Piedmont Realty Trust Inc (PDM) 2018 Q3 法說會逐字稿

Greetings, and welcome to the Piedmont Office Realty Trust Third Quarter 2018 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would like to turn the conference over to your host, Robert Bowers. Thank you. You may begin.

Thank you, operator. Good morning, and welcome to Piedmont's Third Quarter 2018 Conference Call. Last night, we filed our Form 10-Q and an 8-K that includes our earnings release and our unaudited supplemental information for the third quarter. If you've not already reviewed this information, it's available on our website, piedmontreit.com, under the Investor Relations section.

On today's call, the company's prepared remarks and answers to your questions will contain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters which are subject to risks and uncertainties that may cause the actual results to differ from those we discuss today. Examples of forward-looking statements include those related to Piedmont Office Realty Trust's future revenues, operating income, dividends and financial guidance as well as future leasing and investment activity. You should not place any undue reliance on any of these forward-looking statements, and these statements speak only as of the date they are made. We encourage all of our listeners to review the more detailed discussion related to risks associated with forward-looking statements contained in the company's filings with the SEC. In addition, during this call, we'll refer to non-GAAP financial measures such as FFO, core FFO, AFFO and same-store NOI. The definitions and reconciliations of our non-GAAP measures are contained in the supplemental financial information available on the company's website.

I'll review a summary of our recent financial results after Don Miller, our Chief Executive Officer, discusses some of the quarter's operational highlights. Don?

Good morning, everyone, and thank you all for taking the time to join us on today's call. We are extremely pleased with our results this quarter. Almost every key measure that we focus on in the management of Piedmont excelled during the third quarter, from the amount of leasing activity we accomplished to economic terms realized and lease negotiations. We achieved strong same-store cash and same-store GAAP NOI increases, excellent cash and GAAP rent roll-ups and particularly strong vacant space leasing, especially in some of our tougher markets of Houston and Washington, D.C.

We also managed our G&A tightly, made progress in our capital recycling plan and our CapEx per square foot per year lease term was only slightly above long-term averages, despite most of the leasing being done within our heaviest CapEx markets.

Looking first more closely in our leasing results for the quarter, there was a noticeable increase in leasing activity across the portfolio. We completed approximately 613,000 square feet of leasing, and we are particularly pleased to say that the majority of that leasing related to new leases for currently vacant space in our portfolio. As a result, our reported occupancy for the in-service portfolio reached over 93% at quarter end, up 2.5% from last quarter alone.

Significant leasing was announced a couple of weeks ago, but the largest single transaction for the quarter was a 17-year first-generation lease for the entirety of Enclave Place, our 300,000 square foot newly constructed building in the Energy Corridor west of Houston.

While not achieving the development's original forecasted returns due to the decline of oil prices, we did obtain a lease under much better conditions than we thought possible just 2 years ago.

Based upon the terms of the lease, we realized an approximately 7% GAAP and cash yield and achieved net effective rents equivalent to our original pro forma.

Combining last quarter's Schlumberger lease renewal and expansion with this Enclave Place transaction, Piedmont has been recognized as completing 2 of the 3 largest leases in Houston thus far in 2018.

In addition, a good portion of our remaining leasing for the quarter was in Washington, D.C. and included almost 90,000 square feet of new leasing of currently vacant space. We are encouraged with the activity in this market, but the market remains quite competitive.

A list of all leases over 10,000 square feet that were signed during the quarter is detailed for your review in the quarterly supplemental information that was filed last night and is available on our website.

Given that we have no significant expirations for the remainder of the year, any continuation of leasing momentum for vacant space could push our occupancy up even further by year-end.

Our one sizable expiration over the next 18 months is, of course, the New York State lease of 60 Broad and we continue to make steady progress towards a prospective renewal.

We are devoting appropriate resources towards this negotiation, along with other upcoming expirations. And there is solid activity taking place to back the portions of the known smaller move-outs in 2019, well in advance of current tenant expiration dates.

Turning to acquisition and disposition activity during the third quarter. We entered into a binding contract to sell 800 North Brand Boulevard for approximately $160 million and expect to close this transaction during the fourth quarter, which will conclude our exit from the West Coast.

With this sale, we were down to only 2 projects outside of our 8 strategic operating markets: 1901 Market Street in Philadelphia and our Enclave properties in Houston. These 2 projects are currently 100% leased with an average lease term remaining of 13 years. We would anticipate selling these remaining assets as well as full value of assets in our operating markets as market and company conditions allow.

