Equity Commonwealth (EQC) 2010 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the CommonWealth REIT fourth quarter 2010 financial results conference call. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Mr. Tim Bonang. Please go ahead.

Thank you, good afternoon. Joining me on today's call are Adam Portnoy, the President and Managing Trustee, and John Popeo, the Chief Financial Officer. The agenda for today's call includes a presentation by management, followed by a question-and-answer session. I would also note that the recording and retransmission of today's conference call are strictly prohibited without prior written consent of CommonWealth.

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 meanings of the Private Securities Litigation Reform Act of 1995 and federal securities laws. These forward-looking statements are based on CommonWealth's present beliefs and expectations as of today, February 24, 2011. The company undertakes no obligation to revise, or publicly release the results of any revisions in 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, and cash available for distribution, or CAD. A reconciliation of FFO and CAD and net income is available in our supplemental operating financial package found in the Investor Relations section on 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 our form 10-K, which we expect to file shortly with the SEC, and in our Q4 supplemental operating and financial data found on our website www.cwhreit.com. Investors are cautioned not to place undue reliance upon any forward-looking statements.

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

Thank you, Tim. Good afternoon, thank you for joining us on today's call.

Before I focus on the results for the fourth quarter, I want to let everyone know that this morning we posted on the front page of our website a short PowerPoint presentation, which highlights how we have repositioned and upgraded our portfolio properties during the last three years. The point of the presentation is to illustrate that today, CommonWealth REIT is a very different and much improved Company than it was three years ago. Since January 1, 2008, we have acquired $2.2 billion worth of properties with 14.3 million square feet. About half of these acquisitions were Class A, CBD office buildings which we acquired from distressed sellers at high cap rates. As many of you may be aware, CommonWealth was one of the few REIT's which took advantage of the recent economic downturn to acquire high quality properties at record low prices. We paid for the majority of these acquisitions by selling $1.3 billion of property and recognized gains of approximately $423 million. The major of these sales consisted of suburban office buildings. As a result, today approximately 30 % of our portfolio consists of properties which we have been acquired during the last three years. And the amount of our NOI, which is generated from CBD office buildings, has grown significantly to 46 % of total office property NOI as of the fourth quarter 2010. As of year end, we own 481 properties, which principally consisted of the office properties located throughout the US.

Turning now to our results of operations. For the fourth quarter of 2010, we are reporting fully diluted FFO of $0.88 for share compared to $1.09 per share during the same period last year. The decline in FFO per share primarily reflects $431 million of common equity raised in 2010, which was used to repay debt. As of December 31, 2010, our occupancy rate was 87.7 percent, which is 130 basis points higher than the 86.4 % we reported at the end of the third quarter. Our occupancy rate at year-end 2010 excludes properties classified in discontinued operations. During the quarter, we signed leases for 2.2 million square feet, 70 % of our fourth quarter leasing activity were renewals, and 30 % were new leases. Leasing activity this quarter resulted in a 5 % roll-down in rents and about $9.73 per square foot in capital commitments. The average lease term was 6.9 years, and the average capital commitment for lease year was $1.41. Generally speaking, the leasing market conditions for our portfolio have stabilized across the country, but conditions are only improving in a few markets. However, there is very little development activity in all of our markets and this means there is limited competition for leasing space as the economy improves. This dynamic should benefit incumbent, well-capitalized landlords, such as ourselves. As a result of the current market conditions, year-over-year same-store consolidated NOI's for the fourth quarter declined by 2.7 percent.

As many of you may know, we operate in over 60 markets and 31 states, Washington DC, and Australia. Because of the size and the diversity of our portfolio, our leasing results tend to track closely to market. However, our portfolio seems to be outperforming the market in a few major markets such as Philadelphia, Washington DC, and Denver. Additional properties located in Oahu, Hawaii, consistently generate significant increases in same-store NOI from rent roll-ups from lease resets and renewals.

