Earnings Call: Q3 2018

Oct 25, 2018

Good morning, and welcome to the Cousins Properties Third Quarter Conference Call. All participants will be in listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Pam Roper, General Counsel. Please go ahead. Good morning, and welcome to Cousins Properties' 3rd quarter earnings conference call. With me today are Larry Gellerscha, our Chairman and Chief Executive Officer Colin Connolly, our President and Chief Operating Officer and Greg Adzema, our Chief Financial Officer. The press release and supplemental package remain available on the Investor Relations page of our website yesterday afternoon as well as furnished on Form 8 ks. In the supplemental package, the company has reconciled all non GAAP financial measures to the most directly comparable GAAP measures in accordance with Reg G requirements. Please be aware that certain matters discussed today may constitute forward looking statements within the meaning of federal securities laws, and actual results may differ materially from these statements due to a variety of risks, uncertainties and other factors. The company does not undertake any duty to update any forward looking statements, whether as a result of new information, future events or otherwise. The full declaration regarding forward looking statements is available in the supplemental package posted yesterday, and a detailed discussion of some potential risks is contained in our filings with the SEC. With that, I'll turn the call over to Larry Gellerstedt. Thanks, Pam, and good morning, everyone. Cousins continues to execute exceptionally well in 2018, completing the Q3 with strong financial results and healthy activity on both the leasing and investment fronts. The team executed 485,000 square feet of new and renewal leases at economics that represented an 18th straight quarter of positive rent roll ups, a particularly impressive accomplishment for an operating portfolio more than 94 percent leased. Equally important, Cousins made significant progress on the investment front. We delivered the 2nd phase of NCR on October 1. NCR has already begun occupying the new tower and is expected to complete the consolidation from their remaining Atlanta offices by the end of next week. Of the 10,000 Avalon, we have built a robust leasing pipeline and are in current negotiations, which would bring the property to 40% pre leased. In Austin, we have formally added 2 floors to 300 Colorado, bringing the total square footage to 358,000 square feet. Construction is on schedule to begin in December. In addition to these developments, we have been steadily adding to our land bank. Earlier this month, we closed on our land assemblage at 901 West Peachtree in Midtown Atlanta, where we could potentially develop up to 470,000 square feet of office. This quarter, we plan to close on our site in Tempe 100 Mill and finalize our joint venture agreement with Hines to potentially build up to 280,000 square feet. With the addition of these sites, along with our Victory site in Dallas and our 5th pad at Corporate Center in Tampa, we now own or control sites that could accommodate up to 1,400,000 square feet of new Class A office space. These investment milestones, in addition to another quarter of quality, earnings and operating results, provide an excellent snapshot of how Cousins has consistently executed quarter after quarter, all while positioning the portfolio for continued growth. Equally important, this quarter's results reflect the quality of the assets, the health of the Cousins markets, strength of its balance sheet and the depth and the breadth of a very talented team. Against that backdrop, I'd like to touch upon another recent announcement before Colin and Greg dive into the details for the quarter. As many of you know, I will begin serving as Executive Chairman of the Board effective January 1, 2019. This role will allow me to focus on long term strategies, strategic investments, key client and civic relationships and Board governance, while supporting an executive team led by Colin Conley as President and CEO. Colin, along with Greg Atsima and Pam Roper, has been instrumental excuse me, has partnered with the Board and me for the last seven years. All 3, collectively and individually, have been instrumental in the company's success, and I couldn't be more excited in their ongoing commitment to serve Cousins as a team. Furthermore, as the newly appointed Executive Chairman and a long time shareholder, I'm confident that Colin, with his cycle tested experience, exceptional leadership abilities and innovative mindset will lead Cousins into the next era of sustainable, profitable growth. Finally, before I turn it over to the team, I'd like to thank shareholders and all who are listening to the call today. I became CEO in June of 2,009. At that time, we were a development oriented diversified REIT. Like most REITs, we were also over leveraged with too much new development and non income producing land. As an unknown leader to the REIT community, I had a lot to do in those early days as well as a lot to learn. But in a deliberate