Centerspace (CSR) 2009 Q3 法說會逐字稿

Hello and welcome to the Investors Real Estate Trust third quarter fiscal 2009 earnings conference call and webcast. 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 like to turn the conference over to Tim Mihalick. Mr. Mihalick, you may now begin.

Thank you and good morning. I will first off apologize for my cold and get through my part, but welcome to Investors Real Estate Trust's third quarter fiscal 2009 earnings conference call. IRET's quarterly report on Form 10-Q for the third quarter was filed yesterday, and the earnings release and supplemental disclosure package were posted to our website and also furnished on Form 8-K yesterday as well.

In the earnings release and supplemental disclosure package, Investors Real Estate Trust 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 have not received a copy, these documents are available on IRET's 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 reflected in the forward-looking statements are based on reasonable assumptions, Investors Real Estate Trust can give no assurance that its expectations will be achieved. Factors and risks that could cause actual results to differ materially from those expressed or implied by forward-looking statements are detailed in yesterday's earnings release, and from time to time in Investors Real Estate Trust filing with the SEC. Investors Real Estate Trust does not undertake a duty to update any forward-looking statements.

With with me today from management are Tom Wentz, Sr., President and Chief Executive Officer, Diane Bryantt, Senior Vice President and Chief Financial Officer; and 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 this morning's call. During the past quarter, IRET's Board finalized and announced IRET's long-standing management succession plan. As previously disclosed, as I approach my 74th birthday, I will retire from my position as Chief Executive Officer and President, effective at this year's 2009 Annual Meeting of Shareholders, which is scheduled for September 15, 2009. I will be succeeded in those positions by Tim Mihalick. Tim will be succeeded, the Senior Vice President and Chief Operating Officer, by Tom Wentz, Jr.

The remainder of our senior management team will continue in their current positions. I will remain with the Company on a part-time basis, as a Senior Vice President and Chief Investment Officer, and will continue to oversee acquisition of additions to IRET's real estate portfolio.

Both Tim and Tom Jr. are well known to IRET shareholders. Tim has been with IRET since 1981, and has been Chief Operating Officer since 1977, and a Trustee since 1999. Tom Jr. joined IRET in 1999 and has served as a Trustee since 1996. I would take this opportunity to express my confidence in their experience, integrity, and judgment, and my conviction that IRET's management team is prepared to carry on managing the business in the best interests of our shareholders, as has been our history since Roger O' Dell and I founded this Company almost 39 years ago.

I will now begin with a brief overview of our current capital and liquidity position, our expected future dividend policy, our third quarter financial results and our portfolio strategy. We continue to have a strong balance sheet and good liquidity. On January 31, cash on hand was $31 million, and in addition, we have undrawn, unsecured credit lines of $29 million. All of the fiscal 2009 maturing loans have been successfully refinanced, and good progress is being made on renewing all loans that will mature in fiscal 2009, over one half of which are secured by apartments.

Turning now to our dividend policy. With the April 1 distribution of $0.17 a share, IRET continued its practice of regular increases in its cash distributions to our share and unit holders. At this point in time, we fully anticipate a continuation of our long-standing distribution policy.

Turning now to our financial results, funds from operations for the third quarter were $0.19 per share and unit, a decrease of $0.02 from our last quarter, and from the third quarter of the prior year. A doubling of snow removal expense and softening in our Office segment were the primary factors for this decrease. The third quarter also saw a modest increase in occupancy and financial results from our Apartment segment.

Our Retail, Medical and Industrial segments saw little change, and as previously mentioned, our Office portfolio experienced a decline in occupancy and earnings. We continue to benefit from the fact that much of our real estate portfolio is located in the north central United States, where the economy is influenced by the production of food and the development of wind, coal, and oil resources.

Turning now to our strategy for our real estate portfolio, in this unprecedented turbulence in our economy, we do not expect to make a great deal of changes in the immediate future. While we do have additional equity capital to invest, and we are seeing some properties coming to market at much more attractive pricing, that market continues to be very challenging. We are not ready to commit our equity cash until there is evidence that the debt and capital markets are stabilizing.

We will continue to explore selling properties in order to compact our geographic footprint as part of our strategy of bringing property management activities in-house. However, the disarray of the debt markets has slowed this process. We are, however, continuing to actively pursue (inaudible) transactions with assumable financing in place.

