Good day, and welcome to the Cousins Properties Q3 earnings conference call. [Operator Instructions]. Please note, this event is being recorded. I would like to turn the conference over to Pam Roper, General Counsel. Please proceed..

Thank you. Good morning. Welcome to Cousins Properties third quarter earnings conference call. With me today are Colin Connolly, our President and Chief Executive Officer; Richard Hickson, our Executive Vice President of Operations; and Gregg Adzema, our Chief Financial Officer.

The press release and supplemental package were distributed yesterday afternoon as well as furnished on Form 8-K. 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.

If you did not receive a copy, these documents are available through the quarterly disclosures and supplemental SEC information links on the Investor Relations page of our website.

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, including the risk factors set forth in our annual report on Form 10-K and our other SEC filings.

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 the detailed discussion of potential risks is contained in our filings with the SEC. With that, I'll turn the call over to Colin Connolly..

capitalize on the ongoing migration of the Sun Belt, realize the embedded growth in our trophy portfolio, complete our well-leased development pipeline, identify attractive new investment opportunities and maintain a sector-leading balance sheet. Before turning the call over to Richard, I want to express my thanks and admiration to the Cousins team.

I appreciate your tireless work and passion for the company.

Richard?.

Thanks, Colin. I'm pleased to report that our solid second quarter operational performance continued in the third quarter. The team completed over 741,000 square feet of leasing this quarter and it is worth noting that activity was broad-based across all markets and no one transaction accounted for an outsized portion of our leasing.

Rent growth also remained strong with second-generation net rents increasing 8.1% on a cash basis. When excluding activity at our noncore Woodcrest property in New Jersey, cash net rent growth this quarter was 9.8%.

Net effective rents, which include the impact of leasing costs, were just north of $27 per square foot this quarter, a level not seen at Cousins since the first quarter of 2018. With this strong activity, we ended the quarter at 93.8% leased with an in place gross rents at $37.26 per square foot.

With leasing result like this, it is not a surprise that the ULI emerging trends 2020 report named 4 of our 6 core markets as top 10 U.S. markets to watch. There is no doubt that we continue to benefit from strong demographic patterns that are driving strong population and economic growth throughout the Sun Belt.

I will now provide some details about Atlanta and Austin, our 2 largest markets in terms of net operating income. Office demand in Atlanta continues to be healthy, fueled by sustained office employment growth and steady business activity, particularly in the technology sector.

In fact, CoStar recently noted that since 2010, Atlanta added the 6 highest number of office-using jobs in the nation, even ahead of larger markets like Los Angeles and Washington, D.C.

Also of interest is that venture capital investment in Atlanta reached a significant milestone this quarter, as Crunch base reported Atlanta-based companies have received $1.1 billion in funding year-to-date. This is exciting news for Atlanta and a strong testament to the further development of Atlanta's technology and venture-capital scene.

This quarter, our Atlanta team executed 163,000 square feet of leases. Our over 7 million square foot portfolio continues to be well positioned at 92.1% leased at quarter end. Our Buckhead properties accounted for over 80% of our Atlanta quarterly leasing, which we think is a strong indication of Buckhead's overall health.

Businesses remain attracted to the central nature of Buckhead and its diversity of trends and options. And the submarket continues to enjoy success with a diverse set of industries, including technology. Momentum has also continued at Terminus, where we recently purchased our partner's 50% ownership interest.

I'm excited to report that last week, we signed a new 48,000 square-foot lease with [indiscernible], a growing software company, which will backfill two of the floors recently vacated by CBRE this past summer. This new lease is expected to commence late in the second quarter of 2020. Turning to Austin.

This market continues to be a standout for us and is projected to have the highest population growth rate for the coming 5 years among the 80 markets analyzed in ULI's emerging trends 2020 report.

Austin continues to see significant migration of companies from the West Coast, namely the San Francisco Bay area, collectively taking 6.1 million square feet of office space in Austin since 2010, and this is according to Cushman and Wakefield.

According to CoStar, Class A vacancy sits at just 5.8% in the CBD where many of our existing customers have been experiencing solid organic growth. Vacancy is only 1.8% in the north domain submarket. Our portfolio of over 4 million square feet, which is located across the CBD domain and the Southwest submarkets, ended the quarter at 96.1% leased.

Our Austin team signed leases totaling 228,000 square feet during the quarter, including the sizable expansion lease with Amazon at our new Domain 10 development. I would also note that Austin posted the strongest lease economics of any our markets this quarter with a second-generation cash net rent increase of 28%.