As of December 31, 2010, we have 5.8 million square feet scheduled to expire during 2011. On average, the leases are scheduled to expire through year end, have in-place rents that are around 3 % to 5 % above market. As a result, we expect that same-store NOI may decline further until the economy begins to show sustainable growth and employers start hiring again. Since October 1, 2010, we have acquired 30 properties and entered agreements to acquire six properties for aggregated purchase prices of almost $900 million. [We'll be] going in cap rate for the acquisitions range from 8.6 % to 11.4 percent. We have also sold 29 properties for $473 million, and recognized gains of $168 million. As of today, we have a portfolio of four properties located in Stafford, Virginia, with about 149,000 square feet under agreement to purchase for $25.7 million. This portfolio's 100 % leased to 10 tenants for a weighed average lease term of 1.7 years. We expect to acquire this portfolio during the first quarter of 2011. We also have two mixed use office properties located in Phoenix, Arizona, about 1.1 million square feet under agreement to purchase for $136.5 million. These properties are 92 % leased to 44 tenants for a weight average lease term of 9.8 years. We expect to acquire these properties during the first or second quarter of 2011.

During the fourth quarter, we also listed for sale with third-party brokers, 27 under-performing non-core office industrial properties, with 3 million square feet located in 11 states. All of these properties are older suburban properties located in tertiary markets with high vacancy rates. We completed the sale of one of these properties in February for $2.3 million, and we hope to complete the sales of the remaining 26 properties by the end of 2011. All these spending acquisitions and sales are subject to customary closing conditions, and no assurance can be given that they will occur.

In summary, during the last three years, CommonWealth REIT has taken advantage of the recent economic downturn to reposition and improve its portfolio. Also CommonWealth is currently well-positioned to increase same-store cash flow as the economy improves because we have the financial resources to increase occupancy. With a current dividend rate that is well-covered by existing funds from operations and cash available for distribution.

Before turning the call over to John Popeo, I just want to mention that we'll be hosting an Investor Day on Monday, March 28, 2011 featuring our downtown Philadelphia assets. For those of you who may not know, CommonWealth REIT is the largest direct owner of downtown office properties in Philadelphia, and we will be viewing several of our Class A office towers during the tour, as well as hosting a small reception with management. We hope that you will be able to make it, and we'll be disclosing more information about this event the next few days.

Now I will turn the call over to John Popeo, our CFO.

Thank you, Adam.

Looking first to the income statements. Rental income and operating expenses increased by 5 percent. Year-over-year, quarterly change in rental income and operating expenses reflect increases in NOI from properties acquired since September 2009 offset by the $2.8 million decline in same-store NOI, and 15 properties sold to gov between June 2010 and September 2010. The 11 % increase in general and administrative expense reflects property acquisition and sale activities, and additional legal fees and expenses related to tenant litigation. Current quarter EBITDA increased by less than 1 percent. Interest expense increased by 10 % reflecting the issuance of $125 million of 7.5 % unsecured senior notes and $175 million of mortgage loans with a current interest rate of 5.66 % during the fourth quarter of 2009, and the issuance of $250 million of 5.875 % unsecured senior notes in September of 2010, and a five-year term loan for $400 million entered in December 2010 carrying interest at LIBOR plus 200 basis points. These financing activities were offset by the prepayment of $266.7 million of mortgage debt in August 2010 and the repayment of $50 million of senior notes in August 2010 and October of 2010.

We recognized $133.2 million of gains from the sale of 21 properties to S&H and one additional property during the quarter. We recognized $25 million of accelerated depreciation expense at 8 properties in Atlanta, Georgia, that we expect to take out of service and raise during the first half of 2011, and $177.8 million of losses on impairment at five operating properties and 27 properties held for sale at the end of the quarter. We recognized a $20.4 million gain on the acquisition of Macarthur Cook Industrial Property Fund in October under purchase accounting rules, which was offset by $15.9 million of related acquisition costs.

