Elme Communities (ELME) 2010 Q3 法說會逐字稿

Welcome to the Washington Real Estate Investment Trust third-quarter 2010 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, Jordan Willis, Senior Finance Analyst, will provide some introductory information.

Ms. Willis, please go ahead.

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 third-quarter supplemental financial information is also available on our website.

Our conference call today will contain financial measures such as FFO and NOI that are non-GAAP measures, and in accordance with Reg. G, we have provided a reconciliation to those measures in the supplementals. 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. Such risks, uncertainties and other factors include, but are not limited to, the effect of the recent credit and financial market conditions; the availability and cost of capital; fluctuations in interest rates; tenants' financial conditions; the timing and pricing of lease transactions; levels of competition; the effect of government regulation; the impact of newly adopted accounting principles; changes in general and local economic and real estate market conditions; and other risks and uncertainties detailed from time to time in our filings with the SEC, including our 2009 Form 10-K and second-quarter 2010 10-Q. We assume no obligation to update or supplement forward-looking statements that become untrue because of subsequent events.

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; Laura Franklin, Executive Vice President and Chief Accounting and Administrative Officer; and Mike Paukstitus, Senior Vice President of Real Estate.

Now I would like to turn the call over to Skip.

Good morning and thank you for joining the Washington Real Estate Investment Trust earnings conference call this morning. The economic recovery is moving along in the Washington region, albeit slower than we would like. It feels like the market is moving slowly off the bottom with choppy improvements in operating metrics and increased leasing activity.

As I mentioned last quarter, investment sales activity continues to improve in the Washington region with cap rates for quality assets stabilizing as more product is brought to market. In particular, beginning in September, we have seen a dramatic increase in property offerings regionwide. We are diligently mining investment opportunities both on and off market and across several property sectors, and I am optimistic we will be reporting some good news in the near future although nothing is firm at this time.

In addition, we continue to evaluate our existing portfolio for accretive ways to recycle assets into better long-term growth opportunities, and we expect to report progress on this front as well in the fourth quarter.

Operationally in the third quarter, same-store results were generally flat compared to last quarter as we saw our diversified portfolio serve its purpose of offsetting losses in some property sectors with better results in others. Multifamily operations in particular are reporting strong activity. The big news this quarter is on the capital side where we made significant progress in strategically refinancing our 2011 maturities with the execution of our first ever index-eligible bond deal and the resulting tenders of some of our outstanding debt, which Bill will explain in detail later in the call.

Now I would like to turn the call over to Bill Camp, who will discuss our financial results and capital market activities, and then Mike Paukstitus, who will discuss our real estate operations. Bill?

Thanks, Skip. Good morning, everyone. We reported FFO of $0.49 in the third quarter, generally in line with last quarter and still pushing our expected results for the year towards the upper end of the guidance range before the effects of the premiums and charges related to the refinancing of our 2011 debt.

In terms of the core portfolio, our multifamily occupancy increased nearly 200 basis points sequentially. We lost occupancy in our office sector, primarily due to the previously announced move out of Lafarge at Monument II. Recall that our new tenant taking over half that space is expected to partially show up in our fourth-quarter numbers with a December move-in. Our medical office, retail and industrial sector occupancy was generally stable from second quarter to third. This quarter the combination of bad debt, vacancy loss and rent abatements was 12.6% of minimum rent on a GAAP basis, a slight improvement over last quarter and consistent with our original projections for 2010.

On the capital side, since we last reported to you, we raised an additional $49 million through our ATM program with BNY Mellon, bringing the total issuance for the year to $120 million. The proceeds from the latest issuance were used to pay down a portion of our line and for our general corporate purposes.

In terms of our $262 million line of credit, we officially extended the line through November 1, 2011, at the same terms of 42.5 basis points over LIBOR. At the end of the quarter, we had a line balance of $100 million.

As we have noted on prior calls, the balance has swapped to a fixed interest rate of 2.52% through the extended maturity date of the line. We will likely work to refinance this balance in 2011.

As announced in previous press releases, we completed a $250 million 10-year debt offering at a coupon rate of 4.95%, the lowest 10-year rate in our history. We tendered for our 595 due in 2011, as well as our 3 7/8 convertible notes due in 2026 with an overall success rate of 65%.

