Acadia Realty Trust
Q1 2008 Earnings Call Transcript

Published: 12 May 2008

[Operator:]

Welcome to today’s call. (Operator instructions) I would like to turn the conference over to your initial host for today’s event, Debra Miley, Director of Marketing and Communications.

[Debra Miley:]

Welcome to Acadia’s First Quarter 2008 Earnings Conference Call. Please be aware that statements made during this call that are not historical may be deemed forward-looking statements. Actual results may differ materially from those indicated by forward-looking statements due to a variety of risks and uncertainties which are disclosed in our most recent Form 10-K and other periodic filings with the SEC. Forward-looking statements speak only as of the date of this call, and we undertake no duty to update them. During this call, management may refer to certain non-GAAP financial measures including funds from operations and net operating income. Please see Acadia’s earnings press release hosted on its website for a reconciliation of these non-GAAP financial measures with the most directly comparable GAAP financial measures. Please note that the FFO numbers for calendar year 2007 have been adjusted as set forth in the reconciliation. Participating in today’s call will be Kenneth Bernstein, President and Chief Executive Officer; Michael Nelsen, Chief Financial Officer; and Jon Grisham, Chief Accounting Officer. At this time, I would like to turn the call over to Mr. Bernstein.

[Kenneth F. Bernstein:]

Before we discuss our quarterly results, I’d like to comment briefly on where we see the current market environment and how we have been positioning Acadia accordingly. The most significant factors that are currently impacting our industry are, first, the credit crisis in the capital markets both in its direct impact on real estate debt financing as well as the indirect impact of the credit prices on real estate both in terms of transactional volume and in values. Second component is the slowing down of the economy and its impact on retail tenants and profits. First, with respect to the capital markets, the credit crisis has made it much more difficult to finance all kinds of real estate especially accessing the type of debt that was until recently provided through the securitization markets and Wall Street. That included large loans over say $100 million in size as well as high leverage transactions. But notwithstanding this debt crisis, there is debt available outside of the securitization markets from balance sheet lenders, and Mike will discuss this further on our call, but in short, sponsorship matters, the leverage is at lower levels, spreads are somewhat wider, supply is somewhat fragile, and in all instances, lenders can now be very selective as to who they lend to and the quality of assets that they lend on. So what we’re seeing so far and we expect to see continuing going forward is first, a de-leveraging of the economy including real estate capital structures as borrowers are beginning to recognize and lenders are demanding that more equity is needed for all projects, especially those that are harder to finance. And second, we expect to see a further differentiation between higher-quality assets that are currently generally financeable and so far generally holding onto their 2007 values as opposed to secondary or more commodity type properties that seem to be having more difficulty obtaining financing and pricing seems to have declined more significantly. While transactional volume is down significantly, cap rates for quality retail projects in higher barrier to entry markets have moved perhaps 25 basis points, may be 50 basis points off of their highs. Based on two sale transactions that we’re currently involved with, we still see quality stabilized properties in the Metro New York suburban area trading at low 6-cap range and in the mid Atlantic region in the 6.5 cap range. In short, patient sellers are still able to achieve strong pricing for high quality financeable assets. In terms of the economy, while we have not yet seen the impact of the weakening economy either with respect to our core portfolio or redevelopment, if the economy continues to weaken, our experience is that it must have some impact on our tenants, which then leads to impact on the real estate. However, the impact is generally not evenly spread out and depends on the quality as well as the location of the properties. While we are seeing some tenants putting on hold new stores, they seem to be more often in projects that were dependent on new housing growth or were in secondary markets, and in general, tenants still want the infill locations like those that we either currently own or in the process of developing. So, as now is the case in the debt markets from a tendency perspective, we will also expect even more differentiation than in the past few years between high quality, high barrier to entry location, versus secondary properties. So in light of the capital markets issues and the slowing down in the economy, here’s what we’ve been doing and we’ll continue to do with respect to these events. First of all, if debt crisis was not created overnight, the signs began over a year ago with clear breakdown in the securitization markets by last summer, and in response first of all with respect to our core portfolio, we sold off higher risk assets where we thought that an economic slow-down or further capital market correction might more significantly impact those assets and we rotated into higher quality assets. In the first quarter of this year for example, we continued this process by entering into an agreement to sell one of our few remaining non-core assets as well as then rotating into another Manhattan retail property. This rotation ultimately positions us with a core portfolio that is better situated to withstand the debt and economic headwinds than if we had simply aggregated and held those assets. Second, with respect to our balance sheet and liquidity, we used sale proceeds to pay down our corporate lines. We also re-financed those assets that were ripe for re-financing, and thus we’re now in a position where we have no debt in our core portfolio maturing before 2011 and we have enough capital to internally fund our external growth initiatives for the next several years. And then third and finally, with respect to our external growth platform, last year we launched our third fund which gives us an additional $500 million of discretionary equity or $1.5 billion of purchasing power, and while we are remaining disciplined and patient in general in terms of how we put that money to work, in the first quarter we completed our third Fund III transaction, and to date we put approximately 20% of the equity to work through III transaction, which is consistent with the timing of our capital investment plan for Fund III. As for the opportunities we see going forward, I’ll discuss them later on the call. But to conclude, even though the capital markets and economy are presenting challenges, there’re also creating opportunities, and with this perspective in mind, today we’ll review our first quarter results and the status of our core portfolio, our balance sheet and liquidity, and on the external growth side, both our existing projects as well as our future investment opportunities. With that, I’d like to turn the call over to Jon who will discuss our first quarter earnings.

