Equity Commonwealth (EQC) 2009 Q1 法說會逐字稿

Good day, and welcome to the HRPT Properties first quarter 2009 financial results conference call. This call is being recorded.

At this time for opening remarks and introductions I would like to the turn call over to Director of Investor Relations, Mr. Tim Bonang. Please go ahead, sir.

Thank you, Nicole. Joining me on today's call are: Adam Portnoy, Managing Trustee, 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 HRP's present beliefs and expectations as of today, May 7th, 2009. The company undertakes no obligation to revise or publicly release the results of any revisions to the forward-looking statements made in today's conference call, other than through filings with the Securities and Exchange Commission regarding this reporting period. In addition this call may contain non-GAAP numbers including funds from operations or FFO.

Reconciliation of FFO to net income is available in our supplemental percentage found on the investor relation's section of the company's website. Actual results may differ materially from those projected in any forward-looking statements. Additional information concerning factors that could cause those differences is contained in the 10Q which will be filed with the SEC and in our Q1 supplemental operating and financial data found at our website at www.hrpreit.com. Investors are cautioned not to place undue reliance on any forward-looking statements. Now I would like to turn the call over to Adam Portnoy.

Thank you, Tim, and good afternoon to everyone, and thank you for joining us on today's call. For the first quarter 2009 we are reporting fully diluted FFO of $0.27per share, which is the same FFO per share we reported during the same period last year. During the first quarter we signed leases for 945,000 square feet, and 80% were renewals and 20% were renew leases. Leasing activity during the quarter resulted in a 6% rollup in rents, and about $7 per square foot in capital commitments. The average lease term was five year and the capital commitment for lease year was $1.42. It's important to note that we reported roll ups in rents during the last 14 consecutive quarters. Although we are pleased with our ability to sign renewals with many of our tenants on attractive terms the pace of new leasing activity or the leasing of currently vacant space has slowed significantly since the begin ing the year. Within all the markets where we operate net affective rents are trending downward. This is the result of a slowing economy, which is leading to a reluctance for companies to commit to expansion space or lease new space.

This trend is evidence by the reported decline in office net absorption and occupancy rates across the country during the last few quarters. At the same time development activity expected to continue through some markets through the end of the year, as a result of these market dynamics overall company occupancy at March 311th, was 89.5%, which represents a 90 basis point decrease from last quarter. Although our total same store NOI declined by 3% in the first quarter this decline is primarily the result of occupancy decline especially in our Philadelphia and other markets. In Oahu the market for industrial properties still strong, however the economic downturn is starting to affect rental rates in this market. Nevertheless the land value for our properties in Oahu are still significantly higher than what we paid for these lands in 2003 and 2005. During the quarter Oahu same store NOI increased by 8.3% reflecting increases in rental rates.

In Washington DC our same store NOI increased by 5.3%, primarily reflecting occupancy gains. Although this market is also experiencing weakening fundamentals it continues to be one of the strongest markets in the country. The strength in this market is primarily driven by job growth from the federal government and related industries. Southern California continues to experience weakening fundamentals as well, with negative net absorption in about one million square feet of new construction completed in the first quarter. Despite a 7% decline if same store occupancy, first quarter same store noi increased by 2.1% in this market, primarily reflecting rent growth. Boston same store NOI 1.9% during the quarter, primarily reflecting increases in operating expenses. Our Philadelphia portfolio experienced an 8.9% decrease in same store NOI primarily reflecting a decline in occupancy and lease termination revenues. The Philadelphia leasing market shown signs of weakness with slight decreases in rental rates.

The downtown office market where we own a large percentage of assets remains relatively strong and we continue to believe that we are well positioned in this market. In our other markets located throughout the country our same store NOI during the quarter decreased by 5.8%, reflecting a decrease in lease termination revenues, an increase in operating costs, and a 3.1% decline in same store occupancy. We have 3.4 million square feet scheduled to expire during the remainder of 2009, which represents approximately 6% of our total square feet and 7% of our annualized rents. The majority of the leases scheduled to expire through the end of 2009 have in place rents that are below market rents. However, it may be difficult to realize any of these possible rent rollups in the near term because leasing fundamentals continue to weaken across the United States.

