Elme Communities (ELME) 2005 Q2 法說會逐字稿

Welcome to the Washington Real Estate Investment Trust second quarter 2005 earnings conference call. As a reminder, today's call is being recorded. We're turning over the call to the Company's Chairman, CEO and President Ed Cronin. Sara L. Grootwassink, Company CFO, will provide some introductory information.

Thank you and good afternoon, everyone. After the market closed yesterday we issued our earnings press release. If there is anyone on the call who would like a copy of the release, please contact me after the call at 301-984-9400, or you may access the document from our website at www.writ.com Our second quarter supplemental financial information is also available on our website.

Please bear in mind certain statements during this call are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although such statements and projections are based upon what we believe to be reasonable assumptions, actual results may differ from those projected.

Key factors that could cause actual results to differ materially include changes in the economy, the successful and timely completion of acquisitions, changes in interest rates, leasing activities and other risks associated with the commercial real estate business and as detailed in our filings from time to time with the Securities and Exchange Commission. Now I'd like to turn the call over to Ed Cronin.

Excuse me. Good afternoon, with me today are Skip McKenzie, Executive Vice President of Real Estate, and Laura Franklin, Senior Vice President of Accounting and Administration and Corporate Secretary. After our brief remarks Sarah will provide a review of our financial performance for the second quarter of '05.

Skip will discuss the general market conditions in our region and our current portfolio performance along with an update on current development activities and then we'll open the call for questions. As you will hear from Sarah and Skip we're finally seeing more activities in the general office sector in our portfolio, though later than expected. Across the balance of the portfolio continued improvement in both occupancy and rental rate growth is positive.

As for acquisitions, we continue to see substantial activity in the marketing of large office, retail and apartment portfolios, as well as (one off) offerings of general office buildings. Most of these offerings are in the suburban locations. Based on recent prices there is continued downward pressure on cap rates for higher quality assets while there is no evidence of any upward pressure on cap rates for buildings of lesser quality.

It is also interesting to note that there seems to be even markedly lower cap rates for all property types when there is substantial vacancy in spite of the lease-up risk and necessary related CapEx investments. Recently we went firm on a very attractive newly completed and fully leased office and flex property type containing 296,000 square feet which should close within the next couple of weeks. At that time we will release more definitive information regarding the investment.

In the meantime we have several offers outstanding on different property types. At the moment I am confident we will exceed our $100 million acquisition guidance provided you for this year.

After having reviewed our first six months' numbers and noting that we are somewhat behind in our earlier office lease-up projections, we remain comfortable with our original guidance range of $2.07 to $2.11, FFO per share. But I do expect it may be in line with current first call estimates at the low end of the range. Now I'll turn the call over to Sara.

Thanks, Ed, as a note all per share amounts are on a fully diluted basis. Net income for second quarter totaled $10.9 million or $0.26 per share compared to 11.1 million for the same quarter in 2004, flat on a per-share basis. Funds from operations for the second quarter totaled 21.5 million or $0.51 per share, an increase of $300,000 over the same quarter last year, but again, flat on a per share basis.

We announced our 35th consecutive year of increased dividends per share, increased our quarterly dividend 2.5% to $0.4025 per share. With the increased dividend our FFO ratio was 79%. Our FAD payout ratio was 109%, as recurring capital expenditures, TI's and leasing commissions and totals were relatively unchanged from the first quarter.

A reconciliation of net income to both funds from operation and funds available for distribution can be found in our earnings press release in the second quarter supplemental financial report both of which are available on our website. Same store cash NOI for our overall portfolio decreased 0.1% compared to cash NOI for the second quarter of 2004.

Second quarter same store cash NOI for the office sector decreased 3.5% driven by decreased occupancy in Maryland and Tyson's Corner, plus increased operating expenses primarily utilities and real estate taxes. Same-store apartment cash NOI increased 4.7%, driven by rental rate and occupancy increases, partially offset by increased operating expenses.

Second quarter same store cash NOI for the retail portfolio increased 3.1% driven by occupancy gains at Westminster Shopping Center, Chevy Chase Metro Center, and 800 South Washington Street. The industrial portfolio continues to perform well with same-store cash NOI increasing 3.2% over the second quarter last year despite the move-out of Pepsi from 69,000 square feet. Same-store occupancy decreased 50 basis points while rental rates increased 3.4%.

