Highwoods Properties Inc (HIW) 2015 Q3 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 will conduct a question and answer session. (Operator Instructions). As a reminder, this conference is being recorded Wednesday, October 28th, 2015.

I would now like to turn the conference over to Mr. Mark Mulhern. Please go ahead, sir.

Good morning, everyone, this is Mark Mulhern. Ed Fritsch and Ted Klinck are with me on the call today.

As is our custom, today's prepared remarks have been posted on the web. Also, in yesterday's release we have announced the dates for our 2016 earnings releases and conference calls. If any of you have not received yesterday's earnings release or supplemental, they are both available on the IR section of our website at highwoods.com.

On today's call our review will include non-GAAP measures such as FFO and NOI. Also the release in the supplemental include a reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures.

Before I turn the call over to Ed a quick reminder that any forward-looking statements made during today's call are subject to risks and uncertainties and these are discussed at length in our annual and quarterly SEC filings. As you know, actual events and results can differ materially from these forward-looking statements. The Company does not undertake the duty to update any forward-looking statements.

I'll now turn the call over to Ed.

Thank you, Mark. Good morning, everyone, and thank you for joining us today. If Rip Van Winkle had commenced his infamous nap on August 4th, the date of our last release, and woke up just in time for this morning's call he wouldn't think much is happening in the economy during the past three months. He would see the Dow Jones continues to hover in the mid-seventeens, the 10-year US Treasury continues to reside in the low two's, oil prices continue to hang in the mid to low 40s and the RMZ continues to hug 1,100. So forgive old Rip for having dreamt that the Dow touched 15.3, that the 10-year hit 190, that oil traded at 38 and that the RMZ dipped below 1,000.

Despite August and Septembers capital markets' volatility, there has not been a detectable impact on the steady demand for our well located BBD product. During the quarter we leased 1.1 million square feet of second generation office space at robust net effective rents of nearly $14.50 per square foot, 6.3% above our five-quarter average. Compared to last year's third quarter we also grew same-store cash NOI by 6.3% and increased occupancy 160 basis points. Our same property occupancy was an even 93% at quarter end, 10 basis points higher than June 30th.

We are pleased to have delivered FFO of $0.77 per share during the quarter including a penny of acquisition costs.

On September 30th we announced a series of investment activities that will enhance our BBD office presence. Buying Monarch Tower and Monarch Plaza and in Buckhead, Atlanta and SunTrust Financial Centre in CBD Tampa and effectively funding those acquisitions on at least a leverage neutral basis through the planned sale of Country Club Plaza in Kansas City will result in significant and sustainable long-term value for our shareholders.

With these transactions we expect to capture accretive growth in earnings and cash flow by selling the Plaza at a meaningfully lower cap rate than the expected stabilized returns at Monarch Tower, Monarch Plaza and SunTrust Financial Centre, reap substantial NOI upside with our newly acquired assets, simplify our business model, reduce our annual G&A spend and return our leverage ratio to the low end of our comfort zone.

Monarch Tower and Plaza and SunTrust Financial Centre squarely fit our focus of owning BBD located office buildings at prices that offer upside through lease up, rent growth, Highwood-tizing and operating efficiencies.

With $449 million completed to date, we've exceeded our initial goal for 2015 acquisition guidance of $50 million to $300 million. The revised outlook we included in last night's release assumes no additional acquisitions in 2015.

The two buildings at Monarch Centre, which we acquired for $303 million, 20% below replacement cost, total 896,000 square feet and are next door neighbors to our One and Two Alliance Towers. The two Monarch buildings had never before traded and were owned by a 50-50 joint venture between an out-of-state pension fund and a sovereign wealth fund. With rents 12% below market and occupancy of 80% factoring in known near-term move outs, Monarch Tower and Monarch Plaza should provide solid NOI growth.

SunTrust Financial Centre is a 528,000 square foot trophy office building ideally located in Tampa's resurging CBD. We acquired SunTrust Centre for $124 million, 40% below replacement cost. Our investment includes $9.1 million of planned Highwood-tizing. We also expect to garner significant NOI upside of the tower, which is 77% occupied factoring in near-term move outs.

An added bonus of this acquisition is an adjacent one acre city block valued at $2.2 million that is suitable for future development. The site currently provides 245 parking spaces.

