Highwoods Properties Inc (HIW) 2012 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Highwoods Properties conference call. During the presentation, participants will be in listen only mode. Afterwards we will conduct in question and answer session.

(Operator Instructions)

As reminder, this conference is being recorded Friday, July 27, 2012. I would like to turn the conference over to Tabitha Zane. Please go ahead, ma'am.

Thank you and good morning everybody. On the call today are Ed Fritsch, President and Chief Executive Officer; Mike Harris, Chief Operating Officer; and Terry Stevens, Chief Financial Officer. If anyone has not received a copy of yesterday's press release or the supplemental, please visit our website at www.highwoods.com, or call 919-431-1529 and we will e-mail copies to you. Please note, in yesterday's press release we have announced the planned date for our third-quarter financial release and conference call. Also following the conclusion of today's conference call we will post Senior Management's formal remarks on the Investor Relations section of our website under the Presentation Section.

Before we begin, I would like to remind you that this call will include forward-looking statements concerning the Company's operations and financial conditions, including estimates and effects of asset dispositions and acquisitions, the cost and timing of development projects, the terms and timing of anticipated financings, joint ventures, rollover rents, occupancy, revenue, and expense trends and so forth. Such statements are subject to various risks and uncertainties. Actual results could materially differ from those currently anticipated due to a number of factors, including those identified in the bottom of yesterday's release and those identified in the Company's 2011 annual report on form 10K and subsequent SEC reports.

The Company assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events. During this call, we will also discuss non-GAAP financial measures such as FFO and NOI. Definitions of FFO and NOI and an explanation of management's view of the usefulness and risks of FFO and NOI can be found toward the bottom of yesterday's release and are also available on the Investor Relations section of the web at highwoods.com.

I will now turn the call over to Ed Fritsch.

Good morning everyone and thank you for joining us today.

On our last call we talked about how the US economy had seemingly settled into a slow growth pattern, a so-called 2% economy. Most US economic factors such as GDP, treasury rates, job growth and inflation were plodding along at approximately 2%. Everything still seems to be plodding along at the same tepid pace, although some of those metrics now need a generous dose of rounding to get to 2%.

There is still a lot of uncertainty marooning the US in this 2% economy. In other words, what's going to happen with government spending, the elections, taxes, the debt ceiling, healthcare implementation, and all that before mentioning the problems outside of our borders. With the collective magnitude of these issues, it is difficult for anyone to predict what the ultimate impact will be on the now rounded 2% economy.

As we said, our focused at Highwoods is to continue to get to stick to the core aspects of our strategic plan, while employing tactics to capitalize on anticipated and realtime opportunities. Our second quarter financial results were solid. For the quarter, FFO was $0.70 per share, excluding $0.01 in debt extinguishment and acquisition costs. On a year-over-year basis, FFO per share increased 11% and occupancy grew by 80 BPs. The performance of our same property portfolio was also positive on year-over-year basis, with cash net operating income growing 1.8%, and average occupancy increasing 150 BPs. Given our sound performance thus far this year, we now expect 2012 FFO to be $2.66 to $2.74 per share. At the midpoint this equates to a 4.7% year-over-year increase.

Turning to our balance sheet, we have a stated strategy to grow our Company on a leverage neutral basis over the long run. Last September when we announced our $300 million investment in PPG Place in Riverwood 100, our leverage increased from 43.8% to 47.5%. Today, taking into account our ATM issuances, dispositions, and acquisitions, our leverage is now 43.7% and we have zero drawn on our $475 million credit facility. And we've delivered on our commitment to return to are pre-acquisition leverage.

To give some context to all this, on the ATM front, year-to-date, we've raised net proceeds of $101.3 million including 1.98 million shares for a net proceeds of $65.9 million since our May 2012 call. On the disposition front, year-to-date we've sold $148 million of non-core properties, including $128 million announced this month in two separate transactions. Last week we sold five office properties in Nashville's airport submarket, which has consistently been one of the market's weakest, for $41 million garnering us a $6.8 million gain.