Even in this difficult market I think we are achieving some great accomplishments, during the last two years seen a consistent improve in leasing metrics with rental rates rolling up and low cap commitments, however these improvements came at the expense of lower occupancy rates. In light of the current market conditions we expect capital expenditures will increase in the future in order to maintain occupancy. During the first quarter we purchased one office complex of 392,000 square feet for about $58 million. We purchased this high quality asset at a going end cap rate of 11.1%, and this property is 100% occupied with an average lease term of almost six years. As of today we have executed agreement to buy one office building with approximately 125,000 square feet, for a purchase price of $32 million. Of course, agreement is subject to closing conditions and the purchase of this property may or may not happen in the future.

Before turning the call over to John Popeo, I would like to recap HRP's current balance sheet and liquidity position. We currently have about $3 billion of debts outstanding, which represents a conservative 49% of total assets. And we have no significant debt maturities until 2011. Our unsecured debt obligations have been rated investment grade for 15 years and we continue to be comfortably in compliance with debt covenants. As of March 31, $297 million outstanding on our existing $750 million unsecured revolving credit facility. This facility is provided by a diverse group of close to 30 participating banks, and matures in August 2010. We currently pay interest at libor plus 55 basis points. In our option we have the right to extend this revolver for one additional year through August 2011.

In April, our wholly owned subsidiary, Government Properties Income Trust, closed on a $250 million nonrecourse secured credit facility with a group of banks. The maturity date of this facility is April 2012. And we have the option to extend the facility for one year, through April 2013. Interest on the facility is set at libor subject to a floor plus a spread depending on the debt level at the subsidiary. The interest rate applicable to the loan is 5.25%. Net proceeds from this credit facility we use to repay amounts outstanding under our existing unrevolving credit facility. As a result we only have $69 million outstanding under our existing revolver as of today.

Also during the first quarter, Government Properties Income Trust filed a preliminary registration statement with the Securities and Exchange Commission for initial public offering of 10 million common shares. If the IPO is successful Government Properties Income Trust expected to trade on the New York stock ex-chain under the ticker Gov. And we expect that HRP will continue to own 49.9% of Gov after the offering. In connection with this possible IPO, we transferred 29 properties to Gov including 25 properties which are currently primarily leased to the US federal government and four properties which are currently primarily leased to state governments. These 29 properties contain 3.3 million square feet, and are located in 14 states in Washington DC. As we discussed in the past, we previously agreed to sell 47 of the medical office clinic and biotech laboratory buildings, with 2.2 million square feet, for $562 million, to Senior Housing Properties Trust. As of March 31, we have closed on the sale of 38 of these buildings for approximately $366 million, and recognize gains of about $146 million.

The closings of the remaining nine buildings are scheduled to occur in 2010, but these closings may be accelerated through mutual agreement. We also have one additional property currently under contract to sell for a price of around $15 million, which may or may not close until 2010 based on closing conditions. As I discussed during our year end investor call, in January we announced a 43% common share dividend reduction to $0.12 per share per quarter or $0.48 per share annually. At the same time we announced the common stock buy back program. As of March 31, we have repurchased 4.1 million common shares, at an average price of $3.57 per share, and a total cost of $14.5 million. During the first quarter we also purchased $40 million of our debt securities. Since the end of the quarter we have not purchased any additional common shares, but we have purchased an additional $67 million of debt. In total, since the beginning of the year, we have purchased $107 million of our debt securities for about $87 million of cash and an average return of 14%.

Even though HRP has always maintained excellent balance sheet with ample liquidity, during the quarter we continued to take additional steps to further increase our liquidity and build long-term value for all stakeholders. During the first quarter we continued to successfully recycle capital from the sale of properties into higher yielding assets by selling one property at 7.4% cap rate and purchasing another property at 11.1% cap rate. Since the beginning of 2009, we have lowered our dividend to a sustainable level commenced stock buy back -- common stock buy back program and repurchased $100 million of outstanding debt significant discounts. We are also pursuing creative ways to increase liquidity due through the possible IPO of our wholly owned subsidiary Government Properties Income Trust. In summary, we are approaching these difficult market conditions with many positive and creative actions. I will now turn the call over to John Popeo, our CFO.