But for the immediate future, our continuing focus will be on moving forward with our program of internalizing property management. We have made and continue to make good progress towards that goal. Our Chief Financial Officer, Diane Bryantt, will now give a more comprehensive look at our third quarter financial results. Diane.

Thank you, Tom. Good morning, everyone. And this morning I'll give a brief overview of our third quarter results, offer some comments, and then discuss other financial highlights of the three months ended January 31, 2009.

For the three and nine months ended January 31, IRET's revenues increased approximately 11%, compared to the same periods last year. Primarily, the increased revenue was from new acquisitions. However, third quarter results were negatively impacted by the above normal snow fall and colder than average temperatures in the upper Midwest markets, where a majority of our properties are located.

Snow removal costs alone were $1.9 million in the third quarter, more than double of the comparative quarter in the previous fiscal year. This expense, which is included in the Maintenance category, is generally recoverable from our commercial tenants in the form of additional rents or CAM; however, the increase in vacancies, particularly in the Commercial Office segment, will result in IRET carrying more of this additional expense. In the Multi-family segment, these costs are the expense of the owner, and they're only recovered over time with increased rents where possible.

Utilities expense increased $777,000 from the prior fiscal quarter, of which $457,000 was from stabilized properties. Again, these increased costs have the same impact and recoverability factors as previously mentioned with snow removal costs. Our property managers have recognized that these additional costs have had a significant impact in operations, and will monitor and reduce operating costs and conserve cash where possible.

Turning to the balance sheet, during the third quarter, IRET acquired a 70,000 square foot office warehouse property located in Minnetonka, Minnesota, for a purchase price of $4 million, consisting of a $3 million in cash and the balance payable under a promissory note with a 10-year term. We had no dispositions in the third quarter.

Also during the quarter we closed on two mortgage loans, one multi-family refinancing and one a new commercial office loan, for a total cash out of approximately $5 million. Interest rates on both of these loans are 6.5% fixed for ten years.

Subsequent to the end of the quarter, we renewed financing on two multi-family apartment complexes in Topeka, Kansas. The interest rates on these two loans were 5.89% and 5.95%, ten-year fixed, with a 30-year amortization. Approximate cash out on these two apartment complexes was $5.7 million.

In addition, we also placed debt on the Minnetonka, Minnesota, property that we acquired in the third quarter. The loan amount was $2.5 million, the rate was 6.25% fixed, with a three-year term. These rates on the recent debts are still below the 6.34% weighted average of our mortgage portfolio. IRET does not have any further exposure with maturing debt in fiscal 2009.

As Tom Wentz, Sr. stated, cash remains strong at $31 million, as of January 31. As quarter end we had drawn $8.5 million on our lines of credit, and recently we repaid $3 million of this following the receipt of proceeds from the previously mentioned refinancings. The use of funds from our credit lines during the quarter was to fund development projects.

During the quarter, we renewed the two maturing credit lines with First International Bank of Watford City, North Dakota, and Bremer Bank in Minot, North Dakota. The First International line of credit was increased to $14 million, whereas the Bremer line stayed with available credit of $10 million. In addition, we obtained a new $5 million line of credit at Dakota Bank in Minot, North Dakota.

In January of this third quarter, we paid a regularly quarter distribution of $0.1695 per common share in units. Subsequent to our quarter end in February, our Board declared a regular quarterly distribution of $0.17 per common share in units, payable on April 1, 2009. The April distribution will be IRET's 152nd consecutive quarterly distribution at equal or increasing rates.

Cash distributions for the three quarters of this fiscal year to both common shareholders and unit shoulders totaled approximately $31.6 million while $8.7 million has been reinvested into the Company through IRET's dividend reinvestment plan. Funds from operations for the nine months was $48 million, with a total distribution of $40.3 million with a per share FFO payout ratio of 89.2%.

Over the past ten months, approximately 30% of listed Real Estate Investment Trust has suspended or cut their distributions, or have switched to paying their distribution partly in stock, in lieu of cash, under a recently issued IRS revenue procedure, all in an effort to conserve cash. We have not found it necessary to do this, although I want to assure you that we are watching our cash closely, and are taking a hard look at costs in every area of our business and implementing cost-cutting measure,s as well as monitoring credit and debt market conditions closely as Tom Wentz, Jr. will discuss in more detail in his comments.

