FelCor Lodging Trust Incorporated Q4 2008 Earnings Call Transcript

Feb.27.09 | About: FelCor Lodging (FCH)

FelCor Lodging Trust Incorporated (NYSE:FCH)

Q4 2008 Earnings Call Transcript

February 27, 2009 12:00 pm ET

Executives

Stephen Schafer – VP, IR

Rick Smith – President & CEO

Andy Welch – EVP & CFO

Analysts

David Loeb – Robert W. Baird

Chris Woronka – Deutsche Bank North America

Patrick Scholes – Friedman, Billings, Ramsey & Co.

Will Marks – JMP Securities

William Truelove – UBS

Kahn Ho [ph]

Gud Onboshwink [ph]

Smedes Rose – Keefe, Bruyette & Woods

Nap Overton – Morgan Keegan

Ken Wu [ph]

Hasan Aditya [ph]

K.C. Shanley [ph]

Operator

Good afternoon, my name is Zara and I will be your conference operator today. At this time I would like to welcome everyone to the FelCor's Fourth Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (Operator instructions). Thank you. Mr. Schafer, you may begin your conference.

Stephen Schafer

Thank you and good morning. With me this morning are Rick Smith, President and CEO, and Andy Welch, EVP and Chief Financial Officer. Rick will address the current environment in our areas of focus and Andy will then discuss the results for the quarter and important balance sheet items and our outlook followed by your questions.

Before I turn the call over to Rick let me remind you that with the exception of historical information the matters discussed on this conference call may include forward-looking statements within the meaning of the Federal Securities Laws. Forward-looking statements are expressions of current expectations and are not guarantees of future performance. Numerous risks and uncertainties and the occurrence of future events may cause actual results to differ materially from those currently expected.

These risks and uncertainties are described in FelCor's filings with the Securities and Exchange Commission. Although we believe our current expectations to be based upon a reasonable assumptions we cannot assure you that our expectations will be attained or that actual results will not differ materially.

And with that I will turn it over to Rick.

Rick Smith

Thanks, Steve, and good morning everyone. Thank you for joining us for our year end call. As everyone is aware, 2009 is going to be a challenging year for the hospitality sector, to say the least. The issues with the credit markets has led to refinancing risk and in turn have put liquidity pressure on companies and individuals alike. Less spending means less travel and the trends are not likely to turn until this pressure is alleviated.

What the new administration is doing is a good step but it is not directly at this point attack the underlying fundamental problem. It will eventually get there as there is no choice for the U.S. economy but how long it will take is not known at this time. Therefore our priorities have to be as follows.

Take care of our near-term maturities which we’re in the process of finalizing with the current lender. Be proactive to address any covenant issues which this year's operating results might bring. We have agreed to terms with our lead line of credit lender on a secured $200 million, four year term loan facility including extension options to pay off and cancel our credit facility. This will eliminate our corporate covenants.

Continue the work we have begun to be proactive in addressing the 2010 and 11 maturities. While this work is underway it is premature to discuss in detail. Operate our hotels as efficiently as possible. This has gone very well to date. In this environment market share and flow through are everything. In 2008 we were the best performing public hotel company in North America from the RevPAR gross standpoint. More impressive than that was our market share and flow through. For the 70 hotels that completed renovations during '07 and '08 we increased market share by nearly 5.5%.

Our complete portfolio increased market share by approximately 3% notwithstanding the disruption related to the hotels we were working on during the year, including the future Marriott Union Square being under massive renovation for most of the year.

We had positive RevPAR and EBITDA growth for the year with very good flow through. However, maybe the most impressive thing was our negative flow through to budgeted '08 revenue and this is a critical point.

Our revenue for '08 was $75 million below our original budget, only $22 million of that flow through to EBITDA. That is a negative flow through of 29%. I frankly have never even heard of that type of performance on that large of a revenue drop. That should give you some idea of how we attack the downturn. Further, that same philosophy has carried through to the 2009 budget process.

