Apr 28, 2009
Executives
George F. "Skip" McKenzie - President and Chief Executive Officer William T.
"Bill" Camp - Executive Vice President and Chief Financial Officer Michael S. Paukstitus - Senior Vice President, Real Estate Laura Franklin - Executive Vice President and Chief Accounting and Administrative Officer
Analysts
Mark Biffert - Oppenheimer & Co. Anthony Paolone - JPMorgan Michael Knott - Green Street Advisors David Rodgers - RBC Capital Markets John Guinee - Stifel Nicolaus Christopher Lucas - Robert W.
Baird
Operator
Welcome to the Washington Real Estate Investment Trust First Quarter 2009 Earnings Conference Call. As a reminder, today's call is being recorded.
Before turning over the call to the company's President and Chief Executive Officer, Skip McKenzie, Kelly Shiplet (ph), Director of Finance will provide some introductory information. Ms.
Shiplet, please go ahead.
Unidentified Company Representative
Thank you and good morning everyone. After the market closed yesterday, we issued our earnings press release.
If there is anyone on the call who would like a copy of the release please contact me at 301-984-9400 or you may access the document from our website at www.writ.com. Our first quarter supplemental financial information is also available on our website.
Our conference call today will contain financial measures such as FFO, NOI and EBITDA that are non-GAAP measures and in accordance with Reg G we have provided a reconciliation to those measures in the supplemental. Please bear in mind that certain statements during this call are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially. Such risks, uncertainties and other factors include but are not limited to the effect of the current credit and financial market conditions, the availability and cost of capital, fluctuations in interest rates, tenant's financial conditions, the timing and pricing of leasing transactions, levels of competition, the effects of government regulations, the impact of newly adopted accounting principles, changes in general and local economic and real estate market conditions, and other risks and uncertainties detailed from time to time in our filings with the SEC, including our 2008 Form 10-K.
We assume no obligation to update or supplement forward-looking statements that become untrue because of subsequent events. Participating on today's call with me will be Skip McKenzie, President and Chief Executive Officer; Bill Camp, Executive Vice President and Chief Financial Officer; Laura Franklin, Executive Vice President and Chief Accounting and Administrative Officer; and Mike Paukstitus, Senior Vice President, Real Estate.
Now I'd like to turn the call over to Skip.
George F. "Skip" McKenzie
Good morning and thank you for joining Washington Real Estate Investment Trust's conference call today. The effects of the slowing economy continue to have a dampening effect on real estate conditions, not only nationwide, but here in the metro DC region as well.
While we believe our market is arguably the best commercial real estate market in the country and I expect it to continue to be so for the foreseeable future, Washington is not immune to the economic malaise affecting our country. And real estate performance region wide has reflected these lackluster conditions.
In virtually all of our sub-markets, vacancies have risen and leasing progress has been slow. In general, business mangers, retailers and consumers continue to manage risk conservatively and are reluctant to increase liabilities, such as expansions of the space needs or extensions of real estate leases.
Having said that, we believe the WRIT portfolio has performed admirably while flying through these recessionary headwinds. I attribute this to the infill location of our properties, portfolio diversification by property types and our hands-on approach to management leasing.
Overall occupancies of our core portfolio are generally healthy at 93% for the first quarter. Sequentially, same-store NOI grew 1.8% over the fourth quarter of '08, and we retained 76% of our expiring commercial tenants.
On the downside, we continue to experience significantly greater than historical bad debt, particularly on retail and industrial segments. And occupancy declines in our industrial portfolio were 180 basis points over the fourth quarter.
In the first quarter, we were active on the capital markets and financing front, raising $14.8 million of equity in early January through our Bank of New York safe program and re-purchasing 48.6 million convertible debt at attractive discounts and closing a $37.5 million loan at a very attractive 10-year rate of 5.37% on our Kenmore Apartments. And finally, the Board of Trustees approved our 190th consecutive dividend at equal or increasing rates.
Now I would like to turn the call over to Bill Camp who will review in greater detail our financial performance, and Mike Paukstitus who will review our real estate operations. Bill?
William T. "Bill" Camp
Thanks Skip. Good morning everyone.
For the first quarter, funds from operations were $34.2 million or $0.65 per diluted share. This compares to FFO for the first quarter 2008 of $17.8 million or $0.38 per diluted share.
Funds available for distribution were $26.7 million or $0.50 per diluted share compared to $13.3 million or $0.29 per diluted share for the first quarter of 2008. On a sequential quarter basis, FFO per share increased $0.10.
I would like to spend a couple of minutes talking at the quarter... talking about the quarter's FFO in more detail.
First quarter FFO of $0.65 includes $0.11 gain related to repurchase of convertible debt, which I'll explain further in a moment. Excluding the gain, FFO was $0.53 per diluted share.
