Elme Communities (ELME) 2006 Q4 法說會逐字稿

Welcome to the Washington Real Estate Investment Trust fourth quarter 2006 earnings conference call. As a reminder, today's call is being recorded. Before turning the call over to the Company's Chairman/CEO, Ed Cronin, Sara Grootwassink, the Company's CFO, will provide some introductory information. Ms. Grootwassink, you may begin.

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 at 301-984-9400, or you may access the document from our website at www.WRIT.com. Our fourth 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, President and Chief Operating Officer, and Laura Franklin, Senior Vice President of Accounting, Administration, and Corporate Secretary.

As you'll hear from Sara and Skip, this has been a terrific year. Every sector in our portfolio is performing well. Portfolio-wide, on a cash NOI basis, we achieved 5.6% same-store growth. The strong cash NOI performance was led by the multifamily sector at 8.6%, the shopping centers sector at 6.9%, the office sector at 6.4%, and the medical office sector at 3.4%, which for this sector is extraordinary, since it has been nearly 99% leased throughout the year. The industrial portfolio achieved same-store NOI growth of only 1.9% for the year, but we're able to achieve very strong fourth quarter sequential growth. Obviously, we're very pleased with this overall performance and look forward to it continuing throughout 2007.

During the year, we acquired 14 properties for $303 million. These acquisitions include 533,000 square feet of office space, 405,000 square feet of industrial space, 227,000 square feet of retail, and 337,000 square feet of medical office space. You will recall that the industrial properties were acquired with a reasonable amount of vacancy leading to nominal first year yields. To date those occupancies have increased from 75.1% to 94.7%. The other value-added acquisition, the 227,000 square foot Montrose Randolph Shopping Center in Rockville is progressing nicely. Upon acquisition there were 66,500 square feet vacant, and to date we have leased 13,200 square feet of the vacant space with excellent activity on the balance of the Center.

Last week, we announced the acquisition of five buildings in 270 Technology Park located in Frederick, Maryland. The Frederick market, where we currently own two shopping centers, continues to be a strong growth market. Skip will discuss that acquisition in more detail in a moment.

The CEO transition continues to go well, and Skip and I are committed to make this management change seamless.

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

First, I will discuss fourth quarter results, and then I will discuss the results for the year. Funds from operations for the fourth quarter totaled $25.2 million, or $0.56 a shared, an increase of $0.02 per share, or 3.7% over the same quarter last year.

The portfolio achieved very positive core NOI growth this quarter, led by the apartment office and retail sectors. Overall core portfolio cash NOI increased 5.9% over the fourth quarter of 2005.

Our apartment portfolio led our performance this quarter with cash NOI increasing 11.9% over the same quarter last year, driven by 6% rental rate increases, while occupancy increased 200 basis points from 92% to 94%, even though units have been taken off the market for renovation. If you took those units out of the vacancy calculation, our apartment portfolio would have been 94.6% occupied.

The office sector also improved this quarter, as core portfolio cash NOI increased 6.9% over the same quarter last year, with strong occupancy gains from 89% to 92.2%. The largest increases in occupancy were at Maryland Trade Center I, 6110 Executive Boulevard, and 51 Monroe, all buildings located in Maryland.

The medical office portfolio performed well, with fourth quarter core portfolio cash NOI increasing 2.6%, while occupancy remained steady at 98.5%. The retail portfolio also continued to perform well, led by strong rental rate growth at The Shoppes at Foxchase, with cash NOI increasing 1.7%.

And, core portfolio cash NOI for the industrial portfolio increased 5.6% over the same quarter last year, due primarily to rental rate increases throughout the portfolio despite a modest drop in occupancy.

For the year we earned $2.12 in FFO per diluted share. Our FFO increased $5.4 million, or $0.05 per share over the prior year.

As Ed mentioned, same-store cash NOI growth for the year 2006 over 2005 was a strong 5.6%. Rental rates were up 3.9% on average, and occupancy increased 170 basis points. All sectors achieved positive core NOI growth for the year.

Our apartment portfolio achieved 8.6% same-store NOI growth for the year, with rental rates increasing 6.3%, despite an 80 basis point reduction in occupancy. The reduction in occupancy was due primarily to the units we have taken off line for renovation throughout the year.

Our core office portfolio achieved 6.4% same-store NOI growth for the year, with a 2% increase in rental rates, and occupancy growth of 400 basis points, with average economic occupancy of 92% for the year.

