Elme Communities
Q2 2013 Earnings Call Transcript

Published: 25 Jul 2013

[Operator:]

Welcome to the Washington Real Estate Investment Trust Second Quarter 2013 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 Shiflett, Director of Finance will provide some introductory information. Ms. Shiflett, please go ahead.

[Kelly Shiflett:]

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 conference call today will contain financial measures such as core FFO and NOI that are non-GAAP financial measures, as defined in Reg G, please refer to a definition found on our most recent financial supplement. The per share information being discussed on today’s call is reported on a fully diluted share basis. 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. We provide a detailed discussion of these risks from time to time in our filings with the SEC. Please refer to Pages 8 to 15 of our Form 10-K for a complete risk factor disclosure. Participating in today’s call with me will be Skip McKenzie, President and Chief Executive Officer, Bill Camp, Executive Vice President and Chief Financial Officer and Laura Franklin, Executive Vice President and Chief Accounting and Administrative Officer. Now I would like to turn the call over to Skip.

[George F. McKenzie:]

Thanks, Kelly. And thank you everyone for joining us on our call today. We continue to see positive signs that our portfolio was benefiting from our enhanced organizational structure, our capital spending project with several of our properties and improving market fundamentals. For a fourth quarter in a row we are seeing overall leasing volume increase in our commercial buildings with continued strong GAAP rental rate increases. The improvement in leasing continues to be driven by our activity in the office and retail divisions. For the second quarter in a row, we have experienced an overall occupancy increase of 50 basis points to 89.1% we’ve signed 417,000 square feet of leases in the second quarter following the [388,000] square feet we signed in Q1. We currently have a backlog of 173,000 square feet of leases for tenants who have executed leases but not moved in. In the office sector over the past couple of quarters Tom Regnell, the head of our office division has implemented structural changes to include increasing the number of asset managers covering our portfolio, reorganizing our leasing department by turning on internal leasing focus to tenant retention and signing all office vacancy to third-party leasing agency and quickly and aggressively making decisions regarding capital spending to improve our tenants experience in our buildings. These measures have steadily increased the number of tours in general leasing activity to the highest level we have seen in a number of years. Sequentially our occupancy has increased 90 basis points this quarter after improving 90 basis points in the first quarter. In the second quarter we continued our trend of positive net leasing absorption with 60,000 square feet we currently have a backlog of approximately hundred and 115,000 square feet of office lease that have been signed but have not yet impacted our numbers. We signed 180,000 square feet of lease transactions this quarter with 94,000 square feet for new transactions. Rents continue to be slightly down on a cash basis or positive on GAAP basis consistent with past quarters. Tenant improvement cost and leasing commissions remain elevated but also are consistent with past quarters. The office market fundamentals remain challenging particularly outside the District of Columbia but this is as good as the office sectors since the downturn started in 2008. Leasing activity region wise is by no means at a level of the good old days but we are seeing improvement. During the quarter, we announced a major renovation and repair of 7900 Westpark Drive office building our largest asset in the portfolio in Tysons Corner, Virginia. We are excited for the potential upsight of this asset giving its location towards city blocks from the new Tysons I & II Metro Station; it’s prominent on the both way and with direct access to the new 495 Express Lanes. Construction is projected to commence in the fourth quarter of this year and as a total project cost of approximately $35 million. We are anticipating some tenants may choose to move out when their upcoming leases expires. This was anticipated when Bill gave guidance earlier this year. Our retail portfolio performed very well this quarter increasing occupancy by 80 basis points. Market conditions region wide are generally good as vacancies are being filled, tenants are being retained and well located centers are increasing rents. With as a backdrop, we successfully reduced our 2013 rollover exposure by 50% this quarter. In total, we signed approximately 180,000 square feet of leases in the quarter, which is almost double our volume from the prior four quarters. Over 96% of all leasing were renewals where we achieved rental rates 12.3% higher than in-place rents. This past quarter and we significantly improved our credit loss position, as we took a more aggressive stands with select tenants. The retail division continues to be our best performing sector. Our multifamily portfolio is performing well, we continue to achieve rental rate increases overall, including 3.8% year-over-year. At our Connecticut Avenue properties, lower occupancy persists, but we are beginning to see positive trends of 3801 Connecticut as we refocus asset management and capital improvements of the property. I’m happy to report occupancy of this property which had dipped into the high 80% area earlier this year is back up to 91% lease as of this week. The Kenmore will experience heightened vacancy for the balance of the year, as we are beginning a major HVAC upgrade of the property that will affect every unit. Overall multifamily occupancy declined 70 basis points in the quarter to 93.1%. This has been a trend over the past four quarters. We are beginning to see occupancy improvements in the portfolio for particularly where we are having our biggest challenges. I’m expecting our occupancy in this sector to improve in the third quarter and continue in the 93% to 95% range this year. It should be noted that 70 basis points of physical vacancy can be attributed to an expired office lease and a commercial area of our apartment buildings does not reflect performance of our residential leasing operation. Excluding this commercial space our multifamily portfolio was 93.6% occupied at quarter end. Turning to our medical office portfolio and the potential sale, we are working on best and final offers with a select group of bidders and are hopeful to be selecting the finals in the next few days. At the standard period of due diligence we currently expect to be able to move forward with closing the transactions in the next several months. Regarding the CEO search process and the timing of placement of my successor, the Committee and Board have identified the shortlist of finalists. Deliberations and final interviews are ongoing and I expect the process of se4lection will be complete by the end of this summer. We would be hopeful to have someone on Board in mid-half. Now, I’ll turn it over to Bill Camp, who will discuss second quarter performance and portfolio details.