This compares to the fourth quarter 2008 FFO of $0.55 per diluted share, which included a $0.05 gain related to the repurchase of convertible debt. So, FFO, excluding gain on extinguishment of debt, in the first quarter was $0.03 ahead of the fourth quarter.
The primary difference between the fourth and first quarter on a pre-gain basis is two-fold. First, the impact of owning 2445 M for the full quarter positively impacted this quarter.
Second, the fourth quarter included the effect of losing Circuit City. Other than those two items, the first and the fourth quarters were very close.
This quarter, we continue to strengthen our balance sheet. As discussed on the last quarter's call, we have been opportunistically repurchasing our convertible debt which has a 2011 put date.
In the quarter, we repurchased approximately 48.6 million of our 3.875% convertible notes at a discount price ranging from 80 to 84% of par. In conjunction with these repurchases, we reported a gain of approximately $0.11 per diluted share.
We have continued to repurchase these securities in the beginning of the second quarter, and currently 182.8 million of the original 260 is left outstanding. In January, we issued approximately 14.8 million of equity through our sales agency finance agreement with the Bank of New York at a weighted average price of 26.47.
We used the proceeds to reduce our line of credit balances and for other general corporate purposes. As previously discussed on the fourth quarter earnings call in February, we closed on a 10-year $37.5 million loan for the Kenmore Apartments at a fixed rate of 5.37%.
These proceeds were used to reduce our line of credit and to fund additional purchases of our convertible notes. We are actively working on refinancing our October 1st 2009 $50 million par multi-family loan that is pre-payable on July 1st.
Typically we can mark the interest rate for about 60 days without a premium. So we believe we are close to coming to terms on this financing.
We're also in final negotiations to extend our 2010 $100 million term loan. Our line of credit balance currently stands at $59 million, down slightly from beginning of the year.
Looking at the changes in the balance sheet in the quarter, we reduced total debt by $27.5 million while raising only $14.8 million in equity. We're getting close to ramping up our 2009 debt maturity and our $100 million term loan exposure in 2010.
We have a $25 million mortgage that actually has an interest reset date in 2010 we show as a maturity that we plan to retire our lines which come due in 2010 and 2011, both can be extended at our option for one year. For 2011, as I mentioned, we are down to $182.8 million on the convertible notes.
We also have a $150 million of senior notes maturing. We believe we have several options to help fund these future obligations.
In the first quarter, WRIT paid a dividend of $43.25 per share achieving its 189th consecutive quarterly dividend at equal or increasing rates. And as Skip mentioned, yesterday we issued a press release announcing our second quarter 2009 dividend at the same rate.
This is payable on June 30th, 2009. We are reiterating our FFO per share guidance for 2009, $1.95 to $2.15.
I want to clarify what is in this guidance. Our guidance does not include the gains from the convertible repurchase.
We continue to assume that we will complete asset dispositions totaling 50 to $70 million. We continue to assume that we will complete acquisitions totaling $20 million.
We believe the combination of vacancy, bad debt reserves and abatements will remain fairly steady the rest of the year. Currently we are assuming that rate is about 11.4%.
We expect rents on renewals and rollovers to be mixed ending the year flat to slightly down. Now I will turn the call over to Mike to discuss operations.
Michael S. Paukstitus
Thanks Bill and good morning everyone. Overall our real estate portfolio showed a stronger than expected performance this quarter.
On a same-store basis, our economic occupancy was 93% compared to 95.4% in the same period one year ago, and 93.6% at the end of the fourth quarter. This quarter WRIT executed over 235,000 square feet of commercial lease transactions with an average GAAP rental rate increase of 11.1% of expiring leases of an average lease term of 3.6 years.
Rental rates on the residential sector increased 2.2% compared to the same period one year ago. In the office sector we executed leases for a total of 63,000 square feet at an average rental rate increase of 13.4% on a GAAP basis.
In the medical office sector, we signed leases for a total of 11,000 square feet at an average rental rate increase of 9.8% on a GAAP basis. Our medical office portfolio continues to be the most occupied sector at 97%.
In the retail sector, we executed leases for a total of 21,000 square feet with a rental rate increase of minus 5.2% on a GAAP basis. This slowdown was primarily generated from the walkout of the 6000 square feet tenant, which represented a 28% of the Q1 retail leasing activity.
Additionally, the retail leases this quarter involved non-typical retail of leases more similar to industrial transactions in less than trans (ph) space. In the industrial sector, we entered into leases for a total of 140,000 square feet with a rental rent increase of 13.4% on a GAAP basis.
This was higher usual leasing velocity, thanks to three leases in excess of 15,000 square feet signed take it, and VIP and Saint Clair (ph). Our two apartment development projects, Bennett Park and Clayborne was 79% leased, and 82% leased at the end of the first quarter.
