Elme Communities (ELME) 2006 Q1 法說會逐字稿

At this time, I would like to welcome everyone to the Washington Real Estate Investment Trust first-quarter 2006 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (OPERATOR INSTRUCTIONS).

Ms. Grootwassink, you may begin your conference.

Thank you and good morning, 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 first-quarter supplemental financial information is also available on our website.

Please bear in mind that 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 would like to turn the call over to Ed Cronin.

Good morning. With Sara and me today are Skip McKenzie, Executive Vice President of Real Estate; Chris Mundy, Executive Vice President, CIO; and Laura Franklin, Senior Vice President of Accounting and Administration and our Corporate secretary. As you'll hear from Sara and Skip, all our sectors have performed very well. We achieved positive same-store NOI growth, both quarter over quarter and sequentially, with increases of 6% and 3%, respectively. Increased occupancy in the office sector and strong performance in the retail sector were the primary drivers.

During our February conference call, I indicated our acquisition pipeline was strong, and that during this call we would be more definitive. In addition to the 135,000-square-foot Hampton industrial acquisition in Capitol Heights, Maryland, last week we announced the acquisition of the Alexandria Professional Center. The 113,000-square-foot medical building is located on an infill location along I395 at the Seminary Road exit in Alexandria, Virginia. It is 100% leased to 36 medical tenants. This is the dominant medical office building in the Inova Alexandria hospital market, and within 0.5 miles of the hospital. Our first-year cash yield is expected to be 7.6%.

We have also acquired the first two buildings in a 100% leased four-building medical office portfolio. This portfolio consists of three multistory medical office buildings totaling 142,000 square feet, and is approximately 0.25 miles from Shady Grove Adventist Hospital. Within that same market, we owned Shady Grove Medical Village, acquired in late '04.

The fourth building, which will close upon the approval of the loan assumption, is a 33,000-square-foot medical building located in Bel Air, Maryland. This building is 100% leased to five tenants, and is located in close proximity to the Upper Chesapeake Medical Center, a 143-bed acute care center and near the expanding Aberdeen Proving Ground. We expect a 6.3% first-year cash yield on the portfolio.

With the acquisition of these five buildings, WRIT now owns the best medical office portfolio in the Washington DC metro area. The portfolio will consist of 826,000 square feet, is 99% leased and is concentrated around three of the fastest-growing, financially stable acute care hospitals in the region. They are Inova Fairfax, Inova Alexandria and Shady Grove Adventist Hospitals. We have been working on these medical building transactions since last spring. So, as you can see, moving into this sector is part of our diversified strategy. The effort is one of prying the property loose from owners rather than relying on the brokerage community. These are targeted acquisitions.

As Skip will discuss, our developments continue to progress well. Additionally, at the shops of Fox Chase, we have turned over the pad site to Harris Teeter for construction of the grocery store, while we complete the facade renovation of the in-line stores in the remainder of the center. We expect the center to be finished and completely open for business in the fall of '06.

In summary, this has been a fine quarter. We are very pleased with our portfolio performance and enthusiastic about our recent acquisitions, as well as those in our pipeline. 2006 is shaping up very well, and I expect it will lead to an even better '07.

After you hear from Sara and Skip, we will open the call for questions. Now, I would like to turn the call over to Sara.

As a note, all per-share amounts are on a fully-diluted basis. Net income for the first quarter totaled $10.6 million or $0.25 per share, compared to $42.2 million or $1.01 per share for the same quarter in 2005. However, that quarter included a $32 million gain on sale. Funds from operations for the first quarter totaled 22.6 million or $0.54 per share, an increase of 10% or $0.05 per share over the same quarter last year, due largely to increases in occupancy in the office sector. Our FFO payout ratios remained at 74.5%. Our FAD payout ratio was 101%.

A reconciliation of net income to both funds from operations and funds available for distribution can be found in our earnings press release and the first-quarter supplemental financial report, both of which are available on our website. Overall, our portfolio is experiencing very positive same-store NOI growth, led by the office and retail sectors. Same-store cash NOI for our entire portfolio increased 6% over the first quarter of 2005. Sequentially, we also experienced positive same-store NOI growth, increasing 3% over the fourth quarter of 2005.

