Equity Commonwealth (EQC) 2017 Q4 法說會逐字稿

Greetings, and welcome to the Equity Commonwealth Fourth Quarter 2017 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Ms. Sarah Byrnes, Vice President, Investor Relations for Equity Commonwealth. Thank you. You may begin.

Thank you, Melissa. Good morning, and thank you for joining us to discuss Equity Commonwealth's results for the quarter and year ended December 31, 2017. Our speakers today are David Helfand, President and CEO; David Weinberg, COO; and Adam Markman, CFO.

Please be advised that certain matters discussed during the conference call may constitute forward-looking statements within the meaning of federal securities laws. We refer you to the section titled Forward-Looking Statements in yesterday's press release as well as to the section titled Risk Factors in our most recent annual report on Form 10-K for a discussion of factors that could cause actual results to materially differ from any forward-looking statement. The company assumes no obligation to update or supplement any forward-looking statement made today. We also post important information on our website, including information that may be deemed to be material. Today's remarks also include certain non-GAAP financial measures. Please refer to yesterday's press release and supplement containing our fourth quarter 2017 results for a reconciliation of these non-GAAP performance measures to our GAAP financial results, which is available on our website.

With that, I will turn the call over to David Helfand.

Thanks, Sarah. Good morning, and thank you for joining us. I'll begin with brief comments on market conditions, review our 2017 results and provide an update on the company's progress so far in 2018.

In 2017, the U.S. economy grew 2.3%, up from 1.5% in '16. For the year, the economy added 2.1 million jobs and the unemployment rate was 4.1% at year-end, near the lowest levels since 2000. In January, noncore payrolls grew by 200,000 and wage growth accelerated meaningfully, increasing 2.9% and recording the strongest gains since 2009. The 10-year treasury yield is roughly 2.9% today, a nearly 50 basis point increase since the start of the year and as high as it's been in 4 years.

Equity markets are off to a volatile start, coming off a strong performance in 2017. Stocks rose sharply in January, only to give back most of those gains this month. The Nasdaq index is up 3.5% year-to-date after being up early 9% in January and the S&P 500 is up 1% after being up nearly 8%. The Morgan Stanley REIT Index continues to show weakness and is down more than 10% year-to-date.

Sharp reversal in equity markets in February is the first episode of significant volatility in some time and seems to reflect periods of higher interest rates and the risk of inflationary pressure in the economy.

Turning to office fundamentals. In 2017, national net absorption of 65 million square feet was decent but not enough to keep pace with the 72 million square feet of new inventory. As a result, vacancy ticked up slightly to 13%. Base rents grew by approximately 2%, though higher leasing costs offset that rent growth.

With respect to real estate capital markets, office transaction volume was roughly $100 billion, declining by approximately 20% in 2017 versus '16, the second consecutive year of double-digit decline. Despite these declines, we continue to successfully execute on our repositioning strategy. Our view is that prices have been flat to down modestly for the past 24 months or so, and transactions are more difficult to get done in general.

The debt capital markets remain robust. New CMBS issuance was healthy in 2017, totaling $95 billion and representing 25% growth over '16. Volume expectations for 2018 are roughly in line with last year. Meanwhile, CMBS spreads tightened, largely muting the impact of higher treasury rates on total borrowing costs. AAA spreads today, approximately 60 bps, down from 90 bps a year ago.

Turning to EQC. We continue to make progress executing on our business plan. We are focused on our efforts to create value through leasing, asset management and dispositions. In 2017, we closed on the sale of 16 properties totaling 6.6 million square feet for a gross sales price of $863 million. During the quarter, we closed $107 million of assets, including a land parcel and mineral rights. We sold 2 suburban Pittsburgh assets with a combined 15 buildings encompassing 1.2 million square feet. The buildings were 76% leased and the gross sales price was $71 million. Pricing was in the mid-8% cap rate range. We also closed on the sale of 789 East Eisenhower Parkway, a 131,000 square foot office building in Ann Arbor, Michigan. The building's user purchased the property for a gross sales price of $25 million or $190 per square foot.

