Elme Communities (ELME) 2012 Q1 法說會逐字稿

Welcome to the Washington Real Estate Investment Trust first quarter 2012 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. Miss 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 301-984-9400, or you may access the documents from our website at www.writ.com. Our first quarter supplemental financial information is also available on our website. Our conference call today will contain financial measures such as core FFO and NOI that are non-GAAP measures. And 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. We provide a detailed discussion of these risks from time to time in our filings with the SEC. Please refer to pages 8 through 15 of our Form 10-K for our complete risk factor disclosure. 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 of Real Estate. Now I'd like to turn the call over to Skip.

Thanks Kelly. Good morning and thank you for joining the Washington Real Estate Investment Trust first quarter earnings conference call. Office leasing conditions throughout the Washington region in the first quarter were soft as continued uncertainty over the federal budget affected decision-making in all sub markets. Irrespective of whose first quarter market stats you follow, all show negative absorption for our region as some government users move to BRAC facilities while others down sized and private businesses delayed decision-making. Despite this downdraft, we are seeing very good activity in our downtown vacancies particularly, and we expect gains in occupancy at our DC office buildings in the quarters ahead.

We recently executed a 22,000 square feet lease to fill a former vacancy at 2000 10th Street and I'm confident we will materially add to this progress over the next quarter. As we have disclosed in prior quarters, Oracle, formerly known as Sun Microsystems, vacated 65,000 square feet at 7900 West Park which had a material impact on sequential quarter vacancy numbers in the office sector. Our other three sectors are performing well and should continue to perform well as the year progresses. In multifamily, our occupancies remain high and we expect to drive rental rate growth throughout the balance of the year. In retail, we have excellent leasing activity in both small and medium box spaces and expect occupancy to grow slowly over the course of the year as well as rental rate growth upon rollover. In the medical office sector, conditions are stable but users continue to view the future of healthcare reform with caution so sopping up vacancy in this sector is somewhat slow.

As we mentioned last quarter, this year we plan to continue our asset recycling program focusing on selling non-core primarily suburban office buildings that no longer fit into our long-term vision and reinvesting those proceeds to help fund future acquisitions. This plan applies to a small subset of our portfolio representing less than 10% of our NOI. We currently have Plumtree, a small medical office building in Bel Air, Maryland, on the market for sale and we are evaluating other potential disposition candidates in the office sector. We are working hard to source acquisition and development deals that fit our strategy of owning high-quality office, multifamily, retail, medical office properties in excellent locations inside the Beltway or near major transportation nodes and in areas with high employment drivers.

The first two months of 2012 were slow by historical standards, but we have seen a significant uptick in offerings beginning in March. We are working diligently on several potential acquisitions, but nothing firm at this time. Our two apartment joint venture projects are progressing on schedule and we still anticipate breaking ground by the beginning of 2013 for both developments which will total 433 units upon completion. Now I'd like to turn the call over to Bill Camp who will discuss our financial results, guidance, and capital market activities, and then Mike Paukstitus will discuss our real estate operations.

Thanks Skip. Good morning everyone. Last night, we reported first quarter core FFO of $0.47 per share. In line with where we were in the fourth quarter despite losing occupancy in our office portfolio. NOI was flat from the fourth quarter to first quarter with occupancy losses in office offset by expense savings in retail. Core fad was $0.37, the same as fourth quarter and consistent with our comments last quarter indicating higher levels of TIs and leasing commissions going forward as leasing markets remain competitive. A significant driver of this number was a payment of a $1.5 million or $0.02 a share to World Bank for work associated with a 2009 lease. Generally the quarter came in as we expected when we issued our guidance.

As Skip mentioned, the real estate markets conditions remain challenging particularly in the office sector. With that said, our portfolio continues to remain fairly steady with overall occupancy hovering at 90%. Comparing this to the first quarter last year, we achieved positive same-store growth in three of our four property types led by multifamily generating 5.2%, retail 4.1%, and medical office at 1.5%. Office was the offsetting force coming in at negative 6.4%. Compared to the fourth quarter, overall same-store NOI was essentially unchanged. Retail was up 5.4%, and multifamily was up 0.4% in the quarter that is usually seasonally slow. Office and medical office were off 2.4% and 1.2% respectively. In terms of the balance sheet, we ended the quarter with a line balance of $109 million compared to $99 million at year-end.

