Thomas Properties Group, Inc. Q2 2008 Earnings Call Transcript

Thomas Properties Group, Inc. (TPGI)

Q2 2008 Earnings Call

August 7, 2008 1:00 pm ET

Executives

James A. Thomas – Chairman of the Board, President & Chief Executive Officer

Diana M. Laing – Chief Financial Officer & Secretary

Analysts

Wilkes Graham – Friedman, Billings, Ramsey & Co.

David Loeb – Robert W. Baird & Co., Inc.

Mitchell Germain – Banc of America Securities

Presentation

Operator

Good day Ladies and Gentlemen and welcome to the second quarter 2008 Thomas Properties Group, Inc. earnings conference call. My name is Amad and I’ll be your coordinator for today. At this time all participants are in a listen-only mode. We will be facilitating a question and answer session towards the end of this conference. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

Our presenters for today’s call are Ms. Diana Laing, Chief Financial Officer, and Mr. Jim Thomas, Chairman and CEO. I would now like to turn the presentation over to your host for today’s call, Ms. Diana Laing.

Diana M. Laing

Good morning everyone and thank you for joining Jim and me for our earnings conference call for the second quarter. Certain statements made by the company during this call that are not historical facts are forward-looking statements. These statements include management’s expectations with respect to future events and trends that may affect the company’s business and results of operations and are subject to risks and uncertainties. Actual results may differ materially from those expected in the forward-looking statements. Persons participating on this call are advised to review the reports filed by Thomas Properties Group, Inc. with the Securities and Exchange Commission for additional information regarding some of the factors that may affect the company’s business and results of operations.

Now Jim Thomas will discuss our business environment and initiatives.

James A. Thomas

Good morning. Just with respect to a business overview, the fundamentals of our business continue to be good. Occupancies and rental rates are basically strong. So at this point we’re not incurring the deteriorating leasing conditions that many have projected as a result of the weakening economy. Our investment advisory business and development businesses are performing well. However, the credit crunch continues to put pressure particularly on our acquisition business and may likely affect our disposition business.

I’ll talk about each of these starting with operations. Our overall occupancy rates fell slightly from 86.5% to 85.6% at the end of the second quarter. Of the 25 properties that we have 11 actually had increased occupancies, seven remained unchanged, and seven decreased. Of the seven properties where occupancies slipped, we have recovered or are in the process of recovering the slippage and in most cases have actually increased occupancy on these properties as I’ll point out later.

With respect to the Austin CBD it’s been about one year since we acquired this portfolio and it continues to outperform our underwriting both in terms of rent increases and occupancy. The downtown market has been especially strong. During the first half of 2008 the CBD absorbed approximately 150,000 square feet which puts this year on a pace to absorb more than in any one year in the past 10 years. Vacancies fell from 22.6% at the end of 2005 to 12% currently. In the TPG portfolio our average gross rents are approximately $41.00 per square foot as contrasted to $35.00 per square foot in mid-2007. We leased 72,000 square feet in the second quarter compared to 61,000 in the first quarter.

At Frost Bank we slipped to 77.8% in the second quarter but in July we leased another 27,000 square feet to move the current occupancy to about 83.5% and we anticipate reaching 90% by the end of the third quarter. At 300 West Sixth Street we slipped to 86.6% at the end of the second quarter but our current occupancy is 96% after we signed a 20,000 square foot lease for an average of $43.00 per square foot.

In the suburbs in the northwest market, this market has seen the most new development activity in 2008 with an additional 1.5 million square feet of office to be added by the end of the year. The overall vacancy rate is at 12.7% up from 11% at the end of the first quarter. But rental rates so far are holding firm at $29.00 to $31.00 gross for Class A. Westech 360 which is one of our properties in this market at the end of the second quarter slipped to 58.9% but in July we signed a lease for 15,000 square feet to take us to 67%.

In Houston as we’ve previously reported our rents in Houston have basically doubled since our acquisition. Year to date in Houston there’s been absorption of about a little over 1 million square feet whereas in 2007 the absorption was 5 million square feet. The CBD has actually had negative absorption year to date and all of the absorption has been in the suburbs where TPG assets are located.

