Highwoods Properties Inc (HIW) 2015 Q1 法說會逐字稿

Good morning, and welcome to the Highwoods Properties conference call. During the presentation, all participants will be in a listen only mode. Afterwards we'll conduct a question and answer session. (Operator Instructions). As a reminder, this conference is being recorded Wednesday, April 29, 2015. I would now like to turn the conference over to Ms. Tabitha Zane. Please go ahead, Ms. Zane.

Thank you, and good morning. On the call today are Ed Fritsch, President and Chief Executive Officer, Mike Harris, Chief Operating Officer, and Mark Mulhern, Chief Financial Officer. If anyone has not received a copy of yesterday's press release of the supplemental, please visit outer website at www.highwoods.com, or call 919-431-1529, and we will email copies to you. Please note in yesterday's press release we have announced the dates for our 2015 financial releases and conference calls. Also, we have already posted senior management former re marks 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 acquisition, the costs and timing of development projects, the terms and timing of anticipated financing, 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 a number of factors including those identified at the bottom of yesterday's release and those identified in the Company's 2014 annual report on Form 10-K 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 towards the bottom of yesterday's release and are also available on the investors sections of the web.

I'll now turn the call over to Ed Fritsch.

Good morning, everyone, and thank you for joining us today. Our markets continue to enjoy business conditions and demographics that outperformed the national average in terms of population growth, economic growth and diversity, highly educated workforce, business-friendly regulatory environment, attractive cost of living and a highly desirable quality of life. These positive attributes provide a compelling mosaic of sustained economics growth across a footprint and have resulted in steady demand for our well located BBD product and continued positive net absorption across our markets.

In the first quarter we earned $0.72 of year of FFO which included almost a penny from land sale gains. Leasing activity was a robust $1.3 million square feet of second generation office. A couple of leasing highlights in the quarter included a 369,000 square foot early renewal an explanation of PPG Place and a 44,000 square foot value add lease at One Alliance Center, both of which Mike will touch on.

We also made some solid progress leasing three buildings acquired during the last four months of 2014. These buildings encompassing 686,000 square feet were on average 82.2% occupied at their respective closing dates. At the end of the first quarter, occupancy in these building was up to 86.8%, up 460 bips. We have raised the mid point of our 2015 FFO outlook by $0.01, mostly as a result of the land sale gain.

Our guidance range is now $2.97 to $3.07 per share with a midpoint of $3.02 per share. Turning to investment activity and starting with development, our current $440 million pipeline comprised of 7 projects in 4 markets encompasses 1.4 million square feet and is 88% pre-leased. During the quarter, we placed one of two 100% pre-leased MetLife buildings in service and delivered GlenLake V which is now 53% leased and we have LOIs in hand that will take leasing north of 80% at Glen Lake V. Another 89 million 91% pre-leased development will deliver over the course of this year with virtually all of the FFO impact coming in the second half of 2015.

Also, we are pursuing opportunities in several of our markets with various prospects. We're optimistic we will substantively add to our pipeline and therefore we are raising the low end of our 2015 outlook to $151 million from $100 million, and leaving the high end at $250 million. With respect to acquisitions, there's activity in the marketplace but not so much on the higher end of the quality scale. With regard to cap rates, we have not seen any measurable compression over the past quarter, but they are already undoubtedly rich. While pricing is frothy, we continue to diligently evaluate opportunities in our BBDs where we can capture meaningful upside.

Our guidance for acquisitions is unchanged at $50 million to $300 million. Turning to dispositions, we continue to take advantage of today's strong demand for assets. We have a well defined list of non-core properties in various stages of marketing and our outlook is unchanged at $100 million to $200 million. In summary, we are pleased with how the year has kicked off. Our team is taking advantage of improving market fundamentals to increase occupancy, grow net effective rent and increase value through accretive development, strategic acquisitions and non-core dispositions.

Finally, last week we announced Mike Harris will retire at the end of August. Ted Klinck will assume Mike's role and there will be added responsibilities to others on the Highwoods team who will support Ted. Mike will be moving back to Memphis and is looking to spending more time with his family in his very well earned retirement. On behalf of everyone at Highwoods Properties, I thank Mike for his nearly two decades of extraordinary service and dedication. It is a true honor to call Mike a close business partner and a dear friend. Hey, short timer, will you now cover operations?