Sequentially, we experienced positive same store NOI growth. Same store cash NOI for the overall portfolio increased 1.6% from the first quarter of 2005. Same store NOI for the multi-family sector increased 5.2%, with a 140-basis point increase in occupancy. Same-store NOI --same store cash NOI for the office sector increased 4.1% due to higher occupancy at 7900 West Park, 1700 Research Boulevard, and Maryland Trade Center II, as well as decreased utility expenses.

Retail same store cash NOI increased 0.7% and industrial NOI decreased 6.2%, due to the move out of Pepsi as well as lower occupancy at (NVIP). As Skip will discuss both properties are seeing significant activity. We issued $100 million in corporate debt in April, 50 million of 7-year debt of 5.05% and $50 million dollars of 10-year debt at 5.35%. Proceeds were used to pay down our lines of credit.

At quarter end we had 617 million in total debt outstanding with 197 million of secured fixed rate mortgages, 420 million of unsecured fixed rate notes and no outstandings on our lines of credit. And we fixed all of our floating-rate debt. Our debt now has a weighted average interest rate of 6%, and a weighted average maturity of 7.4 years. At June 30 our total market capitalization was 1.9 billion resulting in a debt to total market capitalization of 32%.

The company's debt service coverage ratio was 3.11 for the quarter. Now, I'll turn the call over to Skip.

As of June 30th our portfolio totaled 67 properties consisting of 12 retail centers, 27 office buildings of which seven are medical office buildings, 19 industrial properties and nine multi-family properties.

During the quarter we acquired the Coleman Building, a 60,000 square foot flex building, for $8.8 million, completing our acquisition of Dulles Business Park. In the office sector the overall metro market continued steady improvement and virtually all submarkets during the the second quarter of 2005. While overall demand for office space remains strong and occupancies increased, activity pulled back slightly from the pace of the fourth quarter of 2004 and the first quarter of 2005.

Overall vacancies in the region declined to 8.9% and net absorption totaled 1.2 million square feet, or 2.9 million square feet, year to date, versus 11.6 million square feet in the full year 2004.

Buildings under construction decreased to 13 million square feet from 14.6 million square feet one year ago. Rental rate growth remains nominal and limited to specific sub markets. The office portfolio was 89% leased as of 6-30-2005. Northern Virginia vacancy rates decreased from 10.3 % at the first quarter to 10.1% at 6-30-05. Although leasing demand is good, activity overall has slowed somewhat since year end.

Large government contractors continue to dominate the activity with BAE systems, Titan and General Dynamics leading the charge. The impact of sublease space is quickly diminishing, declining another 450,000 square feet in the second quarter. Overall absorption has declined sequentially from 950,000 square feet in the first quarter to 666,000 in the second quarter from a full year 2004 at 6.6 million square feet. While rental rate growth has been nominal, certain sub markets are now seeing upward movement and we expect positive trends should continue in 2005 and 2006.

At quarter end office vacancies within northern Virginia sub markets range from 6.1% in Rosslyn, 7.4% in Alexandria, to 12.2 in Reston and 12.7 inTyson's Corner. At quarter end, WRIT's northern Virginia office portfolio consisted of 1.4 million square feet and was 87% leased.

WRIT's largest vacancies remain at 7900 West Park at Tyson's Corner where we have 105,000 square feet vacant. We have good leasing prospects for this property and expect to reduce this vacancy significantly by year end. While activity has been good with over 2.6 million square feet available in Tyson's alone, tenants moved deliberately and negotiate accordingly.

The downtown Washington, D.C. office market continues to lead the region and nation in overall occupancy and development activity. Rental rates have increased modestly in the 2 to 5% range overall and vacancy rates increased slightly from 6.4% at the first quarter to 6.5% at the end of the second quarter. Absorption totaled 220,000 square feet in the second quarter versus 675,000 square feet in the first quarter and 1.1 million square feet in the fourth quarter of 2004.

Vacancy in the two largest DC submarkets is 5.6% in the CBD and 10% in the east end. Approximately 6.5 million square feet is under construction in the district and 52% of that is preleased.

The average sales price for the 16 office sales which occurred in DC in the first half of 2005, was a staggering $498 per square foot. The WRIT DC office portfolio consists of 460,000 square feet and was 98% leased at quarter end.