At San Felipe we slipped slightly from 97.8% to 96.5% but since the close of the quarter we’ve gone back to 97.5%. This is a strong property with asking rents of $25.00 net and 3% annual bumps. At 2500 CityWest we’re asking for $26.00 net rents and 3% annual bumps and at CityWest Place we’re asking for $30.00 net rent and 3% annual bumps. At Brookhollow I and III we’re leasing up nicely. We had a major tenant, Sterling Bank, take a couple hundred thousand feet in Brookhollow II and they have expanded since they’ve moved in. We’re quoting rents at $14.00 net with 3% annual bumps. At Brookhollow I we’re about to complete a major renovation of the skin and our plan is to continue to market the space to a major user with our goal to prelease this space before we complete the renovations.

At City National Plaza we have only about 175,000 square feet to reach stabilization of 93% and of that amount about 224,000 square feet is expansion space for existing tenants. So we only have unencumbered space of about 190,000 feet. To date we’ve leased a little over 76,000 square feet. Given the magnitude of our lease up we’ve been able to increase rents to the $28.00 net range and we believe we are getting the highest rents in the downtown market. Even so these rents pale in comparison to the $50.00+ net rents on the west side. We think this disparity bodes well for downtown. In the second quarter we leased 25,000 feet but lost 25,000 feet to a tenant who vacated the market.

In Philadelphia I’d like to direct your attention to a recent Green Street Advisory piece entitled Philadelphia Market Update: Rip Van Winkle Comes to Life and this is a nice article on what’s going on in Philadelphia both downtown and in the suburbs. With respect to the downtown market the article points out that the CBD vacancy rate tipped down slightly in the second quarter to 9.6% after reaching the lowest level since 2001 in the fourth quarter of 2007. The article goes on that the average Class A asking rents for high-quality assets such as Commerce Square is in the mid- to high $30s a rentable square foot. The article also points out that vacancies in the suburbs have picked up slightly.

The recent trend in suburban asking rents has been slowly but steady growth. In particular the submarkets such as King of Prussia where Walnut Hill and Oak Hill projects of TPG are located are commanding rent premiums. In the Philadelphia CBD, in 2 Commerce Square we lost the 90,000 square foot tenant to the suburbs and that loss coincided with the expiration of part of the Conrail lease of 375,000 square feet which leaves us with about 200,000+ rentable square feet. We have very strong activity for this space and we’re very optimistic that we’re going to be able to lease all or most of this space very quickly. In the Philadelphia suburbs as shown on page 15 in the supplemental package, we’ve increased occupancy at the end of the second quarter in all three of our suburban Philadelphia properties. At Walnut Hill and Oak Hill we’re doing deals at $21.00 per square foot; at Four Falls we’re doing deals at $28.50 per square foot. But after the end of the second quarter we lost a 22,000 square foot tenant that filed for bankruptcy.

In the Northern Virginia market, Centerpointe I and a portion of Centerpointe II was occupied by a single tenant who had announced its intention to move prior to the time we acquired the property. This leaves us with about 210,000 square feet vacant in Centerpointe I and 50,000 square feet in Centerpointe II. We have a letter of intent for 50,000 square feet on Centerpointe I and a number of other prospects for Centerpointe II.

Moving on to our acquisitions and disposition business. City National Plaza. On our last earnings call I indicated that we had approached a small group of selected potential purchasers to sell a 49% interest in City National Plaza. We took this approach rather than a full marketing approach because we were being advised by Estill Secured, our broker, that the market was such that it was not prudent to go out on a full-blown marketing effort. We and Estill Secured now believe the market is improved to the point where a full marketing effort is appropriate and we have commenced that effort. We got into the market about three weeks ago with our books, our war room, etc. to sell a 49% to 75% interest. We’ve received considerable investor interest and we’re in the process of holding investor tours and investor meetings and our target is to receive offers in September.

A couple of recent transactions in downtown Los Angeles bode well for City National Plaza transactions. We understand that Tishman Speyer is in the process of selling the O’Melveny building to Manufacturer’s Life for about $440.00 per square foot with a going-in cap rate of 5.6%. Heinz is in the process of purchasing the Citigroup building with a going-in cap rate of about 4.6% and $315.00 per square foot. The Citigroup building is encumbered with a couple of very large master leases at high rates that are about to expire in several years. The subtenants for these master leases are at rates considerably below the master rate and it’s expected that Heinz will have to spend substantial sums on capital improvements, TIs and leasing commissions which explains what we consider to be the low $315.00 per square foot price which when you add the money that Heinz will have to spend will make it pretty comparable to the O’Melveny $440.00 per square foot price.