Thank you, Adam. Looking first to the income statement, rental income increased by 7.8%. And total expenses increased by 11.1% during the first quarter of 2009. The year-over-year quarterly increase in rental income operating expenses, and G&A expense reflects property required acquire between January 2008 and March 2009, partially offset by the decline in occupancy in same store NOI. Our consolidated NOI margins were 58% if the first quarter 2009, 60% for the first quarter 2008. The decrease reflects the decline in occupancy and increases in operating expenses. Current quarter EBITDA decreased by 1.6% compared to last year, primarily reflecting property sales and a decline in occupancy and same store NOI offset by property acquisitions since January 2008.

Interest expense decreased by 2.6%, reflecting the decline in average floating interest rates from 4% during the first quarter of 2008 to 1% during the first quarter of 2009, partially offset by mortgage debt assumed with properties acquired. Net income available for common shareholders for the first quarter of 2009 was $30.4 million, compared to $14.7 million for the first quarter of 2008. The increase reflects $7.5 million of gains from early extinguishment of debt, and $8.7 million of gains on the sale of one property during the first quarter of 2009. Diluted FFO available for common shareholders was $0.27 per share for the first quarter of 2009, fourth quarter of 2008, and first quarter of 2008. Year-over-year results primarily reflect earnings from properties acquired since January 2008, and a decline in interest on our debt obligations, partially offset by earnings from properties sold and the decline in portfolio occupancy and same store NOI.

In April 2008 we declared dividend of $0.12 per share, which represents 44% of our first quarter FFO. During the quarter we spent $8 million on tenant improvements and leasing costs and $2 million or $0.03 per square foot for building improves, including lobby and facade renovations, elevator upgrades and other capital projects throughout the portfolio. We paid $2 million on development and redevelopment activities during the first quarter. Turning to the balance sheet, on March 31st we held $35 million of unrestricted cash, the $136 million of assets held for sale includes net book value of assets under contract totaling $119 million, plus the reclassification of rents receivable and other assets related to these properties totaling $17 million. Rents receivable includes approximately $153 million of accumulated straight line rent accruals as of March 31st. Other assets include approximately $86 million of capitalized leasing and financing costs.

On March 31 we had $465 million of floating rate debt, $453 million of mortgage debt, and $2.1 billion of fixed rate senior unsecured notes outstanding. The weighted average contractual interest rate on all of our debt was 6% at the end of the quarter and the weighted average maturity was 5.4 years. We have no debt maturing in 2009 and only $50 million of senior notes maturing in 2010. Senior unsecured notes are rated BAA2 by Moody's and triple B by Standard & Poor's. The book value of our unencumbered property pool totaled about $5.8 billion at the end of the quarter, our secured debt represents 7% of total assets, and floating rate debt represents 16% of total debt. At the end of the first quarter our ratio of debt to book capitalization was 50%. Our EBITDA and fixed charge coverage ratios were 2.7 times and 2.1 times respectively, as of the end of the first quarter comfortably within the requirements of our public debt and revolver covenant.

As of the end of the first quarter we had $297 million, outstanding on our revolving credit facility with $453 million of additional borrowing capacity at a current interest rate of around 1%. As of today we have $69 million outstanding on our revolver, $210 million of properties under contract to sell, and one property under contract to buy for $32 million. Assuming all of these transactions were to occur today, we would have zero outstanding on our revolver, over $100 million cash and no significant debt maturities until 2011. In summary this quarter produced results we expected in light of a difficult market environment. Our recent dividend cut has significantly improved our dividend payout ratio and financial flexibility. Our new $250 million secured credit facility closed in April effectively extending our weighted average debt maturity, and the repurchase of our outstanding common stock and corporate debt at attractive pricing and discounts should enhance HRP shareholder value. If we are success with the IPO of Government Properties Income Trust, it may provide HRP with additional financial flexibility in the uncertain times and display the unrecognized value in the HRP portfolio. We continue to believe HRP's strong tenant base, limited near term lease expirations, strong balance sheet and a current annual dividend yield of 10% made HRP a logical choice for long-term, income-oriented investors. That concludes our prepared remarks. Operator, we are now ready to take questions.

