Centerspace (CSR) 2011 Q3 法說會逐字稿

Good day and welcome to the Investors Real Estate Trust Third Quarter Fiscal 2011 Earnings Conference Call and webcast. All participants will be in a listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to Michelle Saari, Vice President of Marketing and Communications. Ms. Saari, the floor is yours, ma'am.

Thank you. Good morning, everyone, and welcome to Investors Real Estate Trust third quarter fiscal 2011 earnings conference call. IRET's quarterly report on Form 10-Q for the quarter was filed Monday, March 14 and our earnings release and supplemental disclosure package were posted to our website and also furnished on Form 8-K on March 14. In the 10-Q 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 iret.com in the Investor Relations section. Additionally, a webcast and transcript of this call will be archived on the IRET website for one year. 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 Monday's earnings 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 me today from management are Tim Mihalick, President and Chief Executive Officer, Diane Bryantt, Senior Vice President and Chief Financial Officer and Tom Wentz, Jr., Senior Vice President and Chief Operating Officer. At this time, I'd like to turn the call over to Tim Mihalick for his opening remarks.

Thank you, Michelle, and good morning. As you are all aware, we recently published our third quarter earnings and they're reflective of the continued challenges presented to us in our markets. As is historically true, our markets tend to operate counter-cyclical to the markets outside of the Midwest and we are currently experiencing that at this time. As I have said repeatedly in past earnings call, this economic slowdown still has legs and I believe those legs still have some walking left in them. We believe the decreased occupancy levels in our commercial office and commercial industrial segments reflect the economic conditions in our markets as recovery from the national economic recession has been slow. The recession and illiquidity and uncertainty in the financial and capital markets during the last two years, continuing on to calendar year 2011 negatively affected substantially all businesses, including IRET. Although signs of an economic recovery have emerged in the first few quarters of our current fiscal year, we continue to expect recovery from the recession to be slow during the balance of current fiscal year well into fiscal year 2012.

Before I turn the call over to Diane, I will touch on acquisitions and the upcoming dividend payable on April 1, 2011. I will say, for the first time in many quarters, I am optimistic about the deal flow we are seeing. The opportunities to acquire properties within our markets that meet our underwriting parameters appear to be increasing and we are gaining confidence in our ability to identify properties in our core markets which will allow us the prudent use of our debt strategies to begin to reach our goal of acquiring of up to $150 million of accretive acquisitions through the end of fiscal year 2012. The exciting part is the possibility that the energy boom occurring in western North Dakota may offer additional opportunities for acquisition in our own backyard. We have already participated in the robust economic activity in our home market with a number of acquisitions and development projects previously detailed. As listed, our acquisition of the Minot Edgewood Vista assisted living property, a purchase of a retail facility in Minot, to which we'll be moving our corporate headquarters in order to accommodate Hess Corporation in our current headquarters building, a conversion of an office property in Minot to much-needed multi-family residential units in our market, our construction of a build to suit medical clinic for Trinity Hospital in Minot.

We are optimistic that there will be other opportunities for projects in our North Dakota market. There's been experiencing strong economic growth. As always and as previously mentioned, the drag to put acquisitions to work on the income statement will be longer than I would like, but we expect improving conditions for accretive acquisitions in the remainder of fiscal year 2011 and throughout fiscal year 2012 will allow us to add to the solid core of assets we currently have. Finally, we continue to maintain our dividend at the same rate that we paid in January of this year. I recognize that this past quarter has seen a drop in our FFO number which is below our declared dividend. We continue to suffer the drag of the lost income on our portfolio sales with properties in Texas and Colorado, but hope for the potential acquisitions I mentioned earlier to bring that number more in line with our expectations. As always, we'll continue to examine our operations on a quarterly basis and make our dividend declaration based on those anticipated financial results. Thank you. And I will now turn the call over to Diane Bryantt, our Chief Financial Officer.

