Piedmont Office Realty Trust, Inc. (PDM) Q3 2018 Earnings Report, Transcript and Summary

Greetings and welcome to the Piedmont Office Realty Trust Third Quarter 2018 Earnings Conference Call. At this time, all participates are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Robert Bowers. Thank you. You may begin.

Thank you, Operator. Good morning and welcome to Piedmont's third quarter 2018 conference call. Last night, we filed our Form 10-Q and an 8-K that includes our earnings release and our unaudited supplemental information for the third quarter. If you've not already reviewed this information it's available on our Web site, piedmontreit.com, under the Investor Relations section. On today's call, the company's prepared remarks and answers to your questions will contain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters which are subject to risks and uncertainties that may cause the actual results to differ from those we discuss today. Examples of forward-looking statements include those related to Piedmont Office Realty Trust future revenues, operating income, dividends, and financial guidance, as well as future leasing and investment activity. You should not place any undue reliance on any of these forward-looking statements, and these statements speak only as of the date they are made. We encourage all of our listeners to review the more detailed discussion related to risks associated with forward-looking statements contained in the company's filings with the SEC. In addition, during the call, we'll refer to non-GAAP financial measures such as FFO, core FFO, AFFO and same-store NOI. The definitions and reconciliations of our non-GAAP measures are contained in the supplemental financial information available on the company's Web site. I'll review a summary of our recent financial results after Don Miller, our Chief Executive Officer, discusses some of the quarter's operational highlights. Don?

Good morning everyone and thank you all for taking the time to join us on today's call. We are extremely pleased with our results this quarter. Almost every key measure that we focus on in the management of Piedmont excelled during the third quarter, from the amount of leasing activity we accomplished, to economic terms realized in each negotiations. We achieved strong same-store cash and same-store GAAP NOI increases, excellent cash in GAAP rent rollups, and particularly strong vacant space leasing especially in some of our tougher markets of Houston and Washington, D.C. We also managed our G&A tightly, made progress on our capital recycling plan, and our CapEx per square foot per year of lease term was only slightly above long-term averages despite most of the leasing being done within our heaviest CapEx markets. Looking first most closely at our recent results for the quarter, there was a noticeable increase in leasing activity across the portfolio. We completed approximately 613,000 square feet of leasing, and we are particularly pleased to say that the majority of that leasing related to new leases for currently vacant space in our portfolio. As a result, our reported occupancy for the in-service portfolio reached over 93% at quarter end, up 2.5% from last quarter alone. Significant leasing was announced a couple of weeks ago, but the largest single transaction for the quarter was a 17-year first-generation lease for the entirety of Enclave Place, our 300,000 square foot newly-constructed building in the energy corridor west of Houston. While not achieving development's original forecasted returns due to the decline of oil prices, we did obtain a lease under much better conditions than we thought possible just two years ago. Based upon the terms of the lease we realized an approximately 7% GAAP and cash yield, and achieved net effective rents equivalent to our original pro forma. Combining last quarter's Schlumberger lease renewal and expansion with this Enclave Place transaction, Piedmont has been recognized as completing two of the three largest leases in Houston thus far in 2018. In addition, a good portion of our remaining leasing for the quarter was in Washington, D.C., and included almost 90,000 square feet of new leasing of currently vacant space. We are encouraged with the activity in this market, but the market remains quite competitive. A list of all leases over 10,000 square feet that were signed during the quarter is detailed for your review in the quarterly supplemental information that was filed last night, and is available on our Web site. Given that we have no significant expirations for the remainder of the year, any continuation of the leasing momentum for vacant space could push our occupancy up even further by year-end. Our one sizable expiration over the next 18 months is, of course, the New York State at 60 Broad. And we continue to make steady progress towards a prospective renewal. We are devoting appropriate resources towards this negotiation, along with other upcoming expirations, and there is solid activity taking place to backfill portions of the known smaller move-outs in 2019, well in advance of current tenant expiration dates. Turning to acquisition and disposition activity during the third quarter, we entered into a binding contract to sell 800 North Brand Boulevard for approximately $160 million, and expect to close this transaction during the fourth quarter, which will conclude our exit from the West Coast. With this sale, we are down to only two projects outside of our eight strategic operating markets, 1901 Market Street, in Philadelphia, and our Enclave properties in Houston. These two projects are currently at 100% leased, with an average lease term remaining of 13 years. We would anticipate selling these remaining assets as well as fully valued assets in our operating markets as market and company conditions allow. Considerations such as use of proceeds and tax implications will impact the eventual timing of these transactions. However, I will note that we'll continue to model that Piedmont will be a net seller in 2018 and 2019. Disposition proceeds will be used in several ways to enhance shareholder value, such as improving our balance sheet by paying down debt, prudently buying strategic assets in our core operating markets, redeploying funds into build-to-suit developments at our relative located parcels, particularly in Atlanta and Orlando, funding redevelopment projects that will enhance the value of our existing assets to drive occupancy and rental growth, and judiciously acquiring our own stock when it is trading at meaningful discounts to NAV. And as always, we will evaluate the options available to us and strive to select the use of funds that we believe maximizes value for our shareholders. As an example, subsequent to quarter-end, we acquired 9320 Excelsior Boulevard, a seven-story approximately 268,000 Class A property built in 2010 that is 100% leased to Cargill Incorporated. This value-added property is located in Minneapolis in close proximity to our Norman Pointe building that we acquired in 2017. The purchase price was $49.4 million, which represents almost a 50% discount for replacement cost. And the property provides an immediate 10% GAAP and cash yield, along with upside to a restructure of the Cargill lease that is currently set to expire at the end of 2023. Piedmont had a great quarter. And all of our employees are committed to carrying this momentum into the rest of the year and into next year. Obviously, I am very pleased and appreciative of all the effort by our team, from property management leasing, treasury and capital transactions. It's a great group of dedicated people. For several years, the Board and I have been working with each of our senior managers as part of an ongoing robust succession planning program in all areas of our business, from finance to real estate operations. This task obviously applies equally to senior leadership as well. Yesterday, the Board voted to promote our Chief Investment Officer, Brent Smith, to President and Chief Investment Officer. This promotion is certainly merited by Brent's outstanding performance and strategic leadership skills. His promotion does not change my role as Chief Executive Officer, but Brent will be working more closely with me on corporate strategy and taking a broader role across the platform. With that, I will turn the call over to Bobby to review the third quarter financial results and financing activities. Bobby?

