Elme Communities (ELME) 2009 Q3 法說會逐字稿

Welcome to the Washington Real Estate Investment Trust Third Quarter 2009 Earnings Conference Call. As a reminder, today's call is being recorded. Before turning over the call to the Company's President and Chief Executive Officer - Skip McKenzie; Kelly Shiflett - Director of Finance, will provide some introductory information. Ms. Shiflett, please go ahead.

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 301-984-94000. Or you may access the document from our website at www.writ.com. Our third quarter supplemental financial information is also available on our website. Our conference call today will contain financial measures such as FFO, NOI and EBITDA that are non-GAAP measures. In accordance with Reg G, we have provided a reconciliation to those measures in the supplemental. The per share information being discussed on today's call is reported on a fully diluted share basis.

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. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially. Such risks, uncertainties and other factors include but are not limited to the effect of the current credit and financial market conditions, the availability and cost of capital, fluctuations in interest rates, tenants financial conditions, the timing and pricing of lease transactions, levels of competition, the effect of government regulation, the impact of newly adopted accounting principles, changes in general and local economic and real estate market conditions, and other risks and uncertainties detailed from time to time in our filings with the SEC. Including our 2008 Form 10-K, our 2009 second quarter 10-Q, and our form 8-K filed on July 10th, 2009. We assume no obligation to update or supplement forward-looking statements that become untrue because of subsequent events. Participating in today's call with me will be Skip McKenzie - President and Chief Executive Officer, Bill Camp, Executive Vice President and Chief Financial Officer, Laura Franklin - Executive Vice President and Chief Accounting and Administrative Officer, and Mike Paukstitus - Senior Vice President Real Estate. Now I'd like to turn the call over to Skip.

Good morning and thank you for joining Washington Real Estate Investment Trust's conference call today. For the Washington metropolitan region market conditions have not improved significantly since we reported to you last quarter. Vacancy levels across all sectors continue to run higher than average, leasing velocity is weak, and rental rates have generally decreased as tenants continue to manage cost by downsizing their space needs or delaying plans to grow. Property investment transactions are down dramatically, and for those that do trade there's a wide divergence of investor interest based on risk class. High quality well located assets with minimal downside are attracting numerous offers and attractive prices while higher risk assets with roll over exposure and weaker sub markets are getting few or no offers.

For WRIT we continue to focus on strengthening our balance sheet and improving the quality of property portfolio. We completed the sales of two of our weaker assets, the Tech 100 Industrial Park in Elkridge, Maryland for $10.5 million and the Brandywine Center in Rockville - our smallest office property for $3.3 million. WRIT recognized unleveraged internal rate of returns of 14% and 13% over the respective holding periods. We acquired the Lansdowne Medical Office Building, a newly constructed medical office property well located across the street from Inova Loudoun Hospital in Leesburg, Virginia. We paid $19.9 million and expect to achieve a stabilized yield between 8% and 8.5% upon lease up. We made great progress this quarter mitigating our exposure to Sunrise Assisted Living by executed direct leases for 74,000 square feet with three tenants to take over a portion of Sunrise's space at 7900 Westpark. Mike will discuss further the details regarding Sunrise later in the call.

We continue to reduce our outstanding debt by raising nearly $40 million of equity through our sales agency financing agreement and repurchasing $12.2 million of our convertible notes at a discount to par and prepaying a $50 million apartment mortgage. Operationally in the commercial portfolio we retained 70% of our expiring tenants this quarter and our overall portfolio was 93% occupied. Lastly, we paid our 191st consecutive dividend at equal and increasing rates. While we believe that the operating environment in our region continues to be challenging we are beginning to see signs of stabilization in the broader economy. We are cautiously optimistic that recovery in our real estate markets will begin in earnest in 2010. Now I'd like to turn the call over to Bill Camp, who will review in greater detail our financial performance; then Mike, who will review our real estate operations.