We have been asked why tender for the outstanding debt when you have to pay a premium? The answer is relatively straightforward. With one-third of the Company's debt coming due in one year, that would be next year, we felt it was prudent financial management to reduce a portion of this exposure. We priced the tenders such that we were slightly better off buying the notes versus holding cash to the maturity dates next year. We are very pleased with the progress we have made to date in terms of refinancing our 2011 maturities.

With that said, I would like to talk a little bit about the fourth-quarter impact of these debt transactions. I stated on our last call that where 2010 ends up would be highly dependent upon the dilutive and/or other effects of any potential capital markets' activities throughout the remainder of the year as we prepared to refinance this debt.

Operationally FFO is tracking towards the higher end of our guidance range. As we have -- as we will have in the fourth quarter, we will have charges related to tenders as follows -- $2.1 million premium on the 595 senior notes, a $3.4 million premium on the converts, an unamortized debt cost of $240,000 on the senior notes and $3.3 million on the converts. Remember that the converts had 16 years remaining until maturity. This total comes to approximately $9 million or $0.14 a share based on the current share count. The only other potential offset to our steady operational performance would be the acquisition costs associated with landing or closing any of the transactions we are currently pursuing.

Quickly, on the operations side, bad debt expense for the quarter was approximately $1 million or 1.3% on a cash basis and $960,000 or 1.25% on a GAAP basis. These results are slightly higher than the second quarter due to some outsized recoveries in the second quarter. But overall we are seeing the trend improving.

Lastly, in the third quarter, we paid a dividend of $0.4325 a share, achieving our 195th consecutive quarter dividend increase at equal or increasing rates.

With that, I will turn over the call to Mike to discuss operations.

Thanks, Bill, and good morning. This quarter our real estate portfolio occupancy generally held steady compared to the second quarter with multifamily leading the way and offsetting some lags in the office sector. Sequentially same-store NOI decreased 1.8%, and rental rate growth was 1%. Our multifamily sector posted strong occupancy gains growth over the second quarter, almost 200 basis points as WRIT came out of a successful spring and summer leasing season. Cash and GAAP NOI was up about 11% from the third quarter one year ago, reflecting improvements in rental rates, occupancy and less concessions needed to lease space. At 95.6% occupied we have a great opportunity going forward to be aggressive on rental rates and increase revenues throughout the portfolio.

In the commercial portfolio this quarter, WRIT had executed 330,000 square feet of lease transactions at an average rental rate increase of 6.8% over expiring leases on a GAAP basis with an average lease term of 4.4 years. In the office sector, overall economic occupancy declined by 120 basis points compared to the second quarter. This decline shows the effect of a full quarter of the Quantico acquisition in Stafford, Virginia, offset by our previously announced expiration of Lafarge at Monument II in the Dulles quarter on July 31.

As we mentioned last quarter, we signed a lease for more than half of that space and have good prospects for the remainder. Despite the decline in occupancy this quarter, our portfolio occupancy continues to outperform the sub markets in which we do business.

In the medical office sector, same-store occupancy was down slightly from the second quarter due to two move-outs at our Shady Grove Medical building. Same-store rental rate growth was 1.1%. At Lansdowne we have signed leases for 20% of the building at rental rates at or above pro forma and have another potential 20% in the pipeline.

Our retail sector occupancy was basically steady from second to third quarter with a few solid strategic 10-year renewals with Rite Aid and the U.S. Postal Service at the Bradlee Shopping Center. Retail NOI was up 2.7% from the second quarter.

In the industrial sector this quarter, we entered into leases for a total of 104,000 square feet with an average lease term of 3.4 years. Overall occupancy was slightly improved from the second quarter by 20 basis points. Bad debt expense in the industrial sector is trending better, and we are confident the worst of our credit issues are behind us.

Now I will turn the conference call back over to Skip.

Thanks, Mike. Finally, yesterday the Board of Trustees announced an increase in our dividend to $1.735 per share, commencing with the fourth-quarter dividend. While overall this increase may be small, it is an indication of our long-term commitment to a prudent but steadily increasing dividend to our shareholders and a confidence in our belief that the worst economic news is behind us and the opportunities to acquire and grow our portfolio are increasing.

With that, we would now like to open the call for your questions.

(Operator Instructions). Mitch Germain, JMP Securities.

