Cousins Properties Inc (CUZ) 2002 Q3 法說會逐字稿

Good day, everyone, and welcome to the Cousins Properties, Incorporated conference call.

Today's call is being recorded.

At this time, for opening remarks and introductions, I'd like to turn the call over to the President and CEO, Mr. Tom Bell.

Please go ahead, sir.

Good morning, everyone.

Thank you for joining us.

I'm Tom Bell, President and CEO of Cousins, and with me today is Craig Jones, Joel Murphy, President of the retail division, Tom Charlesworth, our Executive Vice President and Chief Investment Officer and, of course, Kelly Barrett, our CFO.

Good to have everybody on the call for our third quarter, and at this time, I'd turn it over to Kelly to review the third quarter financials.

Kelly?

Good morning.

Thanks for your interest in Cousins.

First, let me briefly point out again that certain matters will be discussed today are forward-looking statements within the meaning of the federal Federal Securities Law.

Actual results may differ materially from such statements.

Please refer to our filings with the Securities and Exchange Commission, including our Form 8K filed March 9th, 2001, for a discussion of the factors which may cause such material differences.

Given the continued difficult environment in which we operate, we are very pleased to announce another quarter in which we've reported an increase in FFO.

Our FFO per share was up 15% in the second quarter ended September 30th, 2002.

Our continued financial flexibility is evidenced by our interest expense coverage of 3.37 for the third quarter of 2002, as compared to 3.23 for the second quarter of 2002.

It is also important to note that the adjusted recourse debt to market capitalization is only 7% as of the end of third quarter 2002, as compared to 4% as of the end of second quarter.

Our strong balance sheet combined with a highly lease operating portfolio with low rollover risk, the absence of significant write-offs results in a financial position which continues to be one of the strongest and most flexible in the rate universe.

The company announced during the fourth quarter of 2001 that its board of directors had adopted a new plan authorizing the repurchase of up to 5 million shares of the company's common stocks.

During the third quarter of 2002, the company repurchased 1,473,782 shares under this plan, and an average price per share of $23.57.

Our payout ratio was 61% for the third quarter ended September 30th, 2002.

Our Cap Ex and second-generation tenant costs increased in the third quarter of 2002 to $3,630,000, making our payout ratio after Cap Ex 69% for the third quarter of 2002.

Approximately one million seven of this Cap Ex number was related to three leases at 101 second street.

One of which was a backfill of the Arthur Andersen space. approximately 607,000 of this Cap Ex number was related to 101 Inside center, primarily for the costs of the lease renewal.

Also, approximately 472,000 and 328,000 was related to the points At Waterview and Tempetri Place respectively, related to one new lease at each of buildings.

Our reconciliation from net income before gain on sale of investment properties to FFO is shown in our press release.

Once again, please note that we do not include straight line rents in our FFOs.

I'd now like to highlight the details of the third quarter's FFO, which you can begin following on the top of Page 2 on the supplemental detail.

FFO decreased from wholly owned properties by only approximately 29,000 in the third quarter.

As was discussed in our press release, announced in the third quarter results, approximately four cents per share of termination fees were recognized in the third quarter that were paid by five tenants in order to affect an early termination of this lease obligations, as compared to three cents per share of termination fees recognized from six tenants in the second quarter.

Four wholly owned properties had significant variances of note between second and third quarter.

The decrease in FFO recognized from 555 North Point Center east in the third quarter of 2002 was due primarily to the termination fees recognized in the second quarter.

The decrease in the third quarter was due to a reduction in business center's rental rates.

The quarterly FFO run rate absent additional tenant issues, 4555 North Point center east, should be approximately 461,000.

The increase in FFO from 101 second street in the third quarter was partially due to termination fees recognized.

Termination fees recognized in the second quarter partially offset the increases in the third quarter.

As we've previously announced, the Arthur Andersen lease was terminated.

In September 2002, the company did announce had signed three leases which back-filled approximately 88,000 square feet of the Arthur Andersen space for an average lease term of 6.2 years. 101 second street should have a quarterly FFO republican rate ab isn't addition tenant issues of approximately $1.9 million for the fourth quarter of 2002, and approximately $2.4 million in each of the first and second quarters of 2003 respectively.

These numbers assumed the current lease percentage of 83% and assumes no additional lease-up in the first and second quarters of 2003.

The avenue of tenants will also decrease approximately 38,000, which was due to reserves for tenants, the company currently anticipates may have financial difficulties which may have an effect on their ability to pay rents.

