Equity Commonwealth (EQC) 2006 Q1 法說會逐字稿

Good day and welcome to the HRPT Properties Trust first-quarter 2006 earnings results conference call. This call is being recorded. At this time for opening remarks and introductions, I'd like to turn the call over to the Manager of Investor Relations, Mr. Tim Bonang. Please go ahead, sir.

Thank you, Matt. Joining me on today's call are Adam Portnoy, Executive Vice President, and John Popeo, Chief Financial Officer. The agenda for today's call includes a presentation by management, followed by a question-and-answer session.

Before we begin today's call, I would like to read our Safe Harbor statement. Today's conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and federal securities laws. These forward-looking statements are based on HRPT's present beliefs and expectations as of today, May 8, 2006. The Company undertakes no obligation to revise or publicly released the results of any revisions of the forward-looking statements made in today's conference call, other than through filings with the Securities and Exchange Commission, regarding this reporting period.

Actual results may differ materially from those projected in these forward-looking statements. Additional information concerning factors that could cause those differences is contained in our Form 10-K, filed with the Securities and Exchange Commission, and in our Q-1 supplemental operating and financial data found on our website at www.hrpreit.com. Investors are cautioned not to place undue reliance upon any forward-looking statements.

And with that, I would like to turn the call over to Adam Portnoy.

Thank you, Tim. Overall, HRPT had a strong first quarter, with good financial performance, strong leasing and operating results and active investing and financing activities.

For the first quarter, we are reporting FFO of $0.31 per share compared to $0.32 per share for the same period last year. Sequentially, our results are trending in the right direction, with FFO per share increasing by 3%, or $0.01 per share, between the fourth quarter of 2005 and the first quarter of 2006.

It is important to note that FFO for the last two quarters includes minimal amounts of lease termination fees or other non-recurring items. The sequential increase in FFO per share is largely driven by acquisitions in our continued efforts towards increasing our cash flows at our existing properties.

During the first quarter, same-store NOI increased by 2.3%, and we have reported positive changes in same-store NOI for the last four quarters. Furthermore, same-store NOI growth has become more widespread across our portfolio during the last year, with six out of our seven major markets reporting positive changes to same-store NOI during the first quarter.

Our strong same-store NOI were primarily driven by a large amount of leasing activity, combined with increasing net effective rents in many of our markets. During the quarter, we signed leases for almost 1.8 million square feet, and about 75% of this activity occurred in Philadelphia, Washington D.C., Oahu, Hawaii and Boston. Leasing activity was higher than average during the quarter because of the large amount of lease renewals from tenants, with 66% of the square feet leased during the quarter coming from renewals.

Within all of our major markets, leasing fundamentals continued to improve, with positive net absorption in excess of due deliveries and steady to rising occupancy rates. As a result, leasing terms have continued to improve during the last year. Leases signed during the quarter yielded a 2% rollup in rents, and upfront leasing costs were a very low $10.71 per square foot and $1.40 per square foot per lease year.

More importantly, leasing results were strong even after excluding activity from Oahu, Hawaii, which accounted for 22% of total leasing activity during the quarter. Because of the strength of our land holdings in Hawaii, the leases signed there typically have high rent rollups, long lease terms and low CapEx requirements. Excluding Oahu, total rents remained unchanged, and upfront leasing costs were only $13.63 per square foot and $1.33 per square foot per lease year.

Even though we signed leases for almost 1.8 million square feet, we had almost 2.1 million square feet expire during the quarter. Partly as a result, occupancy declined by 90 basis points to 93.4% as of the end of the first quarter. Same-store occupancy also declined by 30 basis points to 93.7%. This decline in occupancy is largely by choice. With our portfolio occupancy running at well over 90% the last several quarters and market conditions improving across the country, we have recently started trading occupancy at some of our properties in certain markets in return for higher effective rental rates and increased cash flows. This strategy is evident by our same-store NOI growth and low upfront leasing costs during the quarter.

Generally, real estate fundamentals are improving across our portfolio, with every major market except Atlanta generating same-store NOI growth during the quarter. In addition, we continue to maintain occupancy rates which are significantly above local market rates throughout the vast majority of our portfolio. Washington D.C., Southern California and Oahu, Hawaii continue to be our strongest market areas.