Our apartment portfolio is performing well, with cash NOI increasing 3.5% this quarter over the same quarter last year, driven by rental rate increases, offset by vacancy due to 25 units previously occupied by the [SAI Investor] staff at the Ashby. Occupancy declined further over the same quarter last year, as units have been taken off the market for renovation. Taking those units under renovation out of the numbers, our apartment portfolio occupancy was 91.7% for the quarter. Sequentially, same-store NOI per apartment increased 3.1%, with increases in rental rates and lower bad debt expense.

The office sector has shown tremendous improvements, as same-store cash NOI increased 8.7% this quarter over the same quarter last year, with occupancy gains at Maryland Trade Centers I and II, 1700 Research Boulevard and 7900 Westpark Drive. Sequentially, same-store cash NOI for the office sector increased 2.9%, with increased occupancy and higher rental rates.

The medical office portfolio is performing well, with first-quarter same-store cash NOI increasing 3.3%. Sequentially, medical office same-store cash NOI increased 0.5%, as there has been minimal turnover in the tenants.

The retail portfolio is performing exceptionally well. First-quarter same-store cash NOI increased 12.7%, driven by increases in occupancy and rental rates and lower reserves for bad debt. Sequentially, retail same-store cash NOI increased 6%, driven primarily by the recognition of rental revenue on the Harris Teeter lease, as possession was turned over to the tenant in January.

First-quarter same-store cash NOI for the industrial portfolio increased 1.9% over the same quarter last year, due primarily to the move-out of one tenant at our Sully Square property. Sequentially, industrial same-store cash NOI increased 1.1%.

In mid-November, we issued 2006 earnings guidance of 2.15 to 2.18 in FFO per share. This guidance assumed 100 million in acquisitions, weighted evenly throughout the year. Our acquisition pace has exceeded this guidance already. Based on our current pipeline, we are increasing our 2006 guidance to a range of 2.17 to $2.20 in FFO per share.

Now, I would like to turn the call over to Skip.

As Ed mentioned, our portfolio is performing very well. We executed 109 leases in the first quarter. Rental rates in all sectors were up, with the average rental rate increases of 7.1% on a GAAP basis. On a cash basis, with the exception of the office sector, rental rates were up. Tenant improvement and leasing costs averaged $8.91 per square foot throughout the portfolio.

The office sector continues to improve. Although rental rates decreased upon rollover in the portfolio, we are experiencing solid leasing activity throughout, and overall vacancy rates continue to decline. At quarter end, our office portfolio was 92.6% leased. At 7900 Westpark, we executed leases for 41,800 square feet in the first quarter, and are now 85% leased. We have good activity on the vacant space. With only 11% the office portfolio expiring over the balance of the year, we expect to continue to reduce overall vacancy as the year progresses. TIs and leasing commissions averaged $12 per square foot.

In the medical portfolio, with few lease expirations and occupancy at 99%, there was nominal leasing activity. The activity that occurred, however, was excellent. Rental rates increased 16.1% on a GAAP basis and 4.6% on a cash basis. Only 3% of the medical office portfolio expires during the balance of 2006.

The largest rental rate increases in our portfolio were, again, in the retail sector with cash rents increasing 12.5% and GAAP rents increasing 24% on a 24,000-square-feet lease this quarter. These increases were achieved with nominal capital improvement costs and TIs and leasing commissions, at a combined $4.29 per square foot. At the end of this past quarter, we were 98.6% leased across the portfolio. We anticipate strong performance to continue in the sector for the balance of the year.

Our industrial portfolio continues to perform well. During the quarter, we leased 193,000 square feet. Rental rates increased 13.9% on a GAAP basis and up slightly on a cash basis, with $4.84 per square foot in total TIs and leasing commissions. This portfolio was 92.5% leased at quarter end. We have excellent activity on a couple of the larger vacancies in the portfolio, and thus expect occupancy to increase in the second half of the year.

Our apartment portfolio occupancy declined this quarter, partially due to unit renovations, seasonality and the termination of 25 lease units at the Ashby by the Saudi Ambassador. The combination of unit renovations and the Ambassador's move-out added almost 2.5% to overall apartment vacancies. On the bright side, rental rate growth has been strong at 6.3%. As we enter the strong leasing season, along with the addition of renovated units, we expect vacancies to decline and rental rates to continue to rise. During 2006, we anticipate renovating approximately 112 units, which is 5% of our multi-family sector. We are experiencing return on investment in excess of 10% on these renovated units.

On the development side, construction is progressing on all four active projects. Rosslyn Towers, our 224-unit apartment project in Rosslyn, is moving along well. We have topped out the midrise building, and recent progress photos are available on our website. We anticipate full project completion late in the second quarter of 2007.

