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National Retail Properties, Inc. (NYSE:NNN)

Q4 2008 Earnings Call Transcript

February 03, 2009 at 2:00 pm ET

Executives

Craig Macnab - Chief Executive Officer

Kevin B. Habicht - Chief Financial Officer

Analysts

Michael Bilerman - Citigroup

Philip Martin - Cantor Fitzgerald

Pizzo Dustin - BAS-ML

David Pick - Stifel Nicolaus & Company, Inc.

Unidentified Analyst

Operator

Greetings, and welcome to the National Retail Properties Fourth Quarter 2008 Earnings Conference Call. At this time all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation.

(Operator’s Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Craig Macnab, Chief Executive Officer for National Retail Properties, Inc. Thank you, Mr. Macnab; you may begin.

Craig Macnab

Thank you Ryan and good afternoon and welcome to our 2008 year-end earnings release call. On this call with me is Kevin Habicht, our Chief Financial Officer, who will review details of our fourth quarter year-end financial results plus provide details about our revised guidance following my opening comments. National Retail Properties had a record year in 2008 and we are pleased with this performance.

Clearly we are operating in a different economic environment this year as we work hard to ensure that we have a strong balance sheet with very manageable debt maturities plus we have plenty of unused capacity on our credit facility. As of the end of the year our portfolio is 96.7% leased with very limited leases coming due in this calendar year.

We are currently on 1005 properties leased over 200 different national or regional tenants and 24 states. These tenants operate in other 50 different statements of the retail industry which provides us with a very broad diversification. Finally on average these tenants are contractually obligated to pay us rent for the next 13 years. As a landlord to retailers we are clearly seeing stress in our portfolio. In terms of where it is going I wish that I had a better idea of the depth or the duration of the recession and when consumers will reopen their pocketbooks. As our press release suggested we are cautious about the outlook and we are projecting a challenging 2009 but our investment plan reflects that conservatism. Over the last 4 years we have acquired over 350 convenience stores and this category has become our single largest line of trade, representing just over 25% of our annualized grades.

We are very pleased that the convenience store industry had a strong 2008 in the face of a very difficult retail environment. One of our two largest tenants, SaSa has pre-released earnings guidance and it appears that their financial performance was strong in 2008. Also, this morning The Pantry, which is our largest individual tenant, announced solidly profitable first quarter results with extremely good cash generation. The performance of our 2 largest tenants highlights the defensive attributes of the convenience store industry.

We continue to like the real estate attributes of convenience stores which are situated on busy streets, and signalized intersections with excellent ingress, egress and visibility. Also the investment per property is modest which contributes to very broad geographic and tenants diversification within the C store category.

In terms of our acquisition activity, in the fourth quarter we acquired $33 million of properties for our investment portfolio and average cap rates of 9.55%. In calendar 2008, our team did a superb job of acquiring 109 properties and $355 million in average cap rate right around 9%.

By the way our acquisition in the fourth quarter was less than half the volume in the third quarter which again was considerably less than the volume in the first and second quarters. This trend of declining acquisition activity will continue in the next couple of quarters. Our capital recycling program in 2008 was most successful as we sold a large number of properties in the first half of the year at cap rates that today seem a distant memory. Specifically we sold from both the investment portfolio and our taxable REIT subsidiary; a total of $214 million of properties and an average cap rate right around 6.9%.We are extremely pleased that our in-house team of industry leading experts completed these sales on a timely basis at very attractive cap rates.

For 2009 our strategy at NNN is very simple. Number one; maximize the value of our existing assets. Our team is focused on releasing space and renewing any leases. At this stage of the economic cycle our occupancy at 96.7 % solid. However, it is our view that this will deteriorate. For example we currently have four Circuit Cities plus one large Value City property that we need to re-lease in a market place where there not enough many large box retailers opening new locations unless the rent at that location offers a so-called ‘deal.’ The other properties and tenants that we will need to deal with in 2009.

On the acquisition side we are being extremely selective for all the obvious reasons. By the way in our judgment there continues to be a gap in price expectation between buyers and sellers which will only resolve it with the passage of time. In addition before committing capital, we would like to have further clarity on where our weighted-average cost of capital will settle in and then thirdly, we are carefully managing our expenses. We already made progress at reducing our expenses this year as earlier this month we went through a reduction in force. We are projecting that this year our G&A will be right around $22 million which is a measurable decrease from the $24.9 million of G&A in 2008.