Our land holdings in Oahu continue to perform especially well. During the quarter, we signed leases for 391,000 square feet at rates that generated rollups in rents of 85%. Furthermore, even though this market only represents about 10% of our consolidated NOI, these properties contributed to 18% of the growth in consolidated same-store NOI.

Atlanta and Boston continue to be our most challenged markets, but the company is somewhat insulated from the softness of these markets because of our large size, diversified holdings and limited near-term lease rule. For example, only 0.7% of the Company's total leased square feet is scheduled to expire in Atlanta and Boston between March 31st and the end of the year.

With regards to investment activities during the quarter, we made $202 million of acquisitions and received $315 million of gross proceeds from dispositions. We acquired two groups of properties located in upstate New York, which included 35 properties with 1.8 million square feet. The combined purchase price represents a weighted average going-in cap rate of 9%, and the $110 purchase price per square foot is significantly below replacement cost. These assets are some of the nicest Class A properties located in the suburban Rochester and Syracuse markets, and they're 89% leased to good credit tenants for an average main lease term of just under six years.

In March, we sold our remaining equity interest in our two former subsidiaries, Hospitality Properties Trust and Senior Housing Properties Trust, for $315 million of gross proceeds. We had owned shares in these companies for between 7 and 10 years, and we are recognizing gains of $116 million as a result of our sale. The primary reasons for selling these shares were to self-fund our acquisition activities and to simplify our business model by disposing of noncore holdings.

Subsequent to quarter end, we have purchased two additional properties with about 504,000 square feet for a combined $39 million. We will discuss these acquisitions in more detail during our second-quarter investor conference call.

As of today, we have an additional three properties with 608,000 square feet under agreements to buy for about $58 million. We also have two properties with about 100,000 square feet under agreements to sell for about $13.7 million. These properties are currently listed as discontinued operations in our financial statements. Of course, these agreements are subject to diligence, and the purchase or sale of these properties may or may not happen in the future.

Our current acquisition strategy continues to focus on purchasing high-quality and well-leased office and industrial properties located in less high-profile markets. We also continue to actively look at selling B and C Class properties located in second- and third-tier markets.

Looking forward to the remainder of 2006, we are optimistic that the improvements in the office real estate market we have been experiencing during the last few quarters will continue.

I'll now turn the call over to John Popeo, our CFO.

Thank you, Adam. Looking first to the income statement, rental income increased by 13.8% and operating income increased by 12.7% during the first quarter of 2006. The year-over-year quarterly increase in rental and operating income reflects over $670 million of properties acquired between January 1, 2005 and March 31, 2006 led to 2.3% increase in same-store NOI.

Our consolidated NOI margins remained flat at 62.1% during the first quarters of 2006 and 2005. Current quarter EBITDA increased by around 12.9% over the same period last year.

Net income available for common shareholders for the first quarter of 2006 was $131.4 million compared to $20.7 million for the first quarter of 2005. The increase reflects $116 million of gains recognized in 2006 from the sale of our investments in shares of Senior Housing Properties Trust and Hospitality Properties Trust, as well as property acquisitions since March 2005 and increases in cash flows at our existing properties.

FFO available per common shareholders was $0.31 per share for the first quarter compared to $0.32 per share for the prior year and $0.30 per share for the fourth quarter of 2005. The year-over-year decline in FFO per share reflects additional shares outstanding. The increase in FFO per share from the last quarter primarily reflects property acquisitions and increases in cash flows at our existing properties during the first quarter.

In April of 2006 we declared a dividend of $0.21 per share, which represents 67.7% of our first-quarter FFO. Our Board considers the dividend level on a quarterly basis and they are comfortable with this current payout ratio.

During the quarter, we spend $20.2 million on tenant improvements and leasing costs. As of March 31, 2006, we had $58.6 million of total committed but unpaid tenant improvements and leasing costs. During the first quarter, we paid $5.6 million, or $0.10 per square foot, for recurring building improvements, including lobby renovations and elevator and other systems upgrades throughout the portfolio.