Thank you, Tim, and good morning, everyone. This morning I will discuss the highlights and financial results of operations for the third quarter and for the first nine months of fiscal year 2011 and the comparative periods. Beginning with the balance sheet, I'd like to note that we continue to show liquidity with available cash on hand of $30.9 million, as compared to the year-end available cash of $54.8 million. Cash flow to investing activities were positive as a result of the sale of the assets in the second and third quarters with the proceeds from the sales were used for acquisitions and development projects to prepay some mortgage debt and to pay down the credit line balance. During the quarter, we acquired three properties, an assisted living facility and a commercial office building, both in Minot, North Dakota for approximately $23.4 million, a commercial office building in Omaha, Nebraska, for $8.3 million, for a total acquisition of $31.7 million in the third quarter. (inaudible) spent for development projects were $2.7 million, capital improvements were also $2.7 million and we spent $3.6 million for tenant improvements and leasing commissions for an overall total investment in our real estate portfolio of $40.7 million in the third quarter.

Financing activity in the quarter resulted in the closing of nine mortgage loans, of which seven were commercial property loans with the terms ranging from 10 years to 25.5, 25.5 year maturities with rates ranging from 3.5% to 6.39%. We closed on two multi-family loans. Both have a 10 year term and interest rates of 4.85% and 5.53%. Total cash out from these financings was approximately $34.6 million. We also increased the capacity on our secured line of credit to $50 million with $10 million outstanding as of quarter end. Also during the quarter, we completed the sale of three multi-family properties located in Colorado and one small industrial property in Minnesota for a total sales price of $46.6 million.

In accordance with generally accepted accounting principles, revenues and expenses associated have been classified as discontinued operations for all periods presented in the 10-Q for the quarter with the detail files in note 7. As discussed before, the proceeds from these sales were used to prepay some mortgage debt, pay down the secured line of credit to the $10 million minimum balance requirements and for the acquisitions I previously mentioned, with the remaining applied to other development projects currently under way. Although we have fully committed all funds generated either from the sale of investment property or sales equity into income producing assets, we will continue to see some short-term drag on earnings as we acquire these properties or as leases commence on the development properties. Moving on to the income statement and results for the third quarter, real estate revenues for the quarter increased 5.1% to $60.2 million in the third quarter and year-to-date our revenues increased 3.6% to $178.3 million as compared to the prior periods in fiscal 2010. As detailed in the revenue section, page 25 of the 10-Q for the three and nine-month comparative period, this increase in revenues was due to recent acquisitions and properties placed in service for approximately $2.7 million and $8.9 million, respectively.

Our stabilized properties in the third quarter provide a revenue increase of $1 million as compared to the prior quarter. Year-to-date, however, the commercial office segment, vacancy and concessions are still causing revenue to lag prior year revenue. In regard to our multi-family residential units, it is important to note that in the third quarter of 2010, we recorded a gain on involuntarily conversion of $1.7 million due to the accounting treatment related to a fire loss at a multi-family building in Nebraska. This gain on involuntary conversion is included in the NOI for the third quarter of fiscal year 2010; but is not, of course, included in NOI for the third quarter fiscal year 2011, which obviously lowers third quarter fiscal 2011 NOI in the multi-family segment in comparison with the third quarter of fiscal 2010. For the free and nine months ended January 31, if we exclude this non-recurring event, our net operating income was higher by $517,000 and $1.4 million, respectively in the NOI multi-family in the three and nine months ended January 31, 2010.

Total expenses in the quarter were $2.4 million higher than the comparative third quarter and for the nine months, expenses were $5.3 million higher than the prior comparative period. This increase in expenses in the third quarter was primarily due to an increase in total property expenses in the areas of utilities, maintenance, management and real estate taxes. As experienced by most states, not just the Midwest, this winter has brought cold and unusually high snowfalls and additional associated expenses. Snow removal costs year-to-date are $2.4 million as compared to $1.7 million in the prior fiscal year. Of these costs, approximately 83% of this increase has been attributable to our commercial properties. However, our ability to recover these costs is lessened due to the vacancy in our commercial segment.As discussed before, factors for the increased in property management expenses were primarily a result of the operations within our Wyoming assisted living portfolio which is offset by the increase in revenue generated from these same properties.

Nonrecurring expenses of $504,000 have impacted earnings, of which $362,000 is attributable to our internal property management transition and $142,000 to acquisition costs. We have been generally successful in our real estate tax appeal process and have lowered taxes on a number of our properties. However, in the quarter, we have seen an increase of approximately $276,000, primarily in our commercial medical segment as the development of three properties are now fully assessed as averaged their stabilization in their sector's valuation. We continue to have lower period comparables in our interest expense due either to financing at lower rates or paying off mortgages using available cash. Interest expense on real estate decreased by $911,000 in the first nine months of fiscal year 2011 as compared to the last year's same comparative period. Moving on to funds from operation and per share results, total assets owned for both the first and second quarter were $0.17 per share and FFO was $0.14 in the third quarter, providing for year-to-date of $0.48.