I would like to reiterate what we stated in our second quarter conference call, that IRET has a 38-year history of maintaining or increasing our distributions to shareholders each year and every quarter, since we paid our first distribution in 1971, and we are working hard to preserve that solid record, despite unprecedented challenges. Now I will turn the discussion over to Tom Wentz, Jr., Senior Vice President of Asset Management and Finance.

Thank you, Diane. This is Tom Wentz, Jr., and good morning, everyone. Continuing with the revised order of presentation started last quarter, I will begin with an overview of financings and credit markets, as this still appears to be of the most concern to the investment community. I will then cover leasing and operation trends, and finally each IRET Real Estate segment, finishing with a brief discussion of development and acquisition activity.

Moving to financings and credit markets. Consistent with the information provided in the second quarter in the 8-K supplemental data, again, we have provided a property breakdown of IRET's maturing debt, in an attempt to provide the detail necessary to confirm that while the financing and debt markets are quite challenging, IRET has and expects to continue to refinance its maturing debt. 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 inside the portfolio. We generally fix our debt for longer terms of ten years on average, and generally amortize principal, as opposed to interest only borrowings. The vast majority of our debt is non-recourse, except for standard industry carve outs which present no material risk to IRET.

While lending conditions for larger commercial assets and apartments have clearly tightened over the last quarter, due to higher underwriting requirements, as well as both an actual and perceived decline in operating fundamentals across all markets by lenders, I don't see any material liquidity or refinancing risk to IRET in the near term, for the same reasons I discussed during the last call. Again, briefly, those are good and long-standing relationships with a large pool of lenders that are still active in the market.

Second, in the coming 12 months, the majority of maturing debt is again secured by Multi-family assets with good operating fundamentals. Our Multi-family markets continue to perform well. IRET has now closed the three loans discussed during the last call on terms, rates, and amounts consistent with our reported projections last quarter, and per the detail provided by Diane Bryantt.

Additionally, IRET has entered into signed loan commitments to refinance maturing debt in the approximate amount of $11.2 million covering the Park Meadow Apartments in St. Cloud, Minnesota, and Terrace on the Green Apartments in Moorhead, Minnesota. We expect these loans to close on or about August 2009, or approximately three months prior to the scheduled maturity of the referenced debt. In both cases, IRET lowered the interest costs of the expiring debt with $9 million locked at 6.41%, and $2.3 million locked at 6.53%, fixed for ten years with an additional 12-month extension available at the end of the loan term, at the lender's then floating rate. While these rates are slightly above our average weighted interest rates currently, they still represent an improvement over the expiring debt's terms.

Finally, even though close at hand, the commercial debts maturing later in 2009 are relatively small, with the exception of the debt covering IRET's joint venture at the Mendota Heights Office Complex in Minnesota. While not contractually finalized, and nothing is certain in the current environment, IRET and its partner have received a commitment to refinance the Mendota Office project's existing $27 million of debt from a lender with a long-standing relationship with both IRET and our joint venture partner. As a result, we expect to fully replace this debt with a new loan, at a slightly lower rate and some modest cash out. Absent unforeseen events, I expect these Commercial projects to all be refinanced in full, with some limited cash out.

Again, it is our experience the Commercial loan market appears to be functioning for borrowers with good assets, proven industry experience, understandable balance sheets, and reasonable leverage requests. We meet these requirements almost without exceptions for assets with maturing debt over the next 24 months. As previously stated, I certainly expect higher interest rates, lower leverage requirements, and the return of traditional, prudent lending practices that disappeared over the last six years or so.

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, in case selling makes more economic sense or refinance prospects appear not to be possible. We see this increased sale activity as a very limited strategy to simply hedge against further deterioration in the loan market.

While assets may be formally listed for sale, many will have an internal reserve price that must be achieved. We do not need to sell 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.

Small comfort, but in my opinion, a significant percentage of our peer group will have material problems before we do, most likely prompting further government intervention into debt markets, similar to the Corporate Bond Market Guarantees. As a result, I believe IRET will successfully navigate the current lending and debt market environment.