Thanks, Don. I'll discuss some of our financial highlights for the quarter, but I encourage you to please review last night's filings for more complete details. For the third quarter of 2018, both FFO and core FFO were $0.45 per diluted share, a $0.03 per share increase compared to a year ago despite the sale of a net 14 assets or nearly $740 million since July of 2017. The increase in per share data reflects the improvements in occupancy and in rental rates have been steadily growing for the last few years, as well as lower operating expenses and the favorable impact of the share repurchase activity over the last 12 months, which reduced our weighted average shares outstanding. AFFO was approximately $45.5 million for the third quarter of 2018, well in excess of our regular $27 million quarterly dividend. As Don mentioned earlier, the overall lease percentage of our in-service portfolio increased to over 93% as of the end of the third quarter and our weighted average remaining lease term is now 6.7 years. Importantly, our economic occupancy also continued to improve to 86.6%, which reflects the occupancy level of cash paying tenants after our leases commence and abatement concessions expire. We anticipate this economic occupancy to continue to improve into 2019 and rising overall lease percentage of the portfolio. For executed leases completed during the quarter, mark-to-market risk increased 7.4% on the cash basis and 21.8% on a GAAP basis. On a year-to-date basis, mark-to-market risk increased 4.2% on a cash basis and 10.6% on a GAAP basis. Our same store net operating income metrics also reflect the overall growth in our various lease percentage statistics as well as growth in rental rates. As leases commence and abatements expire same-store NOI increased 8.5% on a cash basis and 6.5% on an accrual basis for the three months ended September 30, 2018.as compared to the previous year. And as a result, we're updating our annual instruments for 2018 same-store cash NOI growth to be between 5% and 7% for the entire year more in line with our last four years' average annualized same-store NOI growth of 7% to 8%. We did complete two financing transactions during the third quarter. We replaced our $500 million unsecured line of credit with a new $500 million unsecured facility priced at LIBOR plus 90 basis points, which is a 10 basis point decrease from our previous facility. This new line has a four-year term as well as up to a one-year extension. In addition to renewing our line of credit, we also amended our 2011 unsecured term loan for $300 million to extend its maturity date 22 months. That's from January 15, 2020 to November 30, 2021. And we immediately reduced the stated interest rate on this debt by 15 basis points to 1% over LIBOR. However, the primary rationale for the extension was to maximize our future refinancing options under our overall debt maturity schedule. The debt maturities in each year from 2022 to 2025 is moving this term debt to late 2021 maturity enables the company to consider a broader range of refinance options upon this debt expiring including five, seven and 10-year tenders. Debt structures that will now be available to us under our revised debt maturity schedule. As a result of this activity, our next debt maturity is not until the third quarter of 2021, and our overall leverage ratio is 37.8% at the end of the third quarter. However, as in any further acquisition activity during the fourth quarter we anticipate using the $110 million to net sales proceeds from the 800 North Brand disposition and the Excelsior acquisition to pay down our line balance and therefore our debt metrics will improve. Our current debt to core EBITDA ratio is 5.8x. At this time I'd like to narrow and adjust our core FFO guidance for 2018 due to year-to-date results, our transaction activity and our updated leasing projections. We estimate that our core FFO per share will be between $1.70 and $1.73. With that I'll ask the Operator to give you instructions on how to submit your questions, will attempt to answer all of your questions now or we'll make appropriate later public disclosure if necessary. Please try to limit yourself to one follow-on question so that we can address as many of you as possible. Operator?