In suburban Maryland there was a modest improvement in overall leasing activity over the first quarter of 2005. Office vacancies declined slightly to 9.9% from 10.2 in the previous quarter. At quarter end, individual sub market vacancies, including sublet space, ranged from 8.8% in (Rockville) to 9% in Silver Spring and 11.3% in the I-270 corridor. Rental rates generally remain flat throughout suburban Maryland. Absorption for the first quarter in Montgomery County was a negative 11,000 square feet. Prince George's County absorbed a modest 111,000 square feet.

As we have reported over the past year or so, sluggish expansion by biotech firms and the NIH and its contractors has hampered leasing progress in Montgomery County. However, NIH is committed to lease the first decent sized block in over a year, of 85,000 square feet north Bethesda. It remains to be seen whether this is a trend or an aberrant transaction.

At quarter end, WRIT's Maryland office portfolio consisted of approximately 1.7 million square feet and was 87% leased. At Maryland trade center we have 83,000 square feet vacant with leases in final stages of a negotiation for an additional 27,200.

During the second quarter, WRIT leased 95,512 square feet of office space with an average roll down of 5% on a cash basis and a 1% increase on a GAAP basis. Tenant improvement leasing costs average $15.59 per square foot, our office retention rate for the second quarter was 57%.

The retail market is outstanding in the DC region. With continued job growth throughout the region, retail occupancies and sales remain strong. Landlords have enjoyed excellent rental rate growth during the first half of the year and for well-located properties, multiple prospects vie for available space. Occupancy within WRIT's retail centers has remained strong at over 98% leased at quarter end.

In addition, we have three new pads which are preleased under construction at Westminster and Hagerstown shopping centers, which should deliver in the third and fourth quarters of this year. During the first quarter we released 47,392 square feet of retail space achieving a 20% increase in rents on a GAAP basis and a 10% on a cash basis. Tenant improvement and leasing costs averaged $10.84 per square foot. Our retail portfolio retention rate for the second quarter was 92%.

The apartment market in the DC and northern Virginia region has continued as modest improvement in occupancies and rental rates. The best and most active continues to be close in northern Virginia submarkets and the District of Columbia. Suburban Maryland has improved over the first quarter, however, it continues to lag the other sub markets due to the continued supply and demand in (balance). Rent increases over the first half of the year generally averaged 4 to 5% in Virginia and DC and negligible in Maryland.

Absorption region-wide is strong at over 5,000 units over the last 12 months. Concessions have declined significantly and incur mostly in Maryland and difficult-to-lease apartment types. In the WRIT portfolio we have continued to see leasing progress and should complete property renovations at Munson Hill, Roosevelt Towers and Park Adams in the third and fourth quarter of 2005.

The WRIT multi-family portfolio was 95% leased at quarter end. The Baltimore--Washington industrial flex market remains healthy despite relatively light leasing activity in the first half of 2005. Net absorption for the region totaled 1.3 million square feet for six months, versus 6 million square feet for the full year 2004.

In the Washington submarkets of the region, occupancies remain steady and rental rates increased slightly to moderate, depending on the submarket. Virginia markets performed best with overall vacancies below 8%.

In the Baltimore submarkets overall activity remains stagnant and rental rates were flat to down and overall vacancies were 11.5% The strongest submarkets continue to be ones where WRIT has a major presence, particularly Springfield Millington industrial and the Chantilly Dulles Airport area. In northern Virginia there is 1.5 million of square feet of flex and industrial space under construction at 40% pre-leased.

The WRIT industrial portfolio suffered three large vacancies during the second quarter comprising 136,000 square feet of space. The largest of those vacancies, at 68,750, is the Pepsi warehouse in Forestville, Maryland. We have substantial interest from both leasing prospects and user buyers for this building. During the first quarter WRIT leased 191,543 square feet of industrial space. Rental rates decreased 6 % on a cash basis and increased 4% on a GAAP basis.

TI and leasing costs were $8.08 per square foot. These costs were inordinately affected by a $46 per square foot cost for a tenant at the newly acquired Dulles Business Park for which we acquired-- we received a credit at closing on the acquisition.

Omitting this transaction reduces our cost to $3.21 per square foot. Tenant retention was 22% for the quarter. On the development side construction on our Rosslyn Towers project near Rosslyn is under way and we have begun demolition and site clearing on South Washington Street. The Foxchase Shopping Center we have demolished existing structures in the development area and anticipate delivery of the pad to Harris Teeter in late 2005. Harris Teeter will then construct their store for opening in late 2006 and at which time rent will commence.