We remain very bullish on Nashville's core submarkets. Our remaining 2.6 million square feet in Nashville are 96.1% leased and we are developing a 100%, 203,000 square foot office building on top of that. This week we sold three non-core properties leased to the Federal Government for $86.5 million, generating a $14 million gain. These assets were relative outliers for us. One was by far our largest industrial warehouse in Atlanta, one is located in downtown Atlanta, which is not a core market submarket for us, and one was our only investment in the entire state of Mississippi.

Before discussing recent buys, here's a brief update on Pittsburgh market entry. At PPG Place, occupancy is now 83.6%, up from 81.2% at the time when we purchased the property and is projected to grow to 86.5% by year-end. Also Andy Wisniewski recently joined us as our Pittsburgh Division Head. Andy has 24 years of commercial real estate experience in Pittsburgh and will oversee all aspects of that market for us. Andy came from CB Richard Ellis where he served as Executive Vice President. Andy and Highwoods are a terrific fit and we are thrilled to have attracted yet another skilled and highly respected real estate veteran to our team.

So earlier this month, we announced the acquisition of three medical properties in Greensboro for a total investment of $29.8 million in an off-market transaction very nicely sourced by Rick Daynard, our Greensboro Division head. Two of the three buildings have closed and a third will close upon obtaining lender consent, which is expected by the end of this quarter. These properties encompassing 149,000 square feet, are strategically located across the street from the largest hospital in the metro area, and are, on average, only seven years old.

As we've said previously, we continue to pursue development projects across our markets. However, build-to-suit decisions remain painfully protracted. There is still a wide cost delta to go from second gen to first gen, but as larger blocks of institutional quality space are consumed, we are hopeful a number of prospects will eventually give us the green light.

Mike will address operations in more detail. However, I want to note that occupancy at the end of the second quarter was 90.7%, a 50 BPs sequential increase, an 80 BP increase from second quarter of last year. We do anticipate occupancy dropping in the third quarter, largely as a result of our GSA sale and the two move-outs discussed on previous calls.

In closing remarks, I applaud our dedicated team for all of their collective efforts, from leasing, capital recycling, balance sheet stewardship and for their outstanding service to our customers.

I now turn the call over to Mike.

Thanks Ed and good morning.

We had a solid quarter with year-over-year occupancy increasing 80 BPs to 90.7%. On a same property basis, our occupancy in our wholly-owned portfolio increased 170 BPs to 91.1%. Occupancy in six of our divisions ended the quarter at 91% or higher. In the second quarter we leased nearly 1 million square feet of second generation space. 65% of this activity was office and the average office turn was 4.4 years. Our office occupancy continues to substantially outperform our markets by an average of 700 BPs overall and 850 BPs in our top five markets. In our view this is due to our higher-quality portfolio, concentration in the better submarkets, our solid balance sheet, and the strength of our local teams.

Average in place cash from rental rates across our total portfolio rose 2% from a year ago. Cash rent growth for the 132 office leases signed this quarter declined 6.3%, while gap rents increased 2.6%. CapEx related to office leasing was $12.94 per square foot in the second quarter, 5% lower than our five quarter average and 5% higher than last quarter.

Turning to our markets, Atlanta's occupancy increased 60 BPs sequentially to 91.8% at June 30. Just as a reminder, Atlanta's 3Q occupancy will be negatively impacted by the remainder of AT&T's move out and this week sale of NARA and DHS. Our Atlanta leasing team is laser focused on releasing the remaining AT&T's space, where we currently have 100,000 square feet of solid prospects. We will complete $3 million of aesthetic building improvements at 2800 Century Center by September, further strengthening our leasing efforts.