Can I get some details on the discussions you have had with the lenders regarding the line? I know you talked about resetting it next year.

Sure. The discussions are fairly lively. I mean I'm not sure how much detail I can give you at this point. I mean we are in discussions with several banks. Obviously our lead bank on that line is Wells, so we are obviously talking with Wells closely. We are also talking to other people. There are quite a few banks that are not on the line that want to be on the line or at least have expressed interest in the line, and there's others that are on the line that may or may not participate. I think the overall strategy is to potentially have a larger size line, so we are at 262 right now on that line. To have it bigger than that, to have additional capacity, and then do it with -- right now we have 10 banks. I'm hopeful that we will not do it with as many banks, but you never know. It is way too early in the process to be able to tell.

In terms of where the world stands right now, our 42.5 basis points would probably go up. I'm sure that is an obvious statement right now. But I think we're probably at that between -- around 2.25, plus 2.25 right now. And the facility fee right now, we pay a 15 basis point facility fee and that probably the kind of current market is 40. So it is going to be more expensive. I don't think there would be any major changes to the covenant structure.

That is really helpful. And Skip, I apologize, I missed the first couple of comments you made. I know you talked about your acquisition pipeline. Can I get some more clarity as to which sector? I mean is it more office or medical office or --?

Sure, I will give you as much as I can at this point. We don't have anything firm right now. We are very active right now as I indicated. The market has really heated up. There are many more offerings on the market listed by brokers, as well as it seems to be a little more activity even off market.

We have -- the vast majority of the offerings, which is always typical of the Washington market, are office buildings. But we've also seen a number of offerings in some of the other sectors that are quite encouraging. In particular, we have seen more retail assets recently than I have seen in a long time. We have -- the residential market is extremely torrid, and the cap rates have really compressed rapidly there. And there is not a lot of medical office buildings out there, but we have seen a few.

So where we would anticipate coming out, we have got offers pretty much on all those different areas. I would anticipate putting -- hopefully putting points on the board in the fourth quarter, and we are optimistic that we will be successful. That is about as much as I can say right now without anything firm in our pocket.

That is really helpful. And with regard to asset sales, I mean I know that there is a ton of capital that is targeting the DC region. I mean is that something that you might consider increasing your expectations for sales?

Yes. We are committed to an asset recycling program. We actually currently have two properties listed on the market today. I would say we are testing the market, to be quite honest with you. If we don't get the numbers we like, we will not pull the trigger on them. But one of the assets is a Flex Park we own in Prince George's County called the Ammendale I and II, which we have owned for a number of years. So that is on the market, and I am very optimistic that that will -- we'll be successful in that. And then the other property we have on the market is our Dulles Station development. We have recently put that on the market. I'm not sure that would close by year-end if we are successful, but we are putting feelers out to see where that will go.

Great. And last question, guys, I think probably more for Mike. Can you just characterize the activity you are seeing with regard to demand from tenants? I mean is your pipeline where it stands today relative to three months or maybe six months ago?

Yes, I would say that there is probably more decision process. We were seeing a lot of deals just floating around. Globally we are seeing -- I mean in the DC Metro area, we are seeing vacancies going in the more positive direction. We are seeing absorption getting better, and we are experiencing both of those. Globally in the DC Metro region, rents are down 6% this year, and as you can see from our numbers, we are not down that well. We are doing better against that market. But yes, I would say that we are seeing things improving.

Michael Knott, Green Street Advisors.

Just a couple of questions for you. First, I was curious if you could just give us an update on your Lansdowne MOB?

Sure. We are about 20% leased right now. We have got -- I would be honest with you -- the summer was -- the activity was not good in terms of just the number of people touring the property. It has really picked up since September. We have got about another almost 20% of the building in the pipeline. They are not firm deals yet, but they are really good prospects. But I think I mentioned, even in the last conference call, while we are getting the rates we wanted on that property, even in medical office buildings, lease-up has been slow. What we are hearing from some of our tenants, is there is a lot of concern about the health bill, etc., and even in that world, people are still playing defense, and they are less inclined to take additional space. They are not necessarily downsizing, they are not necessarily going bankrupt, but they are less inclined to take additional space, and that has resulted in really a slower lease-up than, quite frankly, we had anticipated last year.

