Equity Commonwealth (EQC) 2009 Q2 法說會逐字稿

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

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

Thank you, Lauren.

Joining me on today's call are Adam Portnoy, Manager Trustee, and John Popeo, Chief Financial Officer. The agenda for today's call includes the 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 lease and expectations as of today, August 11, 2009. The Company undertakes no obligation to revise or publicly release those 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 or SEC regarding this reporting period. In addition, this call may contain non-GAAP numbers including funds from operations, or FFO. A reconciliation of FFO to net income is available on our supplemental package found in the Investor Relations section of the Company's website. Actual results may differ materially from those projected in the forward-looking statements. Additional information concerning factors that could cause those differences is contained in our Form 10-Q, which is filed with the SEC, and in our Q2 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, and good morning. And thank you to everyone for joining us on today's call.

For the second quarter of 2009, we are reporting fully diluted FFO of $0.28 per share, which is the same FFO per share we reported during the same period last year. During the second quarter, we had 1.6 million square feet expire, and we also signed leases for 1.6 million square feet. 60% of the leasing activity were renewals and 40% were new leases. At the end of the quarter, our occupancy rate was 89.1%, which is 40 basis points lower than at the end of the first quarter. The primary reason occupancy declined during the quarter came from the transfer of 29 properties with 3.3 million square feet, there were over 99% occupied to our wholly owned subsidiary, Government Properties Income Trust, or GOV, in April of 2009, and the subsequent IPO of GOV in June, 2009.

Leasing activity during the second quarter resulted in a 2% roll-down in rents and about $13 per square foot capital commitments. The average lease term was 7.7 years and the average capital commitment per lease year was $1.72. We are generally pleased with our a ability to sign renewals with many of our tenants at reasonable terms and we are also encouraged by the amount of new leasing activity during the quarter, which exceeded our expectations. Nevertheless, within all of the markets where we operate, net effective rents are trending downward. This is the result of the slowing economy, which is leading to a reluctance of companies to commit to expansion space or lease new space. This trend is evidenced by the reported decline in office net absorption and occupancy rates across the country during the last few quarters.

At the same time, development activities expected to continue in some markets through the end of 2009. As a result of these market dynamics, same-store Company occupancy is down 150 basis points to 89%, as of June 30. Same-store NOI for the second quarter was basically flat. Our Philadelphia portfolio experienced a 7.9% increase in same-store NOI. Primarily reflecting the income received from the leasing space previously occupied by Comcast, starting in June, 2008. The Philadelphia leasing market continues to show some signs of weakness, with slight decreases in rental rates. The downtown office market where we own a large percentage of assets remains relatively stable, and we continue to believe that we are well positioned in this market. In Oahu, the market for industrial property is still strong. However the economic downturn is starting to affect rental rates in this market. Nevertheless, market rental rates are still significantly higher than in-place rents on our portfolio. During the quarter, Oahu same-store NOI increased by 5.5%, reflecting increases in rental rates.

Southern California continues to experience weakening fundamentals, with negative net absorption, and about 1 million square feet of new construction completed in the second quarter. The second quarter same-store NOI decreased by 1.9%. In Washington DC, our same-store NOI decreased by 3.3%, primarily reflecting the 2.3% decline in same-store occupancy. Although this market is 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.

Boston same-store NOI increased 11.3% during the quarter, primarily reflecting nonrecurring tenant refunds in the prior year. Unfortunately, we think these numbers do not accurately reflect our outlook for the Boston portfolio, because it is the only major market where we expect significant lease roll-downs or increased vacancy by the year-end 2009. In our other markets located throughout throughout the country our same-store NOI during the quarter decreased by 4.5%, selecting a decrease in lease termination revenues and a 2.3% decline in same-store occupancy. We have 2.5 million square feet scheduled to expire during the remainder of 2009, which represents approximately 4% of our total square feet and 5% of our annualized rents. The majority of the leases scheduled to expire through the end of 2009 have in-place rents that are currently below market rents. However, it may be difficult to realize any of these possible rent roll-ups in the near term, because leasing fundamentals continue to weaken.