I'd also like to touch on Phoenix, where we have a terrific 1.3 million square foot portfolio concentrated in the dynamic Tempe submarket. Per CBRE, this quarter, metro Phoenix posted 1.4 million square feet of net absorption, bringing the year-to-date total to 2.5 million square feet.

CBRE further noted that only 7 markets nationally have posted over 2 million square feet of net absorption through the third quarter of which Phoenix is one. This is an impressive statistic given the size of the market. Dallas, Austin and Charlotte are also in that group.

Class A vacancy in Phoenix now stands at just 10%, with the Tempe submarket below 5%. Leasing has been particularly strong in our properties there as well, with the team executing 109,000 square feet of activity during the quarter.

Subsequent to quarter end, the Phoenix team also completed an important strategic 126,000 square-foot early renewal and 63,000 square-foot expansion with Silicon Valley Bank at Hayden Ferry. This and other recent signed activity will bring our occupancy up to a level consistent with where it was at the beginning of 2019.

Our remaining core markets, charlotte, Tampa and Dallas are also tracking very nicely. Our teams in these markets executed 153,000 square feet of leasing in this quarter. Like last quarter, our existing pipeline of leasing activity across all of our markets continues to be encouraging.

Our primarily Uptown Charlotte portfolio is 95.9% leased and we have made good progress on releasing the Dimensional Fund's vacancy at Fifth Third Center, recently signing a 25,000 square-foot expansion with Fifth Third Bank.

CoStar also recently cited Charlotte as leading the country in annual rent growth as of this month at 7.5%, ahead of even Austin. Our Dallas portfolio, acquired through the Terminus merger, and consisting of Legacy Union and 5950 Sherry Lane, stands at 97.4% leased.

And Tampa, where we are now 95.9% leased, we had another strong quarter, including a new 29,000 square-foot lease at Harborview Plaza that will backfill our only remaining 4-floor availability in early 2020. I'll now turn it over to Gregg..

the Hearst Tower that Colin discussed earlier. Our 2020 guidance does not include any speculative developments or acquisitions. In his earlier remarks, Colin mentioned our strong shadows relevant pipeline and if any of these projects commence, we will disclose it to you and update our guidance as per appropriate.

With that, let me turn the call back over to the operator..

[Operator Instructions]. The first question comes from John Guinee with Stifel..

A couple of little minor questions. I guess, Colin, if I look at your development page, you've got Domain 10 and 12 costing about $370 a foot, which I think includes the fair market adjustment. What -- that seems like a low number.

Are you missing anything? Does that have structured parking included, et cetera?.

John, the page that you're referring to at our supplement is not at the fair market adjustment. That is at cost, which we think is more helpful and instructive to investors just to understand the profile of the project. Those buildings do have structured parking and they were started several years ago.

And so obviously, the cost basis of those looks -- is less than what we would look at going forward, which would be over $400 a square foot for the next likely project out of The Domain..

So if you added in your fair market adjustment actually what you paid for the assets, what would be the actual total development cost? If I'm getting -- if I understand....

John, it's a Gregg. So when we provide our schedule 3 within our 10-K year-end, that schedule 3 will have not just the development assets at fair value, it will have all the assets that we acquired from TIER at fair value. It'll be hard to [sell for it] [ph] exactly because that schedule 3 does not break out intangible liabilities and assets.

But that'll get you close..

Okay. And then if I look at Page 20, your net rents are stunningly high with the exception of the new rents. $25.61 for a net rent is really big in the southeast. $39 for an expansion net rent is stunningly high.

Can you talk about which buildings are receiving or achieving those sort of rents?.

Yes. John, it's Colin, and that's primarily being driven by Austin and the growth and the rent growth in that market, both downtown and out in The Domain, have been exceptionally strong. And we're excited to see it. And, ultimately, customer demand in those markets continues to be very, very robust.

And I'd say supply has stayed relatively in check and that's created an environment to really push rents..

Okay. And then the last comment is, you probably have, if I look at the top 20 office tenants, you probably have the -- a lot of lease expiration in the near term, sooner than most of your peers.

Can you discuss the ones that are of interest to people? And any mark-to-market, up or down, with these big tenants?.

Sure, John. As a whole, the portfolio that we've got has got really strong weighted average lease term throughout it. I think in total, the portfolio's got almost 7 years of weighted average lease term. But as you know, we do have several customers that have got some near-term expirations.

