Piedmont Realty Trust Inc (PDM) 2017 Q4 法說會逐字稿

Greetings, and welcome to Piedmont Office Realty Trust's Fourth Quarter 2017 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to turn the conference over to your host, Mr. Robert Bowers. Thank you. You may begin.

Thank you, operator. Good morning, and welcome to Piedmont's Fourth Quarter 2017 Conference Call. Last night, we published our quarterly earnings release and filed an 8-K containing our unaudited supplemental information. Both of these items are available in our website under the Investor 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 that are subject to risks and uncertainties that may cause actual results to differ from those we discussed today. Examples of forward-looking statements include those related to Piedmont Office Realty Trust's future revenues, operating income, dividends 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 the forward-looking statements contained in the company's filings with the SEC.

In addition, during this call, we'll 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'll review our recent financial results after Don Miller, our Chief Executive Officer, discusses some of the quarter's operational highlights. We're also joined today by our entire senior team who will participate as appropriate during the question-and-answer portion of the call.

At this time, it is my pleasure to turn the call over to Don Miller.

Good morning, everyone, and thank you for joining us on our fourth quarter 2017 call. This call will be a bit different from previous earnings calls given that we have executed the large portfolio sale at the beginning of January, and therefore, many of our corporate metrics for year-end are already obsolete. As a result, we will attempt to be very clear in our communications today to share context for each of the measures that we provide.

We want to thank those of you who attended our Las Colinas investor presentation at the beginning of NAREIT in Dallas in November. We hope we achieved our objective of demonstrating the execution of our strategic plan to own assets in high-quality submarkets where job and rent growth is elevated, corporate presence is strong, amenities are abundant and where Piedmont can succeed based on our operating strengths, cost of capital and competitive advantages.

Turning to the portfolio. As first announced in Dallas, we entered into 2 binding contracts during the quarter to sell 14 properties, which ultimately closed on January 4, 2018. The total gross sales price was approximately $426 million with a potential for an additional $4.5 million, depending on whether certain leasing activity is completed during the early part of 2018. During the fourth quarter of 2017, we recorded an impairment charge in certain assets in these transactions when we moved the assets to the held-for-sale classification on our balance sheet. The nearly offsetting gains will not be reported until we release results for the first quarter when the transactions close. I would like to thank Brent Smith and our entire team for their tireless work throughout the third and fourth quarters to ensure these successful transactions.

During the fourth quarter, we commenced redeployment of the anticipated disposition proceeds through 3 distinct strategies that we believe strengthen our balance sheet, improve our net asset value and further our strategic market focus. First, after closing, we repaid without penalty a total of $470 million of unsecured term loans, which were scheduled to mature in mid-2018 and early 2019. Second, we repurchased over 3 million shares of our stock during the fourth quarter. This should not come as a surprise given our established history of repurchasing shares at pricing, which we believe represents a material discount to our NAV. And finally, we also acquired Norman Pointe I, a $35 million value-add asset located in close proximity to our existing Minneapolis holdings. We project the building was acquired at approximately a 50% discount to replacement cost and will generate a stabilized FFO yield in the upper 8% range. Additional information on this asset is available on our website.

These uses of corporate resources totaling about $565 million were ultimately funded primarily by the disposition proceeds and then the remainder by available cash and the use of our line of credit. Bobby will go into the improvement in our corporate credit metrics during his discussion.

So with the closing of the portfolio sale, we have largely completed a process that started several years ago. Overall, we are very pleased with the pricing and execution, but far more importantly, we're excited about the quality of the portfolio which remains. We now have only 3 projects, only 3, outside of our strategic markets. We have worked diligently to refine our portfolio and have narrowed our footprint from over 30 cities to 8 strategic markets today where we have a strong local boots-on-the-ground presence and own some of the highest quality office properties available in our submarkets. To be clear, the sale doesn't mean we will stop evaluating, refining and optimizing our portfolio, but we have taken a very big step in simplifying our strategy.

