Piedmont Realty Trust Inc (PDM) 2015 Q3 法說會逐字稿

Greetings, and welcome to the Piedmont Office Realty Trust third-quarter 2015 earnings conference call.

(Operator instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Robert Bowers, Chief Financial Officer. Thank you, sir. You may begin.

Thank you, operator. Good morning, and welcome to Piedmont's third-quarter 2015 conference call. Last night we filed our Form 10-Q and an 8-K which includes our earnings release and our unaudited supplemental information for the third quarter, all of which are available on our website Piedmontreit.com under the Investors Relations section.

On today's call the Company's prepared remarks and answers to your questions will contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters which are subject to risks and uncertainties that may cause the actual results to differ from those we discuss today. Examples of forward-looking statements include those related to Piedmont Office Realty Trust's future revenues, operating income and financial guidance, as well as future leasing and investment activity. You should not place any undue reliance on any of these forward-looking statements, and these statements speak only as of the date they are made. We encourage all of our listeners to review the more detailed discussion related to risk associated with forward-looking statements contained in the Company's filings with the SEC.

In addition, during the call today we will refer to non-GAAP financial measures such as FFO, core FFO, AFFO, and same-store NOI. The definitions and reconciliations of our non-GAAP measures are contained in the supplemental financial information available on the Company's website.

I will review our financial results after Don Miller, our Chief Executive Officer, discusses some of the quarter's operational highlights. In addition, we're joined today by various members of our management team, all of whom can provide additional perspective during the question-and-answer portion of the call. I will now turn the call over to Don.

Good morning everyone, and thank you for joining us as we review our third-quarter financial and operational results. This has been a seminal quarter for us in many ways. And I think we will reverse the order of our typical quarterly call and start with the most noteworthy transactional events which we worked on during the third quarter, but did not close until after the September 30 quarter end. These events I'm sure are at the forefront of everyone's mind.

Last week we filed an 8-K to announce that we closed on the $712 million sale of Aon Center, a building that we purchased for $465 million in 2003. As I have stated previously, this transaction is the culmination of a lot of hard work over the number of years, and I believe it is an event that provides an excellent showcase for our operational expertise and discipline. As we have discussed in the past, we were concerned with the high financial concentration in Aon Center, with over 10% of our total portfolio's revenues and operating income deriving from this one large asset. However, a significant amount of re-leasing was required in order to optimally position the asset for sale and maximize the return to our shareholders. This quarter's lease with Kraft Heinz for a 170,000 square foot headquarters space was the capstone to bring the asset to 87% leased, allowing us to realize our pricing expectations.

As anticipated, the net proceeds after deducting various buyer-assumed lease abatements and contractual tenant improvements and leasing commissions, was approximately $646 million. Given the continued disconnect between private real estate valuations and the valuations in the equity markets particularly during the third quarter, we determined to use a majority of the anticipated proceeds from the Aon sale for a combination of our stock repurchase program and the pay down of upcoming debt -- mortgage debt maturities.

During the third quarter we used approximately $110 million of our line in anticipation of receiving the disposition proceeds to repurchase 6.2 million shares of our stock at an average price of $17.76 per share, a meaningful discount to our estimated NAV and yesterday's closing price. Upon closing the sale we repaid the entire balance on our $500 million line of credit, providing capacity for potential share repurchases, the pay-off of $167 million of mortgages maturing in 2016 and future strategic acquisitions.

We utilized the remainder of the proceeds to acquire two high-quality Sunbelt assets, which we also reported last night. First is the prominently located 433,000 square feet Galleria 300 office building in the Cumberland /Galleria submarket of Atlanta located near many walkable amenities, include the Cobb Galleria Center and SunTrust Park, the future Atlanta Braves ballpark. And secondly, the 655,000 square foot SunTrust Center, arguably the best office complex in downtown Orlando. We negotiated flexible timing and closed on both of those assets for roughly $259 million just a few days after we received the Aon proceeds. Given the number of moving pieces, I could not be more pleased with the seamless execution of the sale of our largest asset and the redeployment of those proceeds.

Other transactional activity for the quarter includes the purchase of 80 Central Street in Boxborough, Massachusetts and the sale of four non-core assets, East Point 1 and 2, which allowed us to exit the Cleveland, Ohio market; 3750 Brookside Parkway in Atlanta; and the Chandler Forum Building in Phoenix, Arizona. The sales resulted in total proceeds of approximately $66.5 million with a $17 million gain for our stockholders, which is included in our third-quarter results.