We have an upcoming debt maturity of $50 million 5.05% unsecured bonds that we plan to pay on May 1 using capacity on our line putting our line balance nearly at $160 million. We will likely wait to permanently refinance this debt until later this year unless the acquisition activity picks up. We are in the process of renegotiating our $400 million line of credit with our bank group to capture a longer-term, a lower-spread and more flexible legal language. We expect these negotiations to be complete in the next couple of weeks. From there, we will move to refinance our smaller $75 million line of credit with SunTrust which matures in June. We are confident that we have ample flexibility on our balance sheet to take advantage of acquisition opportunities as they arise. Now, I will turn the call over to Mike to discuss operations.

Thanks Bill, and good morning everyone. Our first quarter operating results were a function of the continued lack of office leasing velocity that our market has experienced since the second half of last year. Office leasing slowed dramatically in the third and fourth quarter continuing into this year. Medical office continued on a path of indecision by tenants as the healthcare bill headed to the Supreme Court. Retail is improving steadily. Lastly, multifamily continues to be our strongest sector but growth has seasonally slowed.

Overall portfolio occupancy hovered near 90% as leasing velocity in the first quarter was below year ago up levels with commercial leasing activity totaling 218,000 square feet. This level is slightly lower than normal for the first quarter and consistent with our earlier statements that the real estate market decision-making in our region has been put on the back burner for business owners and government tenants in all sub markets. In our multifamily portfolio, occupancy improved by 30 basis points throughout the first quarter while average rent growth on renewals was 5.8% and rent growth over expiring rents on new leases was 3.3%, excluding our DC apartment assets where we have rent controlled units. Overall, rental revenue grew 0.1% compared to last quarter. Our strong occupancy position through the first quarter affords us the ability to start increasing rents more aggressively with a higher demand time period through the high demand period of the spring and summer.

We mentioned last quarter, that we had started a [uter] renovation program at 4 of our 11 properties and are happy to report that so far we have upgraded 35 units for an average return on cost of over 18%. We would have renovated more, but our retention this quarter was higher than expected. We are continuing with these renovations and hope to complete 200 units by the end of the year. Keep in mind that while overall returns are strong for these renovations, our revenue growth slows due to the additional downtime necessary to turn these units around. The office sector, as expected, lost occupancy in the first quarter, primarily due to the move outs of Oracle 65,000 square feet, People for the American Way at 2000 M Street which was 27,000 square feet, and Westat, 13,000 square feet at our headquarters building in Rockville.

However, particularly in our downtown portfolio we are seeing increased leasing activity as of the past month or so. Many of the downtown vacancy are buildings where we have made significant capital improvements to the bathrooms, common areas, lobbies, and amenities. Since these renovations began, there have been higher volumes of prospective tenants touring and negotiating leases. We signed a new 22,000 square foot tenant at 2000 M Street the first quarter and are hopeful that some of our current negotiations will result in signed leases this quarter. In our retail portfolio, occupancy remained strong and we have very good activity on most of our larger vacancies. We signed a lease with Five Below, at Frederick Crossing Center in April which will back-fill several smaller in-line vacancies there. We also had strong activity at our Gateway Overlook Center in Columbia, Maryland. Generally, we are seeing increased interests from national box users. This quarter, we had a 480,000 square foot write-off for a hardware tenant in our Concorde Center. But for the most part, we feel that credit conditions improved and are getting back to historical standards for bad debt. Overall, we feel very positive about this retail sector as we move forward into 2012.

Finally our medical office sector, occupancy was 10 basis points better than the fourth quarter, but NOI was slightly negative due to a higher operating expenses, primarily real estate taxes. Over the past five or so years, we've been extremely successful at pushing rents and keeping occupancy high at nearly all of our medical buildings. The result of this activity is that some of our expiring in place rents are above market. In certain instances, other competing buildings have lower rental rates than our buildings which has put some pressure on our ability to continue our streak of positive NOI growth in this sector. In summary, our diversified strategy of owning and operating of properties in four different sectors continues to reduce operational volatility experienced by single property type owners. We feel fortunate to have a portfolio that has generally maintained occupancy near 90% throughout this downturn. Now I'll turn the call back over to Skip.

Thanks Mike. One final point before I open the call for your questions. Asset valuations in our region continue to be very strong in all four sectors that we own as investors continue to focus on Washington's long-term vibrancy and outlook. With the strategic portfolio rebalance that we have aggressively achieved over the past several years, we believe there is a significant unappreciated value in our NAV. Some investors view this as an opportunity to buy Washington DC real estate at discounted prices. Operator please open up the call for your questions.