We believe this is an economically opportune time to capture the upside we have created in our retail dominated Country Club Plaza assets in Kansas City and redeploy the proceeds to effectively pay for these acquisitions. As many of you know, the Plaza is one of America's most unique retail experiences the Midwest premier shopping destination and the crown jewel of Kansas City. NOI is now at its highest point since our acquisition of the JC Nichols Company over 17 years ago.

We selected [East Dale Security] as our exclusive agent to list all of the Plaza's 804,000 square feet of retail space and 468,000 square feet of the Plaza's office space redeploying proceeds from the sale of the Plaza to acquire the two Monarch Centre Buildings and Sun Trust Financial Centre and reverse 1031 exchanges also enables us to efficiently defer a significant portion of the expected tax gain. Importantly, once this sale closes our leverage will revert back to low end of our 40% to 45% comfort zone.

During the quarter we also closed out another joint venture investment, this time by selling our 20% interest in a building in Rocky Point submarket of Tampa for $7 million. Plus we were paid back in full a $21 million secured loan we had provided to the joint venture back in 2012. Now only 2.1% of our revenues are generated by joint venture owned properties which is down 80% from its historic peak.

Year-to-date we have sold $39 million of non-core buildings. We're forecasting the sale of Plaza assets will occur no later than early 2016. Which side of New Year's Day it closes on is a back seat issue to us in comparison to price and certainty. While it continues to be a routine part of our business to position non-core assets for disposal, the revised outlook included in last night's press release otherwise assumes no additional dispositions in 2015.

Turning to development, we've delivered $162 million of 96% leased development year-to-date. In addition, year-to-date we have announced another $153 million of new development activity encompassing 561,000 square feet that is currently 35% preleased.

In total we have 1.6 million square feet of 72% preleased development in our pipeline. Our current development pipeline representing investment of $522 million will provide meaningful NOI upside and cash flow stability as it delivers over the next several years. We continue to chase additional opportunities, mostly on company owned land, and have reaffirmed our guidance for 2015 of $200 million to $250 million.

Finally, we have updated our 2015 per share FFO outlook by raising the low end $0.05 to $3.05 and the high end by $0.02 to $3.08. The midpoint of our updated range is $0.035 higher than our August outlook and $0.06 higher than our initial 2015 guidance. Approximately half the $0.035 increase from our prior guidance is the all-in impact of our September 30th announcements. The remainder is coming from continued improvement in our same-store NOI performance.

I'll now turn the call over to Ted to cover operational highlights. Ted?

Thanks, Ed, and good morning. Leasing volumes have been strong evidencing steady demand for well located BBD office product. With our occupancy at a healthy 92.6% and the nominal amount of competitive new product, we are well positioned to push net effective rents. As Ed noted, we had solid activity this quarter leasing a total of 1.1 million square feet of second gen office space and year-over-year asking rents continue to rise by 3% to 5%. Average in place cash rental rates across our entire office portfolio grew to $23.36 per square foot, 5.8% higher than a year ago.

Occupancy in our same property office portfolio was 92.5% at September 30th, unchanged from June 30th and up 150 basis points year-over-year. Overall occupancy was down 20 basis points from June 30th entirely due to the impact of 1.4 million square feet of value add acquisitions that closed on the last day of the third quarter.

We are pleased with the strength and diversification of our rent roll, customer mix and geographic BBD focus. Our top 20 customers represent less than 25% of our annualized revenues and no single customer other than the Federal Government tops 2.5%. And even on a pro forma basis after the sale of our wholly owned assets in Kansas City, each of our geographic markets accounts for less than 20% of our revenues.

For office leases signed in the third quarter cash rent declined 0.7% while GAAP rent grew a robust 9.6%. Net effective rents on second gen office leases signed were 14.46 per square foot, $14.46 per square foot per year, 6.3% higher than our prior five quarter average of $13.60.

Turning to our markets, Atlanta was recently ranked number one in job growth among top US metropolitan areas during the past 12 months according to the Bureau of Labor Statistics. Also, the market reported yet another quarter of positive net absorption, the 18th in a row. Our Atlanta portfolio is 91.3% occupied at quarter end, up 410 basis points year-over-year including the negative 90 basis point effect from the Monarch Center acquisition. During the quarter we leased nearly 200,000 square feet of second gen office space in Atlanta with very strong average GAAP rent growth of 16.4%.