I would just add one point. I mean the key feature for us is our lead tenant is now in the building. So I mean we have an 8000 foot user in there that is a pediatric practice. It tends to be a good draw. So we're getting -- there are lights on in the building. So we are seeing more traffic with respect to that.

Okay. And then Bill, do you expect to continue using the ATM equity arrangement in 2011? It seems like it has been a great source of capital this year.

Well, I agree with you. It has been a great source of capital. I mean do I anticipate using it? We have said all along that we will pay any kind of acquisition dollars that are net off of dispositions will be generally paid with equity. And whether that is going to market and doing some kind of overnight transaction or that, it's a smaller amount that I can take care of using the ATM, that is probably the path that we would use if it is a smaller amount. But that is yet to be determined. And obviously it depends on share price and various other things.

Okay. And then, Skip, I was just curious, or Mike or Bill, your thoughts on where cap rates might be for your apartment portfolio. It seems like cap rates have gone down quite a bit for that particular product. I'm just curious how you think the market would potentially value your new developments and then also maybe just talk about your Kenmore acquisition in hindsight a couple of years ago.

Yes, it is crazy out there. I mean EQR is paying a [5-cap] for everything it seems like. If you consider the fact that all of our portfolio with one exception, our Walker House one, every one of them is inside the Beltway. And all but one of them is a high-rise, and that is Bethesda Hill Apartments, which is virtually right across the street from NIH. And if you consider that sort of mass is not really achievable, I would think that on the aggregate basis it is sub 5-cap. I could not tell you what it is because those things are not trading, but individual assets are trading at 5-caps regularly, and you cannot amass what we have in the locations we have in bulk. So it is hard to say, Michael, but I would offer it would be less than 5.

Thanks for that. And then I guess my last question, what prompted putting Dulles Station on the for-sale market? I know generally the strategy has been to recycle the lower quality assets. I'm just curious if it was the fact that [Abers] sold for a pretty nice price there out there on the toll road or just the thought process there?

Sure. I'm just going to give you sort of a generic comment. I really don't like to articulate prior to a property being sold as to motivations, etc., especially when we've got buyers looking at the properties. I don't want to get too much into the weeds on that.

But I would say in general we created the value there. We leased the property up. It is a great market. The property across the street from us sold for a great price. So I will leave the facts on the table at that. I really don't want to articulate as to our motivations behind the scene while we are potentially in the middle of a marketing process.

Okay. And then just one quick follow-up on that if you don't mind. Would the development land be part of that?

That is part of the package. And, of course, just being prudent, we will evaluate the offers that come in over the transom, and we will evaluate it in many different ways. It could be sell the whole caboodle there, or we could break it off and sell one or the other depending on what interest we have. So it is hard for me to say, but we are going to consider all interests and do what we think is in the best interests of the shareholders.

John Guinee, Stifel Nicolaus.

Nice job, guys. Just a quick clarification. Is the dividend up $0.05 a year or $0.005 a year?

$0.005.

$0.005.

So 1/8 of a $0.01 a quarter?

Correct.

Got it. Okay. Second, Bill, you did a great job articulating the $9 million of cost to tender on your debt. How much of that is cash premium, and how much of that is non-cash write-offs?

It is $5.5 million of premium.

Okay. So that is a cash charge?

That is a cash. That is what we paid over and above par for the bonds.

Okay. Thanks a lot.

David Rodgers, RBC Capital Markets.

This is [Mike Carroll] here with David. We noticed some leasing activity on M St. Can you give us some color on the availability and traffic in that area?

Where, I'm sorry?

M St.

Okay. So 2000 -- Mike, do you want to cover that?

Yes, the M St., the CVD marketplace we are -- is essentially a market that has been slower I would say in the city. We are starting to see a lot more activity now. We have looked at some different marketing efforts that we have put in place in that market. Generally in DC rents have sort of moved the opposite way compared to last year. But we have got a pretty healthy pipeline and are retaining some larger users in that marketplace right now.

We just signed a lease. Was that third quarter or fourth quarter?

Yes, that was the (multiple speakers) renewal. But I would say we've got a lot of flexibility down there. We could accommodate a pretty broad range of tenant mix down there, so we're looking at a lot of different options.

Generally speaking the early traffic in downtown was by the government that went to the newer areas where they had big four plates that you could soak up, and the other stuff was just kind of -- if you had vacancy, it is just kind of sat.