Additionally subsequent to quarter end, we entered into a contract to sell for $51 million, or $126 per square foot, our 2 Gatehall Drive asset, approximately 400,000 square foot office building located in Parsippany, New Jersey and currently 100% leased to two tenants. This decision to sell should also eliminate the leasing exposure from the 200,000 square foot departure of KeyBanc in early 2016. Although we have active tenants prospects, during the third quarter we were approached with a fair unsolicited offer to purchase the building that reflects some of the early re-leasing success we were having at the property.

Given current market conditions and private market pricing, we anticipate continuing to be a net seller in 2016 which should allow us to further bolster our balance sheet and to repurchase stock when we have the chance to do so at a discount to our estimate of NAV. I would like to point out that as of the end of third quarter we have repurchased just under $500 million of our own stock under our share repurchase program, representing over 16% of our starting share count. This is not a new capital deployment strategy for us and it's something that we believe in and will continue to use it to build additional shareholder value as conditions warrant or allow.

Moving onto leasing activity. Despite the limited lease expirations, our third quarter was a very busy one. We executed just over 900,000 square feet of leasing during the third quarter with approximately two-thirds of that relating to new tenant leases, mostly for vacant spaces. As a result of this leasing activity, I'm pleased to note that we have already reached our 2015 occupancy goal of over 90% with the portfolio being 90.6% leased as of September 30. And I'll add this is before removing the 87% leased Aon Center from that total.

The three most significant multi-year leases executed during the quarter include the previously mentioned lease for the Kraft Heinz headquarters at Aon Center, as well as 150,000 square foot 12-year lease with Motorola Solutions at 500 West Monroe, also in downtown Chicago, and a 100,000 square foot 11-plus year lease with the International Food Policy Research Institute at 1201 High Street in Washington DC. Many other leasing deals executed during the quarter are included for your review in our supplemental package provided last night. It's worth noting that with the sale of 2 Gatehall and the removal of the KeyBanc expiration, along with the one-year extension to 2017 of Comdata's lease in Nashville, that Harcourt's mid-2016 expiration of Breaker Point 3 in Austin, Texas is the only sizable expiration that we have upcoming over the next 18 months, and it is already being actively marketed.

On the development front, our 80% preleased 500 TownPark development in Lake Mary, Florida is in the final stages of design and permitting, with site work set to commence later this month. Everything is on track for an early 2017 delivery to CNA. In a related matter, our rezoning request for the adjacent 19-acre parcel was approved and provides for up to a maximum of 1.2 million square feet of additional mixed-use development, including 800,000 square feet of office space. At 3100 Clarendon in Enclave Place we're substantially complete on construction with only exterior upgrades to the retail space at 3100 Clarendon left to be completed during the fourth quarter. Leasing activity is also good at 3100 Clarendon, with several prospects expected to sign shortly. Enclave Place, however, is going to be a long, tough slog.

Lastly, I wanted to mention that we have welcomed a new Board member to the Piedmont Board of Directors this quarter. His name is Dale Taysom. Some of you may be already familiar with Dale from his 36 years with Prudential Real Estate Investors where he most recently served as Global Chief Operating Officer until his retirement in 2013. Dale is replacing Bill Keogler on the Board as part of a planned transition of various Board members who have reached their maximum 15-year term. I'll now turn it back over to Bobby to review our financials and expectations for the remainder of the year. Bobby?

Thank you, Don. While I'll discuss some of the highlights of our financial results for the quarter, I again encourage you to please review the 10-Q earnings release and supplemental financial information which were filed last night for more complete details.

For the third quarter of 2015 we reported FFO and core FFO of approximately $0.41 per diluted share. That's an increase of $0.03 over those same metrics last year. The commencement of several significant leases, as well as the continued burn-off of operating expense recovery abatements over the last 12 months, were the main reasons for the increase in FFO and core FFO and have driven our economic lease percentage up to 83% versus 79% a year ago.

AFFO for the third quarter of 2015 was $0.35 per diluted share, well above our $0.21 per share dividend. The AFFO results reflect the leasing and abatement items I just mentioned in addition to decreased nonincremental capital expenditures as a result of the completion of certain large tenant build-outs and the effect of straight-line rent adjustments related to the expiration of rental abatement periods since the third quarter of last year. As disclosed in our filings as of September 30, nonincremental commitments for capital for the next five years totaled $52 million. However it's important to point out that $17 million of that amount was assumed by the buyer of Aon Center.