This compares to 79% and 64% at the end of the fourth quarter. We have experienced increased activity at both of these properties over the last month, with Bennett Park at 88% leased and Clayborne now at 89% leased.
Now I would like to open the call for questions.
Operator
Thank you. (Operator Instructions) Our first question comes from Mark Biffert with Oppenheimer & Co.
Please state your question.
Mark Biffert - Oppenheimer & Co.
Good morning guys. Related to leasing, I have a couple questions just on what you're seeing from the discussions -- last quarter you had mentioned you're negotiating with the World Bank on their renewal next year.
And across your other portfolio you have a sizeable renewal -- amount of renewing as well. I am just wondering what you're hearing from tenants and the likelihood that they will renew versus those that have said that they are giving backspace?
George McKenzie
Okay, good morning Mark. As it relates to World Bank, I am extremely optimistic that that's going to be signed very soon.
I'd like to have said we would have it signed today but I can't say that right now. But I am extremely optimistic on that front.
With respect to the rest of rollover, it's actually for the balance of 2009 just to clarify, it's actually a very light year. We only have something on the order of about 6.5% of our economic lease income rolling for the balance of this year.
So this year is actually a very light year. As it relates to 2010 which I think is where you might be seeing a little bit of a bleep up in some of our exposure, one of the tenants is LaFarge out in the Western Corridor and actually Harman project -- I don't have any particular entail on that right now.
We've just begun the process of trying to discuss with them that World Bank lease that I had just mentioned that actually is the biggest sort of participant in those 2010 rollovers. And those are probably the two ones that stick out more than any other.
Yeah, across the street we have a 40,000 square feet lease at our Atrium office building and they have renewed. How long was that for Mike?
That was for --
Michael Paukstitus
Another five years.
George McKenzie
Another five years. So, those are the three biggest exposures and with the dramatically biggest impact being the World Bank lease.
That's a 148,000 square feet, and that's high $40s rents. So, that has a huge impact on that number.
Mark Biffert - Oppenheimer & Co.
How about the rest of the portfolios, the retail, the industrial portfolios?
George McKenzie
We don't have any giant tenants rolling in those areas. I would say just sort of from macro level, I mean the markets are soft.
We've actually been able to have a pretty good retention rate even throughout this. As I reported on my the comments we were 76% for the first quarter.
Having said that, it's going to be sort of a bear-double environment for the rest of the year in my view. I think we're going to have continue to have retention rates that we've experienced historically.
But I'd be lying if I didn't tell you that the leasing dynamics market wide are relatively soft.
Mark Biffert - Oppenheimer & Co.
Okay and then last quarter you, Bill I think mentioned that your occupancies would be in the 90 to 95% range with industrial being at the low end. And it appears that industrial is already down at that low end.
I mean what are your expectation in terms of being able to maintain occupancy at that level through the rest of this year?
William Camp
Yeah, I mean I think we can -- I mean we have been hit pretty hard in the industrial sector. Interestingly enough probably the area that we've been hurt as much as any is down the 395 Corridor, where -- which has historically been one of our strongest markets, which is our Northern Virginia Industrial Park.
We have two buildings down in the Fortune area. And I think I've mentioned on previous conference calls, one of the things that's really impacting us in that market is these aren't historical -- these aren't the traditional large Bay industrial buildings.
These are small Bay warehouse generally 5 to 20,000 square feet and they are mostly consumer oriented type operators. So we would have small general contractors in there.
We actually have a Deer Park distributor in there, for example, that's actually doing well. But it is those type of users that are down there and they are being hit by very much the same forces that are hitting the consumer retailers that have problems today.
Mark Biffert - Oppenheimer & Co.
Okay. And then Bill if you can talk a little bit about what you're hearing from the GSEs on their underwriting.
Today it seems like the coupon rates continue to fall, and I am just wondering what they are basing that on and given the longer terms that they are also offering people on a fixed basis?
William Camp
Well, I mean we did the Kenmore loan at -- I mean that was a 5.37, at 10-year rate -- that was a 10-year deal. I would say today we are probably in that same ballpark.
Quite honestly, treasuries have come up but the spreads have gone little bit. And so, we are kind of modeling right now anything can change.
But right now we are kind of modeling that we'd be at the same kind of level somewhere in that 535, 540 maybe as high as 550 range on those apartment loans that would come due. So, I think that GSEs are actively in business.
I think they probably make more money on the bulk. I don't know, but I'm guessing they make probably more money on the multi-family than they do on all the housing stuff that's defaulting on them.
So, they probably need that business, and I think they are still at the terms quite honestly that the proceeds are locked up. It's typically 65% loan to value or 125% debt service coverage, depending on where you numbers shake out one of those two will cap the proceeds on how much you can generate out of the building.
Mark Biffert - Oppenheimer & Co.
Okay thanks.
William Camp
Sure.