Turning to the balance sheet, during March we sold all of the remaining shares in our former subsidiary for net proceeds of $308 million. Net sales proceeds were used to reduce amounts outstanding on our revolving credit facility. Taxable gains from these sales will certainly reduce and more likely eliminate return of capital for 2006. But even with the large taxable gains generated by these sales, we don't currently believe that there will be a need for a special dividend to cover 2006 taxable income.

On March 31, we held $35.6 million of unrestricted cash. A $12.6 million increase in rents receivable reflects about $5 million of straight-line rent accruals during 2006, plus seasonal and other expense recovery billings. Rents receivable includes approximately $115 million of cumulative straight-line rent accruals as of March 31. Other assets includes approximately $80 million of capitalized leasing and financing costs.

The $63 million decrease in our revolving credit facility reflects over $300 million of net proceeds from the sale of shares in former subsidiaries in March 2006, partially offset by over $225 million of property acquisitions and capital expenditures during the quarter.

We issued $400 million of new five-year floating-rate Senior Notes in March, carrying interest at LIBOR plus 60 basis points. These notes are prepayable at par beginning in September, 2006. We used the proceeds of this offering to prepay $350 million of floating-rate term debt due in 2009 that carried interest at LIBOR plus 80 basis points. This term debt was due in 2009, but prepayable at par during the first quarter.

In March, we redeemed all $200 million of our 9 7/8% Series A preferred shares. We funded this redemption with proceeds from the issuance of $150 million of new 7 1/8% Series C preferred shares in February and by drawing on our revolving credit facility.

On March 31, 2006, we had $593 million of floating-rate debt, $380 million of mortgage debt and $1.55 billion of fixed-rate Senior unsecured notes outstanding. The weighted average contractual interest rate on all of our debt was 6.2% at the end of the quarter and the weighted average maturity was 7.5 years.

Our Senior unsecured notes are rated Baa2 by Moody's and BBB by Standard & Poor's. The book value of our unencumbered property pool totaled almost $4.8 billion at the end of the quarter. Our secure debt represents 7% of total assets and floating-rate debt represents 24% of total debt.

At the end of the first quarter, our ratio of debt to book capitalization was about 48% and debt to market capitalization was about 46%. Our EBITDA and fixed-charge coverage ratios were 2.9 times and 2.3 times, respectively. In addition, our unencumbered property pool has increased from $4.6 billion to $4.8 billion between December 31 and March 31, 2006. As of the end of the first quarter, we were comfortably within the requirements of our public debt and revolver covenants.

As Adam mentioned, in April, we also acquired two properties for $38.8 million. We funded these acquisitions by drawing on our revolving credit facility. As of today, we have a $186 million outstanding on our revolving credit facility, with $564 million of additional borrowing capacity.

In summary, we had a solid first quarter. Same-store NOI grew by 2.3% and upfront leasing costs remained low at less than $11 per square foot. Even though occupancy declined slightly, we signed almost 1.8 million square feet of leases at largely higher net effective rents.

Our Oahu landholdings continue to perform very well. We completed $202 million of acquisitions and realized gross proceeds of $315 million from the sale of noncore assets. We also lowered our cost of capital by refinancing $350 million of floating-rate debt and $200 million of preferred stock at significantly lower rates. We ended the quarter with plenty of capacity under our revolver and we are well-positioned to with regards to leverage and coverage ratios.

Overall, we continue to believe HRPT's strong tenant base, limited near-term lease expirations, strong balance sheet and current annual dividend yield of almost 8% make HRPT a logical choice of long-term investors.

That concludes our prepared remarks. Operator, we are now ready to take questions.

(OPERATOR INSTRUCTIONS) Philip Martin with Cantor Fitzgerald.

Gentlemen. How are you guys? Just a couple questions on a few things here. In terms of the leasing costs, I know, Adam, you mentioned if you exclude Hawaii here in the first quarter, if I heard you correctly, it's right around $13.53 a foot?

Yes, that is correct.

How did that -- if you look at last year's number, which I believe was a shade over $18 a foot, if you were to exclude Hawaii from that last year, just to get an apples-to-apples comparison on year-over-year basis?