Thank you, sir. The question and answer session will be conducted electronically. (Operator Instructions) We will proceed in the order that you signal. (Operator Instructions) And we will take our first question from Mark Biffert from Oppenheimer.

Good morning. Adam, I was wondering if you could provide color on the Gov transaction, in terms of where that's at in the process and what you are hearing from investors related to that?

Sure. We've filed I think the -- we've filed two amendments to the original registration statement and we are currently in the process of closing out the first quarter numbers for the Gov and incorporating that into the registration statement. And once we complete that we anticipate going to market -- we hope we can go to market sometime in the next three to four weeks, within the next three to four weeks.

And in terms of pricing -- your pricing is that in line with what you had expected?

Because we haven't finished updating the registration statement we haven't had our final conversations with underwriters, so I'm not sure where pricing is going to be. And as we've talked about in prior calls it's obviously -- it's a price at which we probably went through this deal. Obviously went through this deal. It depends on where pricing is. The good news is the market improved significantly from when we filed the original registration statement, multiples are up. REITs have done fairly well, as everyone knows on this call a lot of offerings by REITs and investors seemed to embrace the sector more in the last month at least. So we are hopeful we will be able to get it out and we're hopeful to get a good price.

And related to similar assets to what you have in the portfolio what are you seeing in the market in terms of those trying to sell those types of assets in the market in terms of a cap rate?

Government property, government leased buildings?

Yes.

It varies depending on the age of the building and the term of the lease. I would say older billings with shorter lease terms, are probably in the nine maybe even 10, and newer buildings with long-term leases, I'm saying at least 10 years in its new billing, more like 15 years or longer, you're seeing things maybe in the [eights].

Okay. You expressed you are seeing weakness in the southern California market. What markets are you seeing the weakness in, and what are expectations for further decline in occupancy in that market?

Yes. San Diego is specifically where we are seeing a Iot of -- quite a bit of weakness. The weakness is not just San Diego, it's in LA, it's in Orange county. I think company wide -- speaking company wide I think we are shooting, we hope that we can maintain occupancy in about the level of where we are right now, 89.5%. I could see it slipping a little bit from there. But I think that's where we are shooting for the end of the year, 89% to 89.5% of the company. And most of -- we are counting heavily across the board on very high hit rates on renewals and not counting on very much new leasing activity because we are just not seeing it across the board. It's a very -- no question, it's a tenant's market. But at the same time tenants are taking a long time to make decisions. And everything is just slow, even our renewals. It's just taking a lot longer to get the deal done.

And I guess on related to that, how is your -- if you have a tenant watch list, is what I'm wondering, wondering how that's grown over the last quarter in terms of potentially how that could impact the overall occupancy rate?

Maybe I will let John answer that. Maybe a way to answer that is to talk about bad debt, John.

Okay. When I look at accounts receivable in the portfolio, we are holding up surprisingly well, an average of around $30 million to $35 million of what I call trade receivables. When you look at the balance sheet the number is much larger but the majority of the balance, $203 million on the balance sheet ,represent as accumulating straight line rent accruals around $153 million, $155 million.

What we are seeing is an increase, and this is no surprise, in the number of tenants falling behind on their rent, as well as tenants filing for bankruptcy. We have seen an increase in tenants filing for bankruptcy over the past six months, currently we are working with tenants that occupy maybe a million square feet of space within the portfolio. Some have rejected the leases, some haven't. So we are working through that. Everything is fully reserved in the financial statements, we are extremely conservative when it comes to reserving for [doubtful] accounts. The run rate that you see in the queue is a decent run rate given the issues on the table today within the portfolio.

Mark, the only thing I would add talking about the watch list , there is no significant tenant that I'm specifically worried about that the HRPT portfolio, and we also feel we also feel pretty good about large tenants that are renewing in the next nine to 12 months. We do feel pretty good about our opportunities to renew them. So there is not one tenant that I could say is a significant tenant that is particularly worrisome for us at this

Okay. And then lastly, if the Gov transaction doesn't work what are your thoughts on going to the equity markets at this level?