Our core medical office portfolio NOI growth was 3.4%, with very steady occupancy of 98.8% and rental rate growth of 2.8%. Our core retail portfolio achieved 6.9% NOI growth with occupancy increasing 180 basis points to 99.1%, and rental rates increasing 8.3%, due to both the strong retail environment and the successful renovation of The Shoppes at Foxchase. And our industrial portfolio achieved core NOI growth of 1.9% with 3.4% rental rate increases, even as occupancy fell somewhat to 92.8% from 94%.

We believe that our FAD payout ratio is an important metric on which to focus. For the year it was 101%, but improved to 88% in the fourth quarter.

In January, we completed a $135 million convertible debt issue, with a subsequent overallotment exercised by the underwriters for an additional $15 million. The transaction mirrored closely our convertible debt issue in September, with a 3 7/8 coupon and a 21% conversion premium. Proceeds were used to pay down our $69 million line of credit balance, which had funded earlier acquisitions and development, and the remainder was invested short-term. Just last week, we used a portion of the proceeds to fund the acquisition of the 270 Technology Park portfolio.

Our average debt maturity is now 7.8 years, with an average interest rate of 5.6%. Total market capitalization at quarter end was $2.8 billion. Our debt to total market cap was 36%, and our debt service coverage for the quarter was 2.7 times.

Now I will turn the call over to Skip.

As Ed mentioned, our portfolio is performing very well. We executed 65 leases in the fourth quarter and 369 leases during the year. Rental rates on renewed and retenanted space and all sectors for the quarter were up strongly, which with average rental rate increases of 18.8% on a GAAP basis and 10% on a cash basis. For the year rental rates were up 12.8% on a GAAP basis and 2.8% on a cash basis.

For the year, tenant improvement and leasing costs overall averaged $10.80 per square foot throughout the commercial portfolio. On a component basis, TIs ranged from $28 a square foot for the medical office portfolio to $4 dollars per square foot average in the industrial portfolio.

In the fourth quarter, cash rental rates on the 82,000 square feet of new and renewed leases in the office sector increased 10%, and GAAP rental rates increased 17%. At quarter end our general office portfolio was leased as follows: DC properties, 99.8%, the Virginia properties, 91.2%, and the Maryland properties, 93.6%.

For the year rental rates in our general office portfolio increased 9% on a GAAP basis and were flat on a cash basis. With only 10% of our office leases expiring in 2007, we expect occupancy levels to increase during the year. Overall, although market absorption was below average in 2006, occupancy in the region was generally high. Tenant improvement costs plus leasing commissions averaged $17 per square foot for the year in our office portfolio.

Our Medical Office portfolio was 99% occupied and has minimal lease rollovers. Thus performance in this sector was strong. Rental rates increased 17% on a GAAP basis and 6% on a cash basis for the quarter. The strategic location of our properties, combined with excellent market conditions, contributed to outstanding results for the year. Rental rates increased 20% on a GAAP basis and 6.5% on a cash basis for the year 2006. TIs and leasing commissions averaged $28 a square foot.

In our retail portfolio, we continue to achieve strong rental rate growth in the few leases that rolled this quarter. Cash rents increased 17.2% and GAAP rents increased 29.2% on the 14,000 square foot leased, primarily driven by new lease at the Montrose Shopping Center. As Ed mentioned earlier, to date, we have leased 13,200 square feet at Montrose, with rents in excess of pro forma. Activity on vacant space is solid, and we expect continued gains in early 2007. Retail tenant improvement and leasing commission costs this year were $5.48 a square foot.

Our industrial sector continues to perform well. During the quarter, we leased 134,000 square feet and achieved excellent rental rate growth. On a GAAP basis, rental rates increased 20.1% and 10.4% on a cash basis. This portfolio was 92.9% leased at year-end. Leasing activity is very good, particularly in the I-95 South/395 corridor, where our 1.4 million square feet portfolio is 95% leased.

In the apartment sector, despite unit and common area renovations ongoing at several of our properties, occupancy levels were 94% in the fourth quarter. These renovations alone added 60 basis points to overall portfolio vacancies. As a result of the strong market and the excellent infill location of our properties, we have been able to achieve rental rate growth of 6%. We expect that the combination of the delivery of the renovated units, in conjunction with market conditions will contribute to continued NOI growth in 2007. During 2007 our business plan includes the renovation of 168 units. We expect to achieve at least a 10% return on invested capital from these units upon return to the market.

