Government Properties Income Trust Management Discusses Q1 2014 Results - Earnings Call Transcript

Apr.30.14 | About: Government Properties (GOV)

Government Properties Income Trust (NYSE:GOV)

Q1 2014 Earnings Conference Call

April 30, 2014 1:00 PM ET

Executives

Jason Fredette – Director, IR

David Blackman – President and COO

Mark Kleifges – Treasurer and CFO

Analysts

Tayo Okusanya – Jefferies & Company, Inc.

Michael Carroll – RBC Capital Markets

Mitch Germain – JMP Securities

Vance Edelson – Morgan Stanley

Brendan Maiorana – Wells Fargo Securities, LLC

Operator

Good day and welcome to the Government Properties Income Trust’s First Quarter Financial Results Conference Call. This call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to the Director of Investor Relations, Mr. Jason Fredette. Please go ahead sir.

Jason Fredette

Thank you, Eva. Joining me on today’s call are President and Chief Operating Officer, David Blackman; and Treasurer and Chief Financial Officer. Mark Kleifges. They will provide some formal remarks about our first quarter and then take our question-and-answer session. I’d like to note that the recording and retransmission of today’s conference call is strictly prohibited without the prior written consent of the company. Please note that today’s conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws.

These forward-looking statements are based on GOV’s beliefs and expectations as of today, April 30, 2014, and actual results may differ materially from those that we project. The company undertakes no obligation to revise or publicly release the results of any revision to the forward-looking statements made in today’s conference call other than through filings with the Securities and Exchange Commission or SEC regarding this reporting period. Additional information concerning factors that could cause those differences is contained in our filings with the SEC, which can be accessed from our website, www.govreit.com or the SEC’s website. Investors are cautioned not to place undue reliance upon any forward-looking statements.

In addition, we will be discussing non-GAAP numbers during this call including normalized funds from operations or normalized FFO. A reconciliation of these non-GAAP figures to net income and the components to calculate cash available for distribution or CAD are available in our supplemental operating and financial data package, which again can be found on our website. And now, I’d like to turn the call over to David Blackman.

David Blackman

Thank you Jason. For the first quarter of 2014, Government Properties Income Trust increased occupancy for the eighth consecutive quarter, closed a previously announced acquisition, and completed a previously announced disposition. We also generated solid leasing activity with our government tenants for a rollup in rent and no leasing capital. Consolidated and same-property results, however, were unfortunately weak due to increased expenses associated with unseasonably cold and wet weather. As of March 31, 2014, GOV owned 69 properties contained 10.4 million square feet in continuing operations.

We increased occupancy in our properties to 95.1%, up 30 basis points from the previous quarter and a 150 basis points from the first quarter of 2013. We also increased same-property occupancy by 110 basis points year-over-year as a result of our consistent leasing efforts. GOV’s weighted average remaining lease term is 5.1 years. The U.S government continues to be our largest tenant and combined with the 11 state governments and the United Nations contributed 92.6% of our annualized rental income. Now, let’s review our activity for the quarter.

During the first quarter, GOV generated 13 new and renewal leases for 62.5 thousand square feet with a weighted average lease term of 5.7 seven years. We executed approximately 30,000 square feet of more leases during the quarter than our quarterly leasing expirations, which combined with our acquisition activity, enabled us to increase occupancy 30 basis points from the previous quarter. We generated 17,549 square feet of lease renewals for two government tenants that resulted in a 36% rollup in rent, no leasing capital commitments, and a weighted average lease term of 6.8 years. GOV also generated 11 new and renewal leases for non-government tenants for approximately 45,000 square feet that resulted in a 12.4% roll down in rent, a weighted average lease term of 5.3 years, and capital commitments of approximately $1.7 million or $6.95 per square foot, per lease year.

We remain active generating leases for the vacant space across our portfolio. Currently, we have about 280,000 square feet of prospective leases that include 74,000 square feet of leases executed in April or prospective leases with executed letters of intent. Despite our positive leasing momentum, it is unrealistic to expect all of our tenants to renew leases at expiration.

For the remainder of 2014, we expect tenants occupying about 17,000 square feet of space, and that contributes less than 0.2% of rents, to vacant, all of which should occur in the second and third quarters. This includes one U.S government tenant that occupies 2,000 square feet in Safford, Arizona.