Operator
Thank you. Our next question comes from Anthony Paolone with JP Morgan.
Please say your question.
Anthony Paolone - JPMorgan
Just a follow up on the GSE debt discussion. Do you intend on taking out any excess proceeds from the up-coming maturity in October or even throughout the apartment portfolio given that attractive financing source near term?
William Camp
Right now Tony I think the plan is to just re-finance the 50. I think that logic would say you want to wait through the summer -- the spring and summer lease-up in those buildings.
It's the active time of the year to lease buildings up and the more occupancy you have the higher your proceeds are going to be. I mean there is a little bit of a risk on the interest rate.
But I personally don't see -- I don't see the interest rates being able to move too quickly too soon. So it may be a -- it may be a situation where when we have stabilization of Bennett and Clayborne that we lock in the rest of it.
However let me just say this, as we can do the 50 million refinance with 2 of the 5. So we're un-encumbering.
So from a ratio perspective, we're un-encumbering three assets, that's always a good thing for ratios. And quite honestly, adding secured debt while I am eliminating unsecured debt, put some strain on ratios that the credit rating agencies look at.
And if that gets too rather less, I am looking at the rating agencies downgrading our debt at some point if I continue on that path, something that I've to analyze, not saying that it will control what I do.
Anthony Paolone - JPMorgan
Okay, that's helpful. And then just another question is I was wondering if you can provide just your thoughts looking out the next 12 to 24 months on the deal environment.
I mean do you have the potential of some movement with maybe like Archstone assets on the apartment side or just any variety of opportunity funds that bought assets aggressively on the office side. And just what your thoughts are in terms of maybe those things hit into the market or how you see yourselves maybe getting involved?
George McKenzie
We monitor the market closely Tony to be quite honest with you, there hasn't been much of that available today. There's limited product available in the market, the transaction activity has been extremely slow.
There have been some transactions but very small quantity of them. We're monitoring the market closely.
We don't think just from a temperature and pricing standpoint that super attractive pricing is out there in our market. As you know everybody seems to think this is the best market in the country.
So there haven't been any screaming buys at this point. But we are monitoring it closely and to the extent there are those super attractive opportunities, we plan to evaluate them on a case-by-case basis.
Anthony Paolone - JPMorgan
Okay, thank you.
Operator
Thank you. Our next question comes from Michael Knott with Green Street Advisors.
Please state your question.
Michael Knott - Green Street Advisors
Hi guys, did you mention anything about asset sales in your comments?
George McKenzie
We did not mention anything specific but I can give you general comment. We have announced in the past that we had the Avondale Apartments on the market.
And just to give you the latest update on that, we do have that contract is firm with a buyer. And we anticipate actual closing on that next week.
So, that's sort of the glide test that's on. We do have another property on the market today and that's our Crossroads warehouse; it's a very small transaction.
So, it's not going to move the needle too much up in the Baltimore Washington Corridor area. Those are the only two projects we have actively on the market now.
We have received a number of unsolicited interest on properties, which we are evaluating, but nothing from any of those. But we do anticipate closing on the Avondale Apartments sale next week.
Michael Knott - Green Street Advisors
Would you care to share any details on that?
George McKenzie
I'd rather -- it's not -- it's double top secret but I never like to talk about a transaction that hasn't occurred yet. And we certainly today that it occurs and the check clears that, we'll put out a press release.
Michael Knott - Green Street Advisors
Okay. And Bill, you talked about having several options for future unsecured maturities, how does issuing additional equity or potentially cutting the dividend factor into the menu of choices that you talked about?
William Camp
Well obviously those are all choices, and you evaluate them all equally. And I'll take the second part of that question first, in terms of the dividend, if we look at our taxable income for this year, obviously projections and who knows exactly how things are going to shake out.
But if we, if we look at our taxable income this year, and we include the gains that I am taking on the converts, and gains that we will, we anticipate we will take on selling 50 to $70 million of dispositions, we will have a taxable income, pretty much equal to our current dividend. So for this particular year at least I don't think I have a whole lot of grip of them.
In terms of equity, obviously we raised a little equity in the first week of the year. I'm not opposed to doing that.
We valuate that versus recent -- more at leverage or selling more assets quite honestly everyday I look at that stuff. So it's a matter of deciding if you need capital and when you need it and what the best option is to get it at that point in time.
Michael Knott - Green Street Advisors
Okay and you guys have about 50 million left under that original program?
William Camp
No, it's about 92 or 3.
Michael Knott - Green Street Advisors
Okay, and Mike, could you comment on Suburban Maryland office versus Northern Virginia in terms of leasing fundamentals, connect demand perhaps inside outside the Beltway? That would be helpful.
Michael Paukstitus
Well again I think the dynamics of inside, outside are very similar. Inside Beltway obviously being much stronger than outside.