The company continues to take a conservative approach to reserving for anticipated tenant credit issues and the instance of reserves is not necessarily an indication of the company's view as to the tenants' ultimate success.

As was disclosed in the development pipeline schedule, included in the press release material, the company currently estimates that FFOs for the avenue for the year in 2002 will be approximately 4.1 million and will be in the range of 4.1 million to 4.7 million for the year in 2003.

The company' projections are estimates and actual results may differ due to a number of circumstances, including achieving leasing projections.

The majority of the decrease in FFO recognized from the avenue in Petri city, in the third quarter, was attributable to the termination fees recognized during the second quarter from Harry's in a hurry.

As was discussed in the second quarter's conference call, this space has been released.

The quarterly FFO run rate absent additional tenant issues for the avenue petri city should be approximately $661,000 in the fourth quarter of 2002 and should increase in 2003 as an economic occupancy continues to increase upon the completion of its lease-up phase.

In addition to the aforementioned early termination of Arthur Andersen is at 101 Second Street, the company also recognized termination fees in the third quarter from tenants in 555 North Point Center east, the points At waterview, 101 Independent Center and north side Alpharetta two, none of which were individually material.

One item to note is the classification of Salem Road Station as property held for sale in the company's consolidated balance sheets, and as disclosed -- discontinued operations in the company's consolidated statements of income.

Salem road station, a 67,000-square-foot neighborhood center located in suburban Atlanta, is under firm contract to be sold with such sales scheduled to close on October 31st, 2002.

Continuing on Page 3 of the supplemental detail, including joint venture lot sale, the company sold a total of 106 lots in the third quarter as compared to 84 lots in the second quarter of 2002.

As we have discussed in prior quarterly conference calls, the number of lots sold does not always directly correlate to the number -- to the amount of profits recognized, as profit recognitions per GAAP accounting is based on many factors.

Tellco associates created a track sale of 30 acres in the third quarter of 2002.

The majority of which was sold to a noncommercial landowner.

Credit share of the gain on the track sales is approximately 254,000.

Having just discussed track sales, now is a good time to discuss where the company is relative to potential track sales in the fourth quarter of 2002.

As pointed out in many quarters in the past, track sales have occurred on a fairly frequent basis and are a normal part of our operating strategy.

The company has granted an option to a town home builder to acquire certain lands within Wildwood in Atlanta.

Although the option holder is not contractually obligated to close, management currently anticipates that this sale is likely to close.

If the sale does close, the transaction would result in a track sale gain of approximately four cents per share in the fourth quarter of 2002.

Leasing and other fees increased approximately $1,106,000 in the third quarter due primarily to leasing fees recognized from the company's early renewal and expansion of the Coca-Cola enterprises' 236,000-square-foot corporate headquarters in the 2500 Windy Ridge Parkway office building located in Atlanta, and execution of the 227,000-square-foot lease with ADL resources at the company's Tempitri Place building located in midtown Atlanta.

Also contributing to the increase and leasing fees in the third quarter, with increased activity in its third party management and leasing operations, more specifically leasing fees were recognized that third quarter of 2002 related to the third-party leasing of the William square office building located in Dallas.

General and administrative expenses decreased approximately 650 thousand in the third quarter due primarily to an increase in capitalized salaries and a decrease in employee moving expenses.

I will now turn it back over to Tom.

Thank you, Kelly, for that very complete report.

Well, times continue to be difficult in the real estate business, and the economy's clearly not performing as we would like.

Why the consumer, God bless them, continues to provide support by rising incomes and a positive housing situation, businesses for the most part are still on the side lines.

And so, in this so-called jobless recovery, at least to date, companies are not hiring, nor are they investing.

Inventories and investments are at a 40-year low by some measures, and, thus, the question we're all asking ourselves is will the consumer hang in there until business revives?

We would like to believe the prognosticators who say the recovery will be under way by the second quarter of 2003 with sustainable job growth by late winter and stepped up investments shortly thereafter.

However, I'd have to say we haven't seen this as of yet.

Most of our office markets continue to deteriorate.

At the close of the third quarter, as we look ahead, we see the possibility for declining market rents and further increases in vacancy and availability.

If we begin -- do begin to get positive job growth in 2003, we will start to whittle away at the vacancies and availability overhang, but it will take some time for us to return to reasonable vacancy levels in several of our major markets.

