Sun Communities Inc (SUI) 2004 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Sun Communities Second Quarter 2004 Earnings Results Conference Call. (Caller instructions.) As a reminder, this conference is being recorded. At this time, Management would like me to inform you that certain statements made during this conference call which are not historical facts may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although the Company believes the expectations reflected in any forward-looking statements are based on actual assumptions, the Company can provide no assurance that its expectations will be achieved. Factors and risks that could cause actual results to differ materially from expectations are detailed in this morning’s press release and, from to time, in the Company’s periodic filings with the SEC. The Company undertakes no obligation to advise or update any forward-looking statements to reflect events or circumstances after the date of this release.

Having said that, I would like to introduce Management with us today. Mr. Gary Shiffman, Chairman and Chief Executive Officer, and Mr. Jeff Jorissen, Chief Financial Officer. Thank you, gentlemen. You may now begin.

Thank you and good morning. Second quarter earnings as announced prior to the opening of the market today and excluding costs related to the Company’s recapitalization, were funds from operations of $14.9m or 70 cents per share compared to $17.3m or 84 cents per share in 2003. Net income in the second quarter, excluding recapitalization costs, was $9.3m or 50 cents per share compared to $4.5m or 25 cents per share in 2003.

Recapitalization costs consisted of cash payments of $51.6m for prepayment costs, fees, and related expenses, and $5.6m related to the deferred finance cost on the extinguished debt. This represents funds from operations of $2.70 per share and net income of $3.07 per share.

Revenues for the second quarter of 2004 were $48.9m compared to $48.3m in 2003. And at this time what I’d like to do is review with everybody the entire property portfolio point by point. As it relates to rental increases for the first two quarters, they were directly on budget and resulted in a weighted average increase year-to-date of 4.52 percent. This comprises approximately 80 percent of all of the portfolio’s manufactured housing sites.

Thus far in 2004, we have lost 21 sites of manufactured housing occupancy. This compares to the 172 sites lost in 2002 and the 849 sites lost in 2003. So again, there appears to be no question but that the repossession bubble, initiated by the bankruptcies of both Oakwood and Conseco, have largely worked through the system.

There are 528 repos in the portfolio as of June 30, 2004, again the lowest level of repos since September 2001. We expect to see a slow but gradual improvement in new home shipments and sales beginning sometime during the first half of ’05, which we believe will benefit occupancy over the next several years in our entire portfolio.

In our same property portfolio, which consists of 108 communities owned throughout both years, revenues increased by 3.2 percent for the quarter and 3.5 percent for the six months. Expenses increased by 4.1 percent for the quarter and 2.4 percent for the six months. For the six months, the components of expenses, real estate taxes, and property operating and maintenance expenses, increased by 5.6 percent and 1.2 percent, respectively. The net operating income increased by 2.9 percent for the quarter and 4 percent for the six months ended.

The reconciliation of 80 cents in first quarter to 70 cents in quarter two, the difference is attributable to 4 cents more interest expense as a direct result of the recapitalization and lower levels of capitalized interest, 2.5 cents due to less interest in other income, and the remainder is due primarily to the very strong growth of our RV revenue this first quarter of ’04.

In trying to summarize the recapitalization that is now completed, total financings were $734m, consisting of a CMBS of $497m and a Fannie Mae financing of $237m, and all but $60m has been drawn and rates have been fixed. So $674m in the duration slightly in excess of 10 years, with a weighted average interest rate of 4.99 percent. The remaining $60m under the Fannie Mae program is available to draw until December 2004. After that $60m is drawn, the Company will have approximately $158m of floating rate debt, or about 15 percent of the total debt of the Company. And the Company and Management continue to closely monitor interest rates and may fix rates on some or all of the $150m as it seems appropriate.

The cost of redeeming $345m of unsecured debt totaled $51.6m, which was slightly less than the original estimate of $53m. And as I indicated earlier, the deferred finance cost related to extinguishing that debt approximated $5.6m.