Given the size of Aon Center, the fact that the property was such a significant contributor to our overall operating metrics and that much of what we did during the third quarter was in anticipation of that sale, we therefore included at the end of this quarter supplemental financial information on pages 48 and 49 a pro forma analysis of certain metrics with the Aon Center removed, with the proceeds used to pay down the share repurchase borrowings and line of credit, along with the addition of the two new office properties in Orlando and in Atlanta. Almost every pro forma metric improves. Total debt to gross asset [pro formas] to a decrease from a reported 41% to 37%. Debt to EBIDTA improves materially. And all of the leasing percentages advance. Please review the schedule in the supplement for further details.

Our reported total lease percentage as at the end of the third quarter was 90.6%, an improvement of over 300 basis points from the third quarter a year ago. And our weighted average remaining lease term was approximately 7.1 years. As of the end of the third quarter we had 1.1 million square feet of leases that were in some form of abatement. That amount pro forma is to approximately 1 million square feet post Aon. At the end of the quarter we also had 700,000 square feet of executed leases for currently vacant space that had yet to commence. That's about 500,000 square feet post Aon. This is driving an approximate 7% gap between economic occupancy and reported occupancy.

With the upcoming lease expiration among the lowest in our office peer group, lease commitments and the burn-off of abatements are expected to continue to drive further improvement in our same-store cash NOI. During the third quarter property NOI increased 10.7%, same-store cash NOI increased 12.2% over the third quarter of 2014. And rental rates on new leases improved. Based upon our previous guidance with Aon Center included, our same-store NOI estimates for 2015 would be about 11% to 12%, exceeding our previous 10% guidance. With Aon Center excluded, our same-store guidance for 2015 is now between 9% and 10%.

I will note that much of this quarter's leasing did take place in two of our markets with large blocks of vacancy, that's Chicago and Washington, DC. Those two markets also have some of our highest capital cost, and the leasing of this previously vacant space is reflected in this quarter's higher tenant improvement cost per square foot. Now, of course the good news is that this capital goes towards leasing in markets with much higher average rents in our portfolio.

We had no financing activity during the quarter to report, other than the use of the line of credit in anticipation of receiving the Aon proceeds. As Don mentioned, subsequent to quarter end the majority of the Aon proceeds were applied to pay down our $500 million line of credit. Our next loan maturity is $120 million mortgage that matures next April and can be prepaid without penalty in the first quarter of next year.

At this time I'd like to slightly raise our 2015 annual guidance that was previously provided. Even with the loss of income from the sale of Aon, we estimate 2015 core FFO in the range of $1.59 to $1.62 per share. The commencement of new leases for vacant space along with the reduction of outstanding shares due to the share repurchase program and the additional income from Galleria 300 and SunTrust Center will offset most of the impact on our year-end numbers from the Aon sale. The year-end estimates also included increased G&A expenses for accruals associated with potential performance-based compensation that's tied to year-end estimates and peer comparisons to total shareholder return.

For 2016 we'll follow our usual practice of issuing formal guidance in early February after we've completed our annual budget cycle. However, the sale of Aon and the loss of its annual $0.20 per share contribution to FFO will impact current Street estimates for 2016.

From a broad perspective, given the strong private market valuations, we also anticipate being a net seller in 2016 as we continue to focus our operations on select submarkets. And we believe we will continue to utilize our share repurchase program during 2016, if equity market valuations allow. That said, with very low lease expirations, the commencement of new leases, and an increase in operating expense recoveries from the burn-off of abatements we do anticipate FFO per share in 2016 to be comparable to our expected 2015 results.

With that said, I'll now ask the operator to provide our listeners with instructions on how they can submit their questions. We'll attempt to answer all of your questions now, or we'll make appropriate later public disclosure if necessary.

(Caller Instructions)

Operator?

Thank you.

(Operator Instructions)

Anthony Paolone, JPMorgan.

Don, I think it was about a year ago at NAREIT where you talked about the biggest opportunity you thought was out there in the market was for A assets in some of the less prime markets. And it seems like with buying Atlanta and Orlando you've kind of followed through on that.

And just curious as to how you think that shapes going forward in terms of do you keep things like New York and Los Angeles, or do you plan on shedding other markets? And do you continue to see this as the opportunity, buying these kind of top assets in some of these other locations?