We closed on the sale of 33 Stiles, 25% leased, 175,000 square foot industrial building in North Haven, Connecticut. Gross sales price was $10.5 million or $60 per square foot.

And yesterday, we closed on the sale of 1600 Market Street in Philadelphia. The property is an 85% leased, 826,000 square foot office building. The gross sales price was $160 million and pricing was in the mid-5% cap rate range.

We are also under contract to sell 600 West Chicago Avenue, a 99% leased, 1.6 million square foot office building in the River North submarket of Chicago CBD at a gross sales price of $510 million. We currently have 3 properties totaling 2.4 million square feet in various stages of sale process, including 600 West Chicago.

In the past 3.5 years, the EQC team has worked hard to reshape a highly disparate portfolio and position the company for growth. We successfully closed on the sale of over $5 billion of assets, exceeding the goal we set 3 years ago. We cannot accomplish this without the determination, hard work and commitment of the EQC team. Our ability to retain the net cash proceeds from sales has put us in a unique position. We've used sale proceeds to overhaul the balance sheet, reducing debt and preferred equity by $2.4 billion. Our cash balance, pro forma for pending sales and the announced paydown of our debt will exceed $3 billion or almost $25 a share. We remain focused on identifying attractive opportunities to invest in order to create superior returns for shareholders over the long term.

That said, our strategy will be informed by market conditions. While the real estate investment sales market has softened somewhat in the past 2 years, pricing remains stout by historical standards. Cap rates and expected IRRs are low, prices per pound are high relative to replacement costs. The pricing environment today for high-quality assets does not, in our view, lend itself to achieving superior results. And as a result, we're being patient.

With that, I'll turn the call over to David.

Thank you, David, and good morning, everyone. As David said, through our disposition program, we have reshaped our portfolio, and our leasing metrics are starting to reflect it. Our same-property portfolio was 91.9% leased at the end of the fourth quarter, up 40 basis points from the third quarter. For the quarter, rental rates increased 19% on a GAAP basis and 6.8% on a cash basis. For the year, rental rates increased 15.1% on a GAAP basis and 7.5% on a cash basis.

In the quarter, we signed 248,000 square feet of leases. The largest lease was at one of our Georgetown buildings in Washington, D.C. It was a 112,000 square foot renewal of a subtenant of Georgetown University that will now expire in 2037.

Before I provide an update on our largest markets, I would like to make 2 observations. First, nationally, leasing activity ticked up at the end of last year. Net absorption in the fourth quarter was the highest quarterly amount since the third quarter 2016.

Second, construction costs are increasing. As development costs rise, over time, there should be downward pressure on supply and lease rates of new buildings should increase, both of which are good for existing properties. Also, we estimate that the costs to build out space are about 15% higher than a few years ago, and these costs are still increasing

Turning to our 4 largest markets. Austin and Bellevue continued to be strong. The vacancy rate in Austin is 8.8%. While there is a significant amount of construction, the deliveries in 2018 are well leased, and we expect the market to stay in balance.

Please note that in our supplemental, we are now classifying Research Park as an industrial flex property. 1 million square feet of this 1.1 million square foot property is a large single-story building leased to Flextronics for design and manufacturing. As you may recall, this is our property that sits on 177 acres and has additional development opportunities. It is in Northwest Austin, near The Domain and Apple's campus.

The vacancy rate in Bellevue CBD is 10.4% and is expected to get as low as 7%. The 3 buildings that delivered the last 2 years are fully leased, and no new supply is expected in the next 2 years. Given these dynamics and the quality of Tower 333, we believe this property is well positioned for expedient lease expiration in December 2019.

In the Philadelphia CBD, the vacancy rate is 12.5% but just 8.1% for trophy properties. With yesterday's sale of 1600 Market Street, the only property we own in Philadelphia is 1735 Market Street. This is one of the nicest buildings in the city and has a great location. While its traditional entrance is on Market Street, it also has an entrance on JFK Boulevard across the street from Comcast's new campus. With all the people and activity at this campus, this location is becoming the new center of Philadelphia.