In Tampa, we are pleased to have already released 59,000 square feet at LakePointe One, almost 20% of the space PWC will be vacating at Tampa Bay Park in May of 2013. The top priority for our Tampa leasing team is identifying and cultivating prospects for the remaining 260,000 square feet, where we currently have sounds prospects for 75,000 square feet. Working in our favor is lack of new supply and the fact that there are only two available contiguous blocks of competitive space greater than 75,000 square feet in Westshore, which is really saying something given Westshore is nearly double the size of any other Tampa submarket.

Nashville remains impressively strong. Our team leased 118,000 square feet in the second quarter, with a 7.6% increase in gap rents. Occupancy in our Nashville portfolio held at 94.6% in the second quarter. With last week's sale of our airport submarket assets, our national portfolio is now 96.1% occupied. Raleigh had a solid quarter, inking nearly 150,000 square feet with an average term of 5.6 years and a 5.9% increase in GAAP rents. Occupancy also increased 150 BPs from the first quarter. With UNC moving to its new university owned building, Raleigh's third quarter occupancy will be impacted. Releasing this lab space is obviously a high priority for us.

Turning to Pittsburgh, occupancy at PPG place increased this quarter, as it has every quarter since we acquired it last September. At quarter end it was 83.6% and is on track to end the year at 86.5%. Leasing momentum is strong and the prospect pool is deep. I, too, am glad to have Andy Wisniewski onboard as our Pittsburgh Division head. I've worked very closely with him for almost a year. He is extremely knowledgeable about the market, very driven and certainly well respected in the Pittsburgh business community.

Terry?

Thanks Mike and good morning.

We reported $0.70 of FFO per share this quarter, which excludes a debt extinguishment charge and property acquisition cost totaling $0.014. This was $0.07 better than the $0.63 reported for second quarter of 2011, which excludes a preferred stock redemption charge, debt extinguishment charge and property acquisition costs totaling $0.026. The $0.07 increase is primarily due to $0.102 in higher NOI contribution from acquisitions and development projects, $0.024 in higher same property GAAP NOI, due mostly to 150 basis point higher average occupancy and higher term fees, partly offset by higher repairs and maintenance and property insurance premiums, and $0.013 in lower preferred dividends from the June, 2011 redemption of our remaining Series B preferred stock.

These positive changes were partly offset by $0.012 in higher G&A, due to cost of living increases and higher short and long-term incentive comp, $0.008 from higher net interest expense, as a result of debt incurred to finance acquisitions, developments, and the preferred stock redemption partly offset by lower average interest rates. $0.019 from the impact of higher shares outstanding, mainly shares sold under our ATM program, $0.011 in lower development fee income related to the Charlotte development project completed last summer, and $0.006 in lost NOI from our dispositions.

Sequentially, this $0.70 of FFO per share was the same as the first quarter of 2012, but with some fully offsetting effects, namely $0.011 in higher NOI from the 70 basis points higher average occupancy, partly offset by higher seasonal repairs in maintenance and property insurance premiums, and $0.006 in lower G&A. These was offset by $0.017 impact from the higher shares outstanding.

Turning to the balance sheet, as Ed discussed in some detail, we are very pleased to have returned our leverage to the levels we had prior to last September's acquisitions. Debt plus preferred stock as a percent of gross assets today is 43.7% and debt to annualized EBITDA is 5.6 times. We currently have full availability on our $475 million revolving credit facility, and only $39 million of debt maturing in the remainder of the year, all in the fourth quarter. The weighted average interest rate on our outstanding debt is down 30 basis points from a year ago. We are also pleased to have acquired the Church Street medical office buildings on a leverage neutral basis.

In our previous 2012 guidance, we projected $0.08 to $0.12 of dilution from planned deleveraging activities and transactions. Those are now complete and the full-year 2012 impact is just under $0.11 per share. $0.015 of this dilution was incurred in the first half of 2012 and about $0.095 will come through in the second half.