I'm not sure. We have a stock buy back program in place. It's hard for me to imagine we would initiate an equity raise at this level when we got a buy back program. You might say we would cancel the buy back program and initiate, but part of the issue is use of proceeds. And it's a very strange dynamic that's occurring in the REIT space, because companies that have near term debt maturities are being welcomed, they are able to raise large amounts of equity and capital and the market is rewarding them with the share increase, share price increases. We are in a position that we have -- if we did a big equity raise I'm not sure what we would use the money for, people might say repay debt. Well, we'd [hired] almost everything we can get our hands on in the market or reasonable price.

So I'm not sure -- is there a level which we probably think about equity raise at some price? I assume so, we have to feel we have pretty good use of proceeds. And right now we don't have a great use of proceeds. That's not to say tomorrow I might come to work and suddenly find a great use of proceeds, but where I sit today, there is no a tremendous need for the capital. We just have nothing, as John said, based on what we on the contract to sell and on the revolver, and we just don't have any needs for capital in the next two years, if anything, we're on track to generating a cash balance right now. I'm not sure again whether or not to raise equity, other forms of capital, we still have I think mortgage financing is still available for the company at very good rates. So we might approach -- if we needed to raise money, I think we could get a mortgage financing done as a very good rate, a good rate relative in this market.

Sure. Thank you.

Our next question comes from John Guinee from Stifel, Nicolaus. Please go ahead, sir.

Hi. John Guinee here, thank you. Kind of a really basic question. You mentioned you had positive rent rollups for 14 consecutive quarters. At the same time leverage has creeped up. At the same time the cost of debt has gone down, and the FFO in 2006 was $1.19, and the FFO in 2009, $1.08. How does that math work where you have 14 quarters of rent rollup, increased leverage, decreased cost of debt, but declining FFO?

It's probably a lot of things going there. But the biggest component is where more space is not renewing than what we are renewing. So for every 10 square feet we are only renewing eight. That's round math. That's probably the simplest way to explain what has been going on. What we are renewing and what we are signing is rollups.

But we are not -- that's why occupancy was slowly declining, we also were at 92%, 93% occupancy a couple of years ago, and there has been a slow decline -- there's been a gradual decline in occupancy. I think we made a point of saying that part of the reason we -- one of the reasons we decided to reduce the dividend was to free up financial flexibility to allow us in this market environment to spend more on leasing, because as as it gets competitive you want to be in a position where you can spend dollars to maintain occupancy, and I'm not necessarily saying buy occupancy, I'm just saying this market is incredibly competitive and I don't want to lose a deal because we can afford the TI. Today we haven't lost a deal because of TI dollars, that's not the reason we've lost a deal, but it's -- the general answer -- I'm sure there is more to it than that, but that's the simple way of answering it.

Alright. Second question, have you ever considered a use of proceeds to pay down -- to retire your series b, [8.75] preferred? That's pretty rich capital, about $170 million outstanding.

Yes. We've considered that as well. I don't rule it off the table. As you know, we bought back common, it's all a matter of returns and where you get the most return. And I wouldn't rule out buying back preferreds.

Any idea what your yield to maturity was on the senior notes that you bought back?

Yes. It was 14% on average for the $107 million of face value.

Okay. Last question, right now your debt's about 64%, your preferreds are about 15% of total capitalization and your common's about 21% of total capitalization, and your bonds have come in a little, they're at about 11% yield to maturity, what this would imply is you got to delever a lot more in order to be able to access the unsecured fixed rate debt market. How does that fit into your scheme of things?

Well, that's one way to read that math that you just did. But you got to remember our bonds have traded in quite significantly in the last two weeks even and three weeks, there's been a rally in the entire unsecured REIT bond space. And I don't think a bigger equity -- raising more equity is going to be the only way that our bonds trade in or the only reason that our bonds would trade in. I think there is a lot of factors go into that. One being the market and I -- look, I can't predict the future better than anybody else, but certainly feels like we are heading -- if the market continues in the same direction, I'm hopeful we will be able to issue unsecured bonds at a reasonable level at some point in the near future, I could be wrong, but certainly feels that way. Feels that we are heading in that direction.