In the Denver CBD, as we have said on recent calls, leasing is challenging with a market vacancy rate of 15.3%. As one of the nicer buildings in the market, 17th Street Plaza competes with new construction. In the last 2 years, the Denver CBD has added 700,000 square feet of supply and another 1.4 million square feet will be delivered in 2018. As we have seen in other markets, tenants will pay a premium for new product, creating more competition for existing high-end space like in 17th Street Plaza. Given this challenge, we are continually evaluating this property to make sure it shows well and its space is properly priced.

Finally, I would like to comment on our lease roll through 2018. In total, we have 375,000 square feet rolling or 4.7% of our leased square footage. Of this amount, we expect to get back 285,000 square feet. The largest get-back is 75,000 square feet from a tenant that is downsizing as part of a lease extension at 1601 Dry Creek in Longmont, Colorado effective in July. We also will be getting back 40,000 square feet in September at 8750 Bryn Mawr in Chicago from a tenant that terminated its lease early. No other expected vacates in 2018 are larger than 26,000 square feet, and they are spread across our portfolio.

We've been averaging 140,000 square feet of new leasing per quarter, which compares favorably to the 285,000 square feet we expect to get back through the full year 2018.

While changes in lease occupancy will vary quarter-to-quarter, we believe we are well positioned to increase occupancy over the course of the year.

In terms of 2018, our efforts remain the same. We continue to work our portfolio, looking for opportunities to create value. This includes doing accretive leasing and renovating and adding amenities to buildings when prudent.

With that, I will turn the call over to Adam.

Thanks, David. Good morning. I'll provide a review of our financial results for the quarter and the year and will briefly touch on distributions and share buybacks.

Funds from operation were $0.19 per share compared to $0.22 per share in the fourth quarter of 2016. Normalized FFO was $0.18 per share compared to $0.23 a year ago. The decrease in normalized FFO was primarily due to dispositions completed over the past year, partially offset by interest expense savings from debt repayments and an increase in interest income due to the combination of higher rates and higher balances of cash and marketable securities.

FFO for the full year was $0.92 per diluted share compared to $1.13 in 2016. Normalized FFO was $0.83 per share compared to $1.18 the prior year. As was the case for the quarter, the decrease in normalized FFO resulted from property sales, partially offset by both interest expense savings from debt repayments and higher interest income.

The full year also benefited from lower preferred dividend distributions.

Our same-property portfolio at the end of 2017 comprised 16 properties totaling 8.7 million square feet, including 600 West Chicago, which is currently under contract for sale; and excluding 1600 Market, which is classified as held for sale.

Same-property net operating income was 1% lower in the fourth quarter compared to a year ago. The decrease was largely due to tenant move-outs that occurred in the first quarter 2017, higher real estate taxes mainly due to Chicago's 9.3% rate increase and a decrease in lease termination fees. These declines were offset by higher tenant reimbursements and new leases commencing. Excluding the impact of lower lease termination fees in 2017, same-property NOI would have increased 0.5% in the fourth quarter.

Same-property cash NOI was 0.8% lower than the fourth quarter of last year, driven by tenant move-outs and higher real estate taxes, as previously mentioned. Cash NOI for the quarter does not include $3.7 million of revenue from leases in free rent, which works out to be $14.8 million annualized. Note that almost $1.7 million or over 45% of the total free rent in the quarter was at 600 West Chicago. For the full year, same-property NOI was up 0.8% and same-property cash NOI declined 4.1%.

The portfolio was 91.9% leased and 89.2% had commenced by quarter end, with the difference being approximately 240,000 square feet, which had not commenced and, therefore, was not in cash or GAAP NOI during the quarter. Once these leases start and get through their free rent periods, it will generate $8.7 million in annual rent.