Generally speaking, we've seen increased vacancies in Virginia outside as opposed to Maryland which has been a more steady environment. The markets that we're in, on the office sector generally we're favoring much more favorably than the market in general.
The markets vacancies are much higher than the ones who are experiencing. But we have some, we're seeing some aggressive deals being done in one project going to block your pipe (ph).
The good news is that we're closing just by everything that's occurring in that marketplace. So we're getting velocity but we're not getting your tremendous growth out of that.
And then in Virginia, for the most part, we're pretty stable, our two Virginia properties on Dulles or fall and 1600 Wilson Arlington the same way, it's almost 100 leased. So we're trying to close down Dulles.
We've got 6000 foot we're close to signing. And there's some others in the pipeline they could stop that or close that gap and then at Magi (ph) other project, they are the one deal Skip had mentioned.
There is a rollover net asset next year that we're working on right now.
George McKenzie
This is Skip, Mike. I would say that -- I mean just region wide I think I mentioned in my comments that leasing velocities are down, I mean fairly dramatically.
And in the recent Delta report, I think they've reported a negative, almost million square feet of net absorption in the first quarter region wide. That's not necessarily good.
I mean, the first quarter is usually a slow quarter admittedly but you'd almost have to say region wide almost everywhere just transactional activity, leasing, sales what have you in all property types is significantly abated.
Michael Knott - Green Street Advisors
Okay. And then my last question and I'll get back in the queue.
Skip, how would you evaluate the possibility of in the future investing in the new areas of the DC marketplace, not the Massachusetts down with the ballpark et cetera, I'm just curious your view on that?
George McKenzie
Yeah, I mean Mike, I think we would certainly approach there opportunistically, I mean I think those are certainly emerging markets, and their day will come, they will be dynamic in particular by the baseball stadium, you can see the vision there. And it could be an exciting place, and I think they're going to be evaluated on a case-by-case basis.
And certainly today if you were to make a move in one of those two markets, you'd want an extraordinarily good deals, because you're going to be looking at a lot of downtime, in those two particular markets. But just from a long term sort of visionary sort of point of view, I think that those are -- will be major parts of the city.
I think over time they will fill in like the rest of DC just like the East End did 20 years ago when you might have asked the same question. And they certainly would -- long term strategy will fit in, but today if you were to make a move on either those sectors you'd want a pretty good discount.
Michael Knott - Green Street Advisors
Okay. Thanks.
Operator
Our next question comes from Dave Rodgers with RBC Capital Markets. Please state your question.
David Rodgers - RBC Capital Markets
Hey good morning guys. Thank you.
First question on the One Central Park and move-out, can you give us a little bit of additional on that? And particularly with respect to prospects and the incremental impact to second quarter versus first quarter FFO, is that significant?
George McKenzie
Dave, that was a vacancy that occurred almost a year ago. And that was United Communications group.
Over the last year I will be honest with you, I've been very disappointed in the leasing performance there. It's a market that has that building historically has been a very tight building.
And I would say that we felt pretty optimistic when United Communications moved out that we would lease it up quickly but we have not done so. It's little bit unusual in that it's not contiguous.
There is a number -- that tenant grew sporadically throughout that building. So it had some space on four, some space on six.
So it's very heavily broken up. We've actually leased some of it but we've done a little bit sort of the two steps forward, two steps back over the unit -- meaning 12 months and really that have made little progress.
We've actually -- over this timeframe have actually hired a third-party broker to assist our leasing team in leasing that space up. So we do have activity on it.
I'd like to say I'm optimistic about leasing some of that up, but I'm not going to jump for joy and tell you that I'm really pleased with the leasing activity there. Long-term I think that's going to be a good building and a good market.
If you're familiar with its location, it is right up the street from NIH, and NIH and Bethesda Naval Hospital which is across the street from it, they're going to be major beneficiaries of many of the initiatives that are going on, especially with Walter Reed moving to Bethesda Naval. So I think long-term it's going to do fine, but it's a rocky road right now to be quite honest with you Dave.
David Rodgers - RBC Capital Markets
Thanks for that color. With respect to distress, you obviously talked about it, it was an earlier question on distress in the market overall.
It hasn't I guess fully emerged as -- maybe we'd all anticipate it at this point and likely still on to come. But how do you think Skip about positioning the balance sheet and how to take advantage of that when it does come?
George McKenzie
I mean we think we're in good spot. If the opportunities came, we think even today we could make a move.
I mean obviously like everybody else we would like to have less leverage. So we could be even more aggressive and make bigger moves on that.
But quite frankly right now, we don't see that opportunity out there, we don't see as I just mentioned a caller ago, that they're just are not screaming buys in the marketplace today. And do I think that they will occur?
I don't know, I really don't know whether in the Washington DC region, if we are going to see the screaming discounts that many people are forecasting for many markets in the country. Will I think we'll see better deals?
