Post Properties Inc. Q4 2009 Earnings Call Transcript

Feb. 9.10 | About: Post Properties (PPS)

Post Properties Inc. (NYSE:PPS)

Q4 2009 Earnings Call

February 9, 2010 10:00 AM ET

Executives

David P. Stockert - President and Chief Executive Officer

Christopher J. Papa - Chief Financial Officer

Jamie Teabo - Executive Vice President, Property Management

Analysts

Dustin Pizzo - UBS

Michael Salinsky - RBC Capital Markets

David Toti – Citigroup

Michael Bilerman – Citigroup

Michelle Ko -Merrill Lynch

Karin Ford - Keybanc Capital Markets

Jonathan Habermann - Goldman Sachs.

Andrew McCulloch - Green Street Advisors

Stephen Swett - Morgan, Keegan & Company, Inc

Shane Buckner [ph] - Wells Capital Management.

Operator

Good day everyone, and welcome to today’s Post Properties' Fourth Quarter 2009 Earnings Conference. (Operator Instructions).

At this time, I’d like to turn the call over to Post Properties' President and Chief Executive Officer, Mr. Dave Stockert. Please go ahead, sir.

David Stockert

Thank you and good morning. This is Dave Stockert. Welcome to the Post Properties fourth quarter conference call. With me today are Chris Papa, Chief Financial Officer and Jamie Teabo, Executive Vice President, Property Management.

Before we begin the business of this call, I'll reference the Safe Harbor statement. Statements contained in this conference call regarding expected operating results and other events are forward-looking statements that involve risks and uncertainties.

Actual future events or results may differ materially from these statements. Such forward-looking statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 and are made based on our current expectations, assumptions and beliefs as well as information available to us at this time.

A variety of factors could cause actual results to differ materially from those anticipated, including those discussed in the risk factor section of our annual report on Form 10-K, dated December 31, 2008. Post Properties undertakes no obligation to update any information discussed on this conference call.

During this call, we will discuss certain non-GAAP financial measures. Reconcilliations to comparable GAAP financial measures can be found in our earnings release and our supplemental financial data. I'll now begin the business of this call.

Funds from operations of $0.17 per share after previously announced severance and debt extinguishment cost and $0.34 per share before such previously announced costs were consistent with our expectations and prior guidance.

Same store results were also in line with our expectations and prior guidance. The average rental rate for the same store portfolio fell by 1.8% on a sequential basis in the fourth quarter, importantly this was appreciably less than the 2.6% sequential drop in average rents we experienced in the third quarter and we were able to slow the average rate of decline in rents and still hold average economic occupancy essentially flat quarter-to-quarter.

This is a good result and we’ve seen a continuation of that same trend through the month of January. Our same store revenue guidance for 2010 at the mid-point reflects a modestly lower decline in revenues than in 2009 and much of our 2010-revenue guidance simply reflects the rent roll that is in place today.

We expect to see a progressive lessening of erosion in the rent roll as we move through 2010 and toward the inflexion point that should mark the bottom of the current fundamental cycle.

We’ve also been focused for some time now on expense reductions and efficiency both at the property level and in our corporate functions and our results for 2009 and guidance for 2010 reflect the impact of those efforts.

In the past two years, we’ve reduced staffing by roughly 15% excluding the additional impact on staffing from asset sales. We’ve also achieved meaningful reductions in real estate taxes and other controllable property operating expenses.

Considering this entire cycle against the economic backdrop, we believe our results both for revenues and expenses will be markedly better for having made technology enhancements in pricing, lease procurement and purchasing systems and that this will be an ongoing advantage for companies like ours that have done so.

We're roughly 70% through the expenditures for our exterior remediation program. This program has been executed successfully and without a significant impact on same store performance.

At completion later this spring, we'll have made substantial physical and visible enhancements to nearly half the portfolio, improving the curb appeal of those communities.

Finally, as it is detailed on page 11 of our supplemental financial data, the company's leverage and other debt ratios, our debt maturity schedule and line capacity all reflect the significant refinancing and de-levering activity we undertook during 2009.

This morning, we announced the implementation of an up to four million shares after market equity program. We expect to use this program judiciously as an additional way to maintain the strength and liquidity of the balance sheet, preserve flexibility and have access to the broadest possible array of capital.

We have not factored any specific level of external investment into our guidance for the coming year and are not capitalizing interest, real estate taxes or personal overhead to any of our undeveloped land positions. We will assess any investment opportunities selectively.

