Good day, everyone, and welcome to the Winthrop Realty Trust Second Quarter 2009 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow management’s formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded.
For opening remarks I’d like to turn the call over to your host Beverly Bergman, Vice President and Director of Investor Relations for Winthrop Realty Trust. Thank you Ms. Bergman, you may begin.
Thank you Joe. Good afternoon everyone and welcome to the Winthrop Realty Trust Conference Call to discuss our second quarter 2009 financial results.
Thank you, Beverly.
Thank you Michael.
Good afternoon everyone. I will be providing an overview of Winthrop’s financial results as well as a review of our business segments. Please note that all per share amounts are on a fully diluted basis unless otherwise stated and reflect the November 2008 one for five reverse stock split.
I will now discuss our operating results by business segment.
Thank you, Tom.
Good afternoon.
Thank you. We will now conduct the question and answer session. [Operator Instructions].
Operator: [Operator Instructions]. The first question is from Leon Cooperman with Omega Advisors. Please go ahead with your question.
<Q – Leon Cooperman>: Thank you very much, I appreciate the call. Just like to make one technical correction to your release. When you talk about Concord you say the continued deterioration of the credit markets, best I can tell there has been a fairly massive rally in the credit markets, I guess they were not properly positioned, properly financed, but let me get to my questions, do you think the recurring cash flow from operations will support the present dividend? Question one.
And question two, if you look at your balance sheet and the carrying value of the various assets, do you think the book value is indicative of the underlying values held by the company or is the book value understating somewhat the underlying – the value of the businesses? Thank you.
<A – Carolyn Tiffany>: I’ll take your question, with respect to the dividend, as we’ve always said we have – we base our dividend based on what we believe our recurring cash flow can sustain, of course it’s up to our Board of Trustees, but that is – that is and has been our position and we have always endeavored and we’ll continue to endeavor to do that.
With respect to your question on the balance sheet, as I mentioned in my portion of the call here, we believe that the carrying value of the Marc Realty properties that ultimately we will receive proceeds in excess of that, largely due to our equity interest in the downtown properties. Obviously our securities are held at market value and that is what it is, but again as I mentioned in the call with respect to some of the Finova properties, we’ve extend the leases that we believe improves the value to what we paid. I guess the one issue that we raised that remains to play out, it relates to the Churchill property, which is currently on our books for $21 million and we are waiting to see what Viacom does and once we do know that we’ll have a better sense.
<A – Michael Ashner>: If I can weigh in on question 1B, I think we sell at a discount – I think we – our stock is priced at a discount NAV, that’s my view point.
<Q – Leon Cooperman>: Got you. And in terms of the dividend, I understand what you said but, I guess implicitly in the question was do you anticipate that your cash flow from recurring operations will allow you to sustain the present dividend? I understand that dividend will be a function --
<A – Michael Ashner>: At this stage, as I look at things today, the answer is yes. But the concern I think all have to keep in mind is that real estate operations at all – for everyone’s properties are strained to say the least, so we have to monitor it every quarter, we project out based on every quarter.
<Q – Leon Cooperman>: Got you. Thank you, good luck.
<A – Michael Ashner>: Thank you much.
Operator: [Operator Instructions]. The next question is from David Fick with Stifel Nicolaus. Please go ahead with your question.
<Q – David Fick>: Good afternoon, I would never be one to debate with someone as astute as Mr. Cooperman on an earnings call. However, with respect to question 1A, clearly the credit markets have deteriorated, the availability of capital has not, but loans continue to go bad at an extraordinary pace and an accelerating pace in commercial real estate across the board. So that’s my comment. Can you – a couple of details first before we get to Concord, the increase in CapEx can you talk about that compared to the first six months of 2009? And what should we think about that going forward?
<A – Thomas Staples>: The increase in the capital expenditures for the six months this year primarily relates to our Chicago property, we call River City and there has been a large increase in the occupancy there over the past six months.