[Jon Grisham:]

First, I’d like to turn to our earnings and guidance. As we reported, FFO for the first quarter was $0.38, which included $2.2 million or $0.07 of income from our RCP investment as a result of our share of the Mervyn’s gain on the sale of 43 locations. Our earnings guidance for the full year includes RCP and promotes income of $3 to $4 million. We anticipate another $1.5 million during the second quarter of 2008, which will bring us to a total of $3.7 million of RCP and promote income by mid-year, and at this point, we don’t anticipate any additional RCP or promote income in the second half of 2008. During the quarter, we earned transactional fee income of $3.6 million, which is consistent with our annual guidance of $14.5 to $15.5 million. We expect that transactional fee income may dip in the second quarter and then be more heavily weighted to the second half of 2008 as a result of the anticipated timing of construction and leasing activities. Turning to same-store NOI, first quarter ’08 was up 7.2% over the year ago quarter. As we previously discussed, CAM reimbursement income for 2007 was impacted by the resolution of outstanding tenant CAM billing issues, and after stripping out this effect, our same-store NOI growth for 2008 was 2.1%, which is in line with our annual forecast of 1% to 3%. So, to summarize, our first quarter results reflect the fact that all of our business components are contributing to our bottomline as expected. As we’ve discussed before, our earnings model is dynamic and will vary quarter to quarter. While first quarter ’08 exceeded consensus street expectations due to the timing of the RCP transaction, second quarter ’08 will likely trend the opposite direction, and for that matter, any quarter can be up or down. These quarterly timing considerations aside, we are reaffirming our full-year guidance of $1.25 to $1.35. Now, I’ll turn the call over to Mike.

[Michael Nelsen:]

As I discussed on our year-end call, given the uncertainty in the current status of financial markets, liquidity and access to capital are of paramount importance. We continue to be focused on maintaining high levels of liquidity as evidenced by the fact that our cash on hand and availability under existing facilities aggregates $176 million at March 31. This is sufficient to meet all of our capital needs to fund our growth initiatives over the next two to three years. While maintaining high levels of cash balances, this earning is diluted, which could adversely impact the balance of 2008 by as much as a penny to penny and a half for quarter over the Q1. We believe this to be a prudent position and will allow us to be able to take advantage of accretive investment opportunities as they arise. While the volatility in the debt markets continues, we currently have the ability to borrow five-year money and swap it in all for fixed rate of 5.1% on an existing facility. We’ve also found that for quality collateral and sponsorship, at reasonable levels of leverage, rationally priced debt is still available. During the first quarter, in connection with the acquisition of our storage post portfolio, we obtained a 3-year 5.3% fixed rate loan of $41.5 million, representing over 70% of loan to value. Since our core portfolio is all fixed rate, we haven’t been able to benefit from the current floating rate environment. We believe that over the long run, fixing rates and managing maturities is the more prudent approach to financing long-term real estate investments. Accordingly, we have no scheduled maturities in the core portfolio over the next 3 years. In summary, while the capital environment remains unstable, we believe this uncertainty can be an asset for a real estate enterprise with a strong balance sheet and access to capital to take advantage of opportunities as they arise. Now I’d like to turn the discussion back to Ken.