Thanks Skip, good morning everyone. For the third quarter funds from our Operation were $28 million or $0.48. This compares to FFO in the third quarter of 2008 of $26.1 million or $0.53. Funds available for distribution were $24.5 million or $0.42 compared to $22.6 million or $0.45 for the third quarter of 2008. As you can see the per share results are lower primarily due to the impact of raising equity throughout the year. Comparing to the second quarter of this year, the forward gains on the repurchase of debt, FFO was $0.48 versus $0.51 last quarter. The $0.03 differential was driven by lower NOI, higher G&A and share dilution offset by lower interest expense.

Since many of you focused on the G&A in your reports this morning, I thought I would highlight that G&A includes approximately $450,000 of expenses due to the acquisition of Lansdowne that are now required to be written off in the quarter you acquire the building. Without that item G&A would have been below the $3.4 million run rate that I gave last quarter. I previously projected that the combination of vacancy, bad debt and rent abatements would hover around 11.5% for the remainder of the year, however it actually improved from 11.2% last quarter to 11% this quarter. This quarter we issued approximately 1.4 million common shares through our sales agency finance agreement with BNY Mellon. The proceeds were $39.6 million with an average offering price of $27.70. We also continue to repurchase our convertible debt. In the third quarter we repurchased approximately $12.2 million at an average price of 95.6% of par. Subsequent to the quarter end we repurchased an additional $6.6 million of our converts at an average price of 96.8% of par bringing our total repurchases to $124 million of the original $260 million outstanding. As I discussed on our second quarter conference call, we prepaid the $50 million five property multi-family loan coming due October 1st of this year. As you will recall this repayment unencumbered five of our northern Virginia multi-family properties. We continue to believe we can generate approximately $175 million by levering up our unencumbered multi-family pool.

As Skip mentioned we completed two dispositions this quarter, one industrial property, one office property. We sold Tech 100 and the Brandywine Center for a total of $13.8 million recording a net book gain of $5.1 million. On the acquisition front we closed on the anticipated purchase of Lansdowne Medical Office Building in Leesburg, Virginia for $19.9 million. We funded the acquisition with cash on hand and our line of credit. We subsequently issued the $40 million of equity and repaid a portion of the balance on the line. Our line of credit balance as of the end of the quarter was $6 million, down $9 million from the end of the second quarter. In the third quarter WRIT paid a dividend of $0.4325 per share achieving its 191st consecutive quarterly dividend at equal or increasing rates.

Yesterday we issued a press release announcing our fourth quarter 2009 dividend at the same rate payable December 31st of this year. Before I turn the call over to Mike, I thought I'd quickly run through our sources and uses of capital since we started repurchasing debt last December. On the uses side of the equation all of our activity to date was completed to strengthen our balance sheet, minimize refinancing risk in 2011 and prepare for future acquisitions as transaction volumes increase. We repurchased a total of $124 million of converts for a total repurchase price of $107 million. Paid off the $50 million five property multi-family loan, we reduced our line of credit balance by $61 million, and we purchased a medical office property for $20 million. Looking at the sources side of the capital over the same period we raised $167 million of equity, raised $37.5 million with a ten year mortgage on The Kenmore apartments and sold three properties for a total of $33.6 million. When you do the math you can see the sources and uses of external capital align at roughly $238 million. Finally we are narrowing our FFO per share guidance for 2009 to $1.97 to $2.02 not including the $0.12 gain from the buy back of converts. Now I will turn the call over to Mike to discuss operations.