We are well positioned to capture additional occupancy, particularly in Buckhead where we now own 1.9 million square feet of trophy office space clustered in the most competitively advantaged location in Atlanta's best submarket. Specifically our newly acquired Monarch Tower and Monarch Plaza, which total 896,000 square feet, are 80% occupied when factoring in the known near-term move outs. Our expectations for NOI upside at Monarch with its 180,000 square feet of lease up opportunity are akin to the performance we delivered at One Alliance Center. Since closing in June 2013 we have grown occupancy at One Alliance Center from 67% to 93% and increased asking rents by more than 15%.

On the same day we acquired Monarch Tower and Monarch Plaza we acquired SunTrust Financial Centre, a 528,000 square foot office tower in CBD Tampa. Tampa's economy is turning the corner generating year-over-year job growth of 2.8%, well above the national average of 2.1%. We are excited to be at the forefront of the resurgence of Tampa's CBD. Good stuff is happening downtown.

For example, there are over 6,000 residential units planned and/or underway. SunTrust Financial Centre is ideally located and offers spectacular views and a high walk score. With $9.1 million of planned Highwood-tizing we expect to further enhance the building's trophy profile and garner meaningful NOI upside. The building was 99 -- 89% occupied at closing it will be 77% when factoring in near-term move outs. Overall our Tampa portfolio was 88.2% occupied at quarter end, up 490 basis points year-over-year. We expect Tampa's occupancy to dip in the near term, particular due to the known move outs of SunTrust.

Speaking of cities with a surging CBD, New York Times recently quoted a Vanderbilt professor as saying Nashville is a "city on fire." With nearly a half million square feet of positive net absorption in third quarter alone, the market's overall occupancy rate has climbed to 92.5% with class A occupancy at 97.4%. Occupancy in our Nashville portfolio was 99% at quarter end, up 130 basis points sequentially.

In Raleigh the office market posted its tenth consecutive quarter of positive net absorption. Occupancy in our Raleigh portfolio was 91.6% at quarter end, up 150 basis points year-over-year. We leased 149,000 square feet of second gen office space with average GAAP rent growth of 15.8%. Since June 30th we've increased our leasing at our 166,000 square foot Glenlake Five development project from 80.5% to 84.3% and have strong prospects that would move us into the 90s.

Finally, CBD Pittsburgh continues to be a stout performer for us. Class A vacancy in the market remains very tight at 7.1%. Occupancy in our portfolio in Pittsburgh was 96% at quarter end, up 160 basis point year-over-year and 50 basis points sequentially.

At PPG Place occupancy is now 95.4%. In addition, we are excited about the energy and vibrancy being generated in the community as a result of our significant work to reposition PPG Place's now 57,000 square feet of retail and entertainment space. We have opened two new restaurants, Five Guys and Poros, an upscale Mediterranean restaurant, and we have another restaurant on the way, City Works, a craft beer hub opening next spring. These join stalwart restaurant destinations Ruth Chris and Einstein's.

As an additional amenity to drawing more visitors, a new ice skating rink will open in time for this Thanksgiving, more efficient and much bigger, two-thirds the size of an NHL rink and two-thirds bigger than the rink at Rockefeller Center.

As we head into the 2015 home stretch, there are sound reasons to be optimistic about 2016. In Yesterday's release we announced a 198,750 square foot long-term renewal with Syniverse Technologies in Tampa's I-75 submarket that was signed subsequent to quarter end. This is by far our largest 2016 lease exposure. With this renewal only 8.6% of annualized revenues have 2016 maturity dates. The effect of this deal is shown in the expiration tables and top 20 customer list in this quarter's supplemental and will be included in the fourth quarter leasing statistics and next quarter's supplemental.

Mark?

Thanks, Ted. We had a strong third quarter that ended with a series of investment announcements that will be very positive for our balance sheet, earnings and value creation in 2016 and beyond. For the third quarter of 2015 we delivered FFO per share of $0.77 including a penny of acquisition costs. The year-over-year comparison is $75 million of FFO in 3Q 2015 or $0.77 versus $66 million of FFO in 2014 or $0.70 per share. That is a 14% increase year-over-year in dollars and a 10% increase in per share amounts. The primary FFO growth drivers are higher same property NOI due to higher occupancy and higher rents, contributions from value add acquisitions and developments coming on line, slightly offset by lost NOI from dispositions.