Considerations such as the use of proceeds and tax implications will impact the eventual timing of these transactions. However, I will note that we'll continue to model that Piedmont will be a net seller in 2018 and 2019.

Disposition proceeds will be used in several ways to enhance shareholder value such as improving our balance sheet by paying down debt; prudently buying strategic assets in our core operating markets; redeploying funds in the build-to-suit developments that are relative located parcels, particularly in Atlanta, in Orlando; funding redevelopment projects will enhance the value of our existing assets to drive occupancy and rental growth; and judiciously acquiring our own stock when its trading at meaningful discounts to NAV.

As always, we will evaluate the options available to us and strive to select the use of funds that we believe maximizes value for our shareholders.

As an example, subsequent to quarter end, we acquired 9320 Excelsior Boulevard, a 7-story, approximately 268,000 square foot Class A property built in 2010 that is 100% leased to Cargill, Inc. This value-added property is located in Minneapolis in close proximity to our Norman Pointe building that we acquired in 2017.

The purchase price was $49.4 million, which represents almost a 50% discount for replacement cost. And the property provides an immediate 10% GAAP and cash yield, along with upside through a restructuring of the Cargill lease that is currently set to expire at the end of 2023.

Piedmont had a great quarter and all of our employees are committed to carrying this momentum into the rest of the year and into next year. Obviously, I'm very pleased and appreciative of all the effort by our team, from property management, leasing, treasury and capital transactions. It's a great group of dedicated people.

For several years, the board and I have been working with each of our senior managers as part of an ongoing robust succession planning program in all areas of our business.

From finance to real estate operations, this task obviously applies equally to senior leadership as well. Yesterday, the board voted to promote our Chief Investment Officer, Brent Smith, to President and Chief Investment Officer. This promotion is certainly merited by Brent's outstanding performance and strategic leadership skills. His promotion does not change my role as Chief Executive Officer, but Brent will be working more closely with me on corporate strategy and taking a broader role across the platform.

With that, I will turn the call over to Bobby to review the third quarter financial results and financing activities. Bobby?

Thanks, Don. I'll discuss some of our financial highlights for the quarter, but I encourage you to please review last night's filings for more complete details.

For the third quarter of 2018, both FFO and core FFO were $0.45 per diluted share, a $0.03 per share increase compared to a year ago, despite the sale of a net 14 assets or nearly $740 million since July of 2017.

The increase in per share data reflects the improvements in occupancy, and in rental rates that have been steadily growing for the last few years as well as lower operating expenses and the favorable impact of a share repurchase activity over the last 12 months, which reduced our weighted average shares outstanding.

AFFO was approximately $45.5 million for the third quarter of 2018, well in excess of our regular $27 million quarterly dividend. As Don mentioned earlier, the overall lease percentage of our in-service portfolio increased to over 93% as of the end of the third quarter, and our weighted average remaining lease term is now 6.7 years.

Importantly, our economic occupancy also continued to improve to 86.6%, which reflects an occupancy level of cash-paying tenants after leases commenced and abatement concessions expire.

We anticipate this economic occupancy to continue to improve into 2019 as it chases the rising overall lease percentage of the portfolio. For executed leases completed during the quarter, mark-to-market risk increased 7.4% on a cash basis and 21.8% on a GAAP basis. On a year-to-date basis, mark-to-market rents increased 4.2% on a cash basis and 10.6% on a GAAP basis.

Our same-store net operating income metrics also reflect the overall growth in our various lease percentage statistics as well as growth in rental rates.

As leases commence and abatements expire, same-store NOI increased to 8.5% on a cash basis and 6.5% on an accrual basis for the 3 months ended September 30, 2018, as compared to the previous year.

And as a result, we're updating our annual estimates for 2018 same-store cash NOI growth to be between 5% and 7% for the entire year, more in line with our last 4 year's average annualized same-store NOI growth of 7% to 8%.

We did complete 2 financing transactions during the third quarter. We replaced our $500 million unsecured line of credit with a new $500 million unsecured facility priced at LIBOR plus 90 basis points, which is a 10-basis-point decrease from our previous facility.