Although markets continue to be strong the pace of growth is decelerated somewhat from that experienced last year. Although we're experiencing good activity on our vacancies, commitments to lease are occuring slower than we anticipated particularly in the office portfolio. We expect improvement as the year progresses. Now we will open the call for your questions.

[OPERATOR INSTRUCTIONS]

Our first question comes from David Fick.

Good afternoon.

Hey David. How are you?

Fine. Ed, I guess you or Sarah can answer this question. What is a good run rate for CapEx, TI, leasing commissions, going forward? The last two quarters have been roughly flat --

You know, we just did a reforecast of recurring CapEx and we're expecting actually a large increase in recurring CapEx in the third quarter based on some projects that are under way at about 5 million, and then 1.5 million in the fourth quarter.

TI leasing commissions, I would leave the same way that we had earlier projected, which we had projected tenant improvements of $3 million in the third quarter, $2 million in the fourth quarter and then leasing commissions were about $1 million in each quarter. But again those move, depending upon when the work actually gets done.

Okay. It is very hard to model without having your level of knowledge, so I appreciate that. The followup question, that is, you have a very long track record of dividend increases, but you are paying out, you know, somewhat more than your net cash flow, and that excludes any amortization on notes, and so forth. Why does this make sense, the dividend increase?

Well, I will have to answer that from a practical standpoint and that is that we are able to make that increase this year, and based on the expected performance going forward, we anticipate we should be able to next year, but the reality is, if we feel that--that it does not make any sense as far as this company is concerned, then we won't make any dividend increase for next year. How do I answer it other than --

Well, okay. I don't mean to challenge you other than to say--other than to ask where--what is sort of a good normalized forward number in -- from a coverage perspective and when do you expect to get to coverage? It just seems a bit unusual in this stage when the companies are paying out more than their free cash flow, you know, mostly of stock dividend increases.

David, I suppose I'd look at this with a little hindsight. If you look at REITs historically they paid more than their income going back many, many years. I don't think that is really practical and appropriate.

I think we are just going to have to use good judgment in going forward as to what we think we'll be able to pay out in the way of any future dividend increases. I don't see the dividend paired in any way over the near term.

David, too, I think you have to make sure you're looking at apples to apples comparisons in other FAD calculations. I think that we report FAD on a very conservative basis, and I'd be glad to talk to you about it further, but I think that you ---we report an a very, very conservative basis, so I would expect that our FASB coverage would get back to one to one, but I don't expect it to drop much more than that without a significant change.

When do you see that happening?

We had originally projected that at the end of the year, but there is some projects that are going on, recurring CapEx projects that are going on right now that will prevent that from happening until 2006.

Okay. You mentioned the flex portfolio under contract. Could you give a little bit more detail in terms of kind of, the magnitude of that transaction, and the kind of yield you expect?

What do you mean by magnitude?

Dollar amount.

Dollar amount?

You may have said it but I missed it.

It is 66 million.

Okay.

And the return on it is--it hasn't closed as yet, I don't know if I want to put out the return because -- There is no reason not to close.

We've confirmed and we're frankly just waiting on the last two estoppel certificates. But one of them is with a well-known large international or national credit and we're just waiting till we get that back. But, in any event, it's pretty much on target with our projections.

Okay. It meets your original guidance. Okay. That's fine. The succession plan that your board has undertaken -- can you update us on progress there?

We're chatting with people. There is nothing more to comment, other than that.

Okay. And then, lastly from me, cash rents on industrial leases were down 3.6%. What is--is that just the nature of what rolled over, or -- what drove that?

Well, part of the fact that the largely--the Pepsi lease expired -- what was the last -- ?

4-30. The Pepsi lease expired 4-30.

And it is a combination of those couple of tenants going out. On the Pepsi deal we have--

We have two users fighting for the space, really.

It is nice to see, and so that will be probably put to bed by the end of this quarter, for sure.

Okay.

And David, looking forward on industrials, 12 months out, we expect to be relatively flat on a cash basis so we would be positive on a GAAP basis, rolling in the next 12 months.

Alright. Thanks. I appreciate it.

Our next question comes from Scott Sedlak.

Hi, Ed, sorry, I missed the acquisition, as well. It was 66 million for 296,000 square feet?

It's actually 67 million.

Okay. And where is that at?

It is located out near Dulles. It is at 2850, where we have a pretty substantial presence.