Interestingly, since our IPO in 2010, we've sold 58 of the 83 properties that we owned at the time, almost 70% of the portfolio. We've been diligent and purposeful in our execution, patiently selling properties at the opportune time to maximize shareholder value and reinvesting prudently in attractive properties within our targeted markets. Alternatively, we've been willing to repurchase our own stock when it was the best investment option. Simply put, rather than focusing on the asset size of the company, we've been extraordinarily focused on building value for the shareholder.

In total, we have sold $2.2 billion of real estate since 2014, acquired over $900 million in our target markets and bought back almost $300 million of our stock.

Moving to leasing activities during the fourth quarter. We completed almost 900,000 square feet of leasing with a little over 2 million square feet of leasing for the calendar year. Among the quarter highlights was more than 50,000 square feet of vacancy absorbed in 4 leases in the RB Corridor outside Washington, D.C. The 3 largest leasing transactions completed elsewhere during the quarter were: the Raytheon Company for approximately 440,000 square foot renewal through 2024 in the Boston office market at 225 & 235 Presidential Way; Gartner, Inc. for a new full building, approximately 152,000 square feet, leased through 2034 in the Dallas market at 6011 Connection Drive; and U.S. Bancorp for approximately 51,000 square foot expansion at our building, which serves as their world headquarters in Minneapolis, Minnesota. The expansion is for 6-plus years and runs through 2024. We greatly appreciate the continued votes of confidence from Raytheon and U.S. Bank and couldn't be more proud to welcome Gartner to our portfolio.

For the fourth quarter 2017, I'm pleased to report cash rent roll-ups of almost 21% and GAAP roll-ups of approximately 25%. For the year, cash and GAAP roll ups averaged over 10% and over 16%, respectively. In fact, this is the third consecutive year of double-digit GAAP rent roll-ups at Piedmont.

Looking forward to 2018, we are encouraged with the preliminary leasing activity thus far. But for those of you who followed us closely through the years, you know that our first quarter volume is typically lighter than the balance of the year, and we forecast the same this quarter. We have been successful, however, in addressing some of our 2018 lease roll already, and we'll report that in due course. As we have discussed openly with you all, we are highly focused on 2019 lease expirations and we continue to be cautiously optimistic regarding most of these conversations to date.

I want to draw your attention to an updated key metric schedule that includes a lease expiration summary, which is in the back of the quarterly supplemental information on Pages 47 and 48. This schedule removes any leasing associated with the 14 properties disposed of on January 4, 2018, as well as provides updates for other pertinent ratios.

Finally, I want to draw your attention to the leasing disclosure of capital expenditures per square foot per year of lease term in our supplemental schedule on Page 33. For a number of years, we have been reporting the committed capital per square foot per year, but not all of this capital necessarily is spent. In fact, over the 8 years we've been publicly traded, we have committed but not ultimately spent over $50 million of tenant improvements that are no longer an obligation of the firm. For a more complete picture of our capital expenditures, we are institution -- instituting in addition to the quarterly supplemental information, which will show how much committed capital has expired as unspent during the quarter. We believe this information will enable readers to have a better understanding of how much capital Piedmont is actually expending over long periods of time. We hope that you'll find this information helpful.

And with that, I'll turn the call over to Bobby to review the fourth quarter financial results and balance sheet and talk about our views for 2018. Bobby?

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

For the fourth quarter 2017, we reported FFO and core FFO of $0.42 per diluted share compared to $0.44 per share for both of those metrics a year ago. Despite being a large net seller during the year, FFO and core FFO for calendar 2017 were both $1.75 per diluted share, an $0.08 per share increase over the year ended 2016 and reflecting the organic growth embedded within the portfolio.

AFFO was approximately $43 million for the fourth quarter of 2017 and $200 million for the year, about $80 million above our normalized dividend. Thanks to our cash NOI, it was up approximately 9% for the year, 4% for the quarter and up 6% annually on a GAAP basis, 3% for the fourth quarter. This healthy growth was primarily driven by the commencement of new leases and expiration of rental abatement. As Don mentioned, for completed leasing activity during the quarter, cash and GAAP rent roll-ups increased approximately 21% and 25%, respectively, and up more than 10% and 16%, respectively, for the year. As disclosed in our quarterly supplemental information, after the close of the 14-property disposition on January 4, our overall lease percentage was approximately 92%, which is comparable to the beginning of 2017 when 3 completed development projects were placed in service on January 1.