If we turn to the use of proceeds of the $674m that’s been drawn to date and financing proceeds received, $397m was used to redeem the unsecured debt and $99m to pay off Sun’s line of credit, leaving $178m of cash. Approximately $40m of that $178m was used for aggregate property acquisitions totaling $56m, the difference represented by assumed debt. Additional property loans totaling about $20m were paid down, and approximately at the end of second quarter, $10m was utilized to acquire the Company’s stock, again through June 30, 2004. This resulted in the $106m on the June 30, 2004 balance sheet, and as previously mentioned, a final draw of $60m is available through December 2004.

Currently, we have $164m of property acquisitions in advance stages of negotiation and a weighted average cap rate of approximately 7.5 percent. These acquisitions comprise seven communities and over 5,000 sites. The initial cash component of these acquisitions will require $146m of cash, which may subsequently be reduced by as much as $60 to $70m if debt is placed on some or all of the properties.

If we were to assume that $65m of debt is placed on the acquired properties, our cash balance would approximate $90m after the acquisition. We expect to close on $20m of the acquisitions under contract in quarter three and $44m in quarter four. With the balance, dependent upon the completion of due diligence, closing would take place in quarter four, but again, subject to the outcome of our due diligence. Additional property acquisitions are in early stages of review and we are very pleased with our ability to turn up what we believe are the highest quality acquisitions that we’ve seen in a long time.

Stock purchases from the inception of this buyback program now total 430k shares at an average price of $36.25 for a total cost of $15.7m. The current authorization is one million shares and the Board of Directors continues to monitor the program and may increase the authorization as it seems appropriate.

The Company has also a $50m 8.875 percent Preferred OP unit issue which may be called in the first--I’m sorry, in the fourth quarter. We also expect to close on a $75m unsecured line of credit in this third quarter.

And in closing, as acquisitions close and final decisions are made regarding to the use of proceeds and we have the recap behind us, I think that the Company is able to view the future with a greater degree of clarity which should allow us in the Company to provide clearer vision of future operations in the near future. And at this time, we’d like to open it up to any questions.

Thank you. Ladies and gentlemen, at this time we will be conducting a question and answer session. (Caller instructions.) One moment, please, while we poll for questions. Thank you. Our first question is coming from Jordan Siedler of Smith Barney. Please proceed with your question.

Good morning. There’s a lot going on I guess so I was hoping to get just some clarity on a couple of points, particularly the acquisition front. You identified--was it a $66m acquisition that you guys closed in the second quarter?

It was actually five properties that were originally press released on July 1 that closed in Q2. Two of them are fully stabilized and three of them are in, I think, in their second phase of lease up.

But the 50-50 amount, I remember you said $40m of--it is 66.

$40m of proceeds were used to acquire $66m.

Right, and then you said $22m if debt was assumed with it and that really--so I just said 62. I just forgot that there’s another piece.

[inaudible]

Okay. And what was the cap rate on the stabilized properties? Is that the 7.5?

7.8 on the ones that have been acquired--that were acquired in Q2.

Okay. And that excludes the three development properties, right?

Correct.

Was there a dollar amount that you assigned to the stabilized properties? A value?

Yes, it was about $15m.

$15m. Okay. Now, can you give us a little color on what types of assets these are that you are acquiring? The $66 plus the other stuff you have queued up?

I think that as I indicated when I spoke to acquisitions we have unlike some of our competitors found that over the past year or two as the industry has struggled, we have been approached by a lot of individuals who have owned some of the high quality portfolios that have never considered selling their assets before. But I think I said in other comments, my take on it is many of them are in semi-forms of retirement or at a period of time where they weren’t comfortable operating and managing the properties under very challenging times. And with a little bit of contraction in the Cap rate, probably from the 8s to the 7s, it sparked a little bit more interest in selling these assets. And we’ve been talking to these people, you know, some of them for the last six to 12 months now, getting them comfortable for the first time with selling some of these properties. They are predominantly two-day all manufactured housing communities. There are a couple of very, very high quality--.

--Predominantly what?