Thanks Bill, good morning to all. Overall our real estate portfolio is holding up well against the market conditions we're facing. On a same store basis our economic occupancy was 92.8% compared to 93.7% in the same period one year ago and 93.4% in the second quarter of 2009. On an overall portfolio basis this quarter our economic occupancy was 93%, a 190 basis point improvement over last year's third quarter and a 10 basis point improvement over last quarter. This quarter WRIT executed over 325,000 square feet of commercial lease transactions with an average GAAP rental rate increase of 8.1% over expiring leases and an average lease term of 3.4 years. Rental rates in the residential sector decreased 0.4% compared to the same time a period one year ago. On a cash basis we are seeing commercial rents decline a modest 2% under expiring leases. While residential rents have been primarily flat over the past year we have been making significant progress with occupancy. On GAAP basis year-over-year economic occupancy has mildly increased 10 basis points in the same store properties, but has increased from 85.6% to 93.9% over the past year in the entire portfolio due to increased absorption at Bennett Park in Rosslyn, Virginia and The Clayborne in Old Town Alexandria, Virginia. Sequentially from Q2 same store economic occupancy has increased by 200 basis points and the overall residential portfolio has increased 330 basis points. At the end of Q3 the average fiscal occupancy of the residential portfolio was 96.1% before the 11 properties with occupancies greater than 97%.

Our entire office portfolio is holding up well relative to sub markets that we operate in. Generally our vacancy rates are substantially below the rates in these sub markets. In the office sector we executed leases for a total of 182,000 square feet and an average rental rate increase of 7.3% on a GAAP basis while cash rents declined nearly 3%. Overall office occupancy improved 210 basis points this quarter compared to the same period one year ago. In the medical office sector we signed leases for a total of 37,000 square feet and an average rental rate increase of 18.8% on a GAAP basis, and a 5.1% increase an a cash basis. At Lansdowne our new medical office acquisition we're seeing increased leasing interest. We're currently in lease negotiation -- preliminary lease negotiations with four tenants totaling approximately 13 to 15,000 square feet with another 5 to 6,000 square feet of active prospects out in the market. In the retail sector we executed leases for a total of 12,000 square feet with a rental rate decrease 8.6% on a GAAP basis, and 15.8% on a cash basis. Despite the low leasing volume this quarter we are making good progress in finalizing renewals with some of our larger anchor tenants. In the industrial sector we entered into leases for a total of 95,000 square feet, with a rental rate increase of 2.7% on a GAAP basis and a 2% decrease on a cash basis. The industrial sector continues to be challenging as we deal with a very tough market and credit issues with tenants. A bright spot in this sector is the federal government. As we move to complete 130,000 square foot renewal along with several small GSA renewal transactions.

As Skip mentioned earlier, this quarter we successfully executed three prime leases for 74,000 square feet of the Sunrise Assisted Living space at 7900 Westpark in the Tyson's Corner sub market of northern Virginia. This reduces their space by 39%. We structured the lease transaction to be revenue neutral to us. As you will note from their recent 8-K filed by Sunrise they extended their bank line until December 2010 and they announced a large proposed asset sale. We are pleased with the progress that they're making at Sunrise and we will continue to monitor to this situation going forward. Now we would like to open the call for questions.

Thank you. We will now be conducting a question and answer session. (Operator Instructions) One moment please while we poll for questions. Thank you. Our first question is coming from the line of Mark Biffert with Oppenheimer & Company, please proceed with your question sir.

Good morning. Skip I was wondering if you could comment just on the general traffic patterns that you're seeing in the properties in terms of the office, retail, industrial and just go through some of the larger vacancies that you have in terms of timing when you'd expect to see more people come in. Also I noted that the university -- George Washington University fell off your top list of tenants.

Yes.

Can you just explain that.

Sure. Go to the first part first. I would say sort of region wide that leasing as I mentioned in my opening comments leasing velocity is down fairly dramatically. You know depending which sub market you want to address, I would say you could look at almost negative absorption, certainly year-to-date on an aggregate basis throughout the region with Maryland being the weakest of the sub markets. As it relates specifically to our portfolio we have a fairly large vacancy at our One Central Plaza Building which is right around the corner from our headquarters here. That particular asset I'll be quite honest with you and all of Montgomery County traffic has been soft.