I think the ones that have been of note, that have gotten some press is potential likely moveouts would be again all things that we've discussed in the past with you. So really no new news. But the Bank of America space in Charlotte at the Bank America Plaza, it's about 300,000 square feet, in December of 2020.

Blue Cross BlueShield/Anthem is a June 2021 expiration. And then the Norfolk Southern expiration in the end of 2021.

But I'll just tell you in terms of -- a little bit of the visibility in the Cousins' mindset as it relates to some of those, I'd say some of those expirations, which is we still think we've got a terrific opportunity in front of us in the sense that we're focused and mindful on an earnings pressure that could create.

But I think what's important to note is that the power of our development pipeline kicking in, in 2021 I think more than offset the risks associated with those expiration. So I think that's kind of one. Second, I think these are all opportunities for the company to create significant value.

And as you touched on, there is very meaningful mark-to-market opportunities on all those, ranging anywhere from call it 10%, upwards of 30%, in case of the Bank of America space in Charlotte. And these buildings are all located at Main & Main locations and great access to mass transportation. So we're excited about the opportunity to create value.

In some cases, we actually created these opportunities in our acquisition of 1200 Peach Street and, then ultimately our acquisition of Bank of America Plaza. So we were able to account for this risk going in. And we've got a fabulous team here that's got a great record of success backfilling this exact type of opportunities.

And I'd point to the Bank of America space at Hearst, which our team did a masterful job backfilling a large expiration there. Richard touched on it, we just backfilled half of the CBRE space. We backfilled most of the T. Rowe Price space and having similar success on the DFA space in Charlotte. So this is right in our wheelhouse.

And again, great opportunity for us to mark those to market, create value. And we've got a terrific development pipeline that, as I said, will more than offset, we think, any pressure for some short-term downtime with these expirations..

The next question is from Jamie Feldman with Bank of America Merrill Lynch..

Looking at Page 21, I don't think you guys mentioned the Time Warner lease in Austin.

What's the story there? The September '20 expiration?.

Yes, Jay, it's still a little bit preliminary, but we are in discussions with them. And we're -- I think we've got a good dialogue. They like their location in The Domain, and so we're hopeful we can get something positive done with them..

Okay.

And then I guess just bigger picture, as you look across your market, can you just talk about supply? And if you are seeing any submarkets that you're in kind of a cause for concern or maybe weighing on your ability to push rents? And what you think about the pipelines over the next year or so?.

Sure, Jamie. On the whole, supply has been, I'd say very much imbalanced throughout the Sun Belt this cycle and it's created a terrific market for us. Again, we continue to push rents, push occupancy and I think we're still very constructive on our markets.

I think when you drilled into the numbers kind of market by market and say that -- we're -- some of the submarkets that might stand out from a supply perspective on the surface would be Midtown Atlanta and perhaps downtown Austin.

But I think when you kind of get below the surface, I think we're -- we continue to be very encouraged by the amount of demand that's in the market to take -- to fill up that supply. I'd point to Midtown, where there's probably 2.5 million square feet of what we would characterize as multitenant office buildings in the core of Midtown.

That's about 30% preleased. But being here local in the market, what we see is very, very strong demand. We could point to call it over 600,000 to 700,000 square feet today that is active in discussions in leases to fill up big chunks of that space with very large well-known companies with net positive absorption.

And I'd characterize it again as very similar to this migration, where we're seeing folks move north to south and west to east. And so we think there'll be some pretty big announcements in the relatively near-term future that will certainly, I think, give people a lot of comfort as to the supply/demand balance in a market like Midtown..

Okay.

And then I guess other than the expirations you mentioned, but just some of the larger vacancies in the portfolio, can you walk us through some of your assumptions in that these are the '19 or '20 guidance about backfilling some of the spaces you've left?.

Sure, Jamie, this is Richard. We -- I'd say I characterize the assumptions we've made for 2020, in particular, very consistent with prior year assumptions on how we budget speculative leasing. So we feel good about them.

And I'd say given where we are at the -- sitting here in the fourth quarter 2019, with the lead times that come with new leasing, I would characterize the new leasing assumptions in 2020 as being largely weighted toward the back half of the year..

Okay.

I mean are there any specific large spaces that you think will get backfilled? Like if you look at your largest empty desk right now?.