Thank you. At this time we will be conducting a question-and-answer session. [Operator Instructions] One moment, please, while we poll for questions. And our first question here is from Dave Rogers from Robert W. Baird. Please, go ahead.

Yes, good morning guys. Don, I wanted to start with you and some of the comments you made in your prepared remarks just in terms of kind of Houston and Philadelphia sales and relative to what you could reinvest those in and tax incentives better, but I guess -- you think about reinvesting that and can you kind of talk about how acquisitions and then the development build-to-suit activity in your pipeline looks today in terms of how those two would stack up relative to your other options and how much activity you're seeing in each of the acquisition and the development opportunities?

Yes, I'm not sure I fully understood the question, Dave. You mentioned Philadelphia on a disposition pipeline, I'm not sure we commented on that at all.

I'll ask it a different way, I guess, as you look at the opportunity to continue to exit assets over the next year or so, you mentioned obviously acquisitions, their stock buyback, other opportunities and avenues, I guess, the two that I'm most interested in is your comment around the acquisition pipeline, what you're seeing out there and maybe that's a better one for Brent, but then also just on the build-to-suit and development pipeline in order to kind of put those proceeds kind of back to work fairly quickly, if that's more clear?

Okay. I understand better, thank you. Well, obviously we have been talking quite a bit about a handful of non-core non-strategic asset sales with also some asset sales that would be -- I guess, I would say core strategic assets, but in -- that have sort of realized their whole potential. And so we do have a fairly steady pipeline of assets for sale. Many of them lower cap rate access, which -- and I think we've talked about quite a bit that may be very accretive in terms of their ability to put the capital into the marketplace. Having said that, it's not a target-rich environment from an acquisition perspective. I'll turn it over to Brent here in a second and let him address a little bit further, but obviously, so we'll always be evaluating acquisition opportunities we've got available to us with buyback of shares and what we think the best use of capital is. We're particularly proud of the deal we did in Minneapolis this quarter given it's an eight-year building. We bought it. Half of replacement cost was a big yield and the opportunity to potentially do some redevelopment or repositioning of the asset with the tenants. So really excited about that kind of opportunity, but those aren't out there, there aren't a long list of those out there at those kinds of returns. So Brent would you add much to that?

Yes, Dave, in terms of the acquisition environment, admittedly, it is -- there's limited product, but we've been able to successfully find deals that are I our strategic markets that have been accretive to our earnings and NAV and we continue to scour the markets for that finding opportunities still in the pipeline in areas like Boston, Atlanta, and to a lesser degree, Dallas, although we'd like to find more product there and Minneapolis. So there are opportunities out there and we'll be mindful of those non-core assets and mature assets in monetizing those and then redeploying that into -- again, as Don mentioned what we think will be accretive acquisitions. And I think our Minneapolis deal this quarter is a perfect example of that. We did dispose of 800 North Brand as we mentioned at roughly a low-five cap on a GAAP basis and redeployed that into 9320 Excelsior, which is a phenomenal asset. We can go into more detail but at a 10-cap roughly. And those are examples of the opportunities that we think we're going to continue to be able to uncover meaningful discounts for replacement cost and opportunities to create value with the asset and that's the key thing. We're looking for ways to be able to utilize the platform and the people we have in place to drive incremental value for shareholders. And I'd say as we look into '19 and in the rest of '18 admittedly the pipeline is not as robust as we would maybe hope, but I do think that you're seeing a little bit more capitulation between buyers and sellers, particularly around transactions that we've been following and we're hopeful we'll be able to continue the momentum that we've built at least this quarter.