Over northern Virginia the biggest vacancy we have had over there has been Dulles Station, which as you know we leased to IBM and the other vacancy in that building which is smaller, we have made pretty good progress leasing up. So other than that we don't have any huge vacancies in our office portfolio in the suburbs. Downtown we have a full, almost a full floor at 2000 M Street which to be quite honest with you we have been disappointed in the activity on that space. We anticipated that that would be leased by this time when we did our budgets a year ago, to be quite honest with you the activity there has been disappointing. The other full floor vacancy we have in the district, we have very good activity on, and I would expect a transaction fairly imminently on that. Let me talk about the retail portfolio, because that I would say is believe it or not one of the signs of fairly good progress. At some of the larger boxes that we have -- not that we have very many, but we have a former Circuit City box out in the Hagerstown property, and it appears that we're very close to a transaction there and I would anticipate making an announcement in the fourth quarter for progress on that specific vacancy. That's really the only large retail vacancy that we have.

And as far as sort of the middle size vacancies in the retail portfolio, I would say we have had very good progress this quarter. We don't have signed leases yet but I think that when we get to the fourth quarter we're going to show some really good activity leasing up some vacancy in our retail portfolio. And as Mike sort of touched on, the one that's probably the most disappointing from an aggrate perspective is industrial. I mean we're, we and I think the market in general is struggling in that sector. Particularly our properties are concentrated on smaller tenants, many of them are focused on the home building industry, they're smaller general contractors, some of them are consumer even oriented kind of B grade retailers like furniture show rooms and things of that nature and that market is getting crushed. I mean, the activity to lease up vacant space is minimal and we're really struggling with some of our credit issues in that sector. So I mean I think that sort of encapsulates it. You also asked at the end about George Washington University, they're a tenant in a number of properties. Their biggest concentration, they have a big lease at 1776 G Street which there's been no change on. They also have a significant presence right here in our headquarters building, 6110 Executive, they did have a downsizing. Mike, do you know how many square feet they downsized? I don't have that number right off the top of my head. But they're still in this building but they downsized a portion of their space there, that's why they fell off the list.

Are they sub-leasing that space, is that --

No, we actually leased that -- Mike, wasn't that space leased to Research Triangle.

It's 6,000 feet.

Yes, it was 6,000 feet and we actually did a direct lease on that space. We're actually in pretty good shape in the building, but that's why they fell off the list.

Regarding the Lansdowne asset how long do you think it will take for you to stabilize that asset.

I'll be honest with you, long term that's going to be a fantastic asset, we're very positive about it. I'm very positive about the rental rates that we're looking at in that asset. But like everything else, I mean even medical users are sort of managing their costs. So I expect that it's going to take a good year to get that thing to 90% to 95% leased.

Okay. Then jumping to your debt issuance potential, you talked about this $175 million that you could do on the five multi-family properties that you paid off, what's an expected timing on that? I mean would you wait until you had a transaction in hand before you would go out and do that kind of deal or given how low that spreads are right now that you would want to go do that right now even though it puts some dilution on your balance sheet, just to have the cash available to you.

That's a good question Mark. I think we're looking at it all the time. I mean.

Popular discussion subject.

Yes, it's a very popular discussion. I don't think anything's imminent, but I think we're looking at it. We would like to line it up a little closer with a source or use of capital. It just, it seems to me that there's a lot of different sources of capital out there right now. And in the spirit of continuing to slowly deleverage the firm just going out and raising $175 million on the debt side of the equation doesn't necessarily delever anything. Yes, it's cheap capital, but it's not necessarily the way we're going to go forward at this point in time. I think if we had a big use that we could combine a little debt and equity that might be a better way to approach things. The other side of the debt side is that the fact that the unsecured market is opened up pretty attractively. When you look at all your ratios and all the things that you have to watch out for when you issue debt, there's some rationale to actually looking at replacing unsecured with more unsecured rather than going out and leveraging up all your apartments. You can always lever up apartments any time and it's always cheap money.

Okay, thanks.

Thank you. Our next question comes is from the line of John Guinee of Stifel Nicolaus, please proceed with your question.

John Guinee here, how are you.

Hey John.