Since its IPO in June 2009, our investment and 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 gov in our financial statements. Our percentage share of gov net income and FFO for the fourth quarter totaled $1.8 million and $4.7 million respectively. The decline in fourth quarter net income from gov reflects our proportionate share of the loss on gov's early extinguishment of debt. We received over $4 million in gov dividends during the fourth quarter of 2010. Net income available for common shareholders for the fourth quarter of 2010 was $6.7 million compared to a net loss of $22.9 million for the fourth quarter of 2009. Diluted FFO available for common shareholders was $0.88 per share for the fourth quarter of 2010, compared to $1.09 per share for the fourth quarter of 2009. Year-over-year results primarily reflect the issuance of 16.1 million new common shares in March 2010 and September 2010. In January 2011, we declared a dividend of $0.50 per share, which represents 57 % of our fourth quarter FFO. This dividend was paid on February 22, 2011.

During the quarter, we spent $25.9 million on tenant improvements and leasing costs and $10.4 million, or $0.16 per square foot, for recurring building improvements, including roof, mechanical, life safety, and roadway upgrades, and other capital projects growth throughout the portfolio. We paid $8.7 million on development and redevelopment activities during the quarter. We generated around $40 million of excess cash flow during 2010, resulting in a favorable full-year cash available for distribution, or CAD payout ratio, of 76 percent. Our high fourth quarter CAD payout ratio of 133 % reflects a spike in building improvement and leasing costs that we originally expected to pay evenly throughout 2010, and shouldn't be considered our quarterly run rate going forward. For example, we do not anticipate our CAD payout ratio to exceed 100 % on a rolling quarter basis for the foreseeable future.

Turning to the balance sheet on December 31, 2010 we held $194 million of unrestricted cash reflecting excess proceeds from finance transactions completed in December 2010. Rents receivable includes approximately $161 million of accumulated straight line rent accruals as of December 31, 2010. Other assets include approximately $118 million of capitalized leasing and financing costs. On December 31, 2010, we had $568 million of floating rate debt, $357 million of mortgage debt, and $2.3 billion of fixed rate senior unsecured notes outstanding. The weighted average contractual interest rate on all of our debt was around 6 % at the end of the quarter, and the weighted average maturity was over five years. Senior unsecured notes are rated BAA2 by Moody's and BBB by Standard and Poor's. The undepreciated book value of our unencumbered property pool totalled about $6.7 billion at the end of the quarter. The secured debt represents 5 % of total assets and floating rate debt represents 18 % of total debt. At the end of the fourth quarter, our ratio of debt to book capitalization was 51 percent. Our EBITDA and fixed charge coverage ratios were 2.6 times and 2.2 times respectively. As of the end of the quarter, we were comfortably within the requirements of our public debt and revolver covenants. As of December 31, 2010, and as of today, we had nothing outstanding on our credit facility.

In summary, this quarter produced results we expected in light of a challenging market environment. Our strong balance sheet, solid annual dividend payout ratio, and $750 million of availability on our revolving credit facility position us to opportunistically grow cash flow.

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

(Operator Instructions)Our first question comes from Mitch Germain of JMP Securities. Please go ahead.

Good afternoon, guys.

Hi, Mitch.

How would you guys characterize the activity on the 26, now, assets that you're marketing for sale?

With the activity meaning interest in it?

Yes, please.

I would say it's mixed. I'd say some of the assets are receiving a lot of interest, and some of the assets is receiving limited amounts of interest. In all, I expect that we will be able to sell all of the assets by year-end. But it's a mixed -- it's a mixed result. I would say -- look, every one of the properties is generating interest. There is, there are people interested in all of them and it's just a few of the properties are generating, 10 people, 20 people, 30 people have interest, have indicated interest in bidding on certain of the properties. And then, some of them, we're dealing with a hand, a handful of people, maybe less than on one hand you would count that are interested in the property. But there is definitely interest in all the properties.

And with regards to John Mannix and his moving toward Australia to kind of launch that platform for you, what is the initial feedback you're getting from him and how much does this region represent, in your view, the opportunity going forward, in terms of what your deployment expectations are?