With that I will hand that over to Kevin.

Kevin Habicht

Thanks, Craig. I need to start off by saying we on this call will make certain statements that may be considered to be forward-looking statements under Federal Securities law. The Company's actual future results may differ significantly from the matters discussed in these forward-looking statements and we may not release revisions to the forward-looking statements to reflect changes after the statements were made. Factors and risks that could cause actual results to differ materially from expectations are disclosed from time to time in greater detail in the Company's filings with the SEC and in this morning’s press release.

With that as indicated in the press release we reported fourth quarter 2008, FFO results totaling $37.9 million or $0.49 per share representing an 8.9% increase from 45% per share in the fourth quarter of 2007. For the year 2008 we reported record FFO for $1.99 per share which represents a 6.4% over 2007 at $1.87 per share. We are pleased with these results which were in line with our projections and Street estimates. Our balance sheet is in very good shape with no material debt maturities until September 2011 and with $374 million available on our $400 million credit facility.

Let me just quickly go through a few details on the fourth quarter then some comments on our 2009 guidance and then we will take questions. Looking at the income statement total revenues for the fourth quarter increased to $57.2 million as primarily driven by additional rent from net new investments made over the last year. Acquisitions in the core portfolio as Craig mentioned totaled $33 million in the fourth quarter and $355 million for all of 2008. Occupancy at year-end was 96.7% that is down 20 basis points from the immediate prior quarter.

Page five of the press release included some of the items regarding additional disclosure regarding contingent percentage rents, straight line rents, capital lease, earned income for your information and we have included some additional disclosure that will assist in calculating an AFFO type number and as can be seen our AFFO measured frequently equal or exceeds our reported FFO numbers. Just moving down the income statement, interest and other income from real estate in the revenue section decreased to $683, 000 in the fourth quarter that is largely due to lower outstanding receivable balances particularly lower structured net loans at the end of the fourth quarter, we had only $4.7 million outstanding in the structured mezzanine loans. Other mortgage and note receivables decreased to $55.8 million.

G&A expenses $6 million, $6.0 million for the fourth quarter that is flat prior to year amount. For the year we ended up at $24. 9 million of G&A which is 5.6% increase over of 2007 G&A. If you look at G&A the percent of total revenues less property expenses that came to11.5% for 2008 versus 13.6 % for 2007 so we continue to leverage operational efficiencies.

For 2009, as Craig indicated we see G&A coming in at $22 million which is an 11.6% decrease from 2008.

Property expenses net of tenant reimbursements were $799,000 in the quarter, it sounds like from prior year and prior quarter amount. Moving down the interest and other income line as net declined with $701, 000 in the fourth quarter due to much lower cash balances compared to the fourth quarter of 2007 as well as lower interest rates.

Interest expense for the fourth quarter decreased slightly to $13. 7 million for prior year amount and compared with $14.8 million in the merely proceeding third quarter of 2008 and that decreased primarily due to the October 1, 2008 equity proceeds of $76 million. At the end of the fourth quarter we had $26 million or 2% of our total liabilities were floating rate. As Craig mentioned during the fourth quarter we have reported the sale of two properties from our core investment portfolio which reflected in the investment portfolio disc ops on page seven. These sales generated net proceeds of $ 3.3million and produced by the $800,000 that gain not included in our FFO results

Disc ops inventory property we sold one land parcel of property from our taxable sub. The net proceeds with $600,000 at grossly breaking $1,000 gain. If you look at the total TRF inventories, down more than half since year end 2007 from $249 million until a $101milion at the end of 2008. As Craig alluded to, if you step back and you look at our total company acquisitions both for the reinvented TRF and round numbers we invested $385 million in new properties in 2008 and we sold $214 million of properties and consistent with our prior year’s dispositions have funded a large part of our acquisition.

It is actually 55% of our acquisitions were funded with disposition in 2008 and again that disposition platform and activity has been an important part of our operations and we think among the best in the country for this asset type. Moving in the balance sheet, we finish the year with total liabilities worth $1 billion and $106 million which is down $63 million from prior quarter of total liabilities and down slightly from year end 2007. We have only $26 million of secured debt and 98% of our assets are unencumbered.