Looks to us like you're doing a great job of cleaning up the balance sheet. You're clearly selling assets from the bottom of the deck and doing what you said you were going to do over the last year. Looks like you've been very disciplined on the acquisition side. I guess the only sort of concern we would have is it feels to us as if you are heading for an FFO run rate sub $0.50 a quarter for 2010. And -- so if I kind of just do the back of the envelope math and you've got a $2.00 FFO and your gap between FFO and FAD has been running $0.50, $0.60 a year for the last few years, it gets you down to well below $1.73 on the annualized dividend. Can you guys comment on the ability to kind of get back to sort of '07 numbers where you were running more in the high $0.50s on a run rate for FFO and were able to cover the dividend.

Yes, I mean I think that's a valid comment John. I mean certainly something we watch and certainly something we discuss with the Board in terms of the dividend policy. In the absence of more vibrant acquisition market it's something that it's going to be an issue that we're looking at going forward. I mean certainly over the next 12 months we're not looking at dramatic increases in operating fundamentals sort of at the ground floor level here. And it's our belief we're starting to see some of the cracks in the armor of some of the developers in the marketplace and we do believe that there's going to be sort of more opportunistic opportunities from an acquisition standpoint that we believe is going to help bridge that gap. But it is something we watch very closely. We recognize that it is very tight going forward from a strictly operational basis. But we do believe that there's going to be opportunity for us to grow the portfolio over the next 12 to 24 months.

Just sort of back of the envelope, if you look going forward probably your cost to debt's probably in the mid 6% to 7% and your FFO yield -- say a $2.00 FFO on a $27.00 stock prices in the low seven. So your blended cost of capital is probably 7%. So I'm assuming that you can buy creatively off the current cost of capital is that a fair statement.

We agree with that in general.

Okay, thanks a lot.

The one thing to caution yourself John, as I mentioned in my comments there's really few opportunities right now. They're coming, but if you just look at the snapshot over the last couple quarters it's been thin, but anyway thanks for your comments.

Thanks.

Thank you. Our next question is from the line of Anthony Paolone with JP Morgan, please proceed with your question sir.

Thank you and good morning. I was curious along some of the same lines as previous questions. We've heard on a separate apartment call about apartment cap rates being in the fives. I know there's not a lot you have to do on the acquisition side now, but you mentioned that you think in the next 12 to 24 months there may be things to do. So just curious how you think about capital allocation among your property types over the next few years and whether you'd contemplate either selling something or going further into another area.

I think we have mentioned in the past, we keep our sort of options open in terms of our allocation. I mean we try to be opportunistic and not really restrict ourselves to one asset class as opposed to any other. So we have been very active for example in medical office buildings, but that's because we believe that's where the opportunity was. So we really don't restrict ourselves to one asset class as opposed to the other. You made a comment on multi-family being in the 5% range, I mean there is sort of a rumor of one sort of trophy property trading in that range. I don't believe that's sort of the standard in this market, although I would concur with the general observation that multi-family properties in general in our market trade below -- at cap rates lower than pretty much all the other asset classes and given where the financing from the GSE's are they're probably going to continue to be there in sort of a low cap rate environment. Maybe not with a five handle in front of it, but certainly lower than the more commercial oriented properties. And if that scenario continues I do agree in general that there will probably be less opportunity for us to acquire multi-family properties. But on flip side, I think some of the more commercial oriented properties of all of the other sectors, office buildings, even medical office buildings to a degree and perhaps industrial, I don't think we're industrial. We've looked at some retail properties in the last few months, I think there will be opportunities. But I do concur with the observation that residential properties unless there's some unique busted condo deal that's heavily vacant that you're not going to steal any properties in the current environment.

Okay, thanks for that. Another question on the apartment side actually. Bill can you just tie together the -- I think you mentioned occupancy slipping year-over-year, and it seemed like maybe rent did as well, but yet your revenue number was up, how that ties.

The biggest change in there because you don't straight line your apartments. The biggest change there is probably the abatements wearing off. If you think back a year ago, we were giving away one to two months free on a lot of different apartments. That kind of activity has burned off.

Particularly in the lease up of the new units. That's really where you saw abatements in Clayborne and Bennett Park.