Thank you, Ed and good morning, everyone. Our leasing activity continues to be strong. During the quarter we signed 128 leases for 1.3 million square feet of second gen office space with an average term of 8.3 years. This compares to 2014 quarterly average of 1.1 million square feet with an average waited term of 6.2 years. Net effective rent on second gen office leases signed was $14.69 per square foot per year, 13% higher than the weighted average net effective rent on second gen office leases signed in 2014.

Our ability to push deal terms is enhanced by net positive absorption and a continuing wide gap between first and second gen rents. In most cases, 20% to 30%. The ongoing increase in construction prices of about half a percent a month continues to keep spec development in check. Average in place cash rental rates across our office portfolio rose 4.2% to $22.70 per-square-foot compared to a year ago. For office leases signed this quarter, cash rent growth was positive .7% and GAAP rent growth was positive 9.8%.

Occupancy in our wholly owned portfolio was 91.9%, up 270 basis points year-over-year and we remain comfortable with our occupancy outlook of 92.5% to 93.5% at year end. Turning to our markets. Atlanta has absorbed almost 5 million square feet over the past four quarters. Occupancy in our Atlanta portfolio grew 120 basis points sequentially to 89.5%. During the quarter, we signed a lease for 44,000 square feet with a new customer to take the remaining terrace floor at One Alliance Center.

This lease commenced after quarter end taking One Alliance's occupancy to 91.6% up from 67.1% at acquisition less than two years ago. The CBD Pittsburgh market remains very tight with class A vacancy at 6% and our portfolio there is benefiting from these solid fundamentals. Vacancy at quarter end in our portfolio was a mere 4.5% and we were pushing asking rents by an average of 5%. We're very pleased to have executed an early renewal and expansion of PPG industries headquarters.

They renewed 348,000 square feet and will expand by an additional 21,000 square feet extending PPG's commitment on 369,000 square feet through June, 2031. While these business environment continues to garner national accolades such as recently being named the second best city in the US for technology job creation by Forbes magazine. Year-over-year office employment growth was 2.8%, well above the national average of 2%. Asking rents in our Raleigh portfolio are up 5% year-over-year.

During the quarter we signed leases totaling 149,000 square feet with an average lease term of 9.5 years and significantly enhanced net effective rents. We are particularly pleased with demand at our recently acquired Bank of America Plaza where we expect occupancy to exceed 90% by the end of this year as compared to 82% at acquisition.

Nashville continues its reign as one of the southeast strongest markets enjoying another quarter of positive net absorption and shrinking office vacancy, particularly for class A space where vacancy is 3.5%. Asking rents in our portfolio are to up 5%. As further evidence of the strength of the market, we quickly back filled 66,000 square feet vacated by customer who moved into property they own.

The replacement customer, new to Highwoods, will take occupancy before June 30. In summary, overall leasing deal terms continue to improve. This includes an increase in starting rents, longer durations, fewer and fewer concessions and rising net effective rents.

Before turning this over to Mark, I would like to go off script for a minute, if I may. First, Ed, thank you for your kind remarks regarding my years of service. You've been a great friend and partner and I'll always cherish that friendship. My 19 years here at Highwoods has far and away been the most rewarding of my 44 year business career. I really can't imagine another Company to be a part of and I'm confident this team will do excellent work. They truly are the best at what they do. I consider the entire 420 plus associates in this Company as my Highwoods family and I thank them for their support and friendship over the last 19 years. Okay. Now back to our regular scheduled program. Mark?

Thanks, Mike, and congratulations on a great career. In the first quarter on a per share basis, we delivered FFO of $0.72, or 9% growth over last year's first quarter. In dollars first quarter FFO was $69 million versus $61 million in 2014, or 13% growth. Primary drivers for the growth in FFO relate to same property NOI, from increasing occupancy, and contributions from value-added acquisitions, slightly offset by lost NOI from dispositions. Also first quarter 2015 benefited from 763,000 of land sale gains. Quarter over quarter, same store cash NOI growth was very strong at 10.5%.

You may recall same store cash NOI in the first quarter of 2014 was impacted by lower occupancy. We reiterate full year same storm cash NOI growth guidance of a healthy 5.5% to 6.5%, but we expect quarterly same store results to be lumpy. As a reminder, first quarter G&A is traditionally higher in Q1 due to certain equity incentive grants that must be expensed at the grant date rather than over the normal multi-year vesting period for employees who have met certain age and service eligibility requirements. We expect G&A to be lower in subsequent quarters and more consistent with prior year quarters 2 through 4.