Turning to leasing trends and internal management. Despite the events and related economic news over the past three months, it was actually a relatively stable and quiet quarter. We remain very cautious with cash, and have scaled back discretionary capital improvements, with our focus squarely on tenant retention. This will likely remain our strategy until the markets give some indication of direction.

As reported previously, we are adjusting our business operations to focus capital on renewing current tenants and attracting new quality Commercial tenants. We will continue our measured move towards internal Commercial and Multi-family management as a further means to improve results, even though this means adding additional staff. We have transitioned another group of Commercial buildings to internal management over the previous quarter, as well as commenced internal Residential management of 81 apartment units.

Now moving to each segment, starting with the Multi-family segment. Our apartments continued to perform well, and I see this continuing through 2009, absent a sharp increase in unemployment in our apartment markets. Some markets have had new competing projects open, as well as job losses, so we do not expect to see any further material strengthening in a majority of our apartment markets.

The impact of the federal stimulus package is unknown at this time, but in states such as North Dakota, South Dakota, and Montana, the amount of federal dollars as a percentage of the overall annual budget for the state, is very large. For example, in North Dakota alone, the 2010 budget is projected to be $3.9 billion, with eligible federal stimulus of almost $600 million. The amounts are similar in the other two states.

Our region enjoys one of the lowest unemployment rates in the nation, with all states below 5%, except Minnesota. Of course, job loss directly and immediately impacts apartment fundamentals, as there is a correlation between where job losses traditionally occur in our markets and our renter profile. Otherwise, we have a good, affordable housing alternative.

There is little doubt that the larger national economic problems will eventually make their way to our markets. As a result, and to be on the cautious side, we have scaled back on discretionary capital improvements in our Multi-family portfolio as well. And as we previously discussed, we have also scaled back our Energy Efficiency capital programs. Both of these will return as they still make sense in the long term.

I would stress on the apartment side, we do not anticipate occupancy exceeding its current level of 95%, as our normal management plan considers 95% occupancy in the Multi-family portfolio as fully occupied. Our focus will be on retaining quality renters in the near term until an economic direction is clearly established.

Now moving to the Commercial segment of the portfolio. 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. There has been no significant change in the Commercial side of the operation, except the previously disclosed loss of the large single tenant Wilson's Leather in Minneapolis, Minnesota, as they have ceased operations due to bankruptcy.

Caution and deferral of any major decisions, especially moving to new Commercial space, appears to be the rule of the day among our Commercial tenants. Even though we are meeting our historical renewal rates, there is a decline in new and expansion leasing, as well as pressure on rates as tenants down size to conserve cash or defer expansion plans. Most Commercial tenants are focusing on riding out the current economic situation, rather than closing down locations completely, unless this is absolutely necessary.

Even in light of the economic headlines, one curious trend that seems to be continuing is new leasing. As I have mentioned in previous calls, in pass down terms, we have endured a period of absolutely no Commercial prospects in the market and no new Commercial leasing activity in the marketplace.

However, in the current period, we continue to have acceptable market activity in our Commercial portfolio. It is difficult for me to form an opinion as to why, without a longer study period. But one explanation is IRET does have a relatively economical Commercial option, as our price per foot is well below new construction, and some of the prices paid by our competitors over the past few years. We are certainly seeing continued downward pressure on all Commercial segments, but overall, this still appears due to economic conditions, rather than fundamental problems with IRET's portfolio.

Clearly the current economic conditions are placing more stress on Commercial Office and Retail, and we see that continuing. I expect this pressure to continue until unemployment bottoms out in our markets and consumer spending rebounds. The strategy remains to focus capital on retaining current tenants and securing new tenants, provided the credit of those tenants is acceptable.

This can be a very dollar intensive process, but one which secures our ability to ride the current situation out. We have the capital to do this, and it will take the form of TI dollars, concessions, commissions, and lower rent. However, when we employ this strategy on a Commercial side, we tend to seek shorter lease terms, even though this may result in even lower returns or trapped investment for deal costs. Longer term, I see no material issues with our portfolio, nor any lasting impact from scaling back certain capital expenditures, as we will always do life, health, safety, as well as maintain the appearance of our assets to a level appropriate to their position in the market.

Moving to the Industrial segment. We had good new and renewal leasing activity in the Industrial segment, again, primarily because we can provide a very competitively priced product and still make an acceptable rate of return.