Manufactured housing communities. There are a couple of recreational vehicle communities that are under due diligence right now. Again, probably, you know, if you were to rate these things they would be at the very, very high end of the spectrum. So we think that we have really an opportunity in both buying back the stock and opportunistically buying the right properties with the right kind of growth pattern to put the proceeds to work very, very well.

So the MH stuff that you guys have queued up or have done, is it 90 percent MH?

That we’ve done so far, it’s 100 percent MH. And that we are looking at, I would say, well, total of sites it’s probably 60-70 percent MH, the rest RV.

Okay. How about location? I assume these are all family properties or is that a bad assumption?

They are a combination of age-restricted and family, probably about 50/50.

Locations?

Locations, Michigan, out west, and Florida. Am I leaving anything out? Colorado, and that’s about it.

Could you maybe just give us a little color on what’s going on in Michigan and why you would choose to acquire additional assets there? It seems like that’s one market that continues to slip for you guys in terms of occupancies.

You are absolutely correct there. I think that Michigan historically has been one of the strongest manufactured housing markets in the country and that comes from over 25 years experience with myself individually and our Management team with our thumb on the pulse of Michigan. And over the last 12 to 18 months and in particular the recent couple of quarters, we have seen the greatest slippage in Michigan. It’s been identified really as part of the regional economic problem and a result of the repos finally being cleared through the system. However, the properties that we have identified, I believe occupancy on the--pardon me?

[inaudible]

93 to 95 percent and have really not been affected at all because of their location to Oakland County, Michigan. So they are kind of a cut above, if you will, some of the outlying properties that are suffering the greatest. And those would be typically some of the secondary markets like Flint, Michigan where automotive has definitely had an impact related to layoffs and things like that. So the answer to your question is basically any property that we are acquiring right now, whether it be in Michigan or elsewhere, it’s because we believe it to be a fundamentally good growth, a very stabilized opportunity.

Okay. You just--the other stuff you are looking at to close in 3Q and 4Q, what are the occupancies on that sort of product?

Occupancies on that product are all in the mid-90s.

Okay. So you guys don’t have really a lot of work to do?

Well, we like a little bit of work. There is a couple of those properties that had been basically full, 98-99 percent, and did drop off 3, 4, 5 percent in occupancy through the cycle that we have all experienced. And it’s that kind of low hanging fruit that we hope to be able to grab for additional growth in those properties. But, you know, I can assure everybody basically that we are very, very cautious in choosing in our acquisitions and they’ve either got to come to us in the right format and at the right price and--or, we just basically would pass on them. The Michigan properties, if we didn’t think they were 100 percent right for us, we would have passed on them.

Okay. Nothing in--just moving over to the repos. You have 528 now, so it’s down somewhat. You guys said lowest since September of ’01, I guess. What’s going on there? How are you guys dealing with them and what has been the rate of additional, I guess, repos on a monthly basis?

I think that to give you a little bit of background on what we’ve been doing. We’ve been selectively acquiring them rather than have them leave our community over the last three, four years. Pricing was very advantageous for the last several years. Pricing has gone up as they come to the end of the inventory. And in addition, Greentree, formerly Conseco, has now got a program where they are very much trying to sell those homes and refinance them themselves as opposed to taking the losses and selling them off. So we are not able to buy as many of them at as advantageous pricing as before. And I think to give you some sense, Jeff, on before we got into the financing situation, repos ran, if I remember, about 70 basis points. I know they were close to 1 percent. We had about 30,000 sites and about 300 repos back in say ’96, ’97, ‘98, before this whole thing occurred. And now it’s 1.5 percent.

Okay. And how have the rentals fared in your portfolio? I guess, first, how many rentals do you have in the portfolio right now?

We have between 1,400 and 1,600 rentals occupied at any given time, which is up about 200, 250 from where it had been at year-end. And what we are finding is that as the pricing on the repos increases, we expect the rentals to really kind of abate and reduce as they are both sold and these rates increase so that we can increase the prices on the rent and make it more logical for the resident to go ahead and buy the home than rent the home. And I think that, you know, for us it’s a solution to a short-term problem as opposed to going out and making it a business and it really will be the focus of Management over the next 12 months or so to put these things on programs and sell them off. And I’m pretty optimistic that we’ll have a lot of success at that.