manner, we proceeded to first stabilize the balance sheet, then build a team, then define a compelling new strategy, then find and execute opportunities both large and small consistent with that strategy and finally and most importantly, create a lot of shareholder value. The journey has been a lot of fun, and I'm grateful for the opportunity to be a part of it. However, we are in the early innings of this strategy with tremendous upside opportunity. I can honestly say I've never been more excited about the future prospects for this company nor more confident in the team which will carry us forward. I look forward to speaking with many of you all face to face at NAREIT next month in San Francisco. With that, I'll conclude my remarks and turn the call over to Colin. Thank you, Larry, and good morning. I'm honored to lead Cousins Properties during the next chapter in its long and proud story. I want to thank our Board of Directors for the opportunity as well as their unwavering commitment to our company and our shareholders. I also want to take a moment to thank Larry. We've been working together for over 7 years and during that time he has been the ideal mentor for me personally and a transformational leader for the company as a whole. I enjoy our work together every day and I look forward to our continued collaboration and in his role as Executive Chairman. Lastly, to my Cousins' colleagues, it is a privilege to be on your team. Your relentless focus on creating value for our shareholders inspires me every day. We have an exciting future and I'm proud to be part of it with you. Looking forward, I could not be more excited about the opportunity for Cousins. We have a clear and compelling Sunbelt strategy that will continue to benefit from the ongoing migration of jobs into the Southern U. S. And the rapid urbanization playing out in our target submarkets. I'm confident that our Trophy portfolio, rock solid balance sheet and best in class team positions us well to go compete and capitalize on the present and future opportunities. Turning to the quarter, our results were strong across the board with solid contributions from each of our 5 Sunbelt markets. Leasing activity was positive in all of our markets from 48,000 square feet in our smallest to 220 6,000 square feet in our largest market. Net effective rents came in under our 1 year run rate, but this was purely a result of a higher percentage of this quarter's leasing occurring in some of our lower rent profile properties. Rent growth remains strong with rates rolling up 25.8% on a GAAP basis and 7.6% on a cash basis during the quarter. Our operating portfolio is now 94.6 percent leased with just over 7.5% of the portfolio expiring through 20 19. Now for some of the market specifics starting in Atlanta. Our team executed 225,000 square feet of office leases across the portfolio in the Q3. Importantly, activity picked up significantly at North Park Town Center ahead of AIG's 105,000 square foot expiration in early 2019. In total, the team signed 175,000 square feet of leases at the project, including 91,000 square feet of new and expansion leases. The largest transaction was a 73,000 square foot lease with OneTrust, a growing technology company that will be relocating from Midtown. A primary focus of 1Trust search was finding space that is easily accessible to their talent base wanting to live in town and commute via MARTA and to those living in the northern suburbs wanting to commute by car. We are thrilled that OneTrust found their solution at North Park. They are scheduled to move into their permanent space during the Q2 of 2019. Just to the south, we are beginning to see increased levels of activity in Buckhead. Buckhead has historically been a financial services hub, but technology and other companies are expanding their presence here. According to CBRE, Atlanta is a top 5 market for both educational attainment and brain gain as they call it, the net of total technology degrees earned in a city and the number of technology jobs created. We believe that this will continue to have a positive impact on the office market across the metro area, particularly in some markets with MARTA access like Buckhead. During the Q3, our team executed a 39,000 square foot lease at 3,350 Peach Street with Workday, a highly respected software company. And just last week, Tech Giant Salesforce announced their commitment to add another 600 jobs to their growing team in Buckhead. While the sales force growth was not in a Cousins building, it bodes well for the Buckhead market overall. We remain focused on our 2019 expirations at Terminus, which we own in a fifty-fifty joint venture with JPMorgan. While we will not receive any of the space back until the end of March the end of June, we have positive activity at the project and are currently in advanced discussions with a potential full floor customer. Over in Austin, activity remains very robust as the office market absorbed 1,100,000 square feet during the quarter and the CBD Class A vacancy rate is just 6.5% according to CoStar. To highlight the growth in the market, since 