The U.S. government’s occupancy strategy continues to focus on reducing occupied square feet per employee in its buildings and consolidating out of leased space and into owned space where appropriate. As a result, it continues to be difficult to predict leasing outcomes with the U.S government for expiring leases. We also find that lease negotiations are long and lease renewals tend to remain short at three to five years. Now, let’s review our capital recycling activity.

As we discussed on previous earnings calls, GOV considers disposing of properties where we have a concern about renewing a tenant in place, and where market conditions makes the time required to re-tenant a property unacceptably long or where we find the return on invested capital required to retenant a property unattractive. Entering the first quarter, GOV had three such properties held for sale and categorized in discontinued operations.

In February, we completed the sale of the former FBI facility in Phoenix, Arizona for $5 million, which was approximately 2.6 million more than we expected to receive in sale. Our property in Falls Church, Virginia, which remains leased to the U.S government through July 2014 is under agreement for $16.5 million. The property is being rezoned to a multi-family use, and the rezoning in the closing condition, which is expected to take until May 2015 to complete. The last property held for sale and that we continue to market is our former FBI facility in San Diego, California. Now, let’s review our acquisition activity.

During March, we completed a previously announced acquisition for one property containing 83,000 square feet or $19.8 million, including the assumption of $14.5 million of mortgage debt and excluding acquisition costs. This property is a 100% lease to the U.S government for a weighted average remaining lease term of four years, was acquired at $238 per square foot and at an acquisition cap rate of 8.6%. The property is located in Fairfax, Virginia adjacent to the Pender Business Park that we acquired the previous quarter. The building is a high security property, where the U.S government has invested heavily in its infrastructure and it’s considered strategic by the agency occupant. As a result, we acquired this property with reasonably high confidence that tenant will renew the lease at or prior to expiration.

We continue to have an agreement to acquire one property consisting of two buildings for $113.3 million, including the assumption of $83 million in mortgage debt. The property is located in Western Virginia and is a 100% lease to the U.S government for approximately six years. This is another high security property that is considered strategic by the agency occupant. The loan assumption process is nearly complete and the acquisition is anticipated to close prior to the end of the second quarter.

The acquisition market for core real estate investments remains aggressive due to an abundance of debt and equity capital. While we maintain an active pipeline of acquisition opportunities, it has become more difficult to identify properties we believe are strategic to government tenants and that meet our pricing criteria. As a result, we expect our acquisition pace will remain modest for the remainder of 2014 unless there is a change in market dynamics.

Overall, we are pleased that our expertise in the government real estate space has resulted in our ability to successfully manage through the many leasing challenges presented to us this year. We remain vigilant with our tenants that have expiring leases over the next 24 months and expect that we will have substantially more wins than losses in the foreseeable future. We also believe our strong balance sheet will allow us to enter strategic acquisition opportunities as they are identified to support our business plan, providing shareholders a safe and predictable distribution. Now, let’s hear from Mark Kleifges, our CFO, who will provide more detail on our financial results.

Mark Kleifges

Thanks David. First let’s review our consolidated property level operating results. For the 2014 first quarter compared to 2013, GOV’s rental income increased $3.5 million or 6.2% to $59.8 million. Substantially, all the increase in revenues was from properties we have acquired since the beginning of 2013. Property net operating income for the 2014 first quarter compared to 2013 decreased 542,000 or 1.5% to $36.2 million. This was due to a decline in NOI at our same-store properties related primarily to severe winter weather, which more than offset the positive NOI contribution from our acquired properties.

At March 31, our properties were 95.1% leased and our consolidated GAAP and cash NOI margins for the 2014 first quarter were 60.6% and 60% respectively. Turning to our same-store operating results.

At quarter-end, our 63 same-store properties were 94.7 % leased, up 110 basis points from the prior-year quarter end and up 30 basis points from year end. Our 2014 first quarter same property rental income increased $76,000 as the impact of our successful leasing activity over the past year was partially offset by the previously disclosed loss of the CDC in two of our Atlanta properties and the State of California at our Sky Park property in San Diego. In addition, revenue for the 2013 quarter included approximately $325,000 of non-recurring retroactive rent adjustments. On a cash basis, first quarter 2014 rental income declined $173,000 or 30 basis points from the first quarter of 2013.