Although in the aggregate, absolute FFO has increased by $1.8 million, the dilutive effect resulting from the issuance of shares in fiscal 2010 and the effect on the income statements from the lags in deployment of those funds as well in replacement income for sold properties has caused dilution in our FFO earnings per share. On January 14, we paid a regular quarterly distribution of $0.1715 per common share in unit. Subsequent to our quarter end, the Board of Trustees declared a regular quarterly distribution consistent with the prior distribution of $0.1715 per common share in unit to be paid on April 1, 2011. The April distribution will be IRET's 160th consecutive quarterly distribution at equal or increasing rates. Now, I will turn the call over to Tom Wentz, Jr., Senior Vice President and Chief Operating Officer.

Thank you, Diane. Consistent with my past presentations, this morning I will provide a general overview of the recently completed third quarter and the first nine months of fiscal year 2011. Then, I will briefly cover the credit market outlook as applicable to IRET and conclude with an overview of IRET's property level operations, as well as committed acquisitions, dispositions and development. From an operations perspective, this past quarter continued the overall trend of the previous quarters in that we had no material net economic improvement despite some modest improvement on an all-property basis and occupancy compared to year earlier periods. While slight, we were able to continue the trend of improving occupancy in the multi-family segment compared to the first two quarters of this fiscal year. With the completion of our residential internal management program, we are now able to focus our full attention on improving occupancy, controlling expenses and growing rents. Medical occupancy remains solid overall as we have been able to hold this segment of the portfolio steady and push rents for renewing tenants.

Commercial retail occupancy has also improved as the decline in this segment was the first to occur and as a result, our remaining retail tenants appear to have withstood the worst of the consumer spending decline. Given the lack of prospective new tenants on the commercial side, we continue to remain focused on tenant retention, credit quality, as well as operations to hold the line on expenses. Consistent with our previous quarters, we have been able to hold expenses line with revenue growth while making improvements in overall free cash flow and reduced debt expense. While expenses are up, they have not exceeded revenue growth and with slightly improving occupancy in two of our segments, we did anticipate some up front increase in expenses. However, again, absent any meaningful increases in occupancy in all of our segments, expense control must and will remain a core focus. IRET's CFO provided the details on recent debt activity, so I won't spend any time reviewing the specific details of loans, other than to confirm that we continue to see improved lending fundamentals in the debt market. This has really provided perhaps the best counterbalance to the poor economic climate over the past several years.

For the most part, we have been able to refinance maturing debt at lower rates, as well as access the equity that has built up over the expiring debt term. Going forward, this benefit is expected to lessen somewhat as the current low rate environment is still not as favorable as that which appeared earlier this past decade. In future years, we will actually deal with the debt that, while placed 10 years earlier, will often have an expiring rate that is lower than our current average weighted interest rate. Absent a spike in interest rates, we should be able to continue the trend of reducing our overall cost of borrowing while moving back to our target leverage levels of 60% to 65%. We remain actively focused on early debt refinance, extending amortization periods to increase cash flow and increasing leverage back to our target levels. We expect these efforts to result in additional interest expense reductions and improved overall cash flow for the balance of fiscal 2011, as well as next fiscal year. Ultimately, we would expect that once the economy is back on track and interest rates begin to increase, our strategy of going long on debt will provide a competitive advantage for our assets. We are not projecting any further reduction to our overall leverage levels going forward as our total debt, as measured against our portfolio cost, has declined over the past several years below our target level.

This has been primarily due to the changes in the lending environment that appeared in 2008 and continued through 2009, paydown and principal in the approximate amount of $28 million annually over these past periods, as well as the lack of desirable acquisitions. These factors combine to cause us to elect to place excess cash and capital into debt reduction to minimize the dilutive impact of holding cash. Our approach to leverage remains consistent with our primary focus over the past three years of protecting our balance sheet and providing operating flexibility. Our commitment is to remain positioned for future growth when our markets recover and we are prepared to do so. Even though most of our markets are now seeing some modest job growth, in our opinion, we still have a long way to go before the current level of job growth creates meaningful demand for real estate in all of our segments. As a result, our best option remains to offset the revenue decline as best as possible with cost control and improved operating efficiencies. While we continue to see some new leasing and renewal leasing in the commercial segment that exceeds on a square footage basis our expiring leases, this past fiscal year had both the expiration of a large master lease covering a building in Eden Prairie, Minnesota as well as a full building user in Woodbury, Minnesota.