Our Houston portfolio. We have also entered the market to sell a 50% to 75% interest in the Houston portfolio other than Brookhollow and we got into the market about three weeks ago. We’re receiving very strong interest and again we’re in the process of starting investor tours and meetings. As I reported at our last earnings call, there’s been strong institutional interest in the Houston market and we’ve seen several properties that we consider comparable selling at prices projected at $250.00 per square foot or so. Our basis in this portfolio is about $160.00 per square foot. Again we are expecting to receive offers in September.

We’re optimistic about both City National Plaza and Houston, but obviously there can be no assurance that we will be able to consummate a transaction that is suitable for us.

With respect to acquisitions, our primary focus is on our high performance Green Fund and our recent UBS Fund which I will speak to later except to mention now that these two funds have the combined buying power of about $1 billion.

Moving on to our development and construction business, let me speak just generally first. Some recent discussions with potential investors have indicated a lack of understanding of our development pipeline so I thought it was worth spending a couple of minutes to make sure everyone understands the conservative approach we take to development. We have an attractive well-positioned development pipeline which we have been able to assemble at a very low cost with high potential profits while minimizing our downside risk. Our basic approach is to acquire large tracts of land which we can develop over three to five year periods in phases. We minimize our land costs by buying at the right time and selling off pieces to reduce our remaining land costs. This allows us to not have pressure to develop until we’re satisfied with market conditions.

Currently we have three projects that are in the development or pre-development stage: Two in Los Angeles and one in Austin, Texas. These three properties total about 1.4 million square feet of which about 950,000 square feet is being preleased. So the remaining 6 million square feet is held at very attractive low prices and will not be developed without substantial preleasing.

With respect to our development projects we have the Metro Studios at Lankershim at Universal City that we’ve talked about before we continued to work on this project to complete the design and lease the entire first phase, we expect to be filing our EIR in the next couple of weeks. This is a terrific smart growth project that is transit oriented over subway stations and bus terminals with job/housing balance and a green gold lead USB rating that would preserve the natural resources and protect the environment. The project’s slated for our Green Fund once the entitlements are obtained.

In El Segundo we continue to position the first phase of this project of approximately 250,000 feet to be in a position to start construction as soon as we reach an acceptable level of preleasing. We’re in discussions with several major tenants that could kick off the project.

We’re also in negotiations with Marriott regarding their new Renaissance sports center hotel concept which would be a great amenity for the project. This project is also slated for the Green Fund and we’re in the process of making the appraisal and the transfer.

At Four Centers we anticipate completing the first phase 200,000 square foot office project very shortly. Preleasing as we’ve always said is difficult in Austin and the northwest market has been soft recently. Leasing activity is picking up as the building nears completion.

With respect to the Murano we’ve completed the first 38 floors of the 43-story building and as of August 1 we’ve closed 65 units paying down our construction loan by $34 million to slightly over an $89 million balance. As of July 31 we had over 50 buyers actually move into their condo units. Since June 30 we have obtained two additional contracts and we have three reservations, and keep in mind reservations require a deposit so those are very serious transactions. Now that the project is basically complete with the lobby and the landscaping and substantial occupancy, we expect to have a strong fall and spring selling season. Diana will talk about the fact that the earnings report will pick up again on the first 125 units that have been sold.

Our investment advisory business, we continue to focus on building our fee business. As you can see on page 14 of the supplemental package for the six months ended June 30 we had gross fees before accounting eliminations of $23 million up from $19 million for the same period in 2007. In May we finalized the joint venture with UBS Wealth Management - North American Property Fund whereby the Fund will invest up to $250 million under the initial mandate. TPG will invest 15% for transactions with leverage of less than 60% and will invest 25% for transactions over 60%. The venture will focus on acquiring core and core plus properties. The venture will have a nationwide platform focusing on Class A CBD and suburban assets in targeted markets consistent with the TPG strategy. We will receive an acquisition fee, an asset management fee, and a promote the package of which is more favorable than the existing TPG [cousters] fee package.