On the development side construction activity is complete at Foxchase, and progressing well at our three other active projects.

At Rosslyn Towers, now called Bennett Park, construction is moving expeditiously, and we expect to deliver our first units in the second quarter of this year. We are projecting to lease approximately 30% of the property by year-end.

At South Washington Street the project is also moving well, and we expect completion in the early part of the third quarter of 2007. We are projecting to lease 40% of the property by year-end.

At Dulles Station construction is slightly ahead of schedule. To date we have issued proposals to a number prospects, but at this time no leases have been signed. Over the last 12 months absorption in the Dulles corridor has been weak. But we believe the quality of our property, in conjunction with the access road visibility, proximity to the airport, and the future metro station is very attractive to prospective tenants.

Lastly, on the acquisition front, as Ed mentioned earlier, we closed on the 270 Technology Park portfolio February 9. This flex project consists of 157,000 square feet, with five single story buildings at a superb highly visible location off I-270 in Frederick, Maryland. This property has the long track record of high occupancy, and should continue to see excellent rental rate growth in the strong Frederick market. This is a property we have had our eye on years. And we are extremely pleased to add it to our portfolio to kickoff 2007.

In summary, market conditions overall are very good, and we expect to see continued reduction of vacancies, and modest rental rate growth as 2007 progresses. We would like to now open the call for your questions.

(OPERATOR INSTRUCTIONS). John Guinee, Stifel.

A handful of questions here. Just refresh my memory on the Dulles Station deal. What function is Trammell Crow doing, and what function are you guys doing? And at what point can you take over the leasing property management, etc.?

Let me backup. First off, Trammell Crow was the developer in this transaction in the original joint venture with EOP. And they are really sitting there as the developer, but we are directly involved ourselves with the construction, dealing with the general contractor. And in addition to that, we are directly involved in all the leasing and management and all decisions related thereto.

At what time can you assume full responsibility? For example, when the project hits stabilization and the construction is done, can you take over leasing, or does Trammell Crow handle that indefinitely?

We have full responsibility right now. We sort of pushed Trammell Crow aside. They are in the meetings where they have certain responsibilities, but they're essentially a construction manager at this point. They are not involved in any of the things that we are doing or the changes. Indeed, we even went in and changed the design of the garage, which was really fouled up, frankly. And we took all of that on ourselves. Essentially we're running the job, and they are just standing there part of the original deal.

On the two convertible notes, do you have a rough blended strike price on the convert?

The strike price is exactly the same.

But what is the actual number?

It is -- one second -- it is $49.78. [$49.78].

So it is. $49.78.

Relating to the convertible notes, the way we do the math is we say that if you are buying at a fixed cap and borrowing at a 3 7/8 cap, you get about 210 basis points on that $260 million. In that just when you invest that full amount that in and of itself is about $0.10 or $0.11 accretive on an annual basis. Does that number seem right to you?

First of all, it is on an annual basis, and of course we haven't fully invested all the proceeds. We have a portion of the proceeds invested short-term. And the rates on that are very good. But I would expect that the new issue would be $0.04 -- $0.03 to $0.04 accretive this year, depending on the timing of acquisition.

If you added the two issues together, your numbers might be $0.07 or $0.08 accretive?

That's right. Again, it depends on the timing of acquisitions this year. But, yes, I think that is a fair number.

If we add that to some very impressive cash gains, GAAP gains on lease rollovers, as well as same-store NOI growth, we have a hard time getting below about $2.30 a share for '07 and $2.40 for '08. And the math is pretty simple. If you have got a 13% GAAP, 3% cash (technical difficulty) on your rollovers, you're getting some occupancy points, plus you're getting $0.07, $0.08 a share on the 3 7/8 debt.

We can talk about that a little bit more in detail off line, but keep in mind that only -- I think only about 10% of our portfolio is rolling this year. So while we're getting very good rental rate increases, it is on 10% of the portfolio that is rolling.

But we can talk about it off line. I agree that obviously the convertible issuances are accretive. And we just didn't feel that it being this early in the year we should alter our guidance at this point.

Okay. I think you are at $2.12 for '06, which is really more like $2.14, $2.15 excluding the onetime G&A in the second quarter. So $2.17 seems -- or $2.11 to $2.20 seems like awfully low expectation for '07.