Sure, the feedback -- he's only been down on the ground for a little over a month, but the feedback so far has been positive. I think there is a lot of interesting opportunities for us to evaluate down there. We stated that our goal is to hopefully grow the portfolio to $500 million to $1 billion over the next year or so.I'm not sure if we'll hit that benchmark in 2011, but I think we'll certainly evaluate a number of opportunities. I can tell you that, of the properties that we have bought, we are certainly seeing the -- what a difference it is to be dealing with tenants in a rapidly expanding economy, than let's say in the US. I mean, the highest rental roll-ups in mid-effective rents much higher than what we're seeing typically in, for example, a suburban office building in outside Sidney. We're able to achieve double-digit net effective returns versus, that is a very difficult net effective to achieve here in the US. So, we're hopeful that we'll be able to grow it, we expect we'll be able to grow it. Once we get to a certain size, we'll decide if it makes sense to keep it within CommonWealth, or whether or not it makes sense to just spin it out or to create a separate REIT for that. Largely depend on, some of it is going to depend on how investors view the investment. I can tell you that we have gotten a lot of mixed reaction. A lot of people think it's a great thing, and some people have scratched their heads over it as to why we're doing it. We're doing it because we think there is a great amount of opportunity based on the growth that we expect to occur in Asia over the next several years, and in Australia's a way to play that growth, without having all the risks of, let's say, investing directly in China. And on an operating basis, we're seeing some great results in just the limited amount of leasing activity we're doing down there in our 11 properties we have down there. It's been -- it's, it's very refreshing to be looking at those requests for lease renewals, or new leases, compared to some of the requests that we see here in the US, and that's largely a result of the economy down there.It's a growing economy and therefore, you're able to see improvements in the NOI.

(Operator Instructions)We go to the line of Dave Rodgers with RBC Capital Markets. Please go ahead.

Hey, good afternoon, guys. Adam, you talked about demolition down in Atlanta, or maybe John referred to it on the call. Can you give us the plan down there? I know you've talked about redevelopment in the past, perhaps some build-to-suit opportunities. Any, any more color you can provide on that, that you haven't already?

Well we're basically demo-ing the properties because ultimately, we have an eye towards doing a redevelopment down -- at one of our properties down in Atlanta. We're not sure -- we're currently not planning the redevelopment. That is not why we decide to demo the properties, meaning it's not something we foresee we are going to break ground on anytime in the foreseeable future. But it's something that we eventually do believe that we will do. Maybe it's a 2012, maybe it's a 2013 event. In the meantime, the properties we decided to raze down there are buildings that really have become obsolete. We have to invest a significant amount of capital in them, then be able to re-lease them and the leasing, frankly, the return just wouldn't be there. So, instead of carrying the costs for let's say two, three years, which is basically a negative carrying cost for the real -- for that property, we decide to, we decide to raze them, not carry the -- not carry the extra burden of costs with that, with the eye toward eventually redo -- redoing the development there. We're not -- it's not a -- I don't want you to think that because we're razing them we're about to break ground on something down there. That's not the case, but we do feel eventually that we will do something down there. It's just not something we have on the drawing board today.

And with the assets still for sale, as you look forward, I think you've done a good job with the repositioning the last couple of years, and I hope that continues. But as you look at those assets that you're looking to sell, give a little bit more color on any potential dilution that might occur, or is occupancy low enough here where it ends up being a wash or ultimately a positive trade going forward?

I think they're ultimately going to be mostly positive trends. I mean, you can think of some -- a lot of these sales, as sort of bottom-of-the-barrel properties, properties that have low vac-- low occupancy, or they have very short lease expirations and the outlook for re-leasing is very difficult. And so these are properties that ultimately, I think, would, either are or would have been a drag on the portfolio going forward. So, I think ultimately they will benefit the -- ultimately by selling the properties, the portfolio metrics should improve by doing that. At the same time, the reason we decided to sell properties now is because the market, we're in the market -- we have been in the market very much over the last few years so we have a pretty good feel for how many properties are coming in the market, how competitive it is, and I can tell you it's gotten a lot more competitive. And so we think it's actually a good time to be selling properties again. I wouldn't have said that maybe a year, or year and a half ago, that it was a good time, but I think today is not a bad time to be selling, so, that's why we think we can -- and as I said on the -- from the question before with Mitch, we are getting interest and we expect we'll be able to sell them all.