Our consultant development role at NBC Universal back lot continues to go well. We expect to commence the EIR process for the vision plan in early 2009 for 3,000 residential units with a target to complete the entitlement process by 2010 and infrastructure by 2012. We anticipate being the master developer for the project when we complete the entitlements.

As we reported last earnings call, we activated the high performance Green Fund with $180 million in commitments and we have soft commitments for another $20 million. I pointed out earlier that we’re in the appraisal process to transfer the first phase of the El Segundo project into the Fund. In addition we’re actively seeking acquisitions for the Fund.

Our TPG [cousters] joint venture continues and is our main investment vehicle.

Finally, we have the Austin joint venture with Lehman Brothers which also generates investment management fees.

In summary, we believe we have adequate capital to fund our growth in the near term; we’re focused on executing our strategic initiatives; we acknowledge that the credit market is challenging now and likely to stay that way for some period of time; but the projects that we have underway today are fully financed and we’re making progress on our current value add and construction projects. We recently extended the City National Plaza loan maturity for a year with an option to extend it for an additional year and we expect to be able to extend any of our loan maturities that we have in the near future.

And with that I will turn it back over to Diana.

Diana M. Laing

As always we’ve made supplemental financial information available on our website for year to date and the second quarter ending June 30, 2008. In addition to the consolidated statements of operation and balance sheet which are presented under GAAP, we present a non-GAAP pro rata financial statement presentation as though our unconsolidated properties were consolidated at our ownership interests. These financials start on page 7 of the supplemental package and these are the operating statements that I’ll be referring to in my discussion comparing the quarter’s results with last year.

On page 7 to compare the second quarter of 2008 with the second quarter of 2007, revenue from our operating properties increased about 13% over the first quarter of 2007 primarily as a result of our acquisition of the Austin portfolio about a year ago. The property operating expenses increased 24% or $3.1 million again partly resulting from the acquisition of the Austin portfolio but also including approximately $750,000 in marketing and other expenses that are related to our development properties. The properties that we are currently marketing are Murano, Four Points and Campus El Segundo. If you exclude these development property expenses, our operating margin on the remaining properties was about 52% in the second quarter of 08 compared with 54% in the second quarter of 2007.

Our revenues from the investment management business are shown here on page 7 in two line items. If you’ll look at page 14 of the supplemental financial package, we’ve done a bit more analysis of the investment management business. Included in both revenues and expenses from this business is about a $1.5 million of reimbursed property level personnel costs in the second quarter of 2008 compared with about $800,000 of these reimbursed personnel costs in the second quarter of 2007. We don’t recognize any profit on this reimbursement and it serves to reduce our operating margin if you look at these revenues and expenses inclusive of those reimbursed items. So if you exclude the reimbursed expenses, our gross revenues from investment management were $10.2 million in the second quarter of this year compared to $8.8 million in the second quarter of 07. And on this basis our operating margin from the investment management business was 49% in the second quarter of 2008. That compares with an operating margin of 58% in the second quarter of 07. The decrease is primarily the result of the fact that we did not have any acquisition or disposition fees in 08 and we earned $1.4 million in acquisition fees during the second quarter of 2007.

Back to page 7, we have recorded $76.1 million in revenues from condominium sales at Murano and $59.1 million in cost of sales during the second quarter of 2008. We’re required to recognize these sales on the percentage of completion method of accounting under FAS 66 when certain conditions are met and we met those conditions during the second quarter. This includes that construction is beyond the preliminary stage, that buyers are committed to the extent of not being able to obtain a refund if they cancel except for the non-delivery of the unit, that sales proceeds are collectible, and that the total cost of the project can be reasonably estimated. Since we met all four of those conditions we are now recognizing revenues and cost of sales from the Murano unit. During the second quarter of 2008 we recognized revenue and cost of sales related to the 20 units that we’ve actually closed and 103 units that we had under contract at June 30, 2008. We based our recognition on our estimate of the percentage of completion of the project which was 95% at the end of the second quarter. In future periods we’ll be recognizing the remaining 5% of the gain on the 123 units when the project is complete and we expect that to happen during the third quarter, and we’ll recognize revenues and cost of sales on future unit sales as contracts are signed and nonrefundable deposits are collected. Jim mentioned that since the end of the second quarter we have two additional contracts and three reservations which involve a deposit but not a nonrefundable deposit yet.