We gave guidance of $2.17 to $2.20.

And that was back in November before we decided to do the second issue.

The second issue is another $0.04?

We think, but again it is not fully invested.

Scott Sedlak, A.G. Edwards.

I was wondering if you could maybe talk a little bit about leasing activity just in general. What type of tenants are in the market looking for space? And give us a little bit more clarification on that.

Skip.

Do you need any particular sector?

I guess on the office and then the industrial sectors.

I can't point to anything specific. To be honest with you, I think I made a comment in my introductory remarks that the market in 2006 was a little bit slow, particularly in the office sector, and the industrial sector for that matter. The absorption levels that were achieved last year overall throughout both sectors were below average. Let's put it that way.

Having said that, the vacancies throughout the market were good. I would say just in terms of what type of tenants are out there, the usual suspects, there was no particular sector that was noteworthy among others.

Do you see this slowness carrying forward into 2007 or beyond?

It is still, I would say, below average. Absorption is below average right now. The market conditions are good in that vacancies aren't excessive. But, yes, we would certainly, particularly out in the Dulles Toll Road corridor, characterize the snapshot market conditions that we are seeing today as being somewhat slow.

If you were to mark your portfolio to market, talk about the rent growth opportunities that you have across your various sectors.

I would say in the office portfolio, given where the market rents are right now, and absent some significant rental rate gains, we are probably in single digits, maybe somewhere between zero and 5%, relatively on the low side.

And that is on a GAAP basis?

That is on a cash basis.

What will the GAAP numbers be?

I don't know. I would have to do the math on that, but probably -- I don't know. I don't even want to make a comment on that. Because I don't really look at the market rents on a GAAP basis. We pretty much look at those on a cash basis.

We think cash.

The retail portfolio is probably 15% to 20% below market. The industrial portfolio probably 8%, or 7.5% below market. In other words, a 7% rollup in the market. And our medical office portfolio is -- I would say between zero and 5%. We are in there pretty high rents right now. But I think we can push those rents.

Can you talk a little bit in terms of the acquisition pipeline, how that is shaping up and what your expectations are for the year?

Actually, we're having a very active beginning to the year. As you know, we have reported on the February 9th closing of 270 Technology Park in Frederick, Maryland. We also are anticipating closing on a property next week. We are firm on an office building, a significant asset. And we have a number of other assets in the pipeline that we're not firm with, but we're looking at. Other than that, I don't really want to get into specifics, but we have a very active pipeline right now.

Chris Lucas, Robert W. Baird.

A very nice quarter. On a follow-up to that, Skip, what is the product availability that you're seeing right now in terms of sectors-- is it mostly office, industrial or retail? And can you just give me a flavor on that?

Ours specifically?

Yes, and the stuff that you're looking at, how does that break out in terms of what you are looking for.

The property we just closed obviously was a flex/industrial property. The property that we anticipate closing on next week is, I would call, a high-quality suburban office building. And then, as you guys know, we have spent a lot of time on the medical office sector, and we've got some really promising things that we're hopeful of acquiring that are in our pipeline, particularly in the medical office sector. That is I think where that activity is going to be concentrated in the near future.

It seems to me, I guess if memory serves me correct, there were some issues at the Ashby at McLean in terms of lease up there. Has that normalized out?

Yes. That has come around nicely. We are in the 90% occupied range. I think you are referring to the fact that we had the Saudi Embassy staff hit us with 25 units vacant at once. And right now I'm looking, I am trying to find -- I think we're 92% occupied on that property. It was a little bit slower than we would have liked, but we are starting to hit our stride now.

What kind of lease spreads are you seeing at Foxchase for the small shop space?

We haven't done a lot of -- the problem with Foxchase is we haven't turned over a lot of space, because we kept it occupied during renovation. For example, we kept the Harris Teeter in there. So now we're trying to shake out the existing tenants. We're trying to roll them out of the short-term leases that we extended. But I think we are going to see when we finally do some of these leases probably spreads in the 10 to 20% range.

What would be the timing on when those would start to shake loose?

They are going to start -- the way we have it set up there is like a staggered roll. There isn't going to 60,000 square feet that is going to hit us like a tidal wave. There are going to be bits and pieces over the next year probably.

Just sort of what is the net cost to you guys on a winter storm like we had this past week?

I would have to research that answer. I don't know what the answer is.