Dave, on the build-to-suit and development side we are still chasing fair number of deals. As we told you, for a couple of years now, we think yields have gotten so compressed on the build-to-suit side that it's harder for us to be that excited about chasing things down into the seven cash yield kind of range or even six-and-a-half cash yield, which we've seen some people doing lately. And we just see better redeployment of capital frankly into acquisition activity when you are able to buy it in the kind of metrics we just did in Minneapolis. So we are still optimistic that we will get something done Orlando at some point in over the next say 12 months. And we hope to get some things going in Atlanta as well. But I don't think there is anything imminent to announce.

Great. Thanks for that. And if I could just a follow-up on the New York State prospective renewal that you talked about, I know Brent, you have been actively involved and you have been very kind of project specific focused on a lot of different things in the last couple of years including like the sale in New Jersey, so, maybe one comment from Brent on New York State. And then, Don, maybe the succession planning broader comment in terms of kind of how you now see Brent kind of maybe doing more across the organization as you suggested.

Sure. Brent, want to go first?

Yes. Regarding the New York State as you well know that lease is due to expire at the end of first quarter next year. We -- as we have noted on prior calls, deep into discussions, deep into planning of the space with the tenant. And we are very optimistic that there will be a very positive outcome for Piedmont in that regard. It is not executed lease obviously or we have would have announced, so we are still cautious. But we do feel very good about where things headed both on this size of the renewal as well as the economics around in the renewal. And then unfortunately that's really the most detail I can give at this point given nothing has been executed.

Dave, obviously, we did decide to promote Brent yesterday, and that's really a recognition of several years of accomplishments on his part. He joined us in 2013. Immediately, he got thrown into the 60 broad Hurricane Sandy debacle and did a great job with that, but has moved on to doing things ranging from Northeast region as Chief Investment Officer, and obviously gotten a lot more involved in interactions with guys like you at NAREIT and otherwise. And I have been thinking about pulling back for a while now. We could accomplish an awful lot here. We have accomplished most of the -- virtually all the strategic and operational goals we have set out to do, maybe with the exception of our stock price. And so, feel like it's maybe getting these the right time for me to start thinking about doing that particularly with some health problems I had a few years ago. So, all of that sort of contributes to the announcement that we made yesterday.

Right. Thank you both.

Our next question is from Anthony Paolone from JP Morgan. Please go ahead.

Thanks and congrats to Brent on the promotion. First question is just on Enclave Place. Can you just talk about what -- I may have missed this if you mentioned it. But just what the ultimate cost will be. I imagine you have some TIs and things to spend to get Transocean and then what yield ended up working out to be on that deal?

Yes, so Tony, we obviously I think we mentioned in the earlier that given that this obviously took much longer we would have hoped and obviously didn't work out the way we would have liked from the time we started the development. It turned out a lot better than it could have. We ended up doing a lease because of the length of lease that turned out to be about the same that affected economics that we originally pro forma it. As you will probably appreciate given it was a 17-year lease with the tenant, the TIs were higher. Not on per square foot or per year lease term. But they were higher than we had originally pro forma it. And still came out to be about 5 bucks a year in TIs. And then the rents themselves were slightly below what we originally expected. But with the growth in those rents and the term of the leases, we ended up producing about a 7% cash going in and about an average because of the free rent of at about 7% GAAP yield overall. So, interesting and kind of funny, it's about what a new builder suite looks like today except it took us two or three years to get it leased. So if there is a downside, it was the fact that we had to EBIT the operating expenses on the building for several years. But at the end of the day, it came out to be about where a builder suite would be today. Now having said that, the main reason for that is we started so early in the cycle, our development cost were much lower than they would have been today.

Got it. So if I get the schedule III from the most recent K, the base was $66 million. It sounds like that you were -- spend about another $25 million when it's all said and done to have them situated, so basically somewhere up in the 90%?

Yes, maybe a touch more than that.

Twenty five.

About -- it is at little over 30 with commissions.

Okay, got it. Great. And then on the Cargill lease, so just want to make sure it is clear on this, but it is under market even at the 10 yield going in? Or, how is that compared to the opportunity there?