Tony, good question. Thank you.

Sometimes it's hard to predict going out too far what your strategy is going to be in the sense that you've got to be responsive also to what you're seeing going on in the marketplaces. And so two or three years ago, and even up until last year, we probably would've been saying that our focus would've been trying to continue to try to grow in those core, higher barrier markets.

But as opposed to some of the things we've seen some of our competitors do, we just didn't feel like we could get good value when you're getting into the two, three, four cap rate range in some of this places. Particularly when we saw similar momentum building in places like Dallas, where we went in early and got some good exposure. The Route 128 North market in Boston where we went in early and got some exposure. And now Atlanta and Orlando where we're seeing very good momentum in the markets here, and still being able to buy at such big discounts to cost and high-quality assets.

That's sort of the thought process. I think in a perfect world, would we have continued to build our presence in higher barrier markets? Yes, that would've been our first choice.

We haven't seen the value there. So we've -- as you know, we've always been sort of aligned to try to find the best value in the marketplace we can. So that's why you've seen us adjust our strategy a little bit to accommodate the market and what we're seeing in it right now.

Okay.

Sorry. Someone just reminded me. You brought up the question, are we going to be potentially departing some other markets?

I think we've said almost a year ago now when everyone was in Atlanta for NAREIT that we were likely going to be lining up our Los Angeles portfolio for sale. I think we're now moving very close to doing that. We anticipate having that out into the market in the first of the year.

I don't know when that means it would close, but let's assume it moves expeditiously. That's probably an end of first quarter, early second quarter kind of closing time frame for us.

So we are moving forward on that. And that will be a big part of our goal for 2016 sales that Bobby mentioned in the prepared remarks, that we're going to be a net seller in 2016. That would be a big part of that, if that was the case.

Okay, thanks. That's helpful.

And then my follow-up is just on the Atlanta and Orlando acquisitions. Can you give us some of the basics on cash and GAAP, going in yields, if there is any upside you see to those numbers and rent mark-to-market, those sorts of things?

Yes. In general, I don't know if you've had a chance to look at the page that we put together on our website, but we have a core FFO yield for Galleria 300 of just under 7%. And then our core FFO yield on Orlando was lower 6%s -- low to mid-6%s. And the rents are somewhere between 8% and call it 14% below market, probably, in the Galleria situation. So let's say on average 10% below market.

So I think that's probably projects out to stabilize yields in the low to mid-7%s. And then relative replacement costs, we're in the 30%-plus range on discount to replacement cost for both the assets.

Those were GAAP numbers or cash --

Those were GAAP numbers. Yes.

Is there like some -- were some of those leases newer and then some abatement period, or is there a big delta between the --

There is a little bit that it[s abatement in there, and so as a result the cash yield, first-year cash yield wouldn't be quite as good. But I don't think I have that in front of me.

Okay. Got it. Thank you.

Jed Reagan, Green Street Advisors

You talked a little bit, Don, you mentioned the California portfolio. Can you help bracket the magnitude of net selling that you guys are thinking about for next year, just so we can wrap our heads around FFO potentially holding steady on a year-over-year basis?

Yes. The portfolio in Los Angeles is, call it, several hundred million dollars in size. I think we think we may -- it's a little easier to project dispositions than it is acquisition, of course. But if we're in the $500 million to $600 million range on the disposition side, it's probably a reasonable estimate.

On the acquisition side, you never know because it becomes a function of opportunity. And so it's hard to project that.

The number we give you in terms of comparability on FFO takes into account everything that we've announced to date but doesn't take into account any acquisitions or dispositions for 2016 that are not mentioned. It does not include, for example, Los Angeles or any other net selling in 2016. It also doesn't include any share repurchase.

Okay. That's helpful. You do expect to be -- remain somewhat active and look at acquisition opportunities in 2016, it's fair to say?

Yes. But I think that they continue to become a higher bar from a strategic standpoint for us in terms of things that would be a second phase to a building we already own or something.

Orlando and Atlanta may not look to be quite as strategic as you think. But if we had more time I could walk you through why we feel like those are very strategic assets for us at this point, even though as I think you reported they're technically not in the same submarkets we are already in.

But Orlando's not that big a market to begin with and there's two places you want to be the next two years, and that is Downtown Orlando and Lake Mary. You don't want to be in Maitland for the next few years, given the I-4 road construction project, for example. That's a market we feel very good about and are seeing very solid growth and momentum in the market with no real new construction there.