Also, in light of these market conditions, we expect capital expenditures will likely continue to increase in the future in order to maintain occupancy rates. During the second quarter, we purchased two properties with 1.3 million square feet for about $168 million. We purchased these high quality assets at going in cap rates of around 10% and these properties are 97% occupied, with an average lease term of almost six years. The larger of these two acquisitions is the 670,000 square foot class A office tower located in the heart of downtown Denver, Colorado. This building is one of the newest buildings in Denver. And it is leased to some excellent credit tenants. We purchased this property for 9.8% capital rate, and about $200 per square foot, which is well below replacement cost. As of today, we have an executed agreement to buy one office building with approximately 521,000 square feet for a purchase price of $145.5 million. Of course, this 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 $2.8 billion of debts outstanding, which represents a conservative 47% of total assets. And we have no significant debt maturities until 2011. Our unsecured debt obligations have been investment grade rated for 15 years and we continue to be comfortably in compliance with all debt covenants. As of June 30, we had $201 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. It matures in August, 2010, and we currently pay interest at LIBOR plus 55 basis points. In our option, we have the right to extend this revolver one additional year, through August 2011.

In April, our wholly owned subsidiary GOV closed on a $250 million secured credit facility with a group of banks. Net proceeds from this credit facility will be used to repay amounts outstanding on our existing unsecured revolving credit facility. The GOV credit facility was transferred to GOV when it completed its IPO on June 8. In connection with the IPO, we also 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 and Washington DC. At June 30, 2009, we owned 9.95 million, or 46.4% of the common shares of GOV, with a carrying value of $153 million, in a market value based on quoted market prices of over $200 million.

As we discussed in the past, we agreed to sell 47 of our medical office clinic and biotech laboratory buildings with 2.2 million square feet, for $562 million, to Senior Housing Properties Trust. As of June 30, we have closed on the sale of 40 of these buildings for approximately $417 million, and recognized gains of about $166 million. After the second quarter ended, we sold three additional buildings in San Diego, with 164,000 square feet, for $116 million, in gains of approximately $40 million. The closings of the remaining four buildings are scheduled to occur in 2010, and we expect these closings may be accelerated to the third quarter of 2009. 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 early 2010 based on closing conditions.

During the second quarter we repurchased and retired $78 million of our debt securities. Since the end of quarter, we have not repurchased any additional debt. In total, since the beginning of the year, we have repurchased $117 million of our debt securities for $95 million of cash, and an average return of 14%. In January of 2009, our board announced a stock buyback program for up to $100 million of our common stock during 2009. Through June 30, we purchased just over 4 million common shares at an average price of $3.57 a share. We have not purchased any additional shares since June 30. Although this repurchase authority has not been rescinded, in view of recent increases in the trading prices of common shares of REITs, including HRP and the continuation of challenging conditions in the debt markets, it now appears that we may not spend the full authorized amount before the end of 2009 unless capital market conditions change.

Even though HRP has always maintained an excellent balance sheet with ample liquidity, during the quarter we continue to take additional steps to further increase our liquidity and build long-term value for our stake holders. During the second quarter, we continued to successfully recycle capital from the sale of properties, into higher yielding assets by selling two properties at a 6.7% cap rate, and purchasing two properties at a 9.8% cap rate. Since the beginning of 2009, we have lowered our dividend to a sustainable level, commenced the common stock buyback program, and we repurchased over $100 million of debt at significant discounts. We also increased our liquidity from the IPO of our wholly-owned subsidiary GOV by paying down outstanding debt with $250 million in loan proceeds and we currently own almost 10 million tradable common shares of GOV at a current market value of over $200 million.

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 Chief Financial Officer.

Thank you, Adam.

