Jul 24, 2009
Executives
Skip McKenzie - President & Chief Executive Officer Bill Camp - Executive Vice President & Chief Financial Officer Laura Franklin - Executive Vice President, Chief Accounting & Administration Officer Mike Paukstitus - Senior Vice President, Real Estate Kelly Shiplet - Director of Finance
Analysts
Ian Zaffino - Oppenheimer John Guinee - Stifel Nicolaus Mike Knott - Green Street Advisors Chris Lucas - Robert W. Baird Dave Rodgers - RBC Capital Markets Anthony Paolone - JP Morgan Michael O’Dell - MetLife
Operator
Welcome to the Washington Real Estate Investment Trust second quarter 2009 earnings conference call. As a reminder, today’s call is being recorded.
Before turning the call over to the company’s President and Chief Executive Officer, Skip McKenzie, Kelly Shiplet, Director of Finance will provide some introductory information. Ms.
Shiplet, please go ahead.
Kelly Shiplet
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 second 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 then in accordance with Reg G, we have provided a reconciliation to those measures in the supplemental. The per share information being discussed on today’s call, is reported on the fully diluted share basis.
Please bear on 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 effects 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, our 2009 first quarter 10-Q and our Form 8-K filed on July 10, 2009. 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 Administration Officer; and Mike Paukstitus, Senior Vice President, Real Estate. Now, I’d like to turn the call over to Skip.
Skip McKenzie
Good morning and thank you for joining Washington Real Estate Investment Trust conference call today. The metropolitan DC real estate market is proving it is not immune to the economic headwinds facing the U.S.
economy. Real estate transactions of all stripes seem to be in suspended emanation, as business managers and owners continue to offset revenue declines with expense management of the real estate costs centers by delaying, reducing or minimizing real estate leasing decisions.
Real estate investors and property sellers continue to be hampered by wide spread and retailers struggle to cover overhead with declining sales in an American consumer, who now says rather than spends. As a result, region wide vacancy rates increased significantly over the first six months of the year, as too many submarkets experienced negative net leasing absorption.
On the investment front, in a region that normally average well in excess of 100 office sales transactions in a year, year-to-date we’ve 10. It just seems like no one is in a hurry to do anything, having said that WREIT managed to achieve several significant strategic and operational achievements in the second quarter.
We renewed over largest tenant, the World Bank through December of 2015 at our office closing in 1776 G Street in Washington, DC. We completed the sale of our weakest multifamily asset The Avondale Apartments for $19.75 million and recorded a $6.7 million gain on the sale.
Subsequent to quarter end and yesterday in fact, we closed on a sale of our Tech 100 Industrial Park for $10.5 million, achieving gain on sale of $4.2 million and achieving an un-levered internal rate of return of 14% over the 14 year holding period. We substantially completed leasing on our three development projects, the Bennett Park and Clayborne Apartments, and our Dulles Station office development.
We continued to de-lever our balance sheet, by raising a $112.4 million of equity in an overnight equity offer in May and repurchased $40.8 million of our comparable notes at a discount to par. Operationally, in a commercial portfolio we retain 67% of expiring tenants in the second quarter and at June 30, our commercial portfolio was 92.2% at leased and the multifamily was 96.9% leased.
Lastly, the Board of Trustees approved our 190 consecutive dividend at equal or increasing rates. While we are pleased with the performance we’ve achieved, we recognized that this is an extremely challenging operating environment and we anticipate it to continue as such for the balance of 2009.
Bill Camp
Thanks Skip, good morning every one. For the second quarter, funds from operation were $30 million or $0.53 per share.
This compares to FFO over the second quarter 2008 of $25.9 million or $0.54. Funds available for a distribution were $21.8 million or $0.39 per share, compared to $18.1 million or $0.38 for the second quarter of 2008.
Comparing to the first quarter of this year, before gains on the repurchases of debt FFO per share was $0.51 versus $0.53 last quarter. Netted out of these numbers are $0.02 gain in this quarter and then $0.11 gain in last quarter.