Yes, there wasn't much leasing activity a year ago in Hawaii. So it's really -- the leasing activity has really ramped up, I'd say, in the last six, nine months. Really in the fourth -- it really came on strong --

In the fourth.

-- [fourth] quarter 2005.

Okay, okay. So that 18 is versus a 13.50 kind of year-over-year apples-to-apples?

That is correct.

Okay. In terms of -- just jumping around a little bit here, year-over-year the NOI in Boston, the operating income in Boston up 5.3% year-over-year. That is pretty good, especially given what we continue to hear from Boston, that it's coming back but it's still weak. What does the rest of the year look like there, especially on the leasing front and where your rents are compared to market?

You are hitting us in our softest spot. Boston and Atlanta are the two toughest markets. The reason we have same-store NOI growth is because we signed some leases there with some medical related tenants -- Children's Hospital, I believe, is one of them in the Longwood medical area.

So we have about three or four assets in what you'd consider CBD Boston which are largely leased to medical tenants. And then we have a lot of suburban assets in and around the Boston area.

We're not so worried about what's going to happen in Boston throughout the rest of year. I think the concern in Boston is a little bit more 2007, 2008, when we have -- some of the lease roll we have going on out there is where we might have some real significant rolldown in rents, in the magnitude of $5 to $10. That is a 2007, 2008 problem.

If you look at what's left for expirations in 2006, the vast majority of it is in we categorize as other markets. We don't have a lot left to do in our major markets for the rest of the year. But again, reiterating what I said in the prepared remarks, the company is somewhat also insulated just because of its size and diversity. I think I said 0.7% represents all of the expirations in Boston and Atlanta, the two tough markets, for the rest of the year.

Combined, yes. And your tenant base is pretty -- it helps insulate you a little bit in Boston, given the medical health care focus that you have there.

That is correct.

The other thing. From a leasing velocity trend, is that still increasing, has it leveled off a little bit, what is the trend now? Obviously, you did 1.8 million square feet this quarter. I think that is the highest amount you've done in probably three years, maybe even a little longer than three years?

Yes, that is a great question, Philip. I knew someone was going to ask it. Look, this quarter was, I think, way above average. And it actually was largely a result of some renewals that came in that we signed up for leases that were expiring in '07, even '08, even '09.

So I think what you're going to see is not only is the leasing velocity probably going to slow down throughout the rest of the year, but also the mix, renewals versus new leases. We were running 66% renewals in the first quarter. I think it's going to be more 50-50 renewals/new leases, and I think the number's probably going to be -- it's going to be less than 1.8 on a quarterly basis going forward. So the velocity will come down.

Well, the renewal was strong too. I mean, you look a year ago -- and I know it's different by market and tenant, etc. But down 16% on your renewals last year versus up I think 4% this year.

That is right.

Is that a trend though? I mean, from a leasing velocity standpoint, you are still seeing much more leasing activity and a more positive leasing environment. So I guess that is my --

You are right. It's slowly starting to shift to a landlord's market. What has happened -- the reason we have so much renewal activity is I think the tenants are starting to realize that the market is shifting, so they have been showing up on our doorstep more and more asking to sort of lock in what they perceive to be maybe lower rates for long terms, instead of waiting until '08, '09 for those leases to roll. And so on a selective basis, we have been starting to sign some of those up when it makes sense.

I do want to reiterate something that I said in the prepared remarks, which is that we had a decline in occupancy even though we had all this stock leasing activity -- really because we're not -- we have been running at very strong occupancy, over 94% as the end of the year -- the end of 2005.

We really have started taking a little bit different view in certain of our markets in terms of how we approach leasing, meaning we are willing to sacrifice a little bit of occupancy in certain markets. And I'll point out, like Hawaii, for example, or Austin, Texas, or even Southern California. Those are markets where we have such -- the dynamics are getting much better or they're very strong today, so we've not let some space that maybe we could have, in search of higher rates. Sort of holding firm on rates, is what I'm trying to point out.

Okay, okay. Well, my last question here then is just one on the acquisitions you made during the quarter. In terms of CapEx, is there anything major with those properties? Obviously, they are well leased, they look like they have a pretty good tenant base. But is there anything major on a CapEx standpoint?