Atlanta, sort of similar story. I can go through the details, but I won't bore you with them right now. But the point is they're both more strategic than they may appear. The newer activity that we will be looking at will also be very strategic to what we already own.

Okay. Thanks for that color.

Hoping you could talk a little bit more on Enclave and 3100 Clarendon. What you're seeing on the ground in Houston these days, and are you moving, asking rents for that project it all?

And then on 3100 Clarendon, you mentioned some kind of near-term leasing activity. Maybe you could bracket the size of what's in the hopper, potentially?

Yes. Real quick on 3100 Clarendon I think there may have been some misunderstanding by a couple folks on timing of finishing that project up. Sometimes I feel like we're too honest with you all.

All that really happened there is we're finishing up the backside of the retail component. By the way, the retail component is 100% leased. So it has no impact on our office leasing. It has nothing to do with the office leasing momentum that we've got going there, and the project's going to finish up in the next few weeks. And there was no additional cost overrun.

So I think a couple people may have over-reacted to our saying that the technical finish of it is in the fourth quarter instead of the third quarter. So just want to clarify that first.

Secondly, we've got some signed leases early in the fourth quarter that we haven't reported on at 3100 Clarendon at this point. It would bring our percentage up nicely, but not earth-shattering yet. There is very good activity in the marketplace and we remain very optimistic we're going to make a lot of good progress over the next six to nine months in that asset.

I can't say the same in Houston. The market is very quiet. There's the occasional large prospect running around that's looking at everybody. And we're honestly getting those looks as well because the building is such high quality.

But I can't tell you that I'm very optimistic things are going to happen there. And it doesn't really matter what you quote in terms of rates or terms or concessions at this point when there's no real genuine activity in the marketplace. Obviously we would be more aggressive than we would have ever have been to try to do something there. But I can't tell you that it's going to translate into optimism that something's going to happen anytime soon.

Okay. Great. Thanks so much.

Dave Rodgers, Robert W. Baird.

This is Stephen Dye here with Dave. Can you go into more depth on the DC leasing? What kind of tenants are you seeing expanded there, and does DC become a market where, kind of like in LA or something, where you could be a net disposer possibly in the near future?

Stephan, I'll start. Bob Wiberg I think is also on the line and I think he can provide more a lot more quality color than I can.

But we've seen a very substantial pickup in activity there. As you're already seeing we're translating that into some nice-sized leases. We expect to have some nice announcements in the fourth quarter as well on occupancy pickup in Washington DC.

I would say the only negative, so to speak, is not that we aren't getting the rates that would've anticipated but the concession packages are up, as some of you noted in our report last night. You'll probably see, especially as we do Washington DC leasing over the next few quarters, some elevated capital CapEx per square foot per-year lease term as a result of some of those big Washington leases getting done.

But having said that, pretty happy about getting them done and the rents are still very strong. So Bob, can you provide more a little more color on that?

Sure. I think there are really two sectors we're seeing.

One is the government, GSA and otherwise is back in the market again. The GSA had deferred a lot of re-leasing over the past several years. So they have quite a bit of turnover.

And we have space, especially at our 250 E. Street project that is very well suited for government. So we are seeing a lot of that type of activity.

Beyond that, though, the East End Market where we have a couple buildings has really been the best market that we have, certainly, and probably one of the best anyway in the area. And we've seen quite a bit of activity here. And it's really largely been among associations that really value this location.

There's certainly other types of groups looking in general. I'd say more on the association side is a lot of the current activity.

Bob, would you comment on the RB corridor as well?

Sure. RB corridor, we're definitely seeing more activity. The leases are still taking a long time to get executed, but much more traffic than there had been. I think clearly more optimism about where the market is and what the drivers will be.

The cyber-security aspect is certainly one that we're seeing. The big data world is another. But also just general recovery in that market. So I think we'll sign more leases certainly over the next 12 months than the past 12 months as that activity matures.

Thank you. Did any share repurchases bleed into the fourth quarter, given the run-up in price, have we seen any more activity there? Thanks.

Sure. You would probably assume less share repurchase activity in the fourth quarter than you would've seen in the third, given the relative difference in pricing and the difference in NAV discount that we would've seen in the third quarter. You can assume third quarter was very active, fourth quarter not so much.

Thanks.

John Guinee, Stifel.