Do you think that this [inaudible] business will continue to ratchet up a little bit through year-end before you guys actually start paring some of these off or what--?

--You know, the department at Sun has always instructed to go in and kind of making a killing on the buy. When you can make a killing on the buy, go ahead. If you are about to buy 25, 50, 75 homes at this point, if you can buy them at 25, 30 cents on the dollar and they are in good shape and they are new models, to go ahead and feel free to do it. I think it will pay large dividends over the next several years. But other than that, I don’t think it will ramp up at all. In fact, everything we are focused on right now is programs of how to sell the existing rentals to the renters.

I guess my last question would be on the finance end. How much are you guys holding in terms of loans on manufactured homes, mortgages. And then, can you maybe speak to the environment a little bit and what you are seeing?

We have about $7m of manufactured homes for which we have recourse. We have another approximately $8m where a portion is recourse on those. So the total is approximately 15 of which we are recourse on seven. Those seven come to us either through the Home Buying Made Easy program or through just in-house financing where somebody who does not have the FICO score but has $20k to put down on a $40k home, we’ll lend them the money then in-house and charge them, you know, 12 or 15 percent interest until he can establish his credit and take us out. So, we’ll do some limited asset lending. Year-to-date, there have been 166 applications under the Home Buying Made Easy program. There have been 122 approvals. There have been 59 closings and the aggregate dollar amount of the closings has been $1,550,000 for the six months. So it’s pretty modest in size. The average FICO at the closed deals is 715. So it remains a very high quality program and it’s fairly limited.

How about otherwise--the landscape in terms of the industry--?

--Yeah, there has been a lot of focus on retail lending in our industry over the last quarter. San Antonio Credit bought out a very large office from Chase when they announced that they were exiting the business. U.S. Bancorp, again, about six months ago entered the business and is finally, I think, a little more operational than they had been. GMAC has stated for about three or four months now that they are entering back in the business. And we are seeing a lot of regional lending, of course, Brookshire Hathaway and 21st Century combined is out there doing a lot of lending. So we are seeing for the first time maybe a little bit of shift back to availability of credit. We remain concerned both here and with our investment over at Origin that nobody repeats the sins of the past, so to speak, and that everyone does remain disciplined and we are anxiously watching some of these new people to make sure they--you know, they do remain disciplined.

Thanks for the time.

Sure.

Thank you. Our next question is coming from Paul Afernado of North Core Financial. Please proceed with your question.

Thanks. What’s your best guess as to when the cash will be fully utilized? Do you think that’s a first quarter event or later than that?

Well, as Gary indicated in his comments, was $164m of property acquisitions require I think it was $145m of cash approximately, initially, assuming we don’t leverage it or don’t leverage any of the property immediately. So the cash could go down. It could be almost fully used when the $164m finally closed and that could be Q4 or very early Q1. And then if we put some leverage on some or all of these properties we’d have another $90m of cash and that would be the source for additional stock repurchases and our decision on whether or not to call the 50m of preferred issue that becomes callable in Q4.

So all of that is ’04? You expect to use the cash and potentially lever up again to--?

--If we lever up, we’d have just under $100m say, going into Q1 of next year, subject to stock repurchases and the calling of the 50m preferred.

Okay. And do you expect to provide either quarterly or annual guidance at that time or--?

--Well as Gary indicated, we need to have a little bit more clarity in terms of the timing and the final decisions on the use of proceeds. I mean, to put out earnings guidance at this point in time would require a range that would be so wide as not to be particularly useful in the marketplace because of the uncertainty of the timing. So as clarity develops around these property acquisitions and the final decisions are made as to how many shares to buy back and whether or not to call the 50m, that would be the plan which we would want to then put guidance on the street.