As I mentioned a moment ago, the unusually severe winter weather experienced in many parts of the country during the first quarter had a significant negative impact on our same property operating results. Same property net operating income for the 2014 first quarter decreased $2.8 million or 7.6% compared to the 2013 quarter. This decline was the result of $2.9 million or 14.7% increase in same property operating expenses compared to the 2013 quarter. With utilities up $1.6 million or 41% and snow removal costs up $595,000, roughly double their cost in 2013.

In total, these factors reduced our 2014 first quarter normalized FFO per share by approximately $0.04 when compared with the year-ago quarter. We are not able to recover the majority of these extraordinary expenses from our tenants, because most of our leases compensate us for increases in property operating expenses by providing for annual rent increases based on a cost of living index and not based on the amount of our actual cost increases. As a result of these cost increases, our same property NOI margin for the 2014 first quarter declined 150 basis points from the prior year quarter to 60.6%.

Turning back to our consolidated results. Adjusted EBITDA in the first quarter of 2014 was $33.7 million, a decrease of 3.8% from the 2013 quarter. However, our EBITDA-to-interest expense ratio remained very strong at 7.4x for the quarter, and our debt-to- annualized EBITDA was only 4.5x at quarter end. For the quarter, normalized FFO was $28.8 million compared to $30.5 million for the 2013 quarter. First quarter 2014 normalized FFO per share of $0.53 was down $0.03 or approximately 5.5% from the 2013 quarter. We paid a $0.43 per share dividend during the quarter and our normalized FFO payout ratio was approximately 82%.

During the quarter, we spent $2.2 million on tenant improvements and leasing process. A substantial amount of these costs pertain some leases executed in the 2013 fourth quarter with Emory University at our Executive Park Property in Atlanta, and with the Department of Justice at our Delaware Avenue property in Buffalo. At quarter end, we had approximately $12 million of unspent leasing related capital commitments. We also spent $2.2 million on improvements to our properties during the quarter.

Turning to our balance sheet and liquidity, at quarter end, our balance sheet remained conservatively leveraged at 38% of total book capitalization, and approximately $400 million of our $550 million unsecured revolving credit facility was available to fund acquisitions and other working capital needs. As David mentioned, we currently have one property under contract for a purchase price of $113.3 million, including the assumption of $83 million of mortgage debt. We also have one property with a net book value of $12.5 million under contract to sell for $16.5 million and are marketing for sale one property with a net book value of $11 million. In closing, we believe GOV is well positioned to both manage through this challenging period in the government-leased real estate sector and to take advantage of opportunities to grow through accretive acquisitions. Operator, that concludes our prepared remarks, we are ready to open it up for questions.

Question-and-Answer Session

Operator

Certainly. (Operator Instructions). And our first question comes from the line of Tayo Okusanya with Jefferies. Please go ahead.

Tayo Okusanya – Jefferies & Company, Inc.

Yeah. Good afternoon everyone. So, I just had a question around your results, your operating results for the quarter were actually pretty good from a leasing perspective, but I hear you guys making somewhat cautious comments about the outlook for demand for government space going forward. So, I am just trying to reconcile out the two, if you have a cautious outlook, what’s kind of driving some of the occupancy gains and other things that you guys actually had in the quarter that made the operating results actually pretty good ex the snow removal type stuff?

David Blackman

That’s an interesting question. What we’re trying to articulate is that the U.S government is basically challenging all of its agencies at lease renewal to justify the amount of space they take and what their occupancy costs are. We’ve been pretty successful working through that process. So we don’t have the same level of visibility that we feel like we used to have with the government, and as a result we’ve become more cautious because we can’t give you the same level of assurances that we felt like we could previously. We do have a pretty broad leasing effort through our platform.

So, we’ve got one individual at our company who does nothing but focus on leasing to government sector, but we have a very broad network of leasing activity with non-government tenants, and we continue to market to both sectors. And so, we’ve been successful because of where some of our buildings are located, the price point under where we are able to offer leasing. So I think that kind of balances the success versus our cautious optimism.

Tayo Okusanya – Jefferies & Company, Inc.

Got it. Okay. That’s helpful. And then from acquisitions perspective, again understand the comments about you know markets being very competitive. Just kind of curious what you are seeing out there from a range of -- again the high quality federal agency type stuff that has very, very long lease terms, what kind of cap rates are out there for that stuff versus the shorter lease-term not of high quality assets probably with tenants that are not federal agencies, kind of what cap rates are you seeing on those type of assets?