Okay. Can you guys maybe talk a little bit about--there was an article yesterday in the Washington Post on -- regarding the anti-terrorism, and building rules, and such as that. I don't know if you happened to see it. But, I was wondering if you did -- if you could maybe comment on that and what impact the Terrorism Insurance Act, if it is not renewed, might have on you guys?

Let me break the question down, if you don't mind. BRAC is also very much involved. I suppose that is what you're referring to as far as the physical aspects of properties with the anti-terrorism concerns.

From that standpoint, based on the article in the Post, as well, there were some articles in the Wall Street Journal relevant to them, the first--as far as our properties are concerned, we really have only one or two at most that could really--that would normally be affected by any kind of anti-terrorism act.

One of them would be 1776 G street which is the building that is primarily occupied by World Bank and it's directly across the street from their world headquarters. I can't think of any other building that--well, one other would be probably 1901 Pennsylvania Avenue, which is across the street from IMF headquarters. When I look at most of our other properties, I don't see any reason that they would normally be a target. Now, as far as the government is concerned, as you know, most of our exposure to government leases is primarily in our industrial, rather than--there again, mostly storage space, not bringing any people involved in those particular properties.

Going forward, I think that even though these changes which the government is moving towards, under BRAC, within this region, we're going to have to be very careful about where and what we buy in the future, or if we acquire land and develop the same thing, in that we got to meet these various setback requirements. They are also talking about various types of construction which will provide greater protection from street explosions and things like that. Protection for underground parking garages.

There are lots of different areas. Now, last but not least on that, on the insurance side, I can't sit here and say for sure where we are on our total policies going forward, but at the moment the only property that we have, which we have anti-terrorism insurance, is the 1776 G street, and we have the exclusion for terrorism on all of our other properties.

Now, if TRIA is not extended by the congress, which is supposed to come up sometime--well, actually it expires in December. If it is not extended, there will be a lot of problems because it's not--not just us, but many of our loans for real estate across the country require insurance that is really a part of the documents that people have agreed to provide for the lenders, and that could be--it could be pretty significant problems. At the moment, like everybody else, the Republican administration and the Secretary of Treasury recently testified that they're opposed to extending TRIA.

On the other hand, there is a lot of conversation about possibly extending it, but at the same time with that extension, modifying the dollar amounts with the Federal government might be exposed.

Okay. And in terms of--I realize you guys had some occupancy gains in the office portfolio this quarter. Can you maybe comment on why you guys continue to lag the market? I mean, is it the quality of the buildings? Is it the floor plates? Is it just the tenants in the market looking for space? What exactly is the reason there?

Let me comment on that. As we've highlighted we really have two buildings that have really contributed to the office occupancy declines, one is 7900 West Park and the other one being Maryland Trade Center. Maryland Trade Center is in the greenbelt, Maryland submarket, which is the northern part of Prince George's county.

That market historically is the slow absorber of space and I think, as I quoted on my remarks, absorption last quarter was 100,000 square feet for the entire quarter. And that was actually a good quarter.

Once you get a vacancy in that market it doesn't matter who you are, it's going to take a while. I don't know if you recall in that particular building we had a tenant whose name was OAO, who was acquired by Lockheed and when Lockheed acquired the tenant they basically vaporized the company and vacated the entire 100,000 square feet. It's been difficult leasing that space back, and that's just historically the way that market operates.

With regard to 7900 West Park, that building in particular was just a series of tenants who are high-tech-tenant related. Xerox. Another tenant was Main Control. A bunch of them happened at the end of last year.

So, I would say it was a sequence of a series of events there, that occurred while the market -- and, frankly, in Tyson's Corner it's gone from 16% down to 12%, so it is not exactly a 5% market out there. And we're making progress but it is not as fast as certainly we would like to make, although I don't know if we're any slower than anybody else who had that type of vacancy during that period.

I think there's one other piece of that -- is the nature of our office buildings has been to cater to small-space users, and it's also exacerbated by the virtue of the fact that these two buildings, as Skip mentioned, had very large tenants go out, and since we're diversified in our portfolio and you isolate this one sector of portfolio, and having large tenants go out and we basically have been a small-tenant user, it really exacerbates as much as anything the vacancy level that those--that office sector is demonstrating and how fast we lease it up.

So I think it is just a combination thing. You know, they are leasing up, and we're dealing with it. But the small-space users are not--we have a lot of people looking, as reported not only this time, but last time, but there seems to be a slower willingness on which to sign a lease.