Turning to the balance sheet, the changes from December 31, 2014 primarily relate to line item shifts from development and process to land and buildings. This is mostly due to international paper for and the first MetLife building being placed into service. Amounts outstanding on our credit facility are slightly higher at March 31, 2015 reflecting the increased investment in development projects. We raised approximately $41 million in equity in the first quarter through our ATM program and the combination of operating cash flow, ATM proceeds and borrowings resulted in stable leverage of 41.8% at the quarter end verses 41.7% at year end 2014.

As we noted on the last call, we have three secured loans all bearing interest above 6% that we can pay off later this year prior to their stated maturity dates. One for $39 million is pre-payable at par at the end of the second quarter, and two loans totaling $113 million are pre-payable at par late in the fourth quarter. We plan to refinance those obligations on an unsecured basis providing us more overall flexibility and lowering the effective interest rates.

Gains and losses related to early debt extinguishment's, the net effect of which will be normal, are included in our overall FFO outlook for 2015. A couple of note worthy financial items for the remainder of the year. First as Ed mentioned, additional portions of our development pipeline such as the second MetLife building will deliver later this year. These deliveries will contribute to an upward FFO trajectory particularly in the third and fourth quarters of the year.

Second, we altered our full-year FFO range primarily to reflect the land sale gain recorded in the first quarter. We're now forecasting full year FFO of $2.97 to $3.07 per share which assumes weighted average fully diluted shares outstanding of $96.9 million to $97.7 million. Excluding $0.07 of land sale gains in 2014 and $0.01 this year, our outlook at mid point represents the 6% year over year growth. Operator, we're now ready to take your questions.

Thank you. (Operator Instructions). One moment please for our first question. Our first question comes from the line of Jamie Feldman, Bank of America Merrill Lynch. Please proceed with your question.

Great. Thank you, and good morning. So I guess just starting out, leasing spreads in a couple of the markets were very strong in the quarter; Pittsburgh, Raleigh, I think Nashville. Can you talk a little bit more about the mark-to-market across the portfolio and I guess specifically in those markets and what we should expect to see going forward?

Yes, Jamie. We see in six of our markets we see where asking rates are basically 5% above what they were year over year, and in core markets, namely Memphis, Kansas City, Greensboro and Tampa, we're seeing 2% to 4% in year over year asking rates. And you can see in the supplemental how it's net effectives have moved. Of course, some of that's related to product type.

And then as you think about your in place versus market across the whole portfolio, do you have a sense of that?

We do but we truly don't go lease-by-lease to see if we marked the market in that all the varying expiration terms and different evaluation of how it would compare to market today, where it is in the building and how it's built out, etc. We think there's some upside but I think these asking rates combined with what we're seeing and being able to continue to get stout annual escalators on virtually every lease we sign is a good indicator.

Okay. And then I know you guys had mentioned rising construction costs are keeping supply in check. I think on the last call, Ed, you had mentioned a couple markets that you're watching a little more than others. Are there any now that you're getting more concerned about too much supply?

No, but we still are watchful with regard to Nashville and Raleigh in how much they have underway. In Nashville, there's about half a million square feet, let me change that, it's about 900,000 square feet, that's about two-thirds pre-leased. And in Raleigh, looking for it, I've got it here.

It's about the same thing. It's right at 900,000 as well.

790,000 square feet and it's 40% pre-leased.

Okay.

But your comment, Jamie, still applies with regard to construction pricing. We still see it escalating approximately a half a percent per month.

Okay. And then last question, just in terms of corporate relocation, pipeline and build to suit pipeline, how does it look today versus maybe this time last quarter or last year?

Well, we feel a little bit better about it now versus last quarter in that we upped the low end of guidance from $100 million to $150 million so we have a little more visibility in that. We kept the high end at $250 million. We're in various stages of conversations with a number of perspective users and we would expect to have some announcements that would total at least the $150 million before yearend.

Okay, great, thank you. And then Mike, congratulations and good luck. It's been a pleasure working without over the years.

Likewise, Jamie. Thank you for your thoughts.

Our next question comes from the line of Jed Reagan with Green Street Advisors. Please proceed with your question.

Good morning, guys. First of all, Mike, congrats, and all the best. Just couple questions here. It looks like you guys sold a few under leased assets last quarter and just curious if your full year occupancy guidance contemplates some additional sales of vacant or lower leased buildings, and maybe just how would you characterize the occupancy profile of the buildings you plan to sell this year?

The guidance that we have, Jed, for year end of 92.5 to 93.5 for occupancy, we don't take into consideration any acquisition disposition impact on that. So it's void of that. It's what we own today and so we don't factor any acquisition disposition influences into that. I think that what we would sell in the remainder of the year, and we've maintained guidance at the same level, 1 to 200 million on that, the occupancies would be more in the mid 80s range on a weighted average basis.