Not only were we pleased with the efforts of our asset management team and the work and cooperation of the managers but we will continue to work through the year on cost items and revenue generation items to mitigate this economy. This year we will take creativity to continue to gain and maintain market share and to remain as efficient as possible on flow through.

Lastly we will continue to preserve liquidity by reducing spending on capital and redevelopment projects to go along with the suspension of the common dividend and the operating cuts both at the home office and at the hotels. We will look at every dollar being spent.

Thus we are in the process of taking care of the capital markets items that we needed to given this economy and we are performing extremely well operationally. This coupled with the fact that embassy tends to gain share during the downturn due to the value play and the fact that our portfolio is in great shape post renovations puts us in the best position to continue operating very well.

A couple of final notes before I turn it over to Andy. For the fourth quarter we exceeded the high end of our guidance by $0.03 in FFO per share. January gained 2.2% in market share and finished slightly ahead of our budget, which we are giving guidance on today in RevPAR and flow through. February to-date is continuing to gain share based on the daySTAR information.

We are seeing good progress across all brands except for Starwood, where we have some work to do. For the year in '08 we were up 1% in RevPAR, Starwood was down 5% in January, we were up 2.2% in market share, Starwood was down 2.8% with a 90 index.

As for what we are seeing in the market, while some markets are better or worse than others and some property types are being affected more than others the bottom line is that this economy is affecting everyone and we have to batten down the hatches as we have and ride this out. We have the liquidity to do that given the two deals we are finalizing and lastly we are very much looking forward to the opening of the Marriott Union Square on April 1 and finishing out the last of the public space in May.

And with that I will turn the call over to Andy.

Andy Welch

Thanks, Rick, and good morning. Let me start by talking about our liquidity and how we are positioned ourselves to withstand the downturn. With the two pending financing we will significantly improve our balance sheet and flexibility and extend our maturities. I'm going to give you as detailed of an update as I can but terms on both financing are not final. Final details will be provided when these facilities are closed and funded over the next two months.

First an update on our $117 million secured mortgage facility that matures in April. A Prudential Mortgage Capital is one of the two existing lenders. We have reached agreement on the principal terms of a new $120 million five year secured loan with Prudential.

We have paid a nonrefundable deposit of $300,000. Final terms are subject to formal credit approval which traditionally does not happen until after completion of due diligence. Third party reports have been completed. And to my knowledge, there are no issues. We have not locked the interest rate and I'm not going to speculate on the final rate.

Second, an update on our unsecured line of credit. We were in compliance with all terms at year end or in compliance to-date. I anticipate remain in compliance at the end of the first quarter. But based on our guidance, we are likely not to remain in compliance by year-end.

We are pursuing a new $200 million secured term loan with our existing banker. Proceeds from this new term loan will be used to payoff the outstanding balance on our line and allow us to cancel the line of credit. Proceeds will also be used for general and corporate purposes.

We have agreement on the principal terms of this facility. It will be secured by eight hotels, a term of up to four years including extension options. It will be non-recourse to FelCor and not contain any corporate level financial covenants. JPMorgan has approved the material terms of this loan, will act as late arranger and provide a portion of the loan. This new facility is subject to completion of due diligence, documentation and other lenders approval. I am not at liberty to discuss further terms at this time.

I anticipate closing the facility by end of April. Now why does this make sense? Once closed, we will not be subject to any corporate level financial covenants. We will be providing security and while we're doing this, it will eliminate the unencumbered test in a line which will allow us additional flexibility with our remaining unencumbered hotels. We'll also be extending the maturity date by up to two years. We also continue to evaluate our options and having conversations with various institutions regarding our 2010 and 2011 maturities.

Now let me touch on the fourth quarter and 2009 guidance. RevPAR declined 8.5% for the fourth quarter and 6.6% for the 70 hotels that have completed their renovations. But we exceeded the high end of our FFO and EBITDA guidance reflecting successful and ongoing cost cutting measures.