Thank you.

(Operator Instructions)

John Guinee from Stifel Nicolaus.

Hello guys. How are you? Just a quick -- first a clarification -- when you say you're selling 10% of the NOI from office.

Less than 10%.

Less than 10%. That basically -- so office is roughly 50% of your NOI. Am I getting this right? It's less than 5% of the total portfolio?

Yes. The 10% was less of the overall portfolio.

Right; so it's more than that on a just looking at the office.

John, I'll tell you another way to look at it, just to give you -- put a big brackets around it. So -- all the buildings we're looking at selling potentially over time are Maryland suburban office buildings. And as you see in the supplement, our total NOI for Maryland is 11%. So we're not selling the whole Maryland portfolio; in fact, the two biggest assets, One Central Plaza and 51 Monroe Street, are in our view, are long-term keepers. So it's some subset of that 11% that will be sold over the next several years.

In your building? Your headquarter building?

Potentially.

Okay. I hope you can find some other space. (laughter)

I'm sure there's something out there. But that is not on the market at this time, just to be perfectly clear about it.

Yes, we only have one building on the market right now, John.

Okay. Got you.

Just that one small medical building.

Okay. The question that' obviously on everybody's mind, and you already know it, so I'll ask it anyhow just to be clear -- is your -- you're are going to turn out -- at the end of the year FFO is going to be up $1.90, $1.91, $1.92 probably. You can always juice that by acquiring a couple assets and just borrowing short; that can be very accretive, so you can get yourself up to $1.95 by doing that. But at the end of the day, you're still sitting at $1.72, $1.73 dividend, and the way the math works, that you've really got to get your FFO up to $2.20, $2.30 in order to be comfortably covering the dividend and maybe in a position to raise it. How should we all look at those numbers?

I'm not sure I'd necessarily agree with the $2.20, but clearly, we certainly agree that we're not covering our dividend, obviously. And our long-term goal is obviously to cover our dividend with FED; and certainly I can't make any broad statements. That's the Board's prerogative, to tell you what the dividend policy is going to be on a long-term basis. But it's obviously of great interest and concern to us and something that we're watching very closely. And it's a 50 year track record, which is very important to the Company's franchise. But, obviously if conditions don't improve on the market and we don't make progress on bringing our occupancy back to normal levels, all options will be on the table for the Board at that point in time. But we sort of view us as being bouncing along the bottom right now.

We're way below what our -- what we would call normal occupancies; and we think you need to give it a fair shot to see if we can get back on track, and whether the budgetary process that seems to be putting such a sluggish bent on the market, if that will improve later in the year. So I know I gave you a wishy-washy answer, but the fact of the matter is, we're underperforming vis-a-vis what we believe is a normal occupancy level for the portfolio. And if we can get this back on track, I think we'll be much closer to a coverage level that everybody would be more comfortable with. But again, without knowing what the future is exactly, and if things continue to deteriorate in the market, I'm sure the Board will consider all options on the table at that time.

If you consider -- let's say there's 7% occupancy gains potentially in both the medical office portfolio and the office portfolio. Does that translate to $0.02 a share in FFO or $0.20 a share in FFO?

The easiest way I can explain it, John, is not to look at it individually by sector, but just look at it overall, the portfolio. The overall portfolio, basically 100 basis points. Every 100 basis points is $0.03 -- or roughly $0.03 annually. So, if you are arguing that you need $0.15 to cover whatever the number is, you need 500 basis points total.

Perfect. Okay. Thank you.

And then of course, that's just with the existing portfolio. To the extent we could grow rents or add accretive acquisitions, that would be additive. But I think that map that Bill gave is just operating off the portfolio that we have.

Right.

Okay. Thank you.

Michael Knott with Green Street Advisors.

Hello guys. I know John is worried about you having office space if you were to sell your building, but I just want you to know that if I were your landlord I'd be more than happy to let you stay and charge you very high rent. (laughter)

Thanks for that vote of confidence.

Maybe we should secure a lease now. Rents are low.

Honestly, I think Green Street needs to establish a Rockville office. We'd be talking to you.

I'll follow up with you off line.

Bill, any reason to revisit your acquisition disposition assumptions for the year? It seems like it's starting off slow, but maybe you're okay with that?

If I had to make and -- right now I don't think I'm going to make any adjustment -- but I will tell you, the tough one is going to be the $80 million in dispositions.