South Washington is also making good headway, and we anticipate project completion at the end of the first quarter of 2007.

The Fox Chase Shopping Center redevelopment is progressing faster than we had anticipated. We have delivered Harris Teeter their pad site on January 10th, and they are moving expeditiously on construction of their 55,000-square-foot grocery store. We are projecting a November grand opening, but I would not be surprised if we open earlier. Leasing interest has been extremely strong on the remaining in-line space.

At Dulles Station, we are under construction and have executed a guaranteed maximum contract with construction for the base building. Construction is slightly ahead of schedule, and the base building should be complete by the end of the second quarter in 2007.

In summary, leasing activity in all sectors is strong, market conditions are excellent and the future looks bright. We would now like to open your call for your questions.

(OPERATOR INSTRUCTIONS). Jessica Tully, Credit Suisse.

Could you comment on the 11% rollover you have for the rest of the year? Are there any large pieces in that pie? And then, are there any tenants that you know that are moving out? If you could kind of just give a little color on that, that would be helpful.

Skip, you take that.

Sure. Yes, Jessica, to name one specifically, probably the largest tenant in that mix is Sun Microsystems at 7900 Westpark. Sun is approximately about 100,000 square feet, and some of that space is subleased. We have a signed letter of intent to renew them for almost 70,000 square feet, and we have an additional 15,000 square feet already executed with subtenants. So there could be some leakage of about 15,000 square feet on that, but the balance of that is going to renew. And we pretty much have, if not a signed leased with subtenants, we have a signed letter of intent with Sun for 65,000. That's the biggest and most noteworthy of the rollover coming up.

Is the rest of it just small pieces, then?

Yes, small pieces. We already renewed Lockheed at Maryland Trade Center. I think we announced that at the last conference call. And that is rolling this year -- I guess it's sort of -- I think it's in the summer. We have already executed that lease.

And then I was going to ask, Sara, if you could give me some clarification on the acquisition amounts. I was confused last night. I think you have done about 66 million so far, year to date, including the one last week and then the one of the medical office buildings in the four group. But I was trying to figure out if you had 67 million left that you have contracted for but have not completed, or was it around 50 million? I just wanted to get the total amount that you have completed this year, and then the total amount that you have contracted for.

We have completed 23 million with Hampton Road, and then we did 27 million with Inova Alexandria. We have also closed on 9707 Medical Center Drive, which is the Shady Grove Medical Building. That's 16 million. And then, we are closing today on Shady Grove Professional Center, and that's 21 million. The two that are remaining to be closed on the four-building medical portfolio is 22.5 million with Shady Grove Professional Center II and 7.7 million on Plumtree Professional Center.

So, to answer your question, Jessica, we have closed on approximately 87 million.

And then you have roughly 30 million left to go?

That's right.

And will that finish you for the year, in terms of acquisitions?

No.

Scott Sedlak, A.G. Edwards.

Sara, could you just provide a little bit more clarity, potentially, on the FFO guidance? What might be the offsetting factors to the acquisitions that you have already completed?

Well, the acquisitions, of course, are ahead of our projected pace. So those that we have completed thus far accelerate our FFO somewhat, as well as the fact that we do have some more acquisitions in the pipeline.

Jessica, I didn't mean to be tart when I said no. But, Scott, in answer to that, we do have other projects that we are working on that we have been working on also for the last several months.

Is there any expenses that might be offsetting, since you are ahead of the pace on the acquisitions? Is it G&A? Is it interest, additional equity?

Obviously, interest expense will increase. And within our original guidance, we had projected a $70 million equity offering at midpoint in the year. Depending on the total dollar amount of acquisitions that we go through this year, we will probably be issuing unsecured debt as well as equity at some point.

And then that -- the $[15] million of unsecured debt that matures in '06 -- is that in August?

That's in August.

And then, the only other thing is, Skip, can you maybe provide a little bit of an update in terms of the leasing projects for some of the development projects?

Are you talking about the office projects or the --?

I guess more so like some -- well, Dulles Station and then also the apartments.

Well, the apartments is really too early. It's way early to give you any prognosis on -- we are not preleasing those at this point. So I really have no information on residential.