Just to drill down a little bit, because you said you didn't want to be too honest but you didn't have the cash yield in front of you on Orlando and Atlanta. On one hand the GAAP for Orlando, I think you said was in the low 6%s and the GAAP yield in Atlanta was in the high 6%s. But then if I look at the capital allocation presentation, you're coming up with what looks to me to be a core FFO yield. Is that core FFO yield a leverage yield or in unlevered yield?

That's an unlevered yield, John.

That makes all the sense in the world. Thank you.

John, I do have -- just so that you don't think there's any transparency concerns, the AFFO yields are in the low 5%s the first year, but they jump up substantially because that free rent burn-off. Obviously REITs can't take free rent as a -- we're getting that master lease income to us as an offset to the credit of the price, but you can't count it towards your income stream. So that comes out of your AFFO. So that number is low 5%s combined.

Even if you didn't have the cash yields in front of you, we knew what the cash yields are, right?

Actually no. I had to go look, to be honest with you.

Thanks a lot. No more questions.

Michael Lewis, SunTrust.

You guys give great detail on the lease commitments and commencements and rent abatements, but the spread between the leased and economic lease percentage has widened a little bit in 2Q. Obviously there's puts and takes in any given quarter. But can you talk a little bit about how abatements for leases you're signing today compare with a year ago? And then based on that, how you think that spread could narrow over the next year, keeping in mind of course Aon Center, I realize, is a big chunk of that?

Yes. Actually I think we noticed in your write-up last night that you pointed out that that percentage, it actually increased in the quarter, and we were surprised by that ourselves. We looked back at it and found out in fact you were right.

What we realized is a lot of that is those two or three big chunky leases we did in the quarter that obviously wouldn't have commenced yet that would have driven that number up. And it wasn't as offset completely by new tenants coming in and taking economically occupied space. That had a big chunk of why that went up by about 100 basis points in the quarter. I think we all agree around here that that number should come down pretty materially over the next few quarters, particularly with Aon Center gone.

Okay. Yes, I basically have two out of three of the pieces.

I have the schedule of the abatements. I've got -- I know how much Aon Center is going to take out. But is there anything general you could say about as you send leases now, have abatements kind of eased a little bit, or is it similar to what you've been doing the last couple of years? I would imagine it's improving.

It is improving, Michael. Obviously that's a market-by-market issue. Washington DC the abatements would still be where they've been historically.

But in places like Atlanta and Dallas and other places we're seeing abatements start to compress a little bit. And so it's getting a little better.

But I would say in general, because a lot of our bigger leasing that's going to get done over the next year or so is probably still Washington DC because that's where a lot of our vacancy is, some of that economic lease percentage won't grow as fast as you otherwise would expect, because you'll have higher free rent periods in that market.

Okay. That makes a lot of sense. My last question, and I probably missed a lot of this at the end of Bobby's comments. I will go back to the transcript.

But in talking about FFO next year being comparable to this year, the consensus is implying some growth there. Maybe they haven't completely caught on to the Aon Center sale, but I know the acquisitions and repurchases mitigate that a bit.

So what's the biggest growth drivers? And then what's weighing on that growth for 2016? I realize you're not giving specific guidance, but I'm curious, since it doesn't include the LA sale, what's from a big picture going on there?

If you think about it, obviously there was a fair amount of growth before the Aon Center and Gatehall dispositions were announced. Aon Center was close to $0.20 a share, Gatehall was $0.07 or $0.08 a share, and then we offset that with some of these acquisitions to the tune of, call it, $0.07 to $0.10.

Net/net we're losing almost $0.20 in dispositions between Aon and Gatehall, and yet still producing a number that's pretty comparable to this year's numbers. The growth would've been substantial but for that. That growth was coming from a combination of occupancy improvements, obviously other leasing getting done, the share buyback program, anything else anybody can think of? Those are probably the three biggest drivers.

That's helpful. Thank you.

Vance Edelson, Morgan Stanley.

Given the ongoing sale of non-core assets, could you give us your insight on the strength of private bidding for the more urban versus the more suburban properties? Do you get the sense that the search for yield is starting to drive more private interest in some of the less CBD-like properties? And how do you think those capital flows might shape your decisions on what to sell down the road?

Interesting question, Vance. We're seeing generally pretty solid better pools across the board for high-quality assets. When you move into something that's a little lower quality or suburban, and frankly we don't have many of those, but we have sold a couple of those recently, the better pools are fairly thin. But still there's enough good activity that we're able to contract for those deals as well.