On October 1, 2008 as you are probably aware we closed on a 3,450,000 common share equity offering which generated $76 million in net proceeds. Also, notably during the fourth quarter we bought back $25 million face amount of our 3.95% convertible notes that have a September 2011 put date which is our next material maturity. We originally issued $172.5 million of these notes in 2006 and the balance at year end with this buyback was at $149.5 million. We have been buying these notes at a discount with an average price of around $77 to yield 14.2% in the press release this purchase; repurchase produced a $ 5, 464,000 gains in the fourth quarter.

At year-end 2008, total debt to total assets was 39.5% on our gross book bases including a generated depreciation and that 39.5% down from 42 % in the prior quarter and down from 42.5 % at the end of 2007.

As I indicated we have no material debt maturity until September 2011 and only $26.5 million outstanding and currently on our $400 million bank line. Obviously the value of maintaining our balance sheet flexibility is obviously more apparent in times like these and we believe we are in very good position.

Interest coverage for the fourth quarter is 3.4 times for the fourth quarter and 3.5 for the year fixed charge 30 for the quarter and 31 for the year. Moving on to 2009, as the press release indicated we have lowered our 2009 FFO per share guidance to $1.78 to $1.88 per share primarily to account for our cautious economic outlook with significantly less acquisition and more potential date increase.

This guidance excluded the forthcoming convertible debt non-cash accounting change that makes this guidance comparable to our 2008 results that we just reported. The $0.10 share reductions in our 2009 guidance can really be summarized in three areas. First and foremost, we have reduced our acquisition guidance from $200 million for the year and that included $250 million per quarter. The $60million for the year looks most of that penciled in for mid to late fourth quarter.

This equates to rental revenue reduction of approximately $7.3 million partially offset by lower interest expense of about $1.3 million. That is the first piece of it. Second, we anticipate G&A being $700, 000 lower and coming at $22 million for the year as we mentioned and third we assumed an additional 150 basis point increase in the vacancy and that reduces rent by about $3 million based on the $219 million of annual base rent that we had in place at the end of December 2008.

At this point we do not have any details to provide you to support this assumption that the macro environment, we believe, is sufficiently for that it seems prudent to assume some additional potential vacancy. As we noted on last quarter’s call in 2009 we will adopt new required accounting treatments for the interest expense on our convertible debt which will add approximately $6 million of noncash interest expense in 2009 and that is $6 million is about $0.08 per share.

As I mentioned previously, the 2009 guidance that we quoted excludes this forthcoming accounting change so that again, the 2008 reported results for the $1.99 and the 2009 guidance of $1.78 to $1.88 is on apples-to-apples basis. Also a note that once we do start reporting under this new rule in 2009, our 2008 historical numbers will also be adjusted to take into account this new cash accounting treatment and we have to make that thin crack on 2008 to be about $0.07 of additional interest expense.

Obviously as the economic and capital market uncertainty seems to abound the visibility on the guidance is more clouded than we have historically had but we are confident we can endure the economic storms and importantly believe that our dividend is secure. 2008 marked the 19th consecutive year that our dividend increased from the $1.40 to $1.48 and our dividend pay out is the lowest in our Company’s history at 74.4%. As the number of the companies cut dividends, NNN is one of only 170 public companies REIT or otherwise that has increased its annual dividend for 19 consecutive years. This coupled with our solid balance sheet, low debt maturity and little lease expiration should help us, we believe considerably ride up the economic turmoil.

Craig Macnab

Ron, we had like to take any questions please.

Question-and-Answer Session

Operator

(Operator instruction)

Your next question comes from the line of Michael Bilerman with Citigroup.

Michael Bilerman - Citigroup

Can you please review the current impairment issue that you took during the quarter?

Kevin Habicht

Yes, impairment during the fourth quarter totaling $1,563, 000 it surely happened discount investment portfolio. We got a property that we brand our self as an old property and so we decided not to re-lease it and just to go ahead and sell it and we actually had it under contract.

Michael Bilerman - Citigroup

Are you undergoing any impairment test in the inventory portfolio at the moment?

Kevin Habicht

We go through to impairment test every quarter and obviously we did not have anymore to report than that.

Michael Bilerman - Citigroup

And you lose around $25 million or so that is the REIT. Could you talk about that position and how much more you would consider to moving back from the RF into the REIT?

Kevin Habicht

. Last year we talk about our inventory portfolio and if there were a number of properties in there that we have like to sell if we could. The market is suboptimal. These are properties which we are happy to hold and in the inventory portfolio, a holder of them. The actual number is really closer to about $30 million to what is good.