Now, as far as Dulles Station, we really are ahead of schedule but we are still very early in the process. We have actually given tours to a couple prospects already, which is quite early in the game, considering we are at least probably 17 or 16 months ahead of schedule. But we have actually had some fairly large tenants actually look at the site in a very preliminary fashion. So it's so early in the game for that project I couldn't say one way or the other. The market is really tightening up out in that corridor, and there is really only one other building ahead of us in the pipeline, out on the Dulles toll road in the Herndon area. So we feel pretty comfortable that as long as the market sustains, we are going to be in pretty good condition there.

When would you guys expect to start having some leasing progress on the apartment side? I realize it is early, but just kind of for my own benefit of when that might typically occur?

Well, we should have some preleasing done. And hopefully, when we open, we will have 20% of the building, that type of thing, preleased.

David Fick, Stifel Nicolaus.

Nice quarter. I was wondering if you'd give a little more color on the acquisition process. You originally guided about $100 million. Are you willing to update that guidance this morning? And can you talk a little bit about -- you are finding these off-market deals; they look very attractive. What kind of yields do you expect going forward? And what is your internal process for sourcing these things?

Well, the internal process probably breaks down into two areas. One, as far as the medical office sector is we've got to go, as I mentioned in my comments, and ferret those out. We tend to target the buildings we want to go after, go at either directly or indirectly, through a broker, go to the owners. And so often, you hear people talk about coming in under the radar. Every time we have come in under the radar, we think we [got a price], and the brokers tend to get into play or condo converters get into play. We lost one building that way to a condo converter. And so you just have to be patient and work through the process.

My sense is, as far as medical office buildings are concerned, in general that they are well located and near these acute care hospitals. You're talking about probably somewhere in the 6.30 to, hopefully, on the further-out properties, 7%.

The higher return that we got on the Alexandria property is the direct result of that. That's an older building, very heavily tenanted, and we have filled into those numbers, and the work won't really get done until next year to 18 months -- pretty heavy CapEx. The building is not sprinklered and a number of other issues, so that's why it has a relatively high first-year return on invested capital. But with the rental increases and other things taking place in there, we should be able to not see a decline to any great degree in those returns while we go through the process of the CapEx.

On the other property types, frankly, we have a couple of things that we are looking at and looking very comfortably. In Sara's models, we are looking at on a ratable basis and maybe another 100 million over the next six to -- well, I shouldn't say over the next six to nine months. It just takes time to get these deals negotiated, and the other problem with a lot of them is the fact that they are, more often than not these days, tied up in condo and financing, which is a nightmare to close. And we've got to be careful with rising interest rates that you can't get held up 90 or 120 days after going firm on a property. And these spreads are so tight that if interest rates go up to any great degree, you really harm your returns.

Can you talk a little bit about your internal process, who is leading that? And do you have an investment committee? How you make the decisions?

Well, it's as follows. Tom Regnell is the Managing Director of Acquisitions, as he has been for several years. And he reports to Chris Mundy now, rather than directly to me. And the way the decisions are made -- we look at particular properties. (Technical difficulty) numbers determine what our offer will be. And internally, the way we're structured is I have authority from the Board to approve all acquisitions up to and including $20 million in investment. Anything over that -- and if it were a portfolio where the numbers are all broken down, I consider that as one number -- we go to the Board of Trustees for their approval for the investment.

Underwriting process is very institutional. We have very deep and due diligence, as I have always demanded. It's not only here but in my previous life. And so that's how we go through the process. Once it's completed, we go firm after a contract is executed, and we close.

Should we assume roughly 6.75 kind of cap rates in our modeling for this year?

On the low side. I would say my target, frankly, is 7 at this point, with what we know. And also, these days, I don't think cap rates are going to change very much over the near term, with the type of properties we want to buy. I think we can buy, with the type of properties we are looking at, in general, with the exception of the MOBs, in the 7% range. Unless it's something that we are acquiring that has a hole in there, we feel very comfortable in leasing up. As an example, Skip, what's the property, Hampton?

Yes.

We bought Hampton -- why don't you fill us in on where you are there?

Yes. As we reported on, I think, the last call, we acquired Hampton, which is an industrial park. One of the buildings there, 63,000 square feet, was vacant. We bought that; it was recently constructed. We have three very strong leasing prospects to lease 85% of that building, two of which we have a letter of intent with. We've got to negotiate the lease. The third one I expect to do that soon. So we have very good leasing activity there.

The point is, frankly, we are ahead of schedule on that, number one. But the other is, our returns are less than what we expect, obviously, long term. So other than that type of an acquisition, David, we anticipate it will be 7% returns. Short of that is probably in the 5.5 to 6% range, where you have a hole in it, with a look to get a 7.5% or better return on the acquisition within the first 18 months.