Our direct costs or costs per occupied room during the fourth quarter decreased over $2 compared to budget and were below the comparable period in 2007 by $0.30. Indirect or undistributed costs were over $7 million below budget and $3 million below last year's fourth quarter. Rick mentioned the impressive negative flow through to budget for the year of just 29%.

Let me comment on some of the items that were implemented during 2008 and are being implemented in 2009 as part of our budget process with our various management companies. We have retooled the hotel of our cost structure to reduce labor expenses primarily through headcount reductions and improved operating efficiencies. Some of the plans we will put in place will provide relief through the downturn. However, we have also increased efficiencies in areas where the cost reductions are permanent.

Hilton alone has reduced approximately 400 full time equivalent positions at our hotels for full year 2009 compared to prior year in our hotels or $8 million of cost. We eliminated middle manager and assistant manager positions. We have complexed human resources, account and revenue management. In addition, we will continue to complex where appropriate, general manager, engineering and sales positions. We expect increased energy efficiency and expect flat utility costs despite an increase in retail utility revenues.

We are improving the food and beverage profitability. We have streamlined menus, improved bar offerings and increased banquet pricing and expect an increase in food and beverage profit margins in '09 despite a decrease in revenues. The further staff reductions, shutting down floors and food and beverage operations are also options if trends deteriorate further but are not yet in operating plans.

We are trying to strike a balance between proactively making cuts against maintaining guest impact and overreaching by cutting too deeply. Despite the lack of visibility, we do want to provide full year 2009 guidance which reflects a prolonged recession, a continued deterioration of lodging demand and the impact from our pending financings. We expect RevPAR to decline 10% to 13%. This is split roughly 60% occupancy and 40% rate.

We expect to continue to outperform our competitive sets in 2009 due to, one; the condition of our hotel as a result of the completion of our renovation program, two; a completion of our conversion of our Union Square to a Marriott during the second quarter. We anticipate RevPAR to increase 50% at this hotel during 2009.

Three; Embassy Suites which makes up about 55% of our portfolios, tends to outperform in a downturn due to the value play. And fourth; with our group representing 25% of our occupancy, we are less impacted by continued weakening of this segment.

While I cannot provide the interest rates on the two pending transactions at this time, I wanted to provide a general range of our anticipated interest expense for 2009 which will be between $105 million and $107 million. I will provide an updated guidance for interest expense once these two financings are closed over the next two months.

A 49% of our debt is at floating rates and we are forecasting guidance for LIBOR based on the current forward curve. Effective February 13th, the interest rate on our $300 million Senior Notes due 2011 increased to 9% from 8% as a result of both Moody's and S&P rating our senior debt single 'B'.

From a modeling standpoint reflecting our interest expense for '09 if you update your model to reflect the incremental 1.5 million expense on our Senior Notes due to the downgrade and update your LIBOR curve, then the difference should be equal to the net impact from the two pending financings, including increased interest expense and the amortization of all loan fees and loan costs.

And finally, from a cash flow point of view based on the midpoint of our guidance. Cash flow will be negative $19 million after capital expenditures of $84 million after preferred dividends of $39 million and prior to any scheduled debt repayments.

And with that, we'd be happy to address any questions.

Question-and-Answer Session

Operator

(Operator instructions). And your first question comes from the line of David Loeb. Your line is open.

David Loeb – Robert W. Baird

Good morning, gentlemen. I think its still morning.

Andy Welch

Good morning.

David Loeb – Robert W. Baird

Andy, thank you for the guidance on interest expense that was actually one of my questions. I know you can't talk about the terms of this new debt. But particularly on the term loans you did mention that it would be up to four years with options. Can you at least give us a little bit of color on what the terms would be of the options so we can have an idea about whether there are hurdles you have to meet in order to extend that to a four-year term?

Andy Welch

David, they are not final. There will be debt service coverage based and they are not final yet. I'm comfortable that they are appropriate and achievable.