Michael Bilerman - Citigroup

And then on, do you have any change on any specific tenants or sector that you are particularly concerned about at the moment. You talked about all these towards in your conference with that industry. Near approach catching on some of the big industries like the 21:53 high risk strong drives result?

Kevin Habicht

Everyday, since we come to work particularly you guys living up there in the northeast, Manhattan and the media has negative press release. Today the auto sales for January are particular dismal and with the consumer staying at home and not visiting retail stores, a lot of those businesses when you cut through it is in a very high fixed cost phase. We are worried about every single tenant in our universe. What slightly different with these go around is that it extends both to small companies as well as to the bigger public companies. Let us be honest who would have thought two, three years ago that Circuit City would be liquidated and so it is across the board. There is stress in every single retailer. The top line is down and there are higher fixed cost businesses that having said that our portfolio is relatively in good shape vis-à-vis the retail industry.

We do not have much exposure, if any, to the high-end expensive merchandise. A lot of our product offering kept in our tenants is value oriented which is where you want to be in this environment.

Michael Bilerman – Citigroup

Do you check any forward looking metrics besides looking at the financials and focusing on press reports to gauge on where you could potentially see problems ahead of time?

Craig Macnab

The best way that we find to do that is our regular interaction with our tenants and as a Company over the last several years we have done a very, very good job of staying in touch with our tenants. What is good yesterday was we had Chief Financial Officer of our tenants in our offices going through their business and in that particular case the stores are doing fine and they are paying rent satisfactorily but I can tell you their sales are not blowing through the top line.

So we are paying attention towards as much as we possibly can and in that area we are doing a very good job.

Operator

Your next question comes from the line of Dustin Pizzo with BAS-ML

Dustin Pizzo - BAS-ML

Craig, how much of the reduction your acquisition guidance is just simply related to understandably being cautious on the point any capital today versus the fact that as you guys have done of doing your capital to go out and potentially continue to repurchase those converts, that double digit yield. I mean not only a better use of that top of the year perspective but it also helps remove potential overhang on the shares.

Is that something we could continue to see you do or you are really just sitting back here and holding on to every dollar that you can?

Craig Macnab

Dustin first, congratulations on your new position. We are a conservative group of folks here. We have been bearish on the outlook for the last couple of years. It is not just good luck that we did to where we are all with the strong balance sheet. We worked very hard at it.

We know that we have a near term debt maturity with those convertible bonds coming due in 2011. We have been selective on pricing. The best time to buy those is when there is sale in the market and we executed pretty well where the bond is currently trading at and it is very, very little activity in them. I think in the last ten days or so there are 60,000 bonds traded. We did not like the prices which they currently have. There is a movement on that we will probably take a look at that. It is our nearest term debt maturity. It's clearly a very accretive opportunity. I think our guidance does not really reflect that if it happens but we did not really see the market clearly hit the level that we can make reasonable forecasts on before we deploy any capital.

Dustin Pizzo - BAS-ML

Craig Macnab

Fair enough and then last quarters, just looking at the guidance, you guys were baking in I think that you have said 250 basis point of occupancy losses in the portfolio so is the 150, Kevin that you mentioned today, are we looking at $400 or is it?

Kevin Habicht

Yes that is on top and that is additional vacancy. I think about that in economic terms based on our $200 plus million of base - rent basis, a $3 million kind of economic hit.

Dustin Pizzo - BAS-ML

Given where the portfolio ended in the year, have you seen any of them in the first month here or is that just something that you are…, based on looking at this financials and meeting with people that you are expecting to.

Craig Macnab

Just at the margin we have experienced it. We had Uni-Mart that was a hit to us in 2008 and three additional Uni-Marts came back to us in January. We can see somebody wrote us a question about forward looking data. Our forward looking data is pretty good and pretty accurate. We can see where there are problems coming down the pipes and that number is happening.

Dustin Pizzo - BAS-ML

Okay and then I may have missed this in the opening comments. What is the EBITDA or the rent coverage for the portfolio today?

Kevin Habicht

I can talk maybe more at length about this but some of our tenants we have calculated rent coverage and we have looked at that. A good portion of our tenants are national tier tenants, the Best Buy, CVS, and Barnes & Noble. We are focused purely at the corporate level because they are not giving out store level P&L data to anyone but for example which you can tract, our largest tenants Pantry and SaSa for example, the Pantry just put out numbers and if you look at the rent coverage we marked that at about a 3 or 4 kind of rent coverage and a 2006 charge coverage because frankly I think fixed charge is more relevant than rent in some respects but again this is a long discussion about how we mitigate risks and how we under write and rent coverage is a good metric but it is only a piece and not the biggest piece in our minds. We are under writing and evaluating tenants and invest potential investments.