The expected overall weakness of the economic recovery will not help.

In looking at the office business at Cousins, what I find most interesting and gratifying is the health of our portfolio in this environment.

To be sure, we have had our share of difficulties in 2002, or perhaps I should say challenges, including the failure of Arthur Andersen that left a major hole in one of our San Francisco buildings, and a largely vacant building at 10 Peachtree place in midtown Atlanta.

Our office group has aggressively addressed all of these situations.

I'm pleased to say with great success.

Shortly after we terminated the Arthur Andersen lease in August, we were able to execute leases for 88,000 square feet of space, almost 60% of the total.

And as most of you know we also leased up the 10 Peachtree building in a very weak midtown market office submarket.

As a result of these efforts, our office portfolio is 95% leased at the end of the quarter, which is very impressive considering that the office markets as a whole are facing 20-plus percent vacancy rates.

We believe this performance is in no small measure attributable to our development orientation and the aggressiveness that comes from that orientation.

We don't see our office space as a commodity.

We believe in our product, and, therefore, very effective competitor when it comes to leasing our buildings, even in difficult markets.

Part of our strategy to deal with our office portfolio is to renew tenants as early as possible.

The Coca-Cola enterprises lease at Wildwood, originally set to expire in 2003, is a good example.

We just renewed this lease, expanding the space by 25% to 236,000 square feet and putting this block of space to bed for 15 years as it now stands, our rollover in our office and medical office portfolios for 2003 is 4% of our space and in 2004, approximately 6% of our space.

We believe these are quite manageable numbers, and you can rest assured we're at hard at work on 2003 and 2004 as we speak.

Our single office development at this point in time is Congress at fourth in Austin, Texas, our lease percentage has remained at 17%.

However, there is activity in the market.

The volume of active tenant prospects has improved dramatically since our call last quarter.

In fact, we currently have signed letters of intent, an these letters of intent cover approximately 100,000 square feet of space, and when converted to leases, this would bring the project to 37% lease.

In addition to these letters of intent, we're also in preliminary discussions with a number of other prospects.

The building is getting rents at a premium to market, although we're not getting the economics we originally hoped for.

Never the less, we remain confident we'll receive a satisfactory return on this project.

We do not have any other office developments under way and expect in the current environment, office development will be difficult for the foreseeable future.

Segments still offer some potential, including sing tenants with large needs that -- Potential medical office buildings and educational government-related projects.

Also, we continue to monitor the acquisition market for opportunistic situations, although to date the situations have not been plentiful.

Turning to the retail business, boy start by noting that we suffered most of our tail pain from tenant issues in 2001.

The portfolio has been generally strong this year and is now at 96% occupancy.

We sold -- lease rollover looks good at 1% in 2003 and approximately 5% in 2004.

As Kelly mentioned, we are taking a very conservative approach to our revenue recognition at ALP.

We should have a better feel for the 2003 run rates after the holiday season.

Wro remain just as concerned as most with the health of the consumer.

The economy can move into a stronger recovery phrase we alluded to earlier, there is a respectable chance, I guess, of maintaining decent consumer spending, albeit not at the levels of the late 1990s.

We are cautiously optimistic we will maintain a strong retail portfolio and that we will get additional development opportunities such as avenue at west Cobb which we announced in September.

Just a word about the avenue west Cobb.

It's a classic avenue situation in that it's a good intercept location and a very strong residential area with higher-end retailers and an upscale build out.

We are pleased to have Barnes & noble, Talbott's, Linen & Things, Pier One Imports and others at this point in the development.

Phase one is 33% lease with another 25% of approved deals with leases in negotiation for a total of 58% committed.

For your reference, this compares with 18% leased and 43% of overall commitments for the avenue east Cobb at the same point in its development.

I might add that the avenue east Cobb continues to do very well with strong sales and broad-based support with several of our retailers paying percentage rents.

Our land division also continues to do well with residential lot sales for the first three quarters of the year, exceeding our total for all of 2001.

It's quite possible that this market could slow as we enter the new year.

As I mentioned in our last call, we are structuring our land deals very defensively, however, to help us weather any slowdown that might occur.

Looking ahead over the longer term, we think the demographics bode very well for this business, and we anticipate expanding our efforts in residential development.

Much this will occur through our joint venture with our current tellco partner.

The formation of the in venture, CL realty, which are announced in the last call, is proceeding well and we are already looking for new deals for this venture.