[Kenneth F. Bernstein:]

First, I’d like to review our core portfolio performance. As Jon discussed, our adjusted same-store NOI increased by just over 2%, which is consistent with our expectations. In terms of our first quarter occupancy, it dropped down 30 basis points, the primary driver of this, and we briefly discussed this on our last call with a vacancy that was created in our downtown Smithtown, Long Island location that equated to about 30 basis points. Now we’re in the process of re-tenanting this space and we anticipate strong positive re-spread with tenants in place by year-end. This vacancy in our view was not driven by the economy, but was really tenant driven. Similarly, in our Westchester, New York Crossroads property, we recently recaptured two spaces and we’re consolidating them and anticipate re-tenanting them with a strong national tenant, which would be in place by year-end. As is the case in Smithtown, this vacancy will also have a short-term negative impact of occupancy of about 25 basis points, but is clearly a long-term positive. Looking forward with respect to our portfolio, so far, we don’t yet see any material impact on our properties from a clearly weakening economy; however, the length and depth of the economic slow-down will determine the ultimate impact on our sector. When we look at our core portfolio performance, first of all, all scheduled anchor maturities for 2008 have been renewed, our collection and delinquency rates have not moved materially from last year, and when we look at our core portfolio in terms of breaking it out by type of retail, based on base rent, over 80% of our core portfolio was either necessity based supermarket and drug anchor or value discounter anchored. Over 50% of our core portfolio has the supermarket as one of its anchors, and the balance approximately 20% is either urban or street retails such as our Greenwich Avenue and Greenwich, Connecticut property, 54th Street in Manhattan, or Lincoln Park in Chicago. And our view is that the defensive nature of necessity and value assets especially in supply constrained markets, as well as urban and street retail should prove more resilient in this market. Turning now to asset recycling and capital recycling, over the past several years, we focused on opportunistically disposing of assets that are inconsistent with our long-term growth strategy and in the first quarter, we continued this recycling process. We entered into an agreement for the sale of our Winston-Salem, North Carolina residential properties, which was our last remaining residential asset, a 40-year-old project with 600 units, it closed earlier this week for $23.3 million or just over a fixed cap on NOI in place after normal reserves. And then, also in the first quarter and in conjunction with completing a 1031 like-kind exchange for our fourth quarter sale of the residential apartments in Columbia, Missouri, we entered into an agreement and recently purchased a 20,000 square foot retail property located in Manhattan for $9.7 million. The property is a retail condominium unit located between 17th and 18th streets just off Fifth Avenue. It’s located between the Flatiron District and Union Square. It’s fully occupied by Barnes & Noble, and Barnes & Noble leases at about 50% of market rent and the lease goes to market in 2013. Thus, our going in yield is about 5.5%, but it grows to between 8% and 9% when it comes to market in 2013. While it is a relatively small transaction, it is consistent with our asset recycling goals of reducing exposure from non-core assets, in this case, apartments, and acquiring high-quality, high barrier to entry real estate, in this case, another New York City property with a significantly below market lease, and while it’s not short-term accretive, it is