As Ed mentioned, we have raised and narrowed our full-year FFO guidance to $3.05 per share to $3.08 to reflect continued solid operating performance of our properties as well as the projected $0.018 positive net impact of our September 30 announcements. We included a table at the top of page two of the press release itemizing the per share effects of these announcements, which consisted of $0.068 of NOI from Monarch Plaza, Monarch Tower and SunTrust Financial Centre offset by $0.01 of acquisition expenses that were recorded during the third quarter, $0.014 of borrowing cost to fund the acquisitions at LIBOR plus 110 using our bridge and credit facilities and finally $0.026 of anticipated severance costs required to be accrued in the fourth quarter due to our intent to close the Kansas City Division office upon the closing.

We have raised the low end of our full-year same property cash NOI guidance by 50 basis points to 6.5% and the high end by 30 basis points to 6.8% reflecting our confidence in the positive momentum we see in our markets and overall results.

We also updated our G&A expense outlook for the year to $40.5 million to $41.5 million. The $4 million increase at the midpoint from our prior outlook is primarily due to the acquisition and anticipated severance costs I just mentioned. One item to note with respect to our plan to sell substantially all of our wholly owned Country Club Plaza portfolio, page 95 of the 2014 10K shows last year's GAAP NOI contribution from our wholly owned properties in Kansas City of $34.5 million. This includes two wholly owned office buildings totaling 149,000 square feet that are not part of East Hills' offering package. Those buildings contributed $1.8 million of GAAP NOI in 2014. We are working on exiting those buildings as well as evaluating our JV investments in Kansas City.

Turning to our balance sheet, we ended the quarter at 45.1% leverage versus 42.1% at June 30th. This includes borrowings to temporarily fund the acquisitions, which we expect to pay down no later than early 2016 upon the sale of Country Club Plaza. We received great support from our bank group and were able to obtain a $350 million unsecured bridge facility at the same spread over LIBOR as our current revolving credit facility to fund the acquisitions in Atlanta and Tampa. We initially borrowed $250 million and expect to borrow the remainder to pay off $106 million, 6.9% secured loan that is pre-payable on November the 12th.

We utilized the ATM early in the third quarter to issue 1.2 million shares and raise approximately $49.7 million continuing our commitment to fund our growth on at least a leverage neutral basis. We view the September 30 acquisitions as effectively self funding given our plan to sell the Country Club Plaza assets. We will continue to be measured and opportunistic in our use of the ATM to fund pay applications in our development pipeline.

Operator, we are now ready for your questions.

(Operator Instructions). Our first question comes from Vance Edelson from Morgan Stanley.

Hey, guys, congrats on the quarter. You cited the discount to replacement costs on your two acquisitions, which is very helpful. When you think about the sale of Country Club Plaza, any feel for where that might trade versus replacement just ballpark or is it too early to tell?

Yes good morning, Vance, thank you. We prefer not to put a number out there whether we pit it against replacement costs or just a general number for what it may trade at. We don't want to do anything that might taint what we expect to be a highly competitive process.

Okay understood, no problem, and then on the Syniverse early renewal, how much of that was you going to them early versus them going to you or as it mutual? Just trying to get a feel for market dynamics there and I guess related to that if you can share where the rent came out versus what was in place?

Sure, I think we met in the middle on that. They had a broker from Cushman representing them so I think that was a middle of the road mutual interest in the timing. We renewed them through early 2026 so that's [scotch] through then. We had an approximate 5% roll down in cash and we had an 18% positive impact on GAAP so we're glad to have that done and now really the largest exposure we have next year is what we include in the known move outs at Marnock.

Okay perfect and then lastly for me you mentioned more opportunities on co-owned land I think is what you said. Any pipeline or build-to-suit opportunities worth mentioning, any early conversations that might lead to something?

Yes we're -- hopefully they will lead to something. As you saw, guidance remained unchanged at 2 to 250 and we're just north of 150 right now. We're in multiple conversations. You know, as we've always said, it's tough to tell when those things come out of the oven and whether it's our oven or someone else's but we are undoubtedly in multiple conversations and we're optimistic as I think the real question would be does it fall in 2015 or early 2016.