And will this be a recurring pattern with CommonWealth? Do we think that we can continue to recycle that bottom 5% or 10% annually and continue to trade up? Or is this a one-time sale?

I don't know if it's one time. This might be one time in the amount, maybe 27 properties. Going forward, I think we will -- at the portfolio who is -- the portfolio, parts of the portfolio we've owned for 20 years. And I think it's -- when you have a portfolio this size and that you've been managing for this long it makes sense to be thinking about, let's say, coloring the bottom portion of the portfolio. And so I think it's something that we'll continue to do going forward. I don't know if every year you will see the same amount of properties put up for sale as we've done this year, but I think it's reasonable to assume that we would put up properties up for sale going forward in years to come.

Great, thank you.

Yes.

Thank you. Our next question comes from Josh Addie with Citigroup. Please go ahead.

Good afternoon, it's Michael Bilerman here with Josh. Adam, so how much more, I guess as you think about the acquisition pipeline, how much is US versus ex-US?

Well, hi Mike, the, the -- right now, almost everything that we're looking at is the US. Now, that doesn't -- that we're having any sort of serious conversations about. As we talked about, there's only two buildings, two properties in the contract. They're all -- both in the US, and pricing in the US has actually gotten, as I mentioned before, more competitive. So, overall, I don't know how much of an acquirer we will be in 2011, as we were in 2010, or 2009 for that matter, and certainly, I don't think we're going to keep up the pace as what we've done over the last six months. I think that's -- I think we're definitely going to be slowing down from that pace. I foresee there being acquisitions in Australia. I expect there will be some sort of ac-- some acquisitions in 2011 in Australia. As we make acquisitions, as I look out today, I still think the bias will prob-- kind of wave and probably do more in the US than Australia as I think about it today, but I defer everyone to my forward-looking statements and that could all change. But, but I guess I temporarily think by saying, I am not sure how much acquisition -- how many -- how much acquisitions we're going to be doing, period.

Right.

As John said, we have zero out on the resolver today, we've got a little bit of cash we're sitting on, we've got a couple of properties, just over about $150 million in the pipeline, we probably will do some more acquisitions in 2011, but I do not foresee, I do not anticipate the pace to be what we have been doing over the last year or two.

I guess if you step back from it, you've, you've spent the better half of the past few years really trying to simplify CommonWealth, or form HRPT into CommonWealth, into a much more focused suburban and CBD US centric company. So you think about all the stuff you did on the healthcare side, and the medical office side, and then taking the government assets and putting them into gov -- I guess, why embark on Australia? Why are you using HRPT, or CWH, as sort of the mixing bowl to generate the stuff to spin out? Why aren't you using another RMR entity for creating it's own vehicle rather than clouding the story of -- which you've tried so hard to simplify, especially as you've said, some people get it and some people don't. Why, why even take that discount, potentially, of happening in your stock for that?

It's a good question. The primary reason we chose to use the CommonWealth vehicle was because the properties that we were looking at down there are principally office and some industrial. So of all the vehicles that RMR manages, it would only make sense to put it in CommonWealth. The reason we decided to do it in CommonWealth rather than a, let's say, a separately capitalized vehicle is, I think while we are buying properties down there and while it's being incubated in CommonWealth, I think there is a lot of benefit to CommonWealth. I mean, today, right now, Mike, there is probably two markets that I can think of that are consistently showing same-store growth in NOI in terms of almost every lease we look at and that's Hawaii, and that's Australia. And we think it's -- they're a great benefit to CommonWealth by having that portfolio.