Using the proceeds received throughout the year from dispositions and our line of credit, we funded the acquisition that Don mentioned, repurchased our own common stock at what we believe is a substantial discount to our NAV, strengthened our liquidity position and lowered our leverage. Our average net debt-to-core EBITDA ratio for the fourth quarter of 2017 was 5.6x. And after paying off $470 million of debt on January 4, 2018, this metric dropped to less than a 5x ratio. Our debt-to-gross asset ratio has decreased to approximately 30% with the payoff of the $470 million of debt. We now have no debt maturities until 2020.

I do want to note that because of the large taxable gain realized in 2017, which was generated primarily from the sale of Two Independence Square in July, we declared a special dividend of $0.50 per share during the fourth quarter, which was subsequently paid on January 9, 2018. Our dividends declared for 2017 represent distributions of ordinary operating income and capital gains. For tax purposes, there was no return of capital to shareholders for 2017.

At this time, I'd like to provide some operating metrics and general assumptions for our 2018 and introduce our overall core FFO guidance for 2018 in the range of $1.64 to $1.72 per diluted share. The guidance reflects the impact from the sales of the 17 assets during 2017 and thus far in the early part of 2018 with only 1 small acquisition to date. Despite the loss of over $50 million in annualized property NOI from these 17 disposed properties and the loss of income from 2 large lease expirations, the midpoint of our guidance is only off 3.5% compared to 2017 while simultaneously strengthening our balance sheet position. This guidance further attests to the income growth generation within the portfolio, along with the benefit of lower interest expense due to reduced debt and the benefits of the reduced share count from our share repurchase program. As of December 31, 2017, we have $188 million of capacity remaining available under our board-approved share repurchase plan.

This guidance also assumes Piedmont will follow a rather neutral recycling position, acquiring about the same amount of assets in our core markets as we dispose of during the remainder of the current year.

Our financial models incorporate assumptions related to cash same-store NOI growth of 2% to 5% and a 1% to 4% growth on a GAAP basis.

In addition to transaction activity, there is one other change to our same-store property pool today. Our 2 Pierce Place property in suburban Chicago has been reclassified to redevelopment status in 2018 as it's undergoing a $10 million redevelopment effort, exclusive of any leasing costs, which will reposition and upgrade the parking facilities, the lobby area and amenity offerings as the main tenant is exiting 60% of the building this quarter. We expect this work to be completed around the middle of the year. The exclusion of this property positively impacts our same-store estimates for 2018 by about 2%.

On the expense side, we are forecasting general and administrative expenses of approximately $27 million with $1 million lower estimated accruals for stock compensation and $2 million lower state and local tax accruals when compared to 2017.

We estimate our year-end lease percentage for the same-store pool, that's excluding Two Pierce Place, in 2018 to be in the 92% to 93% range.

Additionally, we've been one of the pioneers in reporting of economic occupancy, which reflects the difference between reported lease percentage and leases that are actually paying rents. Of course, the 2 items that constitute the difference, free rent and the precommencement of executed leases, vary widely over time. While our disparity between the reported and economic occupancy has not narrowed as quickly as we'd expected because of some recent successful leasing, the gap has narrowed substantially from a high of almost 13% a few years ago to around 5% to 7% today. Although this range will move around depending on the amount of leasing we execute, the more leasing, the greater the gap, we expect the gap to generally remain around this lower range in the future.

Also, as with any guidance we provide, it's important to note that as you prepare your own financial models for Piedmont, that our quarterly earnings can vary by $0.01 or $0.02 based upon the timing of any capital markets activities as well as any seasonal expense items. If the economic outlook or the debt, credit markets change, we may be more or less aggressive in our capital recycling efforts. We'll make the best call we can for our shareholders and communicate it to you at the appropriate time.