General and administrative expense increased 14% for the second quarter of 08 compared to the second quarter of 07. About half of the increase in G&A is attributable to increased business taxes in Houston where we have a regional office. Our gain on sale of real estate represents the remaining deferred gain on the sale of the El Segundo land which occurred in the third quarter of 2006. We’ve now satisfied all of our obligations to the buyer to complete certain infrastructure improvements so the remainder of the deferred gain has now been recognized. One other small note, the gains from early extinguishment of debt is the result of the defeasance of our mortgage loan on One Commerce Square which we actually refinanced during the fourth quarter of 2005. At the time of the refinancing we purchased securities to produce a yield approximately matching the remaining mortgage payments for the original lender. Now that that original loan has matured we recognize gain to the extent of the remaining value of those securities that we bought for the defeasance.

To compare the first half of 2008 with the first half of 2007, revenues from operating properties increased 13% again primarily the result of our acquisition of the Austin portfolio. Property operating expenses increased 18% again resulting from the acquisition of the Austin portfolio. These expenses for the first half include about $1.1 million in marketing and other expenses related to the development properties.

Gross revenues from the investment management business were $19.7 million in the first half of 2008 compared to $17.3 million in the first half of 07. Our operating margin again excluding these reimbursed personnel expenses was 57% in 08 compared to 64% in 07. Again no acquisition fees or disposition fees so far in 2008.

General and administrative expenses for the first half increased 10% over 2007. Much of this increase is attributable to the business taxes in Houston.

If I could turn your attention now to page 12 where we calculate after-tax cash flow, which we believe is a meaningful measure of our operating performance. After-tax cash flow results tend not to be linear from quarter to quarter partly because our portfolios historically included assets that are stabilized and therefore property operating results are not comparable from period to period. We also generate lumpy earnings from the investment business and from gains on sales of assets where comparable fees and gains don’t occur every period. Acquiring underperforming assets for redevelopment and ground-up development are an important factor in our strategy so we believe that these gains should be included in our operating performance measurement. For the second quarter of 2008 after-tax cash flow per share was $0.50 compared with $0.30 for the second quarter of 2007 and year to date after-tax cash flow was $0.71 per share compared to $0.47 for the first half of 2007.

Starting on page 15 of the supplemental financial information we provide information about our portfolio properties and this is done to assist you in analyzing the value of these assets. The components of our net asset value are as follows: The existing portfolio which is shown on page 15 and we estimate stabilized in OI to which you could apply a cap rate to calculate the value of those assets. We also provide an estimate of the capital expenditures that we will spend to stabilize those assets that you could then apply as a reduction to that value.

The second piece of the NAV puzzle is the development assets which we show on page 17. With regard to Murano, since we’re currently recognizing revenues in excess of our costs by about 29% you may want to apply that percent to calculate a current value for the Murano. If you calculate a value that way then you’ll want to deduct the units that we’ve actually sold which would be the revenue number from our operations for the second quarter. The third piece is the investment management platform, we’ve generated on an annualized basis we’re on target to generate about $33 million in revenues and net revenues to which you could apply a multiple to value that piece of the business. Then finally, our net current assets, again on a pro rata balance sheet are shown on page nine of the supplemental financial package. So, those four components make up the asset value, that’s the operating properties, the development properties, the investment management business and the net current assets. Once you have that value you’ll need to reduce that by the amount of our mortgage debt which is also shown on page nine in our balance sheet and then divide all that by the number of shares and OP units outstanding which is about 38.3 million and we show the capitalization of the company on page 21.

Now, I’ll ask the operator to open the call for questions from participants.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Wilkes Graham – Friedman, Billings, Ramsey & Co.

Wilkes Graham – Friedman, Billings, Ramsey & Co.

Diana, was there any discussion to not include the gains from the condos that are under contract in excess cash flow even though they have to be included in GAAP?

Diana M. Laing

Well again, we’ve pretty much always maintained that because our business strategy includes development and re-development in realizing gains we feel strongly that it should be included in the operating measure that we show there.

Wilkes Graham – Friedman, Billings, Ramsey & Co.

Jim, you talked about the Philly market a little bit improving, and I think we’re seeing some evidence as well. Do you have any comment on the potential for Blackrock to move there and any affect that may have on the assets?