Looking first to the income statement; rental income increased by 4.1%, and total expenses increased by 6.2% during the second quarter of 2009. The year-over-year quarterly increase in rental income and operating expenses reflects properties acquired between April, 2008, and June, 2009. Our consolidated NOI margins were 59% for the second quarter of 2009 and 2008. Current quarter EBITDA decreased by less than 1% compared to last year. Interest expense decreased by 0.3%, reflecting the repurchase and retirement of $117 million of our senior notes and the decline in average floating interest rates from 3.2% during the second quarter of 2008, to 1% during the second quarter of 2009. Since its IPO on June 8, our investment in GOV has been accounted for using the equity method of accounting. Under the equity method, we record our percentage share of net earnings and FFO of GOV in our financial statements. Our percentage share of GOV net income and FFO for the second quarter totaled $970,000, and $1.3 million respectively. We expect to receive close to $16 million of cash dividends annually from GOV.

Net income available for common shareholders for the second quarter of 2009 was $46.9 million, compared to $55.4 million for the second quarter of 2008. The decrease reflects $40 million of gains on property sales during the prior year versus $35.5 million of gains on property sales and early extinguishment of debt during the second quarter of 2009. Diluted FFO available for common shareholders was $0.28 per share for the second quarter of 2009, and the second quarter of 2008. Year-over-year results primarily reflect earnings from properties acquired since April, 2008, partially offset by earnings from properties sold. In July, 2009, we declared a dividend of $0.12 per share, which represents 42% of our second quarter FFO. During the quarter, we spent $6 million on tenant improvements and leasing costs, and $6 million, or $0.08 per square foot for recurring building improvements, including lobby and facade renovations, elevator upgrades and other capital projects throughout the portfolio. We paid $3 million on development and re-development activities during the second quarter.

Turning to the balance sheet, on June 30, we held $38 million of unrestricted cash. The $105 million of assets held for sale include the net book value of assets under contract, totaling $92 million, plus the reclassification of rents receivable and other assets related to these properties, totaling $13 million. Rents receivable includes approximately $151 million of accumulated straight line rent accruals as of June 30. Other assets includes approximately $85 million of capitalized leasing and financing costs. On June 30, we had $369 million of floating rate debt, $451 million of mortgage debt, and $2 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 5.3 years. We have no debt maturing in 2009, and only $50 million of senior notes maturing in 2010. 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 about $5.5 billion at the end of the quarter.

Our secured debt represents 8% of total assets and floating rate debt represents 13% of total debt. At the end of the second quarter, our ratio of debt-to-book capitalization was 49%. Our EBITDA and fixed charge coverage ratios were 2.7 times and 2.1 times respectively. As of the end of the second quarter, we were comfortably within the requirements of our public debt and revolver covenants. As of the end of the second quarter, we had $201 million outstanding on our revolving credit facility, with $549 million of additional borrowing capacity at a current interest rate of around 1%. As of today, we have $176 million outstanding on our revolver, and $44 million of properties under contract to sell. We also plan to use cash on hand to fund the acquisition of a $146 million property that we currently have under contract.

In summary, this quarter produced results slightly better than expected in light of the challenging market environment. Our dividend cut in January has significantly improved our dividend payout ratio, and financial flexibility. We reduced debt with $250 million of GOV loan proceeds. And we currently own 9.95 million tradable GOV shares with a current market value of over $200 million. In addition, the repurchase of our outstanding common stock and corporate debt at attractive pricing and discounts should enhance HRP shareholder value. We continue to believe HRP's strong tenant base, limited near-term lease expirations, strong balance sheet, and a current annual dividend yield of 8% make history 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.

(Operator Instructions). We will pause for a moment to assemble our roster.

Our first question comes from Jamie Feldman with BanK of America-Merrill Lynch. Please go ahead.

Thank you very much. Can you provide the same-store numbers, year-over-year numbers for your different portfolios on a cash basis?

We currently don't disclose that information. Generally, - - it's slightly, rule of thumb, it's not a big difference between the GAAP number and the cash basis. It is just, trying to give you a sense, it is probably, a rule of thumb, 5% difference between a GAAP basis and a cash basis.

Better or worse?