And finally, an administrative item. During the second quarter of this year, we plan on moving our corporate headquarters in Atlanta to our Glenridge Highlands Two building located at the corner intersections of Georgia 400 and I-285 expressways.

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

(Operator Instructions) Our first question is from Jed Reagan with Green Street Advisors.

Is there anything else on the disposition docket for this year? And just curious how you're thinking about acquisition or perhaps new development opportunities this year versus additional share buybacks?

So Jed, heading into the year, we had a handful of projects we were thinking about selling in 2018 and still are. But obviously, with what's happened with the capital markets the last couple of weeks, we're taking a little bit of pause, want to watch and see what's going to happen there, see if that provides any more opportunities either on the buy side or impacts pricing enough on the sell side that we -- might impact our thought process. But I think, initially, with the lease, we were thinking there's 3 or 4 projects we're probably planning on bringing to the market early part of the year. And like I said, we're going to wait a few weeks to decide whether we're going to still move forward with those or not. On the acquisition front, we're seeing a handful of opportunities. As you know, we're always very focused on just a smattering of buildings that are in the markets that we're trying to acquire in and then we do have some development activity, mostly build-to-suit related in Orlando, Atlanta and Dallas that we're chasing. But as you know, we tend to be fairly stringent in our requirements on what we're prepared to do there both from a credit standpoint and a return-on-cost standpoint. So we tend not to be as aggressive on lowering our return on cost as others might be.

Okay, that's helpful. And order of magnitude, the 3 or 4 potential disposition candidates you mentioned, what sort of dollar value could that amount to?

Let's see. Sorry, I'm going to look at my schedule here.

I think we're thinking -- this is Brent, Jed. I think we're thinking somewhere in the neighborhood of probably $200 million to $250 million of dispose this year barring some of the points that Don made around disruption in capital markets that might impact us.

And those would be in concentration markets or maybe the kind of outlying markets?

Those would definitely be one of the 8 core markets I think where we still see potential opportunities that have matured and are at the point where they're ready to push out of the portfolio and we find other opportunities that are more compelling to create value is what weighs in on that factor.

Okay, that's helpful. And just in terms of the share buybacks, have you done any so far this quarter that you can talk about? And then how are you thinking about kind of that option versus external growth as we sit here today?

Yes. Well, obviously, we believe our NAV is substantially above our current share price, particularly in the last week or so. But you saw that we were fairly active acquirers in the fourth quarter in the 19s. Stock has been in the 19s and 18s since then, so you can imagine that we might be continuing to be an active acquirer and we think that the opportunity gets that much more compelling given where the stock is trading today. So we're pretty excited about that and don't see that there's very many opportunities in the buy-side that can possibly match the ability to buy our own stock at today's levels. In fact, I think we, all, collectively around this table think office REITs in general, not just Piedmont, are at incredible value right now.

Jed, I would add to that I think we're - we feel fortunate to be in the position where our balance sheet is very strong so we can buy our own stock, utilizing those dispo proceeds that we just brought in the door here earlier in January and also to continue to look for the right strategic opportunities to acquire at.

Okay, that's helpful. And then maybe related to that, just one other for me, you're now near 5x debt-to-EBITDA and 30% net leverage post the portfolio sale. Kind of going forward, what sort of range do you intend to operate in for both those metrics?

I think that's probably on the low end of where we'll be operating in the near future, and particularly for no other reason when you think about the fact that we might be buying shares back, that might push your leverage level up a little bit. But as you know, we're always committed to keeping leverage levels at a very modest level or below and we're very happy with where we are today. So we're not anxious to necessarily put capital up just for the sake of putting it up. There has to be pretty compelling reason to do so.

In maybe 5 to 6 and 30% to 40%, just to kind of pick a range?

Yes, I mean I think 40% would be way on the high end at this point, maybe 30% to 35% and 5 to 6.

Our next question comes from Dave Rodgers with Robert W. Baird.