David Loeb – Robert W. Baird

Okay.

Andy Welch

And certainly negotiating this to be up to a four-year facility.

David Loeb – Robert W. Baird

I get it. Andy, you were justifiably comfortable that you would be able to refinance the insurance company mortgage. I know it's something we talked about back in November. I wonder if you could also just give us a probability of close for these two facilities. Obviously you still have some due diligence process to go through, syndication and assuming there isn't a wholesale failure of the banking industry before you actually ink these deals. What do you think is the probability of close?

Andy Welch

I don't think we would be making public comments on where we stood unless we were very confident in closing both facilities.

David Loeb – Robert W. Baird

Yes, and very confident means in the 90s, you think?

Andy Welch

I'm very confident, Dave.

David Loeb – Robert W. Baird

Okay. Thank you, Andy. One more for you. If you could just talk a little bit about preferred dividends and how you view cash payment of the preferreds given your goals of preserving capital and new debt facilities and things like that?

Rick Smith

David, as Andy pointed out, we will be after capital and after preferred dividends we would be $19 million cash flow negative this year. Certainly maintaining cash flow as best we can and maintaining liquidity as I pointed out in my comments is one of our highest priorities and that certainly is a consideration. But we meet quarterly with the board. We will do that in March and make a determination on that and I'm not prepared to make commentary until we have that discussion with the board.

David Loeb – Robert W. Baird

Great. Thank you very much.

Operator

And your next question comes from the line of Chris Woronka. Your line is open.

Chris Woronka – Deutsche Bank North America

Hey, guys.

Andy Welch

Hey, Chris.

Chris Woronka – Deutsche Bank North America

Couple quick ones. One is I think, Andy, you mentioned the RevPAR guidance assume roughly 60-40 occupancy split. I guess looking back to the prior downturn I think sometimes you get into the I guess the heart of it and the end of it you might get more rate declines than occupancy and just thinking about where I'm going with it is if that's true is there on the cost side obviously I think if the flow through becomes a little more difficult just any color you might want to add on that?

Andy Welch

Well, there's a couple of things that we can say about that, Chris. I think we took a very hard look at what was going on from a rate perspective in our markets and where we were seeing things start to slip and I don't mean slip from an absolute discounting standpoint but from a global standpoint both with some rates going down but also with a remix of business with corporate trends going down and things of that nature. We were very diligent with regard to how we looked at that and that is all baked in. We do believe because of the embassy value play we are able to do some things on the rate. Also with the way that we are able to better maintain rate integrity with regard to third-parties versus what happened in the last downturn we are able to do some better things in this downturn than we did in the last downturn.

Certainly flow through, I will tell you the way we looked at it, flow through is critical to us. We did an incredible job as I pointed out last year with regard to flow through and the way we look at it this year is there were certain things that were absolutely going to be cut. So you know they are in the budget and when the initial budgets role in, the initial flow through looks pretty good. As the market started to deteriorate beyond those cuts we used a more kind of I guess conservative flow through as we went beyond the initial budgets and where they came in and beyond those initial cuts given the extent of those cuts. And when we looked at the rate impact below that level we were pretty draconian with regard to how we flow that through. So we feel pretty good about the flow through that we have in the budget. It was very, very well thought out and we were very disciplined in it. We've got some other things that if things start to deteriorate that we can do that will help with that. But I don't know if that completely answers your question, Chris but that was kind of the whole process of how we look at it.

Chris Woronka – Deutsche Bank North America

Yes, no, that's very helpful, thanks. Just kind of as a follow-up to that, I guess it would be more interested in just kind of looking at the Embassy Suites part of it. Let's say for the fourth quarter, your rates were only down 3.8%. How much of that is really remixing versus discounting some of the channels? Is it even possible to kind of break that down?