It would be - - well, for this, it depends. Cash basis, if you think about it, you're taking out termination fees and everything, it depends how you define cash basis. But it might - - it could be considered better this quarter.

Okay. But we can still look at the GAAP number as kind of a benchmark of how your portfolio is really doing?

Yes. It is very close to the GAAP number. It is very close.

Okay. And then I guess just big picture, if you look at the numbers, certainly CBD offers (inaudible) the best suburban office and then industrial. Can you just talk about your views about maybe when those relative sectors might bottom and how you feel about each at this point?

Sure. Well, generally speaking, for the quarter, I've got to be honest, we were pleasantly surprised at our leasing activity for the quarter. In fact we were pleasantly surprised with the amount of new leases and activity, new leasing activity we were able to accomplish. It did come at a little bit of a price. Rents did roll down by 2%. But the average lease term was very respectable at 7.7 years. What has been interesting for us has been watching what is going on in a lot of our suburban properties.

A lot of investors have come to the conclusion that suburban properties are generally going to not do as well in a downturn, as maybe CBD properties. But what is interesting is that Weeks, and HRP's included in that, generally have a tremendous amount of more liquidity than the private sector, or private investor, private landlords do. The downturn that is happening now in the market is very different than the downturn that happened in 2001, 2002, 2003. In those years, landlords still had access to capital. They could still get, they could still buy tenants out of leases. They could still spend money on TI. What is interesting, and it's a benefit for us, and I think a benefit for a the lot of office REITs that focus on suburban properties, is that we're one of the few groups of owners in the market that has capital. We can spend money on TI. We can compete effectively.

Most private investors and landlords are finding it very difficult to compete with the liquidity that companies like HRP and frankly other office REITs have in the market. So it has been very interesting to see that dynamic. And in fact, I think office REITs are generally, maybe suburban office REITs are generally going to perform better than maybe people expected simply because when you compare them to - - when they compete against all of the private investors out there, and landlords, they just have a lot more liquidity. They can do a better job of retaining tenants and offering tenants deals to move into their space than the private sector can. In terms of when we think things are going to bottom out, - - as you know, offices are obviously a lagging indicator.

If you believe that - - if you believe what politicians say and some what you're hearing coming out of some of the research from Wall Street is that things might have been bottoming out somewhere in the second quarter of 2009, for the economy in general, or we've hit a bottom. If that's the case, I would expect the rule of thumb is usually somewhere between six months to a year later, to sort of bottom out in office. So if that is truly what is happening in the economy, and we sometimes, we are a little skeptical whether or not we really are bottoming out. But if we are bottoming out in the second quarter, and I would expect sometime in the first, second quarter of 2010, things to start bottoming out and maybe starting to see a real improvement in the second half of 2010 in the office sector. I don't see improvements in the office sector anytime in 2009, that's for sure.

And then what about on the industrial side?

Well obviously, industrial - - will be faster than that. You might start - - if we really are - - if the economy is - - if it has bottomed out in the second quarter of 2009, then I would expect in the fourth quarter, we would start seeing some improvement in occupancy, and in the general, in the industrial market. But again, it is all predicated on the fact, where is the general economy, and if it has bottomed out in the second quarter, that would be my expectation, what would happen.

Okay. All right. Thank you.

Our next question comes from Aaron [Atlickson] with Stifel, Nicolaus & Company. Please go ahead.

Good morning. How you are you.

Good morning, Aaron. How are you?

Good. Thank you for taking my question. For this quarter would you actually say that your cash basis for the leases signed was positive as opposed to negative for debt?

I think again, use the GAAP number. It was negative 2%. I think in my opinion, it is slightly different than that, but the rule of thumb, it is usually very close to the GAAP number.

In terms of the leasing that you guys did, it looked like it was more expensive than usual over the past like five or six quarters but it also had longer term. Was it driven by any large or unusual leases?