So while your occupancy could be down a little bit and your rental rate growth could be actually down a little bit, all of a sudden you're getting revenue on things that were abated before..

Okay, understood. Then last question the office portfolio can you give us an update on the Lafarge lease that I think comes due next year.

Yes,I can't remember exactly how we couched it the last call. I believe we said we weren't feeling real good about it. Lafarge is leaving. Lafarge is -- I think they made a formal announcement, certainly we have heard they are going to another building in the marketplace. They're downsizing. It was sort of a situation where they were downsizing almost 20,000 square feet and they didn't want to live through a reconfiguration process and they got what I believe was a tremendous offer, an aggressive offer from another developer. So they're vacating. The expiration date of that lease is 7-31, is that right Mike, 7-31-2010, so we have a good start on it. We have actually hired in that particular case just because of the challenging nature of the overall market we hired a third party broker to assist our team in leasing that property. We actually feel, we don't feel that bad about it as a general rule. It's probably some of the best space in the market. We have very prominent signage on the Dulles toll road, it's a fantastic building. And we have some head, some head time to lease it up. I don't feel that bad about it. We acknowledge that there's going to be a rent roll down. Lafarge was paying a very stiff number, they were paying something like $38.00, we believe the market is more in the low 30s for that space, maybe mid to low 30s. So that will be a factor. But we feel optimistic we will lease it up effectively given that we have till next July 31st.

I would add to that Skip, I mean we're physically touring the space right now. We have active players that are touring that space.

Okay. What do you think it will cost to recant in something like that.

That's really a difficult question. Lafarge has phenomenal space. It was like their sort of east coast, I think it was their US headquarters. So it has great finishes in it. A lot of that's going to be finessing the user. Some users may want to come in there, almost take it as is with the paint and carpet reality is some tenants don't care how nice it is they may might gut it. It could literally be anything from $5.00 to $50 when you have a scenario like that. It's very hard. Not like when you have a shell, you know pretty much a guy has to build it out, you know pretty much he has to build office space. When you have a space like this it's a little bit of crap shoot figuring out what the TI cost are going to be.

Okay, thank you for the color.

Thank you. (Operator Instructions) Our next question is from the line of Michael Knott with Green Street Advisors. Please proceed with your question sir.

Hey guys. Skip I was going to ask whether the slow leasing velocity that you noted and the amount of leasing velocity in your supplemental was that a surprise or disappointment to you?

Just the market leasing velocity in general?

Yes, both and specifically your portfolio.

Was it a surprise. Certainly we would have wished that there was a little more robust leasing activity market wide. I mean I talked to a lot of of our sort of compatriots, fellow owners in the market, I think everybody as a general rule is sort of disappointed that in a way I don't know surprised is the operative word that maybe that the federal stimulus initiatives don't have more effect in 2010. But reality -- these things don't happen overnight. It generally takes a couple years for things to get going. So I don't know if I would say I was surprised. I guess I was hopeful that maybe there would be a little more activity, but I wouldn't use the word surprised.

Okay, thanks. Then with respect to your 2010 rollover schedule for your various sectors can you just talk about your level of concern over the amount of wood that is chopped there, are you worried about it, do you feel pretty good about it.

Well I worry about everything in general. As a general rule if you look at our rollover schedule, the general numbers don't bother me. If you look at sort of the on a rental rate basis, I'm kind of looking at the back -- page 21 of the supplemental. In general overall we're rolling 14% of our overall portfolio, that's not a number that makes me blink. I mean as you generally know we have generally shorter leases. If you took it on a pure math basis if your average lease term was five years you would almost have 20% rolling every year. So we're showing 14% rolling, do I wish it was less, of course I wish it was less. The only area -- like I said I worry about everything, but the only area that maybe has some concern is the industrial portfolio. We have 15% of our industrial portfolio rolling next year. Again, it's not a huge number. This quarter we saw the average lease term was three years. So it's not an inordinate number, but I wish we had zero rolling, because that sector is generally a nightmare right now as we have reported. The good news is the industrial sectors only 13% of our overall NOI so 15% of 13% is only a little over 1% so I'm not going to have major heartburn over it. But that sector is a problem. It's going to be difficult making headway on leases and I wouldn't be surprised if of that 15% in the industrial sector that lower than average retention rate only because of the nature of the world we're in today.