the type of real estate that we want to continue to recycle into for our core portfolio. Turning now to our external growth platform, the key driver of our platform is our investment fund business. In 2007, we launched our third fund, which will enable us to acquire or redevelop approximately $1.5 billion of assets on a leverage basis over the next several years. That’s significant growth profile relative to our current size. We’re always had two main focus areas for our investments, first is opportunistic which includes purchased of distressed assets, debt purchases, and restructuring. Examples include our Wilmington, Delaware, transaction, Kroger-Safeway investment, as well as our highly profitable RCP initiatives, and in the second component is our value-add platform where our main focus most recently has been our mixed use urban infill projects in New York. In terms of our first quarter activity on the opportunistic side as Jon discussed before, in connection with our retailer-controlled property or RCP venture, in the first quarter, we recognized $2.2 million after taxes from the sale transaction of 43 urban assets, and then on the value-add side with respect to our urban infill platform, in the first quarter, we closed on the 11-property self-storage portfolio that we discussed on our previous call, where we bought out the previous institutional capital partner of our existing self-storage partner storage business. The occupancy levels of the portfolio when we agreed to the purchase were approximately 70%. Currently, occupancy is just north of 73%, and we expect full lease up by 2011. Our going in yield was between 5% and 6%, and we expect the unleveraged yield upon stabilization to be between 9% and 10%. Our key rationale for acquiring this portfolio was both strategic and opportunistic, and we discussed this in detail in our previous call, but in a nutshell, the ability to opportunistically acquire an existing portfolio at 70% occupancy and at a discount to replacement cost with an existing operating partner in place made this a compelling opportunity. As Mike mentioned, post-closing we financed the balance of the unencumbered assets with 70% loan to value financing at 5.3%. We’re pleased with the financing, and we’re quite pleased with our early-stage progress. We’ll keep you posted as to the continued progress. With respect to the balance of our existing New York Urban Infill assets, as of the end of the first quarter, we now have 10 projects just under 2.5 million square feet, 2 that are now complete at 216th Street, as well as our Liberty Avenue project. Our 161st Street redevelopment continues to be cash flowing and its full redevelopment will occur upon the relocation or expiration of certain leases. Then four of our projects are currently in the development phase or under construction. Pelham Manor and Fordham Road, the construction of both of those will be completed by year-end. Canarsie, Brooklyn, and Atlantic Avenue, Brooklyn, should be completed by the end of 2009. Finally, three of the projects are in different stages of design. Those are our City Point Project in Downtown Brooklyn, our Broadway at Sherman in Manhattan and our recently acquired Sheepshead Bay project in Brooklyn. I’ll touch briefly on the status of City Point. We are in the process of finalizing our schematics and/or layout, and the pieces are coming into place for construction to commence at some point in 2009. With respect to the retail and commercial component, which is the portion that we have our ownership stake in and are the developers of, tenant interest remains very strong, and the project is penciling out consistent with our goals. With respect to the residential component which is owned and developed by McFarlane Partners and Rose Associates, it’s an 80