Okay, thanks. And it sounds like you're pushing rents in low to mid single digits across your markets. Do you feel like there's any markets where conditions are shaping up where you could see a rent spike and start to push rents and call it the double-digit range in the next few years?

I would be reluctant to forecast that. I think that we might see a spot of that here and there but I think across the board on a weighted average basis, to be double-digit, I would prefer not to point to that wall.

Okay. Fair enough. And then just maybe lastly, on the concession environment, it looks like you had another quarter of kind of more moderate (inaudible) leasing commissions. Is that a trend you think is here to stay or maybe just a few words about kind of what you're seeing on that side of the business?

Sure. So as markets tighten, obviously there's fewer and fewer concessions to be had. And I think we've talked in the past about how some of the early tell tales of concessions, things that predominantly don't show up in the supplemental like a disproportionate amount of parking or building signage when you don't occupy the majority of the building, after hours, HVAC, those types of concessions have been long flushed out. But there's still some discussion about free rent when the RFPs go out and I think we firmly have our hand on the negotiation baton to win out on a number of those negotiations. So shifting a clear shift from turnkey, TI deals to specific TI allowances to be able to push the rent and to be able to continue to get the escalators that we like to have in these leases is becoming more and more in our favor.

And there's no doubt in our better BBD markets which is most of our product, we're seeing a lot of concessions, almost non-existent. You still see a request, as Ed said, but from what it was even a year ago and certainly back at the crunch, it's much better today.

Okay, great. That's helpful. Thanks, Ed.

Thanks, Jed.

Thank you, Jed for your comments.

Our next question comes from the line of Brendan Maiorana, with Wells Fargo. Please, proceed with your question.

Good morning. Mike, you mentioned lease terms in your prepared remarks. They certainly were higher this quarter. It looks like some of that was maybe attributable to the PPT lease which was long. But I think you mentioned even in Raleigh where I don't think there was one particular large deal that was close to ten years and overall it was over 8 years. Are you guys pushing terms longer and what's driving the longer terms over the past couple of quarters versus I think your historic average which has been closer to five years average term?

Brendan, it was like PPG clearly did have some skewing with 369,000 square feet that had ten years of extension on their existing term. There was one reasonably large transaction here in Raleigh that had some influence on it. It too was longer than a ten-year term so it had some influence. We always like to push term. It's kind of taking the bird in the hand. We really prefer to get more term. With that comes sometimes a little bit more in the way of TI obviously in commissions that you get.

But, you know, just knowing we don't have to look at retrofitting that space with a roll over in five years or whatever is meaningful to us. I would say down the middle, it's still, though, your average smaller mid-sized tenant call it in the 10,000 square feet range. They're still looking at the 5 to 7 years. That's tend to what they prefer but the larger tenants are making that type of investment and they do make significant investment over and beyond what we put in there. They tend to want longer term as well just to help them spread out their leasing costs over time.

Just to put PPG in perspective. If we netted it out, we would still be mid to high 7s on the 8.3. So we did have, as you pointed out, quite a few deals in other markets that had long durations and it was part of our, one of the initiatives within our strategic plan was to push for longer term rents and back then we were in high 3s, low 4s and so this has been a strategic objective for us now for going over ten years. And being able to get good credit customers to commit to a longer period of time inclusive of annual escalators has been how we've run the business. And if you look at it on a per-square-foot spend of CapEx over the term, at 302 for the quarter, we're right in line with the 5 quarter average.

Okay, great. Part of it seems like it's an evolution and an improvement of the portfolio over the past ten years. Part of is probably the business environment that we're in. Where do you guys stand in terms of the annual escalators that you're getting now versus where it's been historically? Has that moved higher as well?

It has not. We're still in the zip code of two-and-a-half. We certainly do some lower, some higher and I think two-and-a-half is the general average where we have that. Don't forget that when brokers compute their commission it's based on what you can calculate day one would be the customer's obligation over the term so that's included in that calculation and that usually helps to some degree.

We'll say, Brendan, in a couple of our markets, particularly Pittsburgh and Kansas City which historically were flat rent markets or you might have gotten bumps every three to five years. We're now getting for the most part annual escalators there, which is good. I think we're first mover in those marks and I think they're starting to follow suit. We think that will help us in those marks long term.