Okay that's very helpful. Thanks, Ed.

James Feldman, Bank of America.

Focusing on some of the legacy assets in the development pipeline, Seven Springs and Riverwood 200, I don't think we saw much leasing progress there during the quarter. Can you talk about some of your conversations for those assets?

Sure. So Riverwood 200 you may recall we announced it early June at 39%. By mid-July we had boosted preleasing to 66%. We're just now hopefully next week we'll pour slab on grade and we won't do the first elevated slab until around November 7th or 9th so we're a long way from you getting that building completed. It doesn't complete until second quarter of 2017. We have prospects that we're talking with but I wouldn't put them in negotiation category yet but we certainly are having showings and conversation about the remaining 34% of that building.

And the other one that you mentioned was Seven Springs where we have the 203,000 square feet underway. You may recall that our prelease customer originally took five of the seven stories and then grew to six of the seven stories. Again, that building is not doe to be complete until second quarter of 2017 so we have plenty of time on that. Nashville has -- I think it was in Ted's comments is on fire. You know, our occupancy there in the portfolio is 99%. I think there's really nothing to worry about there. In fact, to the point, when we decided to start Seven Springs West the 133 -- 131,000 square foot building which falls in this same park and currently we have prospects for that that would equate to about a third of the building and we're just now starting to scratch the ground.

Okay thanks. And then thinking about Nashville generally, I think on past calls you've said supply is starting to pick up there and you've been watching it as a market that might be at risk. What are your latest thoughts?

Well, the market is in very good shape. There are a couple of development projects. We're doing a few and then there's a couple in the -- there's one that's likely to happen out in Cool Springs, what we call Franklin Two and then there's one occurring in the Gulch that's recent to become completed called Gulch Crossings. It's 90% leased at this point and then 1201 Demonbreun is 70% leased at this point so -- and this is really not a whole of spec space. That which has been built or is underway is really in good shape.

Okay and then finally for me just taking a step back and thinking about the big picture here, what is your appetite for more of these large deals like we've seen the last couple of years from you guys in terms of acquisitions?

In terms of acquisitions, you mean akin to the three buildings that we just bought?

Correct.

Yes, I mean that's -- I think that's a core part of our business that will continue to identify those assets that are in our markets in the BBDs that we think would be good for us to own and if we have a way to bring them into the fold in an accretive and constructive manner that's certainly what we'll do. All three of these buildings are clearly value add with significant NOI upside, both from leasing, rents and Highwood-tizing and operating efficiencies. I think also when we can staple in garnering synergistic benefits as we have with Monarch Towers and the Alliance Towers I think that's an added bonus.

Okay and are there certain markets where you think there's more opportunities than others?

You know, I think it's in scale and obviously the activity that we see, the scale of Atlanta is different than the other markets that we're in but cities like Nashville and Raleigh and Pittsburgh are all very vibrant now and the others aren't far behind. We continue to pursue the long talked about wish list.

Okay thank you.

Thanks, Jamie.

Manny Coachman, Citigroup.

If we think about the newest acquisitions, you spoke to Highwood-tizing the buildings. What's sort of the timing of getting those improvements in place and then where are you in your expectations of leasing those to sort of more full levels?

So we think it will take a few years to get to the point we're fully stabilized on all 1.4 million square feet. Some of the Highwood-tizing, Manny, begins 15 minutes after we buy it and some of it takes a couple of years so if we're modernizing elevators it's a multiyear process, as you have to stagger how you take cabs in and out of service. If it's redoing chillers and roofs, it's a longer process but some of it is immediately going in and doing things to dress up lobbies, paint parking decks, convert lighting so it's brighter in parking decks, those types of things. So it varies from one to four years in general just as we delivered at PPG Place in Pittsburgh. The dollars are more heavily weighted to the first couple of years and some of those, you as a customer would see and some of it you would hopefully feel but may not see so some of it falls in the mechanical building infrastructure and other falls in an aesthetic category.

And then occupancy upside assumptions sort of at those new acquisitions?

Yes that's what I said, we would expect to be stabilized over the first few years and be at a low to mid sevens return and that's what we were suggesting when we mentioned that the sale of the Plaza would be to meaningfully lower cap rate that we expect to stabilize the million four that we just bought and the mid to low sevens and we expect to sell Country Club Plaza for something substantively meaningfully below that cap rate wise.