In our updated 2012 FFO guidance, we narrowed the range from $2.60 to $2.76 per share to the new range of $2.66 to $2.74 per share. This represents a $0.02 increase in the midpoint due mostly to higher than anticipated NOI and higher average occupancy. Given the dilution from our deleveraging activities and move outs, second half results will obviously be somewhat lower than the first half. As is typical we also expect to have meaningfully higher OpEx from seasonal utility costs and increased repairs and maintenance in the third quarter.

As a reminder, our FFO guidance does not include any impact of potential acquisitions that may occur later in the year. Certain key underlying assumptions were also updated including slightly higher same property cash NOI growth and higher straight line rental income and slightly lower lease termination income, all of which reflect the impact of first half activity and updated projections for the full year.

Operator, we are now ready for questions.

(Operator Instructions)

Jamie Feldman, Bank of America Merrill Lynch.

Thank you, good morning. I was hoping you could talk a little bit more about the markets where you did get some occupancy growth? I guess specifically Atlanta, but definitely if you could discuss others? I know Atlanta, brokers were saying it was a pretty good quarter. So, can you talk about what's going on there and are we seeing a turn or is this just kind of a one-time blip?

Jamie, this is Ed. I think it's hard to say whether it's a turn or not. Certainly Atlanta as a whole has benefited from a significant amount of first half absorption of just under 2 million square feet, mostly driven by technology and healthcare and mostly through expansions, growing businesses that are already seated there, as opposed to end migration. We suspect that it will sustain and that we'll be the beneficiary of some of that. But I think it's hard to predict given some of the uncertainty that continues to lurk out there, more on the national economy basis.

Okay and in some of your other markets, where you had a good pick up in occupancy?

It has been -- you really bifurcated a pretty eclectic collection of growth with regard to the specific businesses that drive it. But we've seen bio pharma, we have seen bio med, pharmaceuticals technology, medical records, the insurance continues to grow, some financial services, like BB&T. So, it is really been an eclectic, across the board, as opposed to any one particular. I guess the biggest growth that we received was in Raleigh and that was driven by clinical research trials.

We also had a nice pick up in Pittsburgh, as well.

Good point. Yes, Pittsburgh, we've had yet another good pick up, ending the quarter there at 83.6% off an 81.2% acquisition and the pipeline there is also very encouraging. As we suggested, we expect to end the year at 86.5%, there.

Okay. And then, Ed, I mean you're typically a pretty cautious guy. Do you, and your commentaries during the call certainly was. Is there any change in sentiment this quarter from your tenant base? Based on getting closer to the election and what's going on in Europe and other macro factors or this is kind of your personal view?

Well, obviously it's through my filter and with the guidance of my dear friends gathered around the table, here. On our uncertainty-ometer, the uncertainty needle was pretty much pegged in '09. And then we started to watch it slowly but surely regress back lower throughout '10 and '11. But I think there are some very major things that are lurking out there that weighs on people's or decision-maker's minds with regard to all of the things that could happen come January 1, in and around January 1. So, I think it's causing some pause. I don't think it's causing paralysis, but I think that the needle on the uncertainty-ometer was regressing and I think it's now held still, or if not maybe going up a little bit.

Okay. Alright. Thank you.

Rob Stevenson, Macquarie.

Good morning, guys. Ed, you're sitting here basically at your 2012 disposition guidance. What's your thinking here going forward in the back half of the year? Are you contemplating at least marketing more, if market conditions remain favorable, and using that in place of ATM issuance et cetera?

Rob, I guess it depends on how much we do with regard to deployment on the acquisition side. We are at a balance sheet number that we're very comfortable with. And kudos to Terry and his team for getting us back to where we were pre-Pittsburgh and Riverwood 100. With regard to dispositions, we carefully monitor those one by one and we really like for them to come out of the oven at the right time, trying to synchronize both the market demand but also where the rent roll is at a specific point in time. So, we're heavily focused on what we need to do from a rent roll perspective, keeping in mind that the macro issues and when might be the right time to put them out.