Can't give you the number on that. In fact, the relationship we have with the various people who clear up our parking lots and so on is a fixed price. And frankly they are all going nuts right now, because normally -- and keep in mind, this is the first real storm that we have had -- normally it snows, and they can go through these parking lots and clean them up in a nanosecond with their plows. However, this is mostly ice, and they are really screaming and hollering, because it takes a lot longer, and it is much more difficult to clean these lots up.

And as you know, also the real impact of this is on the residential properties as much as any, because the other ones it is a pass-through expense, particularly the industrial and the retail, because they're all triple net properties. But where you really sort of take a hit is in the residential properties because there's no pass-through. I don't know that number right of the top of my head.

I think one of the best ways to look at it, frankly is we get our -- and budgeting process and guidance and so on have numbers in there for snow removal during the year. We haven't hit those -- we really haven't hit --.

Right. We're still below our budget.

That is the critical item. Thank you.

We do always budget that number. And I think that is a good point that Ed just made. We don't have zero in our budget for snow removal. I don't recall off the top of my head what we have in there, but we're still below our annual snow budget.

(OPERATOR INSTRUCTIONS). Michael Knott, Green Street Advisors.

Can you just help me understand? It looked like the occupancy in some of the sectors -- segments, of your portfolio fell sequentially. It looked like the office sector fell 30 basis points on overall. Is that due to the acquisition? It looks like the same-store occupancy fell 100 basis points sequentially.

It fell 40 basis points sequentially on the core portfolio. On the full portfolio sequentially it fell from 94.1% to 93.7%, so again 40 basis points. We dropped a little bit fourth quarter to -- or from third quarter to fourth quarter in multifamily. Again, that is because of units coming off line. That was 40 basis points in office on a core basis. We dropped 50 basis points in medical office. We dropped from 99.5% to 98.9%. And then sequentially we went from 93.7% to 94.7% in the shopping centers. So that was an improvement. And then industrial dropped a little bit from 94.3% to 92.8%.

But overall there was nothing really significant in there, nothing big in particular, no softness or anything.

Skip, going back to the earlier question on your office rent rollups, can you just give us ballpark figures how that would break down between your three primary markets? You said single digit rent rollup. Would that vary? Would DC be higher? Maryland lower?

DC would be higher. DC would probably be almost 10% or more. The problem is we don't have that much rolling in DC. The Virginia side would be single digits, and I would say that Maryland would be single digits as well. The problem is in DC we don't have enough space rolling next year.

Can you just give us some guidance on what you think market rents will do in those three markets in 2007?

I think the rents in DC are going to continue to be increased, because it is still a very tight market and the prices that people are paying for buildings and the construction costs are pretty much out of sight. Although there is some recent weakness in some of the smaller mom-and-pops in the retail world right now, I think that our retail portfolio will continue to see good rental rate growth.

In our industrial sector, there is some softness out in the Chantilly market. So, to the extent we have some rollover out there, I don't think we are going to see rental rate growth. But particularly, as I made a comment in my introductory remarks, the industrial space to the south of the city, down that I-95 South / 395 corridor, where we have a lot of industrial properties—in fact, our biggest industrial property, NVIP, is down there—I think we are going to continue to see substantial rental rate growth, probably at least 5%.

Our medical office portfolio is tight. Our rents are high. My biggest fear is our medical office portfolio, because our rents are high, and we continue to push them because the market is tight. But I like to think that we are going to continue to achieve 5% rental rate growth, but the rents we're achieving are fairly extraordinary, especially as related to our general office portfolio.

Then just to clarify, Sara, there's no change to the '07 FFO guidance?

Not at this point.

Ken Avalos, Raymond James.

Good job. Just a couple of questions. Do you have any sense, Sara or Skip, as do what the apartment, multifamily same-store NOI growth would be ex the redevelopment properties?

We just calculated occupancy. We didn't calculate same-store NOI less the units taken off line. I think on a quarter over quarter basis occupancy was 60 basis points. I'm sorry, for the fourth quarter it was 60 basis points. So it was 60 basis points of vacancy that that contributed.

I guess what I mean is I'm trying to get a sense for the impact of the ones you actually brought on line in '06, because obviously those returns are going to be a lot higher than the other multifamily units. And I'm just trying to get a sense for that strength.