Andy Welch

Well, I don't have it in my head, but I can tell you we talked a lot about that and we've seen some rates start to come down in market and we are having to fight that battle. In the fourth quarter I can tell you that I feel pretty confident saying that the biggest percentage of that was remixing. Now government was up, corporate trend is down, groups down, et cetera. And so my guess would be in the 80% to 90% range, Chris versus the 10% to 20% on any actual drops in rate. And so does that help you?

Chris Woronka – Deutsche Bank North America

Yes, that's great. And then just one final one I apologize if I missed it. How should we think about corporate expense for the year? Is it a pretty meaningful decline?

Andy Welch

Well, on a kind of a same store basis we are down, I will tell you some of the things that we did I mean there's no increases for the officer level people here. And we looked as far as the all the non-labor line items we reduced all those in total by about 11%. Now we do have a couple of things coming in this year that the timing of which can't be helped. A couple of pieces of litigation that will come to the forefront, not major expenditures there, but it's adding some cost. And it's stuff that we feel on the litigation side that will benefit us at the end of the day. However, we will have some upfront cost related to that. That's a new cost that came in. And there were a couple of other smaller items that were out there. But by and large we cut every line except for a couple of new things that came upon us that couldn't be helped.

Chris Woronka – Deutsche Bank North America

Okay. Very good. Thanks, guys

Andy Welch

Okay.

Operator

And your next question comes from the line of Patrick Scholes. Your line is open.

Patrick Scholes – Friedman, Billings, Ramsey & Co.

Hi, good afternoon. You mentioned earlier on in your prepared remarks having a little bit more challenge with I think it was Starwood Hotels in cutting costs versus some of the others. Can you give a little bit more color on that?

Andy Welch

Well, what I was referring to was mostly index and market share. Patrick, it's not so much the cost side of thing. I think that we are doing some good things with them on the cost side of things where we are having trouble with its market share and we've got to shore that up. That has to improve. Because we are getting good traction with everyone on the market share. We're still gaining market share notwithstanding the Starwood numbers but we are hemorrhaging share at Starwood and that's got to stop.

Patrick Scholes – Friedman, Billings, Ramsey & Co.

What in your opinion needs to be done to stop that?

Andy Welch

Well, there's a number of things that need to be done. But I don't want to get into the details of the plans on a hotel by hotel basis that we are going to do. I mean we got to get a lot more aggressive on the revenue side, the direct sale side and from a creditor program, from a vendor program and a number of other places that we need to go. Where group is driving it a lot and we've just got to get more aggressive on it. So I think that it's going to take us sitting down spending sometime with them and really working through the plans on a hotel by hotel basis, a little more fully than has been done and we need some value add from e-commerce as well. So there's a number of places and we're going to have to, we just need to get more aggressive.

Patrick Scholes – Friedman, Billings, Ramsey & Co.

Thank you for that.

Andy Welch

You're welcome.

Operator

Your next question comes from the line of Will Marks. Your line is open.

Will Marks – JMP Securities

Thanks, hello, Rick, hello, Andy. I have a question on just group bookings in general. I know it's not a huge part of your business. Actually maybe you can tell us about what percentage it is and what you're seeing in group where you started the year, what kind of cancellation rates? I know you talked a little bit about this.

Rick Smith

Well, group bookings are down 19%.

Andy Welch

And group is about 25% of our business.

Rick Smith

Yes.

Will Marks – JMP Securities

And in terms of cancellations, is there anything? Are you seeing an accelerated pace?

Rick Smith

We've seen some cancellations. It hasn't really accelerated all that much. We did have one big cancellation in February at one of our major properties but there was about a 30% attrition rate on that. And so, we collected the attrition. Obviously the booking window is extremely short and but we haven't seen huge acceleration with regard to cancellations. Now that could have something to do with the fact that group is making up 25% of our room rate.

Will Marks – JMP Securities

Okay. And then…

Rick Smith

That bodes well I think for as Andy mentioned in his prepared remarks, I think that that bodes well for us in competing this year because we have a little bit less that than some others do.

Will Marks – JMP Securities

Right. Okay. And then on the food and beverage side, can you talk a little bit about trends you're seeing; outside the room spend this year?