James A. Thomas

We think it’s a positive and certainly with respect to Murano, and we understand that all of the Comcast people have still not arrived so the combination of new people coming in to town and the finishing of the project and having it occupied substantially and moving in to the fall selling season we’re optimistic about Murano sales picking up.

Wilkes Graham – Friedman, Billings, Ramsey & Co.

How about any prospect for the Commerce 2 lease next year?

James A. Thomas

The 200,000 feet?

Wilkes Graham – Friedman, Billings, Ramsey & Co.

Yes.

James A. Thomas

We are actively marketing that, as I indicated in my remarks we have a high degree of confidence that we are going to be able to fill up all or most of that space very quickly. We are talking to tenants now that – and way down the road that could take all or most of that space.

Wilkes Graham – Friedman, Billings, Ramsey & Co.

Then just lastly, you mentioned that you feel like maybe it was you or maybe it was a combination of you and [inaudible] that the market has improved enough that you can go back to fully marketing City National Plaza. Can you just talk a little bit more about that and what improvements you’ve seen? If there’s any kind of anecdotal evidence for improvements in the markets?

James A. Thomas

Well, we’re talking to Eastville to give us guidance on what they feel about the market and as I mentioned, we thought that the O’Melveny building trading at $440 a foot. The O’Melveny building was purchased by Tishman Speyer, I don’t know maybe a year and a half two years ago for like $390 or something, I don’t have the number right at my fingertips, so they have flipped that very quickly at a handsome gain. We think that the sale of Citigroup at $315 a foot and a 4.6 going in cap rate was a pretty aggressive purchase given the fact that the building is primarily occupied by tenants who are paying far less than the master lease so we see that Heines is going to have to spend a lot of money – we don’t think the tenants are going to stay in large part. So, it shows a strong interest in downtown and also the Maguire portfolio, there’s been strong interest in the downtown assets of the Maguire portfolio and rumors that they were offered upwards of $450 a foot. So, downtown LA, all of the things that have happened with residential, over $5 billion being spent, the transportation hub with what’s happening with gas and traffic, and the response that we are getting just in terms of the number of people who have signed confidentiality agreements and who are working in the war room, all of these things encourage us that a transaction is definitely a possibility.

Operator

Our next question comes from David Loeb – Robert W. Baird & Co., Inc.

David Loeb – Robert W. Baird & Co., Inc.

Can either of you comment a little bit about pricing trends for those Murano condos, particularly recent trends, recent reservations in contracts and how those have compared to the earlier ones?

James A. Thomas

We increased prices when we hit the 100 sale market several months ago and we are still holding prices and so far we have not had any price reductions.

David Loeb – Robert W. Baird & Co., Inc.

So you’re pretty confident that the pricing on the remaining units is going to be similar to what you’ve received so far?

James A. Thomas

We are hopeful. We are, as I talked about before, there were only three new development projects, condo projects in Philadelphia in the last 20 years or so and one is complete and basically sold out, that’s Symphony Hall, the other, the Ritz Carlton is about a year behind us so right now we are the only project in the market and our price point is lower than both Symphony Hall and Ritz Carlton and it’s a great project. If you get a chance, if you haven’t seen it, it is a high-quality project that we are very proud of so we are optimistic that we’re going to be able to retain, if not increase, prices.

David Loeb – Robert W. Baird & Co., Inc.

I was certainly impressed when I toured it about a year ago and I’m sure now with completed units and models it’s even more impressive. Diana, you went through that exercise on the NAV and I appreciate that as well. I assume when you plug in your numbers there, you come up with a pretty big number. Care to give us any parameters on where you think that might be?

Diana M. Laing

No, I’m not really inclined to talk a number out there but I will say it is significantly above where the stock is currently trading. I think with fairly conservative cap rates and fairly conservative multiples on the service business you can easily get in the high teens.

David Loeb – Robert W. Baird & Co., Inc.

And what kind of cap rates do you think are appropriate as you look forward to cap rates when you reach stabilization for some of these projects?

James A. Thomas

They tend to vary by year.

Diana M. Laing

Yes, it will vary by market. One of the things that we’ve given you information on a property by property basis so if you want to make estimates of cap rates by market, you can. If you do that you have to do a little more math because you’ve got to figure out our ownership interest in the NOI but we also put a key PG share of the estimate of the stabilized NOI at the bottom of the page, to which you could apply an average cap rate based on your feelings about the various markets.