The primary driver of the $0.02 decreased and FFO before gains on the extinguishment of debt was the effects of the two months of share dilution from our equity issuance at the beginning of May. From a net operating income and an FFO basis the second quarter was very similar to the first.
The combination of vacancy, bad debt, rental abatements that I mentioned last quarter would hover around 11.5% for the remained of the year came in a little better than expected at 11.2% this quarter. In this quarter, we issued $5.25 million common shares at an offering price of $21.40 per proceeds of $112.4 million.
As I discussed on our last few conference calls, we have been opportunistically repurchasing our convertible debt, which has a 2011 put date. In the second quarter, we repurchased approximately $40.8 million of this debt at an average discount price of 91% of par, and conjunction with these repurchases we reported a gain of approximately $0.02.
As of the end of the quarter, we have purchased $105.4 million of the original $216 million, leaving a $154.6 million of our convertibles outstanding. We extended the maturity date of our term loan with Wells Fargo from February 2010, until November of 2011.
The interest rate on the term loan increased from LIBOR plus 150 basis points to LIBOR plus 275 basis points. As for dispositions, we completed the sale in the Avondale Apartments; our 237 unit Class B apartment property in Laurel, Maryland.
After the quarter close on July 1, we prepaid the $50 million multifamily loan coming due October 1, of this year. By retiring this debt, we unencumbered five of our Northern Virginia multifamily properties.
We funded this prepayments with cash on hand and a $50 million drawn on our line of credit. We continue to monitor Freddie Mac and Fannie Mae rates to position ourselves to be able of finance all of our unencumbered multifamily assets quickly.
Giving us a source of relatively low cost of capital and we believe, it may generate approximately $175 million. With the recent draw on our line, our line of credit balance as of the end of the quarter was $15 million, down $33 million from the end of the first quarter.
In the second quarter, WREIT paid a dividend of $43.25 per share, achieving its 190 consecutive quarterly dividend at equal or increasing rates. Last night, we issued a press release announcing our third quarter 2009 dividend at the same rates payable on September 30, 2009.
We started repurchasing debt back in December of last year. Since that time, we’ve taken a number of actions to improve our capital structure and plan for our upcoming 2011 maturities.
We have repurchased the total of $105.4 million of our converts for a total repurchase price of $88.8 million. We paid off the $50 million five property multifamily loans.
Additionally, we reduced our line of credit balance by $52 million.
As we looked forward, we have eliminated our 2009 debt maturities. We have moved our $100 million 2010 maturity to November of 2011, and we eliminated a $105.4 million of our convertible notes affordable in 2011.
We believe we have the liquidity from various sources to manage the remaining 2011 maturities, as well as fund accretive acquisitions for an opportunities presents themselves over the next two years. Now, I will turn the call over to Mike to discuss operations.
Mike Paukstitus
Thanks, Bill and good morning everyone. Overall, our real estate portfolio showed a strong performance this quarter.
On the same store basis, our economic occupancy was 93%, compared to 94.5% in the same period one year ago and 93.2% at the end of the first quarter. Despite rising vacancy in a broad economic downturn in the DC metro area, we have generally held core occupancy between 93% and 94% for the past four quarters.
This quarter executed over 558,000 square feet of commercial leased transactions, with an average cap rental rate increased to 13.8%, over its expiring leases with an average lease term of 4.4 years. Rental rates of the residential sector increased 1.1%, compared to the same period one year ago.
In the office sector, we executed leases for a total of 307,000 square feet and average rental rate increased to 17.6% on a GAAP basis. The largest contributor to office leasing buy in this quarter was 150,000 square foot expansion sign with World Bank, at 1776 G Street, commencing in January, 2011 for a five year term.
In the medical office sector, we signed leases for a total of 57,000 square feet at an average rental rate increase to 7.8% on a GAAP basis. Our medical office portfolio continues to be almost occupied sector at 96%.