Okay. Great. You guys have done a nice job with occupancy and with many of the big blocks of availability that you had in the portfolio. It did look like Richmond moved down in the quarter about 350, maybe 400 basis points in terms of occupancy. Anything in particular that happened in that market which caused the blip in the quarter?

Yeah, we had one customer who moved to a company owned building and we back filled it and the backfill will take occupancy in the third quarter.

Okay. And, Mike, you mentioned a lot of the space, the blocks that you had that you knocked out on GlenLake. It sounds like there's great activity there. That's basic One Alliance which will come online. Are there many large blocks left in the portfolio? The only one that comes to mind I think is Lakeside down in Tampa but I couldn't even think of any others. If there are any, that would be helpful.

That's the largest opportunity in Tampa Bay Park in Tampa where, we as you mentioned Lakeside. We have had some activity on that. We expect to be about a third of that backfilled here shortly and we have some prospects for other parts of the building.

Okay.

If we get lucky with what we have in the works, we could be 85%, 90% filled or signed by the end of the year.

We still have I think a full floor in LakePoint II which is part of the PWC move-out but activity there as well so you're right, Brendan. And given the status of most of our markets larger blocks are just much in demand, so as we've said in the past, if you've got a large block, you're sitting a little bit of a competitive advantage in the markets.

Well, great. And Mike, congratulations. Really appreciates all the time working with you over the years, although I think we still have you for one more call. But congratulations on pending retirement.

Thank you, Brendan. I appreciate it. Enjoyed working with you as well.

Our next question comes from the line of Michael Lewis, with SunTrust. Please, proceed with your question.

Thank you. So you talked a little bit about the G&A. I was just curious, is the higher guidance just because of higher non-cash comp in the first quarter and then also could you remind me about the seasonality? I understand 1Q but it seems like, you know, the other three quarters of the year have kind of bounced around a little bit too. Is there anything kind of structural to think about there?

Michael, it's Mark. Nothing really that we haven't already called attention to. You know, in that first quarter because of the way our retirement plan works, we do have to expense some compensation that otherwise would have been amortized over a period, but that's really the main outlier in Q1. We do, as you noted, have obviously with a little higher stock price, a little high incentive and bonus expense and that's why we just nudged that a $500,000 or so on the guidance side.

Okay. So 2Q through 4Q should be relatively similar?

They should.

Okay. And then second, you know, there's kind of still a big range on the acquisition guidance. I was wondering if you're working on one or two big deals that might be binary, they hit or they don't, or if you would really need a few things to hit to get to that $300 million high end? Just thinking about how realistic that high end is given your comments about the landscape for acquisitions.

Mike, I think the answer is just the bulk. We're looking at a number of things and there could be the latter and there could be the former. I don't mean that to sound like a Bill Clinton answer but it's both, really.

And then just lastly. I was just curious why you dropped some of the industrial and retail detail from the supplemental? Is that just to streamline and pointing in the right direction, or is there anything I could read into that?

No. I'm glad you asked that. We talked about this during last year, internally, and since we are now out of industrial in all but one market and since our retail is predominantly 90% plus in one market, what we found was that the brokerage community and others were able to basically see our rent roll because we didn't have the cloudiness of it being spread across a number of markets and we felt that we were putting ourselves at a in the trenches disadvantage by the amount of clarity and disclosure that others were seeing. In addition to that, as we've stole out of industrial and retail, not selling out of retail, but the retail plus the reduced amount of the industrial portfolio and the growing office, it has become a smaller and smaller percentage of the overall entity.

Okay. Thank you.

You're welcome.

Our next question comes from the line of Vance Edelson, with Morgan Stanley. Please, proceed with your question.

Thanks, good morning, guys. So the occupancy continues to generally move in the right direction and in recent memory at least even going back to the last cycle, occupancy has never been extraordinarily high so could you share your thoughts on the ultimate up side from here, what the structural limit might be if the economy continues to strengthen over an extended period?

This morning's GDP announcement aside, we would think that, you know, a 94.5 to 95 is doable. Of course it takes, as you mentioned, a mosaic of other things have to stay in place and continue in the right trajectory. But we think that, you know, the 94.5, 95 is doable.

Okay. Good to hear. And then bigger picture, you've had a lot of success choosing which markets to enter and you find yourself in some of the most exciting second tier markets in the country and you've also managed to avoid some of the weakest. So, could you provide your updated thoughts on potential expansion markets? Is there anything that might have the critical mass potential, for example, of a Pittsburgh and anything you would consider in Texas, etc.