I'm looking at -- I'm assuming the 9% is before any CapEx.

That is correct.

And any additional CapEx that you have to do? I'm trying to get a --?

No, there is nothing -- we run our portfolio somewhere between $0.40 and $0.50 a square foot a year in sort of what I consider building maintenance CapEx. There is nothing -- those buildings are running at the same rate.

Okay. Okay, I will yield the floor. Thank you very much.

Scott (indiscernible) with AG Edwards.

Just to follow up on those questions. In terms of the mark-to-market of the overall portfolio, did you give what that is?

No, I haven't given it. But if you took the whole portfolio, it's probably a little high, taking the entire portfolio -- maybe about 3, 4%, the whole portfolio.

Okay. And then I'm assuming -- I know, again, it's a small percentage, but Boston is -- I think you said previously anywhere from 10 to 25% --?

Boston is the only market that is an outlier. It's the only market that's an outlier in terms if you mark the portfolio to market.

Okay. But that's still like 20 -- anywhere from 10 to 25% above?

That is right. And a lot of those problems are '07/'08 problems; they are not '06 problems.

Okay. John, in terms of the interest and other income, was that just due to a higher cash balance this quarter or what was the --?

That is correct. Higher cash balance, as well as the availability of higher interest rates and investment options.

Okay. So we should see that obviously trend down then?

Yes, probably $1 million a quarter.

Okay. The only other question I have for you guys is in terms of some of your top tenants, obviously you have some lease expirations in the coming year. Can you maybe provide a little bit of an update on the Comcast situation as well as Tyco down in Austin?

Sure. Both the spaces, we're currently talking to different parties about it. We don't know -- it's still a little early to sign something up, but we're definitely in the phase where we can talk to people. And we are currently talking to people about taking the entire space, which is what our preferred route would be. But there is nothing to report yet.

Look, there is activity. Look, in both situations you have -- not only are you marketing it to new tenants, but we're also talking to people within the existing buildings to see if they have any desire to take additional space there. So we have a couple different options.

Okay. Any idea how much CapEx you would need to sink into those buildings at all or those floors?

Tyco in Austin would not be outrageous CapEx; I'm thinking -- I'm guessing 10, $15 a square foot. The Philadelphia stuff could be extensive, because if we sign something there, it could be a 15-year lease. And again, like we've done in the past, it could be much higher CapEx.

Okay. Thank you guys very much.

(OPERATOR INSTRUCTIONS) Charlie Place with Ferris, Baker Watts.

Good afternoon. I appreciate the commentary on your lease renewals that you talked about earlier, and the market fundamentals. The first-quarter G&A expenses were a little bit higher than we were looking for. Is that due to some additional executive compensation booked in the first quarter?

No, no it's not. It's actually a pretty clean number this first quarter, Charlie.

Okay. So that is a good run rate to build on for the rest of the year?

Yes.

Okay, great. I also missed, Adam, you were talking about your acquisition pipeline. Had indicated $39 million had already been signed after the quarter. And I think you said $58 million under agreement? Did I get that number right?

That number is correct, yes. Of course, under agreement, it could close, it may not close.

Yes. And then beyond that, you all seeing some good opportunities that fit your investment profile?

We are seeing lots of opportunities. The pace of acquisitions has definitely slowed from what it used to be '03, '04, and maybe halfway through '05. We're seeing stuff, but you've got to dig a lot deeper and look a lot more to find what it is we're looking for.

Which is really -- in today's market, the only place we can really -- the only things that we consider worth buying and we can afford buying are things like good Class A suburban properties in sort of second- and third-tier markets that are very well leased. And to find that stuff at reasonable prices that we know we can make money buying it, takes time. So that is what we have been doing. But we're not seeing -- it's not a huge amount -- the pipeline is not huge but there in a pipeline.

Okay. What is your sense or feel about cap rates – where they have been, where they are headed, as far as when you look at these acquisitions?

They have been staying -- for the last three to six months, they have sort of stayed static. They were dropping and dropping, and now they sort of stayed static. In some of the markets we've been successful in, it's because they haven't dropped to the same level you might see in something like the New York City, the Washington D.C., the Southern California markets. We can't even -- we look in DC and Southern California all the time; we just get priced out pretty consistently.