Maybe a couple of questions on leasing. Lease economics definitely were stronger in the fourth quarter. I don't know if that was just purely driven by Boston and Dallas or if you're seeing broader economic improvements in kind of your leasing activity. So I was curious on any comments there. As well on the RB Corridor, you started to show a little bit more signs of life there. And any additional comments about how much more activity you might be seeing in the RB.

Okay. Thanks, Dave. I'll try the national side and then let Bob Wiberg jump in on Washington if he's prepared to do so. On the national basis, it was -- the lease economics obviously were fantastic in the fourth quarter. It was largely driven by a couple of deals, namely, the Raytheon renewal. When we bought that project, we knew it was well underleased, and as a result of doing the renewal with Raytheon, we were able to get really compelling economics from a roll-up standpoint. So that was contributing. But that's part of what we've been communicating for some time is that we have fairly lumpy lease economics as we do some of these larger leases. As a result, some quarters will look unattractive, others will look very attractive, but you have to look at sort of long-term trends in our numbers. And that's what we tried to point out in the script, that we've done 3 straight years of double-digit-plus GAAP rent roll-ups and positive cash rent roll-ups. So we think we have pretty good story to tell there. I would throw it to Bob and let him talk about what we're seeing in Washington, D.C

Sure. I think on the RB Corridor, we're continuing to see good activity that we saw in the fourth quarter as well. And we've seen the activity across all our 3 buildings there that I think are really well positioned for that market. The tenants that we continue to see are mostly technology, media or big data tenants. And the thing that's, I think, positive is that we're seeing more urgency among the tenants in actually getting some deals done. Beyond that, I think if this budget deal gets through Congress, that'll help certainly because that'll fund some of the defense contractors who really have not been in an expansion mode at all to date. Meanwhile, I'd say that D.C. remains slow. It's a bit more active than it was, but it's still slower than we'd like.

Great. Thanks for that color. Bobby, maybe to you on the same store. Can you restate what your same-store guidance was or is for 2018? And any additional changes besides Pierce Place to the pool that we should kind of be aware of, whether it's Enclave or something else moving in or out of the pool?

Sure. To your first part of the question, you asked what was the same-store guidance, our cash same-store NOI growth is 2% to 5%; and on the GAAP side, it's 1% to 4%. And it does include all of our existing assets except, or as I noted, the 2 Pierce Place asset where we're really trying to be fully transparent and tell you we don't frequently classify an asset in redevelopment. I think -- as I think back, we're in our ninth year now as a publicly traded company and this is only the second time we've moved an asset to redevelopment stage that, with the vacate of Gallagher after 20 years, we've got an opportunity to redevelop and improve the multi-tenant prospects and the revenue potential of that asset. But because of the work that's being done, it will defer the lease-up for the building.

Okay, great. And then last one, just wanted to follow up on Jed's question about the stock buyback. I think you said $188 million left on the buyback program. Is there anything that prohibits you from kind of getting that done here in the near term? Is that something you kind of plan to meter over the year? Or can you get that done here in the first quarter?

Dave, we -- obviously, the only limitations you have on stock buyback beyond your own decision-making is the ability to buy back shares in the market given the limitations that we have on it. And so sometimes I think people think it's easier to pick up shares than it is because you only buy on the downdraft and you only pick up certain percentage of the shares every day and things like that. And so it can be relatively difficult to pick up big blocks of shares very quickly. Having said that, if we thought it was the right decision to move rapidly to buy as much as we could, then we would do so. I'm not trying to signal that we think we'll get $188 million done right away, but we'll whack away at it pretty quickly if we felt like that was the right decision. And by the way, that doesn't preclude our board from expanding that program either at any point in time. But at least at this point, we have the capacity to $188 million without board approval -- further board approval.

Our next question comes from Anthony Paolone with JPMorgan.

I think, Don, you had mentioned or alluded in one of your comments about maybe build-to-suit, some development things. I know Orlando is an area where you have a lot of land. Can you talk about just prospects there to potentially develop? And I think your margin rents maybe more weren't quite there a year or so ago, and just maybe an update on that front.