I just want to add one thing. You had asked earlier about process, and I've now had six months under my belt here. And I can tell you that this group has the most intense and best due diligence process that I've ever experienced. So that's my two cents for my first six months here on that front.

I was wondering where you were, Chris. Then, one last question -- one detail question, I guess, for Sara. Typically, your G&A spikes a little bit in the first quarter, and it did that again this year. I'm presuming that's not a run rate. Can you give us guidance for the rest of the year on that line item?

Actually, I expect G&A to run in the range of 10 to $11 million this year, so that's actually a decent run rate.

And what was the change this quarter?

That was basically the incentive comp. And when you compare that to the fourth quarter, we had a reduction in incentive costs. So, really, that $1 million increase quarter over quarter from Q4 is incentive comp. And then, as Sara mentioned, that run rate of 10 million is with the revised projection.

It's nice to see all the activity, guys.

Ken Avalos, Raymond James.

Good quarter. On the industrial portfolio, where do you think the rents are on the existing -- the in-place rents are versus market there? And then my second question was, just quickly, was there any kind of rollover in that portfolio, the MOB portfolio you announced yesterday?

On the first question, the industrial portfolio, we are guesstimating that we are about 3 to 4% below market. In other words, we've got about a 3% to 4% increase upon rollover, on a cash basis. Of course, that would be significantly better on a GAAP basis.

And your second question was is there significant rollover on the medical portfolio that we are buying right now?

Yes, that's right.

It's relatively insignificant.

And as a follow-on to that is we would love to see some rollover, because we get significant bumps in that portfolio whenever we have rollovers.

(OPERATOR INSTRUCTIONS). Jessica Tully, Credit Suisse.

The question I had was on the apartment business. You have, I think, 25 apartments that were leased by the Saudis. And then you also have some that are out of service. I still was thinking that your apartment occupancy would have been a little bit higher; I think it was a little shy of 92%, without the ones that are out of service. And I'm confused -- are the Saudi ones also out of service and being renovated? Or are they on the market?

Let me clarify that. The Saudi ones are not being renovated right now; we've put those back into the leasing program. To be honest with you, in that little submarket there, although it's a great market, it has been a little bit slow in the first quarter. It's just slow getting those leased up, to be quite honest with you.

Now, in addition to that, exacerbating the vacancy problem, we are doing some really significant -- and if you were here, I would show them to you -- common area improvements at several of our properties, both at Country Club Towers, at Munson Hill Towers we are doing multi-million-dollar type renovations -- excuse me, Roosevelt Towers and Country Club Towers. We are doing significant structural work on the balconies. It's a very disruptive process to the leasing. When you go to these properties, you see scaffolding on the buildings and all sorts of other things. So I think that's also having some impact on our early-season leasing. And in the winter, it's tough to lease space; there's just not a lot of activity. That's why we noted that there was a seasonality factor here. As we enter the spring and summer, we see quite a bit more velocity in terms of leasing. But I think the combination of the time of year plus all these renovations plus the Saudis plus the renovation in the individual units, which is in addition to the common area innovation -- sort of that soup of activity is dampening things a little bit.

How would you characterize the overall Washington apartment market?

It's good. I mean, it's good. It's not like it was during the tech boom, when we were leasing space before tenants even vacated, but it's improving.

To save time, keep in mind the condo market is, has and still continues to impact the leasing market to some degree. And recently we have been seeing some reductions in not only pricing but giveaways, trips and all those sorts of things on the condo developer [parts] as well as the converters. And I think all of those have had a -- somewhat of the negative impact as well on the apartment sector, and that will probably continue for a while. But we are keeping our powder dry, because there may be another opportunity within the next year in that particular arena.

And I think you have to know we have experienced some pretty good rental rate growth. We are not really dropping our rents, and we are not seeing the big concessions that we had in the past. And we just need to clean up a lot of this renovation work we have got going, and with this new season I think we'll see a pretty good rise in occupancy. And when you to add that to the rental rights we are experiencing, I think we'll see a pretty decent pop there.

Chris Lucas, Robert Baird.

Very nice quarter. Just a couple of follow-up questions for you. On Dulles Station, is the expectation that that will be a large tenant building?

Well, we would hope so. It's a large tenant market. We are not precluding other tenants. There are 30,000-square-foot floor plates in that building, and that's what most of activity has been out on the toll road. But we are open to what the market is going to deliver.