Smurfit Stone Container has filed Chapter 11 bankruptcy, but is current on base rent at both facilities owned by IRET. While we expect both locations to remain in operation, as Stone Container has indicated, it does not plan to close locations as part of its Chapter 11 bankruptcy reorganization; however, we are unsure of the outcome at this time. I certainly would expect increased pressure in the Industrial segment, the longer the current recession continues.

Our Medical portfolio, which includes Senior Housing, is holding basically even despite the credit issues plaguing our two tenants that are affiliates of Sunwest Management, Inc. Our Medical Office space is primarily on campus, so even though we fully expect reduced capital extending in the health care arena and other cost reductions in the health care industry, we believe such reductions will come to the off-campus locations first, as well as reduced expansion clinic construction in new markets. The off-campus 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 medical assets that currently only have modest vacancy risk.

On the Senior Housing Side, the Edgewood portfolio is current through March, 2009, as the Sunwest affiliated tenants have been replaced with another operator at 19 of the 21 locations. Like all Commercial segments, the Retail sector is also under pressure even though it is mostly destination retail in more established locations. I am sure we will experience additional credit stress from some of our Retail tenants, but I do not expect a dramatic decline in occupancy unless a larger Retail user unexpectedly defaults or closes.

For the most part, we are successfully renewing expiring Retail leases, but at lower rates, and fortunately, lower tenant improvement and leasing transaction costs. We're also doing shorter terms for both parties' advantage, basically simply allowing the tenant to remain in operation until better days return. In the current market environment, I do not anticipate much in the way of new Retail leasing, as the transaction costs to convince a retailer to open a new location simply make no economic sense.

IRET will most likely defer any further exterior or elevation remodeling or repositioning in its retail portfolio until the market conditions improve to a level where such capital expenditures are rewarded by tenants. Earlier this year we did extensively remodel a number of smaller Retail centers, with good response from the existing tenants.

To the extent IRET does engage in any sale activity, it is likely to be Retail assets. As a result, Commercial Retail is expected to trend down slightly further. Not good news, but we do have an attractive price point for many retailers as our investment is below $100.00 per rentable square foot, and even lower on a depreciated basis. We have almost no debt covering Retail assets rolling in the next 24 months.

Finally, turning to Commercial Office. Even though Commercial Office is under a significant amount of negative economic pressure, unlike Retail, there is still demand among Commercial Office users. Additionally, the economics of retaining and securing Commercial Office tenants still works economically for IRET, as the only competition is existing space, as there is basically no new development of Commercial Office space occurring. It is much easier to compete with existing Commercial product than newly constructed space.

I expect both rents and occupancy to continue to decline through 2009, but absent the severe and prolonged downturn, given the lack of development and tight credit markets, the rebound in Commercial Office demand could be very rapid, again, due almost exclusively to the lack of new construction in our current Office markets. I just don't expect anything to get built unless fully pre-leased or a good credit tenant is committed to a long-term lease. Until that time, our focus is one 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 last topic I'll discuss this morning is the Acquisition and Development projects inside IRET's portfolio. The recent acquisitions are detailed in the filings, and while we are always evaluating possible acquisitions and the current period is no exception, we have not formally committed to any acquisitions. As for development, the Multi-family portion of the mixed use project in Minot, North Dakota is open on January 19, and as of today we have leased 51 of the 71 apartments. The Commercial users on the main floor expect to occupy later this spring.

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 later this year. Likewise, IRET has land for Commercial development that is being evaluated, but no decision to proceed has been made, and absent significant pre-leasing, is unlikely to go forward unless market conditions change.

I do not see any significant development activity by IRET, except in its existing markets that still have very good fundamentals. Additionally, given the heightened concern about short-term debt, any development in the near term would be done only upon securing the necessary construction finding from a reliable lender with a 36 to 48-month term. In the past IRET has developed using its existing cash or its short-term unsecured credit facilities. In the current environment, that will not be an option.

That concludes my presentation this morning. Thank you, and I will now turn the call back to our Chief Operating Officer, Tim Mihalick. Thank you.

Thanks, Tom. Excuse me. We received the following questions from Carol Temple of Hilliard Lyons, and I will read those off, although I believe most of them have been addressed through the previous information. The first question, for all of your 2009 maturities taken care of, if not, how much is left and what are the due dates on those? And I believe we addressed those previously, and they also are available in our supplemental information. Can you go over your lines of credit was question number two, and, again, we did address those.