And then just on the Plaza sale, do you expect that the retail and the office portions to go to a single buyer or do you think that could be split up?

We would expect that. We'll see how it plays out but I think that it's really only a couple categories so the retail component is just over 800,000 square feet and the office in total is [468]. A portion of that 468 about just over 200,000 square feet is in second story office. I think bifurcating that from the retail would take some work but then the Valencia Tower, which has 460 -- I'm sorry, 263,000 square feet of office would be more easy to separate out and obviously bidders would have that opportunity to bid along those lines.

Great, that's it for me. Thanks, Ed.

Brendan Maiorana, Wells Fargo.

Had a couple of mechanical questions on Country Club Plaza so if our valuation is anywhere close to right I think the proceeds that you get from selling that will be substantially higher than Monarch and SunTrust so from a gain perspective would there -- would you need 1031, additional 1031 acquisitions, or could you shelter your gains through your existing $1.70 dividend if you didn't want to pay a special or pay tax?

So, Brendan, it's Mark. I think it's likely that we would look for other 1031 opportunities just, you know, we're doing a reverse 1031 here where we're using the proceeds from what we get from CCP to shelter the gain or to use against the acquisitions we made in Tampa and Atlanta to shelter that gain on the Country Club Plaza asset but if in fact your speculation is right on proceeds we would have further 1031 opportunities and we could use those going forward.

So, Brendan, it's structured so that we would have a reverse 1031 for the approximate [four and 30] we've invested and then we have the potential to do a forward 1031 on additional proceeds as long as we identify within a certain amount of time of closing and then we'd have six months thereafter to close on what we identify.

Yes and how's the, Ed or Ted, how does the prospect look -- list look for acquisition opportunities that are out there? Is it a lot lower now than it was a couple of years ago or is there still stuff that you think looks attractive?

Yes, Brendan, we've already started putting together a list of assets that really work in our wish list so I think there's definitely some opportunities out there. Time will tell. We've still got to get through the sale and then look into the first and second quarter so I think we've got some ideas and all that but at this point it's hard to tell exactly what's going to be available but we think there's going to be some.

Okay and then, Ed, I think you alluded to this in your prepared remarks but are there G&A savings associated with exiting Kansas City or mostly operating costs associated with that platform in operating expenses?

Yes we have two dozen dedicated and very loyal and long-term coworkers in our Kansas City office so we'll be closing the Kansas City office commensurate with the sale of the Plaza so there will be G&A savings there and then you saw the severance number that we'll account for in the fourth quarter.

Yes, Brendan, two -- a couple things to add, so it's about a penny a share rough numbers when you exclude the severance costs. We think about kind of savings, G&A savings, going forward. I will say too that we potentially have some positive impact on our capital expenditures. Obviously the age of the Plaza and the nature of that and the re-tenanting that takes place required some maybe heavier capital than some of our other property so we're optimistic about that as well.

Okay great and then last one, so really good execution with getting the Syniverse renewal done. We've talked about HCA in the past and we know that you've got the known move out from the two acquisitions that you just did. Is there anything in 2017 in the legacy Highwoods portfolio beyond HCA from a large tenant expiration that we should be thinking about?

Yes the next largest that's other than HCA and other than what you referenced that we announced on September 30th, the next largest that I see would be in the 60 -- 50,000 - 60,000 square foot range.

Okay great. All right thanks, guys.

Yes so it's really relatively nominal after HCA and these acquisitions.

Yes okay thank you.

(Operator Instructions). David Rodgers, Robert W. Baird.

Ed, wanted to just ask you briefly I guess about dispositions going into 2016, sounds like you'll have your hands full at the beginning of the year looking for some more acquisitions to handle the 1031s for Country Club Plaza but I guess I wanted to kind of get your sense on kind of where you thought we were in the market for maybe pushing out more of non-core or maybe more of the bottom end of the portfolio in 2016. Do you think the Plaza precludes you from doing that or do you think there's some still good opportunity out there and are you feeling it's time to kind of accelerate some of that so a lot baked into that but all around that disposition concept?