[Operator:]

(Operator Instructions) Your first question comes from Amika Goel – Citigroup.

[Amika Goel:]

Could you review for the in-process redevelopment projects, how pre-leased you are for those projects, just so that we can understand the potential risks associated with them?

[Michael Nelsen:]

On the retail component of the New York Urban, we’re just over 75% pre-leased, which is where we want to be with respect to developments that are in place and under construction. There is actually an ideally balance where if you do too much pre-leasing we’re often fearful that we’re leaving money on the table, but conversely just as you said in terms of risks associated with it, the pre-leasing certainly helps both from a financing perspective and risk perspective. We feel 75% is a good position and we’re comfortable with that.

[Amika Goel:]

If we think about that 75% preleasing, what yield does that get you to?

[Michael Nelsen:]

We don’t have the calculation right now. For instance, in Fordham Road which is fairly far along we’re 95% leased. In general, these projects will lease up to north of 90%, so 75% is probably not a great number to look at other than in terms of cash flow coverage.

[Amika Goel:]

And then on the development fees that you received in the quarter from Albee and Sheepshead, could you go over what exactly the fees are related to and what color could that give us on the potential timing of the projects launching?

[Michael Nelsen:]

In terms of the fees, as you mentioned, it’s about $1 million from Fund III related to the Sheepshead Bay development and then another million recognized from realty development. Our agreement with Fund III is that along with our construction and leasing and legal fees and asset management, we also get a development fee, so we will be earning that fee on all of our Fund III redevelopments, and the timing of that fee is basically from the point of conception of the project to till construction commences. In both of those cases, as Ken mentioned, we expect that construction will commence at some point in 2009, which at that point obviously the development fee will cease, and then Sheepshead Bay is also, I think, a 2009 construction commencement.

[Amika Goel:]

So, can you just go over the calculation of the fees so that what part is recurring and what part is not?

[Michael Nelsen:]

The fee itself, for example for Fund III, the fee is calculated on a base of total project costs, and it’s 3% of total project cost, so we again take that total fee, and it’s recognized over the period that I just spoke about. In the case of Albee, that specifically related to Albee. There’s a specific agreement in place, and that amount is being recognized over the period that I just discussed.

[Amika Goel:]

And for the Albee fee that you recognized, is that related to the retail portion of the asset?

[Michael Nelsen:]

That’s correct. It’s the retail and a piece of the office. It’s based on our original percentage.

[Amika Goel:]

To collect the fee that means that there’s a specific amount of visibility that you have in the project. At this time, how far pre-leased are you or do you have potential inkers signed up for that deal?

[Ken Bernstein:]

We’re not yet, Amika, ready to discuss the tenanting of it. We have to get some final municipal art commission approvals, etc. We want to get those in place by year-end, and then we’ll discuss the tenancy and other pieces of it. We wouldn’t start the construction of something like this unless we had substantial preleasing in place.

[Michael Nelsen:]

And just from an accounting standpoint, you’re effectively saying, okay, we’re going to earn a 3% or whatever the number is development fee for the total construction cost. We’re going to account for that prior to actual start of construction rather than trying to push it over the life of the asset or the fund.

[Ken Bernstein:]

After the development fee, then comes the construction fee. Then after that, hopefully the tenants open and come the leasing fees, and then what you really expect and what we’re really in this business for ultimately then is the cash flows that start with the tenants open.

[Operator:]

Your next question comes from Michael Bilerman – Citigroup.

[Michael Bilerman:]

This is just another premium on top of it. It’s not even a construction fee. It’s another fee that you’re getting.

[Ken Bernstein:]

Correct. Absolutely.

[Operator:]

Your next question comes from Christy McElroy – Bank of America.

[Christy McElroy:]

Ken you look to put capital to work opportunistically. It sounds like you’re not seeing any real distress out there yet, but do you expect to over the next 12 months so? Can you just provide some additional color on what you’re seeing?

[Ken Bernstein:]

Sure, and we are seeing distress, but we are seeing it in the capital structure on the debt side of things, and to take it to a real extreme, obviously if you look at the CMBS market, you’re seeing huge distress. We don’t and are not buyers of CMBS junior piece of paper. What we are seeing are opportunities in terms of debt being sold at a discount. That’s occurring today right now. It’s just beginning, but it’s occurring at compelling levels. We’re seeing development projects and developers currently undercapitalized and in need of additional capital today right now to complete their projects. What we are not seeing is the opportunity to buy well-located projects that are stabilized at discounts that would get us excited to become buyers, and in fact as we’ve been doing, we’re selling into that market. So there’s still somewhat of a disconnect between the debt structures and capital structures where there’s clearly distress and the values high quality stabilized real estate. We thus expect to be first most active in restructuring and then let’s see what happens over the next few quarters in terms of where the next level of opportunities arise, and it could even be a combination of restructuring and the need to bring redevelopment expertise.

[Christy McElroy:]

Have you considered partnering with some of those developers in distress on their projects?

[Ken Bernstein:]

The hard part right now is a lot of selling community and development community is still just beginning to digest the realities of the new capital structures, and for a long time, they were hesitant to reach out to new capital at equity pricing. We’re now seeing that shift; we expect to be active in it.