In the retail sector, we executed leases for a total of 21,000 square feet for the rental rate increase of minus 4.9% on a GAAP basis. In the industrial sector, we entered into leases for a total of 174,000 square feet, with rental rate decreases of 3% on a GAAP basis.
Our two apartment development projects, Bennett Park and Clayborne were 96% leased and 93% leased at the end of the second quarter. Thanks to a breezy spring and summer lease out period.
This compares to 79% and 82% at the end of the first quarter. Furthermore, our entire multifamily portfolio was 96.9% leased at the second quarter, but three of the projects 99% of lease.
Now, we would like to open the call for questions.
Operator
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Ian Zaffino – Oppenheimer
This is Ian Zaffino with Mark Biffert. Just a couple of questions about the asset sales and lease renewals, on the Tech 100 dispositions, can you give us an idea what actually cap rate was?
Bill Camp
Sure, I can do that. On the trailing 12 months, it was an 8.5% cap rate, but one of the factors on that property is we had a number for tenants there that were somewhat difficult in terms of rental rate paying and we knew one of those tenants were leaving.
So if you took into account on a forward-looking basis that we were probably going to lose one of those tenants, it was probably closer with 6%. So if you’re looking forward it was the 6% cap, if you’re looking backward, it’s an 8.5%.
Ian Zaffino – Oppenheimer
What would say accounted for the occupancy growth in your core multifamily and office sectors? What are you noting in terms of traffic, this being driven by the decline of rents in your submarkets?
Skip McKenzie
You asked on a core basis, is that correct?
Ian Zaffino – Oppenheimer
Yes.
Skip McKenzie
One of the large reasons on a core basis is seasonality. I mean you’re in the leasing season.
It’s a big difference leasing in the second quarter as opposed to the first quarter generally. I would say that we were in fact a little more aggressive on our rental rates, but as you could see in the numbers that Bill discussed or Mike, we did report year-over-year rental rate increases, but I would say it’s a combination of two things; we’re a little aggressive in getting occupancy, and also the seasonality effect.
Ian Zaffino – Oppenheimer
What are your expectations for additional asset sales excluding or I guess have you have marked any for sale so far?
Skip McKenzie
Well, I think we reported that we gave an estimate for $50 million to $70 million. It was our sort of goal for this year, we reported earlier.
In this environment it’s tough to give you a definitive answer. I do think that we’re on target to be on the lower end of that estimate.
Having said that, if a couple of things brake the right way we could blow through it, but I think that we feel pretty good about being on the lower end of that estimate for this year. Having said that, as you know, with the two assets we’re at 30 right now, around numbers, completed.
Ian Zaffino – Oppenheimer
Last question is, what percentage of your ‘10 renewal have you extended a leased and then how much are you currently working to complete?
Skip McKenzie
What percentage of our ‘10 leasing renewals?
Ian Zaffino – Oppenheimer
Yes.
Skip McKenzie
Well, World Bank was in that category. I don’t have the specific percentage number for you, but let me just talk about a couple of the larger tenants in ’10.
I’m just looking through a tenant list here. The World Bank is the biggest, which is 150,000 square feet of approximately 74,000 square feet expiring in 2010.
That is the only large one that we’ve signed at this point, and I don’t have a percentage number of the number of tenants rolling off the top, right here. To answer that question shortly, as a general we don’t have a lot of those tenants signed today.
Operator
Your next question comes from John Guinee - Stifel Nicolaus.
John Guinee - Stifel Nicolaus
Just a couple of clarifications first; refresh our memory as to how the income is coming in on the accounting in cash basis or the big IBM lease in Dulles Station?
Mike Paukstitus
Well, IBM Phase, we started booking income in the fourth quarter of 2008, and they start paying cash rents in January of 2010. They’re handling their own tenant improvements, so they’re under construction.
In theory they could take occupancy early if they finish their construction early; we left that in their hands.