Moving to dispositions. We sold $863 million of properties in 2017. These sales generated a net taxable loss, which increased our net operating loss carryforward.

We ended 2017 with an NOL of approximately $120 million. The sales of 1600 Market Street and 600 West Chicago will generate gains that exceed the NOL balance. While we'll be dependent on disposition activity for the remainder of the year, we may be required to make a distribution in 2018.

Turning to the balance sheet. In 2017, we've repaid $293 million of debt. In November, Moody's upgraded our corporate debt rating to Baa2 from Baa3, which reduced annual interest expense on our term loans by 25 basis points or $1 million and reduced the facility fee on our revolver by $375,000 per year.

In January 2018, we called at par our $175 million 5.75% 2042 bonds for redemption in March. Pro forma for this redemption, we have just 1 remaining bond outstanding, which is due in 2020, and we have no outstanding debt maturing in 2018 or 2019.

Our balance sheet remained strong with over $21 per share or $2.6 billion of cash and marketable securities at year-end. Adjusting for the proceeds from the sale of 1600 Market and the expected sale of 600 West Chicago, along with the $175 million bond repayment, our cash and marketable securities balance will be $3 billion or $25 per share. We have built significant capacity and are actively looking to put it to work to create long-term value.

While we seek transformative opportunities, we will look to opportunistically buy back our stock. We currently have $150 million of share buyback authorization. Liquidity and balance sheet flexibility continue to be competitive advantages that position us well for future opportunities.

Thank you. And with that, we will open it up to Q&A.

(Operator Instructions) Our first question comes from the line of Manny Korchman with Citigroup.

Adam, maybe a question for you. I believe the last time we've spoken in a public forum and we discussed the 2042 notes, you were not planning to tender for those and buy them back. What changed in your thinking to put out the tender on those?

Yes. I think the conversation we previously had was that we were contemplating repaying, that we hadn't yet made a decision on that. But with the sale of 1600 and the pending sale of 600 West Chicago, the cash balances continue to grow, and we believe that we have capacity to do what we want and need to do for growth and are able to pay off the bonds as well.

And then in terms of 8750, I think you mentioned the tenant terminating early. Will there be a termination fee that we should think about coming off of that property?

There is a termination fee associated with that. I don't recall off the top of my head whether half was paid on notice or all of it's due when the tenant actually moves out. We'll have to follow up and get you the details on the timing.

Our next question comes from the line of Jamie Feldman with Bank of America.

I guess, going back to your comment about prices flat to down modestly over the past, I think you said, 24 months, is there any deviation to that by market or region where you'd say prices have moved more than the average?

Well, I think it definitely varies by market. We say flat to down because I think it all comes down to the story of that asset, that deal. So in certain markets, the better, stronger markets that have really good real estate for sale, we think pricing is flat. It's possible it's up slightly. However, the further you get away from that description, the more difficult it is to sell real estate and the greater the impact has been on pricing.

Okay. But I guess, as you think about the buyers out there, are there any themes you're seeing in what they're interested in, whether it's tax reform and [soft states] and things like that, that you can kind of read through for what's going on out there?

Well, I think it's a little early to make that call, but the themes we saw the second half of last year and continuing today are deals with a story. So a story could be a locked down rent roll with a weighted average lease term at 10-plus years. There was an asset like that in Denver that traded for around $7.25 a foot, well above replacement cost. Another story could be a great value-add story. There's a lot of money chasing that, and that's an example of when we sold 1600 Market Street: credit anchor with term, significant amount of space coming back and opportunity to reposition the asset and work it. A lot of buyers chasing those stories as well.

Okay. And then I know you guys don't give guidance, but you did mention you think occupancy, assuming this is the portfolio you have at year-end, is higher now -- higher at year-end than it is today. Any thoughts on what same-store NOI would look like for this portfolio?