This new line has a 4-year term as well as up to a 1-year extension. In addition to renewing our line of credit, we also amended our 2011 unsecured term loan for $300 million to extend its maturity date 22 months, that's from January 15, 2020 to November 30, 2021. And we immediately reduced the stated interest rate on this debt by 15 basis points to 1% over LIBOR.

However, the primary rationale for the extension was to maximize our future refinancing options under our overall debt maturity schedule. With debt maturities in each year from 2022 to 2025, moving this term debt to late 2021 maturity enables the company to consider a broader range of refinance options upon this debt expiring, including 5-, 7- and 10-year tenors, debt structures that will now be available to us under our revised debt maturity schedule.

As a result of this activity, our next debt maturity is not until the third quarter of 2021, and our overall leverage ratio is 37.8% at the end of the third quarter.

However, absent any further acquisition activity during the fourth quarter, we anticipate using the $110 million of net sales proceeds from the 800 North Brand disposition and the Excelsior acquisition to pay down our line balance, and therefore, our debt metrics will improve. Our current debt to core EBITDA ratio is 5.8x.

At this time, I'd like to narrow and adjust our core FFO guidance for 2018 due to year-to-date results, our transaction activity and our updated leasing projections. We estimate for the year that our core FFO per share will be between $1.70 and $1.73.

With that, I'll ask the operator to give you instructions on how to submit your questions. We'll attempt to answer all of your questions now or we'll make appropriate later public disclosure, if necessary. (Operator Instructions) Operator?

(Operator Instructions) And our first question here is from Dave Rodgers from Robert W. Baird.

Don, I wanted to start with you and some of the comments you made in your prepared remarks, just in terms of kind of Houston and Philadelphia sales and relative to what you could reinvest those in and tax incentives better. But I guess, as you think about reinvesting that, can you kind of talk about how acquisitions and then the development build-to-suit activity in your pipeline looks today in terms of how those 2 would stack up relative to your other options and how much activity you're seeing in each of the acquisition and the development opportunities?

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

I'll ask it a different way. I guess, as you look at the opportunity to continue to exit assets over the next year or so, you mentioned obviously acquisitions, there's stock buyback, other opportunities and avenues. I guess, the 2 that I'm most interested in is your comments around the acquisition pipeline, what you're seeing out there and maybe that's a better one for Brent. But then also just on the build-to-suit and development pipeline in order to kind of put those proceeds kind of back to work fairly quickly, if that's more clear?

Got it, okay. I understand better. Thank you. Well, obviously, we have been talking quite a bit about a handful of non-core, nonstrategic asset sales with also some asset sales that would be, I guess I would say, core strategic assets but in -- that have sort of realized their full potential. And so we do have a fairly steady pipeline of assets for sale, many of them lower cap rate assets, which I think we've talked about quite a bit that may be very accretive in terms of their ability to replay -- put capital into the marketplace. Having said that, it's not a target-rich environment from an acquisition perspective. I'll turn it over to Brent here in a second, let him address a little bit further. But obviously, so we'll always be evaluating acquisition opportunities we've got available to us with buyback of shares and what we think the best use of capital is. We're particularly proud of the deal we did in Minneapolis this quarter given it's an 8-year-old building. We bought it, have a replacement cost with a big yield and the opportunity to potentially do some redevelopment or repositioning of the asset with the tenant. So really excited about that kind of opportunity. But those aren't out there. There aren't a long list of those out there at those kinds of returns. So Brent, would you add much to that?

Yes, Dave. In terms of the acquisition environment, admittedly, there's limited product but we've been able to successfully find deals that were in our strategic markets that have been accretive to our earnings and NAV, and we continue to scour the markets for that, finding opportunities still in the pipeline in areas like Boston, Atlanta, to a lesser degree, Dallas, although we'd like to find more product there, and Minneapolis. So there are opportunities out there. And we'll be mindful of those core -- non-core assets and mature assets and monetizing those and redeploying that into, again, as Don mentioned, what we think will be accretive acquisitions. And I think our Minneapolis deal this quarter is a perfect example of that. We did dispose of 800 North Brand as we mentioned at roughly a low 5 cap on a GAAP basis and redeployed that into Excelsior, 9320 Excelsior, which is a phenomenal asset. We can go into more detail, but at 10 cap roughly. And those are examples of the opportunities that we think we're going to continue to be able to uncover meaningful discounts, replacement costs and opportunities to create value at the asset. And that's the key thing. We're looking for ways to be able to utilize the platform and the people we have in place to drive incremental value for shareholders. And I'd say as we look into '19 and the rest of '18, admittedly, the pipeline is not as robust as we would maybe hope, but I do think that you're seeing a little bit more capitulation between buyers and sellers, particularly around transactions that we've been following. And we're hopeful we'll be able to continue the momentum that we've built, at least this quarter.