John Guinee - Stifel Nicolaus
Okay. So that’s reflected in your FFO and FAD summary?
Mike Paukstitus
Yes.
John Guinee - Stifel Nicolaus
Second, was your guidance with or without the $0.14 in non-cash gains from the debt extinguishment?
Mike Paukstitus
Without.
John Guinee - Stifel Nicolaus
From a strategy point of view, it’s unclear to ask as to whether you’re going to focus on the corporate unsecured market or the asset secured mortgage market for the next few years? Do you have thoughts on whether you’ll continue to delever enough to get access to the corporate unsecured markets or do you feel comfortable where you are right now?
What pretty much limits you in this world to asset secured financing?
Skip McKenzie
I think with the balance sheet that we built here we have the flexibility to tackle each. Quite honestly we’re not up against any of our covenants, so we could issue senior unsecured debt today in addition to what we have out there.
Generally speaking, if I was in your shoes analyzing the company, I would expect us to continued it slightly delever over time, because we want to be able to be in position to take advantages of acquisitions and you never know in terms of which way we would go, whether we would do some secured financing or unsecured financing, it really all depends on price for us, because they are both available. So it’s just a matter of pricing at the time we would need the capital.
John Guinee - Stifel Nicolaus
Dividend policy, do you feel comfortable just keeping it flat for the next couple of years?
Mike Paukstitus
Obviously, it’s the decision the Board makes every quarter. Dividends important to the company, it’s important to our shareholders and it’s a long track record of the company.
So I don’t want to say what the Board will do each quarter, because that’s a decision they’re going to take and they’ll advise them given market conditions and what’s going on in the portfolio at the time, but I can tell you, it’s a very important achievement, that this company has achieved over a long period of time.
John Guinee - Stifel Nicolaus
Last question, it appears to us that you’re clearly being much more aggressive than you ever have been in the past on selling assets from the bottom of the deck, sort of the bottom quartile of our portfolio? Would you expect that strategy to continue?
Skip McKenzie
Yes, in fact I can tell you, I guess I can announce this, we do have another property that’s firm, our Brandywine building. I usually don’t like to announce those things, but that’s a firm contract which we expect to close later this year.
Even though a contract is firm things could happen, but that’s another transaction I expect to have, it’s a relatively small one. We have a few other assets that we’re entertaining.
I guess that would put them in the category of unsolicited offers from others. So more aggressive, that’s a term of art, but I would say that you can expect us to continue to sell some of the assets that we consider to have a less growth going forward than we would like.
John Guinee - Stifel Nicolaus
Is the Brandywine asset a little $4 million deal just sort of part of the sale you just announced, up in the Baltimore, Washington industrial market?
Skip McKenzie
Brandywine building is in Rockville. It’s over on Parklawn drive.
It is the smaller sale though, not announcing exact price, but it is the smaller sales. I guess we actually have it in our office category, so it’s probably a smallest “office building.”
Operator
Your next question comes from Mike Knott - Green Street Advisors.
Mike Knott - Green Street Advisors
Can you comment on the office releasing spreads? I’m curious if you can just sort of break them down for your second quarter between CBD and suburban?
Mike Paukstitus
We don’t have it broken out like that.
Skip McKenzie
No, we don’t have it broken out with that.
Mike Knott - Green Street Advisors
The spirit of my question is, I’m guessing the transaction you did with World Bank had more positive releasing spread than the rest of the transaction?
Skip McKenzie
Michel, can I answer it this way, because we’ve sort of anticipated that question. How about if I give you what the statistics or office statistics are without World Bank.
That would be everything else, because as you correctly observe that had a big impact on our spreads. So if we take World Bank out of the office category, our office spreads go down to on a cash basis, a minus 2.3% goes down, on a cash basis and on a GAAP basis they go up 5.1%.
So that’s everything about World Bank and that would be 157,000 square feet of leases. There might be some CBD stuff in that, but I think that gives you I think the flavor of what you’re looking for.