2013, the 7 largest tech companies located in Austin have grown from 350,000 Square Feet TO 3,400,000 Square Feet. Without a lot of vacant space in our downtown Austin portfolio, which is now nearly 96% leased, Our local team continues to concentrate on executing renewals with key customers, including a 32,000 square foot renewal with UBS at San Jacinto Center this quarter. Just across the street at 111 Congress, we are seeing good new activity as a result of the Fairgrounds Food Hall project that we opened in January, which helped us execute 26,000 square feet of new leases during the quarter. We are currently in negotiations on another floor at this property as well. Turning to Charlotte, the Class A market absorbed 520,000 square feet during the Q3, the highest level of activity it has experienced this year. Our Uptown portfolio is well positioned with 99% occupancy rate and modest near term expirations. This quarter, our team signed over 80,000 square feet of leases, the most significant of these being a long term extension with 5th Third Bank at 5th Third Center. Over in the south end, we are on track to deliver Dimensional Place in the Q1 of 2019. Dimensional Fund Advisors is spending significant amount of additional money beyond the contributions by our joint venture to build out their space, which delayed the delivery date by a couple of months. Therefore, Dimensional Fund Advisors will remain in their 2 floors at 5th Third Center through February of 2019. Moving on to Phoenix, the office market absorbed another 600,000 square feet this quarter, marking the 33rd consecutive quarter of positive net absorption according to CBRE. Importantly, Class A vacancy in Tempe is now below 5%. Our team had an impressive quarter of their own, signing what we understand to be the largest lease over $40 per square foot in the history of the Phoenix market. This new customer is expanding from Southern California and will be occupying 37,000 square feet at Hayden Ferry. And finally, down to Tampa, the overall office market and Westshore submarket both posted their strongest net absorption numbers of the year. Our team leased 61,000 square feet across our Tampa portfolio during the quarter, including backfilling half of the Laser Spine space at Harborview. We are pleased with the progress at Harborview and feel great about our prospects for the remaining space at the building. Our overall Tampa portfolio is currently 94% leased and there are very few large blocks of available space in the Westshore submarket. With that, I'll turn the call over to Greg for a review of our financial performance. Thanks, Colin. Good morning, everyone. I'll begin my remarks by providing an overview of our financial results, including same property performance. Then I'll move on to our balance sheet before closing my remarks with an update to our 2018 earnings guidance. As you could tell from Colin's remarks, we had a solid, very clean Q3. Net income was $0.05 per share and FFO was $0.16 per share. Overall, the performance metrics that matter the most remained strong as same property NOI was firmly positive, 2nd generation leasing spreads continued to roll up and leasing volume exceeded prior quarters. As has been the case over the past couple of years, our long term incentive compensation accrual, which runs through our income statement in the general and administrative expenses line item, was lumpy during the Q3 and below recent trend. As a quick reminder, in order to ensure management's interests are aligned with shareholders' interests, the vast majority of our performance based long term compensation here at Cousins is determined by our total return performance relative to the S and L Office Index. During the Q3, our total return declined by 7.3% compared to a decline of 1.7% for the index, and the accrual was adjusted downward accordingly. Within our same property portfolio, year over year cash NOI was up 4.4 percent during the Q3, driven by 5.1 percent revenue growth. These are terrific numbers and they mark the 27th consecutive quarter of positive year over year cash NOI growth with increases averaging 6.9% over the 7 year period. I'm confident this ranks us at or near the top of all office REITs. It's a testament to the underlying cash flow power of our Sunbelt markets and our urban assets. Turning to our balance sheet. As of quarter end, we had nothing drawn on our $1,000,000,000 unsecured credit facility and we held over $80,000,000 in cash. Our net debt to EBITDA ratio was 3.65 times, and our fixed charge coverage ratio was 5.67 times. The weighted average interest rate on our debt was 3.84 percent and our weighted average maturity was 5.7 years. We had no debt maturities of any significance until 2021. We did pay off a non recourse mortgage loan on a property in Tampa called The Point during the Q3. The loan did not mature until 2019, but was available to prepay without penalty 6 months early and we used some of our cash to take advantage of this free prepayment option. After paying off this mortgage, just under 75% of our property NOI is now unencumbered. Overall, our balance