I don't think [the gating] item to get the bond deal done at a reasonable rate is a bigger equity value, I don't think that's necessarily the way bond investor look at it either. I'm sure it's a factor but it's not necessarily the only factor, and I'll tell you I think one of the things that a lot of people focus on, and the bond investors will tell you, the ones I talked to, they love the fact we have no near term maturities. It's really just no debt maturities for the next two years. So I guess that's my answer.

Great, thank you.

Yes.

(Operator Instructions) And we will take our next question from David Shapiro from B.G.B Securities.

Hi, guys. Maybe start off here with the Gov entity, refresh my memory, the government entity is about 14% of rental revenues, and the part that you are spinning out would be about 8%, with 6% remaining. Is that about right on a revenue basis?

That's about right as far as gross dollars go, but just recall that HRP, the plan is that HRP would retain 49.9% interest, so that effectively brings HRP's residual interest in those properties or in all government properties back up to 10%.

Right. But just the parts that are going to be into the government entity is 8% out of the 14%?

Right.

Okay. And then would it be fair to say the NOI would roughly be split in similar percentages as sort of the revenue is split out of your government properties?

Yes, that's a fair estimate.

Okay. I guess my question is why -- you are getting this line of credit here for $250 million on the gov entity, seems like pretty reasonable terms, asset security for the lenders there through 2013. Why the rush to sell these government entities, this government entity at 9.5% or 10% cap rate, which is sort of where the deal is sort of priced, where you have the $25 pricetag with the number of shares issued? Why not sit on that revolver for a while until the market improves and get extra 100 basis points or so in cap rate?

That is something, that again, it depends on market environment, you're taking market timing risk in all this stuff. I think we made a decision that we like to do the gov IPO, and we think if we can get it done at the right price, that entity will be better positioned to buy government leased buildings than HRP might be able to simply because we think it have a, we hope a lower cost of capital than maybe HRP does, especially equity cost to capital. If the market's not there or if the price is not offered at an acceptable level, I think what you are suggesting in terms of waiting is something that we would seriously consider.

Okay. And then while we're on -- a little more about capital allocation, which John was talking about, why I guess would anyone in this -- or would you guys in this market, buy properties at this point even at 11%? Even quality properties at 11%, as attractive as that seems, when you still have the opportunity to pick up debt at 10%, 11%, which is sort of a risk-free return there, and/or the preferred stock on your balance sheet, anyone of the issues trading at steep discounts around 14%, 15% yields. I mean just seems -- I know it's sort of shrinking the size of the portfolio and the balance sheet, but it seems that would be accretive at a low level of risk. Is that sort of what the company plans to do if this gov transaction goes through and property sale from S&H closes in a few months, would the plan be to address the debt and preferred issue given the attractive yields that are still there?

There's a couple of parts to your question. Why buy properties at all? I still think, that initial cap rate of 11%, we still model things, think they are going to give us return over the life we model thing five year, 10 year hold. We are still modeling IRRs in mid-teens for some of these properties, because they are great assets, they're newly built, long-term lease, good credit tenant, good locations and markets which we think are going to grow. I think there are argument being made to still buy properties. That being said if you look at what we spent on buying properties versus what we bought back in bonds and common stock, and I think we are spending more money buying bonds and common stock than buying properties.

So we recognize the argument you are making, but also it's important to recognize that it might have had a different answer two weeks ago, but the bond market is changed a lot in just the last 10 days, 10, 15 days, maybe the last 24 hours since the [Simon] equity deal last night. And I'm not sure, you can type up any one of HRPT's bonds and you can see that it says 11% yield to maturity, well that might be 11% yield to maturity if you want to trade $1/2 million, but if you want to buy size, it's very difficult to buy chunks of the debt at discounts. And I'm weary that that's going to be allowed to keep doing that.