And that is true. The vast majority of the absorption that we have seen in the District has just been these huge deals that have signed over by the ballpark and over in NoMa. And to be honest with you, the sort of more meat and potatoes type activity has been -- certainly was disappointing in the first half of the year. I would say once again that since September, it seems like activity has picked up a little bit. But let's see if it has legs to take us through the end of the year.

(Operator Instructions). Brendan Maiorana, Wells Fargo Securities.

This is Young Ku here with Brendan. I just had a question. Skip, maybe you can comment on this. We have been hearing that small tenants are not recovering as well as they did in prior cycles compared to big tenants. Could you comment on what kind of activity you are seeing in your markets in terms of big to small tenants?

I absolutely agree with that assessment. We have seen it -- certainly we've seen it at the retail level with our smaller tenants and retail properties. Really where we have experienced it mostly in that area has been in bad debt expense. We have seen similar effects in our industrial portfolio where we mostly leased to smaller industrial tenants, small-based tenants. And, as you know, we have struggled a little bit there as the whole market has, and we have seen increased credit loss there as well. And even in the office buildings, the smaller tenants have not eagerly been expanding over this time.

So the one area that has held pretty solid, of course, is our medical office buildings. But even as I made in my prior comments, they are not aggressively expanding right now. They are just holding on. But without question, the uncertainty of the economic climate has put a little fear of God in the small guys, and they are less inclined to sign long leases, they are less inclined to take additional space, and they are basically still somewhat in a defensive posture.

Okay. Thanks for that. So with that as a backdrop, then maybe are you guys changing your strategy a little bit, going and chasing after bigger tenants than small tenants as you have done?

I would not necessarily say that. We are looking at good quality buildings in good locations. We love a diversified tenant roster with a number of tenants, and we are confident that we have seen the worst parts of the economic crisis behind us. I do believe it is going to be a little choppy going the next 12 months. But I do believe we are on an upward trajectory here, and we love buildings with a diversified tenant roster. So we are not really backing off that. We are more focused on the quality of the location and in infill-type properties that are located near Metros.

Okay, I appreciate the color. And the last question I had, maybe Bill can answer this, and maybe you mentioned it earlier. But CapEx spending I know you guys have about by our calculation about $8 million in committed but unspent CapEx that still needs to be spent. Could we get a timing on that flowing through to your FAD?

I would love to be able to give you exact timing on when the tenants are going to spend the money that we give them, but unfortunately that does not happen quite the way I like it. And I, like you, would love to know the answers to that question.

Generally speaking, we push -- if we don't see it come through in the first couple of quarters, we generally spread it out over a four or five quarter period. When we sign a lease and we get these numbers in and we see obviously you're talking about the differences between the leasing stat page and the supplemental and the actual FAD page in the supplemental, and those differences as you add them up over four quarters or five quarters, you get to the numbers that you're talking about. And we just -- we're kind of just waiting and seeing when they come in. We know which tenants are building out space. We know which tenants are not, but that have big dollar amounts. So we have a little bit of better information than you guys do.

But generally speaking these tenants sometimes build out their space, and they won't bill us until the last day that they can capture the money from us. So it is all over the board, and it is pretty hard to predict. But you are right; there is some backlog there.

Michael Knott, Green Street Advisors.

I was just wondering if you can comment on comparing and contrasting overall office leasing conditions in the three regions there and what your expectations are as you look into 2011 for overall market trends and leasing activity?

I would say that of the three substate sectors, Maryland is still the softest of the three. However, I would comment that we in particular have seen better activity in our Maryland buildings with some of the healthcare-related tenants. But certainly the activity in Maryland is the slowest of the three.

In Virginia it depends largely on the subsector of the state. If you're inside the Beltway in Virginia, it might be the best market in the whole area, particularly the Balston/Rosslyn corridor. We have a building in Rosslyn that just does phenomenal.

When you get out to Tysons Corner, it is being impacted significantly by the Metro construction there, and it is really tough to lease space in Tysons Corner today. And when you go out to the Reston, Herndon, Chantilly out in that neighborhood, it is still very soft because there is a lot of supply, but there is much better activity. So I think we are going to chip away at it in those outer markets, but it's going to take time because we are now seeing activity.