Absolutely. I do think we will see more attractive rates of return on investment and I think we are poised to do so.
But I am not so sure we are going to be seeing that $0.50 on the dollar type transactions year we saw in the last time we had the meltdown in the early 90s.
David Rodgers - RBC Capital Markets
Okay. Final question, Bill, I think you mentioned earlier in response to another question you characterized the discussions with GSE.
Could you characterized discussions with the other lenders maybe with respect to the term loan for next year or just broader discussions on potentially the unsecured side whether from institutions or banks and characterize those two sources of capital in your discussion?
William Camp
Let's start with the term loan, as I mentioned in my prepared remarks we are in final discussions on extending the term loan. It's an extension.
It's not a renewal. So it's not like a new loan necessarily.
It's kind of a blend and extend type of situation that we are looking at. Other classes are little bit more -- I think the loan rate right now is we pay a swapped out fixed rate of 4.45 on that term loan, that was a two year loan that was set in February of '08.
Quite honestly the concept behind this obviously is not done yet. The concept is just to take it out to the end of or towards the end of 2011.
And the rate so I'm extending it about by 17 months and the rate would probably be up 75 basis points or may be little higher than that. That's kind of where it is at.
If you asked me where new term loan terms out like, what the market looks like. If I went for new two year term loan today, I'm kind of guessing a little bit -- to be perfectly honest with you today because I haven't talked to people about yet.
I mean I talked to a couple of banks, it's not a lot. What you're seeing in today's market is you're seeing floors on LIBOR rates, somewhere around 150 to 200 basis points.
So 1.5, 2% floors, so and if -- you can get those floors waived obviously if you swap it with whoever you're getting the loan with, and you can either get it waived or becomes a non-factor. The spreads are 275, 300 over for a credit like us, and might be -- isn't little lower today, than it was a few weeks back when I was talking about, but that's -- that's kind of the number.
And I think that's kind of term loan market right now. In terms of the other property types secured financing, a lot of the lenders and insurance companies there is money to be put out in this market.
In fact, we had one insurer come to us to ask if they could try and be competitive against Fannie and Freddie because they wanted apartment exposure in this market. And lo and behold they couldn't be but they wanted to be.
But they wanted deals in the under 10 million size and we don't have many of those. So I think they were looking for smaller exposure on an individual basis.
It doesn't sound like they want any kind of pooled transactions right now, they just want to be simple and have one asset that they can watch. And I would say they are probably if any Fannie and Freddie are in the low fives, I would say they are probably in the high fives or sixes.
In terms of other property types, it seems or feels like everyone thinks, at least in our area, I don't know what about other parts of the country that those rates are seven to seven and a half. And they have been that way for a while, and if interest rates move up a little bit their spreads come down.
And if interest rates move down their spreads go up. It feels like a floor to me, but that's kind of where we we're at.
Does that give you enough color?
David Rodgers - RBC Capital Markets
Yeah, I appreciate the color. Thanks guys.
Operator
Thank you. (Operator Instructions).
Our next question comes from John Guinee with Stifel Nicolaus. Please sate your question.
John Guinee - Stifel Nicolaus
Hi, thank you. Nice quarter guys.
George McKenzie
Thanks, John.
John Guinee - Stifel Nicolaus
Question -- you talked about the relative strength of investments sales market in DC versus rest of the country. And you also talked about the seemingly availability of debt in DC and then your desire to delever a little more.
If you kind of add that all together it would imply a much more aggressive disposition 50 or $60 million in 2009. So my question is really two-fold, why not more than 50 or 60 million of assets sold in 2009?
And then second what is the -- more of the dispositions, like one small industrial apartment, what are the reasons there?
William Camp
Well, we -- first of all we like our diversified portfolio. John, I think, there is but let's go to the -- your question is why not more dispositions.
And I think as Skip said, earlier he said there was several properties that we've had unsolicited offers on. I think when you go to the broader markets and really show to market that you want to try and sell building, I think everyone thinks that you're willing to give it away.
So --
George McKenzie
I think that's a good point.
William Camp
You know I think right now, what we're seeing is these one-off transactions that are unsolicited by us, some of them are attractive. And we're going to look at them and quite honestly, the number could go higher than 50 to 70 million, which is where I'm advertising.
It could go higher but with the market the way it is and the fact that money is as tight as it is, and some guys can get lending and other guys can't. And these are one-off buyers.
Sometimes you just I am not ready to say or saying that we're going to push the disposition program up, we're looking at a lot of stuff.
George McKenzie
I think we agree with you John. We thinks it's a valid comment and we were evaluating it.
I think as Bill mentioned that number could be greater than at the end of the year but maybe we're being a little conservative on our numbers. But we feel comfortable with the numbers that we put on the table in terms of our projections.
And it very well could be a larger number than that when the chips are finally counted at the end of the year.