Let me put this way, as long as we can buy back debt especially on the shorter end of the maturities at significant discount, you can count on us continuing to do it, but I'm weary that we are going to be able to. Because I think the debt markets are -- the REITs are recovered or recovering, and it's also matter of liquidity just getting your hands on sizable chunks. I know people pull it up on Bloomberg and it says 11%, 12%, it's very different what they quote for $.5 million trade versus what someone's going to quote you for a $10 million or $15 million buy. But -- so I wanted to make that point. But we largely agree with you in what you are saying and we've been doing -- it's been proven in our actions.

Very good. I guess the preferred liquidity is a little thin, but there is decent liquidity on the D issue that's another interesting way, just to followup on John's comment as well. Just the last question here. You talk about maintaining sort of flattish occupancy from this level, that seems like an awfully tall task to accomplish in this market. I think most people would find that extremely difficult to do given that the economy is still weak and especially some of those western markets you mentioned are very weak. How do you come to that number I guess, that you can actually stay flat from here, given you lost almost a full percent in the first quarter? I'm just having a hard time piecing that together.

It was the a lot of lease [road] at the beginning of the year. Look, it's a tall order, it's not in the bag, I agree with you, but that is what we are shooting for, and we, based on our sort of internal budgeting and going through the building by building every quarter, we think we got a shot at it. We think we have a pretty good shut at it. But you're right, all bets are off as the economy continues to weaken through the end of the year, most economists and the fed assuming the economy starts to slowly recover in the second half of the year. And if that doesn't happen, I think you are right. I think you are absolutely right it's going to be hard to maintain flash occupancy.

Have you seen leveling off here or any signs that we are bottoming out? Has there been a pickup in inquiry activity from some of your brokers, or is there anything to point to that gives you confidence in your flattest mate besides your internal surveys?

Yes, we are showings are way up. We are showing more property now than we did in January and February, that's for sure. People are looking more. If that's the question, absolutely, that's happening. And people are feeling like they have a little bit more visibility about the future than they did in January and February. But deals are still taking time, they are slow, and tenants realize that they have -- it's their market. So yes, is it better than January and February? Yes. In March and April has gotten better than January and February. So it certainly feels that way. It's still -- it's not great it's just relative to where we were, it is better.

Okay. Very good, thanks, guys.

Thanks.

And our next question comes to us from Nick Pirsos from Macquarie.

Good afternoon. Thank you. First question is with regard to the acquisitions, you provided color. Could you speak as to maybe geography, building type and what are the sellers were distressed situations?

It was the buildings were located in Freemont, California, so it's Silicon Valley, they're primarily leased to Boston Scientific. They are on the lease for six years. And I don't know whether or not people think Boston Scientific is a distressed seller. I don't think they were a distressed seller. We did a lot of diligence on them as a company and also on what they are using these facilities for. They actually shutdown, they do a lot of R&D as well as assembly, some medical devices in these facilities. And they've actually consolidated operations from other areas -- other locations in the area and consolidated into this area. So we feel that they -- they also invested their own money into the areas where they do some of their own manufacturing of devices at the site. And so we feel pretty good they are committed to the site, that they're committed to the area. We feel good enough that we felt we could do a deal with Boston Scientific at 11.1% yield, that's the best way of saying it.

Okay. And were there four acquisitions in the period though?

No, there was four buildings all the same location.

Same location. Okay. Thank you. Also just property expenses in the quarter. Was there anything unusual there either through government IPO type related fees, or is that, from a run rate perspective, a typical run rate at this level?

We did have a bit of a spike in operating expenses, partially due to harsh winter conditions, particularly in the New England and mid-Atlantic regions, we also continue to see an increase in real estate taxes throughout the portfolio. And we are appealing pretty much all our real estate tax assessments, but it takes a year or two for property performance to bake into revised assessments.

Great, thank you.

And it appears that there are no further questions at this time. Mr. Portnoy, I would like to turn the conference back over to you for any additional or closing remarks.

Thank you all for joining us on this call, we hope to you see many of you at the NAREIT Investor Conference in New York City this June. Thank you.

And that does conclude today's presentation, thank you for your participation.