Bring conclude, I'd like to make some general comments.

I believe we've just demonstrated that we have developed and maintain add high-quality assets as evidence, for example, by the performance of our portfolio in these difficult times.

At the same time, our stock has been trading well below what many of you listening today regard as the net assess value of our company.

As a result, in the quarter just passed, we bought back stock representing about 3% of our outstanding shares.

The announced buy-back plan still in place and at recent levels, we recognize the stock as an exceptional investment for our continuing shareholders.

Another factor of note today is that a number of our assets have become sought after by investors.

We suspect that this is in part a phenomena resulting from the recognition by many investors that over the coming years, good-quality real estate may be a very attractive investment relative to other asset classes whose performance is likely to be mediocre, something we discussed in our last annual report.

By way of example we have received unsolicited but significant expressions of interest, and certain of our office properties.

At our high-quality retail portfolio is also drawing quite a bit of attention.

As you know, one of our core principles is we harvest or recycle our capital.

We accomplish this through a combination of asset sales, tax-deferred exchange, nonrecourse mortgages, and financing ventures.

We do constantly explore all the options presented to us by the marketplace, and to the extent that the market offers us exceptional opportunities to recycle our capital, you can rely us to do so.

At this time, I'd like to open the floor to any questions you might have.

Does anyone have a question?

Thank you.

If you would like to ask a question at this time, press the star key followed by the digit 1 on your touch-tone telephone.

Once again, to ask a question at this time, press star 1 on your touch-tone phone.

And we'll take our first question from Greg white with Morgan Stanley.

Hi, good morning, guys.

Tom, you just gave some extra details on the buy-back and I guess I have two questions, one, can you remind us how much you have left on the program, and, two, have you continued to buy since quarter end?

We have about 3.5 million shares left in the program, as I understand it.

Is that right, Tom?

Yes.

That's correct.

And, as you know, we're blacked out now, so we can't really buy, probably if we wanted to, couldn't buy for another 48 hours or so.

Okay.

Now, you gave some good details on the expense management stuff that was down, I think you said, one was moving costs and the other was some capitalized salaries.

Can you talk -- obviously the moving cost is not going to sort of be something we'll see in future quarters either.

How much of that capitalized salary could be continued to see?

That depends on the level of profits in construction in the fourth quarter and that can vary based on people's activities for the fourth quarter.

I mean, is it fair to say then that this new level of the 29% is closer to the run rate of the next couple of quarters?

You know, I hesitate to give a run rate on G&A, because there's a lot of things that go through G&A for the fourth quarter and I don't know if I feel comfortable of giving run rate because capitalized salaries can go up and down and other items that throw through on administrative expenses.

Okay.

And then just, I'm sure this is sort of a mathematical error, or issue, but on your same store NOI, you gave a 1% for the third quarter but for year to date up 5%.

Can you --

right.

New look at how the same-store sales work, if you had a first and second quarter were up over last year and then you had some deterioration in the third quarter, you could still be up overall year to date, and it affects several different property, just kind of spread against the portfolio, where in the third quarter it might have been some decreases which didn't account for a higher percentage of increase in the same-store sales.

So it is a mathematical-type thing and it depends on how the properties are doing in the first and second quarters that can skew it for the year-to-date numbers.

Remind me, Kelly, your same-store portfolio, how frequently do you reset that?

Is this an annual resetting or -- we look at it every quarter but I don't include properties that we hadn't included in prior quarters.

You know, we look at when projects are under development, we don't include them until they've been operational for a year, so that you don't pick up anything from them being under development.

So we do reset that every quarter.

Okay.

And then, just a couple of other things.

In terms of new leasing and stuff going on, how much do you think you're having to do in terms of concessions or higher TIs?

Craig, you want to talk to that?

Well, there's no question that we're seeing a lot of pressure on TIs.

I think there's also a good many of our competitors are given free rent.

We really haven't had to do that to date.

But, again, TI are definitely up, and it varies on a deal-by-deal basis in terms of the condition of the space.

We're fortunate, I think, in that we have a lot of high-quality assets, and I would think that our TI is probably better than the market, but I couldn't even give you a feel for how much that is, but, again, we're seeing a lot more TI.

Okay.

And one last question, you know, you guys have always had kind of a sort of cost of living increase or -- in your rents.

If we were to see sort of a deflationary environment kick in, do you have backstops on revisions down?

They go up.

They don't go down.

Okay.