[William T. Camp:]

Thanks, Skip. Good morning everyone. Core FFO for the second quarter was $0.47 per share, an expected improvement over last quarter. The increase over the first quarter reflects leasing progress and operational improvements initiated from past several quarters. To highlight the quarter same-store NOI improved 1.8% or approximately $900,000 over the last quarter. The majority of this improvement can be attributed to the medical and retail divisions, which achieved NOI growth of 9.1% and 4.2% respectively. Offsetting this strong NOI growth was the office and residential divisions, which decreased nominally. The increasing NOI within the office sector was a function of seasonal or onetime expenses and with enough to surpass the same-store revenue growth of $900,000 over the prior quarter. For the overall portfolio, same-store rental revenue was up 1.8% or $1.3 million for the year, while operating expenses increased $1.9 million. The real-estate taxes accounted from was half of this increase in operating expenses year-over-year. A big chunk of this was a onetime adjustment related to 2010 tax appeal for one of office buildings. Core FAD resulted in $0.34 per share, below last quarter for two primary reasons, TIs in leasing commissions and higher recurring capital expenditures. As Skip previously mentioned concession packages to attract new tenants remain high while consistent with recent quarters. The actual deployment of these TI dollars can be lumpy however and as a result we spend an additional $2 million in TI this quarter for leases previously executed. With our increasing leasing volume, we expect this trend to continue for several more quarters. Fortunately, a large percentage of these expenditures are for tenants who are filling vacancy and have not yet started paying rents. We anticipate seeing the benefit of this leasing activity in our occupancy and our NOI numbers in the next few quarters. In addition recurring capital expenditures increased over the last quarter which is typical for the seasonal adjustments that we do in the year. Regarding our balance sheet, we continue to operate from a position of strength. We have a balance sheet, we have balance sheet flexibility during the volatile winter environment with the next schedule of debt maturity of $100 million in January of 2014 is the only debt maturity that we have next year. Our line balance is now $70 million in line with the first quarter down from $75 million as we reported for the second quarter numbers. Going forward we have 354,000 square feet of leases expiring the remaining part of this year less than 4% of our annualized rent. And both asset management and leasing are actively working and negotiate renewals. Looking to 2014 an outside portion of our portfolios rollovers within the office sector much of which is being addressed as we speak, we expect that our newly implemented structure within the office division will allow us to continue the momentum and progress we are seeing. In terms of guidance, we believe we will fall in the middle of our stated range of a $1.82 to $1.90 without the effect of the anticipated MLT sale. Our components of the business are slightly different than we laid out at the beginning of the year. Operationally, we expect our office division to perform slightly better than the original 1% to 2% decline in same-store NOI growth we predicted. Fast trailing this we expect residential division to come in below our original 3% to 5% same-store estimate. So everyone has some guidance as to the potential sale in [NLB] the portfolio we are selling generates approximately $0.4 to $0.5 of NOI monthly. We will have to determine what the timing is, but I will be happy to answer any more questions you have at the time in the Q&A. Now I will turn the call back over to Skip.