Now, if it gets to a size, let's say $0.5 billion or maybe even $1 billion, and it becomes too much noise for the CommonWealth story, we've been pretty adamant about saying, look, if people really don't like it as part of the portfolio, we're more than happy to take it out and spin it out, but we're not -- I'm not sure today whether or not that would make sense because we're getting great returns on the investments down there. I think one of the things you should recognize, John mentioned in his prepared remarks -- is it about $19 million? We, we recognized a gain of about 19 -- an unusual gain of about $19 million from our acquisitions in Australia in the fourth quarter. Now that's -- it's a really strange gain we had, because the reason we had to book that gain was because in Australia, they use international accounting standards and they had appraisals done on the properties, and the appraisals were done at much higher rates than what we ultimately bought the properties for. And the reason that was the case is because the underlying property was -- had a lot of value, but it was held in a vehicle that was distressed, and we were able to take advantage of that situation and buy the distressed vehicle which had too much debt, and there was a looming maturity and they couldn't refinance it. And so we were able to buy the vehicle at a discount to what the underlying assets were, and so we had this really unusual gain that we put booked on an acquisition of $19 million because we were able to buy it at much below the appraised value. So, I only bring that story up to show, as an example, yes, it is a little bit confusing, the story of CommonWealth. I agree, but we are taking the position that it's worth it because of the benefit we're getting from the returns on those investments and the opportunity we're seeing down there.

Right --.

It's still office industrial, but, but we're getting a great return.

But, to think about it from a cost of capital perspective, I mean, you've been able to match funds because you have been selling assets, and so you haven't had the need to tap equity markets. But, given where your stock is trading, your cost of capitol is extraordinary -- or equity cost of capital is extraordinarily high relative to the REIT sector, and arguably where you can buy your own stock back if you were to -- if your were to sell assets and just to do that? Why not buy your stock than going international and buying, buying assets? You know, people don't know what they're getting. So you spend all of this time going down the road of simplification and now, you would have investors concerned, okay, well if they're going to Australia, why don't they go to other Asian countries? What happens if they go to the UK, what happens if they go to France? Why don't they -- what are you trying to create? And it's almost like really -- it's really muddling the waters of what investors are buying.

Well, I just want you to keep it in context, it's only $300 million on a $6 billion, almost a $7 billion portfolio, so it's not a large piece of the portfolio today. And we have stated that we would only, we'd only anticipate getting it up to $500 million maybe $1 billion, so we're talking roughly 20% of the portfolio, maybe, at the max. So it's not -- we're not trying to overwhelm CommonWealth with this investment and we've been pretty clear I think on the reasons why we have picked Australia, because we think it's the opportunity to take advantage of the growth in Asia. We, we think it's a -- we think it's a pretty compelling story. We don't have plans currently to expand into Europe, or expand into other parts of Asia at the moment at all. And so -- I, I understand your point that it's, it's making the story a little more confusing. We think investors are fairly sophisticated, and when they think about it for 30 seconds they realize that it's not a huge part of our portfolio, and in fact they're getting a pretty good return on it. And they've stated, we've stated, that we're not going to make this company 50% Australia, that's not -- or Asia, that's not where we're taking the Company. We're simply trying to take advantage of an opportunity we see in the currently in the marketplace in Australia. We're not going to grow it to the outsides portion of the portfolio.

And then to address your second point which you talked about, stock buyback. I mean, we, we're not afraid, we don't have an aversion to stock buyback. We have done it a couple of times over the course of the Company's history. Most recently in early 2009, we did a stock buyback with (inaudible), in a comparison. Many of our peers were issuing stock at very low prices, we were doing a stock buy-back at that time. We, we were -- we do look at that. Unfortunately, the couple of times we've done it within CommonWealth, it does provide a short-term benefit to the stock. Everything we have seen is, yes, it sort of helps short-term, it helps investors short-term, people that want to trade in and out of stock, but long-term stock seems to revert back to where it trades based on the fundamentals of the operations, and trades based on whether or not you're able to run your business well. And so, not that I have an aversion to stock buybacks, but it's not -- I'm just letting you know that we have done it a couple of times and we haven't seen a real big benefit come from it, and so we've been more focused on trying to just run a good portfolio, run the operations well, trying to resimplify the story. I agree that Australia does, does confuse it a little bit. But, I don't think it confuses it so much that it makes the story not compelling. I still think the story is very compelling, and I still think when you buy CommonWealth you're principally buying CBD and Suburban Office in the US. That is the overwhelming majority of the portfolio.