Rick Smith

Outside of what?

Will Marks – JMP Securities

Just any trends in terms of spending outside the room particularly, food and beverage, what you're seeing year to date?

Rick Smith

Ancillary spending for guest?

Will Marks – JMP Securities

Yes.

Rick Smith

We've seen a little bit come off but not overly material. Over the course of the last year with Don and Troy, we have, our focus, we've been focusing heavily on S&P because we had a lot of, lets call it opportunity there and we're making some really good progress with regard to menus and S&P profit and how we're working labor and the restaurant lounge, all the menu areas we've been making a lot of progress on that. So, we feel good about it. We haven't seen a huge fall off as I mentioned in the ancillary spending but that's what we've seen to date. There's not really any visibility on that going forward.

Will Marks – JMP Securities

Okay. Great. That's all for me. Thank you.

Rick Smith

Thanks, Will.

Operator

And your next question comes from the line of William Truelove. Your line is open.

William Truelove – UBS

Hi, two questions. First, Andy, once you're done with the new loans, how many hotels will remain unencumbered in the portfolio?

Andy Welch

23. That's in the press release.

William Truelove – UBS

Okay. Thanks. Busy day. Second question would be for you, Rick. You talk about the value proposition of Embassy Suites. One of the value propositions is clearly the free breakfast, hot breakfast. With all the cut backs that you're trying to do to save costs is there anything that might change that value proposition at the Embassy Suites and what's going on with the free breakfast there?

Andy Welch

I think, the free breakfast will continue and the manager's receptions will continue and that coupled with the two rooms give a pretty big value play at a good competitive rate for people's dollars particularly when they are trying to make sure that certain names aren't on their expense reports and things of that nature. Certainly we are taking advantage of purchasing to keep costs down and there might be some tweaks with regard to how we creatively work breakfast and things of that nature but breakfast will still be there.

William Truelove – UBS

Okay. Thanks.

Andy Welch

You're welcome.

Operator

And your next question comes from the line of Kahn Ho [ph], your line is open.

Kahn Ho

Hey, guys. I just wanted to follow up on that last question about food and beverage. In particular for the fourth quarter, was the reason why the revenues increased, was that just taking advantage of the opportunities in the Banquet side or were you just advertising more to your current guests?

Rick Smith

One issue that we've taken over five to six outlets as leases have come up and so the geography on our income statement showing more revenue expense as we take it over versus just third party and we've had improved offerings and again a better watchful eye on the expenses.

Kahn Ho

Okay. Great.

Operator

Your next question comes from the line of Gud Onboshwink [ph]. Your line is open.

Gud Onboshwink

Yes. Hello, gentlemen. I wonder if there's any thought of buying back some of these preferred shares. I looked at another one of my REIT investments yesterday; it's under the symbol of FUR which very successfully bought back all of its preferred shares. I know cash flow is a big issue. But you're paying a dividend of almost 50% at the present time. Does something like that make sense?

Rick Smith

I guess I'll answer that two ways. First, we have an increased focus on liquidity right now and secondly, our bond indenture does not allow us to buy back preferred or common equity today.

Gud Onboshwink

Okay. That answers that question. Thank you.

Operator

And your next question comes from the line of Smedes Rose. Your line is open.

Smedes Rose – Keefe, Bruyette & Woods

Hi. A quick one, what were the liquidated damages that you took in the quarter associated with?

Rick Smith

With the two hotels we referred to in the last quarter, we just hadn't finished everything, finalized everything on the I Drive and Cocoa Beach Holiday Inns. They are scheduled to come out of the system this year and we are looking to sell them and whether or not they sell they're going to come out of the system. Contractually that gets you to a point where you owe technically liquidated damages. We're certainly in constant conversations with (inaudible) we have a very good relationship with them and we are working through that process. And regardless of where we end up at the end of the day, whether there's a replacement asset or something that we can do that defers that or ends up making us not pay it at all the fact that contractually we know they are coming out of the system this year requires us to record it this year.