Mike Knott - Green Street Advisors
To an extent you have mostly suburban leases in your expiration schedule over the next year and a half or so. Is that minus 50% consistent with what you would expect over that time period?
Skip McKenzie
I do think we’re upside down a little bit so to speak. I do think that our sort of office spreads are somewhere between 0% and 5% negative probably on a mark-to-market basis today.
So that doesn’t mean we might not be able to push some of those tenants order, but I do agree that on a mark-to-market basis over the next 12 months, today we’re looking at something between 0% and 5% negative on a cash basis.
Mike Knott - Green Street Advisors
On a GAAP basis?
Skip McKenzie
On a GAAP basis, it’s really dependant on the lease term.
Mike Knott - Green Street Advisors
Isn’t Lafarge a big part of the ten exportation schedule? Can you just comment on what that’s looking like today?
Skip McKenzie
Yes, Lafarge is I think 85, 000 square feet. They are $2.7 million I think of NOI, I’m struggling to find that; $2.7 million of annual rent and we don’t have a deal with them and if you’re asking me to handicap that deal, I don’t feel good about it.
Mike Knott - Green Street Advisors
Then just a question on retail, it looks like your retail rollover is heaver than normal, how do feel about that part of your portfolio?
Skip McKenzie
Yes, we feel pretty good about it. I mean we have several I would call medium size tenants in the retail portfolio.
We have a couple of banks that have a big number in there which we’re highly confident we’re going to rollover, I’ll give you some of the bigger tenants and the retail portfolio to give you. We have address barn that we feel pretty good about renewing.
I say we have a couple of banks, Wachovia Bank, PNC Bank, pretty damn confident we’re going to get those deals. We have a Jo-Ann’s Fabrics, which is a pretty tenant that we feel pretty good about.
The one tenant that I won’t say I’m concerned about. That’s a little more if we have a T.J.
Maxx in Chevy Chase, Maryland, that if there’s any exposure of being that lease, but I feel pretty good in general about the retail leasing, despite the very difficult retail environment we’re in.
Mike Knott - Green Street Advisors
My last question, then I’ll leave the floor. Bill you commented about wanting to delever, in order to reposition for acquisition opportunities, and Skip, you also mentioned the transaction activity in your markets.
What do you expect the timeline to be in terms of when you’ll have opportunities and how do you see it sort of playing out, the sort of big picture?
Skip McKenzie
It’s tough to tell. I don’t think it’s going to be dramatically changed for the balance of this year.
If you look at some of the maturities at some of the banks and some of the CMBS loans that are coming due, starting in 2010 and beyond, really I believe that while there maybe some individual opportunities between now and the end of the year. I don’t think it’s really going to start picking up until the next year.
Operator
Your next question comes from Chris Lucas - Robert W. Baird.
Chris Lucas - Robert W. Baird
Bill, you talked a little bit about the options you have on the debt market; if you had to price out either the Fannie loan today versus your unsecured market, could you kind of comment about what your thoughts were on pricing?
Kelly Shiplet
Yes, I can. Obviously with the 10 year treasure moving around 20 basis points a day, it’s a little hard to pinpoint, but I’ll give you some kind of the general idea.
The Fannie and Freddie market, as many of you guys probably know, Freddie is kind of come out with a new kind of CME program product, that prices a little bit better than just going into their straight portfolio. So there’s a spread there about 30, 40 basis points, so I’m just going kind of give you an idea of what their lowest rates are and I’m not sure I like the structure yet, so we’ll answer it that way.
On the low end, Freddie and Fannie probably today is around 5.50% for 10 year paper and that has fluctuated in the last two months between 5.25% and probably 5.80% or even 6%. Then if you change structures and go directly into the Freddie portfolio instead of doing their kind of pool financing program that they’re coming up with, you can 30 or 40 basis points in those numbers.
On the unsecured side, it really depends on term. I think for five year paper right now, we would be hovering at 7% or just slightly inside of that.