sheet remains rock solid and among the very best compared to both our office peers and the entire REIT industry. I'll wrap up my comments today by updating our 2018 FFO guidance. As we outlined in our Q3 earnings release, we have raised and tightened our guidance to a range of $0.60 to $0.63 per share. All of our assumptions are unchanged with the exception of our G and A expense assumption, which we have lowered to between $23,500,000 $25,500,000 from a previous range of $25,500,000 to $27,500,000 due to the decrease in long term incentive compensation accrual I mentioned earlier. We're not providing 2019 FFO guidance yet. We'll do that on our Q4 conference call consistent with prior practice. But recognizing that many analysts and investors are trying to forecast this number now, I did want to provide a couple of forward looking items that may prove useful. First, the new FASB leasing standard that becomes effective Jan 1, 2019 will require us to expense approximately 3 point $3,000,000 in internal leasing costs that we previously capitalized. This incremental expense will run through our corporate G and A expense line item on the income statement. 2nd, we anticipate beginning the sales process for our Meridian Mark asset over the next few weeks with the closing anticipated during the 1st few months of 2019. This is a 160,000 square foot medical office building located in the Pill Hill submarket in North Atlanta, adjacent to Northside Hospital. We developed this building in 1997 and although it is non core for us, it's a very attractive asset for many different types of buyers and we anticipate robust demand. Please note that there is a mortgage loan on Meridian Mark that matures in August 2020 that will need to be assumed or prepaid. 4th, turning the call over to the operator, I'd like to point out some additional detail we have provided in our financial supplement this quarter. 1st, we've added in place gross rents to our key performance metrics schedule on Page 9, providing both current and historical data. We will continue providing net effective rents on all new leasing activity within the supplement, so this gross rents data is additive. 2nd, we're now providing total cash costs, excluding any capitalized items in our development pipeline schedule on Page 25. Hopefully, you'll find both of these additions helpful as you analyze our performance. With that, I'll turn the call back over to the operator. We will now begin the question and answer session. The first question comes from Jamie Feldman with Bank of America ML. Please go ahead. Great. Thank you. Good morning and congratulations to everyone for the next stages of your careers. So can you talk more about the development sites and just kind of some of the conversations you're having for I think you had mentioned the potentially 1,400,000 square feet you guys could build. Just how should we think about potential timing of anything actually getting started? Hey, Jamie, it's Colin. And thanks for your question. We do, as Larry outlined, have some terrific development sites. And importantly, as you look across, it's very representative of our Sunbelt strategy with terrific site here in Atlanta, one out in Tempe that we hope to close shortly in Uptown Dallas and at Corporate Center 5 down in Tampa. So our team is actively working through the predevelopment for those various projects. I think the earliest we could actually break ground on any of those would be likely March of next year. But our focus here really is to have those sites be kind of demand driven sites. And we are pleased and optimistic with some of the conversations that we've got taking place with potential anchor customers. And we'll keep working that process hard as we work through the predevelopment phase of the projects. But would you say there's any that are kind of imminent like you're pretty far along in discussions or not necessarily? Look, I think we're as we look towards 2019, we're hopeful that and optimistic that we'll be able to get another project out of the ground with some pre leasing and good anchor customers. I don't have anything to report today that's imminent. But I would say we are in discussions with tenants and potential prospects across all of those buildings. They're all in fantastic locations, in many cases adjacent to some of our existing properties. And so we're fortunate to be able to have discussions with some incoming folks to the market, but we're also in active discussions with some of our existing customers who've got some growth needs. So we'll keep working at it and hopefully we'll have some good news to share for you as we roll into 2019. Okay, thanks. Then I guess just sticking with development, there's been a lot of press around the Gulch project. Can you talk about what you think that could mean for Atlanta and if you guys would have any opportunity to get involved in that or even in any Opportunity Zone activity in Atlanta? Yes. Good morning, Jamie, and thank you for your comments. The Gulch is an area in downtown Atlanta that has basically been surface parking lots for decades. It's almost a 40 