So good question, Vance. We look at other market potential and we make a pretty good hobby of that. We invest a fair amount of time studying that. I think that it would be fair to say that in general, that from DC over to Texas would be the major footprint that we would be interested in with regard to potential expansions. So over, not the last couple years but inclusive of the last couple years and well before that, we have looked for opportunities to enter into potential Texas markets and DC and some other places in between like Charlotte, and we just haven't found the right collection of assets at the right pricing at the right time in good locations that we want.

So we look and we'll continue to invest time studying that, and I think that's a general sense for where the footprint would be. We don't have any interest in entering a market like New York, Chicago, L.A, that scale of market. We like to be in a relatively dominant position in a mid-tier market. We don't see any synergy's to be captivated if we jump all the way out to the West Coast or the northwest. It doesn't make sense for us. And we like to be in markets that traditionally have economic demographics that outperform national averages. So you take those three relatively sophomoric criteria, apply them to the footprint from DC over to Texas and you have a pretty good sense for what we would look at.

Okay. Sounds like you're being disciplined which is great. Last question I'll ask, you have and got a nice ramp up ahead in rent commencements given the development deliveries and your dividend has been consistent which is a good thing given that it wasn't even cut during the recession. But if you could share your thoughts around a potential dividend increase going forward as the cash rents commence?

Sure, Vance. When we had think about the dividend, obviously it's a balance, right? It's a balance between our capital expenditures, our seed money for future development and growth, you know, all those things in our minds benefit the shareholders. We look at it, no question we constantly evaluate it and we'll continue to evaluate it but no near-term plans to do anything different at the dividend.

Okay. That's very helpful. I'll leave it there. Thanks, Ed.

Thank you, Vance.

Our next question comes from the line of Charles Croson, with Jefferies and Company. Please proceed with your question.

Hi, good morning. And Mike, congrats on the retirement. I just have a few quick questions here. I'm filling in for Tyler by the way this morning. You mentioned potential expansion or at least you're looking at the Texas market. Just given where oil and gas prices are right now, are you seeing any sort of, you know, asset dislocation there that, you know, would get you interested in the market currently whereas, you know, longer term basis, you know, the assets might be worth more than they are today? Is that something that you're seeing in that market right now?

So Charles, good question. I just want to under score that we've been looking at Texas for years so it hadn't just been of recent that we've been doing it so I just wanted to be sure I was clear on that communication. I may not have been. We've been looking at Texas and other markets and we think it's good habit to do that to know what's going on in markets that are relatively in close proximity to where we are but we haven't seen throughout the years of looking there of the right opportunity for us to make an investment and we continue to watch it but we don't see that as of this point in time. For the right entry point.

Okay. That's helpful. And next question, then, on the LOIs that you had mentioned at GlenLake, can you give us a sense on the timing of when you expect those to close? And then I know you can't give, you know, too much detail there but just directionally, would those lease terms be somewhat in line with what you have been reporting?

Sure. So just to recap for folks. It's about 166,000 square feet. We announced it in fourth quarter of 2013 at 25% pre-lease. Last quarter we were 42%. This quarter we're at 53%. And we expect to have leases signed that would take us north of 40% by of end of the second quarter.

80.

80. What did I say? 40? I'm going backwards. We expect to be north of 80 by the end of the second quarter and then we have prospects beyond that but we don't have signatures out at this point in time.

Okay. All right. That's helpful. And then just last question here. You had mentioned, you know, you didn't really see any cap rate compression in the quarter but that obviously remain historically rich. As we look out over the course of the year, do you see, you know, cap rates compressing further or pretty much just staying in place?

I would go with the latter. They've compressed a lot to date. You know, certainly it depends a lot on what a buyer or seller may be thinking as far as their need to get out, when they would get out. But I think as you underscored, they're rich now and we don't expect them to get much richer but they are rich.

Okay. All right. Thank you for the answers. I'll hop back in the queue.

Thanks, Charles.

(Operator Instructions). Our next question comes from the line of Michael Bilerman with Citibank. Please proceed with your question.

Great, thank you and my congrats on the retirement. That gives us all hope that eventually we'll all be there too and get to enjoy it.

Thank you, Mike. Be careful. It get there before you know.

Just curious as you think about the acquisition and dispositions at least on the disposition side you said you had a number of things non-core at various stages. Within that 100 to 200, you know, do you have anything under contract to sell or under letter of the intent just as we start thinking about the potential timing and execution of those sales?

Yeah, we have approximately 50 million that we think that we would close over the next 90 days or so.

And then the balance towards the back half of the year?

Right. Some of that just depends on how marketing goes and how a couple of lease deals that we're working on go.