With respect to our guidance for 2010, we have included an estimate of the impairment we anticipate recognizing, once we move our condominium developments into the held for sale category for accounting purposes.

We have previously discussed this possible impairment and disclosed details of our methodology in our last two Form 10-Qs. We are required to make significant judgments in developing estimates of fair value for impairment purposes and we’ll update our estimates again in the future.

Regarding our Atlanta condominium project, we remain in discussions with the construction lenders as to approved release prices for contracts among other things. Until such discussions are concluded, we do not expect to write contracts with perspective purchasers.

As we look over the coming year, it seems clear that distressed multi-family acquisition opportunities will be much more limited that might have been hoped for. However this is largely due to gradual improvements in the economy and the capital markets, which is benefitting the value of existing assets and the fundamental outlook for the industry.

Although there is more talk of new housing construction, it still appears unlikely to come on at a pace that would materially change the favorable supply and demand characteristics of our business over the next few years.

With the work we have done to improve the balance sheet, portfolio and our corporate organization, the company is well positioned at this point in the cycle.

That concludes our prepared remarks. Operator, would you please open the phone lines to Q&A.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from Dustin Pizzo - UBS.

Dustin Pizzo - UBS

I guess, David or Chris, when we met with you in mid-December you told us that you were expecting upwards of $5 million of savings annually from the G&A. So, can you just help me understand what’s changed essentially over the past month such that the savings are now expected to be in that $1 million, $1.5 million range?

Christopher Papa

Well, Dustin, the savings are in fact around $5 million as we previously discussed.

We’re talking about the guidance that we've given in the press release. When we talk about overhead, we’re talking about property management, overhead, investment and development costs that are expensed as well as our G&A.

So if you take the three of those at the midpoint of the reduction we talked about, 6% to 9%, that accounts for about a $2.3 million decrease at the midpoint year-over-year. And the rest of it essentially relates to reduction in capitalized overhead related to development activities, which gets you to around $5 million.

Dustin Pizzo - UBS

Okay, and then looking at the development activities, what was the thinking behind moving the Millennium, Spring Hill and Citrus Park parcels back to the investment category?

Christopher Papa

Sure, we looked at our land positions again at year end and for accounting purposes given that we don't have an expectation currently of selling those particular parcels within a year, we decided to put them back in the held for future investment category. But I don't think anything has changed there, it's more just presentation for accounting purposes.

Dustin Pizzo - UBS

Okay, and then just finally in your opening comments, you discussed that you're expecting an inflection point in rents, I'd imagine at some point later this year, can you provide any more detail around when you expect that to happen?

David Stockert

Not with any great precision, what I've said in my comments is that we expect - what we’re seeing is a gradual improvement in the erosion, so we’re moving toward that inflection point, but we don't have a specific prediction as to what - specific timing in that. Again we’re seeing -- Jamie, if you'd like to comment, what we've been seeing in the last few months and into this year.

Jamie Teabo

We've seen in quarter four new lease decline average about 10% with a blended decline at 7%. If you then take a trailing 12-weeks which would include November, December, and January that number has improved to an 8% reduction on new leases and a 5% reduction on the blended rent.

If you look at just at what we've experienced in the last four weeks, we see that improving again with a 5% reduction on new leases and a 3% blended reduction. So we are seeing things trend favorably but it's early in the cycle to be overly optimistic.

Operator

Your next question comes from Michael Salinsky - RBC Capital Markets.

Michael Salinsky - RBC Capital Markets

In the guidance you provided for 10', does that assume any issuance under the new ATN program that was put in place?

Christopher Papa

There is some in there, I'd say with the equity offer we did late in the third quarter and what we are factoring in, there is very modest dilution because we're, basically the uses of the proceeds were used to essentially pay down debt.

So based on what we did in last year, what we're forecasting this year, I'd take that around maybe $0.02 of dilution overall between the two.

Michael Salinsky - RBC Capital Markets

The guidance you offered for 2010 as well, what employment scenario is it based upon and how sensitive should we look at that in terms of 1% swing in NOI, what does that to guidance essentially?

David Stockert

A 1% swing in employment or 1% swing in NOI?

Michael Salinsky - RBC Capital Markets

Maybe both ways, if you have that detail?

Dave Stockert

Well, I think we have, in thinking about our -- as we’ve said on calls, we look at a lot of data in developing our budgets. But, there’s not an algorithm that plugs in an unemployment rate and spits out a guidance. We’re looking at conditions on the ground today and what they were a month ago and what our expectations are for the next year.