acre site immediately adjacent to State Farm Arena, Mercedes Benz Stadium and the Georgia World Congress Center. CIM is the developer and they have a development agreement that has been being vetted by city council to be approved and that process has been going on the last couple of months. And I would expect it to be resolved one way or another in the next month or so. So it's sort of up in the air as to whether or not city council brings it forward with approval or not. It's been fairly contentious debate that's been going on, on it. We certainly think just for the city, it would be a terrific thing. The development would really energize this part of downtown Atlanta with the developers talking about a mixed use complex that probably retail and residential would be the initial component of. So we certainly are pulling for it to happen. One small note just for clarity is go back to the 1970s, Cousins has some air rights in the footprint of that development that go back to when Tom Cousins developed CNN Center back in the 70s. So we would assume that if the project is approved by council that those air rights would be something that the developer CIM would likely want to purchase as sort of part of their land assemblage. Nothing's been been finalized or negotiated on that. It won't be a significant number relative to Cousins, but I just wanted to point that out. Okay. That's helpful. And how do you think about it from a competitive supply office supply standpoint? Well, I don't think there would the conversations we've had with CIM and we've had several just regarding our air rights, and then I've had several just in my civic capacity as a leading a couple of business organizations in town. It doesn't appear to me that their initial forays in terms of what the development will lead with will be office. And I also would just add that this particular site, one of the reasons it's been underutilized for so long is it sits 40 feet below the street grid. And so they will have 3 or 4 years worth of work to do just to create the platform 40 feet in the air to begin to have a developable site, which is the reason the cost of that platform is really the reason that they're working to get some tax allocation district financing and sales tax increment financing to finance that. So I don't think in the foreseeable future that it would be an office supply competitor just because it will take a long time for it to for the platform to get in place. Our next question comes from Blaine Heck with Wells Fargo. Please go ahead. Thanks. Good morning. Just to follow-up on Jamie's question and specifically on eighth and West Peachtree site. Just wanted to get your thoughts on Midtown Atlanta in general. I think it's been a very strong market, but it seems as though there are a number of projects that are either under construction there or getting ready to launch. So how do you feel about commencement on that project given the potential for supply issues? And then do you have any more color on demand that you can talk about, especially given the recent reports around BlackRock's intended move down there? Sure, Blayne. It's Colin. As we sit today, there's about 1,700,000 square feet under construction in Midtown and that's about 65% pre leased. And certainly, we've got a terrific site. There are some other developers that are actively trying to put together their own projects. We feel really good about the location of 8th and West Peachtree because it's pretty unique in the market to have the proximity that we do to both MARTA and Georgia Tech. So we think that bodes well. I think ultimately the market is going to be focused on in the capital markets for real demand kind of driven leasing or demand driven development. As I said earlier, you touched on one rumored potential prospect out there. There are several others. I'd say the Metro Chamber is very active right now with some potential external kind of new in migration customers, which again I think speaks very well to Cousins overall strategy is a Sunbelt Urban Office company. And so the migration that we see from north to south, I think continues to play out. Midtown Atlanta is I think very well positioned to be a key beneficiary of that. So there are a lot of prospects out there. We'll see how those conversations go. But at the end of the day, we feel like our site is very well positioned to go compete in the marketplace. Very helpful. Should be interesting. And then we noticed a couple of interesting shifts I wanted to touch on in the supplemental from the Q2 to Q3. So in looking at your yearly expirations on Page 20, it seems like the 2020 expirations, the square footage didn't change much, but the percent of annual rent increased quite a bit and the rent per square foot increased from $32 to $0.41 So that's first. And then secondly, on the top of the top tenants page, it looks like Bank of America's annualized rent also jumped pretty considerably. I'm guessing that has something to do with the expansion in renewal late last year, but just wondering if those were linked, those 2, and I guess what was going on behind