Yes. I would say there's nothing imminent to be announced, so I wasn't attempting to signal anything earlier in my comments about pending announcements. We're constantly trolling for opportunities. Orlando is one of the most compelling ones just because of the quality and the location of that land. But the highway's still not supposed to be delivered for 2 or 3 years and we think we'll get the best opportunity to create value on that site as we get closer to the delivery of that highway system. Rents in Orlando have not moved dramatically. They've, I think, steadily gone up since we bought there. But there still is a fairly dramatic difference between new replacement cost rents and existing rents in the marketplace, which is encouraging from our perspective, so we think it gives us a little more room to run in that marketplace before you're going to see much in the way of new construction. And if there is new construction, we think we've got as good a site as anybody. So we're optimistic, but I don't think there's anything impending.

Okay. And then for Bobby, I may have missed this, you gave a number of brackets for '18. Can you give us something on CapEx, either sort of leasing capital versus maybe it sounds like redevelopment capital to be spent this year.

Yes, I don't have that projection, Tony, right now. So I'm just going to take a pass. And we'll look at making a public disclosure about that later.

Our next question comes from John Guinee with Stifel.

Bobby, I guess -- maybe Don, you added this new disclosure on Page 33 with expiring tenant improvement allowances. Typically in a lease, the quid pro quo is you have a rent adjustment downward if a future tenant improvement allowance is not spent. Is that the case on this or not?

No, John. There's actually -- it's a good question. There's actually several different components to this. As you probably know, some leases have sunset provisions in the lease, what we call sunset provisions, which means if the tenant does not call the capital by a certain date, that they don't have a right to call it after that date. So that's a component of it. There's another component of it is on turnkey build-outs where we may have allocate -- or agreed that we expect we're going to spend $60 and we would have reported that we spent $60 in TIs, we only end up spending $55, for example, because the turnkey build-out came in under budget. That's another example. And then there's a third example where there's, and this gets fairly technical, you're probably familiar with it, but when you commit certain capital and a tenant can use it as free rent as well, then we typically report it as capital on the front end. But then if they convert it to free rent -- I'm going to make sure that I got this right because Eddie's looking at me, if they convert it to free rent, we don't then take it out of our CapEx per square foot per year lease term that we report to you, but it does then come out of our FFO. So in that case, we would be double counting the capital by reporting it to you on the front end and then taking out of FFO as well. So we're, in effect, extracting that back out as well. So those are the 3 components of the $50 million-plus that we reported that we spent that we haven't spent.

And in neither of those instances is there an adjustment to the rental rate, as you described, John.

(Operator Instructions) Our next question comes from Michael Lewis with SunTrust Robinson Humphrey.

I wanted to ask about 60 Broad. I realize you might not be able to say much about an ongoing lease negotiation, but if the state of New York was considering going elsewhere, 1Q '19 is not that far off, I think that maybe they would have to decide fairly soon. So 2 questions: do you think it's fair that each day that goes by, maybe you and we should get a little bit more confident there? And then, second, do you think if you're able to stabilize that building, that maybe it becomes a disposition candidate before you have another large single-tenant roll there?

John, this is Brent. I appreciate the question.

Michael.

Sorry. Michael, I appreciate the question. I guess, to your first point, each passing day that goes by, I think New York State's a large organization. They take a fair amount of time to make a decision within itself. But keep in mind, there are multiple agencies within the envelope of this. It is 480,000 square feet and which they have their own entrance to the building and their own kind of envelope, if you will. So it takes a lot of time for them to get through the processes that they need to internally. I wouldn't say you can read a lot into kind of each passing day at this point, but I guess there would be a benefit if they did change buildings and they couldn't make it there in enough time, we might benefit from some holdover rent if they needed to stay longer. Certainly, we're using every kind of tool that we have to work with the state in punching out those solutions from both parties and we continue to do that each day. So we'll keep you up-to-date as new information becomes available and it's prudent to share that with you at this time. But I think we still remain cautiously optimistic overall that they're going to stay within the [25B] versus 60 Broad envelope. Now in terms of your second part of that question with a stabilized building, I'd also remind you that right behind the New York State component, we do have an opportunity with a significantly below-market lease with the New York City that expires in April 2020. That will be our next focus at the building, and we think it's a great opportunity to kind of increase cash flow and obviously the value of the building itself. So we'll look to kind of work through that within New York City. And at that point in time, you're going to be well into kind of 2020. We'll have to evaluate the market at that time and what our other capital allocation options are and where we may be able to realize value relative to what are other opportunities.