I guess I would say overall very good capital markets activity, clearly urban high barrier markets are deeper -- the deepest. Urban secondary markets would be less deep but still strong. And then as you move into suburban tertiary, obviously become less strong, but still as good as you might see anywhere -- any time in the cycle. Ray, would you anything to that?

Yes, sure. I echo that because there's still a lot of capital involved looking for a home, as evidenced by the performance we had with Aon with 60 people that were really interested, 18 people that did first-round bids. That's indicative of the urban high-quality core type of assets.

The other things that we did sell were more regional type of buyers, but actually well-capitalized regional type of buyers. One thing that we have continue to see is those folks were able to get some financing on their deals. So that has helped that situation some, too.

But it really gets down to what kind of quality you have in those assets that you're selling in those suburban markets, and we have been successful getting reasonable bids on --.

the only other thing I would add to that is if you think about what we're doing with California and why we're doing it, all four of those assets would be considered some form of either urban infill or suburban. With what's happening in LA right now and the bidder pool there, we expected a very strong bid pool on that kind of asset.

Okay. Make sense. That's very helpful.

My second question. The new lease with Green Sky Trade seems to be relatively short duration, a bit of an outlier versus your other signings during the quarter. Was that a tenant-driven need or did you see some upside from keeping it relatively short, given the likelihood that rents will rise?

Actually you're probably giving us too much credit there, Vance. What happened was Wells Fargo was a tenant in 35,000 feet in a building that they never ended up occupying. So we had 35,000 square feet with a termination option coming up.

Green Sky came in, wanted to take the space longer term and do a wraparound around the termination option for Wells Fargo, but only wanted the space for about six years. And so we ended up -- we were able to do a nice roll-up on the deal, get a partial termination penalty and extend out the lease. We felt really good about that. But it was not -- they didn't want to go as long term as you otherwise might expect for a 35,000 footer.

Sounds like that worked out. Thanks a lot.

Young Ku, Wells Fargo

Just want to go back to the 2 Gatehall sale. It looks like you guys provided some short-term seller financing with expiration in June 2016.

If they were to try to refinance that with permanent debt, would that be contingent on them -- on the property getting some backfill leasing at the KeyBanc space? I'm wondering if I could get some background on that.

Yes. So Young, it is an interesting deal. The building has obviously 50% of the tenancy leaving in February 2016. It is a value-added play, if you will, for the buyer coming in.

So what they wanted to do is -- and we had some leasing activity going at the property, which we are in the process of converting. And so that will obviously help their financing status going forward.

What we decided to do is collect a very large earnest money deposit with them going hard to secure a certainty of their closing, but then allow -- agree to allow them to take some seller financing for a short period of time to allow them to get their best financing situation put in place. So that's why it was done the way it was, and very confident the deal will close. But in the meantime we will collect a little bit of extra income if they decide to extend out that closing.

Okay. And your dilution estimate from this property, it was based on that 7% coupon for half a year, pretty much?

Do you remember, guys?

No, what?

The 7% is not in our numbers or it is in our numbers?

The GAAP number is at 7.6% does not include any financing.

The financing is not in our GAAP numbers.

Okay. So (inaudible) a little bit, okay. Got you.

And I wanted to go back to the Comdata lease that you mentioned. There was a short-term extension for that 200,000 square feet space. What do you think will be the outcome of that lease once it expires in 2017?

They had an option to extend the lease out for a period of time on their own. And they decided to do that with the idea that they're in process of negotiating a downsizing and long-term extension at the building. But this gave them more time to have the ability to flexibly do that. That's what they chose to take that interim step as a tenant to extend out for a year while we're finishing off the negotiation of the extension majority of the space.

Okay. So your expectation is that they will extend once it goes beyond their current lease there?

That's our current expectation, yes.

Got it. Great. Thank you.

Thank you. We have reached the end of the question-and-answer session. Mr. Miller, I would now like to turn the floor back over to you for closing comments.

Thank you, operator. We just want to thank you, as always, for your interest in participating in the call. And hopefully you share our enthusiasm for how well things have gone here for us in the last year or so. And capped off by a lot of really strong capital markets activity that we think continues to position the firm exactly the way we've, over the long haul, told you we would.

So we hope you appreciate that effort. And we're excited about where we're heading. Think you very much for attending.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.