Well, we don't give guidance, but we continue to believe that the growth story remains strong for the portfolio. The challenge is that the nature of the portfolio continues to evolve through these dispositions. And I think it's also important just to note that our quarterly NOI was something like $33 million this quarter. That's with 600 West. You take that out, and we're talking about a 1% change in growth could be something in that $250,000, less than $300,000 range, and that's 1% change. And I give you that warning just because the volatility is going to increase as the portfolio size continues to get smaller.

Okay. But I guess, if you had this portfolio all year, would you say same-store is positive?

Yes.

Okay. And then the last question for me is you've got 4 more assets on the market for sale. I mean, is it safe to assume you get those done and they'll just be more teed up after that?

Well, let me clarify that and then answer your question. The 4 included 1600 Market Street and it also includes 600 West Chicago. So that would leave 2 properties at about 800,000 square feet that's currently in the sales process. And then the answer to your question is, yes, we are continuing to look at our portfolio and identify opportunities, other assets that we think we should take to market because we believe that is the best way to maximize value.

Our next question comes from the line of John Guinee with Stifel.

Great. Okay. Yes, 2 questions. Adam, can you refresh our memory as to your average price for your share buybacks a couple of years ago? And then, I guess, David, you're still running a $45 million G&A. How much of that should people attribute to the 6 million or 7 million square feet of assets remaining on the portfolio? And how much should they attribute to managing the $3 billion cash balance?

Well, John, I'll start with the share buyback question. So we purchased in total just under $157 million of common shares, about 5.9 million shares; and the average price, $26.57. And that's kind of broken down into a couple of tranches. The 2016 calendar year, we purchased $69 million worth 2.5 million shares at $27.68 average price.

And John, it's David trying to address your question. We've talked in the past about G&A and want to assure you that we're mindful of the cost to run our business and the drag it creates. There's another component to the allocation above what you've described, which is maintaining capability to search for opportunity. And we've looked at G&A and continue to look at G&A, try to minimize costs, try to reduce costs where possible. What we don't want to do is impair our ability to invest for the future. I think we've said before and we continue to say that this will not be an ongoing G&A burden. It will either come to an end because of liquidation or it will be spread across a larger portfolio. But I appreciate the question. We're mindful of G&A, and we're looking for ways to reduce it.

And then it's been a few years, David, in terms of speaking with the potential uses of the $3 billion of cash. And you clearly have to talk to everybody in all product types. If you were to look at the current environment and you look at the opportunities out there, is there a product type and a valuation metric that makes sense or makes close to makes sense to keep the band together, whether it's hotel or retail or multi-family? Or is pricing difficult every place you look?

Well, we have looked at a variety of different asset class trying to find the opportunity. We also are really focused on office and office-related opportunities. And I would say your comment is right that we view pricing across the board as pretty strong and not conducive to a great entry point. With respect to office, we have looked at opportunities that despite the overall market being strong, we have thought there might be an opportunity given complexity or given other challenges that the assets or the entities we're facing might create an opportunity. And we've invested a good bit of time and effort in pursuing those deals. I think it's possible some of them come back. I think it's possible given the volatility that's recently taken hold that we'll see other opportunities in the near term.

Our next question comes from the line of Mitch Germain with JMP Securities.

Guys, I think you referenced 285,000 that is space given back, 240 million -- I'm sorry, 240,000 that hasn't commenced yet. When is that 240,000 commencing? Is that kind of why you guys are confident about occupancy moving higher? Or is that they kind of almost offset each other?

Well, the answer is the leases that Adam referenced are already baked into our lease roll and our expiration schedule. So when I speak to the fact that we're getting 285,000 square feet back, that is not being offset by any of the leases that have already been signed that have not commenced yet. The reason we feel good about the 285,000 is just relative to the new leasing we've done historically, which I referenced as 140,000 square feet a quarter if you go back at our averages over the last 3 years. Having said that, it's highly concentrated now in 3 properties. It's 1735 Market Street, where we continue to make progress. It's in Denver, which we talked about being very challenging. And then the biggest challenge we have now is the large hole we have in Ann Arbor. You may recall about a year ago we had a tenant move-out, gave back 179,000 square feet. That is a small tenant market. And unfortunately, it looks like we're going to be backfilling that with singles and doubles, and that will take time.

