space due to downsizing of business failures. I expect both rents and occupancy to decline through 2009, but absent a very severe and prolonged downturn, given the lack of development and tighter credit markets, the rebound in commercial office demand could be very rapid. Until that time our focus is one of -- on tenant retention, securing those tenants that are in the market, and cost control to bring our assets through the current economic environment in the best shape possible.

The final topic I will discuss this morning is acquisitions and development projects. The recent acquisitions are detailed in the filings. And while we are always evaluating possible acquisitions, and the current economic period is no exception, we have not committed to anything at this point. As for development, the two medical on-campus projects are complete, with tenants in place and rent being received. The [Southfield] expansion is 100% occupied with an expected return on an unleveraged basis of approximately 9%, and the Chicago Avenue project in Minneapolis, Minnesota is 67% leased and is cash flow neutral pending further leasing. The mixed use project in Minot, North Dakota is expected to be completed in early January, and apartment leasing has commenced with a strong response.

While IRET does have available land for additional multi-family projects in Bismark, North Dakota and Rochester, Minnesota only limited planning has been done and no decision to proceed will be made until spring 2009. Likewise, IRET has land for commercial development that is being evaluated, but again no decision to proceed has been made, and absent significant preleasing, it's unlikely to go forward unless commercial market conditions improve dramatically. That concludes my presentation this morning. Thank you, and I will now turn the call back to IRET's Chief Operating Officer, Tim Mihalick

Thanks, Tom. The following questions have been submitted in advance, by Carol Kemple, Research Analyst from Hilliard Lyons and we will address those. The first question is in two parts. It looks like property management expense, as a percentage of real estate revenues went up. Is there a specific reason why? And I will ask Diane Bryantt to address that.

Yes. As we stated earlier, included in the category of property management expense, is where the management of bad debt, uncollectible rent, allowance accounting is held and as we talked about Stevens Point and Fox River did have $417,000 combined write offs during the quarter.

Thanks, Diane. The second part of the question, I know on previous calls, you discussed moving toward internal property management. When should we start seeing a benefit on the income statement from that initiative? And I would direct that to Tom Wentz Jr..

Currently, IRET is living in two worlds. We have external property management and internal property management. Both of those are tracked on the financial statements that are presented to the public together. Internally we do track the property management separately, to evaluate the performance. And at this point, the reasons that we are pursuing property management, are being confirmed by our internal monitoring and tracking. And until we are fully internally property managed, it is going to be difficult to present the individual results or the result for that segment on the public. But it is, it is doing what we anticipated, and we continue to move forward with it.

Thanks, Tom. The second question from Carol is, "What is your outlook for acquisitions and dispositions?" And I believe we addressed that earlier. The third question, "Do you expect to slow down or cease development projects in the current environment and to what degree?" Again,that question was answered in earlier delivery. And finally the fourth question, "Have you renewed your two lines of credit yet that are due this month? How are rates looking? Did you notice any changes or challenges in the financing process that you had not seen before?" And again, we addressed those questions earlier. At this time then, I would like to turn the call over to the conference call operator for questions.

Thank you.

(Operator Instructions).

Our first question will come from Mr. David Scott from Investors Real Estate Trust, Trustee and Shareholder, please go ahead, sir.

Hey, Tim.

Morning.

How are you?

Good.

Good. Listen, I would like to say that you guys have done a great job as far as being proactive on your debt, and I think that's great. Thanks for the report there Tom Jr. But one of the questions I had was, when you look at our stock performance relative to our peers over the past 12 months, it appears that they, we have performed out performed all of these other REIT's. And my question is, what do you think that's a function of?

Thanks for the question this morning, David. And I hope the weather is treat up right out there in Wyoming.

It is not snowing yet.

Okay. Well, hopefully the cold weather is going to stay away before it gets up to North Dakota. Thanks for the question. I think the answer is both. IRET has been careful to manage the various parts of our capital structure, and we continue to stay focused in the upper midwest as a preferred geographic location. And I think as we touched on earlier, we monitor our debt placements on a property by property basis, thereby allowing IRET to have some flexibility to react as the debt matured. And asset-wise, we continue to monitor performance daily. As we spoke early we have not seen the volatility that has been seen outside of our area, but that doesn't mean we have immune to that down the road. So I hope that answers your question.