So they can't ever be revised down even though we might see sort of a CPI action?

Right.

Don't tell anybody, though.

All right, thanks a lot, guys.

Once again, press star 1 for questions.

We'll go next to Brian L'egg with Merrill Lynch.

Hi, Tom.

You talked about your leasing activity in Austin, which is pretty surprising given that it seems to be a pretty weak market.

Have you had any thoughts in the past about moth balling that project, and can you just give a brief synopsis of the cost benefit analysis of maybe, you know, completing the framework of the building and then shutting down after you got the parking garage built?

Yeah, I know there's been some rumors to the effects, because I've received a couple of calls that we might moth ball that project.

Let me assure you that is not going to happen.

We are committed to complete the project.

We see a great deal -- a good pickup in market activity.

We feel quite confident of these LOIs that we have signed and are now negotiating those leases.

You know, they're not done until they're done, but we're feeling good about them and we also feel -- or feeling better about a pickup in the marketplace, so under no circumstances would we consider moth balling that building at this time.

Okay.

And you say that the leases are premium to market?

Can you give us an indication of what market would be?

Well, again, market is really spread out.

There's maybe a ten dollar differential in there, but generally speaking we see it in the mid teens on a net basis, and, again, we're in excess of $20 with bumps, so, I mean, we're very pleased with the premium we're getting to the market.

So this is on a net basis?

You're in the -- you're in the 20s.

Correct.

Okay.

And, Kelly, in your 1% same store NOI, can you break that up by revenue and expense growth and maybe also by the retail versus office?

We do not break it out between revenue and expense, because the majority of our leases are net leases.

Okay.

And so, you know, any benefit would go back to the tenants, so we don't calculate that and don't break it out between retail and office.

Okay.

That's fine.

Can you talk about any trouble tenants?

You were talking -- you mentioned your lease termination fees and that it wouldn't be all that significant.

Do you expect the lease termination fees to continue going forward?

And besides, are there any other major tenants out there that are sort of on your watch list, like the Mirrants , guess since you renewed Regis, you expect them to be in there a little bit.

This is Tom Charlesworth, we recognize it's quite possible with this economy the way it is that we'll have some more tenant issues, but at this point, I think my gut, and, Craig, you can answer, too, is we're probably through the worse.

Right.

We're not in negotiations with anybody right now for lease terminations again, like Tom said.

We continue to monitor people on where they are, but so far, you know --

and if you look at how well the portfolio has held up this year in spite of the difficulties, I think that bodes well for next year.

We don't know, we don't have a crystal ball to say where the problems might be, but we'll work them aggressively, just like we did, and we're hopeful that cross our fingers and knock on wood that we have been through the worse.

With the caveat, if I may add, you know, no one saw Arthur Andersen coming, either, that with the caveat you don't have another Arthur Andersen-type situation, just comes out of the blue, we feel good about where the portfolio is today.

Okay.

And any thoughts on Mirrant?

I think we answered this question in the last call as well.

They are obviously somebody who we monitor.

They're a great tenant, fully paid on their rent, and we have confidence in their future success.

You know, they're going through a hard time, but, you know, it's a well-managed company, and we're feeling good about their future prospects.

Okay.

Can you guys talk about the -- of the 2% rolling in the fourth quarter and 4% next year, how much of that do you have committed, or do you think will renew?

You asking about the 4% rollover in the office market?

Yes.

Office portfolio next year?

Yes.

I haven't analyzed it in terms of the percentage.

I mean, we're in discussions with a couple of tenants, but we don't have anything firm within way or the other right now.

Okay.

And lastly, on the 5 million share, 3.5 million you have left to buy, how quickly do you think you can realistically blow through that?

At the current prices, obviously, you would like to buy them given that you repurchased it at 23-plus.

Well, it's a volume issue.

You know, we don't have that great a volume in our stock.

We particularly haven't had great volume recently in the stock, so there are some limits to what we can do.

You know, there are percentage limitations put on us as to what we can do, but we think that the stock's an awful good buy at its present price.

Okay, thank you.

And once again, star 1 for any further questions.

And we'll go next to Jessica Tully with real estate management.

Good morning, I'm sorry, I apologize.

I joined the call late.

I had a further question on really more of a general question, but Mirrant prompted it, and that is let's say you have a building like that, which, of course, is a beautiful building, wonderful trading floor, and let's say worst case scenario, for some reason, huh to retenant it.