Nothing that stands out as a particularly large lease. Some of that, some of the renewals, you will notice the renewal CapEx dollars have gone up a little bit, but they were tied to a lot longer term loses on the renewal side. I think generally, what we're facing in this market, like all office landlords, is you're trying to weed through - - a lot of our existing tenants are approaching us - - a year or two year, three years in advance of an expiration and they're trying to negotiate roll-downs. And we're not in the business of giving concessions just to give concessions at HRPT, but if we have to lease - - if it does make sense to lower rent, we often ask for in return a much longer lease term, and we try to get that concession back over a longer lease term. So maybe that's a little bit of what you're seeing in terms of what we've been doing with some of our renewals, I think.

Okay. That makes sense. It looks like your OpEx was low for this quarter. Was that just due to the unseasonably cool spring? And do you expect that to go forward or is there something else?

Well, operating expense, the change is attributable to a few things. One is as you mentioned, cost savings initiatives that our managers in the field have put in place. Aside from that though, your change in operating expense reflects increases related to around $570 million of acquisitions since April of 2008, and also reduced by the impact of the GOV IPO which was effective on June 8, 2009. So yes, you are correct. It is some reductions in operating expenses.

On a normalized basis going forward, what do you think that number would look like?

I think what you see in the same-store portfolio, if you factor in GOV, you're probably looking at maybe $3 million left.

Per quarter?

Yes, but then you also have to - - I mean it is sort of a moving target, because you also have to build in NOI. I'm sorry, operating expense increases from property suppliers in the quarter.

Yes. And then what was the comment you mentioned on the MOB sale? You have four more that you might do in 2010, but they may also happen in 3Q 2009? Why is that? What is the difference there?

Well, it's a mutual agreement between us and the buyer, we can agree to accelerate it, and because we have been able to line up some acquisitions, we have the ability to line up 1031 exchanges and defer the taxes. And our - - the buyer, Senior Housing, is in a position now where they have some excess liquidity, so they're sitting on some cash. So it is mutually beneficial, I think, that both parties would likely desire to close the transaction early. So I think it is not unreasonable to be expected. It may happen.

I'm sorry, you broke up there. It may happen in 3Q?

No, it is not unreasonable to assume that they might happen in the third quarter. Again, because we have like-kind exchange properties lined up to help us defer the tax, or the gain, the taxable gain, and the buyer is sitting on excess liquidity.

Okay. Well, thank you very much, guys.

(Operator Instructions).

And our next question comes from Dave Rodgers with RBC Capital Markets. Please go ahead, sir.

Yes, thank you, guys. Adam, you talked about what is really under contract in terms of acquisitions. But can you give us a little better flare if you can for what you're seeing a little bit longer term in the acquisition market. Any type of stabilization in cap rate, the types of properties you're continuing to see. Is that changing at all or has it changed over the past 60 or 90 days?

Well, it certainly has changed in the last quarter. I mean building the Denver acquisition I think is a pretty good example of a property that we were able to buy at 9.8% cap rate. The seller there - - has reported - - it has been reported - - in a couple of newspaper publications about how - - it was actually mentioned in "The Wall Street Journal" about a month ago about how this building, we bought it at less than what the seller bought this building for 2.5 years ago. And it had it under contract to sell to somebody else at a much higher price, and basically you had essentially a distressed seller that needed to raise liquidity, and we were able to buy a building that was significantly below replacement cost. And at a great cap rate in a great market.

So we are seeing some pretty interesting opportunities present themselves. We debate around here, and we hear a lot of people debate in the industry, do you do - - do you wait longer because the distressed properties are going to present themselves in the future, don't do it now? But we're finding that we are one of the very few buyers willing to look at acquisitions in this market. And there is not a lot of sellers. But those that are selling generally have a reason they need to raise liquidity. And so we're able to find some pretty good deals. And we think these are great deals today. Or they're good enough deals today to justify the acquisition.

So I think we've been very focused on - - in some ways, this is fantastic time to be buying, because we're buying some - - these assets would go for 200, 300 basis points lower cap rates than what I guess maybe under normalized times or different times, than what we're able to buy them for. So it feels like - - it feels pretty good to be in our seat. Able to look at doing some acquisitions. We're being pretty measured in what we're buying, and pretty selective in what we're buying, but I think again, we're one of the only guys out there doing any of it. So it is - - I think it is to our advantage.