These two lease expirations resulted in a majority of our occupancy decline during the year in the commercial office segment, as well as overwhelmed new leasing activity in this segment. As noted in our last call in December, while significant, we do not see these two expirations as a signal of accelerating overall commercial office vacancy in our portfolio. We do not expect much improvement in commercial occupancy over the coming quarter, even though like the residential segment, commercial leasing is historically better in our fourth quarter, which coincides with spring in most of our markets. As expected, we continue to experience a rebound in residential occupancy in this past quarter's operations, which were entirely under our internal management program with the exception of a few multi-family assets which are primarily in the Topeka, Kansas market. Historically, being able to hold or improve occupancy during the third quarter, which includes the winter months and holiday season, has translated into a solid spring leasing season. However, it has become very difficult to follow past patterns given all of the extraordinary external forces impacting most of our portfolio over the past few years. But we remain optimistic that we will be able to continue our increased occupancy trends in the multi-family segment and most importantly, grow rents as well.

Before moving to property operations, I will briefly discuss sales plans and the status of those acquisitions that were under contract during the previous quarter. We have closed the purchase of the 44-unit apartment project located in Sioux Falls, South Dakota, as well as the 24-unit apartment complex in Bismarck, North Dakota. Construction continues on the medical office building in Minot, North Dakota, with completion scheduled for summer of 2011. We are currently evaluating other assets for possible sale; but as of quarter end, we have currently no assets under contract for sale. Now moving to operating activities; we provided detailed information in the 8-K and occupancy new and renewal rental rates and expiring leases, so I'm not planning to discuss any particular buildings or transactions in detail. While not where we want to be in occupancy, I believe we are in a good position going into the final quarter as it pertains to our residential segment, so we plan to build on this trend using our internal management platform.

With the uncertainty created by the transition from our long-time third party managers to our internal management operation fading into the past, we are now able to focus fully on occupancy improvement, rent growth and moving our operating costs as a percentage of revenue back down toward our target range as the transitory costs of our move to internal management dissipate. However, as discussed in prior calls, without strong and consistent job growth, IRET still sees no significant improvement to any of its real estate segments. As a result, our approach has not changed in that absent top line growth, we are focused on securing the tenants that we have and reducing expenses in such a manner that will not impair our buildings' competitive abilities or long-term physical condition. In our medical portfolio, our overall occupancy has remained strong with the only real weakness being primary in our off-campus assets, which are basically two projects. We are optimistic that our entire medical portfolio will continue to show good occupancy and results as the barrier to new medical construction is now very significant. On the senior housing side, while we continue to experience a number of the negative pressures discussed in our previous calls of slow job growth and a lingering weak housing market, we are seeing improved occupancy trends by our third party operator. There has been very little competitive building in most of our markets and many medical tenants and senior residents have fewer alternatives.

The demographics remain positive in all our markets and have appear to have slowly begun to outweigh the issues that have negatively pressured rents and occupancy in our medical portfolio. We expect continued improvement in both medical office and senior housing. Our expansion of the Spearfish, South Dakota facility, as well as the conversion of some existing assisted living facility units to Memory Care in the Wyoming market were both complete close to the end of the third quarter and are now in lease up. Neither are large projects, but we have a number of expansion or conversion opportunities throughout our existing senior portfolio. We plan to carefully monitor the success of the recently completed projects before committing a significant amount of additional capital to what we have already projected. Overall, operations remain challenging, so until we see the return of meaningful demand for commercial real estate, our focus remains on the areas of expense reduction in all segments, occupancy growth in our underperforming segments and increasing rents in our medical portfolio. Thank you. And I will now turn the call over to the moderator for questions.

Thank you, sir. We will now begin the question and answer session. (Operator Instructions)And the first question we have comes from Chris Lucas of Robert Baird.

Good morning, everyone.

Good morning, Chris.