The third question, when do you expect your pending acquisition of the [Pratt Orway] portfolio to close. We did address that in the conference call. And the fourth question, how is the lending, acquisition, renting environment changed since the second quarter conference call, and I believe Tom, Jr. did a good job of conveying the changes in those markets.

I will now turn the call over to our conference call Operator for questions.

(Operator Instructions) We have a question from Paul [Bazuka], a private investor. Please go ahead.

Yes. Just comment a bid on your dividend payout. You ran about an 89% of free cash flow, and just comment on that as it relates to your policy of continuation in the future.

Tom, Sr., do you want to address that?

Well, our long-term goal is to achieve a payout ratio of 70%, but throughout our 38-year history, there have been periods such as this where we have exceeded that ratio, and then when times are better, the payout ratio would be less than our overall target. Unless we have significant further deterioration in financial results, it is our intention to continue with our dividend policy, and at this point we don't see anything on the horizon that would change our opinion.

But as Diane indicated earlier, we have always focused very carefully on our liquidity, and nearly 39 years we've never had to delay any payment, dividend or a mortgage payment, have never missed any obligation, and we intend to continue to focus on that, and if we have to make an adjustment, we will do so. But at this point, unless they say things get materially worse, we will continue, I think we'll be able to continue, with our dividend policy.

Pardon me, sir, do you have a follow-up?

No, thank you.

Thank you. Our next question comes from James Bellessa of DA Davidson. Please go ahead.

Good morning.

Good morning, Jim.

The weather and the snow removal had impacts on your management expenses and your utility expenses. Can you tell us on a per share basis what that impact might have been?

That's a hard number to define, as you have to look to every lease to see what you can recover. We know it's a significant number, but we haven't calculated - - that's a very detailed number to try and get back to the bottom line.

What is the lag effect of trying to get recovery from your tenants?

We do book an accrual, based upon what we can make assumptions, so there is an accrual for revenue posted within the quarter. But it is a lag time for actual cash until, as you go through the whole fiscal year and they do a reconciliation in December of 2009. So there is a cash delay until a year-end reconciliation.

You have a list of top ten Commercial tenants and the top one is the affiliates of Edgewood Vista. In your narrative in your 10-Q, you talk about 19 of these facilities are under new management and the other two are under the older management. Why have you not separated those 19 from the other two?

Jim, this is Tom Wentz, Jr. I can answer that question. Those two are located in Wisconsin, and are outside the operational capabilities of the Edgewood Management Company, which has the other 19 locations. And the one is Fox River, which is a land development project, which has been halted, and then the other is the Stevens Point Senior Housing Project.

I believe both of those in their current status have been fully elaborated in the current filings, and at this point on Stevens Point, that project is cash flow positive, and we're checking it on a regular basis. They continue to make a partial lease payment as we've discussed, and so at this point our business decision is not to disrupt operations by switching the manager at that location.

Fox River has no revenue, no matter who the manager is because it was a development construction project. So that is really immaterial as to who is still in possession from that location from a tenant. So that's the explanation.

Are those two properties outside your footprint that you're talking about consolidating to?

No, I don't think so. I think that Stevens Point market and the Wisconsin market, from a Senior Housing standpoint, is inside our footprint. I think ultimately once their Chapter 11 works its way through, we'll have to make a decision as to the direction at the Stevens Point facility.

Currently we're engaged in terminating the lease in Appleton, Wisconsin, and that project will most likely be put up for sale at some point, since really it's land and the accompanying improvements for future development, and then a limited number of Senior Housing units that have been constructed. So I think it's too early to say, to answer your question as to what we're going to do with those two assets.

You had some encouraging words about Smurfit Stone remaining in your facility. What kind of facilities are they?

Jim, both of those facilities, one is located in Fargo, North Dakota, and the other is located in Roseville, Minnesota, which is a northern suburb of Minneapolis, both of those are manufacturing facilities for containers. Obviously Smurfit Stone Container makes packaging products. Both are still operating, both are staffed.