How much does it cost roughly when you have, like, a really open floor plan to go in and put offices?

How much does it cost per foot?

Just on a general basis?

Because that could probably happen elsewhere in maybe, you know, the other buildings, too.

Jessica, we don't anticipate Mirrant going out.

We'd expect them to continue.

We expect them to continue.

You know, one of the things we do as a developer is we try to make all of our buildings as generic as possible, try to limit special purpose character.

And I think we feel like if we had to do something with that trading floor, we could do it.

Right.

The office building itself is very conventional, and that was actually developed as a multi-tenant building when we initially started construction on that building, Mirrant only took about 60% and ultimately expanded the entire building, so in terms of floor plate, elevators, the entire building is very Fungible and mirrant's, their layout in terms of their space, within the office building portion of it, is, again, very conventional and we had to feel good about that.

The trading floor is more problematic, but we put a lot of time and effort into designing that so that there will be more functionability, just as Tom said.

Craig, there's only one floor, then, that is really open and would have to be -- worst case scenario, which is probably not going to happen --

it's actually -- excuse me it's actually a separate free standing building that's connected to the office tower, and it is -- it has a mezzanine level so part of it's two story, but most of it is an open trading floor.

But again, it's from a parking layout that's adjacent to it and everything, we think there's some Fungibility there.

How much is the open layout?

How many square feet?

I think it's around 70,000 square feet.

Great, thanks Craig and Tom.

We'll go next to David Schulman with Lehman Brothers.

Yeah, hello.

A couple of questions is on the G&A Ruck, you said part of it was reduction in head count and part of it was capitalization.

Could you split that out?

No, I didn't say it was a reduction in head couldn't.

I said it was a reduction -- produced by an increase in capitalized salaries and a reduction in moving expenses, and, no, typically we don't give out the details of the G&A.

Okay.

Next issue is, the new hire Jack Minter from CS First Boston, what is he doing right now?

He is responsible, David, for our acquisition and divestiture program principally.

Okay.

Will we expect to see something in terms of acquisitions and divestiture over the next three months?

I certainly hope we see some acquisitions.

Okay.

Okay.

And is the -- let's see.

Now, do you anticipate any rollover, any rent rolldowns in '03 on your rollovers?

Not at this time.

I mean, the deals we've already done, we're in pretty good shape.

Okay.

And then one last question, on my favorite topic, The Avenue at the Peninsula, looked like a sharp dropoff in FFO from the project in the latest quarter.

Could you tell us what's going on there?

There's also sort of a lowering of the guidance range to the low end of the range.

This is Joel Libby, speak to the idea in the range, we may at the end of 2001, we started making internal assumptions, timing of openings, co-tenancy satisfaction, payment of rent charges by certain occupants in the center, which put out the range of 4 million one, 5 million one, an it's typically case, some of these assumptions have proven to be conservative and some of those objectives succeeded.

For example, we have payment of percentage rent by the theater operator in the center due to better than anticipated sales, some earlier co-tenancy satisfaction, et cetera on the other hand, tenant openings for borders, border 15,000-square-foot border store, which is now open, and another 10,000-square-foot operator lagged seriously longer than anticipated for construction issues and city approvals, and another major reason towards the current $4.1 million projection is the fact several operators we were working with to help them build a business in the center have been unable to their current financial situation meet their lease obligations, and as Kelly mentioned in her report, we're hopeful to recover some or all of those amounts.

However, that are accruing as receiveables but consistent with our conservative viewpoint, reserving against the receiveables for FFO purposes.

Okay, the thing is, if we're going to be -- with $90-plus million of costs in the project and $4 million of NOI, I asked this question a few quarters ago, and maybe Kelly you can help us, when do you deal with the GAAP issue of impairment on the asset?

Yeah, David, I think as I mentioned before when you asked, the way the impairment rules work is it's based on an undiscounted cash philosophy, so on Peninsula, we do not have to take an impairment charge.

If the asset is held for sale, then the way the accounting rules work, is you go to a fair value based approach, so at that point, would you have to take an impairment charge if one existed at that point.

Okay, thank you very much.

And at this time, we have no further questions, I'd like to turn the call back to our speakers for any additional or closing comments.

Thank you very much.

Thank you very much, everyone, for participating in our Q3 call, and we look forward to seeing some of you out in San Francisco, an we'll be back in touch next quarter.

This concludes today's conference call.

We thank you for joining us.

You may now disconnect.