No, very much right in line where we recall market rent today. And they do occupy the entire building. One thing that we didn't -- we haven't sort of talked about yet, but will be out some more information about the deals here in the next 24 - 48 hours is that there is -- the building is actually larger than the lease. The building is closer to 270,000 feet. The lease is only about 250,000 feet because there is a lower level in the building that could be used for a variety of different things. The tenant is actually using it today for training and other reasons but not paying rent on it. So we think there is some opportunity there to build up the income stream for the asset longer term. But having said that, there are current market -- the current rent in the lease is about market rents today if we were to have vacant space at least in the building.

If I may add to that, this project what we are really excited about strategic, just a few miles from our existing asset, and it's really one of the preeminent corporate campus environment in Minneapolis. It's built in 2010. It's a class AA property. The onsite amenities are really best in class, 300 seat auditorium, food service café, two coffee shops, 13,000 square foot fitness center, locker room. It's phenomenal building. As we noted, leased to Cargill right now for another five years, there is $27 million of net rental income due to come from that lease. So we really view it as an opportunity to create additional value over the long term given the quality of asset itself.

Got it, okay. And then, apologies I may have missed this because I joined late. But I thought there were two -- did you have like two buildings that had some duration that you plan to sell? Was Enclave Place one of those and maybe I missed the other? Or did I miss the whole…

No, what you may have heard partly, Tony, is that we have just the two -- really the two assets left that what I would call non-strategic market. One is the Philadelphia asset and the other is the Houston buildings. The beauty of that is now we are -- we have an averages 13-year lease term in those two projects. And so although we are not -- with them, we would like to move them over the course of time. And so we will be doing that based on tax implications and timing of use of proceeds and things like that. But we are not in any hurry because we have got so much lease term on those assets.

Right. So as you think about you did mention being a net seller in 2019, would those assets be on the docket to kind of drive that? Or if not, what kind of would?

Yes. I think we actually -- I think we did say that we forecast being a net seller in 2019. But that -- that's always hard to know because of market conditions. But I would say one or both of those assets could be candidates for 2019. But I think we actually think we may have other assets ahead of them in the queue at this point.

Okay, got it. Thank you very much.

[Operator Instructions] Our next question is from Michael Lewis from SunTrust. Please go ahead.

Hi, great. Thank you. One more from me on the Minnesota acquisitions, if you have a tenant in place in that market, I mean it sounds like they want to downsize. Normally, I would look at that and think that that's a risk. Could you talk a little bit more? I mean you mentioned the extra square footage that's there. What makes you think that that expiration on a tenant that maybe is utilizing all the space is an opportunity rather than a risk?

So, opportunity in the sense that pricing of an asset like that would certainly be impaired based on the fact that you have five years of lease term on a single tenant building. And it's a very difficult asset to finance in its current form. So, part of the reason we think we are successful in buying the asset is that we are an all cash buyer and able to move quickly and execute the transaction. Having said that, if Cargill moves forward as they are suggesting they might right now, they are interested in potentially downsizing, restructuring the lease that could involve a lot of different opportunities for us whether it's a painting on the front-end. It's an extension of the term that they want to stay in. It's an opportunity to have them take space in the basement maybe or someone else takes space in the basement. So there is a lot of different opportunities you can do in restructuring that lease. And by the way, you are not obligated to do that at all. Worst case scenario, we just collect five years rent from them. And if they still need some of the space after that, great. If they don't, they don't. The good news is we've underwritten it as if they're going to leave with the idea that, that probably is -- we probably have upside to that scenario.

Okay. Got you; certainly, high going in yield. As far as the Philadelphia and the Houston assets, when I look at the lease expiration schedule in that other category which is where this kind of sit, it looks like you have 273,000 square feet expiring in 2021. I was just wondering, if you could comment on which asset is, that is and if you think you need to address that before maybe putting the -- that asset on the market?

Yes, actually. This is understandable confusion that the 800 North brand asset in Glendale is still in the other category until we sell it in November. And so as a result, that's the 2021 lease expiration with Nestle that is now leaving the portfolio upon completion of that sale until otherwise, we…

We actually wondered about that.

Okay. Yes, otherwise, there's virtually no lease roll over in those -- in the other two assets.