<A – Michael Ashner>: What I would add to that, David and I am sure you’re not unaware of it, that tenant rollover demand has resulted in increased TI, CapEx and leasing costs across the board in our spectrums of real estate right now. So – while Tom is accurate in pointing the specific increase in occupancy of River City, I would anticipate that – I expect to see higher TI and CapEx costs, at least in the near term.
<Q – David Fick>: And so what kind of pace should we be allocating on our models over the next 12 months? And I would challenge that a little bit, Michael because what we’re hearing is a lot of tenants are staying in place, essentially for no CapEx, no TI, no leasing commissions in the absence of wanting to move in all the expense that that entails and so from most --
<A – Michael Ashner>: Well, I don’t have at hand the detail of what we project the TI and CapEx. I think, Tom may have that, maybe we can make that available to you.
<Q – David Fick>: Okay.
<A – Michael Ashner>: I would question, in fact I would question whether or not that’s a true statement, that as I discern the earnings statements, earnings reports that I’ve been looking at, I see while there may be stabilizations in rents or small declines in rents, that’s across the board. I see all of the office REITs having increased costs on their rollovers. I don’t see anyone has a decrease.
<Q – David Fick>: Suburban office REITs we’re seeing that is a trend, but okay, we’ll have that debate offline. Moving to Concord and I guess a little bit, Marc, you said that cash flows curtailed, do you anticipate any cash flow out of year of those in the next three to four quarters and what was your cash flow year-to-date out of Concord?
<A – Michael Ashner>: In Concord?
<Q – David Fick>: Yeah.
<A – Michael Ashner>: We’ve taken no cash flow out and I don’t anticipate that we will any cash flow that’s generating cash flow we’ll reserve for issues that may arise with respect to Concord and its assets in the future. We’re not – except with respect to one repurchase lender I don’t think we have any cash traps and we don’t expect any but the cash is being husbanded for whatever needs of that company, that platform requires. With respect to Marc Realty, no we do expect cash flow and we received, I don’t know, Tom, how much did we received from Marc Realty year-to-date, first six months?
<A – Thomas Staples>: About $3 million, Michael.
<A – Michael Ashner>: Yeah, we continue to expect to be paid distributions from the Marc Realty properties.
<Q – David Fick>: Okay. And with respect to the Inland claim and their obligation which was not funded there. At one point, I think you guys were discussing a settlement with them, what is the status of that?
<A – Michael Ashner>: Presently there are no settlement discussions underway. I am hopeful and optimistic that reasonable minds will resolve their differences.
<Q – David Fick>: And where do you stand in terms of any court action, what’s the timing there?
<A – Michael Ashner>: We filed our answer, but I don’t know when this is, I don’t know when we anticipate going to trial. There’s been no schedule date that I am aware of, as and when for a trial date.
<Q – David Fick>: Do you have any forward-funding obligations with respect to either Concord or Marc?
<A – Michael Ashner>: With respect to, neither, we don’t have any forward funding obligations, I’m aware of.
<Q – David Fick>: Okay. And you don’t expect--
<A – Michael Ashner>: Whitman doesn’t have any forward funding obligations, no.
<Q – David Fick>: All right. And you’re not going to provide any short-term capital if these guys get into a bind, a cash flow bind?
<A – Michael Ashner>: No, but we may well that’s entirely accurate we may, if we determine that we can have, we can be provided with adequate collateral, we might consider doing that with respect to Concord. And with respect to Marc Realty, we do – we have agreed to go to Marc Realty partners, that’s – what’s it, how much have we agreed to each party to provide on an ongoing basis, remaining cash we restructured for TI and CapEx, Carolyn?
<A – Carolyn Tiffany>: 14 million’s been....
<A – Michael Ashner>: About 7.5, how much have we agreed we’ll continue to, seven million, I think the number is. Last year $7 million which is about $4 a square foot.