But they've been pretty much stayed -- I guess there's been no real change in cap rates over the last quarter, I guess is what I'd say. They've been pretty much the same.

Okay. And one last final question. Looking at the Atlanta market, which you said is one of your challenging markets, the decrease in percent leased is that -- how much of that is from the nine new buildings bought year-over-year that had lower occupancies and how much is due to kind of same-store decrease in occupancy?

It is probably a little bit -- unfortunately, a little bit more weighted toward same-store. I don't have the exact figure, but knowing the numbers, it is probably 60, 65% probably because of same-store.

Okay. Are there any major tenants we should be aware of that leases are expiring that you know are not going to renew?

Nothing of significance, no.

Okay. Thank you.

Scott O'Shea with Deutsche Bank.

A question on your Series B preferreds, which are callable in a little less than 18 months. Have you started looking at potential refinancing sources for those and maybe locking in today's rates against that 8 7/5 coupon?

It's a good question. We typically -- there's a lot of different theories about whether or not to enter into some sort of rate lock of some sort or some sort of hedge. We've done it in the past, and to be totally honest with you, every time we've done it, we've bet wrong way and the rates have gone the opposite direction.

So the theory around here is we don't enter into those forward rate locks because we're pretty good at running office buildings, but we're not too good at predicting where interest rates are going. And so we basically are just going to defer until they are callable and then take a look at the market and decide what to do then.

Okay, fair enough. Thank you.

Philip Martin from Cantor Fitzgerald.

Yes, thanks again. One question on Austin. With really respect to 2007 expirations there, this is a market where your portfolio has experienced occupancy increases over the last six to twelve months. But -- and correct me if I'm wrong -- rents have been still somewhat weak in Austin. Can you speak to the rental rate market in Austin and are you seeing some stabilization and potentially rising rental rates?

It's a good question, Philip. What's happening in Austin is we have -- we were under 80% occupied there 16 months ago or a year and a half ago. And we really put a lot of effort into leasing up the buildings. We had some fully vacant buildings that we were nervous about.

So what has happened now is we're about 90% leased there. And there has been a rolldown in rents in terms of what we've been signing. But this is clearly a great example of where we are sort of holding the line a little bit firmer than we may have had in the past.

And I think generally rates are getting better. I think if you read most industry reports, analysts think that Austin is a market that is due to really come back strong in the latter half of '06, '07. I think we feel at 90%, we are going to hold a little bit firmer on our signing up new leases there because we sort of feel like we got a pretty good, stable occupancy there now.

So things are getting better. I guess what I could say in the last 18 months, we sort of rushed to get it to 90%, signing whatever we could, because we were -- at that time period, it was a perspective of versus what it looked like back in '03 and '04, when we couldn't get anyone even to look at space. All of a sudden, we had people looking at it and they were actually interested so we signed the leases.

Now the activity has gotten strong enough and the market has come back enough that we're holding a little firmer. We're trying to focus a little bit more on net effective rather than just what occupancy is. So I guess that's the best way to think -- that's our thinking how we're approaching Austin.

Okay. Okay, thank you.

Chris Pike with Merrill Lynch.

Good afternoon, everybody. Just looking in the supplemental -- and I know it has been a while -- but the margin in DC, can you guys talk about that a little bit?

The drop in the margin?

Yes.

One thing that is taking place in Washington D.C. is utility deregulation. And to the extent utilities go up and we continue to recover from our tenants. that does drive that NOI margin down somewhat in Washington.

Okay. I may have missed this, but the dispositions or the assets held for sale, did you guys talk about where they were?

We haven't, but you can figure it out if you look at our supplement. They are in Atlanta and then what I would characterize as other markets.

And then I guess finally, in terms of I guess some of these weaker markets, I guess if you look up on real capital, you still see caps compressing in, let's say, Boston. Any thoughts to just harvest some value in some of these markets where you don't expect any near-term turn in fundamentals, but perhaps you can get out some additional value at this point?

Chris, it's a great question. We are currently -- and I said in the prepared remarks, our strategy toward dispositions is really looking at B and C asset quality buildings that are in our second- and third-tier markets. That is just how we approach it, and that's what we also have under agreement today to sell, is typically those types of assets. So we will continue to do that going forward.