David Blackman

So, your thought about a U.S government leased building for 15 years or longer, you are probably going to see that trade for a cap rate somewhere between five and three quarters and six and a half on a going-in base, which tends to be, cash and GAAP tend to be the same for the government sector, and that’s being driven by companies that are leveraged buyers, so they are using 75% leverage to get to some acceptable leverage IRRs. And on the other hand, a state lease property that has less than five years remaining should probably trade for a cap rate between 8% and 9%, so there is a pretty big delta between the two.

And so one of the things that we spend a significant amount of time on in our underwriting process is who the agency is that occupies the space, how strategic is that building to them achieving their mission and what do we think the likelihood of renewal would be; at renewal would the rent go up or down and how much capital we think we’d have to spend to keep that tenant in place.

Tayo Okusanya – Jefferies & Company, Inc.

Got it. Okay. Got it. That’s very helpful. Thank you.

David Blackman

Yeah.

Operator

Our next question comes from the line of Michael Carroll with RBC Capital markets. Please go ahead.

Michael Carroll – RBC Capital Markets

Thanks. David the 2,000 square foot government tenant that decided to not renew that you mentioned in your prepared remarks, did they relocate to a government owned space?

David Blackman

They did not, we are honestly not 100% sure where they are going to at this point, they occupied space in our building that we substantially renovated a few years ago for the Bureau of Land Management. And so they were somewhat of an insignificant occupant in that building. They are going to stay in that [Safford] [ph] market and I don’t believe they have any government owned space that market.

Michael Carroll – RBC Capital Markets

Have you noticed any of your government tenants actually leave your space to go to government owned space?

David Blackman

I don’t think we’ve actually had a tenant leave yet but Jones Lang LaSalle or I guess they are now JLL, they are not Jones Lang LaSalle anymore, but the -, we consider them probably the best government leasing platform in the business and they do a pretty good job of keeping us informed of what’s going in the environment and they have identified a few federal buildings across the country where money has been spent over the last few years in order to create room to consolidate lease space. We are fortunate in that we don’t have any tenants that we think are at risk for relocation to those federal buildings but that’s something that we monitor ongoing.

Michael Carroll – RBC Capital Markets

So I guess the risk to your 2015 lease expirations is fairly minimal?

David Blackman

Well we think that we don’t have any tenants in 2015 that we absolutely I guess that we’ve been given notice that they are leaving, but we have a handful of tenants in 2015 they we’re nervous about. And we think we are going to have some loses next year but you know we can’t really say definitively who they are, but we’ve got some risk; I don’t know that they are necessarily going to relocate to government owned space but we have some tenants that I think are challenging.

Michael Carroll – RBC Capital Markets

But most of the expiration in ‘15 are smaller tenants, right?

David Blackman

Yeah. We got - I don’t think we have anybody that represents more than 1% of revenues. I think our largest occupant is like 0.9%.

Michael Carroll – RBC Capital Markets

Okay. And then of the - I guess the two assets that are currently being held for sale, how much NOI did they generate in the first quarter?

David Blackman

So Defense Information…

Mark Kleifges

Let’s see, the two in disc-ops, the Falls Church property had NOI in the first quarter of about 460,000 and San Diego was a loss of 125,000.

Michael Carroll – RBC Capital Markets

And then the Falls Church one, is that tenant leaving that’s currently in that property, soon?

David Blackman

Yeah, that tenant vacated in 2011 and we’ve worked with GSA to re-lease the space but they consistently have not had any other agency to move in so they’ve been paying rent on empty building for some time.

Michael Carroll – RBC Capital Markets

And that lease expires when?

David Blackman

July.

Michael Carroll – RBC Capital Markets

July.

David Blackman

Yeah.

Michael Carroll – RBC Capital Markets

Okay. And then how is the acquisition market, I know in your comments that you kind of talked about it a little bit. Are you more encouraged going into the rest of this year that you are going find more deals to close?

David Blackman

We’ve got a handful of opportunities in the pipeline based upon where the pipeline looks today, I think I am reasonably confident we are going to close a handful of more deals but we don’t have any large transactions that we’re chasing and the large transactions that we’ve seen so far this year had traded at cap rates that don’t work for our cost of capital. So I would anticipate it’s going to be modest throughout the rest of the year.

Michael Carroll – RBC Capital Markets

Okay. Great. Thanks guys.

David Blackman

Yeah.