[George F. McKenzie:]

Thanks Bill. We continue to see progress in number as occupancy and leasing activity increases. As we move toward the sale of our medical office portfolio we will narrow our focus to live, work, shop strategy and streamline our decision making process. Our live, work, shop strategy will leave Washington Real Estate Investment Trust with a higher quality assets in premium urban locations, we believe this will result in higher and more consistent earning growth going forward. Now we’ll open up the call for your question.

[Operator:]

Thank you. We’ll now be conducting a question-and-answer session (Operators Instructions). Our first question comes from the line of Dave Rogers with Robert W. Baird. Please proceed with your question, your line is live.

[David Rodgers:]

Hey good morning guys. I wanted to follow-up on the comment I guess about 7900 Westpark as well as the recent CapEx improvement that you have been making the assets and the success that you have with those leases. I guess a couple of process, as you see enough activity in the market and as that puts in you confidence to put more to work in these properties should we expect that to continue and then may be kind of tie that into comments around the rollover that you’re looking at in office in 2014, how you feel about that as well as spending some money around there?

[George F. McKenzie:]

Okay, as we’ve stated really over the last couple of quarters we have been pretty aggressively upgrading our properties. It has been very successful both the 2000 M Street, many of the properties downtown 1220 19th Street, we had some good success with that. With regards to 7900 Westpark, it’s a big project for us and those of you who are familiar with the market it’s one of the most prominent buildings in Northern Virginia, it’s right on the building, you almost look like you drive into the building and it has an old, taller buildings as an old 70 which we expect to turn in to an A building when this is done. So it’s a big project for us. And we think that the activity in the markets that exist even today and we’re having very good interest in the property, now we have obviously nothing firm. But some of the discussions, we’re having now are very promising and we feel like we can achieve significant rental rate increases above what we’re achieving in today’s market which will provide an attractive return on our investment. So we’re very positive about that. With regards to projects and our other properties continued CapEx, we expect that process to continue, but we don’t have anything of that magnitude this is currently on plan right now. Did I answer everything there Dave?

[David Rodgers:]

Yeah thanks you did. And just one follow-up to that, it looked like from an economic perspective your office leases that you had signed in the first half of the year, first quarter was really kind of the low point in terms of the economic value of the deals. Do you expect that you hit the bottom there and continue to push higher on the economic value of the leases?

[George F. McKenzie:]

It’s like – we would like to think that let me just caution a little bit there. A lot of it depends on where we are doing leasing, when you are leasing downtown it’s a much stronger market and we actually had earlier in this cycle we had vacancy downtown and it’s a stronger market, there we’ve seen some positive momentum. Some of the holds we have now for example, if we do a bunch of leases in this building that we are sitting in 6110 Executive, this is a tough market, you might see declines fundamental. So I guess what I’m getting at is there could be lumpiness going forward depending on where we are actually doing leasing. If we are leasing vacancy in the suburban Maryland building it will look fairly ugly. If we’re doing leasing downtown it will look a lot better and it’s hard for me telegraph exactly that that’s going to come from. Let me also comment on something else you’re asking about, you did ask I think on your first question about how we – our prospects on next year and what we are looking at in terms of our rollover, I know you have to supplemental and you could see in there next year is a little bit of an elevated year for us from a dollar perspective. For 2014 our office portfolio is rolling 19.4%. I mean I would characterize that as a little bit high, 15% is probably more of like an average number, so it’s a little bit elevated and I can say to you that we are already having discussions with a number of the larger tenants and nothing is firm at this point, but we have in some cases a handshake on a couple of fairly good transactions. So I feel good about it, nothing is firm and a lot of stage work needs to be done for next year, but I feel good about our ability to meet that challenge, which is admittedly a little bit higher than we normally see in the office area.

[David Rodgers:]

I appreciate the color, thanks.

[Operator:]

Thank you. Our next question comes from the line of Brendan Maiorana with Wells Fargo. Please proceed with your question. Your line is live.

[Brendan Maiorana:]

Thanks. Good morning. So, Skip the MOB sale process, my recollection was maybe that you would have had bidder selected early July, and then would have been under contract by late July, it sounds like maybe the process has been elongated a little bit. Is that accurate and can you maybe provide a little more color on where we stand?