Sure. So first, I wouldn't want to leave the impression that we have to buy in order to protect all the proceeds that we would hopefully garner from the Country Club Plaza sale. I think we have a number of options. We can fund development. We can pay down debt. We can do more Highwood-tizing so there are options in addition to acquisitions.

On the dispo side there are assets that we are working to sell outside of Kansas City's listing today with East Dale. We also have properties there. There are two buildings that total about 150,000 square feet that we wholly own that are not in the listing and off the Plaza proper that we would work to market and then we have a couple buildings that we're in joint venture on that we may consider the same.

And then for other buildings it's usual in the trenches day to day how are lease expirations, what would be the right time to get out of it. We kind of shamelessly underscore that we've been fortunate of late that we haven't had to sell anything in order to meet some expiring debt instrument or financial obligation so we're disposing to continue to improve the portfolio and do it where the timing is best with regard to rent roll so I think you'll see us do some of that and we'll obviously give out guidance early next year on what we would expect 2016 dispositions to be.

Helpful, thanks. I guess with regard to SunTrust you pulled that out the Brookdale portfolio it looked like. Had you had any interest in some of the broader assets in that portfolio? I think they had some Atlantic exposure and some others that might have overlapped with your footprint.

Yes we looked but we decided that this was the one that we had the most interest in.

Okay thanks. Last comment or question maybe on Pittsburgh, how are you viewing the risks in Pittsburgh and I guess I wouldn't just say energy but maybe the risk of new construction there? You mentioned in one of your comments vibrant for Pittsburgh and I just wanted to kind of go back to that and get a recap on that market from you. Thanks.

Yes so in Pittsburgh it's really only two projects. It's Four P and C and then a project called The Gardens and so Four P and C is a build-to-suit for their headquarters so there will be a 100%. It is a 100% preleased to them. They're in a couple of other buildings they call One and Two and Three P and C. We believe that One and Two P and C will be backfilled by them as they pull people into Four P and C so there may be some other buildings in downtown that they take some space out. We'll have to see.

And the other project is now about 50% preleased and coming on line in the not too distant future so I think it's not a girth of space. The project is only 125,000 square feet in total so with half of that preleased it's not a tremendous amount of space for a market of that scale. The long-term outlook for Pittsburgh remains strong, very heavily diversified economy and it's really done well from the time we've gotten there and I think Andy and his team continue to do things to not only improve the properties that we acquired but to energize them akin to what Ted was saying in his script. I mean the idea that we would ever own a Zamboni and lease space to a craft beer hum all in one location it's a good day for Highwoods.

All right thank you.

Jed Reagan, Green Street Advisors.

I'm curious if you're seeing any changes and maybe the size of bidding tents or just the valuation environment generally across your markets perhaps with impacts from market volatility or changes in borrowing costs, especially on the CMBS side and anything you're seeing there?

Really yes, Jed, it's Ted. Really haven't, I mean I think it's still been for the quality assets, highly competitive. The private guys are still I think the abundance of debt and equity capital is still there so we have not seen a significant change in the last several months.

Okay and cash releasing spreads have sort of been stuck in the red here for the past couple quarters and just wondering to what extent that's a function of market mix and how representative you think that is as we kind of look out into 2016?

I think that it's nominal. It's kind of barely negative and then some quarters in slightly positive, hasn't been dramatic in either way but we have gotten away from significant negative. I still think we're a victim of our annual kickers that we get in virtually every lease that are pretty strong compound annually. We do feel like it's a good opportunity for us to continue to push rents asking rents year-over-year up again 3% to 5% in virtually all of our product so I -- again, we'll give out guidance for 2016 early next year but I would expect that the GAAP would stay very strong and that reflects those kickers that we continue to be able to get annually compounded in each lease.

And order of magnitude to your average kicker these days either portfolio wide or kind of what you're getting on leases signed today?

2.75 to 3. The Syniverse deal for example, is 2.75.

Okay is that pretty representative of your portfolio overall you'd say?

Yes well I'd say that there's--

In (inaudible) Place?

I'm sorry the portfolio overall I would say would be closer to mid two's.

Okay great, thank you.

John Guinee, Stifel.