Operator

Our next question comes from the line of Mitch Germain with JMP Securities. Please go ahead.

Mitch Germain – JMP Securities

Good afternoon. David, just curious you know you mentioned this change in the leasing with the shorter renewals, longer negotiations. Curious is that changing the types of assets that you target from an acquisition perspective?

David Blackman

I think it’s maybe two answers to that question, Mitch. One, I don’t know and we’ve been kind of talking about the challenges in the U.S. government lease space for a while so I don’t know that it’s necessarily a change from year end to the first quarter, I think it’s something we’ve been dealing with for at least a year at this point. But I think from an acquisition perspective what we’ve concluded is a year ago we might have been pretty comfortable buying a building with five years or four year remaining lease term.

Today we are much more cautious looking at something like that because we think that the renewal probability - we don’t necessarily come to the conclusion that the government is going to stay in place. We think that every renewal is at risk and we are much more thoughtful around the sustainability of that tenant in place.

Mitch Germain – JMP Securities

Got you. And just curious Mark maybe if you could just provide some insight on the capital market strategy, you got about 150 on your line, you might have addressed it, I missed some of your comments I apologize. But just curious what the plan is to create some capacity there?

Mark Kleifges

Yeah. We’ve got 150 out on the line so we have plenty of capacity particularly given the backdrop David just gave you on the acquisition market. I think our longer term thoughts on the revolver is the next capital markets transactions we’d like to have at GOV would be unsecured senior notes. So in order to do that we are going to need to have at least 250 million out on the line. So I think we are still little ways away from any type of transaction. We do have the one acquisition under contract for about $113 million but we’re assuming an $83 million mortgage which will finance the majority or fund the majority of that acquisition. So I think the next transaction would be senior notes offering but it’s still ways off.

Mitch Germain – JMP Securities

Thank you.

Operator

(Operator Instructions). Our next question in line is from Vance Edelson with Morgan Stanley. Please go ahead.

Vance Edelson – Morgan Stanley

Hi guys. Thanks for taking the questions. Back on the cap rates and the competition for deals and the impact that Sovereign Wealth is having and so forth, is that more predominant in any of the markets in particular for example coastal markets while the others haven’t really seen the impact yet or are you seeing the same level of competition even in the tier II markets?

David Blackman

Vance, we are seeing a fair amount of competition in tier II markets, it is a different type of competition. The buildings in tier II markets tend to be smaller acquisitions, they are probably more $10 million to $20 million acquisitions. And so you run into either a local leveraged buyer or we run into some of our normal competitors, some of the funds that have capital raised specifically to own buildings leased to government tenants. I would say the one thing that probably might surprise people is D.C. continues to be incredibly aggressively market particularly for buildings with long remaining lease terms. I would say that’s probably the market where you are seeing the most competitive cap rates for all acquisition opportunities right now.

Vance Edelson – Morgan Stanley

Okay. That’s good to know. And then you had mentioned that U.S government strategy of looking to reduce square foot per employee. So on the topic of densification what inning would you say the federal government is in if you had to estimate that and is this much more an issue on the federal side then on the state side of the business?

David Blackman

It is more of an issue on the state side of the business, I mean on the federal side of business, excuse me. The first part of your question, I would say that the U.S government is in the 10th inning, but they think they are in the seventh inning.

Vance Edelson – Morgan Stanley

Okay. All right, so moving into extra innings. And then I might have missed it, but are rent bumps moving in any particular direction or is that pretty much stable given the type of tenant base that you have?

David Blackman

It depends a lot on the market where we’re seeing renewals right now. Remember that a lot of the - or substantially all of the federal government leased space, the rents are flat for the term of the lease. So if we have a 10 year lease that’s coming up for expiration, we should be more likely to not have a rollup in rent because it’s been flat for 10 years.

Vance Edelson – Morgan Stanley

Okay. And then I think you had mentioned sort of the cost of living adjustment that’s not so much on the federal side in other words?

David Blackman

Well the cost of living adjustment that Mark mentioned in his prepared remarks was relative to expense - our ability to increase operating expenses annually with the tenant.

Vance Edelson – Morgan Stanley

That’s it. Okay. Got it. Thanks very much.

David Blackman

Yeah.

Operator

(Operator Instructions). Our next question comes from the line of Brendan Maiorana. Please go ahead.