So, our general overview of the economy is, that the economy is in the process of healing and that there will be some modest improvement in employment over time. If it happens faster, that would be a good thing. We’re assuming it’s a gradual improvement in employment.

The other factor that we look at is just the competition that we have from overall housing stock and we see the housing market again gradually healing as well. And our expectations based on what we see in terms of new supplies, the conditions that we faced in ’09, actually would have been worse than what we expect to see in the housing market in ‘010.

So, we think we’ll have a little bit more favorable employment picture in ‘010 than we had in ’09 and we think we’ll have a little bit more favorable housing market in ‘010 than we had in ’09. And both of those things should benefit us.

Michael Salinsky - RBC Capital Markets

Switching over to the Atlanta condo project, it sounds like you’re still talking with the lenders and the pricing and stuff. Where is pricing coming out on those properties right now?

Dave Stockert

Generally, I can speak to the Atlanta condo market, pricing is across the board, roughly, call it 60%, 55%, 60% of what expectations would have been two or three years ago. So, most projects are finding clearing prices at essentially a 40% to 50% off sale.

Michael Salinsky - RBC Capital Markets

Is that consistent with your rents as well?

David Stockert

Yes, we’ll face the same dynamic.

Michael Salinsky - RBC Capital Markets

Okay, and then several of your peers have noted a marked improvement in January operating trends. Just curious what you saw in January?

Jamie Teabo

Michael, this is Jamie. Just we’re also seeing improvements from December to January and also flowing into February. So we’re seeing the same trends you’ve heard elsewhere.

Michael Salinsky - RBC Capital Markets

Any specifics as to maybe the new leases versus renewals? Anything like that?

Jamie Teabo

Yes, the renewals -- actually our renewal conversion rate was up in January as well as our renewal increase rate increased in January. And as I said a few minutes ago, we’re seeing the decline on our new leases and our blended rate down to a 5% decline on new leases in January as opposed to a 10% decline on new leases in the fourth quarter.

Operator

Your next question comes from David Toti - Citi.

David Toti - Citigroup

Quick question, are there any acquisition or disposition assumptions in your guidance? I didn’t see any detail on that?

David Stockert

No, there are not.

David Toti - Citigroup

None? And how about development starts?

David Stockert

There are not any development starts in the guidance either.

David Toti - Citigroup

Okay, great. And then I’m looking at this number, but do you have the original basis for the condos that were sold in the quarter?

David Stockert

We’ll have to get – no, we don’t, we’ll have to get back with you on that. It would be in our supplements if you went back a couple of years.

David Toti - Citigroup

Yeah, I can …

David Toti - Citigroup

We can find out for you.

David Toti - Citigroup

Great. And my last question just has to do with operational strategy. And, I know you have said that you expect some sort of inflection later in the year but you don't really have specific expectations yet but I guess in advance of that inflection point when do you start to adjust your pricing model to let occupancy fall and hold pricing a little bit firmer. Is there sort of a timeframe where we would see that in anticipation of where you expect inflection to be?

David Stockert

We're running at kind of the 94% economic on average and we think that's a pretty good place to be as we start to see improvement and we will have plenty of opportunities as we see inflection, it won't happen overnight.

So we'll have plenty of opportunities to start gradually raising rents over time, but we wouldn't want to build up a lot of vacancy because that just puts you, that just sets you back in terms of the confidence of your staffs and just the pricing dynamic we've with customers when you build up that vacancy. So I would, I think, our expectation for occupancy for '010 would be, that it would be slightly better on average for the year than '09.

Michael Bilerman - Citi

As you think about the $40 million non-cash impairment, how much of that reflects the remaining construction cost you need to spend. And so when you look at the Atlanta and the Austin projects you still have $46 million to spend on those, I assume that as you spend it you're effectively writing it off?

Christopher Papa

No, Michael. What we're doing -- I mean if you look at our future cash flows, what we're doing is modelling that out and then applying a discount rate to those future cash flows which would also take into account any future cost to be spent, so it’s dialed into our fair value.

If you look at what we did in the second quarter, for example, on 3630 [ph] we wrote that down to rather modest level and then we’ve continued to capitalize the new cost as you go and what we had written it down to that time, it would essentially as we continue to capitalize would have grown up to about $42 million when it was complete, based on the numbers at that time.

Michael Bilerman

And you just wrote that whole, so if you looked at Peachtree, your book value today you have written down is 24.5 plus you have another $17 million left to spend, plus you have the 41 and then you wipe out all that equity?