They continue to be very much strategic for us rather than financial. We're continuing to consistently look at the bottom 10%. Winston-Salem, Greenville continue to be big on the radar screen, but will they go out between now and end of the year, probably not.

What's the thought about potentially marketing additional assets that are leased long-term to the government for tic buyers and other sorts of guys that are needing to redeploy proceeds by year-end?

That is a great question. So, when we look at our GSA portfolio and the total amount that we've developed, it really falls into a couple of categories. And we thought that those that we sold, as I mentioned in the script, were relative outliers for us. As we look at what we still have, it is basically, or build to suits, it is basically concentrated in two locations, Trade Port in Atlanta, Century Center in Atlanta, and then a third, sorry, the FBI building in Tampa. We see all those today as core assets for us. So, given that they are in park settings, with the exception of the Tampa building, which we feel is very well suited in a great location.

Okay.

We basically took those three buildings that we sold. We think we got an attractive cap rate and the way that we look at that from a global holistic perspective is we traded those three for what we're able to acquire in Pittsburgh and Riverwood.

Okay. And then given the medical office acquisitions in July, how much of the portfolio today is truly medical office or life science? And can you talk about what's the typical valuation differential is in your core markets between medical office and life science real estate versus just traditional straight office?

Yes. So what we would consider standard medical office, it's less than 1% of our revenues. But when we look at some modified, which would include beyond the traditional docs, more in the dermatology and laser eye surgery and those sort of things, we get up to another 1.5% to 2% of revenues. And then we have healthcare, but it's more back office in the way of operations like HCA and Healthways and Telecris, and that's in excess of 6% of our revenues. So, depending on how you define each of them, it's somewhere between 8% and 9% of our revenues that come from that industry as a whole. And that's not including the bio med, the bio pharma.

Okay, thanks, guys.

Brendan Maiorana, Wells Fargo Securities.

Thanks, good morning. So, Ed, it sounds like you're a bit more cautious, or you at least think there's a little bit more uncertainty out there. You guys have done a good job getting the balance sheet back to where you want it or maybe a little bit underlevered relative to your midpoint targets. Is now a good time for acquisitions? Has the market slowed down a little bit and do you think that there are opportunities that are out there where you can be opportunistic given the balance sheet is in good shape?

Yes, Brendan, thanks for the comment on the balance sheet. With regard to acquisition pipeline targets, we think that pricing is somewhat stabilized. We did maintain our guidance for the year at $100 million to $300 million for 2012, and we're right at $50 million now. So, we're signaling there clearly that we feel like there are opportunities to bring some more assets in the door between now and year-end.

All of them are in keeping with our strategy of being infill, improving the portfolio, somewhere between value add and a good return. But we remain very deliberate in our stewardship of those dollars that -- Terry has just got back in the door -- to put our balance sheet where it is. But I think that the guidance staying at $100 million to $300 million, and us being at $50 million now, clearly signals that.

Should we take anything from your somewhat cautious comments on the overall environment that is value add less likely now given that it may be more challenging to lease up space?

Well, I wouldn't rule it out. Never say never. We continue to evaluate each opportunity, whether we identify it off market or through a package, to see what we feel like the upside is. Certainly we did that with Independence Park in Tampa and we just placed it in service. So that was something that we bought empty and just placed in service this quarter at 116,000 square feet 100% leased.

So I think we'll look at them as they come. We also have to keep in mind that we created a little bit of our own value add with some of the vacancies that will incur this quarter and fortunately we have good prospecting on that. But I wouldn't rule out anything along the continuum of something stabilized to something that has a reasonable value add that we can conservatively underwrite and be successful in acquiring.

Sure. And then on the, I don't want to call it necessarily disposition, but non-core assets that are within the portfolio. We've talked in the past about stabilized occupancy levels and I think you guys have pegged in your portfolio at that 92% to 93% level.

As we think about the Nashville sale, at a mid-80%s occupancy level, below $100 square foot price per pound, I forget exactly what the cap rate was, I think it had eight handle on it. How much of that is, do you think, remaining in the portfolio? I think at least maybe a couple of quarters ago you put your B assets, B quality assets at around 25% of the portfolio. So, is the Nashville sale representative of that?