William Camp
The other point, John, I think is that even if we were decided we were going to sell another asset and then move down to path we're kind of at the end of April here. By the time we actually get it all done and said and done, we're going to be very late in the year or it could be certainly late third quarter and if not fourth quarter.
Some of these things may push out and we haven't given any guidance on dispositions next year. They could push out the next year too.
So it's kind of I don't know if we're going to hit higher than 70 million this year or not but I think the thought process is, we're going to continue to work on a lot of different things. And if someone hit that number may go up this year or it may kind of wiggle into next year.
John Guinee - Stifel Nicolaus
Great. Thank you very much.
William Camp
Sure.
Operator
Our next question comes from Chris Lucas with Robert W. Baird.
Please state your question.
Christopher Lucas - Robert W. Baird
Good morning everyone.
George McKenzie
Hi Chris.
Christopher Lucas - Robert W. Baird
Bill, just kind of follow up on train of thought here on the capital side. I guess two quick questions; one is that, have you even bothered to look at the unsecured market at this point and is there any pricing that's being dented about that you would care to discuss?
William Camp
I have not -- quite honestly I think there is some of our REIT counterparts out there that that have tested the waters in the that market. And I don't think at this point -- I actually, Chris, I actually think that at some point in the future that market might become more attractive but right now that pricing looks pretty expensive.
Christopher Lucas - Robert W. Baird
Okay. And then just in terms of thinking about the debt maturities over the next couple of years, it seems like the general consensus is to try to get as much pay down through the sort of 2012 timeframe.
So, given that as a sort of conventional wisdom, what's the thought process on just extending the line into essentially the end of 2011 as opposed to further out?
William Camp
Well, we have an option at the same terms. Our line is at plus 42 basis points, the rates now are under 1% for us to borrow.
Christopher Lucas - Robert W. Baird
I guess some, I'm sorry, I'm talking about the term loan is really what I am talking about --
William Camp
The term loan, well the thought process, I will be more candid, the thought process is that term loan is with our lead line and credit bank. It is under the same covenants and various things at that line.
If we extend the line, the line matures in November of 2011. And if I want to keep that term loan basically, I have a penalty if I pay it off.
So my cheapest source of capital with regard to that term loan right now is just to negotiate an extension rather than pay it off and issue a new term loan. And they are unwilling to move it beyond that maturity date of the line because then they'll have exposure to the same set of covenants that they have now.
And I think they're not really interested in keeping covenants exactly the same. I don't think any bank is.
Christopher Lucas - Robert W. Baird
Okay, that's helpful. And then just I guess kind of a technical question and if Laura, maybe she can help me with this.
I am just trying to understand the APB 14-1 application and what was the actual adjustment in terms of interest expense for the quarter?
Laura Franklin
Sure. As you saw in our press release we mentioned which included a gain on extinguishment a $0.05 in the first quarter of '09, and $0.03 in the first quarter of '08.
If you exclude the gain Chris, it's basically $0.02 in the first quarter of '09 versus $0.03 and of the same $0.03 obviously in the first quarter of '08.
Christopher Lucas - Robert W. Baird
Okay. I think there is a footnote that references of -- I don't have it in front of me, about $1.2 million of adjustment for each quarter and that was the part that I was struggling with.
Laura Franklin
We basically have, excluding the gain we have 1.2 in first quarter about 900,000 of that is the non-cash related to any of the one of the fair value adjustment.
Christopher Lucas - Robert W. Baird
Okay.
Laura Franklin
The difference for that you see how that back in our Fed is basically the amortization of the fair value on these mortgages in the first quarter.
Christopher Lucas - Robert W. Baird
Okay. I'll probably need a little more help on this, if I can get you offline that'll be great.
Laura Franklin
Sure.
Unidentified Company Speaker
That's fine.
Christopher Lucas - Robert W. Baird
Thanks a lot.
Laura Franklin
Sure.
Operator
Our next question comes from Michael Knott with Green Street Advisors. Please state your question.
Michael Knott - Green Street Advisors
Hi guys, I was just going to ask for an update on Sunrise?
George McKenzie
Okay, Michael, I guess the (inaudible) Sunrise is as they were advertised in the marketplace, they're attempting to sublease a significant portion of the premises, I think they announced the prior call. We're working with them to assist them and subleasing 60,000 square feet is what they've identified as excess space needs.
And they've actually guided decent amount of prospects on, I would say, almost all of that space. And we're actively working with them to facilitate the releasing them of some of those lease liabilities.
So that's sort of an ongoing process. Nothing is firm; it's all...
you know, subject to change, but I feel pretty good about the activity on that space and the ability for us to basically help them sort of deal with their G&A issues on a going-forward basis. In terms of them as a tenants, for us, they've been phenomenal tenants, they are current on their rent.