those? Hey, Blaine, it's Greg. Good morning. Good morning. As I've mentioned in my prepared remarks, we have now added to the supplement in place gross rents and we've rolled that through the supplement so that this page that you're referring to is now using gross rents versus previously using net rents. That's why you're seeing the jump in the numbers. Got you. Makes sense. Thanks. The next question comes from Michael Lewis with SunTrust. Please go ahead. Thank you. Could you guys talk about some of the changes in the active development pipeline, not just 300 Colorado, but it looks like the costs are down slightly for 858 Spring, 10000 Avalon, Dimensional Place. Is there anything notable to talk about there? Hey, good morning. It's Craig again. Michael, on that page, I've mentioned in my prepared remarks, we're now including numbers that are excluding capitalized costs. So that's why you've seen a small reduction in the numbers on kind of all the projects on that. We're excluding those capitalized costs, the largest of which is capitalized interest. So these are cash numbers now in this schedule. Okay, understood. Thank you. You talked about the long streak of the impressive cash rent spreads and NOI growth. And I realize you're giving kind of limited insight into 2019 at this point. But when I look at the market rent growth in your core markets over the last 5, 6, 7 plus years, whatever the average lease term might have been, it looks like you would have pretty good confidence of continued strong rent spreads for the next several quarters to go. Is that kind of fair? Could you comment on that? Sure. So the number that we provided over the past year or so where we've got in place rents that are 8% to 10% below market remains the case today and going into 2019. So, you'll see that continue to run through our same property portfolio in 2019. We're not seeing any weakening in fundamentals. Fundamentals remain strong in our submarkets. So from that perspective, again, we're not providing 2019 guidance. We will as we always have in February. But the underlying assumptions behind that guidance remain strong. Okay. And then, lastly for me, again, not to push for any guidance, but when I look at the low dividend payout ratio and you should have some growth with development deliveries on the way in your income, can we start to think about over the next few quarters? I realize the Board will look at the dividend frequently. But are you bumping up to where you think there may be an increase there and maybe a material one coming up on the horizon? Well, our dividend is ultimately decided by our Board, so I would never want to get in front of their decision. But we have increased the dividend in the Q1 of every calendar year for the past several years. And as I just mentioned, the fundamentals of the business remain solid. So, I would see no reason why that would continue. But again, the worst thing I could do would be to get in front of a dividend increase, which is ultimately decided by our Board. Of course. Okay. Thank you. The next question comes from John Guinee with Stifel. Please go ahead. John Guinee here. Thank you. First, Larry, we are truly going to miss you. I do want to make one correction though to your comments. Cousins was, I think, the worst office readout there when it came to excess leverage, excess land and excess disparate development. You were in a league of your own in 2,009. 2nd, and this is for Larry, do you think you have enough land? I mean, you're up to one good site in each of your markets, but that's sort of putting all your eggs in one basket. Is that enough? John, first of all, thank you for your comments. And I look forward to not having to hear your name mispronounced consistently on these earnings calls. But trust me with my name, I'm used to having the same problem. I think we've stated that 2% to 3% is the range of what we need. And I we're looking at a site that I'm optimistic about to add in Charlotte that I would hope may become actionable sometime next year. And we continue to look at some sites in our other key markets. So I would hope that we find opportunities to continue to selectively add to the total we have now versus considering what we have now to be the number. The thing that I can looking back on it, we were just weren't in a position as a company to really fund having these sites in these key submarkets. But we are now and we want to have them so that we can continue to offer growth for existing customers and inbound customers. And so we I would expect that the team would have some more action on sites in the upcoming year. Okay. And then, Colin, congratulations first. Thank you. And then, as you know, Larry's son is involved in WeWork. So Larry is not allowed to opine on this. Colin, do you have a lot of leases out with Regis? I think you've got some out with WeWork. Which model do you like better and why? John, it we do have leases with both groups. I think in aggregate, we probably have 115 or so 1000 with Regis and that comes in really 2 different forms. There are traditional Regis model as well as the spaces model. We