And where have cap rates come out as you think about the range on that 100 to 200?

Mid to low 7's to high to low 9's.

Do you have any desire to tap in if there's been any sort of interest as buyers sort of expand the universe of markets they look at to potentially, you know, sell joint venture interest in any of the sort of core assets? I know you deem this 100 to 200 to be non-core but do you have any interest in either a joint venture for core asset or sale of a core asset outright?

We don't, Michael. I don't want you to interpret that as we wouldn't but we don't have a whole lot of that. If you look at our JV revenue, we've dramatically reduced our exposure to JV by a significant amount. I think that over the last ten years we've sold almost 80% of our JV revenues. We find that the complexity that comes with joint ventures causes a loss of maybe a few more brain cells than we'd like to and it restricts our ability to be stealth and sleek on the ground during the day. A lot of that depends on who the partner is. But JV assets, in almost every instance, 100% of the time they're encumbered. So then you have yet not only a JV partner. And sometimes a JV partner who brings a (inaudible) with them and then a lender as well. We think it adds complexity and it makes it more difficult to be more reactive to needs of the building, prospecting, etc.

We prefer the flexibility of being wholly owned. That doesn't meat we wouldn't do JV's. We certainly still have some. But we don't have a high appetite to off lay risk in the diversion of a JV for our portfolio at this time, or any aspect of it.

That's helpful. In your opening comments you talked go the substantively add to the pipeline of the developments and you obviously raised the bottom end to 150 from 100. You talk a little bit about sort of the state of those prospects in terms of, you know, sizing of potential built to suits, how much, 100 million land bank, how much of that is it land that you own today that you can bring into production versus, you know, land that you would have to go out and acquire?

So a few things. The state, it's across three different states. I know that's not what you meant, sorry. They are in different states in negotiation. I think that as we've said in the past that if you look on average at the development that we've done in recent past, the average deal size is about $50 million. Obviously, we've got Biologics that's about $15. We've got Bridgestone that's around $200. But the average deal has been in the $50 million so when we gave guidance at the outset of the year, we said think two to four projects for this year in approximately the $50 million range.

We feel relatively good about our ability to be in a situation to announce the 150 or we wouldn't have raised that number. But we kept that high end at the 250. There's certainly conversations that are ongoing that could take us to the 250 but they're difficult to predict at this point in time. And so with regard to the overall land portfolio, we have, you know, 496 acres and we consider about 420 of that to be core. It depends on the prospect. Some of this land we would need to go buy in order to accommodate the user akin to how we won the Bridgestone deal.

And then others, the land that we have fits perfectly for their use akin do what we did for the MetLife deal. So the land that we have will support over a billion dollars worth of development. I think if the next $1 billion of development that we would do, I would say that it would be fair to assume that 50% to 70% of that would be on Company owned land and 50% to 30% would be on land that we would buy to accommodate that user.

Okay. That's helpful color. In terms of the occupancy, the high end of the occupancy guidance at 93.5 to the end of the year, when you look across your markets, is there certain markets or there is there even certain assets that you're targeting to get there? I'm just curious as you look down that list, where that biggest potential is to get that occupancy gain?

Yeah, good question. The low occupancy today have the greatest opportunity for gain in virtually all of our markets. Let me restate that. In all of our markets we forecast year end to be higher than where we were at the end of last year now which is the 91.9 so we expect growth there and in some of these markets where we're already 95 to 96, we can maybe move them a couple of percentage points but there's not a lot of upside there. And then we have like Atlanta and Raleigh where it's lower, we think we have some significant chance for upside there.

And in Tampa where we talked about the vacancy there, trying to move that as well. Even Nashville which is we've touted has been an extremely strong market and we're at 95.3 I believe in that market but as we pointed out, we had a move-out of a pretty sizable customer already back filled it. That occupancy will pick back up as we go into the next quarter so there will hopefully be a blip there as well.

An upward blip, exactly. And I guess as you think about that 150 basis points, call it a little north of 400,000 square feet, is there any chunky pieces as we think about getting to that in terms of certain building leases or certainly major tenant leases to achieve that occupancy level?

I think a majority of that is inked and hasn't commenced yet.

Great.

Clearly, with the low end of that we may have to get a little bit of luck to get the high end but most of it has been inked and just hasn't commenced yet. Akin to what Mike mentioned we had a customer that moved out into a Company owned building and we back filled it. We have some leasing at Lakeside and some other places. Somebody asked earlier about Richmond. We have back filled that 70,000 square feet and it's inked. It will start third quarter. What gets us to the low end I think would be fair to say is mostly inked. The One Alliance deal that we talked about in the terrace of 44,000 square feet, it's just a commencement deal.