Why is that?

Because some of the assets that we are trying to sell need some leasing conditions before we think we can get good value out of them. So we're kind of playing around with the prospects of leasing some space up before we can put them on the market. So just timing. It's just kind of timing.

And then, did I hear you say you're looking at selling one of your MOB's?

Yes. There's a very small MOB up in Bel Air, Maryland. It's a 33,000-square-foot building, just to give you an order of magnitude. That's way out of our kill zone. It's the only property we own up there. It's fully leased. We could sell it for a great price and there's really no upside in it. It's -- so we'll let someone else have the up -- whatever they view as the upside; it's just not material to us now.

Okay. Fair enough. And then, Skip, from a capital allocation standpoint, can you convince me the merits of these two developments you guys are financial partners on?

In terms of? Well they're -- if they're apartment buildings in phenomenal locations that have -- that we're buying significantly below what assets of that quality are selling for, then we're building for significantly less than what they're selling for, in areas basically on top of the strongest markets near a metro. So they're -- we think they're long-term phenomenal assets. From a mathematical perspective, Michael, are you looking for what we're development yields are? Or I'm getting -- not quite sure exactly where you're going with it?

Yes. Just curious on a risk-adjusted basis, you guys aren't really developers, per se. And your financial partner here -- supply growth seems like it's, from my limited understanding of apartments, is increasing there. Just wanted you to make the case for those, because I think that I and others are skeptical of those deals.

Yes. Well, we're developing around a 7% return, plus or minus, depending where we actually come out. And properties of that quality are selling at sub-5% cap rates even today. So we can't buy apartments right now. If we want to continue to grow that part of our portfolio, we have to selectively look at that these types of opportunities -- or we just need to get out of the apartment business, because we don't find it particularly accretive to go out and buy apartments at four caps.

Do you feel like your existing portfolio, you need to either grow it or get out, and so that's part of the decision-making with those two deals is?

I don't know if I'd make it so black and white. But clearly, we do want to grow that part of the portfolio. It's been a great performer for us over a long period of time. We've created a lot of value in the assets that we have, and we believe that the future is bright. The demographics in Washington for apartments are phenomenal, and we think that, that's the exact type of income stream that you can regularly grow, and it fits well within our overall strategy.

Okay. Thank you.

Dave Rodgers with RBC Capital Markets.

Good morning guys. I'll apologize in advance; I missed some of your earlier comments. But with respect to the sale of the Maryland suburban office -- that's probably the most dilutive sale, I guess, trade in investing in other assets that you've been doing over the last couple of years. If you continue that way, again, in the most dilutive trade you could probably make. So, I guess what would be the hurdles for you to achieve more of that? To get more aggressive on that? Is leasing so that you can cover the dividend? Is it investment opportunities? And how dilutive would that be to you guys over time, just to make that trade?

Obviously Dave, we're not doing this tomorrow. We're doing this over a period of time. We didn't say that we're going to unload the whole thing next week. So it's a deliberative process. Each individual asset will be analyzed individually. Some of them may or may not be dilutive. If you have a viewpoint that a particular asset may not be growing over a period of time, and you could buy something that will be growing it, long-term it would be accretive. But it all depends on the asset. Some assets we think we can lease to a higher occupancy and get a reasonable cap rate. There's a particular transaction that's selling in the market now for a seven cap.

I think if you could sell leased properties at that, I don't think that the dilution would be significant, given that we'd be investing in an asset that would growing at a better rate. And some assets you may even want to sell with some vacancy under the thought that someone may pay up for it at a higher -- or at a lower cap rate, because they think they can lease it up, when in fact, we may have a different viewpoint. So, we don't think that it's going to be a significant amount of dilution, especially given just the level of asset sales and that we're going to bring it out over a period of time. But with the reason we'd be selling these assets is because we don't necessarily think that the growth aspects of those properties are as good as other assets that we can reinvest in, long-term.

At this point, it sounds like, from a hurdle perspective, how much of those asset sales would be driven by execution on risk part, versus just overall market conditions supporting those transactions?

I think the timing of it is dependent to some degree on our execution ability. I think that's what Bill was alluding to when he answered the prior questions, because we might be challenged to hit the $80 million hurdle mark on sales this year, because if we don't feel comfortable that we can get these properties to where they need to be in terms of leasing, that we might not achieve the $80 million.

Okay.