Smedes Rose – Keefe, Bruyette & Woods

Okay. And then that's the maximum amount then.

Rick Smith

Yes.

Smedes Rose – Keefe, Bruyette & Woods

Okay. Great. Thank you.

Rick Smith

Thanks.

Operator

And your next question comes from the line of Nap Overton. Your line is open.

Nap Overton – Morgan Keegan

Good morning, I know its too early to the talk much about it but your initial approach to dealing with the 2010 and 2011 debt maturities which I think are 275 million and almost 900 million. Could you just give us a little color on how you are approaching that?

Andy Welch

I would tell I was variety of ways, Nap. There's two pieces of debt and two (inaudible) ones with a life company that we are very in discussions with the other CMBS that are not crossed. The 11s, that's the senior notes and we are actively evaluating and discussing our options with lots of different people. But priority number one for me is to get the two financings done for '09 completed. But, yes, Nap, there's certainly focus on the tens and 11.

Rick Smith

Work in earnest will start as soon as we get these two put to bed but we can't really comment on detail right now as Andy said.

Nap Overton – Morgan Keegan

Okay. Thanks.

Operator

And your next question comes from the line of Ken Wu [ph]. Your line is open.

Ken Wu

Hi, just had a second question for before I got cut off. The question is about taxes, insurance and lease expense. It looks like the expenses have come down quite a bit. Do you expect to I guess maybe negotiate more savings there with your insurance providers or all the property taxes you are going to be paying?

Andy Welch

Ken, property taxes renew in May. We are forecasting a slight increase there. The leases that are showing up on that line is part of the percent and ground leases which come down as revenues come down. And we are expecting a slight increase in property tax and a slight decrease in general liability insurance.

Ken Wu

Okay. So I guess running forward will it just net out and this would be a good rate to use going forward?

Andy Welch

I didn't understand that.

Ken Wu

I guess if you are going to get a slight increase in your property taxes but then I guess for your general insurance it's going to be coming down. Could I use this 26 million to go forward, is that a good number?

Andy Welch

For '09 or '10?

Ken Wu

For '09.

Andy Welch

Yes, we actively look at prior year property taxes and we have been successful in negotiating lower rates as we go out throughout the year but, the budget is based on current rates as they exist and we would hope there would be some good news to report during the year with successful negotiations.

Ken Wu

Okay. Great. Thanks.

Operator

And your next question comes from the line of Hasan Aditya [ph], your line is open.

Hasan Aditya

Hey guys, thanks for taking my question. I know you mentioned you can't comment on pricing for the new JP Morgan facility but can we get any indication on what the loan to value ratio is going to be on the new deal? Thank you.

Andy Welch

The details I provided are what we can pride at this point and I can't provide any further detail.

Hasan Aditya

Okay. Thanks.

Rick Smith

Thanks.

Operator

And your next question comes from the line of K.C. Shanley [ph]. Your line is open.

K.C. Shanley

Hi, guys, good morning. Can you talk briefly about liquidity? It looks like from the press release you've got about 100 million of cash and you are saying at the midpoint of your guidance you will be negative 19 million free cash flow. Do you run into any liquidity issues with the problem that you won't have a revolver going forward? Thanks.

Andy Welch

No, we are forecasting being 80 million plus at the end of the year when you look at where our guidance is and where we began the year with cash. So, no. While we wanted to revolver we'll have 85 million to 90 million of cash at the end of the year.

K.C. Shanley

Okay. Just as a follow up, can you talk about where cash is at the low end of your guidance?

Rick Smith

There'd be 5 million less than that. And we also have 23 unencumbered properties.

K.C. Shanley

Okay. Thanks.

Operator

And I'm showing no further questions in queue.

Rick Smith

Okay. Thank you all for joining us and we'll talk to you in May.

Operator

And this concludes today's conference call. You may now disconnect.

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