Chris has been to a couple of meetings with Grubb & Ellis, who represents us there. And we can't get into a lot of specifics; you might want to make some comments on the type tenants we're seeing.

I think Skip kind of touched on it. We're going to read the market. And obviously, I think, early in this stage, it tends to be -- our target would tend to be a larger tenant who take a big portion of the building. But again, six 30,000-foot users could also work for us as well. So that's something I think you assess as the leasing effort gets underway, which we are doing right now.

And then kind of as of follow-up to that, when you look at your office portfolio, then, how does that break out between sort of the number of large tenants within your entire portfolio relative to the small tenant mix that you've really traditionally focused on?

We would have to go look at the numbers.

It is a large -- I mean, if you look at our top-ten tenants list as it's part of the supplemental, you can see that it would be a significant impact. Really, we have few really large tenants, like the World Bank is a large one. And I don't know where this is going to pan out, but if you figure -- if we lease to a 100,000-square-foot tenant at $30-some-odd rents, it would make our top-ten tenant list. So that gives you some sort of insight.

On a look back, if you take a look at the negative impact on our office portfolio, it has really been in really two buildings -- Maryland Trades I and II and 7900 Westpark. And in each of those cases, they were large tenants that left. And those have been the holes we have been trying to patch, and we have been providing more of an effort to do small tenant lease-ups. And that has worked particularly well in Maryland Trades I and II, whereas the Tyson's part has been a little more volatile. But we are starting to make some pretty good headway there.

Even when you look at our top-ten tenant list on the supplemental, only five of those tenants are one lease. So a large tenant here would be a significant one in our portfolio.

When you look at that, you can look at this. I mean, the percentage of overall space -- if they took the whole building down, if you had a single tenant at Dulles Station, that would be a little over 2% of our aggregate space. So I think, without going into the numbers, the portfolio is still dominated by small tenants, and that's our core business.

Can you guys give me a little bit of a sense as to in the pipeline of acquisitions, sort of maybe the mix either in product type or in terms of the types of acquisitions you are looking at? And what I mean by that is whether they are value-added versus sort of core, sort of how that mix breaks out?

All three. On the value-added basis, there's some things that we're considering. Then, on the other situations in the portfolio, we are looking at really industrial and basically suburban offices we have had in the past, more [flex-plate]. So I would say we really haven't changed our operation at all. Can't give you specific numbers at this point, because they are not -- these things are not firm yet.

But in terms of the product mix, you're still focused on what products at this point in the cycle?

Well, we're focusing on whatever looks good to us, frankly. Being versatile like that helps.

The properties we are looking at are virtually every product category except probably residential. But we literally are looking at everything else -- industrial, retail, office. They are all active acquisition targets out there right now.

Is there any more flow at this point than, say, a year ago in terms of product, especially in the retail area, which there really hasn't been much?

There's not been anything on the retail product, to speak of, in the region.

I think residential has been very slow with the condos, and there is some hope that at some point here, that market may open up again, but not in the near term. And I think retail continues to be tough. So I think if you look at the other three sectors, they are probably sectors where we will more than likely be more active in.

If you are trying to figure out product type out there, I think today the suburban office buildings are probably the area where we more than likely see more product being offered. But we are pretty selective on that, as you know. You have got to be careful with these markets and what is going on within the markets here, because the drivers are changing in the region as well.

And then, on the recent acquisitions, on the property in Alexandria, what are you doing or how does the parking circumstance work at that location? You have the low parking ratio at that asset.

What is built into this right now, and we have some ideas for the future, but we don't want to go into those at the moment. But essentially, the way the parking works is we have both on-site, on the upper deck of a parking deck, garage that's under the building. And we are leasing spaces from two adjacent property owners, and the lease with one of them is a long-term, fixed-rate lease. And so, between the two, that covers the necessary parking for the property. But it is an issue that we're going to have to deal with, frankly, so that we can be a little bit more in control of that parking. That's the bad news. The good news is, there's no place else for the doctors to go; that area is completely developed.

At this time, there are no further questions.

Okay. Well, I want to thank everybody for joining us. And as always, we greatly appreciate your participation and support. We're available to answer any other questions you may have, so give any one of us a call, if you would like. And again, thank you.

This concludes today's Washington Real Estate Investment Trust first-quarter 2006 earnings conference call. You may disconnect at this time.