[George F. McKenzie:]

Yeah, I agree with that observation. I would say that it’s for not elongated a little bit and clearly we worked sort of targeting that sort of timeframe, but I admittedly when the capital markets changed a bit, we sort of distress the project, because we didn’t want any after shock after this the system, we wanted everybody to digest what was going on in the world and come in with their best number. We didn’t want to renegotiate after the fact with anybody. So, I would say the process has elongated, but I wouldn’t call it negative in anyway, it’s just we don’t want people to come to us after the fact and say there has been a change in the world. So yeah, I would say that we elongated a little bit, but we still feel really good about it. So, I don’t even believe we’re significantly behind where we expect closings to occur. Well part of the problem this here and one of the other reason were high, we weren’t radically rushing to push the button, is that we’re trying to manage the other side of this transition and the acquisition world. So we are working both sides of this, so we felt that was in our best interest just to sort of stretch out a little bit, but we are at the point now where we are very, very close to moving forward with a particular group

[Brendan Maiorana:]

Yes, has there been, I know its sort of hard to talk about which you guys haven’t been, you have obviously been reluctant to its specifics around pricing, but given that there has been a move up in terms of interest rates and the nature of MOB sector, largely be impacted by rates and in terms of what buyers assume and prices willing to pay. Has there been any change in pricing expectations internally from where the bids are shaking out relative to what you might have thought at the beginning of the process?

[William T. Camp:]

Yes. Well you know you in I think that what happened in the world that interest rates in particular affects different people in different ways, and it affects – and again, I cant speak for every single individual bidder, because I don’t know what is going on in everybody’s head, but clearly some people were affected more than others and some people weren’t affected at all. And the people probably weren’t affected at all rose to the top and that’s probably the group that were probably going to be with at the end of the day, but again I can’t say I know how people adjusted their own numbers, “I can’t say in terms of risk” I mean we are well within where we expected this thing to be, that’s right in on our neighborhood.

[Brendan Maiorana:]

Okay, great. And just for my understanding, the way the process will work, you will select a bidder some time I think as you said over the next couple of week hopefully. At that point, would there be deposit money down and you guys would announce that there is a material transaction?

[William T. Camp:]

No it won’t be until they go firm. So it will probably be at the end of August.

[George F. McKenzie:]

Yeah, after our due diligence period.

[Brendan Maiorana:]

Okay, so you would select a bidder, there will be a month due diligence period and that will be. Okay, got it.

[George F. McKenzie:]

All right.

[Brendan Maiorana:]

Yeah. Thanks. And then just last one Bill so I know you mentioned kind of the office expenses that were up and you had the tax impact that I gather was a little bit unforeseen it seem like tax I mean expenses were higher in multi-family and retail as well is that something that from an operating expense standpoint do you think normalizes a little more in the back half of the year for all of your segments?

[William T. Camp:]

Hi, I would and say I hope so, but yeah.

[Brendan Maiorana:]

I lead the – that much confidence here.

[William T. Camp:]

A lot of it in the core, a lot of it recurring kind of capital type expenditures in the OpEx category, we’re a little bit seasonal. I mean you’re having residential for instance just to give you an idea you’re doing landscaping across the entire portfolio in the spring. You’re doing, slowing up all the pools, you’re doing all right kind of stuff. So there is one-time type regular operating expenses that happened in the second quarter all the time. And I think but the biggest move has been taxes even with the one-time thing in office but the biggest move has been taxes and they’re painful. They are a little bit painful and that’s not going to level out in the second half of the year that’s probably only going the other direction especially as we start filling vacancy.

[Brendan Maiorana:]

Okay. So if I just think about your guidance you did I think you did what $0.91 in the first half of the year, your implied guidance for the back half of the year, the mid-point is $0.96 and but that’s about in line with your second quarter run rate that’s kind of broad stroke the way to think about it?

[William T. Camp:]

Yeah especially in broad strokes yes I agree with that now. Keep in mind as I mentioned in prior calls, we have a compensation plan that pays out, it’s very subjective and it pays out at the end of this year, half of this which will be expensed in either the second half or the final quarter of this year depending on estimates. So it could be lumpy, especially third to fourth quarter.

[Brendan Maiorana:]

Okay great, thank you.