The spreads have tightened dramatically over the last three, four weeks and most of the investment banks out there probably believe that those spreads are going to continue to tighten even though the treasury rates will go up. So ultimately it may kind of hover in at that same level, but that’s kind of the price.
If you get the ten year paper we’re probably high 7% to probably 8%, may be even over 8% right now.
Chris Lucas - Robert W. Baird
I guess a sense of what the bad debt expense was for the quarter?
Kelly Shiplet
Bad debt expense for the quarter dollar wise, I will get that in a second question, but on a percentage wise, total bad debt is around 2% on a cash basis; it was about $1.4 million, $1.5 million. On a GAAP basis it’s about $1.8 million or 2.3%.
Chris Lucas - Robert W. Baird
Have you seen the same trends you had in the first quarter continuing in the second quarter as it’s related to your smaller tenants and retail investor would be in the primary?
Kelly Shiplet
Retail and industrial, you picked the two buttons, I mean those are the two weeks. On a cash basis, we continue to see those getting worst.
We’re hoping that we’ll kind of get into the bottom of this, but you’ll never know. Overall, the other sectors had kind of declined.
Office actually decline bad debt in the second quarter versus first on a cash basis and so did medical office and apartments kind of remained flat. So the overall trend, the gross rate of bad debt is slower today.
I think at the end of the first quarter we were at like 1.8% or 1.9%, now we’re at 2% on a cash basis. So, it slow down a little bit, but it’s still there it’s still meaningful and if you look at industrial, it’s approaching 5% in industrial.
Now, if you remember as I said in my prepared remarks Chris, I kind of look and when I’m modeling the company, I’m looking at the combination of vacancy bad debt and then the free stuff, the give aways, the abetments. When I look at those three and I said it last quarter and I’ll say it again, I think that number overall will continue to hover around 11.5%; it came in at 11.2% this quarter.
Really what that is, it’s just trade offs. Bad debt guidance become vacancy or you get to our bad debt guy and you negotiate some abatements to give him, but it’s just trading off the free stuff, that’s all you’re doing, but generally speaking that’s starting to come in a little bit.
We’re projecting that it just kind of stays flat at 11.5% for the rest of the year.
Chris Lucas - Robert W. Baird
Skip, maybe more broadly, what do you think of the local DC economy? How soon do you feel that we’ll see some of the positive impacts of the federal government as the primary employer?
Skip McKenzie
Yes, as I sort of mentioned in my opening comments, I mean it’s somewhat frustrating. Every transaction you try to do, every lease transaction, everything takes forever.
Everybody seems to be delaying, making any sort of decision to make a financial commitment going forward, so on one hand that’s somewhat discouraging. On the other hand, I don’t feel like we’re going backwards in our market.
It really does feel like we’re just sort of bouncing around, whatever bottom we’re at right now. It’s just tough for me to give you some sort of estimate of when I think we’re going to really turn upward.
We really haven’t seen, sort of empirically a lot of evidence right now, stimulus money in terms of leasing space. Yes there’s been some commitments downtown with some government agencies, but on the order of magnitude, they’re probably something between 200,000 and 400,000 feet and the market is 400 million, so it’s one tenth of 1% on the high side.
We just haven’t seen a lot of it yet, and as I also said in my closing comments, we’re not anticipating a large change in that through the balance of this year. We’re somewhat optimistic that beginning next year we’re going to start seeing more fruits of that labor of some of the infrastructure etc., spending hitting the market sooner, but right we’re sort of bouncing on the bottom.
Chris Lucas - Robert W. Baird
Then last question, just going back to the World Bank lease and actually more specifically. The tenant improvement leasing commission number for the quarter, I’m assuming that most of that was related to that leases, is that fair?
The increase, the changed quarter-to-quarter.
Skip McKenzie
On the leasing commission side, yes; on the tenant improvement side, no. The tenant improvements that were in this quarter were really from leases that we signed last year, that people just spent their money this year.