Dave, on the build-to-suit and development side, we are still chasing a fair number of deals. As we told you for a couple of years now, we think yields have gotten so compressed on the build-to-suit side that it's harder for us to be that excited about chasing things down into the 7% cash yield kind of a range or even 6.5% cash yield, which we've seen some people doing lately. And we just see better redeployment of capital, frankly, into acquisition activity when you're able to buy at the kind of metrics we just did in Minneapolis. So we are still optimistic we'll get something done in Orlando at some point over the next, say, 12 months, and we hope to get some things going in Atlanta as well. But I don't think there's anything imminent to announce.

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

Sure. Brent, do you want to go first?

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

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

Our next question is from Anthony Paolone from JPMorgan.

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

Yes. So Tony, we -- obviously, I think we mentioned in the call earlier that given that this, obviously, took much longer than we would have hoped and obviously didn't work out the way we would have liked from the time we started the development, it turned out a lot better than it could have. We ended up doing a lease. Because of the length of the lease, it turned out to be about the same net effective economics that we had originally pro forma-ed. As you can probably appreciate, given it was a 17-year lease with the tenant, the TIs were higher, not on a per square foot per year lease term, but they were higher than we would have originally pro forma-ed. They still came out to be about $5 a year in TIs. And then the rents themselves were slightly below what we originally expected. But with growth in those rents and the term of the leases, we ended up producing about a 7% cash going in and about an average, because of the free rent, about a 7% GAAP yield overall. So interestingly and kind of funny, it's about what a new build-to-suit looks like today, except it took us 2 or 3 years to get it leased. So if there's a downside, it was the fact that we had to eat the operating expenses on the building for several years. But at the end of the day, it came out to be about where a build-to-suit would be today. Now having said that, the main reason for that is we started so early in the cycle, our development costs are much lower than they would have been today.

Got it. So if I were to get Schedule 3 from the most recent K, the base was about $66 million. It sounds like you'll probably have to spend about another $25 million, when it's all said and done, to have them situated, so basically somewhere up in the $90 million?

Yes, maybe a touch more than that. About -- a little over $30 million with commissions.

Okay, got it. Great. And then on the Cargill lease, so just want to make sure I was clear this. But it's under market, even at the 10% yield going in or how is that like compared to the opportunity there?

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

If I may add to that, this project is one we're really excited about, strategic, just a few miles from our existing assets. And it's really one of the preeminent corporate campus environments in Minneapolis. It's built in 2010. It's a Class AA property. The on-site amenities are really best-in-class, 300-seat auditorium, full-service café, 2 coffee shops, 13,000 square foot fitness center, locker rooms. It's a phenomenal building. And as we've noted, leased to Cargill right now for another 5 years. There's $27 million of net rental income due to come from that lease. So we really view it as an opportunity to create additional value over the long term, given the quality of the asset itself.

Got it, okay. And then apologies again, I may have missed this because I joined late, but I thought there were 2. Did you highlight 2 buildings that had some duration that you plan to sell? Was Enclave Place one of those and maybe I missed the other? Or did I miss the whole context?

No. What you may have heard partly, Tony, is that we have just the 2 -- really the 2 assets left that are in what we would call nonstrategic markets. One is the Philadelphia asset, the other is the Houston buildings. The beauty of that now is we have an average 13-year lease term in those 2 projects. And so although we're not -- we don't have a gun to our heads to do anything with them, we'd like to move them over the course of time. And so we'll be doing that based on tax implications and timing of use of proceeds and things like that. But we're not in any hurry because we've got so much lease term on those assets.

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

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

(Operator Instructions) Our next question is from Michael Lewis from SunTrust.

One more from me on the Minnesota acquisitions. If you have a tenant in place who's at market, but it sounds like they want to downsize, normally, I would look at that and think that that's a risk. Could you talk a little bit more? I mean, you mentioned the extra square footage that's there. What makes you think that, that expiration on a tenant that maybe isn't utilizing all their space is an opportunity rather than a risk?