[Operator:]

Thank you. Our next question comes from the line of Michael Knott with Green Street Advisors. Please proceed with your question, your line is live.

[Michael Knott:]

Hey guys, Skip can you just elaborate on your comments that office was feeling good, I had to jump on the call a little late, but I’m curious just a little more color there.

[George F. McKenzie:]

Yeah, I mean I would even emphasize one of the other lines I use them, by no means it’s a good old days. I mean, we’re not seeing a level of absorption in our market that we saw when historically we’ve been used to over the last 20 years, but we definitely are seeing better activities in our properties. Some of it I think it is a reflection of some of the CapEx and the changes we’ve made sort of organizationally, and some of it I think has good market fundamentals. I think just about any of the – whose ever market report you follow whether it’s Delta, or Cassidy Turley, or Jones Lang, they are showing modest improvement in absorption in the area. Of course we are comparing that to a bad last year, so maybe in some of this regard not much, but we are seeing good levels of activity, not great, but good levels of activity particularly in the district less sell in the Maryland suburbs, its okay in Virginia, it still has a heavy negative impact by the defense industry. But there are deals to be made, I guess it’s the best way to put it.

[Michael Knott:]

Okay. And you – is there talk around town of maybe renewed doubt of uncertainty if you get more political figuring later in the year over budget or anything else?

[George F. McKenzie:]

Yeah, I mean, you’re right Mike. Still there this is lastly and there is still tremendous amount of uncertainty out there over what Congress is going to do or if they’re going to do anything. So that’s why we call it. I don’t think any of us know exactly how to react to. I mean it’s right now Federal government workers are having deferral and they are taking one day off a week and how was that is going to be reconciled at the end of the day when the new budget passes, or they, is there so many unknowns and none of us know how it’s all going to unravel but I think to some degree we’ve gotten back to work a little bit, but there is still little bit of an overhang in sort of the market persona if I can put it that way.

[Michael Knott:]

Thanks, and then it sounds like it’s still healthier in DCs than in Virginia, and Virginia is better than Maryland, is that right?

[George F. McKenzie:]

I would say so.

[William T. Camp:]

Now again there is pockets everywhere, it’s better in Virginia but you know Crystal City is still kind of ugly in places like that but it’s very sub-market dependent.

[Michael Knott:]

And maybe give us some color on where your thoughts are in terms of redeploying MOB proceeds, what inning are you in and sort of are there specific things on your radar that you’re looking at, and then also I think there couple of quarters ago, or maybe last quarter you’ve mentioned that there were some sizable deals you were looking at? Thanks.

[William T. Camp:]

Yeah, no I’m just it is a little bit of a juggling act here. I mean we where I sort of alluded to when I was talking Camp responding earlier Brendan’s question, we juggling what we think where we are going to end up on the sale of the portfolio, we are juggling some significant 1031 gains and how we are going to budget high as this and make close in tranches very similar to we did in industrial and we are trying to figure out where acquisitions are. Its still a very competitive acquisition market, the straight up answers is we don’t have anything firm right now, we have several things in due diligence, again none of which are firm, so I think that we have a little bit of a head start and we have work to do. So where are we looking at properties, we have some multifamily properties that we have in due diligence, we have some office buildings that we are looking at, not necessarily in due diligence but we feel confident that we will be successful on, some are big, some are medium-sized and we also have retail properties that we are looking at it’s in smaller size. So the short answer is it runs a gamut from what we stated our going forward strategy is. But nothing is firm at this point, we got a lot of balls up in the air right now honestly and we are all working hard to navigate this little bit of a complicated sort of transactional environment.

[George F. McKenzie:]

Hey Michael, on that note I think last quarter we talked just kind of more generically about some of the really large deals that are in DC especially in the office sector and you are really – you have to stop and think that do you really want to put all your eggs in one basket and take all the proceeds, I mean some of these deals are big enough that they would take away all the proceeds and that doesn’t sound like a well diversified strategy to take off portfolio of 19 properties and just by 1 building.

[William T. Camp:]

Well. I hope it answered your question Michael and we go around there little bit but that was the scenario.

[Michael Knott:]

Right thanks for the color.

[Operator:]

Thank you, (Operator Instructions). Our next question comes from the line of John Guinee with Stifel Nicolaus. Please proceed with your question. Your line is live.