just opened our first WeWork store over at Terminus in the early part of this year, which is about 2 floors, 50,000 feet in aggregate. So I think it's a little bit early for us to kind of pick who the winner in that race will be. I think they both in our portfolio continue to perform well. The stores in our portfolio have built up nicely. But I do think, as a general statement, you're seeing the this model morph towards the what spaces and WeWork is doing, which is just a little bit higher quality finish, kind of more services and amenities that go along with that. So I would expect Regis to continue to convert a large portion of their inventory to the spaces model. But look, I think there's room for both of those. They appeal to different segments of that type of demand looking for flexible office space and we'll likely continue to do business with both. Great. And then last question for you. On one hand, 7% cash, 25% GAAP re leasing spreads, sounds pretty good. But when you combine that with $6.70 per square foot per lease year, it takes a lot of wind out of that sale. Are those kind of metrics good enough to actually create value at the asset level? Well, John, I think that 7% was kind of below our trend over the last couple of years, which I think has been closer to kind of 9%, 10%. And so this particular quarter was impacted by just some of the mix of leases that we have. And so as we do look at our lease economics and net effective rents, they continue to be positive. They continue to trend in the right direction. And we always factor in as well as we look at those leases and the underlying net effect of rents, when we take a lease that's expiring in the next 12 months and extend that by 7 to 10 years, that does have an impact as well on the residual value and the cap rate of that particular asset. So we continue to believe by our math and we look very closely at that math that the leasing that we're doing and the economics in which we're achieving is continuing to create value in the portfolio. Great. Thank you very much. The next question comes from Dave Rodgers with Baird. Please go ahead. Yeah. Good morning, guys. Just a couple of quick follow ups for me. Greg, maybe just on the accounting side of it, DFA staying in 5th 3rd just a little bit longer. Obviously, I assume they'll continue to pay cash rent at 5th Third, but will you have a duplication of GAAP rent just for accounting reasons between the DSA build to suit and the 3rd? No, I don't believe so. No. We'll just delay the GAAP move in at the build to suit, They're rent if the new building will commence when they occupy. Right. Okay. That's helpful. And then Colin, maybe follow-up on the backfill then of DFA and I can't remember what you said last quarter about that, but the activity there and the delay at all impacting any potential move ins or discussions you're having there? Yes. It's been a little bit of a moving target given the additional work that we've been doing at the new building dimensional place. So that's made it a little bit challenging for our team. But now that as we have certainty with a specific and hard date, our team has been very active and we've got good discussions going on with several potential customers. As I mentioned in my prepared remarks, Charlotte continues to be very, very strong. It's been a terrific net absorption year. And now that we've got specific data, that space being available in March, we're pleased with the activity we've got going. And any initial thoughts on the mark to market at 5th Third? Again, we have consistently given the guidance of 8% to 10% across the portfolio. And so we've been careful not to give specific guidance on a particular suite or tenant, but I'm optimistic that we'll see some rent roll up. Keep in mind that was a relatively short term lease that we did with Dimensional Fund Advisors. So hadn't had enough term to really be an outsized mark to market, but I think that there's we're optimistic that there'll be a positive result seeing there. You were seeing there. Just wanted to maybe tie out at Terminus the move out that you talked about end of 2Q, end of 3Q with the backfill that you said you were working on. And so you've put WeWork in a couple of floors and then you've got the 2 move outs that are pending next year. Can you kind of walk through the math of what's kind of left and then with the floor that you did or you're planning to do there kind of what's behind that and the activity that you're seeing? Yes. So in aggregate, we do have 2 customers that will vacate next year in aggregate between CBRE and Bain that's about 140,000 square feet. And so keep in mind as again I mentioned in my prepared remarks that that is a fifty-fifty JV with JPMorgan. So as that effectively works through our financials, it's about 70,000 feet. And we're encouraged. Terminus is a best in class asset here in not just Buckhead, in Atlanta. So for us to have that type of block, our team is hard at work. The activity in the market overall is good. As I mentioned again earlier, we just did a 40,000 square foot lease with Workday, which is a terrific