Peachtree

Well, we have already -- that number already reflects the chart. So, what I was saying is, if you are at, you said 20 some odd million today, you are going to capitalize an additional 17, absent any other impairment charges your basis in that asset on the books would be in the low $40 million range.

Michael Bilerman

Right, and then you are assuming that you are going to write off…

David Stockert

Yeah, but be careful, the $40 million that we are talking about for ’10 relates primarily to the Austin asset. Okay, that asset we have not taken any impairment on.

Christopher Papa

Right, the 40 is a collective number for that project.

David Stockert

… is a collective number, but that’s heavily weighted to the Austin project. That’s really, again, that’s just taken an expectation of future cash flows and a discount factor and we are using a 23% annual discount factor, five-year holding, five-year sell-out period to get to the present value calculation, present value valuation.

Michael Bilerman

Then I guess on Peachtree, is there anything with the lender that’s affecting your ability to sell any of the units?

David Stockert

Yes, I mean the market pricing that I talked about before is less than the original agreed-to release prices and so that affects how the loan works, guarantees and things like that among other things. And so there’s a - yes, is the short answer.

Michael Bilerman

And then is there any sort of timing to resolution? And I guess if we can't get anything on the release pricing, I guess is it fair to assume? And then if you take - you have to take a bigger loss on the amount that you've invested in each?

David Stockert

That doesn't necessarily follow but to your question about the timing, we’re working it as expeditiously as we can, it's a process though.

Michael Bilerman

And then last one from me was just can you break out just on the G&A and the development, just the gross numbers that were capitalized in '09 so that we can think about what the gross G&A was? And then how does that trend to 2010 on a GAAP basis, because I guess you'll come up with the same thing of - we'd have expect the G&A to drop more on the income statement?

David Stockert

If you look at page 17 of the supplement, we disclosed the capitalized overhead, it was about 3.9 million in 2009. We expect that to come down significantly in 2010 just as our construction development activity ceases; we start to turn the remaining units on, predominantly the condos during the first half of the year.

As far as you are thinking about it on a run rate basis, I'd say that if you look at the components, G&A is going to probably run roughly at around $4 million quarterly run rate. I'd say that property management is going to run at about 2.5 million quarterly run rate and then from an investment development standpoint that should account for the remaining expense cost.

Michael Bilerman

Then the capitalized portion goes down from the 3.9 to like a $1 million a next year?

David Stockert

Probably less than a million.

Christopher Papa

Probably to a less than a million, correct.

Operator

Your next question comes from Michelle Ko - Merrill Lynch

Michelle Ko -Merrill Lynch

You were talking a little bit about some of the improvements you've seen from December to January and into February. Can you talk specifically about some of your markets and where you are seeing some of that rent decline lessen?

Jamie Teabo

We see improving rental rates in our Orlando, DC, and even our Charlotte market sort of holding steady to-date at New York, Atlanta, Tampa, and Austin and we are still seeing some pressure on the rents in Huston and Dallas.

Michelle Ko -Merrill Lynch

Do you have an idea about which markets you expect job growth to comeback first out of this market?

Jamie Teabo

Our best market to-date is Washington DC and that’s where we see the most growth opportunity in the employment market for 2010. We have unemployment today in that market of 6.3%, the completion for 09' we are less than 1% of the total inventory and that will be declining again in 2010. So where we see the most growth potentials is in that market.

Michelle Ko -Merrill Lynch

Could you talk a little bit about, some of your peers are looking at acquisitions, can you tell us about what you are seeing on the acquisition front? What makes you more or less excited? And, have you seen more assets come for sale over the last 90 days? Can you talk a little about pricing?

Christopher Papa

I think as has been widely publicized, asset pricing, at least expressed in cap rates has improved pretty markedly in the last 90 to 120 days. And now, in some of the major markets, you’re starting to see cap rates that are sub-six again.

And in some of the markets that are not, say the major costal markets, you’re seeing cap rates that are more in the mid-six range for high quality stuff. Now, of course you’re capping a cyclically low NOI. So, it’s resulted in asset values being steady to modestly improving.

And, as it relates to us, we’ve looked at some things but I wouldn’t say there’s a tremendous amount on the market and I’m not sure that there will be a tremendous amount on the market.

And so, we’ll all be fairly selective about what we look at.