So if you look back to leases that we signed last year, the big one is MedImmune. In the quarter they spent roughly $1.5 million and then there are some other ones from last year that decided to put some money into their building this year.
So those we’re all contractually obligated last year, so you don’t really have control over the timing of those. So, that’s where it came in.
The other thing I would add is going quarter-to-quarter, when you looking at the supplement you see that we’re at the 853 in there. Some of that movement from the first quarter is simply the mix between industrial and office.
If you look at the second quarter versus year-to-date, you’ll see the substantial amount of the office was done this quarter, where last year we had a lot more industrial in the mix, which would have increased it this quarter.
Operator
Your next question comes from Dave Rodgers - RBC Capital Markets.
Dave Rodgers - RBC Capital Markets
On the multifamily pool of asset, did you say in your comments that the leverage on those assets could be up to a $175 million?
Mike Paukstitus
In total there are seven unencumbered apartments including Bennett & Clayborne and we think if we loaded them all up as maxed out as we could in today’s interest rate environment, we could probably pullout $175 million.
Dave Rodgers - RBC Capital Markets
What would be the earliest point where you could take the development and put them into that pool?
Mike Paukstitus
We can do it today. We probably won’t get maximum proceeds.
I think I could probably get maximum proceeds if I waited a few months, just because the way Freddie and Fannie look at it is, they look at trialing 12 NOI and then they look at the last three months and so they’ve really wanted to be really stable for at least three months and quite honestly, they’d like to see 12, but in this environment they understand it’s a leased up situation. I can pull the trigger.
I feel pretty good that I can probably go on and get $175 million; we’re pretty darn close to that today. If I waited a little bit more I might get a little bit more, but if interest rates move up that’ll wipe out that extra.
Dave Rodgers - RBC Capital Markets
Can you guys give any update on Sunrise and any of the sublease space that had been available there?
Mike Paukstitus
Not a whole lot Dave. We’re still working with them, we still feel like there’s decent progress, but we’re working on a couple of transactions.
Obviously I can’t comment specifically on what’s going on, but we’re moving in the right direction with putting some direct tenants in place and helping them minimize their obligations going forward. In terms of their status, notwithstanding the market news on Sunrise they come and go.
I mean they’ve been a great tenant, they pay their rent early. If every tenant paid the rent on the same schedule that Sunrise did, we’d be happy campers.
They’ve been a great tenant, but given the market news, we continue to monitor it closely.
Dave Rodgers - RBC Capital Markets
Last question on the previous medical office building commitment, do you have any updates on that?
Skip McKenzie
What I could say to you is obviously we haven’t closed on it yet, because we haven’t had announcements, but we’re trying to work through a few things with the seller. I do anticipate that will close sometime this year.
Operator
(Operator Instructions) Your next question comes from Anthony Paolone - JP Morgan.
Anthony Paolone - JP Morgan
I just have two small ones here. One, what was our lease termination income in the quarter?
Bill Camp
It’s $272,000.
Anthony Paolone – JP Morgan
Thousand?
Bill Camp
Thousand.
Anthony Paolone - JP Morgan
Just another question on the term loan, was there any LIBOR floor added to the mix as part of the extension?
Skip McKenzie
There was and if I can possibly remember what it was; I think it was 150 basis points I think is where the floor was set, but Tony it doesn’t really come into play, because we haven’t swapped out anyway.
Anthony Paolone - JP Morgan
So from the LIBOR point of view, there’s no change in rate there, but I guess does the higher spread take effect now?
Skip McKenzie
Yes, we’ve got an all swap in place, that from an accounting perspective it’s pretty costly to unwind that swap or blend and extend the swap. So what we’re doing is we have two swaps in place, we have one was the existing swaps at plus 290.
295 is the existing swap and then we have a second swap that starts, when the first swap expires in February next year and that’s at plus 210. So the interest rate will come down 80 basis points or so in February 2010.
