Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from William Crow – Raymond James.
William Crow – Raymond James
Can we talk about the distress from a couple different perspectives? First of all the tenants angle. You noted an increase in bad debt. I think that was specific to the investor and flex portfolio. Can you talk specifically about that occasion and what is, as you look at your tenant profile, you see an increasing risk for the health of your tenants and if so to what extent?
George F. McKenzie
Yes, we are definitely seeing an increase in bad debt expense and just to give you some kind of big round numbers, as a general rule over the last let’s say five years, the metric that we follow is bad debt expense as a percentage of net potential revenue and historically we’ve been in that sort of neighborhood of 0.5% to 0.7% and we’re almost approaching double that year-to-date in 2008.
And to a large degree, the worst sector is the industrial sector. I believe I’ve mentioned that on prior conference calls where I’ve projected that and in fact we are experiencing that today. Year-to-date in 2008 we’re somewhere in the neighborhood of 3% of our industrial portfolio is suffering bad debt expense today and with lesser degrees in the retail sector, closer to 2% and then more moderate, more typical ranges being experienced in the other three sectors but those being up modestly.
William Crow – Raymond James
Skip, if you go back to past downturns and this may be a unique downtown, we’ll see, but how bad can it get do you think?
George F. McKenzie
Well, your guess is as good as mine as how bad it can get. As I stated in my comments, there’s no better place to be than Washington D.C. and we feel confident that certainly with respect to our property types, the majority in-fill with very solid tenants and small tenants that there are going to be some scrapes and bruises over the next year but certainly we’re going to pull through and we’re going to do better than any other market in the country. But we’re in extraordinary times so I’d be hesitant to make any sort of projection of where we’re going to be 12 months from now just because I don’t know.
Our tenants are performing well; we’re 93% occupied in most sectors or above and we’re staying extremely close to our tenants. We’re asset managing our properties very closely. Our asset managers are meeting with tenants regularly. We regularly meet on these issues so we’re staying as close to the issues as we can. We think we have a good handle on it but there’s no question that the world we’re living in today is quite a bit different than it was certainly 12 months ago.
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