So I do not have the number to tell you, for the portfolio we do not do that and I can say a number of our tenants do not even provide that kind of data. On the smaller second tier tenants obviously you get more data and are able to grind through that piece of the risk analysis.

Operator

Your next question comes from the line of David Pick with Stifel Nicolaus & Company, Inc.

David Pick - Stifel Nicolaus & Company, Inc.

Can you guys address, you talked a lot about your tenants and in general terms, where your concerns are and can you specifically address the C store performance over the last quarter as you are able to define it from your tenants?

Craig Macnab

The industry benefited from declining oil prices and so gasoline margins were very high. And the operators prospered from that and had very, very strong results so the convenience stores sector which was our single biggest category simply on a trailing twelve month basis performed extremely well where retail in the aggregate had a weak year.

David Pick - Stifel Nicolaus & Company, Inc.

Your dividend, obviously this is the quarter dividend adjustment even for some of the industry bellwethers whether they are an alternative form of payment or cutting cash and you are clearly signaling here that you do not expect that it will be going down that route I am wondering given that some others who have positive cash flow and very strong balance sheet has made a different decision. Is that might be something that you would even consider reviewing or is it part of your franchising and you are going to maintain that increased track record no matter what?

Craig Macnab

David, it is a topical question for sure and we have a board meeting here in a couple of weeks and I am sure will be talking about it so I do not want to get too far ahead of myself but I think certainly sitting here in this building before getting the input of our Board of Directors I will tell you that we think that is over the long term, one of the reasons investors purchased REIT stocks is because the total retailing space needed to pay a great deal of attention to the income that they get from the dividend and I think we have to be very thoughtful about flying in the face of that.

We are in the position where our balance sheet is good too. We have very modest near-term maturities and three we have access to capital and by the way our dividend coverage is very strong against AFFO. So I think…

David Pick - Stifel Nicolaus & Company, Inc.

Just to challenge you one more time on that, some of the REITs that we talked to who have all the same characteristics are saying, “Look I cannot assume that my line of credit coming due in 2011 or even 2012 will be renewable and then I will have to pay it off in cash. I must run my business very conservatively.”

Craig Macnab

Yes.

David Pick - Stifel Nicolaus & Company, Inc.

You are a conservative company. You have always been conservative on how you structure yourselves, why shouldn’t we all be thinking in those terms in these extraordinary times?

Craig Macnab

When you look at the price action of the stocks of regional banks etcetera you got to ask yourself –“Are any of that is going to be in business.” Today some of them are getting pounded. We do have a bank facility that needs to be renewed in the next 12, 13, 14; months and we will have some real time data to help us make that decision. As you are suggesting we are being realistic that the pricing on the bank facility is going to change, probably the terms and conditions are going to change as well. That is inevitable that a couple of smaller bank participants are going to drop out.

So we are going to have this access to it for sure. I think, we will see whether we are just looking at the eye of the storm now or weather how long it is going to last. That is David in the near term I think that is payment of cash dividends is very important to NNN’s shareholders and our board is also relying on this so.

David Pick - Stifel Nicolaus & Company, Inc.

Obviously, we agree with that in terms of your stated piece in the industry is attracting to investors. I am just wondering if perhaps you need to start reflecting a bit more realistic view of the capital markets’ willingness to provide capitals to REITS going forward and wait for the next couple of years.

Craig Macnab

I will take your input into the decision as well.

Operator

Your next question comes from the line of Unidentified Analyst

Unidentified Analyst

This is a follow-up to the previous question, your line of credit that comes due May 2010, a year from now I also understand that you do not have much outstanding on that but what from I hear from following other REITs, it is taking awhile nowadays to negotiate things with the banks. One of the REIT’s told me it took them 6 months. Do you guys have a timeframe in mind as to what you want to do or you just have other things on your priority list? If you can you just give us some color on that?

Craig Macnab

Sabina, it is an important question and certainly something we are much focused on. We do have a timeline in place. We are not going to talk about that on this call but historically we have renewed our line of credit several months if not well in advance of when it comes due. So we will be working on it during the course and it is certainly a key objective of Kevin and myself for calendar 2009.

Unidentified Analyst

Right. It will be nice to have that liquidity even though you guys have not used much of those.