And then just -- I'm sorry, Mitch, I didn't mean to interrupt. But just in terms of timing of commencing, it's back-end loaded this year and into next year where we'll see the currently signed leases commence.

That's helpful. And I guess, my follow-up for, I guess, you Adam or David, is your confidence about using your historical leasing to kind of project what you think how the year is going to play out. What does that say about the pipeline and prospect activity?

Well, I think activity is good. But as always, it varies from market to market. Activity has been very strong in Bellevue and Austin. We've got a lot of leasing done in Philadelphia, and the fact that all we own today is 1735 Market Street puts us in a stronger position. The 2 biggest challenges we have are in Denver. But as I said on my -- in my prepared remarks, we are continually looking at that asset, make sure it shows well, priced properly. And then the biggest hole is in Ann Arbor, and that will take a lot of effort just given the nature of that market.

Got you. I know you guys have 2 development parcels, and I feel like -- probably more than 2 but I feel like somewhat lost in the story because the focus has really been on sales and then using your cash. So maybe if you can just kind of highlight those a bit, I'd be grateful.

Sure. So I would say we have 2 development opportunities. The first is in Bellevue. It's 600 108th Avenue. That property is 10 stories, 257,000 square feet but sits on what's described as half of a superblock. You may recall maybe about a year ago we announced -- we secured another 1.1 million square feet of entitlement. That's in addition to the existing structure. Our preliminary plans show a 34-story office building, about 700,000 square feet; and then a hotel about 41 stories, 400,000 square feet. It'd be built on podium and subterranean parking. It would require us to take down a large parking structure that's in the back of the site. Those entitlements are good for 10 years. And we're continuing to progress with that development in terms of firming up the plans, meeting with our architects, et cetera. The second development opportunity which I alluded to in my prepared remarks is in Austin. It's at Research Park. That's a 1.1 million square foot property, but it sits on 177 acres of land, currently zoned light industrial, well located north of The Domain and near Apple's campus, which is about 38 acres. What's nice about that site is with the Flextronics lease expiring in December of 2029, we have great cash flow, but we also have what's currently about 70 acres on different parcels that you could carve off. I couldn't tell you what we could build there because it is encumbered and there's some roads you have to work through. But given the excess land and the overall size of that site and that location, I can tell you we and others are very excited about its opportunity.

Great. That's really helpful. Appreciate that. And last question. A couple of sales this past quarter. I think they were 5 assets. And just reconciling that to the comments that David made earlier with regards to pricing kind of flat to a bit lower, curious how those sales penciled versus what your kind of expectations were.

Sure. Well, one of -- 2 of the sales included mineral rights and a land parcel. So I'll just put those to the side. 33 Stiles is an industrial building. It's only 25% leased. We actually sold at a price higher than I would have expected. We were talking with users around that same price point. In fact, we sold it to an investor at that level with a good outcome in our opinion. The building in Ann Arbor, we sold to the user. At $190 a square foot, that is a rich price for a suburban Ann Arbor asset. By suburban, I mean, it's not downtown Ann Arbor. It's a few miles away. That's user pricing in excess of what we would have expected had we gone the traditional route and sold that to an investor. And then the Pittsburgh properties, those are 2 business parks, a sizable deal. That's one that took some time to get done. We had to go through 2 or 3 buyers under contract to sell out. Our pricing was at maybe slightly below by the time the deal closed, but that's a good example of what we've been saying for some time. It's just harder to get the deals done when they're off the fairway. Suburban office parks, especially larger deals, they're going to sell to a local buyer. And often they're passing the hat, raising the capital as they go. And there's just less certainty and clearly a longer drawn-out process.