Thanks for the comments I appreciate it. Speaking of the shorter lease terms. I think the office number this quarter was one of the lowest I've seen out of your quarterly data in prior years. Can you comment on the specifics maybe why that was so much shorter than usual.

I don't know if Mike has any specific comments on it. I'll tell you, to be honest -- just sort of from 30,000 feet looking down at it, everybody wants to do shorter leases. About any tenant coming up for a lease they want to do a one year extension, they want to do two year extension, they want to go month to month. Everybody that's like their first thing out of their mouth. So you start with trying to get people to sign a five year lease. I don't know Mike, do you know anything specific.

Yes I'm looking real quickly -- where we had a lot of the activity for example, like at 51 Monroe, 20,000 square feet of activity in there, those are traditionally the kinds of tenants that are coming in for lower things. We really didn't have any big leases roll.

Right, that's one of the factors. Like last quarter we had World Bank which was a big lease -- big tenants tend to have big terms, and when you do a lot of small leases they tend to be shorter terms. But my overall comment is sort of the operative one. It's unbelievable, no one wants to commit to anything. Everybody wants to wait to tomorrow before they make a long-term commitment because everybody is still managing risk as a general rule. Even in Washington.

Right. So you would expect a number like that to be more common over the next several quarters than maybe the 4, 5s, 6s that we have seen in the past.

But I think as Mike -- Mike raised a good point too. It all depends whether we have a big tenant coming up also. As you know we generally have smaller tenants -- smaller tenants with smaller terms. Since we didn't have any big tenants this quarter it tended to be a small number. I don't have the quarter numbers in front of me from last quarter, but I bet you last quarter was on the high side because of World Bank.

In fact, quite frankly I'm looking now, a big chunk of that was at Westpark, three new leases that we brought into the fold, skewed the numbers, because they only go out just a little bit beyond the duration of the Sunrise lease.

That's a good point.

There's a heavy weighting in there for those transactions.

And then Bill or Mike do you happen to have the occupancy numbers for your office portfolio across your three regions?

Broken out by region?

I think we do have that. Let me flip a page. You can read it Mike. Go ahead Mike.

Yes, as I look at where we stand on the office sector we're about 5.3 -- I'm sorry, we're 3.8% - DC, 6.1% - Virginia, about 11.6% - Maryland for a blend of about 7.8%.

Is that the vacancy rates.

Vacancy rates at 930 --

I'm sorry, Mike can you just repeat the Maryland number.

It is running at 11.6 --

11.6%

11.6%. I think we made the point earlier, generally especially in the office portfolio we're typically running substantially below the sectors.

If you look at the sub market data out there from the various providers you probably see that we stack up pretty well Michael. We're probably beating most of the sub markets by a fair amount, especially in the office side.

Yes, as I'm looking at trends, I mean generally we trended positive on a sequential basis overall portfolio while obviously the market sectors went the other way sequentially.

Yes, I'm just glancing at the trans-western third quarter end market report, they have the Montgomery County overall vacancy rates, that's suburban Maryland where most of our properties are, at 12.5%. So that's sort of the market wide vacancy. Northern Virginia suburbs 11.8%. So I mean that's sort of the world that we're living in right now.

Right, okay, thank you very much.

Thank you. The next question is from the line of Chris Lucas, Robert W Baird, please proceed with your question.

Good morning guys.

Morning Chris.

Bill, let's go back to the debt markets. What do you, what kind of quotes would you think you would be getting right now on your unsecured debt, for longer terms like ten year debt?

Ten year you're probably somewhere in the plus 350 to plus 400. Probably closer to plus 350 right now. Especially with the treasury up a little bit, the spread's narrow.