Great, a question for you, Ed, then a question for Ted. This is a softball, Ed, so get ready. When you look at the last couple years what you've done is downsize your JV portfolio, sold out of industrial selling retail, continued to sell non-core, demonstrated internal growth, demonstrated external growth, created a really clean easy-to-understand balance sheet, 20% max portfolio concentration in any market, modest land position clearly creating value on a fixed cap rate analysis, deep solid management team, portfolio dominated by BBD assets so Saturday afternoon you -- what are you going to be for Halloween? What is the perfect Highwoods Halloween costume?

Give you a chance to answer that, let me ask Ted. A king and queen deal in Concourse, the Concourse deal up in the perimeter, knowing what you know about the perimeter market now, would you have done that deal?

Look I think looking hindsight if we had done that deal I think we maybe have taken us out of the Monarch deal so I think we're very happy with getting our Monarch acquisition. I think it's a lot more difficult to build in Buckhead. I think central perimeter Atlanta you don't have a lot of new construction underway. I do think central perimeter is going to be some. It's a little bit easier to build up there so I think we're very happy with what we have.

Great thank you.

So, John, I suspect you want me to say Joe Flacco but I'm going to go with Bob the Builder.

Great thanks a lot.

Thomas Lesnick, Capital One Securities.

I just wanted to walk through kind of the development activity and what's kind of come on line so for Glenlake obviously 84.3% leased but stabilization isn't expected until 2Q of 2017? I'm just curious how much has actually commenced to date and why kind of the long runway there for stabilization?

Well, we have a long tradition, good or bad, of being a conservative Company and we think that when we announce projects that have any spec component in them that we need to reflect in our returns what we think it could take for us in the way of lease up so we include the lease up interest in that number when we put together our pro forma. We're optimistic that we'll beat that period of time.

As I mentioned with regard to Glenlake we have strong prospects now that would take us north of 90 but just from the time that somebody starts looking to test fitting to lease negotiations to permitting, buildout, move in and its first gen space so you're having to ceiling, walls -- you know, you're starting from scratch basically. It takes a period of time to do that but I feel very comfortable that we will meet or beat our underwriting on Glenlake Five and really there's not a project, a development project, in the system that we have any nervousness about with regard to what we put in the supplemental from day one of when we announced any particular project.

Understood thanks. And then on Plaza 211 obviously it's part of the Kansas City portfolio but estimated completion got pushed out a quarter here till 4Q. I guess what is that and is the completion of that a contingency for the sale?

Yes great question, so Plaza 211 I'll give you one minute of background on this. This was a department store in excess of 50,000 square feet for Halls and we basically stripped it back to just the skeleton of the building, mechanical, fa?ade, windows, everything, we stripped it out. And then we have built it back to be about 28,000 square feet plus parking. Where we are right now is we are in negotiations for LOIs for substantially all of the space. The reason for the quarter drift there wasn't really construction time but we have what we think could be a marquee user that we wanted to see how discussions went with them before we encumbered the space maybe with another prospect. It's all positive news and I think it will be 211 as a whole the availability of it and these LOIs that we're in conversation about will be seen very positive by the perspective buyer.

Understood and then one quick question on the sources and uses for 2016, obviously there's a lot of flexibility there with regards to the Plaza proceeds and paying down the bridge and the line and possible 1031 exchanges but I guess in terms of just a comfortability level with the balance on the line of credit, how shall we be thinking about what level you're willing to go to before potentially terming that out?

So, Tom, it's Mark. We, as you know, had kind of signaled before we made these acquisitions that we were likely to do some kind of a term out either in fourth quarter of 2015 or first quarter of 2016. I think because of the Country Club Plaza process we probably pushed that out maybe a couple of quarters so I do think in the back half of 2016 there's the potential that we will be in the bond market. I just think it just depends on the development spending, where we end up with the Plaza, what we do with proceeds there so I think we've got a lot of flexibility in the capital stack in terms of what we're going to do going into 2016 but we will, as we noted in the release, we've got a maturity that will pay off here in November that's got a mid six coupon in it so I think we're in really good shape. We'll have a very small amount of maturities in 2016 after we get this one early so nothing significant on the maturity front. And again, we will kind of play it by ear as we decide on the line balance.

All right great, appreciate it. Thanks, nice quarter.

And there are no further questions on the phone. I will turn the call back over to Ed Fritsch. Please go ahead.

Thank you, operator, and thank you, everybody, for dialing in. If you have any follow-up questions, as always please don't hesitate to holler. Thank you.

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