The Company is committing--committed to wanting to put guidance out there, but to do it in a responsible way. Step one, I think, was to get the recapitalization completed. We got that done. Steps two and three are really related to the acquisitions, the stock buyback, and probably a couple of the other things that Jeff mentioned, which are all on the table in front of us right now. So we think certainly through the third quarter, optimistically towards the end of third quarter we might be ready. If things are a little bit slower to take place it might be something like fourth quarter before we’re ready to really put that forward.

And just a recap. What’s the target leverage on a, you know, kind of a going-forward basis?

Well, that depends on what kind of measure you like to use. I think the coverage ratios will be right up over say--debt service coverage ratios should be around two, within 10 or 15 basis points one way or the other. Debt to the gross--debt to market cap should be around, oh, in the 65 percent range perhaps when all the dust settles.

Okay. Thank you.

Thank you. Our next question is coming from Arthur Havener of A.G. Edwards. Please proceed with your question.

Thank you. You mentioned that the fundamentals appear to be stabilizing and the average rent increases continue to be at somewhat high historic levels, about 4.5 percent. And you’ve seen a noticeable increase in the number of move-outs since 2000 and it continues to accelerate. Now some of this is being offset by the increase in resales and I was kind of hoping you could shed some light on why the continuation of the turnover and maybe what are the home prices being resold at?

Well, you know, the move-outs, if you are looking at the supplemental data, for the first six months are at 4.2 percent this year, up from 3.9 in ’03 and 3.8 in ’02. You really end up having to go back three or four years before you get down into say 3 percent level. So there might be an extra one point of--half to a point of move-outs over the average of the last five or six years which comes out to about maybe 200 people moving out of 130 communities. So we don’t at this point in time feel like that is representing a necessary trend. We certainly watch it. Resales on the other hand at 8.3 percent this year, you know, you go back to ’96 through 2000 and for all of those years it was 8.9, 8.5, 8.6, 8.5, 8.6. Then the last three years it slowed. And so you may have a little bit of pent-up demand back to normal levels. I mean, these are just surmises. We don’t feel there is any new trend that’s going on there.

I see the resales as a little bit of an indication, again, that the inventory of cheap repo is drying up a little bit and at a period of time when people couldn’t sell their houses because there was so much competition for the last two or three years. And again, I don’t want to make too much out of a turnaround because we are cautious in our comments. But I think it’s just another point. You know, you’ve got a roughly 100-basis point swing in resales. It may indicate that that competition is drying up from the repos so people can sell their homes a little bit easier than they could when there was all that overhang in the inventory.

Is Sun Homes Services included in the resale figures--them buying the homes?

No. Resales were--these are where people, residents, sell their home to a third party, a gross number in the portfolio, and move-outs are when someone takes their home and moves it to, generally, to private property.

All right. On the resale, are the new tenants or the new residents getting any kind of concessions up front or any kind of different rent structure or are they coming in at the current--.

--No. They are in the shoes of the former owner. In some rare cases, it may be that former owner was locked into a--the low market rate and it comes up a little bit, but it’s not too frequent in our portfolio.

Okay. When Sun Home Services does buy a repo, do they start paying rent or is the rental stream, does that go away?

It goes away.

Okay. So that’s not included?

No.

What is the average rent on the rental number--on the rental units?

I don’t know that we have that with us, Art, but that’s something we could definitely provide with you--provide for you.

Is there a--what kind of deposit do you guys generally require?

Generally it’s first month’s rent, sometimes first and last month, depending upon the regulations in the particular area. There is usually limitations set forth by the state as to what you can do state by state. And then a lot of these programs that we put into place are, you know, what we refer to as our lease purchase where they build up equity. Twenty-five percent of their payments during the first year is applicable to the purchase. So there are a lot of different programs that we are using now to encourage them again to switch from rental when they qualify to actual purchase.

Okay. You mentioned that there has been an increase of about 250 rentals year-to-date. Is there an associated CapEx figure that coincides with that and have you seen your CapEx be distorted by the number of rentals?