<Q – David Fick>: Okay. And the loan that you bought from Concord at a discount this quarter, obviously you offered that to your partners in Concord pari passu and they declined, would you see yourself perhaps doing anymore just kind of acquisitions out of the adventure or is that a one-time thing?
<A – Michael Ashner>: I wouldn’t be surprised if we did more.
<Q – David Fick>: Okay. And you will also I guess have to offer participation to your partners?
<A – Michael Ashner>: Obviously.
<Q – David Fick>: Okay. The Macklowe loan, how would you assess your current potential liability there and how do you assess the state of that loan today?
<A – Michael Ashner>: Within Concord?
<Q – David Fick>: Yes.
<A – Michael Ashner>: Obviously, Winthrop has no liability with respect to the Macklowe obligation ...
<Q – David Fick>: I understand.
<A – Michael Ashner>: Deutsche Bank has basically submitted a bill to GE, KeyBank and ourselves. The bill they sent to us was $9 million, that was sent to Concord. We believe that there is little or no financial exposure to Concord with respect to that, that item.
<Q – David Fick>: Okay. And lastly, the status – if you could just, Carolyn, elucidate a little bit more on the Churchill and where you are in conversations with Viacom with respect to the clean-up obligations that they would have there and the potential return of that land and buildings?
<A – Carolyn Tiffany>: Well we had reached out to Viacom to obviously to proactively look at what they were doing and get an understanding. Some of the property has been sub-tenanted. They at this point are reluctant to really engage in discussions. I think that they are, at this point, evaluating what they need and what their options are. So I really can’t – I wish I had a better answer for you, but at this point, we continue to reach out to them and hopefully we’ll have some information from them sooner rather than later, but as I mentioned they are not obligated to really make any decision until the end of this year.
<Q – David Fick>: Okay. And then lastly the big picture of your overall business plan, we’ve sort of been down in the details and the clean-up of history, Michael, your organization is known for being opportunistic and trying to find opportunity, as you are aware there is a lot of filings that have been going on, the Apollos and many others out there with opportunity funds for, essentially opportunity funds and re-clothing for distressed debt and to originate debt. How do you view the opportunities right now and where do you expect to be deploying capital?
<A – Michael Ashner>: First, I think you need to pull up more closely what these filings are about, some are about, in essence straight debt, just buying debt positions and some are in fact opportunistic. Look, from my standpoint right now, the only place I want to be as pretty much is general rule in the capital stack is discounted debt, that’s pretty much and I wanted to be senior debt. We may start to look at some point, mezzanine debt but that’s where we are, I mean we are – common is not fairly priced, I think whether it be common equity securities are common by way of buying ability.
However, I think there are other opportunities and those opportunities we’re looking at relate to issues of re-capitalizing existing private equity funds, private opportunity funds has been out there. So there is lot of interesting opportunity out there that we’re going to pursue, and I would suspect that you’ll see us focus both on debt side and to some extent, investing in other people’s opportunity funds.
<Q – David Fick>: Okay. So you would do that either --
<A – Michael Ashner>: Legacy. That was on a legacy opportunity funds, yes.
<Q – David Fick>: How about de novo?
<A – Michael Ashner>: Yeah.
<Q – David Fick>: Okay. Thanks.
Operator
At this time there are no further questions. I will turn the call back over to Michael Ashner for any closing remarks.
Again, we thank you all for joining us this afternoon. As I mentioned earlier, we believe that our balance sheet and liquidity positions Winthrop so that it will not only survive this economic crisis, but allow it to take advantage of the dislocation in the market to make lucrative investments. As always, we appreciate your continued support and we welcome your input and questions concerning the Company and its business. If you would like to receive additional information about us, please contact Beverly Bergman at our offices. You can also find additional information about us on our website at www.winthropreit.com. In addition, please feel free to contact myself or any other member of management with any questions you may have at your convenience. I thank you all and have a good afternoon.
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