And look, we do that analysis on -- we have a formal process where we do it on a quarterly basis, where we review everything and decide is it worth trying to try and dispose of this asset or that asset. We're very reluctant to sell sort of what we consider our core assets.

Those are some of the buildings -- you know GSA-leased buildings that are well-leased, medical office buildings that are very well-leased, some of our towers in Philadelphia are though for us to let go of. Southern California, Washington D.C., those are really strong markets. Austin is a market that is coming back.

I know people tell us -- I've heard in the past look at dispositions, but I try to get people -- I'm trying to get people to focus more on our operations and look at how we've done. I mean, this is a company that everybody thinks is just focused on core buildings and there's very little internal growth that can be generated from our business because we are very well-leased. Typically, we're well above 90% leased.

You look at our same-store NOI growth and you look at what we have been able to do in terms of net effective rents. I think we're doing better than a lot of our competitors that people talk about that have all this growth built into them. People that are in the mid-80% occupancy and everybody thinks they're a great company and have all this growth in a rising market. Here we are, HRPT, 93% plus leased and generating great internal growth rates. I mean, I think this -- we've done it for the last four quarters, same-store NOI growth. I don't know if any one of our peers has been able to match that.

So I guess what I'm trying to do is get you less focused on dispositions. yes, we're looking at it, we're talking about it, we're going to do some. But I hope I can get you to focus on how great a job where doing at running the company.

Okay. Thanks a lot, gentlemen.

John Guinee with Stifel Nicolaus.

Gentlemen, nice job on your property operations and nice job on the sale of [SNL] and HPT.

Thanks, John.

A couple thoughts. One is your debt ratio is creeping up, and last year you raised equity at I think an average of about $12.40 a share. Do you have a floor number at which you will not raise new equity, new common, or have you given any thought to that with your Board?

John, I never want to -- we never want to say never because we never want to box ourselves in and lack flexibility. But at the same time, we're very comfortable with our leverage ratios. And we don't have a need to go to the markets to raise any capital at this time. We only have about $180 million out on the line. We have about $58 million of committed acquisitions. And the line is a $750 million line. So there's not a -- we have the luxury of options, meaning we could raise additional capital in the future but we don't have to raise additional capital in the future.

To get back to your question of is there a floor, obviously we think about lots of different factors. And in the last call, I said we'd be very reluctant to issue stock at below where we issued the last stock price at $13.12. I think that is still something we focus very much on. I can't tell you that we will focus on that for eternity. But it is something that as I sit here today and we talk about it, we're still focused on that number. And I think we're in a good position that we don't have to raise any sort of capital if we want to.

We did a lot of rejiggering of the portfolio from a capital standpoint in the first quarter. I mean, I believe we've done a good job of positioning us well going forward in terms of our leverage ratios. You think it's a little high. Yes, it's a little higher than it has been historically. But we're also a lot bigger company than we have been historically, and I think the company can withstand a little bit higher leverage ratios. And I think the rating agencies agree with us on that.

Okay, next question. On page 11 of your supplemental, your non-cash straight-line rent adjustment, FASB 13, is historically low, while your FASB 141 adjustment is historically high. Do you know what the background is for that?

Yes, on the FAS 13, what you have going on here is the burnoff of rent abatement periods for a couple of the long-term large leases that we entered into back in 2004, as well as rent steps throughout the portfolio.

As far as the FAS 141 amortization number goes, that is just a little bit of a reflection of the purchase price allocations and the amortization on those purchase price allocations to in-place leased assets on the balance sheet.

Okay. Thank you. Nice job.

Thanks, John.

That does conclude our question-and-answer session. I'd like to turn the call back over to Adam Portnoy for any additional or closing comments.

Okay. Thank you for joining us for our Q1 conference call. We will be presenting at the Bear Stearns Credit Conference in York City on May 17 and at NAREIT in early June. We look forward to seeing you at either of these events or speaking with you on our second-quarter conference call. Thank you.

That does conclude today's conference call. Again, thank you for your participation. You may disconnect at this time.