Yes. So we've talked about backfilling about half of the CBRE space, Terminus, and we do feel good about some continued progress in 2020 there as well as obviously we've taken on B&A Plaza. That will be a 2020 during the year expiration, it's toward the end of the year. But feel good about the timing on that..

Yes, Jamie, I'd just add as a whole, I mean as you look at the portfolio, we've got a fabulous trophy office portfolio and some of the best submarkets throughout the Sun Belt. So in particular, buildings where we've got some vacancy, will be Terminus, we've got a little bit of vacancy at Buckhead Plaza.

We've still got a little bit of vacancy left at Harborview to backfill. I think we feel again very encouraged by the activity in the market and our goal over the course of next year is to continue to move those up..

Okay. And then last question for me. Just I know you guys -- it sounds like you could get started in Phoenix, maybe in Austin.

Can you just give a little bit more color in your thoughts like what's realistic in terms of development starts and what the cost will be? Like what kind of spend you'll see through the end of '20?.

Sure, Jamie. Again, I alluded to in my remarks that we feel -- we're very constructive on the opportunity at both 100 Mill and Domain 9. And that would be based on, ultimately, underlying activity and demand that we're seeing in those markets.

And so don't have a specific date for an announcement yet, we're working through finalizing the building design and construction agreements and trying to finalize some of the activity with these potential customers. And so I think we're -- again, I think we're very hopeful and optimistic that those could be starts in 2020.

But I -- well, I'm pointing to specifically to those. We do have a terrific land bank across the company and in all of our markets. We've got a terrific site in Midtown Atlanta. We've got the opportunity to do Corporate Center 5 in Tampa. A couple of terrific sites in Dallas, both in uptown and legacy.

And we're in the market and in discussions with potential customers on all those opportunities. And I think in any given time we find the right opportunity with the right customer and feel good about the overall competitive dynamics in the market and the overall risk profile, the development pipeline in the company, we'll try to move those forward.

So I think we're really well positioned to continue to make progress in 2020 just like we had in '19..

The next question is from Blaine Heck with Wells Fargo..

Just to follow up on that shadow pipeline.

Are there any markets you guys would like to be more active in on the development side but don't have land in? I guess, what's the potential for land purchases coming up? Or are you guys pretty happy with the land bank as is?.

Yes, that's a great question, Blaine. And I'd say as we look at our positioning today, I'd say the one in area of potential hole would be in Charlotte. And we just delivered our Dimensional Place project, which was terrific, actually just won office deal of the year by the Charlotte business Journal.

But now that we've delivered that, we're shortly on the hunt for the next piece of land to create the next great development project. So we're working hard on that and hopeful we'll make progress as we roll into 2020. But that's a market that is a very core market to us and we want to continue to grow our presence in that market.

Outside of that, we do have a very strong and attractive site in just about all of our other markets. Downtown Austin, actually it would be one that we would look at, we've got a great position obviously out of The Domain. But downtown Austin could potentially be an opportunity.

But holistically, as we look at the company and the scale that we have and our approach to land, it's [indiscernible] to have a good site or two in each of our markets.

And we with the added scale of the company, we're able to do that and still keep our overall land exposure really no more than a percent or 2% of the company, which certainly minimizes and mitigates any of the earnings drag from nonincome producing assets..

Great, that's helpful. Gregg, you guys have lower leverage than most of your office peers and you likely have additional proceeds coming in with the sale of Hearst and potentially others.

I guess how should we think about your appetite for increasing leverage going forward and maybe sacrificing some of the safety and dry powder that comes with such low leverage for maybe the cost factors additional earnings and FFO growth with a bit of a higher leverage profile?.

Blaine, it's a terrific question. As you could see from our third quarter results, we're right above 4x net debt-to-EBITDA right now. We've stated many times over the years that our targeted range is between 4 and 4.5x net debt-to-EBITDA and we've essentially been operating the business within that range since 2014.

So it's not aspirational and it's not a recent development. It's been a long-term targeted range and we stuck to it pretty faithfully. And I think some people might look at it as you just proposed as kind of defensive.

But we view it -- it is defensive to some degree, because we do develop, as Colin and Richard have been talking about for the last little bit, we have a really attractive development pipeline. But that introduces a little bit of risk, and so we keep a conservative balance sheet in order to balance that risk.

And that's worked out really well for us over the years. But we also see it in a very offensive light. Without the balance sheet that we have, we would not have been able to compete Parkway nor the TIER transaction. We did both of those deals without issuing any new equity to the Capital Markets.