Operator

(Operator instruction)

Your next question comes from the line of Philip Martin of Cantor Fitzgerald

Philip Martin – Cantor Fitzgerald

Maybe you can talk a little bit about the retailers in the portfolio for a moment. Are you hearing any of the retailers talking about locations in your portfolio are already looking to take advantage of any potential vacancy that you may see there in 2009 because they like your locations better than existing locations elsewhere in their respective market?

And I guess retail is looking to take advantage on some of the retail vacancies in order to improved existing locations if ever?

Craig Macnab

Philip, there is a lot of GLA on the market, whether it is coming out of Linens 'n Things, Circuit City, Mervyn's, whatever and for retailers that are looking to expand and the good news is several of them, whether it is Pete’s, Groceries For Less etcetera they are clearly evaluating all their options. What has changed in the last couple of months is that the types of tenants, the decisions are really getting made closer to the corner office by the CFO and the CEO. Obviously they have a real state committee involved with the key decision makers and these retailers have been looking to open new locations.

In our experience they are only looking at this if there is a so-called “deal available.” As a landlord we have very little pricing leverage right now if any and we need to have an A+ location if we plan to give leases.

And you are going to struggle to get the existing rent. Let me just add one other thing exactly related to that, we do not have a lot of lease renewals coming up in calendar 2009.It is just right around 2010 but our team had done a very good job on renewing these. Early advantage going quite well that we will be picking numbers of 4 or 5 of those that we expect will not be renewed by the way.

Philip Martin – Cantor Fitzgerald

And if you look at those leases that you expect to potentially not get renewed and that is obviously being reflected in your vacancy or occupancy guidance going forward. The locations you expect to have trouble renewing, the location quality I mean are these C locations or are they mixed tag of AB and some C or…

Craig Macnab

It is a low number of properties I talk to them. One of them is a very, very small tenant, not to knit the needle either way. One of them is a tenant who is interested in renewing but once we are in introduction we think the market range is higher than what is clearly what they are offering. We are going to take it back and release it. We are prepared to have a couple of months of vacancy and then if some of the others we deal it.

Philip Martin – Cantor Fitzgerald

So in that market that you just spoke of, you feel that there is a sufficient demand for that location? It may take a few months but there is a retailer demand at the rent that you believe to be market?

Craig Macnab

Some of it we do and that location is fairly a strong location as the tenants who, over the duration of that lease 15 years the financial portfolio has deteriorated. It is a small public company today. It was a bigger public company and we hoped we can get an upgrade all the way round in terms of rent and in credit. That will, it will take us some months. We need to get closer to the Christmas Season for the tenants to step back.

Kevin Habicht

Just to clarify, in total we have plenty properties but its .9% of our base rentals expiring in 2009, small number.

Philip Martin – Cantor Fitzgerald

And the vacancy Kevin that you are forecasting here in the guidance, is that primarily related to renewals as opposed to retailers shutting down?

Kevin Habicht

It is a combination of both. We have probably more new vacancy rather than the lack of renewal but it is a combination.

Philip Martin – Cantor Fitzgerald

And Kevin, one other thing here on the assets sales, 6.9% cap rates, how is that trending? I mean certainly you have made 19 of this connect between buyers and sellers out there and the gap that remains and having said that, you are selling properties at 69 cap rate. I know it is a specific type of a property and it is a specific type of a buyer but where do you see that cap rates going and what your estimate on buying? I may have missed that in some of the opening remarks but what is the estimate in assets so far in 2009?

Craig Macnab

Let me just talk a little bit to the cap rates. Our disposition volume in the full cost is $40 to $50 million and this is a small number but we do not have to sell any of them and if we do not get the pricing that we want, we are not going to do it and by the way you can go to our website and you can see what we are looking to sell. The overall transaction volume is way down because to the extent a buyer is looking to get any date as well as it is possible to fund, number one. Number two is the terms of the date including amortization of principal are very, very onerous so transaction volume is way down which effectively means that the supply of product on the market is considerably higher today than it was in the past and cap rates are up. Those 6.90 numbers, I have no idea what it would be but it is picking on a hundred basis points higher today.

Operator

There are no further questions and I would like to turn it over to management for any concluding remarks.

Craig Macnab

Thank you very much. We appreciate all of you listening and encourage you to call Kevin and myself with any follow-up question. Thank you very much. We will be talking to you all. Good afternoon.

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