One other one be just on the built to suits that you're targeting, these three to four deals, how many of those are in state moves verses out of state relocations?

What we would get us to the low end would be predominantly in state.

All right. Thank you.

Sure, Michael.

Our next question is a follow-up question from Jed Regan with Green Street advisors. Please, proceed with your question.

Hey, guys, just a quick follow on related to Michael's questions. Can you talk about which markets you're most focused on today in terms of the new acquisition development opportunity that he talked about three states and maybe if you could offer a little more color there. And then, are you looking at any portfolio or entity level investment opportunities that, you know, might seem interesting at this point in the cycle?

So on the States, Jed, I would prefer not to be too specific about that. We're in competition with others and I think it wouldn't be too hard to try for some to figure that out. But hopefully, you know, we'll have announcements for you in the not too distant future. With regard to entity level, no. We typically don't comment on those types of things but we've grown and transformed this Company through buying and building mostly one-off assets and we have found that to be a very productive way to have transformed the portfolio and to be where we are today. And, you know, if it's not broken, why fix it?

Okay. Sounds good, thank you.

(Operator Instructions). Our next question comes from the line of John Guinee, from Stifel. Please proceed with your question.

All right. Sometimes when you multi-task, you zone in and out. So if this has been answered, say simply, I'm not answering it again. First, Mike, did I get this right that Michael Bilerman's retiring also and moving to Memphis with you?

That's what he said.

I'm going to miss him. Thanks. Second, Mike, we will miss you too.

Thank you, John.

And if you mention this, you know, as you know everything's running really well and then you hit speed bumps. Have you updated people on HCA and Syniverse technologies recently?

Yes, we have. With regard to Syniverse what we said I believe on the last call and a number of times in one-on-ones is that they have a new CEO. We think it's positive news given the comments that we've read in the media about what they're trying to do with the business. It appears their business is good. We feel that there's a good probability that they would stay but it's still early. So, you know, hopefully we'll know something. It doesn't expire until what, third or fourth quarter. Fourth quarter of 2016 so we're 7 quarters out before the expiration date.

And from what we can gather, their work force is substantial in that north part of Tampa. They really liked the building. They is an executive group that has an office in downtown Tampa. The new CEO has pretty much touted that he tends to follow the lead of the work force in terms of where they're located so we're encouraged about that.

With regards to HCA, we know they're in the process of the building a building and so their space is located in sub markets that have, you know, single digits vacancy lows, single-digit vacancy. They're leased, the majority of their lease doesn't expire until 2017 so it's early there but there's staggered expiration dates. We feel good about the space and it's in sub markets that are highly desirable.

Is this $26 a-square-foot which look like it's your gross rent here, does that reflect above or below market for that product?

We think that we would be able to release it close to what they would expire at.

Okay. And then the ATM, are you fairly consistent in accessing the ATM for example did you use it or did you access it entirely in the month of January when the stocks were really running, or did you access it throughout the quarter, and are you continuing to access the ATM?

Well, we were blacked out.

Right.

For a good component until February 10 of the year.

Right. John, so after the blackout, we did utilize the ATM in some short period of time and it's kind of, you know, we obviously do it in an opportunistic way when we think it's attractive so it's not, you know, just a put our head down and watch it go. We basically are timing and watching the price and making decisions every day so Ed and I and Jeff Miller our General Council and you kind of kibitz about how much we want to do and what the price levels are in setting it. You know we have provided pretty clear guidance on the share range that we expect, the weighted average share range we expect at the end of the year. Really, it's designed to help us fund the development pipeline and keep leverage in the range that we're currently at.

Great. Okay. And then last question, and I'm not sure if it's public or not and I would expect you not to say anything if it wasn't, did the concourse deal up in the perimeter market of Atlanta ever happen?

Did it ever happen?

Yeah, did somebody buy it? Is that officially off the market?

Yes.

Yes. It's been in the media that it has been bought by BLT.

Gotcha. Thank you.

I don't know if it's 100% ownership but I understand it's traded hands.

Thank you very much.

Sure, John.

Be safe up there, pal.

You know, it's incredibly overdone by the media. I would just love to strangle everyone at CNN and FOX, etc. Don't get me started. Thanks.( Laughter)

We have no further questions from the phone lines at this time.

Thank you everyone for dialing in. As always, please feel free to call with us any follow-up questions. Thank you.

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