That's a great place to be in, and it really puts us in a position, I think, to create significant shareholder value at scale that others would struggle with, especially in our Sun Belt markets. And so we're comfortable where it is. Will we take it above for something strategic, like another Parkway? Another TIER? We have and we might.

But overall, this is a very comfortable targeted leverage range for us..

And Blaine, I just like to again add on to that, that from a risk profile of the company, this is something as we put together strategy back in 2011 was a -- one of our 4 core principles is to maintain that best-in-class balance sheet. And so that's something that we're certainly going to continue and focus on.

It does allow us to take advantage of opportunities, as I mentioned. And so we're comfortable where it is.

We don't see any kind of near-term strategic type transactions where we want to put that to work, but it's also -- it does help us as we pursue these one-off transactions, development transactions, and whether that be a Domain 9 or 100 Mill, and it's competitive advantage where we can move, when we see the opportunity, quickly.

We don't need or rely on any outside capital, either debt or equity, to move forward with those type of projects.

And so again I think as we look at the near-term opportunity, which really is development-oriented, perhaps we might identify a strategic property acquisition along the way to bolster our portfolio in a Dallas or a Charlotte, we've got the balance sheet to go do that..

Very helpful. Last one for me. You guys have talked about putting the Woodcrest asset in Cherry Hill on the market. But I think Gregg mentioned only Hearst is in guidance.

So can you talk about the time line for Woodcrest? Are you guys marketing it now? Or are maybe trying to get a renewal or backfill for trying to assign first? Just I guess any color on that sale would be helpful..

Sure, Blaine. The asset is on the market and we've received first [indiscernible] and so we're working through that process. And our goal would be a potential year end closing, although we don't want to limit our options and are open to the buyer and best buyer needed to fly into early next year, I think we're agnostic on that.

We're just looking for the best execution. You mentioned there is a large expiration next year. We are -- we plan to move forward with the disposition this time and we just view that as a noncore asset on several fronts. One, it being located in New Jersey.

And from a profile perspective, if you step back, that really is not consistent with our -- the asset quality that the company focuses on. It truly is a converted industrial style building. And with rent -- gross rents in and around $20 a foot.

So I think as you think about that fill and evaluate, again just really not core for us, so we're going to go ahead and move that when we identify the right buyer..

And Blaine, it's Gregg. The Woodcrest sale is included in our guidance..

It's in 2019 guidance?.

Yes, it assumes year-end 2019 sale..

The next question comes from Dave Rodgers from Baird..

Dave, we can't hear you..

Mr.

Rodgers?.

There you are. I think you might have been on mute..

Yes. [Indiscernible] I guess just two housekeeping items for Gregg, to start with, I apologize for that.

One, on a same-store NOI pool and guidance for 2020, will you roll TIER in during the second half or will that not roll in until 2021?.

Dave, TIER will roll in, in 2021. We've got to straight line all those properties, so we've got to kind of get a full year under our belt before we could put it in the same property pool, similar and consistent with other acquisitions we've done in the past..

I thought so I just wanted to verify that will be core [indiscernible] next year. And then you had made a point to mention the difference in the fair value versus cost basis interest capitalization for the TIER development assets.

Does that a meaningful impact on the numbers? Are you going to walk us through the numbers quickly?.

When you say meaningful impact on the numbers, which numbers?.

I guess on earning..

No. I mean you can see that change that we made in the capitalized interest expense assumption, in which capitalized interest is included. So you know the exact impact that we're talking about. It's not wildly material..

Okay. Good news. And then maybe just lastly, I wanted to go back to something you mentioned early [indiscernible] as well you talked about the 8% to 10% below market rent in the portfolio.

But I guess you [indiscernible] that for a while and I guess one of the things I was thinking about is that you got new construction in your market 550 to 600 a foot in some that higher end market Charlotte Atlanta and Austin, pushing rental $50 to $70 gross in some of these markets depending.

And so that 8% to 10% that you quoted for a while with some pretty good increases in market rent, seems like maybe a little conservative.

And I guess I wanted to just kind of ask you a little bit that you feel like that's a conservative number? Or is there something that's going to hold you back as this deep market rent growth really started to kind of accelerate that of new completions for the market?.

Yes. Dave, I think that's a good question, but I think we feel good about the 8% to 10% number. And again, if you look over the last kind of 2, 3 years, we've averaged right around 9%. And that rent roll up, it's always a function of when the prior lease commenced.