Brendan Maiorana – Wells Fargo Securities, LLC

Thanks. Good afternoon. David I think last quarter you mentioned 150,000 square feet of known or likely move outs and then I forgot, I didn’t hear the number of square feet moving out but I think you said it was less than 0.2% of rent expected. So was that change just attributable to the Falls Church property going into disc-ops as opposed to maybe that was in the operating pool previously?

David Blackman

No, Falls Church was included in that number last quarter. So we - with that 17,000 square feet approximately that we have received notice from that are going to move out this year. We have other tenants in 2015 that we are concerned about and that we think are likely move outs but we haven’t received notice yet. So I would tell you that 150,000 square feet is kind of our watch list or our concern list and of that 150,000 square feet we know that 17,000 is going away.

Brendan Maiorana – Wells Fargo Securities, LLC

Okay. So just the 150 watch list and that’s between ‘14 and about 1.3 million square feet of expirations in ‘15 as well?

David Blackman

Correct.

Brendan Maiorana – Wells Fargo Securities, LLC

Okay. Okay. That’s helpful. Listening to your comments about kind of how you think about acquisitions, the agency and the strategic importance of the asset to the particular agency and renewal likelihood. How do you think about the physicality of the asset when you are acquiring it and if a tenant does move out the ability to relet that space, how does that factor into your acquisition criteria?

David Blackman

Well that’s pretty important component of it Brendan particularly depending upon the remaining lease term, you know as you are probably aware tenant sentiments have evolved over the last couple of years particularly as it relates to suburban office, availability of amenities and availability of parking has become much more important and so those are obviously important factors in our underwriting as well.

When we look at an acquisition opportunity we create a 10 year capital plan on where we think we are going to spend money for building improvements, replacing of long-lived items as well as what we think our investment is going to be for tenant improvement capital. So that weighs into the 10 year cash flow that we prepared and what we think are levered and unlevered IRR is and often it takes into consideration the downside scenario we do which would be the tenants doesn’t renew. So that’s really critical, and also [inaudible] tends to be, if you can’t live with the down side, don’t take the risk for the upside.

Brendan Maiorana – Wells Fargo Securities, LLC

Sure. So I guess if I - maybe it sound like that hurdle to make your acquisitions the bar has been raised a bit. The track record of, how would you say you’ve done on tenants that have moved out upon expiration and backfilling those tenants could, you know I can’t - I’ll confess I don’t remember all the details of tenant moves, but I know there have been several instances when you have had trouble back filling. So I just I wonder if that’s a challenge that you could see in the legacy portfolio that if you do have this increased environment of non-renewals relative to the past that it’s going to be challenging to back fill some of those legacy assets?

David Blackman

Yeah. The buildings that probably are the most challenging to fill would be the two that the CDC moved out of in Corporate Square. I think we tried to lease the property and the FBI facility in Phoenix, Arizona for some time. I think that’s less of a asset issue and more of a market issue. But I think the direct answer to your question is our challenges have been more with legacy assets than it has been with acquisitions. But then again most of the acquisitions we made have been 100% leased for relatively long durations.

Brendan Maiorana – Wells Fargo Securities, LLC

Right. Okay. And so just last one with maybe kind of the thought about the federal government pulling back a little bit from leased square footage. Any thoughts, any updated thoughts about what you may do with the IRS facility in Fresno which seems like it’s pretty specialized, if that were an asset that maybe at some point would not be required by the IRS?

David Blackman

Well we tend to review the portfolio of all of our assets every six months or so and that we continue to address, is that an asset we want to own to lease expiration or do we want to sell it at some point prior to. So we will continue to evaluate that a couple of times a year and make the decision at that time.

Brendan Maiorana – Wells Fargo Securities, LLC

Any consideration to maybe putting a mortgage on that?

David Blackman

No, I mean, we could potentially - I guess if we thought we could, we could get a higher value for the asset because of longer duration fixed rate debt at a low coupon, the challenges is it will be dilutive for me to do it today because I don’t have anything I could re-invest it in.

Brendan Maiorana – Wells Fargo Securities, LLC

Right. Okay. All right. Thank you.

David Blackman

Yeah.

Operator

I would now like to turn the conference over to President, David Blackman. Please go ahead.

David Blackman

Thank you operator, and thank you for joining our first quarter conference call. We are in the process of scheduling meetings with the Institutional NAREIT Conference in June and hope to see many of you there. Operator, that concludes the call.

Operator

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

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