Right, I guess the question is from an RMR being externally managed and just growing assets, and earning fees at the RMR basis, would it be better to have taken that $300 million that you that put in Australia and shrunk the base. Sell assets at a premium to where your stock is trading and take it and reduce the base, demonstrating to shareholders that RMR is acting in the best interest of the common shareholders, not just enlarging the RMR asset base. So as you're using CommonWealth to buy assets to eventually spin out, what you have done is enlarged the RMR entity.So I think that there is an element of, while it muddied or clouded the story a little bit, it's more of a macro perspective of how investors view the external manager, and where the interests are being aligned. So I think it's more so that aspect than just going out and buying Australia. So that's why I think from a share buyback, if you would have taken the $300 million, and bought back your stock versus going out globally, maybe you would have a different stock price.

It's arguable, Mike, it's arguable what would make the stock price move but, I mean, we have certainly, I think, demonstrated that we're pretty -- in all of our vehicles, not just CommonWealth, we have not grown just for growth sakes. In fact, we're selling properties today. Not just in this vehicle but in other companies that are managed out of RMR. So I, I don't -- I understand the criticism can be raised, and people can involve that criticism. I think for some reason, we do manage, since you've opened up the door to talk about RMR, I will mention that we managed not just CommonWealth, but we manage three other REITs. And they all trade, they're all managed by the same group of people. And some of those REITs trade at very good share prices, and some of those REITs for some reason don't trade at very good share prices. And they're all managed by the same group of people, and managed the same way. And I sometimes take issue with people focussing on CommonWealth and focussing on the external advisor just to CommonWealth because I sometimes think that people don't know why the stock price is where it is, and so they don't know what other reason to pick. So they just pick on the external manager because they can't think of any other reason why it should trade where it is.

And I guess for you, and others listening on the call, I encourage you to look at Government Properties Income Trust, or Senior Housing Properties Income Trust, or for that matter, Hospitality Properties Income Trust. Those are all REITs we manage, and some of them trade at very good stock prices and multiples, and they're managed by the same group of folks. So I don't it's the external manager. I do think that people like to raise the point, but I can only point to a record. We can talk hypotheticals, but we have a pretty -- I think we have a strong record of showing that we've been very prudent in our growth, very -- we have not grown just for growth's sake. I think many of the peers that have an internally managed structure have engaged in far more aggressive growth tactics than we have ever used. We've been very conservative in the way we manage the balance sheet so we wouldn't be in a position that we had to dilute shareholders significantly when the crisis hit in 2009, so I understand your point. It's a criticism that, you're not the first to bring it up and I'm sure you'll not be the last. But, I, I come to the -- I feel that the Company's stock -- I'm not sure why this Company's stock trades where it is, and we've tried many different things, and sometimes people plan out the external manager. But, I'm not sure -- I've come to the conclusion that I think it's just, it's an excuse people are using most of the time because they can't figure out why it trades where it is.

I know, okay, I certainly appreciate the commentary. I think the, the element of selling assets between the entities so shareholders don't know who, at the end of the day, you don't who got the better end of the deal. I mean, arguably as the buyer, you want to get the best possible, lowest possible prices, and as the seller, you want to get the highest possible price. So, something just working out for both entities, arguably is not doing something that's in the best interest of either shareholder. So I think that is that other element while, while CWH has sold assets, they've sold assets to sister RMR entities. And so maybe shareholders are questioning whether CWH is getting the best possible price for the assets that they hold.