Well, there is certainly CapEx. I think the last time I saw the balances a couple of months ago I think it was running around 7 or 8--$900, I think, per unit to refurb for releasing. And of course, the increase in rentals is somewhat of a deferred issue. I mean, if the person stays in the home for two years--in fact, I should mention we have an inspection program. After 90 days, I believe, the regional VP or the community manager visits the home to ascertain that it is being maintained in the appropriate fashion, and then again when the lease is renewed. But the CapEx is showing up in the CapEx numbers.

Okay. Moving to the share repurchases, have you attempted to look to buy any kind of large blocks or are you kind of content buying the small daily purchases? And when you do make that decision, what--how do you balance it versus a 7.5 cap rate on acquisitions? What benefits the shareholders most?

I think anyone can clearly run the numbers and take a look at what share buyback does at this pricing. I think long-term it definitely is in the shareholder’s interest to be able to acquire in the price range the stock has been trading at. We are very, very limited by the regulations today as to how we can and can’t buy stock as a public company. We can--.

--So are you reference--so are you mentioning that you are prohibited from buying any kind of large blocks?

No, we’re not--we can buy a block of stock once per week and it has to be at the market pricing, so that even if someone came to us and said, you know, I have a block that I’d sell for “x,” if it’s out of the market pricing then we are unable to buy it. We do have an existing program in the marketplace. It allows us to buy stock day-in and day-out. It’s the type of program that’s put in place when we have no insider information at the Company and parameters are set up for both daily and block purchases. And an institution is retained to just go about in that program on a daily basis.

Frankly, most of the direct inquiries that have come to the Company over the last 45 days have been people looking to buy blocks as opposed to sell them.

Okay. One more question. On the Fannie Mae, did you--were you able to get an extension on the draw down of that and is that the balance a fixed cost or is that a variable cost?

That’s a variable--that $60m is floating, it’s not fixed. And the cost is, I think it’s $6k per month to extend the period before we have to draw it down, which I think is somewhere in late December is the maximum extension. So instead of having, you know, $60m on an interest ticker, it’s $6k a month.

There is no cost to us at the end of August. It would cost $6k a month not to take it down through December.

Okay. Thank you.

Thank you. Our next question is coming from Alexander Goldfaiv of Lehman Brothers. Please proceed with your question.

Good morning. First, could you just tell us how many homes you have in inventory, both the dollar amount and the unit amount now versus year-end?

Well, let’s see, at year-end we had 91 new homes and today we have 105. And that’s in the--that’s in at about $4m.

Then or now?

I don’t have the year-end number, but you can use the average cost and you’ll get real close.

That’s fine. Okay.

And then the combined pre-owned and rental at the end of the year was about 1,800 and today is a little over 2,000. And at today that’s an aggregate of say $53m, so about $25,500 per home today and that’s probably also a good guess to apply to the 1,800 at year-end.

Okay. So about $95m in sort of aggregate?

Pardon me?

I said about $95m in aggregate then?

No, no. $4m on new and $53m on pre-owned and rental. So that would come up to like 57.

Okay. I thought you said $40m. That’s why I was double-checking. Is there, I mean, Gary, you said that you’re comfortable having your people go out and buy where they think they are getting a good value. Is there some sort of limit where you’ll say, hey listen, we’ve got too much of this stuff on our books or you’re pretty comfortable?

Well, I think both is true. I know for a fact there is not a whole lot they are going to be able to buy. I mean, we’ve been able to buy a net increase of 200 in six months at a time when they’ll go out and be very, very aggressive and buy 25, 50 homes, which we’d like to do during this part of the cycle. Yet there is not a whole lot coming into us right now. So to answer your question, I wouldn’t expect them to increase very much at all. If it increased 25, 100, 150 because we bought at unbelievable prices, I’d be very happy with that.

Okay. On the properties that you are considering for acquisition or have already acquired that have development or lease in them, how much are you planning--do you think it will cost to do that and what is the pace? Like how many sites per property per month or per year, whichever you want.

Let me get you to breakdown that question a little bit for me so I can answer right.