What I would say -- if we are projecting to bring 168 units online, and we have 2,100 units, it is not a huge amount of our existing portfolio. It is like 3%. But, let's just set those aside for a second. Generally, we are seeing 4% to 5% rental rate growth on market rents in our markets. And as I mentioned earlier, we're getting at least 10% bumps on the renovated units. I'm thinking that overall we're probably in that 5% to 6% range.

That's pretty helpful. Just my second question was what do you think MOB cap rates have done over, say, the past 12 months? And that is it for me. Thanks.

Here or around the country?

Just in our markets.

Because we kind of watch the rest of the country. In our market, frankly, there is, essentially depending on where it is located, the age of the property, to a lesser degree who owns it, it is probably in the 6% to 6.5% range on the low side. We were able to acquire one from a hospital at 7% last year. But that property needed work and so on, so that might be an anomaly.

The other side of the coin as far as the properties we're focused on are buildings that really haven't been built as medical office buildings over the last several years. So if you took -- if you're really trying to gauge this market -- and that is the reason why I separated from other areas of the country which we sort of are keeping our eyes on -- 6% to 6.5% depending on the age of the property, and whatever current vacancies there may be in its location.

Are you just -- sorry to add on -- but are you just watching the rest of the country just to get a sense for economics? Or -- you're not looking to go outside of your markets, right?

No, we are really looking at it from a standpoint of the economics here versus other areas. And so we have been reading what transactions are taking place and sort of following what is going on in other REITs, particularly who are focused on MOBs.

You really need to look at the world on these because it is not a huge universe out there.

Right. Thanks. Nice job guys.

Scott Sedlak, A.G. Edwards.

Sara, I think in the past you guys have talked about potentially selling a building or two, for instance the Lexington. Any update you can provide us on that, or any sales in the '07 guidance?

I can answer that. Actually, we did. It was kind of an interesting transaction. We had the Lexington building on the market for sale. And we structured a very attractive lease with an option to purchase at above market rate with a user. What is happening is someone is actually going to lease the entire building, with the option to purchase it in the next couple of years. So that is sort of the status on the Lexington building. And we're looking at one or two other properties. We haven't decided anything yet.

Does the '07 guidance include any sales?

No.

Actually, it had the Lexington building in there, so that would actually be a deviation from our original guidance, since we will have income from that property. As soon as that lease is done, which should be imminent, it is 100% leased for the balance of the year. And we had that selling -- do you remember what it was selling --somewhere, like April. May we had it in our business plan to sell. So that would be -- March -- so that would be the deviation from our guidance. It is a very small -- it is only 46,000 square feet -- so I don't think this is going to have a giant impact on anything.

Then on the development, it looks like the Clayborne asset slipped another quarter. Any update you can provide us there?

Yes, I can be very specific about that. We sort of used an abundance of caution there. It actually slipped one month, and I think we can make it up. We originally had that property delivering -- I know we said second quarter -- it was really late June. And it is really looking like late July now. We had some problem with some roof trusses and turnover from two contractors. It really amounted into weeks, so in an abundance of caution we just advanced it one month in our estimated completion. We might even be able to make it up.

Any slippage in terms of the yield expectations there?

No, we're still in the same neighborhood. There hasn't been any cost impact from that slippage, it is just timing.

(OPERATOR INSTRUCTIONS). John Guinee.

What kind of rental rates on a per square foot basis are you going to achieve on Bennett Park or Clayborne Apartments?

They have a lot of unique buildings, but we're projecting a $2.50 to $2.75 per square foot range, depending on the unit and location, etc. and that will be depending on the market at the time they deliver.

If you're doing $30 on an annualized basis, is that 18 net after operating expenses?

Maybe a little bit higher.

It looks to me as if Bennett Park is costing about $3.70 a square foot and $333 a unit. And Clayborne is about $4.70 a square foot and $420 a unit. I did that assuming 900 square foot units. Did those numbers sound right to you?

Close enough for government work.

If you do the math that sort of translates more like 6% plus or minus, stabilized yield. Can that be right?

That is about right. I think we have been saying we have been in the 6% range, depending how far we can push it. I think that is a very fair assessment.

Ladies and gentlemen, at this time there are no further questions.

Thank you again for joining us today. As always, we greatly appreciate your participation and support. All of us are available to answer any other questions you may have. And with that, have a safe and enjoyable weekend. And good morning.

This concludes today's teleconference. We thank you for your participation. You may now disconnect.