My second question is property-specific, too. I think Enclave in Houston a lot of us have kind of just put aside, and oil may not be $100, but it's not $30 anymore either. I was just wondering if there's been any activity there or if maybe there's a little bit more reason for optimism. I think it would probably be a cherry on top if anything happened there at this point?

Yes, Mike. I'm going to throw it to Joe Pangburn in just a second. But I think, big picture, we are seeing a little bit more activity than we have seen. There is some, I would say, West Houston tenants that are making noise by either expanding or consolidating into certain locations and we're working on some of those, substantially be a beneficiary of them. But I would say, overall, we're trying to keep expectations low so that if we do find a way to get something done, we can positively surprise you and not have you asking a question about it every quarter because we -- it's a tough slog for sure. But Joe, would you want to give some more color on Houston?

Yes, just a bit more. Clearly, as with the passage of time, you start -- we've begun to see people with 2019 to 2020 expirations move around a bit. Again, there's not a whole lot of activity. I think there is -- it's fair to say that there is a little bit more. It doesn't necessarily matter what the, in our view or at least in my view, what the price of oil is. It's more the stability of the price that gets people to act and move on that confidence in terms of what they'll do. So the fact that it's between $60 and $65 a barrel, that's certainly better than $30. But there needs to be some visibility looking forward in that market for people to measurably move and make decisions.

I don't know if I asked the question last time to Don or not, but you're probably right, I probably did.

No, I was just teasing you, but it's just -- it's one of those things where I wish we could give you more positive optimism around the site, but there's just enough working that we might get lucky and knock one out and then I think hopefully everyone would be positively impacted.

So just, lastly, I have kind of a bigger-picture, open-ended question. You guys have done a good job improving the portfolio and the balance sheet and it's allowed you to repurchase stock and the next question is always kind of what's next. So I think getting the question about Piedmont and I'm sure you as well about growth, how -- now you've kind of done a lot of repositioning, where do you go from here? And I'm just curious what your answer is to that. Do you think we're in kind of a slower growth environment overall? There's not a lot of earnings growth in the office sector overall in 2018. Or do you think what are kind of the opportunities that maybe could get you on a higher growth track?

I think that's a very fair question across the sector because it's not lost on any of us that you look at same-store NOI growth for the entire sector next year and they're all -- most are low single digit and I think that's just a reflection of where we are in the cycle. Rents have grown fairly dramatically over the course of time, but now they're starting to flatten out. And so now you've got to make decisions to create value around capital allocation. Whether that's development, it's recycling of capital, you're probably not going to see the same level of growth in rents that we've been seeing. So having said that, I -- we haven't had the luxury of being able to issue equity to grow our organization and grow our income stream so we've had to do it more creatively, I'll call it, whether it's stock buyback or recycling capital. As we pointed out in the script, we sold 70% of the portfolio since we became public. We've sold, I think, $2.2 billion since 2014 is the number. We've taken those proceeds and bought back about $1 billion and bought back shares of about 300 million. And so the only thing we know to do is continue to try to create value by recycling capital and creating a value -- more valuable portfolio all the time. And -- but beyond that, I don't know if I have magic answers for you, Mike, because as you get later in the cycle, it does get harder.

Our next question is from Jed Reagan with Green Street Advisors.

Just a couple of follow-ups. You touched on the state of New York. Can you give an update on what's left otherwise in terms of larger '19 expirations and how you're filling on those? And then if you could also just remind us on the timing and size of Arby's move?