Okay. Some of the acquisitions that you closed in the second quarter had lease up. I think there were three properties that you said were in lease up. And of the properties that you are acquiring or that you are under negotiation for, I’m not sure how many are fully stabilized versus how many lease up. But how much money do you think it will cost you to lease up the properties or are you budgeting for that? And what is the rate that you think you can lease up property to get them to full occupancy?

Of all of the properties that we have under contract none of them are really in the lease up phase at all. They are all stabilized properties. The three properties that we acquired are in second and third phase of their fill up. They are develop--were development properties five, six, seven years ago. And I don’t have the exact number, but basically they are all built out, the properties. There might be a phase or two. And that I would go to acquisitions and provide you with that information sometime today.

Okay. So you can provide what the current occupancy is?

[Inaudible] right now.

And how long--how many [inaudible], you know, how long you think it would take to lease up. Yes, I’d be interested in that information. On the pending acquisitions or I guess looking out past the existing $164m. So from the $90m in cash that you had, assuming that you paid a $50 [inaudible] that gives you $40m. If you leverage that at 65 percent or so you are getting $115m. So if you take the $115m, add that to the $164m that you’ve done, and then add that to the $66m that you already did in Q2, it gets you like to $350m. But I think earlier on when you announced the recap, there was the potential to do perhaps up to $600m by using the 65 percent leverage, I think. Am I--was I missing something or was the $600m using different leverage?

I think you are not missing anything and I think that that is a number that we had discussed prior. I think though, it was in the absence of share buyback and in absence of utilizing some of the proceeds to reduce certain other debt on properties where we had higher rates than we thought made sense. So there is more leverage capability to be able to get us back to that number. I don’t think anything has really changed fundamentally, has it Jeff?

No. It’s just been, you know, use of the proceeds rather than having it sit in the bank at 1 percent we have done certain things to try and reduce some of our interest expenditure where we can revive around that again. Just to work through the numbers, 66 closed already. Let’s say 164 close. That gets you to 230. We’ve got approximately $100m on the balance sheet on January 1 and if you did a 2/3-1/3, that $100m would buy another $300m of property. You’d get to a 530 number, which is lower than the 600, obviously, and for the reasons Gary indicated.

Okay. So if we move on seeing what your--what one of your competitors has done, it seems that there has been a lot of money floating around, that prices have been bid up, obviously the rates that you guys are quoting aren’t at the same rich prices, but it definitely seems like the business overall is moving towards sort of getting the returns out of leveraging up. Is that a fair statement? I mean, should we think of this business as working through leverage or do you foresee being able to sort of go back to 50/50 leverage and getting the same returns?

I think clearly from the recapitalization, the Company has made the statement that we believe the portfolio and this asset can handle higher leverage. I think that clearly at the current stock valuation there is a very, very good argument to be made as to what to do with the proceeds. I buy back the stock, buy acquisitions, special dividends, retire the preferred--there are a whole host of things that we can look at and that Management and the Board is looking at quarterly--quarter-to-quarter. But I think higher leverage is appropriate and I think that the timing due to the interest rate environment and the asset class being able to turn up the acquisitions is what motivated us to this next step. And layering into that is what we discussed earlier as a five-year plan. If one sits down and takes a very conservative [inaudible] operates, and begins six months out, 12 months out, there is going to be a turn up--turnaround and that we will fill up 200 net sites possibly, 400 net sites, 600, whatever assumption one makes over a 3, 4, 5-year period. With that the increasing of the acquisitions and the positive spread, that’s really what governs the strategic planning to add more leverage in our recapitalization. I don’t know if that was helpful in answering your question, but that’s how we are thinking about it here.

Okay. So you’d be comfortable maintaining that--the increased leverage, it wouldn’t be, for example, over time looking to pay it off and then re-lever again and sort of grow earnings per share that way?

I think we are committed to increase leverage, but you know, it’s been ten years since we went out as an unsecured borrower and we were committed ten years as an unsecured borrower. So, I can’t give you anything that far out in the future, but certainly for right now average maturity is just under 11 years on the new debt.

Okay. Thank you.

Thank you. Our next question is coming from Brad Johnson of RBC Capital Markets. Please proceed with your question.