Got you. And then, the last one for me, it sounds like the acquiring of Cousin's buildings in Orlando is planning significant redevelopment and I was just wondering if you think what they are doing there maybe creates more competition in Orlando. I know you guys feel really well positioned in that market. Is there anything, do you think that kind of alters your competitive advantage there at all?

We really don't and you never want to sound cocky, but the quality of our buildings and the location of our buildings are the premier assets in the marketplace. They have good assets, they're not at the same level as ours, they don't achieve the same rent. Obviously, to the extent that they are going to reposition them, they will be trying to you know catch up closer to us but at the same time we are going to be repositioning SunTrust as well. We talked about that a little bit already and the market, we will be talking about that more over the coming year and so we think that will keep that a nice gap between us and them but the critical aspect of that is location. We've got the Finn Corner [ph] location to the marketplace. One of their assets is very well located. The other two are a little bit off the street.

Okay. Thank you.

Our final question comes from John Guinee from Stifel. Please go ahead.

Oh, great; John Guinee here. First, Brent congratulations. Well deserved, a question. Yes, the 10-cap for a mid-duration lease like the car wheels, I think probably pretty typical in the market. But on the Nestle building 303 bucks a foot a 55-gap cap rate translates to about $16 a square foot net, is the rental stream at that building in Southern California only $16 net?

Yes and no, John. So when we did a series of five year renewals with Nestle over the course of time, the last time they hit the renewal, they hit it right when if you recall sort of been what about 2013 or so right when Glendale was struggling pretty badly the entire tri-cities market was struggling and so they hit it at a perfect window and they had an option to extend at market rents with some good favorable language in the lease from long before we bought the building and so they were able to get a very effective rent for them. Interestingly, the one before that we caught them it right, just the right time of the market cycle and so we actually had a big roll down the last time they did their renewal but yes, I don't think it's -- I will -- you can do the math while we are talking to you about it but that's probably not that far off.

Wow, okay. Great and then a word on the street when you are dealing with government leases whether it's the state or the city is that it's a turnkey TI package leasing commission usually base building upgrades and whether a 60 broad is a good deal or a bad deal, it's really a function of what sort of a rental rate you can attain, is that an accurate way to look at those?

This is Brent, John. Their city and the state are different very much in their approach. The state as you pointed out in a turnkey user and so you want to price that appropriately. And we are in this negotiation. So I don't want to get into too much detail in that. The city actually takes the different approach and they would prefer to have landlords committed as set dollar amount of TI. And then they will cover the remainder above that, really their goal is to get the lowest rate possible. So again, that all plays into the economics, but they do take a different approach in terms of how they view the TI dollars that they put into the lease. There will be base building for both of those tenants, but the great news is you've got at least a 15-year term with the state and likely a 20-year term with the city. So you've got a lot of ability to amortize any of those base building costs for the tenant over a meaningful period of time. And I'd also point out in regards to the economics that you've got, the state will be at roughly a flat to slightly down cash basis, but the city will be a meaningful cash roll-up and both of those will be meaningful on a GAAP rollup and they will both have meaningful bumps within the lease as well. So there is going to be nice cash flow growth for those but admittedly, you are in New York and that's an elevated TI market and we will be providing market rate TIs.

So, slight cash roll-down with the state and a big cash rollup with the city?

And what we anticipate obviously with a city that's still almost a year and-a-half out, so it's very early to kind of tell, but certainly with a 30 foot or a $35 current rate market in that building for those floors is meaningfully above that.

Got you. Okay, wonderful. Congratulate. Thanks.

John, more specifically, the net rent coming out of next the Nestle building there, North Brand today is about $18 net-net, just to be specific.

Wow.

So that was a blend into Nestle lease with probably some higher rent deals of hiring the building.

Yes, very low price per pound for that part of the world.

Well, not for Glendale necessarily, but for Los Angeles for.

Yes. Great. Thank you.

Thank you.

Thank you. This concludes the question-and-answer session. I'd like to turn the floor back to Mr. Miller, for any closing comments.

Thank you, Matt. We are looking forward to seeing everyone at NAREIT next week. Obviously, we are excited to be able to relay more about what's happened this quarter, since we had such a good quarter going into NAREIT. We have had a cancellation or two on our schedule. So if you have a desire to get together with us, give Eddie a call, he might will fit you in. Normally at this point, we wouldn't have an appointment, but we have one or two availabilities pop-up. So if you are interested, give Eddie Guilbert a call, and we'll get you on the calendar. Thank you very much.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.