Got you. And then finally, I feel like there's been a lot of focus -- there's been a huge amount of focus to sell. And now it seems like there's a little more -- you guys have been a bit more constructive about trying to find the opportunities to invest. But the pricing environment is not there. So kind of how does this play out? I mean, how much more time are you willing to invest in trying to find the opportunities versus just more of an outright liquidation?

Yes. Mitch, it's David. First off, there's been tremendous effort both on dispositions, on asset management and trying to get some of these assets positioned where they could be sold at better pricing and a good bit of effort on investment. We just tend to talk about things we get done as opposed to talk about things we're working on. So I can assure you we're working both sides. As far as your question about timing, we were looking back in preparation for the call on what we had said previously, and I think it remains consistent. We're going to spend the better part of this year searching for opportunities while we continue to make progress on the asset management and positioning of assets for sale. We have a goal to deploy the capital and invest, but market conditions will dictate whether we can do that. And if we're unable to do that, most likely next year, we'll focus on the most efficient, highest-value way to exit.

Our next question comes from the line of Chris Belosic with Green Street Advisors.

Just one question for me. Just curious just generally how you guys are thinking about growth opportunities and your cost of capital. Obviously, we've seen some recent volatility in the public market, but it sounds like you guys are seeing still those flattish kind of pricing environment in those parts and private market. Some of your -- just, I guess, if it is wide enough? Is that why you guys are kind of looking at public opportunities? Or do you think there's still the opportunity to strike a deal in the private market?

Well, we're looking in both, right, public and private. We haven't limited ourselves in terms of what that opportunity set looks like. Clearly, the weaker stock price makes the utilization of that currency more difficult. But I think our story is different. Our story is that without utilizing that, we have a very significant capacity beyond just the $3 billion in cash to include our untapped $750 million line of credit. So we get it. We trade at a big discount. That makes utilizing equity much more challenging. But I just think it's sort of silly to say we would never do it because if we're able to swap for somebody else's equity that's even more deeply discounted than ours and for tax reasons that's the kind of transaction structure that needs to get done, we'll do it that way. So we're open minded.

Our next question comes from the line of Jamie Feldman with Bank of America.

Just a quick follow-up. You -- I think you mentioned maybe in '18 the prospect of paying a dividend. Can you just talk about the size of the NOL and how we should be thinking about that?

Well, all we've said is we ended 2017 with a $120 million net operating loss. But because of the activity that has been completed and is nearly completed here in Q1, the sales of 1600 Market and 600 West Chicago, that NOL will be used up, assuming the closing of 600 West Chicago.

Okay, that's helpful. And I assume it doesn't -- there's no way to get more back. From there on, it's just you just have to pay the dividend?

By and large.

Our next question is a follow-up from the line of John Guinee with Stifel.

Great. Purely, David W, for modeling purposes, if you look at Austin, 70 acres of land, is that worth $100,000 an acre or $500,000 an acre? And if you look at what looks like $1.3 billion or $1.4 billion of total development rights in Bellevue, is that $20 an FAR or $100 an FAR? Any thoughts on that?

Well, for Bellevue, if you get real-time land pricing comps, they'll be somewhere in between those 2 numbers. So I'll leave it up to you figure that out, but it won't be hard. And the same thing in Austin. The only difficult thing with Austin is the 70 acres is just part of a full 177 acre site, which is more appealing if you keep it together as part of a master plan development. And the beauty is in the eye of the beholder of that.

Do you want to give us a year estimate maybe?

I think it's so easy now. One phone call to a broker in Austin, and you'll have a reasonable and more accurate estimate.

You want to do that for us?

We would have done it. We're just not telling you.

Mr. Helfand, there are no further questions at this time. I'll turn the floor back to you for any final comments.

We appreciate your time this morning. I would like to correct something I said in my opening remarks, commenting on the cap rate on the sales of 1600 Market. I said mid-5% cap rate range. The correct cap rate is in the 5% range. So with that correction, I will thank you for your time today. Appreciate you joining us. We'll see many of you in Florida in a couple of weeks.

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