Fair enough. My last question, I guess, maybe Ed this is for you, I guess. Can you maybe talk a little bit about what the strategy of the company is right now, and how you see the company, I guess, growing? I mean, obviously this year you had some asset sales that, you know, are going to offset most of the acquisitions. But we've seen kind of little growth. Can you talk about what the overall strategy of the company is?

Well, strategically like others we're trying to acquire existing assets that fit the portfolio, which is what you've seen us do in the past. The other is we're spending more time trying to, through direct contacts, develop acquisition opportunities. Bottom line is, and you can hold me accountable for it, these Cap rates people are paying and what is going on in this marketplace is such that we're just unwilling to really go charging in.

I'll give you a good example. We just learned today of a very large transaction that we were very bullish on, because it has really very good long-term potential and we just learned today that the buyer paid dollars for a substantial-sized asset that's going to have less than a 6% return, cash on cash, based on our numbers.

For suburban office.

For a suburban office building. Wait it out.

Do you maybe just have to extend your market in terms of where you're looking to, to try to find some more opportunities? Or-- --

Do we? I think that's a good question. Essentially there is a lot of--long-term, this is a great market to be in. I think we have to be patient from the standpoint of what we're willing to pay for these properties.

When Skip mentioned earlier that just under $500 a square foot was the average price for properties being purchased in the District of Columbia, you know, these things are well in excess of cost, and, you know, at some point, there will possibly be a change. I think there will be a change, and there is just a huge amount of money chasing the real estate right now and the nature of our business, I think, is to take our time, be patient, and that's what we're doing. And we're going to buy what fits this company, and that's the only way.

But there is a definite plan, from a development standpoint, you know the apartments that we're working on right now, we have also spent a lot of money over the last two years retrofitting many of these buildings even though there were vacancies and so on, and so we're prepared as the market picks up.

And the medical office building sector is really one that we've really started focusing on which really hadn't been a major part of the portfolio and I think we've made some pretty good progress there.

And there is more going on in that area. So, in answer to your question, you know, it is a work in progress, I guess. But I just--I just refuse to pay what I think are unrealistic numbers for the long-term hold of this real estate.

A good example, if you take a look at the numbers at--take downtown Washington, sort of carries over to the suburbs where people are paying 300 to $350 a square foot for suburban office buildings. If you think in terms of getting a 10% return with invested capital, you have to get a net $35 a square foot and add $10. Can you tell me I can look forward to $45 a square foot for rents in Tyson's sometime in the next three to five years? I don't buy it.

I appreciate your comments.

I feel the same way about downtown. Look at the numbers.

Okay. Thank you.

Our next question comes from John.

John (Guiney) at Legg. Hi there. You know, you guys are smart guys, I think, and I think what everyone is getting to, is why aren't you more aggressive at asset recycling, ie, sell 200 million or so a year and reinvest that same 200 million in more of a value-added strategy?

Well, John, we just sold some properties, and I say, from the value-added standpoint, as I mentioned in my comments, we have found where we sold the Tysons properties, we sold those on a 4-8 cap on our numbers for '05 and only a little bit higher than that on '06 numbers and reinvested that money in a 7.5 cap in newly-completed properties that are fully leased with very little near-term risk.

And I don't disagree with what you're saying when we do that, but what we're now finding in trying to buy value-added properties -- we've looked at a number of them. As I mentioned in my comments, in analyzing these investments, the prices that people are paying for properties with a lot of vacancy there and what appears to be potential upside, when you get finished doing the numbers, putting in the the CapEx, as necessary, and the TI and lease-up costs, plus figure a little bit of risk up for sure on the lease-up time that you're going to have to carry these assets.

You can't get back the 7% cash on cash return. So, you know, what we're finding here is a situation where we are selling the assets that we have that are doing well, probably doesn't make as much sense because we do have the fire power financially to buy assets and not have to liquidate assets to buy others. So we're not in the recycling mode.

Okay.

Any other questions?

[OPERATOR INSTRUCTIONS]

There seem to be no further questions.

Okay. Well, I want to thank everybody this afternoon. The--if anybody has additional questions, we would be delighted to hear from you. All of us are available to answer any other questions. So please give us a call. With that, good afternoon.

This concludes the Washington Real Estate investment trust second quarter 2005 earnings conference call.