I appreciate it, Tim. Thanks.

Our next question comes from Jim Bellessa, the VIce President of research from D. A. Davidson and Company. Please go ahead.

Good morning.

Hi.

This is for Tom Jr., During his presentation, he identified a potential commercial strategy. And it said, he said a "here and now" and then something else. A "here and now strategy", what else did you describe that as, and can you elaborate what that strategy is?

Yes, Jim basically on the commercial leasing side, what we normally have done is evaluated each particular leasing transaction versus what we view the long term market to be. And in certain downturns, tenants will expect or demand economic terms on their leases that just don't make sense long term, but are being driven by the current economic environment. And in past market downturns we have made a conscious decision to reject those deals, having full faith and confidence in the market and our buildings.

Currently what we are doing is we are taking a step back from that long held strategy, and we are saying if this is as bad as warned, does it make sense to take what's available now, even though we don't necessarily view it as the right thing to do long term, what if? And so, we are taking a hard look at each deal, and what I am saying is that we may shift our strategy to, in essence match the market, become more aggressive in an attempt to secure any available commercial tenants looking for space, and to renew any tenants that are in our buildings. So really it is a more aggressive leasing strategy from a capital standpoint.

For Tom Sr., you have been in the business a very long time. Is this as bad as warned?

Well, not yet, it is not. Certainly, our Company has been through a more severe downturns in the 80's and the 90's, that took down Trammel Crow and other long standing real estate companies. And we had no difficulty in that period, and I would say at this point, we are still not seeing any problems. But I would say, I don't know that I have seen such doom and gloom presented from the media and a meltdown that seems to apply to every segment of the economy. So as we have been saying in all of these calls, we have been very cautious over 38 years and it has served us well. If anything we are even more cautious now. I think we are in a very good position to ride out a severe storm, but we certainly aren't going to go out looking for additional risks to assume in these times because this certainly is discouraging to read and hear all of the job losses that seem to be coming.

Thank you very much.

Thanks Jim.

(Operator Instructions). We will now pause while parties enter the queue. We have a question from [Paul Wazaki], an Investor. Please go ahead.

Yes, would you just comment on the general market as it relates to resales, give us some color on what is happening in the resale market of properties in terms of valuations.

Well, I certainly think you are seeing a change in cap rates. Obviously, the cost of debt, if it is available is roughly 1% higher than it was just a few months ago. So we are are seeing some changes in prices of product that is coming to market. But in our opinion, not yet enough. I don't -- I think we are intending to sit and wait for further deterioration in prices. I think that's probably inevitable until the stimulus packages and the economy itself turns around. I'm not sure if that answers your question, but --

Thank you. That's fine.

Again we have a question from Jim Bellassa, Vice President of Research from D.A. Davidson and Company. Please go ahead.

Good morning, again. Have you ever considered or would you be considering in this time of downturn of this market, combining with some other REIT's, that you could build forces now on a down market, so that when the up market comes you'll, you could be benefiting shareholders?

Well, I think we would also considers that, we are not involved in any negotiations at this point. I guess the concern I would have, is that we are unwilling to take on any significant maturing debt issues that another entity might have, which is what is getting all of them in trouble. So I think that would be a very sensitive issue for us, in connection with any acquisition but the answer is yes, we continue to look at all aspects adding to our portfolio. Also as we have indicated, we do want to compact our geographic footprint to facilitate internal property management. So, those efforts are on going. At this point we have not made any commitments to any particular transaction. We obviously would be open to an acquisition or a merger if, if it would be a benefit to our shareholders.

Thank you.

We show no further questions at this time. I would like to turn the conference back over to Mr. Tom Wentz Sr. for any closing remarks.

Well, thank you all for attending our earnings call. As I think you have learned today, our goal when we started this Company in 1970, was to be a stable income producing investment, avoiding high risk and potentially high return or high loss situations. In this environment, you have my assurance and that of all of the Company officers, that we will continue to be good stewards of your investment dollars, and do very best to continue our track record. And I think we are well positioned to do that. Again, we caution that these seem to be unprecedented times and we -- but we will do our very best to continue to provide a stable dividend and increasing dividend to all of our shareholders. So again thank you for joining us today.

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