[John Guinee:]

Great thank you. Just the big picture on your whole reinvestment Skip is that if you got up, you’re going to buy the kind of assets you really want to buy, it’s probably going to be neutral to dilutive to FFO but if you go after res curve or you go off the quality curve a little bit it can be accretive. Have you kept the basic strategy down as to whether you’re just going to buy core product in A locations which might be dilutive to FFO but generate really great portfolio. Or you going to go after risk and quality curve a little bit and take a flyer?

[George F. McKenzie:]

Very perceptive question something we ask ourselves as we sit around looking a lot of these investments. John I think the short answer of your question is probably going to be a blend in there. You may see some stabilized, particularly if the multifamily, we might throw a couple of those in there, we’re looking at some office assets that had some risk filling, where as you stayed, we get a little bit better return and we’re willing to assume some reds going out in the curve in terms of leasing and then there is some stable office assets that were probably less competitive on. As you know some of these our well income trophy and Quasi-trophy buildings that are locked up, they’re going for a very aggressive cap rates, and we’re not necessarily super competitive on those. So, we tend to be – I think we’re tending to look more properties that have some manageable level of risks of varying degrees, whether it’s taking upfront leasing where space is actually vacant today, or taking space that we know might becoming available over a period of time that we feel like we can manage through a release process and get higher returns to mitigate that dilution. So I think there’s going to be a blend and hopefully we will come out close to even is where we think and I feel on that I think that’s a...

[William T. Camp:]

Yeah I mean we’ve got a model.

[George F. McKenzie:]

Stain at the end of the day.

[William T. Camp:]

We’ve got a model that it’s going to be slightly dilutive as we trade out all this proceeds. But it won’t be a massive amount of dilution. So but of course since we don’t have anything locked up yet it remains to be seen. But I feel pretty good about where I laid it out.

[George F. McKenzie:]

I mean quite honestly John, the only place you can go out and get accretive truly accretive higher risk things are the exact thing we don’t want to buy which is suburban office.

[John Guinee:]

Well I know, I know. Okay second question is how about building, saving and reform act basically freeze the footprint, working its way to the house, will most likely go through the Senate. Really I think puts even more handcuffs on the GSA. Can you walk through what’s happening there and how that works specifically with your assets? For example, if you look at your portfolio how many of these assets would fail the basic standards for age, quality, et cetera and how many of your assets still will be leasable to the GSA?

[William T. Camp:]

Yeah. Right now we diminished our GSA exposure tremendously and most of our GSA exposure are in smaller leases. We have a fairly big lease down Quantico which I think is a newest building which wouldn’t be impacted but we haven’t got, to answer your question directly we haven’t gone through in a spreadsheet because we don’t believe it’s material to our operations. Our GSA exposure is so diffused through the portfolio now that to us honestly GSA rolling out it’s going to affect the market less so us individually.

[John Guinee:]

Great. Thank you.

[Operator:]

Thank you. Our next question comes from the line of Michael Knott with Green Street Advisors. Please proceed with your question. Your line is live.

[Michael Knott:]

I just wanted to ask you about the redevelopment at Tysons. Just curious if that better characterizes defensive revenue maintaining exercise or do you feel like there is going to be a return on the incremental capital there and if so what type of return are you thinking about?

[William T. Camp:]

I think it’s both Michael, honestly. I mean to stay out there with that building I mean it’s a decent building but it’s sort of a brutal market to just stay and we think it’s a phenomenal location and it’s gone from a B plus location to an A location. But it is in one respect it’s defensive because if we keep it in current state and that market is going to be a little bit of a hand-to-hand contact. At the same time, we think we could bring this building up to maybe not A but A-minus. I’m not suggesting that this building is going to equal (inaudible) for example but we think we can have a very attractive return on $35 million. So it is going to have a positive return. So it really has elements of both.

[Michael Knott:]

Okay, thanks.

[Operator:]

Thank you. There are no further questions at this time. I would like to turn the floor back over to you for closing comments.

[George F. McKenzie:]

Okay, thank you everybody for listening our call. Have a great summer. I look forward to catching up with you at the end of the third quarter.

[Operator:]

Ladies and gentlemen, this does conclude today’s conference. You may disconnect your lines at this time. And we thank you all for your participation. Good day.