Have you then, or could you I guess address the Hawaiian law with regard to the industrial land out there? I don't know how much you can say or give some clarity, there has obviously been a lot of discussion in the newspapers, et cetera. But can you give us an update on that?

I'm sorry, the question, what is going - - oh, the Hawaiian law in Oahu.

Right.

Well, I guess for everyone's benefit who is listening, the Hawaii state legislature passed a bill which the governor then allowed to become law which basically is a very narrowly targeted bill, specifically the only people who could - - the only group who could be affected by this bill is HRPT, and the bill effectively tries to limit HRPT's ability to raise rents on our properties out there. Obviously, we don't agree with the law. Obviously, we fought it pretty strongly but nonetheless we were unsuccessful in fighting it. And currently, we're contemplating what our next options are, including whether or not we have a legal option available to us. And really, we're evaluating that now, in trying to make a determination of what is the best next step. To be honest, we think the law - - I think the law personally is wrong. I think the law is unconstitutional. And I think it was - - it has been misapplied to us. And we're considering what our best next step is.

In the meantime, while we're considering that, we're continuing to try to renegotiate leases with tenants out there. We're trying to proceed as if business is normal. But it has obviously created a great amount of burden on the Company because again, the law is a little bit - - the tenants are interpreting the law as they wish. And they're using it as sort of a hammer to argue back to us how we should be resetting the rents for our properties there. So it is a very difficult situation. We're trying to move forward. We're trying to sign leases. But at the same time, we have tenants that are using this law to try to inhibit our ability to raise rents. And we think it is unfair. And we're trying to think of our best next step, given the fact that it has become a law.

Does the law, I guess, inhibit your ability to vacate the premises as those leases expire?

Yes, I mean essentially, in a nutshell, it is the way it is worded is a little confusing at times. But in a nutshell, what they're trying to do is they're saying if we disagree on the rental rate, when a rental reset happens, then you go to an appraiser process. And the appraiser typically - - there's standards that appraisers for decades have been using to apply to how value property. And you typically look at what is the highest and best use for that property. And the law, what they're trying to do is say essentially, is it doesn't matter what the highest and best use of that property should be in setting the rents, it should be what is that property being used for.

So in simple terms, to draw an analogy for you, if you have a skyscraper, a class A skyscraper and next to it you have a junkyard, if you get - - if you have that junkyard appraised, obviously someone is going to - - the appraiser is going to look and say well, this is in the middle of a CBD area and skyscrapers all around it and the land could obviously be used, the highest and best use is to build a skyscraper and based on those comparables the value is X. The law says no, you can't - - you're not supposed to - you're not only supposed to do that but you're also supposed to take into account that it is actually a junkyard. So if it is a junkyard, what would you pay for rent for a junkyard regardless of its location or where it is - - where it is located and the other uses around the building. So that is essentially what the law tries to do. And the law unfortunately, some of our tenants, we are unable to come an agreement on the rents that we would like to reset those leases at, and so they go to arbitration. And so in the course - - in the process of arbitration, we have a situation where it is unclear what - - how we're supposed to set the rent, and it becomes a debt - - it becomes much more difficult for HRPT to realize the market value of our properties. That's what essentially happens. It becomes much more difficult for HRPT to realize the market rents for our properties.

Thanks for the color on that. And then one final question for me. John, with the opening up of the unsecured market, are you considering looking at that at this point in time to pre-fund 2010, and start looking ahead? Or do you think you're a little too far out for that?

This is Adam. I will try to handle that question.

I think that, yes, the unsecured market certainly opened up a lot in the last seven days, it seems. We don't have, if you walk through the math that John walked through, in terms of what is on the revolver, what we might sell in the third quarter, and then the fact that we have an acquisition lined up, but are likely going to use cash on hand to buy that building. You really end up with a net revolver out of only 125 million, 130 million, so it is not a lot out on the revolver. That being said, we're obviously monitoring the debt capital markets closely. And we're also monitoring the mortgage finance - - the mortgage market very closely.