Operator

Your next question comes from Karin Ford - Keybanc Capital Markets

Karin Ford - Keybanc Capital Markets

I just wanted to ask about development. I know you said there wasn’t any new starts in the guidance. What type of conditions or what type of yields would you want to see before you would consider going forward with one of the pieces of land held for development?

David Stockert

I think we’ve talked briefly about that before. But I think if you were to rank order the development opportunities that we have, the one that stands out to us is our Washington area Alexandria project, the second phase of our Carlisle development.

The first phase has performed well through this cycle, and as Jamie said, that’s the market where we see probably the most favorable dynamics in 2010. Our land bases in that land is pretty good. We’ve owned it since the late 1990s, early 2000s. So, we’ve had that land a good long time.

So, that’s the one where I think a development start could make some sense and my guess is we’re assessing pricing and things like that in the new environment. But it would probably be in that 7.5 plus range including our land bases. And as I said, I think asset valuations in that market are probably sub-six today.

Karin Ford - Keybanc Capital Markets

That’s helpful. On the land that you moved from held for sale back up to investment, if you had left it in the held for sale category would you have had to take any impairment from that?

David Stockert

No, we assessed all the land pieces and that didn’t have anything to do with it. It was just really, as Chris said, our expectations with that land really hasn’t changed. We don’t think it’s likely we’re going to sell it in the next 12 months based on the environment for land acquisition.

There is some land acquisition that’s occurring, but it is at very, very opportunistic kind of prices. And so we just said it’s unlikely and we re-categorized it, but it doesn’t affect the impairment analysis of that.

Christopher Papa

Karin, we previously took some impairments on some of those parcels previously back in 2008.

Karin Ford - Keybanc Capital Markets

Just a final question on the Austin Four Seasons project. Is there a lender on that project and are you in similar discussions as with the Atlanta lender? I saw there weren’t any new contracts between 3Q and 4Q. Is anything holding you up there?

Christopher Papa

Four Seasons that whole project is financed on our balance sheet, so there's no construction lender.

Karin Ford - Keybanc Capital Markets

Is there a reason why you guys didn't sign any contracts, is it just the market?

David Stockert

I think it's just the fourth quarter and that's a seasonal slow point. The contract activity on that projects comes in fits and starts, we do have a number of people we're talking with about contracts, but they're fairly expensive units and the contract conversations are long, and so it's moving along. And my expectation is that will start to add to contracts as the spring comes around based on what we see in terms of traffic and prospect activity.

Operator

(Operator Instructions). Your next question comes from Jonathan Habermann - Goldman Sachs.

Jonathan Habermann - Goldman Sachs

As you guys considered the ATM, did you also think about asset sales as an alternative just given where cap rates are based on your comments?

David Stockert

Well, as I said, I think cap rates are fairly favorable but it's also capitalizing in some cases pretty distressed NOI levels. So the absolute asset values are, they're better than what they were but they're still not the kinds of prices that make you want to do back flips.

We did sell three assets last year, two in Atlanta and one in Washington D.C. but the portfolio just under 20,000 units is probably -- there are some inefficiencies and things that come from additional asset sales at this point.

Now, we will always sell assets to reinvest in either other markets or things like that but as just a pure capital raising activity, it's dilutive, it compounds some efficiencies, it exacerbates the AFFO multiple versus NAV GAAP that people often talk about with respect to Post Properties.

Jonathan Habermann - Goldman Sachs.

In terms of the ATM are you using it, are you planning to use it more towards acquisition opportunities or do you think it’s just continued de-levering?

David Stockert

We are going to just have it in place as a tool at look at different opportunities that may make some sense, but just to have it in place we felt it was important.

Jonathan Habermann - Goldman Sachs.

Can you comment as well in terms of what you are seeing in terms of move out turnover, I guess pressure in terms of the single family market, I guess based on your various markets?

Jamie Teabo

Sure. We saw turnover of course come down in the fourth quarter fairly equal with where we were in the fourth quarter of ’08. Year-over-year turnover was fairly flat as well. We did see home purchases spike up a bit in the fourth quarter of ’09 to 18% of our move out, it was 14% in the third quarter and for the year it averaged right around 15%.

We did see it come back down in January at 13%. The highest markets where we are seeing the home purchases for 2009 were in the Maryland market and the North Carolina market.

Jonathan Habermann - Goldman Sachs.

Then lastly in terms of your same store expense, last year you were up about 3%, you are guiding up to at the mid-point this year. I guess what’s the key variant this year versus last year?