Hi. Good morning, guys. Brad Johnson with Jay Leupp. Most of my questions have been answered, so I’ll be pretty brief here. Just a quick follow-up on the buyback program. Have you guys disclosed what the weighted average share price of the shares that you’ve repurchased is?

Was it $36.25? $36.25.

Now is there a price that you guys are targeting in that or a price that you won’t be buying above next quarter or next?

Sure. What we basically have and I forget the technical number of the agreement, but we have a program in the market that states parameters of how we will buy both on a daily basis and block basis. And those parameters are ongoing. They are not--they can be reset by us, but they are set up so that by example over a period of time when we are announcing earnings and would normally be in a blackout period or we’re aware of an acquisition that the market isn’t aware of, those programs were set well enough in advance so that they are ongoing and don’t get affected by that.

For instance, Brad, in a couple of days after this press release we’ll be into a clear period. So we will then be in a position where we can change those directions actually on a daily basis as long as we are without any material inside information. So it’s a very flexible program.

Okay. And then going forward, let’s just assume that the share price were to stay where it was, or where it is now, for the next quarter. What kind of volume would you anticipate to repurchase under that scenario?

Our limitations are one block per week and luckily, the way the math works, up to about 20k shares per day. So, you know, and there haven’t frankly been a lot of blocks being offered, so--at this point. So you could figure, you know, a good week would be probably, with absent blocks, would be in the 80 to 100k share range.

It sounds like you are going to buy as much as you can.

Well, we’ve got a million share authorization that’s alive and well today. So we’re working towards that.

Okay. And then a quick follow-up question, too, on the acquisitions. The $164m acquisitions are I guess acquisitions that are in advanced stage negotiations? Are you pretty confident that will close probably sometime in the fourth quarter?

I think that to be perfectly clear, $20m we expect to close in third quarter, $44m we feel that we are through the due diligence and basically committed to close in fourth quarter, and the balance is very far along, but I don’t want to misrepresent anything. We are not--although I anticipate--I don’t see any reason right now for that not to happen, there is still a lot of due diligences pieces to be brought in [inaudible].

So those would be in less-advanced stage negotiations than the last $100m?

Yeah. And assuming it went forward, it would close fourth quarter.

Okay. Now I guess back to the guidance then. If you are pretty confident about $64m closing in the third and fourth quarter, is reissuing guidance more an issue then of seeing how many shares repurchase over the next few months and then seeing how that $100m comes along?

And seeing what additional property comes into the pipeline which would compete in terms of use of proceeds with, say, the retirement of the, or the calling of the 50m preferred.

Got it. Okay. Thanks a lot, guys.

Thank you. At this time we are showing no further questions. I’m sorry. We did have another question come in. Our next question is from Jordan Siedler of Smith Barney. Please proceed with your question.

Hi, guys. Just a follow-up real quick on guidance. I understand it’s difficult given all the moving parts right now. Maybe could you just give us your expectations for same store NOI and occupancy for the rest of the year?

Well, I mean, in our original guidance I think we indicated 2.5 to 4 percent NOI on the same property for the year, and stable occupancy. So I think we’ve lost maybe 20 basis points or maybe a little bit more of occupancy in that portfolio. But I would say, you know, again, we also believe that things are gradually improving. So I think we’d be pretty consistent with that, relative to the same property portfolio, to our original guidance.

Perfect. Thank you.

Thank you, Jordan.

Thank you. Our next question is coming from Minoz Jane of Oz Capital. Please proceed with your question.

I think mine has been answered. Thank you.

Thank you. At this time I would like to turn the call back over to Management for any additional or closing comments.

Well, we’d like to thank everybody for sitting in on our Second Quarter Analysts Conference Call. Jeff and I are available at the office for any further questions and we’ll make sure that we get some of the information requested out to everybody, and look forward to our next conference call after third quarter. Thank you.

Ladies and gentlemen, thank you for your participation. This does complete today’s teleconference. You may disconnect your line at this time, and have a wonderful day.