David Loeb – Robert W. Baird & Co., Inc.

I didn’t think you’d give me a whole lot but I appreciate the color. I think, Jim, if you get offers for City National in Houston in September, when would you likely be able to close on those transactions?

James A. Thomas

I think historically the transactions take four to six weeks, is my recollection

David Loeb – Robert W. Baird & Co., Inc.

So that could be early fourth quarter?

James A. Thomas

We’re hoping that we can get it done this year. We’re highly motivated to close one or both of the transactions in 08.

David Loeb – Robert W. Baird & Co., Inc.

That’s actually very helpful. A couple more, if you don’t mind. We’ve read about a little bit of community resistance to the Lankershim project. What do you, how do you think that will shake out?

James A. Thomas

Well, I think it’s premature to really judge it because our EIR has not hit the street and as I indicated, we’re about two weeks away. We have strong support from the public officials. The project, I think, is very timely in the sense that it is a job creator and especially important to the entertainment industry that has been losing jobs. So this project is located right in the heart of where most of the people who work in the entertainment industry live and they’re going to be strong supporters for the project. So we’re very optimistic that the indications that we get is that there is a big majority of people who are very anxious to see this project go forward.

David Loeb – Robert W. Baird & Co., Inc.

Last, given the transaction market that you’re seeing out there, what do you think your prospects are for additional acquisitions through your various vehicles this year?

James A. Thomas

Well, what we’re seeing, we’re on both sides of this. We’re selling and we’re buying and we’re seeing exactly what you hear that there’s a gap between what sellers want and what buyers are offering with exceptions. So again I go back to the fact that in downtown Los Angeles, where we’ve had two, what I think are very important transactions to occur so I think in the right markets with the right product you are seeing transactions but I think that in terms of our acquisitions, we are expecting to do better than a lot of buyers or a lot of sellers are asking for at the moment. So I think it’s telling that as of, here we are in August and we’ve not been able to make a single acquisition so far this year but we expect to get some done before the end of the year.

Operator

Your last question come from the line of Mitch Germain of Banc of America.

Mitchell Germain – Banc of America Securities

Jim, just based on how the transaction markets have changed, do you think you’ll get credit for the vacancy in City National when you market it for sale?

James A. Thomas

I’m sorry, I missed the first part of your question.

Mitchell Germain – Banc of America Securities

I just said based on how the transaction markets have changed and evolved this year, do you think you’ll get credit for the vacancy in City National?

James A. Thomas

I think so. As I intimated when I commented about City National, that we think we’re getting the highest rates in Los Angeles at the moment, which in part is attributable to the fact that we have the least amount of unencumbered space. So the options to expand are basically at market and we have tenants who are expanding, so one way that you could look at it is that we are almost assured of reaching stabilization just from the pickup of the expansion space. And so we only have to lease 175,000 feet to get to stabilize and we have a little over 400,000 feet. And I really think that we have the most appealing project in downtown Los Angeles now with the amenities that we have, the efficiency of the building, the way it lays out, which is so efficient for tenants so I think all of these things will mean that we will get credit for the space yet to be leased. So I think it could definitely be a plus in the eyes of a buyer.

Mitchell Germain – Banc of America Securities

And the largest block you have in the building, how many square feet is that?

James A. Thomas

The largest single block that we could do would be a couple of floors, 50,000 feet.

Mitchell Germain – Banc of America Securities

And just last question, you’d mentioned the appraisal process on the asset that would be contributed to the Green Fund, could you just go over that process please?

James A. Thomas

Yes, the El Segundo property where the first phase that we’re trying to get off of about almost 250,000 feet. The way, since we have a conflict of interest with the fund because it’s our project that we have developed to this point, the advisory committee has the option to hire a appraiser and we have agreed to put the property in at its current market value. So to arrive at that process, we’ve advised the fund of what we think the fair market value of the project is as stands and they have elected to hire an IF to review our appraisal of the fair market value.

Operator

This concludes the question and answer session. You have no questions at this time.

James A. Thomas

Well, we’ll wait a minute to see if someone gets another question and if not, we’ll conclude.

It appears that there are no additional questions then so we thank you all and that concludes the session.

Diana M. Laing

Thank you.

Operator

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Have a great day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: [e-mail]. Thank you!