In DC, as we mentioned earlier, most of the activity has been the large tenants and NoMa and by the ballpark. But the smaller tenant has been slower than we would have liked, and there is probably a little bit of rental rate decline in the District right now. But we are starting to see a little bit better progress with the small tenants in our buildings. But when you're District, the vacancy rates still in the CBD and East End, it is sub 10%. So even though the activity has been a little bit less than we would like, it is still a pretty healthy market. But I guess we are just spoiled.

Okay. And then is there any concern among tenants about the possibility of defense spending cuts? That was in the press a couple of months ago or maybe the possibility of austerity measures if the election results go a certain way next week coming out of that?

I think everybody is taking a wait and see approach on that. We have never really seen that in any significant way. So the people that have been in the market a long time here are skeptics as to whether that can actually be achieved.

But certainly there has been some rumbling about that. We have seen really no significant evidence of it. The government sold a couple of properties. They sold a building in Bethesda, and they have looked at disposing of a couple of assets. But we have not seen any really significant evidence of a reduction at this point. But it is certainly something that we are all keeping our eye on.

Okay. And then last question, any discussion among your tenants in any of your commercial property types about the lease accounting changes and how that may or may not impact their desire to lease space?

That is an interesting point. I have not seen any evidence of it yet. Certainly we have heard people talking about the trend that maybe the leases will start getting shorter. I have not -- we have not actually run into a tenant who has not signed a lease because of that or not signed a longer-term lease and have shortened up the term because of that yet. But it is certainly another subject area we hear rumblings of. We just have not seen specific evidence of it yet.

Hey, Michael, I was at a conference by our auditors on this topic. And one of the participants in the audience said they signed a 10-year lease with some credit public company tenant, and in that lease there was a right to terminate the lease if the new lease accounting standards went through. And that was the first evidence that anyone in the audience had heard that somebody was actually reacting to that thing.

Wasn't Northrop's decision to purchase there in Virginia partially driven by that?

Michael, that is quoted in the press that way, but there was a lot of strategic decisions made in there in terms of wanting ownership.

The other thing I would just note that, because we have a significant amount of smaller tenants, clearly how many of those will really be concerned about GAAP anyway. Certainly the bigger guys are going to think about it, but what we are seeing is a tremendous amount of seminars in the DC Metro area. There is a lot on the topic.

Suzanne Kim, Credit Suisse.

I just want to get some more color on your ATM usage with the acquisitions that you potentially are thinking about in the next couple of quarters and just how we should think about that dilution?

Well, I mean it is hard to say because there are no future acquisitions until we have one. As we have said in the past and we will continue to think this way, at least as we go through some probably modest deleveraging over an extended period of time and the way we would delever is by, as we add acquisitions, obviously we're going to fund a portion of those acquisitions with dispositions because we're recycling some assets. But the net number would generally be funded with equity. So if we do a $50 million deal and we are -- we sell a $20 million deal, we will probably fund that extra $30 million with some form of equity and not necessarily fund it with just straight debt. At least that is the plan.

Now it is all subject to the cost of capital at the point in time when you pull the trigger on the acquisition. Is it best to sit and put it on your line for a little while and then try and see where the market is going? Is it better to just pull -- collectively get a bigger tranche of acquisitions altogether and then finance it out part equity, part debt? You know, there's a lot of options, so it is hard to answer that question. But certainly the general theme is that we will continue to de-lever a little bit over time, and that is where that is kind of the mode of operation at this point in time.

And I did not catch this at the beginning of the call. I had a little bit of technical difficulty. But you talked about the $9 million in charges from all the debt transactions. I'm wondering is that impacting your guidance, or is that net-net it washes out because of your operating fundamentals?

What was that?

I did not catch what you said the impact of guidance would be -- (multiple speakers)

The impact is basically $0.14 on current share count, and it will hit in the fourth quarter. So if we had the same quarter as third quarter, $0.49, we will report something in the $0.35 range.

That impacts the guidance.

Because that is where -- we have not changed guidance because I mean a lot of people on the call and a lot of investors just look past that and look at the operational number, and we said the operational number will be towards the higher end of the range. But when you take that $0.14 off, we are kind of at the lower end of the range.

Okay. So you are still maintaining your guidance range?

Yes.

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

Okay. Thank you, everyone, for listening to our call this afternoon, and we look forward to following back up with you at the end of the fourth quarter. Have a good weekend.

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