There are still - - institutions that are willing to consider I think better pricing than the unsecured market on some of our single assets, which might provide us with some additional liquidity too. In terms of refinancing, specifically debts outstanding 2010, 2011, 2012, 2013, we bought back a lot of the debt low-hanging fruit. Unfortunately, just as you point out the debt markets have improved, it is difficult for us to buy in that debt any sort of discount or reasonable price now, so the only thing would be open to us would be the - - to redo it. We could maybe buy it in at par. But that is really all that is available to us. So that doesn't make a lot of sense in our mind today given our capital structure and line of liquidity.

All right, thanks, Adam.

And our next question comes from Ian Hunter with Oppenheimer & Company. Please go ahead.

I'm here with Mark Biffert as well. Just a couple of questions about the acquisitions. Can you give us an idea of the cap rate on the DC property that you purchased?

The DC property? We haven't purchased a property in DC.

I thought there was a DC metro property after the quarter?

No, the property - - no, we have a property under agreement - - we have no property under DC.

Okay. All right. The Ohio industrial acquisition, can you give us any color on the tenant, and what kind of credit they are?

I'm sorry, can you repeat that, please?

Can you give us some color on the tenant in that property and what kind of credit they are?

Sure. We have - - this is the Denver property - -

No, this is the Avon.

Yes. Avon, Ohio.

Avon, Ohio. Sure. Let's see.

Avon, give me one second, please. It is a company that has been in business for many years. It is one of the largest distributors of duct tape in the world. It's got a solid business model. As far as we can tell, this company's prospects for profitability continue to be very strong. I don't think this company has an investment grade rating, but we - -

It is a privately owned company. It is a privately owned business. And with the lease term we have with them is like 15 years, I think. 15 years. It is a very good cap rate. I think it is below replacement cost. We're not - - we look pretty closely at the tenant financials before we closed on this acquisition. And we feel comfortable that they're going to continue to - - we're not too worried about their ability to continue to pay the rent and be current.

Okay. And just one other question. Do you have any anticipation of trying to sell or otherwise monetize the holdings you have in GOB after the whole period expires?

You mean the whole period, meaning the stock - -

Right.

There is no anticipated - - there is no plan on the short-term to sell any of those shares. As I look out today, I mean today is in August, the lock-up ends in December - - and from where I sit today, I don't think we're going to plan on selling those shares after the lock-up expires any time soon and that's largely driven by the fact that we're in very good liquid position right now. So will is no real need to do it. And also, I think a good proxy,to see how we are likely to sell those shares is back three or four years ago, we used to own shares in some of our other affiliated REIT's. We used to own shares in a company called Senior Housing Properties Trust and we used to own shares in a company called Hospitality Properties Trust. We owned shares in those companies for seven or eight years, each one of those companies.

And the way we sold out our interest was typically whenever those companies did an equity offering, we would then sell shares as part of a second - - we would tack on to that or add on to that equity offering and let's say still are raising 4 million or 5 million shares, primarily we would sell maybe 1 million or 2 million shares secondary. That's typically how we slowly I divested of our ownership. I think that is not an unfair parallel to what we would be likely to do with these shares, unless of course there is a greet need for liquidity. But I don't see us having a great need for liquidity for those shares. Of course, it is a great thing to have in the back of our pocket, that if we ever did get sort of - - put in some sort of pinch that we did need to raise a significant amount of capital relatively quickly, we could sell those shares. But we typically don't run the Company in a manner that hopefully we ever get into that situation. So I think for planning purposes, and for your modeling purposes, I would assume very little, if any, gets sold in 2010, and that - - over time, we will divest slowly.

Okay. All right. Thanks a lot.

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

Thank you all for joining us on our second quarter conference call and we look forward to updating you on our progress in the future. Thank you.

This concludes today's conference. Thank you for your participation.