So opportunity in the sense that pricing of an asset like that would certainly be impaired based on the fact that you have 5 years of lease term on a single tenant building and it's a very difficult asset to finance in its current form. So part of the reason we think we were successful in buying the asset is we were an all-cash buyer and able to move quickly and execute the transaction. Having said that, if Cargill moves forward as they are suggesting they might right now, they are interested in potentially downsizing, restructuring the lease that could involve a lot of different opportunities for us, whether it's a payment on the front end, it's an extension of the term that they want to stay in, it's an opportunity to have them take space in the basement maybe or someone else take space in the basement. So there's a lot of different opportunities that you can do in restructuring that lease. And by the way, you're not obligated to do that at all. Worst-case scenario, we just collect 5 years of rent from them, and if they still need some of the space after that, great; if they don't, they don't. The good news is we've underwritten it as if they're going to leave with the idea that, that probably is -- we probably have upside to that scenario.

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

Okay. Actually, it's understandable confusion. That's -- the 800 North Brand asset in Glendale is still in the other category until we sell it in November. And so as a result, that's the 2021 lease expiration with Nestlé that is now leaving the portfolio upon the completion of that sale. And so otherwise, there's virtually no lease rollover in those -- in the other 2 assets.

Got you. And then the last one for me. It sounds like the acquirer of Cousins' buildings in Orlando is planning a significant redevelopment. And I was just wondering if you think what they're doing there maybe creates more competition in Orlando. I know you guys are still really well positioned in that market. Is there anything -- do you think that kind of alters your competitive advantage there at all?

We really don't. And you never want to sound cocky about it, but the quality of our buildings and the location of our buildings are the premier assets in the marketplace. They have good assets. They're not at the same level as ours. They don't achieve the same rents. Obviously, to the extent that they're going to reposition them, they will be trying to catch up closer to us, but at the same time, we're going to be repositioning SunTrust as well. We talked about that a little bit already in the market. We'll be talking about that more over the coming year. And so we think will that will keep that -- a nice gap between us and them. But the critical aspect to that is location and we've got the pin corner location to the marketplace. One of their assets is very well located, the other 2 are a little bit [up] the street.

Our final question comes from John Guinee from Stifel.

John Guinee here. First, Brent, congratulations, well deserved. A question -- yes, the 10 cap for a mid-duration lease like the Cargill is I think probably pretty typical in the market. But on the Nestlé building, $303 a foot, 5.5% GAAP cap rate translates to about $16 a square foot net. Is the rental stream at the -- that building in Southern California only $16 net?

Yes and no, John. So when we -- we did a series of 5-year renewals with Nestlé over the course of time. The last time they hit the renewal, they hit it right when, if you recall, so it would have been, what, about 2013 or so, right when Glendale was struggling pretty badly. The entire Tri-Cities market was struggling. And so they hit it at a perfect window and they had an option to extend at market rents with some good favorable language in the lease from long before we bought the building. And so they were able to get a very effective rent for them. Interestingly, the one before that, we caught them at right -- just the right time in the market cycle. And so we actually had a big roll down the last time they did their renewal. But yes, I don't think it's -- we can do the math while we're talking to you about it, but that's probably not that far off.

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

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

So slight cash roll down with the state and big cash roll-up with the city?

That's what we anticipate. Obviously, with the city, that's still almost 1.5 years out. So it's very early to kind of tell. But certainly, with a $34, $35 current rate market in that building for those floors is meaningfully above that.

John, more specifically, the net rent coming out the Nestlé building today or 800 North Brand today is about $18 net, just to be specific. So they will blend in the Nestlé lease with probably some higher rent deals up higher in the building.

Very low price per pound for that part of the world.

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

This concludes the question-and-answer session. I would like to turn the floor back to Mr. Miller for any closing comments.

Thank you, Matt. We are looking forward to seeing everyone at NAREIT next week. Obviously, we're excited to be able to relate more about what was happening this quarter since we have such a good quarter going into NAREIT. We have had a cancellation or 2 on our schedule, so if you have a desire to get together with us, give Eddie a call. We might be able to fit you in. Normally, at this point, we wouldn't have an appointment but we've had 1 or 2 availabilities pop up. So if you're interested, give Eddie Guilbert a call and we'll get you on the calendar. Thank you very much.

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