And we've had really strong rent growth over the last call it 5 to 10 years throughout the Sun Belt. So I think you're seeing that reflection of the starting point rents have moved since we got there and it continued to move.

But I think we -- as we look forward to the expirations over the next couple 2, 3 years, I think we still feel very good that, that 8% to 10% is a good range..

The next question is from Michael Lewis with SunTrust..

So you talked about Hearst Tower and Woodcrest dispositions.

How about other assets you might sell? Things in the southern bucket like maybe Houston or Fort Worth or something? And would you maybe time those up with development spend?.

Sure it -- I think as we look at the balance sheet, it's rock solid. And so we don't feel any pressure to sell anything necessarily in the near term. You touched on Fort Worth and Houston, those are markets where we have a goal to grow. But as we look at specific assets, there are opportunities to continue to create value in those assets.

And so our team is hard at work trying to take advantage of those. But as we identify new investment opportunities, whether that be development or an attractive acquisition, we'll always look to potential asset sales as a source of capital to fund those. And so we'll make those decisions when we get to those kind of next new opportunities..

And then lastly for me. You had lower transaction costs in 3Q or maybe I thought there was a little bit more left there.

Are -- can you share, what are you expecting for remaining transaction cost to be recorded in 4Q, if anything?.

It's Gregg again. We're not quite done, but we're close. So I anticipate we will have less than -- well less than $1 million left. And the vast majority, if not all that, will flow through in the fourth quarter..

[Operator Instructions]. The next question is a follow-up from John Guinee with Stifel..

Great. Yes. If I take Hearst Tower, your expect -- looking at the cap rate, I guess, would be the best way to do it and maybe looking at the Q3 numbers.

You look at Hearst Tower on the sale side and you look at Woodcrest on the sale side and then you look at Terminus on the buy-side, are these neutral in terms of cash NOI cap rates? Or dilutive or accretive? When you match the acquisitions and the dispositions?.

John, the Woodcrest transaction is, ultimately, we think will be a relatively small transaction given the size of the project. As I mentioned, it's essentially been converted industrial.

So I think if you kind of put that design, it's not hugely material, and look at the Hearst and Terminus transaction, the cap rate on Hearst is kind of a call it, 5, mid-5, 7-ish type cap rate on a look forward basis.

Our cap rate on Terminus remember is a value-add acquisition, and so it's in the low 5s on a going in basis, but we project that to stabilize well north of the 6. And so we look at that as a very attractive proposition to sell at a lower cap rate and create value and deliver a more compelling stabilized yield at Terminus..

The next question is from Danny Ismail with Green Street Advisors..

Great. Just a quick one for me.

Any updated thoughts on co working post-rework scale IPO? And sort of comfort with doing full building leases or major leases with any box office providers?.

I thought we were going to escape that question with only 4 minutes to spare. But obviously, Danny, a very relevant question. And just to maybe specifically for a moment in terms of our rework exposure, it is very minimal. We've got in our operating portfolio one lease at Terminus that is doing very well and is full.

And then actually had a small lease in our development pipeline out of the 120 Les Trinity project. I feel like 30,000 feet and we own just 20% of that project. So fairly immaterial. But as we look at coworking going forward, obviously the WeWork news has been probably a bit of a step back.

But I think as we look at that, we continue to have had a good experience with co working when we've sized it appropriately in certain situations and unique situations in building where it's been a very good use for us to aggregate smaller users and customers that wouldn't otherwise be able to occupy space with us in a building like Terminus.

So we could -- we view it as a -- as an attractive opportunity there. But I think the industry, as a whole, as we look at it, perhaps the growth got a little bit out in front of itself. And so we think it's something that's going to continue but at a much more moderate pace.

And as we go forward, we'll continue to do those when they make sense, but we're always mindful not just of the kind of co working label, it's more of a valuation of credit and how much kind of noninvestment credit do we want to add to the portfolio.

And we're fortunate to have great trophy assets where we often have terrific interest from very strong large corporate customers and, often times, that will be our preference..

This concludes our question-and-answer session. I would like to turn the conference back over to Colin Connolly for any closing remarks..

Thank you for everybody's time and interest this morning. We always appreciate spending time with the investment community, and we'll look forward to seeing hopefully many of you out in Los Angeles at NAREIT in early November. Thank you..

The conference call is now concluded. Thank you for attending today's presentation. You may now disconnect..