And we recognize that they've still more things to do in terms of their business plan going forward, but I think they are making some progress.
Michael Knott - Green Street Advisors
How was that billing received in the marketplace from potential subtenants?
George McKenzie
I think the activity has been very, very good. Let me just make sort of a general market comment.
I mean one of the... sort of the...
if you might hear negative comments about Tysons Corner on general today is one of the issues is that there is a tremendous amount of construction activity going on into Tysons. They have...
let's call the half lane project, which is adding lanes to the beltway, which is a lot of disruption in the vicinity of Tysons Corner as well as the whole metro construction project is now underway. So sort of a macro level, you are hearing concerns just from the marketplace on the willingness of some new tenants to want to expand the Tysons because of those sort of just big macro level issues.
They don't really are property necessarily relates to the whole market as a whole. Having said that as I mentioned earlier, I mean these guys have had really activity on our space.
We're probably one of the, if not the most prominent buildings on the beltway there. So that has wonderful signage opportunities.
Sunrise has a sign on the building. The other building across the street Capital One has an equal prominence building signage.
So they've had good progress there.
Unidentified Company Speaker
Are you fielding to address as there is... given our pricing, the price points of that building is substantially below new delivery in the marketplace.
So it's a fabulous deal for a tenant to come in there and get that location at that price.
Michael Knott - Green Street Advisors
Okay. And then on the retail portfolio, maybe you mentioned that and I missed it.
But can you just talk about your feeling as to the help of your retail portfolio looks like occupancy was up a little bit sequentially and you had to roll down just a little bit of releasing on a cash basis. Can you talk about your expectation of where the entire retail portfolio, where rents are versus your in-place rents?
George McKenzie
Yeah, I can make a general comment on that, Michael. First of all, firstly I think you should just ignore the rent roll down in retail.
The activity this quarter was so light, it was 21,000 feet, and it had sort of an aberrant tenant in there. It had on the backside of our Montross (ph) crossing shopping center, it had Quaza Industrials (ph) and on the back side of the center.
And then as Mike mentioned I think in his comments, we had a workout tenant for another part. So it's really...
it's kind of an aberration. I don't think that negative 5% is indicative of where our leases are relative to market on a macro level.
I think we are showing that our rolling leases over the next 12 months are slightly below market, so that we're still... I would say as we release over the next 12 months, we will see modest or moderate rental rate increases on that on those rollovers.
Having said that, I would comment that retail is still a very tough environment for our tenants out there. As we reported, we're still experiencing higher than historical bad debt expense in the retail world.
And we are hearing from our tenants that their sales are down fairly significantly. The good news is, is that we have primarily super market anchored grocery centers and in-fill locations, and those are doing well.
We are... we sort are keeping a close eye on as we do have two power senders, and we're keeping our eye on some of the big boxes out there.
We don't know if any other further problems other than the Circuit City that we had in the fourth quarter, but we are keeping a close eye on those. But I'd say we are reasonably optimistic given the region that we are in that we're going to sort of get through this okay.
But we're not going to see a sort of those 20% rental rate increases a 98% occupancies that we have enjoyed over the past five years, maybe over the next 24 months.
Michael Knott - Green Street Advisors
Okay, Thank you
Operator
Our next question comes from Chris Lucas with Robert W. Baird.
Please say your question.
Christopher Lucas - Robert W. Baird
Robert W. Baird:} Two quick questions, just a follow up; what was the bad debt expense for the quarter?
George McKenzie
The overall number?
Christopher Lucas - Robert W. Baird
Yeah
William Camp
Cash number was 1.4 mil, and the GAAP number was 1.76.
Christopher Lucas - Robert W. Baird
Okay. And then just following up on a comments, Skip, any prospect on the Circuit City space?
I know it's early.
George McKenzie
Let me answer this two ways. Do we have a prospect on it?
Yes, Chris, but I wouldn't factor in a permanent tenant in that space. It's a very difficult retailing environment.
We will probably get some rental income on that space over the next 12 months with some seasonal tenants. We'll probably do like a Halloween store, and we'll probably do like a Christmas tree store.
So we'll probably actually mitigate the income dislocation from Circuit City. But as a practical matter, the chances of putting in a 23,000 square foot tenant on a permanent basis there over the next 12 months, it's probably not that good right now.
But from an income basis, I think we will cut down some of that with some seasonal tenants.
Christopher Lucas - Robert W. Baird
Great. Thank you.
Operator
Thank you. Ladies and gentlemen, there are no further questions at this time.
I'll turn the conference back to management for any closing comments.
George McKenzie
Okay, well thank you everyone for listening to our conference call today. I hope you are enjoying this good weathers we have here at Washington.
And we look foreword to discussing with you the results of the second quarter. Have a good day.
Operator
Thank you. This concludes today's teleconference.
You may disconnect your lines at this time. Thank you all for your participation.