Operator
Your next question comes from Mike Knott - Green Street Advisors.
Mike Knott - Green Street Advisors
I think historically Washington has been precluded from issuing preferred from a structural standpoint; have you guys talked about trying to get that changed and how would you think about that?
Skip McKenzie
We are precluded, we have to get maturity of all shareholders, not just share holders that vote, so that’s a pretty tough hurdle for us. We have obviously discussed it again and may attempt that at some future time, but right now we are precluded from issuing proffered.
I would love to have that Mike ever if I could, but at this point we don’t have it.
Operator
(Operator Instructions) Your next question comes from Michael O’Dell – MetLife.
Michael O’Dell – MetLife
Just a quick clarification on the liquidity; you mentioned that you feel comfortable through applications through eleven. I’m just trying to understand, what your subsets are there for your bank line renewal, as well as what you plan to do with the terminal that you just extended there.
Is there any GSC financing incorporated into that analysis or it progresses itself.
Skip McKenzie
There are certainly more asset sales as a source of deleveraging as I mentioned, but we are basically $400 million left in 2011, $175 million can come from the apartment financing that we’ve discussed on the call and the remainder of it will be a combination of asset sales, it could be more secured financing, it maybe tapping the unsecured market which is available and quiet honestly, we can do a number of things. Our line is completely untapped, so if the worst case came, I could just throw the balance on the line after the apartments; not optimal, but I can do it.
So I feel pretty good that we’re not a liquidity crises situation. We’re just kind of managing what our options are and trying to execute on the cheapest cost of financing at the time and the ones that give us the most flexibility.
Michael O’Dell – MetLife
So have you had discussions with the banks in terms of the refinancing of the line? Will you have to shrink the capacity there, anything in those lines?
Skip McKenzie
The biggest line, $262 million line expires in 2010 with a one hour option to extend it for a year until November of ‘11. We have had discussions with at least the major players of our line and I don’t see other than a pricing reset, which is obviously going to painful, because we’re right now at plus 42 base points.
So that will be a little more expensive, probably closer to plus 275 or plus 300 in this market, who knows what it’ll be in two years from now. In terms of the amount on line, I feel pretty good that we will be at or around the same amount on that line 262.
The second line that we have that comes die in ‘11 and we can extend to ‘12, which is with SunTrust; I feel pretty good that that line will stay in place. Obviously prices are going to be the issue and we have to work through what that rate is.
So, I don’t see a cutback too much. I mean there might be some international banks that go away, but quite honestly there might be some domestic banks that come in, that want exposure to DC.
So I feel pretty good about the ability to negotiate the line.
Operator
Your next question comes from the line of Mike Knott - Green Street Advisors.
Mike Knott - Green Street Advisors
Just wondering if you can comment on the expense reduction in the multifamily, same store portfolio and whether you think that is a one-time event?
Skip McKenzie
I think with all expense reduction, you’re referring kind of year-over-year, but if you look from just quarter-over-quarter, we had pretty operational expense reduction and that all is primarily negotiating tax bills and reduced energy cost, so I think it’s a one-time thing. I think it will be reset lower and you’ll grow from there.
Obviously energy cost where much higher last summer than they are today. So those are being reset, but we’re seeing energy cost kind of creep up.
So I fully expect that this year next time we’ll have higher costs on energy. In terms of the property taxes, I think that the governments are around this place and throughout the nation are going to have to find ways to raise more money.
So I have a hard time believing that they are just going keep everybody, even though the property values will be lower. I have a hard time believing that the tax rates won’t go up.
So they get more dollars.
Operator
Thank you. At this time we have no further question.
I’d like to turn the call back over to Skip McKenzie for any closing comments.
Skip McKenzie
Okay, well thank you everyone for listening to our call this day. Have a good summer and we’ll be talking to you at the third quarter.
Thank you everyone.
Operator
Thank you. This does conclude today’s teleconference.
You may disconnect your lines at this time. Thank you for your participation.