David Stockert

Well last year we were down 2.5, not three. We were down about 2.5% for the year on same store expenses and we guiding up above two. And the biggest driver of that is taxes. Some of that is the abatement, that rolls off, the tax abatement in New York that rolls off, but we have also modeled in some other modest tax increases across the board, controllable expenses are fairly flat.

Operator

Your next question comes from Andrew McCulloch - Green Street Advisors.

Andrew McCulloch - Green Street Advisors

Most of my questions were answered, I just have one other question, you made some general pricing comments about the Atlanta condo market, I think you said down 40% to 50%, do you mind providing the same color for the Austin market?

David Stockert

No, the Austin markets really held in. We haven't really seen a big discounting at all in the Austin market and there is not - there are three high end projects, the W, Four Seasons and a project called the Austonian [ph] but there's a fairly limited amount of condominium product in the downtown Austin market, a lot less than you might think. No, it tends to be higher end, but we have not seen pricing erosion.

Operator

Your next question comes from Stephen Swett - Morgan, Keegan & Company, Inc.

Stephen Swett - Morgan, Keegan & Company, Inc.

On the remediation work, you mentioned that there could be some upside once you're done. Is that upside from units that are vacant or that you had to sort of leave vacant while you're doing the work? Or is it upside from higher rents, because those assets, once all this work will be done will just have better curb appeal?

David Stockert

Yeah, I mean it's just really more of a general -- the properties, as part of this process, the properties get freshly painted and they just look so good. And again what’s happened in the marketplace, particularly in this kind of economic environment is that a lot of our competitor properties, and I'm not talking about REITs necessarily, but just in the local market, one of things that gets cut out is that sort of CapEx in a cash flow environment that is challenging.

And so we've kind of gone the opposite where we've taken half the portfolio and made tremendous amount of investment in those properties including the exterior look of the properties or the freshness of those properties.

Stephen Swett - Morgan, Keegan & Company, Inc.

Just a follow up to Jamie. You commented that the rent roll down that you are seeing have eased over the last several months and weeks. Are you actually increasing the rents you are rolling down too or is it just that the rents you are rolling down from are coming down closer to those current market rents.

Jamie Teabo

David, it would be a combination of both of those where, in Florida, where we sort of saw the roll down in rent start earlier, we are seeing actually fairly strong renewal increases on those residents that are staying with us in that market as those rents are rolling up and we are seeing the new leases rolling up at a higher rent.

We are seeing the same dynamic in our DC market where we are getting a healthier renewal increase and a healthier increase on the new leases.

Operator

Your final question comes from Shane Buckner [ph] - Wells Capital Management.

Shane Buckner - Wells Capital Management

Could you just discuss or explain the reasons for pre paying the debt on the Fallsgrove property and incurring a 10% pre payment penalty versus holding that cash and made other debt maturities or for other reasons?

Christopher Papa

Well, we talked about this, I believe last quarter as well. With regard to the equity raise, we looked at our upcoming maturities, we would have preferred to try to pay down our 010' bonds, most of those bonds are held in a structure that does not allow us to essentially repay them.

As we started looking out a little bit further on the maturity schedule, determined that that was an effective use of proceeds from the standpoint of delivering the balance sheet and continuing to bring down some of our secured exposure and building a little bit more dry powder in that respect, on the balance sheet.

So, that’s part of the used proceeds. The rest of it was used to make open market repurchases of the bonds, which were approximately around par, if you look at it on an aggregate basis.

David Stockert

Let me add to that. The prepayment penalty is not - it’s a prepayment essentially of your interests between now and the maturity date. And so, if you take that $4 million, in essence what we decided to do is finance that $4 million. And so, really, the penalty to us is the interest cost, the short-term interest cost of paying that interest early and short-term rates, as you know, are very, very low.

And our cash - what we earn on cash is even lower. So that was the analysis we went through.

Shane Buckner - Wells Capital Management.

And did you consider using cash to purchase a property if you can buy it at a going-in yield of 7.5% or you need to delever…

David Stockert

Yes, we certainly, ultimately would. But we did have some objectives about leverage and about fixed charge government ratios and things like that, that we wanted to accomplish in ’09. And that was part of prepayment, that piece of debt was part of that overall objective. And so, we got that done.

Operator

And at this time, I would like to turn the conference back over to Mr. Stockert for closing remarks.

David Stockert

Well, thank you all for joining us today and we will talk in three months. Thank you.

Operator

And that does conclude today’s conference. We thank you all for joining us.

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