Tom and Tim, you mentioned a little bit about the acquisition opportunity increasing -- if you could maybe provide a little color in terms of either product type or geographies that you're feeling more comfortable in terms of the flow? And then, second to that is, are these deals that are coming through brokers or are these from owners who are looking to sell that you've had conversations with that are just now becoming more comfortable with the market?

Actually, Chris, I'll jump on this. First, it's Tim and I'll let Tom follow up. We're seeing acquisitions -- I mentioned in the energy boom that's occurring in northwestern North Dakota, the western half of our state, they're coming to us -- the potential build to suits or companies that are looking to come to this part of the state for the long haul. So, those are some of the things we're taking advantage of. And as we step back and look at what we anticipate to be long-term, long-lived boom of energy in the western half of the state, now that's where we're taking a look at some opportunities currently, so we're continuing to stay within our markets. We feel comfortable there. And now Tom's got maybe a follow-up on some other stuff on the senior housing side. Looks like there's some stuff that will come in front of us in those markets.

Yes, I think, Chris, to answer your question, this is Tom. On the product type, I would say it's primarily multi-family, maybe a little senior housing and then commercial. And I think really what we see as the best opportunity is multi-family in our markets to really leverage off of our existing portfolio and infrastructure where we don't feel we need to add a meaningful amount of infrastructure to handle these additional assets which would allow us to pick up some incremental revenue. And then also, again on the senior housing, and again, I think this really goes back to -- in our markets the lack of buyers with a significant amount of equity capital. There's certainly a lot of buyers that are looking in the traditional larger markets or the coasts, but we have not seen those buyers return to our markets. And our primary competition over the years really was local and regional players and the lack of equity that they have really I think has now translated into fewer options for sellers. And so, I think we're optimistic that we might be able to see this translate into successfully completed sales into our portfolio.

So, Tom, on the acquisition opportunities you're looking at, what is the yield range, roughly, on the apartment side and maybe on some of the other product types that you're seeing in the marketplace that are getting deals cleared?

Well, I guess what we're seeing on the apartment side, depending on the construction date of the apartment, we're seeing anywhere from maybe 7.25% cap to 7.75% cap ranges on existing rents, which of course in a lot of our markets were coming out of very depressed periods. So, these acquisitions appear very attractive on a per-unit basis cost, maybe not so on a trailing 12 or 24-month. But then if you go back to historical rents in a lot of these markets where we've operated for the better part of two decades, these acquisitions -- if what we're seeing is some of the trends in our multi-family portfolio do translate into reality, these appear to be attractive buys with increasing revenue. And again, the leverage levels and the rates that are available to qualified borrowers from the agencies remain outstanding. That really has returned to pre-meltdown levels as far as leverage and rates go from that standpoint. Commercial is higher. Those are probably 8.5 caps or higher.

And I think, as Tim mentioned, this time around on the energy market, we're really primarily focused on commercial activity with long-term leases with credit tenants. For example, we leased out the balance of our corporate headquarters that we recently built to Hess on a long-term basis and we're making that approach with a number of other tenants where we have a long-term commitment, and those cap rates appear to be in the 9 range or even higher, just given the need for these companies to show up into this market. And then I guess I would comment finally on senior housing. That appears to really be in the 8.5 cap and higher for larger facilities that include Memory Care and assisted living, which again, at that level with the return of leverage is accretive to our portfolio.

On -- just maybe a follow-up here, on the demand side as it relates particularly to the sort of the energy boom that you guys have talked about, are those tenants, are those companies looking at back filling existing product or are they looking to have new product built for them? Is that really the guts of it as they come into the market? Are they looking for new?

Well, Chris, this is Tom, again what we're seeing is that there really is no existing product in markets like Minot or Bismarck, Billings, for example, that meets their needs, just given the fact that they're so large.For example, the lease with Hess Oil was approximately 48,000 square feet, which in Minot, North Dakota is probably an unheard of transaction and a record that should remain for a long time outside of the shopping center and the retail for an office user. And I think, just given the rent level we achieved and the term, that would exceed any deal that we've probably done in our commercial portfolio in the last three years which includes markets like Minneapolis, Denver, Omaha. And again, it's just, I think, a lack of infrastructure, so I would see most of this product being new build to suit for these tenants.

And the time frame on just the last question, the time frame from signature to delivery, actually collecting rent, what does that typically run? Just roughly?