Again, it's hard to tell exactly what's going to transpire in the Chapter 11, but Smurfit Stone Container did get their debtor financing in place, and they have at least indicated in preliminary filings and statements to the market that their Chapter 11 plan does not include closing facilities, but again, we're unsure at this point. There was no arrearage at the time they filed Chapter 11 and they've continued to pay their rent at both locations. So we've closely monitored, we've been in touch with the tenant at both locations, and remain cautiously optimistic that they will remain open.

Of the various segments that you serve, are there any bright spots that would suggest that there might be an upturn on the horizon, or are you lacking in anything that's positive suggesting that there is a turn?

Well, Jim, this is Tom again. I mean I think it's very difficult to get a handle on this market because the news is so absolutely shocking, but then again, I think in previous calls where I've mentioned the brief downturn after the 9/11 terrorist event, 2002 and 2003, we go back to that period of time. Now of course, our portfolio was much smaller on the Commercial side, but we just really saw absolutely no Commercial activity at all, I mean completely empty in the marketplace.

We have not yet seen that. We have been renewing tenants, hitting our historical rate. Now, there is pressure on rents and other terms of the lease, and there are new users in the market. We have entered into leases with new tenants at various buildings in this previous quarter and year to date. So it's really difficult for me to form an opinion as to how deep this is going to get and how negatively impacted our Commercial tenants are going to be.

But the Commercial segment seems to be holding up reasonably well versus the headlines and, of course, the Apartment markets continue to perform as well really as they have in the last seven or eight years.

And on the Commercial side, are any of the tenants having enough leverage to reduce and negotiate lower rents?

Well, I mean that's a case-by-case basis. I mean, of course, we're getting requests from certain tenants to try and lower their occupancy costs, and so I wouldn't say it's an overwhelming request or a majority of our portfolio. We have gotten some requests in the Retail side where we've worked with tenants, but again, it's a case-by-case basis.

And certainly on renewals from that standpoint, we're seeing certain pressure on rental rates, on tenant improvement requests. But again, absent other vacancy, there isn't a lot of new space coming online and frankly, the attitude we're seeing, which I mentioned in my presentation, is most tenants are very cautious and that includes moving to a new location, because absent very rare circumstances, that is always more expensive for the tenant at the end of the day, to relocate their office. And so as a result, that cautiousness seems to be playing into our hands for renewal rates.

And your last secondary offering of stock was, I believe, October of '07. You have cash and you do have equity coming to you through the dividend re-investment program and through the UPREIT program. Do you envision that perhaps during this calendar year you wouldn't have to have another secondary offering, or is that still iffy?

Well, I guess that's right. At this point I guess we would consider the capital markets as not being open, but we have a shelf in place. We will certainly monitor that closely, and I think we are seeing attractive acquisition opportunities, so that if both the debt markets and the capital markets stabilize, we will certainly move quickly to raise additional equity capital and secure/expand our portfolio. But at this point we're going to be careful and just have some watchful waiting.

Thank you very much.

Thank you. We have a question from Chris Lucas of Robert W. Baird. Please go ahead?

Good morning, everyone.

Good morning, Chris.

Just sort of a broad question about the economic markets that you operate in, and specifically I guess, was there anything in terms of optimism that you can talk to us about, either through just the current cycle in terms of how things are moving forward, or related to potentially any positive impacts out of the recently passed stimulus package, that would suggest some catalyst for economic growth in your markets?

Well, I think as we indicated, the rural markets, if you want to use that word, the Dakotas and rural areas of Minnesota, continue to enjoy a very good economy as compared to the rest of the nation, with fairly low unemployment and so forth, and the Ag section and the Energy section are still good drivers for the economy. Now, that may change, obviously, if this continues to deteriorate, it eventually may find its way into those sectors as well.

So we're kind of balanced, half of the portfolio in those kind of markets and the other half in the larger metro areas, that certainly the job losses there are of great concern and hard to judge. You go about your daily business and it seems like everything is relatively normal, but you read the media and you get a different picture. But the stimulus really has not gotten down to our level that we're able to determine as of yet.

Okay. Thank you.

(Operator Instructions) Gentlemen, we have no questions at this time. Do you have any closing remarks?

This is Tom, Sr. Just, again, thank you all for joining us, and we appreciate your interest and your support, and please feel free to contact us at any time if you have questions. Thank you very much.

Thank you.

Thank you.

This conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.