So I think it's a valid question, that our ability to execute on leasing and some other things is dependent on how much we'll actually sell of that this year. But and I think the point we that want to emphasize is that it's not -- it's less than 10% of our overall portfolio, in terms of NOI.

And it's probably a three or more year strategy to get rid of them.

And how dependent is it upon your ability to find other investments at returns that would be, like you said, not dilutive on a longer-term basis?

Well we want to redeploy the cash. So, obviously we don't want to just sell all these assets without having something to buy. But I don't think there has to be a perfect match. We sell this at a seven cap, we have to buy a seven cap. If that's where your question is going.

Dave, keep in mind we sold the industrial at 7.1% cap rate, and we invested that, on average, at about a 6.5%. So can we do the same thing with this stuff? Maybe. (multiple speakers)

That makes sense.

Yes, and if we're talking about less than 10% of the portfolio divided by three or four years, it's just not a lot each year. It's a relatively small amount of money.

Okay. Yes. Thank you.

(Operator Instructions)

Mitch Germain with JMP Securities.

Good morning, everyone. Mike, you mentioned some activity in downtown, your office properties. Can you characterize what type of users are active right now in the market?

I'd say a combination. For the most part, I would say that we're looking at tenants in the 5,000- to 20,000-foot range for the most of the tenants we're looking at. And if they're a mixture of trade associations, consulting companies, some -- primarily consulting and government contracting orientations.

So the contractors are still out there huh?

Oh, yes.

But keep in mind that a lot of the activity we're seeing is still a shell game downtown. It's not like it's, people are coming out of the woodwork to lease more space. This is like finding stuff from other buildings. Even downtown had negative absorption last quarter.

And is there, I guess, slowing activity -- is that pressuring concession packages?

Yes.

What, so can you quantify the changes that we've seen over the last couple months?

I don't know if I could put exact number, but you could just look at the numbers we're reporting, and you could see our TIs and --

Yes, I think TIs, and obviously free rent is something new on the forefront. The good news is, we're getting longer terms with those leases as well, though.

So expect those trends to persist? (multiple speakers) mix?

I would say for the balance of this year.

And how would you characterize the activity on the property, the MOB sale?

It just really hit the market. We are very confident they'll be -- it's a nice size for a small buyer. It will sell very easily. It's just not a lot of money, Mitch.

It's got close proximity to a hospital up there -- it'll --

It's relatively insignificant -- it's only a 33,000-square-foot building. It's not going to move the needle for anybody.

Got you. And then just last question on -- back to dispositions again. Are underwriters -- are you getting penalized for vacancy? Obviously that was a market back in the, probably 12 months ago, where people were underwriting vacancy or rollover as a positive? Is that switched, or is it really asset-dependent at this, still?

I think it's asset-dependent, but I completely agree with your premise that you certainly aren't being compensated by vacancy as you were in the past. But it is dependent on submarket in terms of the magnitude of that penalty. But, no question about it, vacancy is not a good thing for buyers right now in most submarkets.

Thank you.

Dave AuBuchon with Robert W. Baird.

Yes. Thanks. Just curious if the shortfall in the dividend shapes your investment strategy over the near term, just in terms of less capital-intensive property types? Or looking at stabilized assets versus lease-up opportunities?

No. I think certainly we'd love to have buildings at higher cap rate returns. But I don't think it really appreciably changes the way we look at properties and whether we want to buy properties that have some upside that we think we could lease.

I think, Dave, I think when you look at the average cap rate that we've been buying assets at, and then the -- whatever your estimate is for our cost of capital, those trades are pretty much flat, initially, coming out of the gate. They're not really accretive. They're not really dilutive. So they're not really impacting the dividend coverage scenario positively or negatively coming out of the gate. Hopefully, over time, they grow.

We certainly don't want to buy things that are going to worsen the equation. But I don't think it is a -- what I would say is a material impact, vis-a-vis what's available out there.

Right. Okay. And Skip, you mentioned I think in your opening remarks about investors potentially looking at buying into DC at a discount versus what they could in the past. Do you think you're going to be successful at buying assets that you didn't think you would necessarily buy in the past?

Yes. I think you misinterpreted what I was saying. I was merely leading to the fact you could buy our stock price and buy DC assets at a discount. I was suggesting that our stock price is material below our NAV. So you could buy our stock as an investor and buy into DC real estate at a discount.

Got it. Okay one more --

My point is that assets -- good assets in DC -- are still trading aggressively.