Well, I would say on a traditional industrial building that we're potentially looking at, that's no shorter than six to eight months given a spring start. Winter building is going to stretch that out to probably eight to ten for industrial office product, it's clearly longer. That probably is going to be a 10 to 12-month build out. So, I think there's a significant lag on any type of development activity, just because of the challenge to get the construction in the prior -- in the best building periods in North Dakota and other northern climate markets.

Okay. Very good. Thank you both very much.

Thank you.

The next question I have comes from James Bellessa with D.A. Davidson.

Good morning.

Good morning, Jim.

Good morning, Jim.

On your income statement, you have a line item that is called income attributable to noncontrolling interest operating partnerships. In the most recent quarter, your partners in these noncontrolling interests made five times what you did in income from continuing operations, so it's kind of tongue in cheek. Should you maybe trade places with them?

That'd be our limited partners and they share one to one with our common shareholders, so I'm not certain about them earning five times more than we did. They're 100% sharing equally with our limited -- with our common shareholders.

What I'm pointing out is they made $2.8 million and you made $0.5 million income from continuing operations so that's just what I'm pointing out. Who are these noncontrolling interests and why are they benefiting like they are?

Due to an accounting change, Jim, last year these used to be called minority interests in our operating partnerships. The accounting treatment changed that to noncontrolling interest, so these are our limited partners that come in with equity in exchange for real estate, so that's the larger group. The smaller and noncontrolling interest entities, those are our joint venture partners and those are insignificant. But they are two different classifications of noncontrolling interest. But they've always been there and the majority of them, the larger group is our limited partners.

You indicated that you've had snow and ice this winter and the thaw will be coming. What is your vulnerability to flooding?

Jim, this is Tom. I would say our vulnerability is pretty low. A number of our markets have had 100 or 500-year floods, notably Grand Forks and then Fargo. Back in '97 we experienced no material damage to any of our portfolio in Grand Forks. The construction that we've done there since has been outside what was flooded in '97. I believe that was considered a 500-year flood event. Fargo, last year, we did do some preparation at a number of our projects, but experienced no flooding from that standpoint. And as far as we know, the balance of our portfolio, we just don't see any meaningful risk to any of our assets.

We do carry flood insurance on our general policy that's privately placed and then we also do place some federal flood insurance in certain instances. But we don't anticipate any material impact unless, of course, we see a 1,000-year flood event or obviously, with what happened in Japan, you can have issues that exceed even best forecasts. But based on what we have historically seen in our markets for the last 30 years, we don't anticipate any problems.

Historically I thought that you were always working to try to have a 200-basis point spread between the returns that you were receiving your cost of capital. Is that a correct notion that I have in my mind?

Yes, Jim, this is Tim. Yes, that's historically what we've done.

And so, when you went through these cap rates for these various kinds of product real estate projects, you're still able to get that 200 basis points or you're working towards that or is that tough to accomplish in this market or what?

I think we continue to work towards that. I think, as Tom mentioned, with that market there's certainly some multi-family side and used to be the markets -- or to be the rates that worked for us. And with cap rates at 7.25% to 7.75%, we're starting to stretch that a little bit. We're still pretty close on those numbers. The other, the triple nets or the potential build to suits for some of the other people that we're looking at, we're still able to get to that spread that we worked on and that certainly stays within our discipline as we've acquired over the last ten years that we've been out seeking acquisitions.

What would be an example of somebody willing to pay over 9% cap rate?

I think, as Tom touched on, and I think as you're well aware of, the energy boom in western North Dakota continues to be extremely strong, they're talking barrels of oil in western North Dakota, so you have potential users coming in looking for space and then willing to go to potentially a 10 to 15 year lease. We continue to monitor those activities along.

Thank you very much.

Thanks, Jim.

(Operator Instructions)It appears that we have no further questions at this time. We will go ahead and conclude our question and answer session. I would now like to turn the conference back over to Mr. Mihalick for any closing remarks.

I would again just like to thank you for taking interest in the opportunity to listen and present to you this morning. We continue to feel optimistic about what we see in the future in the mid western part of the US, especially in the markets we're operating in and lastly hope that we start to see some stronger recovery from the economic downside that we've all been experiencing and look forward to the future. Thanks again.

And we thank you, management, for your time. The conference is now concluded. We thank you all for attending today's presentation. At this time you may disconnect your lines. Thank you.