And as you seek to dispose of those assets, are they underoccupied relative to the total? If you sell those assets, might some of the occupancy gain that you've got embedded within the portfolio go away as those get sold?

Wow. First, to Nashville and then I'll back up to the more global. So, Nashville, yes, we find Nashville to be one of, if not our best market right now, and has been for a period of time. The leasing there has certainly been stout and insurance and healthcare have been terrific for that area. But the airport submarket has not been a submarket that we've been enamored with for some period of time, and we've seen others get out of there, too.

We just thought it was the right time to get out and the fact that we were at 86% occupied, I don't know how much more we could have pushed that any week submarket. And I suspect if we had pushed it we may have been buying the occupancy and not gotten the return on the proceeds from the sale. So that's just really cleaning up Nashville.

To the more holistic question, we said we had about $350 million remaining in the portfolio of non-core sales. Take out what we just sold and we're down around $250 million or so. I think that we'll always consistently look at the bottom 10% of our portfolio and that for those types of assets, we are in the mid-80%s in occupancy, and we'll hopefully sell them in the mid-eight cap range somewhere in that general area. But it just depends building by building.

We also have some JV assets that we're looking at as we go to reduce some complexity, and so those are other assets that hit the disposition list, potential disposition list for us. I'm not saying JV categorically, at all, but I'm saying that there are certain one off JVs that may make sense for one partner or the other to own.

That is helpful. So last question for Terry and if you guys thought that one was a mouthful, this one might be worse. [ Laughter ] So I'm trying to triangulate between your current occupancy, what just moved out of the portfolio and what your year-end number is targeting at the midpoint of your guidance?

And so I think the UNC move out and the Atlanta move, AT&T move out, just happened on July 1, so that wasn't in your numbers here. So, and then if I kind of make some adjustments for what you bought and what you sold, it looks like that's about a push. I'm gathering net of the AT&T move out and the UNC move out, it looks like you guys expect occupancy to move up somewhere around 100,000 or 150,000 square feet of net absorption, is that correct? I'm just trying to understand the ins and outs of what's going on in the back half of the year.

Brendan, let me take a run at that and then Terry can correct me. I think that's fair. Obviously, there is some known leasing and there's some spec leasing that's thrown in there. As you mentioned, the GSA sale obviously had negative impact, in that we sold well over 0.5 million square feet that was 100% occupied.

With the AT&T and UNC that adds another 80 BPs or so of negative drag on the occupancy number. But we looked at what we thought would be our year-end range and we did pull the high-end by 0.5%, so we went from 89.5% to 91.5% to 89.5% to 91%. But we, at this point in time, based on July 27, I think it's, all the numbers are fair, and we've obviously spent a significant amount of time talking with our leasing representatives out in the field to see what they see in the way of the pipeline for the next 5.5 months.

Sure, okay. Thanks. I'll get back in line.

Chris Caton, Morgan Stanley.

Ed, can you touch again on leasing? You talked about increased uncertainty. Can you talk a little bit about the pace of traffic that you're seeing and is this changing how you think about lease economics or are the tenant brokers thinking about how it effects tenant economics -- sorry lease economics?

Right. Chris, it's hard. It's kind of like separating sand from salt. How much is of it is these US and global issues weighing on people's minds? How much of it is because we typically see less leasing in the summer as people take vacations? How much of it is because we're in the four year cycle of significant national elections? I think it is very difficult to bifurcate all that and see what the true cause is.

We haven't seen a dramatic shift in mindset. I just meant my opening comments as far as when we collectively sit around the table and have our strategic planning discussions we see these items that are looming out there, and when we meet with representatives, senators, and congressman, which we do, and we hear that basically nothing's happening until after the election, as far as legislature going through, you start to wonder if this isn't having some impact on decision maker's minds regardless of industry, regardless of where they fall from the right to the left coast.