[Christy McElroy:]

As you look toward potentially monetizing or liquidating assets in your funds or selling noncore assets are you pushing out expected timing assumptions at all given the dislocation in the transaction market?

[Ken Bernstein:]

No, but I think it’s really more due to the circumstances of the timing of our projects. In other words, we have one or two properties that are stabilizing and ready for disposition, and Jon alluded to them, and they’re achieving the pricing we want. We will sell them this year and recognize the proceeds from it. Then when you look at Fund I which is the most stabilized program, the safe way is the next bucket of assets, and that doesn’t come available for sale because of the debt constraint really until 2009, and we bought it at under $50 a foot; we could recognize our promote value almost irrespective of where the capital markets are. Obviously, we would be patient that we’re not going to rush the sale of it unnecessarily, but we wouldn’t push it from that perspective, and then finally with respect to our New York assets, they are coming online in 2009, 2010, and 2011. We couldn’t pre-sell them into this market even if we wanted to, so I think it’s really more of a situation of the characteristics of the timing of our portfolios and the fact that we did aggressively monetize over the past two years, so we’re not sitting around waiting for money.

[Christy McElroy:]

Are you forecasting any lease termination fees?

[Ken Bernstein:]

No.

[Operator:]

Your next question comes from Paul Adornato – BMO Capital Markets.

[Paul Adornato:]

I realize you didn’t provide 2009 guidance yet, but any visibility on 2009?

[Ken Bernstein:]

Paul, you’re right. We have not provided any guidance to date, and we’re not prepared to provide guidance at this point in time either.

[Paul Adornato:]

Ken, in your remarks, you said that there’s still a lot of retailer interest especially in infill locations like New York City. Can you point to third-party transactions or any other party activity that supports that view?

[Ken Bernstein:]

I don’t have it handy right now. If we find some good information, we can certainly try to post it to our supplements or something, and we tend not to have as good data on third party. What I can tell you is when we talk to tenants like Best Buy, and they recognize the economic slowdown, they also recognize that getting locations in the Five Burroughs is not something that you can start and stop, and start and stop, and so they remain committed irrespective of the current economy to projects that are slated for 2009, 2010, and beyond because they are committed to the long-term growth in these urban markets. I think that’s true for a host of our other tenants as well. Certainly, those tenants that have struggled during good times are going to struggle even further during bad time, but in almost every one of our projects, we have tenants saying if there’s an opening or reopening or evac, please call us because we’d love to come in. It’s more on that anecdotal level, Paul, than specific lease transactions that I can point to.

[Paul Adornato:]

With regard to City Point, is the project located in any special district or are there community arts, concessions or other nonmarket uses of the space that you’re required to provide, I’m talking just at the retail and office component really.

[Ken Bernstein:]

Not of the retail and office component, it is subject, as I mentioned before, to the Municipal Art Commission who has approval rights on the exterior with a host of limitations, so this is an as-of-right development, but they do have input and say, and we don’t expect any material issues from that. The only other impediment there, and it’s not really an impediment because there are a lot of benefits that go with it, is on the residential side. It is an 80

[Operator:]

Your next question comes from Michael Mueller - JPMorgan.

[Michael Mueller:]

Ken, you talked about debt purchases as an investment. Is it all real estate or can it be corporate debt on the real estate side, any property tax?

[Ken Bernstein:]

Not only does it have to be in my view real estate debt, it has to be real estate debt that we can, if need be seize ownership of, and that we’re prepared to. We are not buying CMBS B pieces which very well may be a profitable business; it's not what we do. This is simply looking at the capital structure. We’ve done a lot of this in the past where we say, look, we’re at the 80% loan to value and if we needed seize control, we can do so legally and we’d be happy to either complete the project or own the project, and then in some cases, you may be at 100% loan to value in which case then, we need to make darn sure that we’re getting paid for those. The issue here and the opportunity here is, as you are well aware, there is a host of institutions that will need to get subordinate debt pieces that they were not able to sell off their books, and they are incentivized to liquidate pieces at a discount to their value. It’s not a question of whether or not those loans will be worth their maturity value; it’s a question of getting them off their books. In the residential side, we read about it in the front pages all the time. On the commercial side, it’s only beginning, and we’re just starting to see it, but we do expect to be able to transact on it. The full size of it, within those somewhat narrow framework, is yet to be determined.