Just one more question. Bill, have you given any guidelines relative to what your potential deal metrics would be on your new line of credit?

I haven't yet. We're in the final stages. I'd hate to jinx anything. But generally speaking, you can assume spreads and fees basically come down 20-ish or so basis points. I think for BBB-plus type credits, the going rate for the last couple of months has been plus 125 all in. So I think it'll be somewhere around that neighborhood. And then, the deal that we struck -- so, basically the deal that we're talking about is the deal we struck last year, and we're modifying it already this year. Basically we're taking it out an extra year so we're going from a three plus one deal to a four plus one deal. So we've got more coverage. We're going basically out -- if I take the extension option, I'd be out to 2017 with that bigger line. So that's the nuts and bolts. The legal language that I talked about in the opening remarks is really the discussion on whether or not we can remove some of that subsidiary guarantee language. That's really the nuts and bolts of it.

Got it. Thank you.

Michael Knott with Green Street Advisors.

Bill, what do you think you could you price an unsecured at today?

What's the term?

I'll let you choose.

Ten years, probably 4.5 plus or minus. I'd say probably more plus than minus, because the spreads are widening this week. But 4.5-ish -- seven years, probably 380, 385 -- somewhere in there. The interesting thing is the term loan market, Michael -- a seven-year term loan is probably in the low threes, like 315, 320. So there's still a significant spread when you want to go shorter on the curve, you'd go to the bank market, probably, before you'd go to an unsecured market.

You'd rather have the lower rate but a shorter term?

Well if I was going for a shorter term -- if I was going five or seven years, I'd probably entertain the bank market. I'm not saying that I would go that way, because I like the long-term rates, quite honestly.

Okay.

I could convince somebody to give me 30-year paper or even -- or if the preferreds come down even more -- I just need some of our storage guys to maybe get down to the 5% range, and then ours would down be materially lower and we'd do some preferreds.

Can you issue preferred now?

Yes. We got it passed last year. So we can trigger off some preferreds if we want to.

Okay. And then Skip, since you're pounding the table on the discount [inigs] are you considering a share buyback program? Instead of buying additional real estate at Main Street prices?

Not at this time.

Why not?

I don't think we've ever been big advocates of levering up the balance sheet to -- real estate -- this business is a business where you're constantly raising capital, and I think going backwards like that is very difficult, and I think the track record that people who have done that, it's demonstrated that their timing is generally not good in the long term. So given all of the financial commitments we have at this time, it's really not something that we're considering.

One last question -- you mentioned vacancy rates being -- reducing in your DC portfolio. I don't think you guys disclosed that level of detail. What is it now and where do you expect it to rise to?

I don't have that number. You mean just the overall vacancy in our DC?

Right. In your portfolio. I thought you alluded to the fact that rising -- even though the market is slow and absorption is negative, I thought I heard that.

Well, we think that we're going to -- we think we're going to just -- we've got some lease activity going on right now, Michael, so it's a kind of a generic statement. We typically don't break out occupancy by submarket. But you can certainly pull up the K and figure out mathematically what that number is. I don't have it handy right now.

Fair enough. Thanks.

Mr. McKenzie, we have reached the end of the question-and-answer session. I would now like to turn the floor back over to you for closing comments.

Okay. Operator, is there anyone else in the queue?

Yes. We do have a question from the line of Bill Crow with Raymond James.

Good morning guys. Two questions -- the 7% yield on the multifamily development, is that at today's market rents? Or how much rental rate growth do you need to achieve that?

That's with 3% bumps in today's rent.

Okay.

It's a little bit less. If you used it on today's, it's in the sixes.

Sixes, okay. And then, do you think -- and obviously an opinion question -- do you think that if it weren't for the long-term track record with the dividend that the Board would have already cut the dividend?

I can't speculate on that. Obviously, it's a completely hypothetical question and I can't put myself into everybody's mindset. How they would approach it. Clearly the entire -- I think it's 50% of the REITs cut their dividend during the financial crisis and we didn't. Certainly one of the reasons that it wasn't even considered at that time, or significantly considered, is because of the track record. But I can't hypothecate what the collective Board would have done had a certain condition not occurred. So I will take the Fifth Amendment on that one.

Okay. Very good. Thanks.

Okay, I think that -- is that it operator?

Yes. We have reached the end of the question-and-answer session.

Okay. Well, thank you everybody for your interest in WRIT and look forward to catching back up with you at the July call. Thank you. Have a great weekend everyone.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.