Yes, so overall, the '19 expirations, like I said, we're fairly optimistic on majority of them. The only one that has made any sort of announcement that they're departing is Arby's. They're in 125,000 feet in our building. With the purchase of Buffalo Wild Wings and some other activities they've got going on, they just needed more space. So they ended up signing a lease for 161,000 feet of building across the street. That's probably the vacancy that we could most afford to take just because of the quality and location of the building and the fact we've already got a lot of other lease activity sort of poking around in that particular building. So that one didn't upset us too much. The others, I think Brent's given you a perspective on New York State. Of course, we've gotten Raytheon done and the remainder are all 120,000 down to, say, 50,000 and we're in some form of active negotiation on virtually all of them. But nothing is imminent to announce. So I'm not sure, for competitive reasons, I want to go much further beyond that.

Okay, fair enough. And you mentioned encouraging initial leasing activity so far this year. Have you seen -- or do you expect to see a pickup in velocity or maybe growth or expansion plans for companies given tax reform and kind of broader improving economic signals?

Jed, I would have said 1.5 weeks ago that we were very bullish on the fact that we're seeing a lot of tenants indicating that they were heading towards taking more space in 2018 and the early indications are that continues to be the case. Having said that, anytime I'd see the kind of drop we saw in the market last week and the increased level of volatility in the equity market, it always makes me nervous that people start slowing their decision making down and could that impact productivity levels. Way too early to tell obviously, and so -- but I'm a little bit more cautious on my optimism than I would have been 2 weeks ago because of that change in the capital markets.

And would you characterize that as sort of incremental optimism versus where things felt like, say, 6 months ago?

Well, I would say I'm more optimistic than I was 6 months ago because I just didn't feel like -- before the tax law was passed that we had a catalyst for continued economic prosperity. I think with the tax law in place and some of the sort of, as everybody calls it, the animal spirits moving the market along, that we were getting pretty optimistic where we continue to see really good growth in office occupancy. I am more incrementally cautious now because of what's happened in the last week or 2.

Sure, that makes sense. And I guess, the last one for me, as a landlord that focuses on the corporate user, I'm curious if you're seeing the rise of coworking starting to push that crowd more to flexible leases. So as you're having new and renewal conversations with those types of tenants, is that something they're trying to negotiate for more shorter-lease terms, more flexible type of lease arrangements, that sort of thing?

Jed, this is Brent. We've talked about coworking a little bit in the past. I think for the larger corporate users that we, I'd say, our bread-and-butter, I've not seen that impact and that desire for flexibility based upon traditional landlords. I do think you're going to continue to see companies like IBM, et cetera, who have a fluid workforce utilize some portion of this type of, I guess, landlord, if you will, as a means of controlling the workforce and their space, so maybe call it, 10%, 15% over a longer-term period. But we're -- I think we've seen more of an impact in the market has been that smaller tenant, 3,000 to 5,000 square footers where they would often come to us and want to do -- they'd try to push on shorter terms. They maybe, instead of traditional 10, try to push for 3. We'd maybe land somewhere 5 to 7. That's tough to come by and that's created the need for the prebuilt suite scenario that you continue to see in a lot of more CBD and dense locations from landlord as a means to attract that tenant to do a direct lease with the landlord. But no doubt that the coworking phenomenon has had an impact on that smaller site and it -- but we're not seeing that near as much in the corporate side.

When you said tougher to come by for that smaller tenant, just harder to get them to sign up to that 5- or 7-year lease now?

Yes. Now fortunately, that's not very impactful on our overall portfolio. If you do you recall, our average tenant size is more in that 20,000-square foot range.

Ladies and gentlemen, we've reached the end of the question-and-answer session. I'd like to turn the call back to Mr. Don Miller for closing comments.

Thank you, operator. We -- as always, we very much appreciate everyone's time and attention on the call, and thank you for the long list of questions. We had obviously a fairly eventful quarter and wanted to try to be as precise in our communication as we could. We hope we have achieved that and we hope that we've answered your questions satisfactorily. So thank you again and we look forward to seeing you no later than May -- or sorry, no later than June in NAREIT.

This concludes today's investor call. You may disconnect your lines at this time, and we thank you for your participation.