[Michael Mueller:]

Is the pricing attractive today or do you think it’s getting toward being attractive?

[Ken Bernstein:]

The pricing is attractive today. The volume has yet to get to the level that I’d like to see it get to.

[Michael Mueller:]

Okay, and last question - is this an investment that would ultimately [inaudible] to the funds or for your balance sheet?

[Ken Bernstein:]

It really depends. If they’re smaller transactions or if they are lower risk/lower return – really more of treasury function, those we may do on our own. If we go to our investors and explain, it’s not consistent with the fund’s return. As you start investing in paper that looks, feels, and should be priced like equity and receive equity returns, then those should go into the fund.

[Operator:]

Your next question comes from Rich Moore – RBC Capital Markets.

[Rich Moore:]

On the big box tenants that you guys putting in a number of your developments, are you seeing them look for lower rents that you had previously? I’ve been hearing some talk that especially the big box people are pressing for a drop in rents as they go into new developments.

[Ken Bernstein:]

I think that many tenants, Rich, are looking for rent concessions where they can get them, and tenants are coming under pressure in terms of weakening sales in general, and so the CEOs of a lot of the tenants are saying see if you can push it through to either your lenders or to you developers. In the properties that we are currently involved with here in New York, we have not yet seen that because there are enough other tenants waiting in the sidelines. There’s just enough retail GLA available for tenants to achieve those demands, at least that we’ve seen so far. It doesn’t mean it won’t happen, and it doesn’t mean that tenants won’t try, and they’re certainly achieving elsewhere in the country, and whether when we look into some of our CP investments, etc., we see tenants successfully achieving attractive rents from their perspective, but in the New York market, if you pass on the ability to come out Fordham Road in the Bronx, you’re not going to get that opportunity again next year. That could be a 5-year waiting period to then get a new box of any substantial size, so tenants are weighing that, and in general because of sales and productivity can be so strong, because of the supply constraints, we have not seen them push through rent concessions as opposed to where they were a year or two ago.

[Rich Moore:]

Ken, and then does that hold true as well for the smaller tenants? Do they follow the big guys and then the big guys are going in and they just pay the rent that’s due?

[Ken Bernstein:]

There are some tenants who are not expanding anywhere, including New York City, and there are some tenants who are going to shrink, but what we have so far is there are enough tenants that, while the list may not be as long as it was a year or two ago, are willing to come into these properties. That has not been the issue. The issues we struggle with are the usual development headaches that any developer deals with, but so far it hasn’t been on the tenancy side as much as just the usual approval process, construction, etc.

[Rich Moore:]

And then on the storage side, how is the lease-up of the handful of storage posts that are in lease-up? How’s that going?

[Ken Bernstein:]

It’s going quite well. As I mentioned, when we agreed to buy it, it was a 70% occupied portfolio. We’ve owned it for just over a month, so in terms of our ownership period, it’s relatively short, but we’re now north of 73% occupancy, and we are seeing what we expected to see out of the lease-up assets as well as the stabilized assets. New York region, I think, remains generally fairly productive for self-storage in terms of when I’m reading how the other companies are performing on the publicly traded side, and we’re very pleased with how these stores are comping off of last year’s number, albeit they weren’t in ownership last year.

[Rich Moore:]

So you think you could hit a stabilized occupancy, even the ones that aren’t stabilized yet, later in the year or over the next year?

[Ken Bernstein:]

No, no, no. It does take longer. What we had slated was a 3-year lease-up, so what we said is 2011, so beginning of 2011, we ought to get there. If we get there sooner, great! We can afford to be somewhat patient, but I want to make sure we get this right.

[Operator:]

And at this time, we have no questions.

[Ken Bernstein:]

I’d like to thank everybody for joining us and we look forward to speaking with you all again soon.