technology company. I think it's exciting to see them come to Buckhead. And I feel confident that if the space at Terminus were available when Workday was in the market, that would have been something we would have been competing at with 2 different assets. So as we roll into 2019 and that space becomes closer, I think we're very encouraged by the prospects in the market and our ability to execute there. Okay, great. Thank you both for the color. The next question comes from Daniel Ismail with Green Street. Please go ahead. Hey, guys. Earlier today, one of your peers commented that the values might be softening a bit in some markets. Curious to hear your thoughts on cap rates and bid intents across your markets? Well, it Daniel, good morning and thanks for the question. We continue to participate in the acquisition market and look at everything that's been available. We haven't found anything in particular that's been compelling for our strategy at this point. But as we've been an active participant in that across and throughout the Sunbelt, we really have not seen a pullback in pricing or cap rates. There's still a lot of capital that is very focused on the Sunbelt and sees the kind of the same underlying fundamentals that we do. I think as we look across the market nationally, we have seen some softening in other markets. If you really pay attention to capital flows and really the buyer composition over the last 12 months, we've seen a pullback from some foreign investors. And I think that's been probably disproportionately impacted some of the larger coastal markets. But here in the Sunbelt, we continue to see very kind of robust demand for best in class product. Thanks. That's helpful. Maybe going back to the development, can you remind us what level of pre leasing you guys would need to break ground in any of the sites you've discussed earlier? Daniel, we don't have a specific threshold for as a general kind of stated company policy, what we really do is we look at each individual project on a standalone basis and look at the market fundamentals, we look at competitive supply, look at the future pipeline of prospects and then ultimately make what we think is the right risk adjusted decision based on all of those facts, which can vary market to market. So you've seen us in the past do some projects 100% pre leased. We started Colorado Tower in Austin at the early part of the cycle of about 17% pre leased. And our most recent project here in Atlanta up at Avalon, we started at 30% pre leased. And we did that because we felt very bullish about the demand up there for that type of product. And I think as we're moving through the construction, we continue to be very encouraged by the pipeline and the activity for that. So again, it's going to be very, very project specific and market specific at that time. Next, we have a follow-up question from Jamie Feldman with Bank of America. Please go ahead. Great. Thank you. I just want to go back to the conversation about like Bain, CBRE and then some of the other big moves you have over the next 12 months. Can you just walk us through the timing of exactly when some of these largest move outs are going to hit and as soon as you could get that space occupied again? Sure, Jamie. It's happy to walk through it and we'll kind of move it on from Bain and CB, which I just touched on. Really the other move outs of size and there really are very few of them relative to the overall size of the portfolio would be the 5th Third Center expiration, which will be at the end of February of next year. And then I saw on your note, one other that would be out there would be the T. Rowe Price space that expires in January of 2020. In aggregate, that's about 71,000 feet and T. Rowe made a decision to consolidate their national offices into 2. So the Tampa office will be shut down. And so we've got, again, over a year or so to before we get that space back. In general, in a perfect world, if we had the next customer ready to go upon those expirations, we typically see 3 to 4 months of downtime to put in the tenant improvement work and build out the space for the new customers' needs. And so that would be the length to expect if we have the next customer ready to go. As it relates to all of that space, T. Rowe included, we've got good activity on those expirations and the team is hard at work at it and we're hopeful we'll have good news to share in the coming quarters as we get closer to those actual expirations. Okay. Thank you. Is there anything else that's come up? I mean, if you think about next year's expiration schedule, any other sizable ones that you're now expecting? We just discussed everything that's over 50,000 feet in the portfolio. There's really nothing else of large size. Okay. All right, great. Thank you. This concludes our question and answer session. I would now like to turn the conference back over to Larry Gellerstadt, Chairman and CEO for any closing remarks. Please go ahead. We appreciate everybody being on the call today and hope we'll be able to see most of you all in person at NAREIT next month. Thank you very much.