We think that, based on the pipeline and based on the fact that we have six of our markets that are at 91% or better, our portfolio occupied, that things are relatively positive. I mean we're not crying the sky is falling, we're just saying, hey, be sure your seatbelt's buckled, because we're not exactly how sure this landing is going to go given the circumstances. Now, it could be perfect landing. And we just go right on through the fourth and first quarter of '12 and '13, but there are some factors out there that could cause them disruption with regard to the debt ceiling and tax structure and government spending and all the issues that you probably know better than I.

Chris, this is Mike just to supplement that little bit. The back log and pool of prospects is actually good. Converting it from a prospect to a negotiation into lease is still a protracted process. It's just taking longer and that's where I think the uncertainty comes in. As our perspective customers start looking at space, they some of them want to see what's going to happen in November before they'll commit. Others just taking a long time because it's a new capital spend for them.

And I think, Chris, that the buildings that we have, for example, that are team is working on in advance for Price Waterhouse vacating in the second quarter of 2013, for them to have already re-let 59,000 square feet of that nine months in advance, and in fact it's Price Waterhouse who's taken that space, for us to be able to have that nine months in advance I think is a good indicator.

For that team to have sound prospects for another say 50,000 to 75,000 square feet, and for our guys in Atlanta to have strong prospects for say 100,000 square feet or so for 2800, I think that does speak to that. There are some -- there's certainly business to be done. All I was trying to say, and I didn't mean to blackcloud it too much, is that there are things on the near-term horizon that I suspect weigh on people's minds, whether they are schoolteacher or you need 25,000 square feet in a Highwoods building.

Thank you very much for the comments. And then just taking those themes and looking at asset sellers, do you think with pricing now stabilized and the operating environment the way you described, does that increase the likelihood that maybe you can source an off market opportunity like you're trying to do, or does it make it tougher?

I think it does. I think what Rick Daynard did in Greensboro with sourcing those three medical buildings off market and when we look at our target prospect list, I think it certainly does.

Thank you.

(Operator Instructions)

Joshua Attie, Citigroup.

Thanks, good morning. Ed, the leasing volume slowed in the second quarter and it looked to be more renewal driven than it was in the last few quarters. Is that reflective of slowing activity in the portfolio and the uncertainty that you're just talking about? Or is that quarter-to-quarter volatility and a function of what spaces you had available to lease?

Yes, our view is, it's very difficult and that's where I use that laymen-ology of separating sand from salt. It's very difficult to tell whether this move of, let's call it 300,000 square feet off where we were last quarter, is that because we're right in the gut of summer vacations and summers are typically slower? Or is it because people are becoming more concerned about where -- what the answers will be to all these open questions that hit us as a US economy between early November and where ever you project the debt ceiling topic to come up, which some people are saying now is February.

What's going to happen in those three months? And what will be the impact on our economy and people's appetite for growing, expanding, committing to renewals and hiring people? I just think it's difficult to tell at this juncture, but we think there's some wisdom in being cognizant of those factors being out there.

Thanks. And for Tampa, I know you gave some of these numbers, but can you just recap exactly where you stand in terms of how much of the building has been re-leased and if PWC have committed to staying in a portion?

Sure, so it's in two buildings that totaled 319,000 square feet, PWC's lease expires and we get the space back April 1 of 2013. PWC has now signed a lease to take 59,000 square feet in LakePointe One, which is the slightly older building, so we will retrofit that space for them they will move back in. And then we have working, right now, approximately 75,000 square feet of what we call sound or viable prospects. So the building is, at this juncture, nine months in advance, is 19% relet. I'm sorry, I said April 1, I meant May 1. We get the space back May 1.

Okay, thank you.

There seems to be no further questions at this time.

Okay, well, again, thanks to everyone for dialing in. As always if you have any follow-up questions please don't hesitate to give us a holler. Thank you.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.