Again, that is a criticism people can lob at the Company. I think we've sold assets, I guess, to two of our sister vehicles, Government Properties Income Trust. But we've not only sold assets to Government Properties Income Trust, I mean, that was a way for the Company to raise capital through basically a spinout IPO, at a much higher stock price than where our stock price was trading in 2009. And ultimately I think shareholders benefited from that transaction. It's also nothing to sneeze at the fact that CommonWealth, we've recorded close to $500 million in book gains from the sales. Look, I understand the criticism than can be lobbed for inter comp-- or related party transactions, and I can tell you that I don't foresee there being many more of them in the future simply because of the amount of criticism we were getting, or got over them. But, in 2009, we were in some pretty dark days and that is when we decided -- that's when most of these sales occurred. Some occurred (inaudible) -- some of them occurred in 2010 as followup sales to both gov and S&H, but I think the Company benefited from the sales. It was able to go out and reposition the portfolio from the cash it was able to generate, take advantage of the stressed pricing in the marketplace. I think it actually showed a level of creativity that many of our peers did not illustrate during that time. Their, their solution was, well let's just go raise a bunch of equity at really low prices. If any -- if ever there had been a time that the external manager should have gone out and shown the world that we were going to just raise equity just to raise equity, it would have been in the first half of 2009 because we could have, we could have done -- the whole world had a free -- a free pass to do that at $0.50 a share if you could do it.

Right.

And we didn't do it.

Right. It's very helpful to get, to get the comments and have that dialogue and get your views. So, I appreciate you being open and taking the questions.

All right, thanks, Mike.

Thank you.

Thank you. We'll go to the line of John Guinee with Stifel. Please go ahead.

Hi, I missed the first part. I did catch all of your dialogue with Mr. Bilerman. Nice job. Question. Did you offer guidance for 2011?

No, we have not offered any guidance for 2011, no.

By kind of simple math, 2010, or 2009 FFO was $4.34 a share, 2010, $3.74 a share, that is about a 16% drop. Do you think we can expect another 16% drop, '11 over '10?

If we answer that, we're giving guidance.

Well it kind of -- I think Michael, Mr. Bilerman, was asking why the stock price has been suffering, and maybe, just maybe, a 14%, 15%, 16% year-over-year decline in FFO has something to do with it, and we're just sort of wondering if we would expect another 14%, 15%, 16% decline in FFO year-over-year?

Look, it's our hope, the answer is no, that is our hope. We -- let me give you this type of guidance. This I'm (inaudible) comfortable saying. I'll give you some of the top-line numbers. I think we're aiming to keep occupancy flat for 2011, we told you we're 87.7% for the end of the year, we're trying to keep it flat. We told you that, we don't -- John in his remarks, said that to do that, you might see some spikes in capital being spent. But we do not anticipate over a trailing four quarter period for the CAD payout ratio or AFFL payout ratio to exceed 100%. I think those are sort of the two sort of bookmarks. I will tell you how we're planning for 2011.

The only commentary I make about what you've said, John, about the stock price is, yes, we have had a decline in FFO per share year-over-year. That is largely a result of drop in occupancy and same-store NOI. But many of our peers have also experienced the same thing. So I am not sure that we are experiencing things much different in terms of the dynamics in the operations that many of, many of our peers are experiencing in the operations. So I am not sure if that's -- we're getting into a conversation about why the stock price is where it is. I'm not sure, because, because our performance hasn't really been so much different than our peers, why that would warrant the stock price trading, let's say, in a lower multiple from everyone else. I am not sure that is the reason. So, I just make that point. That's all.

Yes, it's kind of fundamentally within the broader equity markets, investing in a company that doesn't grow earnings is a very dicey situation. It's akin to trying to catch a falling knife, but okay. Thanks a lot, we'll talk to you next quarter.

Yes.

Thank you. We'll move on to the line of Mitch Germain with JMP Securities. Please go ahead.

I'm okay, guys. Thanks a lot.

Thank you. We have no further questions.

Thank you everyone for joining us on the call today. We look forward to seeing you at our Investor Day in Philadelphia as well as some future conferences. Thank you.

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.