So around 7 roughly.

Yes, or just inside.

Okay. And then just on the guidance your range is still pretty wide given we're headed into the last quarter here for the year. What are the factors that are going to get you to the high end or the low end at this point, anything that stands out.

That's a good question. The factors on the low side are the ones that are the unknowns, like some tenant blows out, we have a straight line write off, like we had with Circuit City last year.

Have a big snow event at the end of the year. That's a factor.

Yes , expenses on the snow side go up, I mean there's all kinds of strange little things or some other something that we just don't expect. On the high side, we would have to find somebody that goes on the, that goes basically and takes space basically apartments because those are immediate impact things. So we fill up some apartments that are empty and that's really

Given that some of them are at 100% right now.

Yes, I mean it's -- if you look at the mid-point of that range, that implies a $0.47, $0.48 type quarter, I think that's where most of you guys have your numbers.

Okay. And then you mentioned the kind of write off issues were the direct leases done with the Sunrise space actually hitting in the third or the fourth quarter and is there some write off of some straight line numbers.

There is no write off of straight line associated with Sunrise.

There is none.

No -- Chris it just comes down to the general write off of straight line based on our collect ability assumptions on the Sunrise lease. So we continue to say they pay rent on time they pay early actually, so we don't think that at this point in time that there's any write off necessary for that particular space.

The way that was handled it was pretty much a revenue neat Raleigh transaction to the income statement.

Okay. And then in terms of just on bad debt expense for the quarter can you give us that specific number.

Yes, bad debt for the current quarter on a cash basis was about $1.6 million, 2.1%, on a GAAP basis it was 2.3%, $1.8 million.

And these issues are still coming from the small tenant base I'm assuming or is there anything that stands out.

There's any, I can't think of any one, huge one that's taken up those types of things. I'm looking -- if you start looking at the difference sectors, obviously retail and industrial are the ones that are still kind of creeping up on us. If you look at medical office apartments and office those are generally -- they bounce around quarter-over-quarter but they're generally kind of coming in line with the previous quarter all the time. Retail and industrial just, they still seem to want to grow a little bit.

And then residential is superb.

Yes, residential is essentially nonexistent.

My last question is on the prepayment of the apartment mortgage loan, was there any additional expenses associate with this prepaying it earlier.

No, that was within the 90 days. Usually those loans give you 90 days to prepay so we did it on the first day we could without any kind of penalty.

Okay, super, thanks a lot guys.

Thank you. Our next question is from the line of Dave Rodgers with RBC Capital Markets. Please proceed with your question.

Good morning. Really only one question left for me that was asset sales going forward. You picked off some of the lower quality properties on the portfolio that just weren't good performers. Going into 2010 could we see more source of capital coming from that source? Are you marketing anything today

We do have one small warehouse under contract with a buyer right now. He's actually going, it's actually a user for a small warehouse, relatively inconsequential sale. We haven't sort of game planned out all of 2010 dispositions yet. I would anticipate there will be something, I just don't know right now. But yes, we're thinking that there will be some sales next year.

On that note though Dave, I will, I think we had a $50 million to $70 million projection at the beginning of the year. We're probably going to be light of that $50 million, lower end of the target at year end.

Thanks for the color.

Thank you. Our next question is a follow up question from the line of John Guinee of Stifel Nicolaus. Please proceed with your question.

Hello. John, are you there?

Oh, I'm sorry. -- Lafarge lease is that in monument to the building you bought in 2007?

It is.

Yes.

Okay. Refresh me on the pricing of that deal at the time of acquisition.

It was like $78 million, something in that ballpark plus or minus.

And what kind of GAAP in cash, cap rates.

It was like mid-six cap rate.

Okay, thanks a lot.

(Operator Instructions) We will pause a brief moment to poll for questions. Thank you. There are no further questions at this time. I would like to turn the floor back over to Mr. McKenzie for closing remarks.

Thank you everybody for listening to the Company's conference call. Have a great weekend. Look forward to listening in for the fourth quarter.