Highwoods Properties, Inc. (HIW) Q1 2015 Earnings Report, Transcript and Summary

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

Thank you, and good morning. On the call today are Ed Fritsch, President and Chief Executive Officer; Mike Harris, Chief Operating Officer; and Mark Mulhern, Chief Financial Officer. If anyone has not received a copy of yesterday’s press release or the supplemental, please visit our Web site at www.highwoods.com or call 919-431-1529, and we will e-mail copies to you. Please note, in yesterday’s press release we have announced the dates for our 2015 financial releases and conference calls. Also, we have already posted senior management’s formal remarks on the Investor Relations section of our Web site under the presentations section. Before we begin, I would like to remind you that this call will include forward looking statements concerning the company’s operations and financial condition, including estimates and effects of asset dispositions and acquisitions, the cost and timing of development projects, the terms and timing of anticipated financings, rents, occupancy, revenue and expense trends and so forth. Such statements are subject to various risks and uncertainties. Actual results could materially differ from those currently anticipated due to a number of factors, including those identified at the bottom of yesterday’s release and those identified in the company’s 2014 Annual Report on Form 10-K and subsequent SEC report. The company assumes no obligation to update or supplement forward-looking statements to become untrue because of subsequent events. During this call, we will also discuss non-GAAP financial measures, such as FFO and NOI. Definitions of FFO and NOI and an explanation of management’s view of the usefulness and risks of FFO and NOI can be found towards the bottom of yesterday’s release and are also available on the Investor Relations section of the web at highwoods.com. I’ll now turn the call over to Ed Fritsch.

Good morning everyone and thank you for joining us today. Our markets continued to enjoy business conditions and demographics that outperform the national average in terms of population growth, economic growth and diversity, highly educated workforce, business friendly regulatory environment, attractive cost to living and high desirable quality of life. These positive attributes provide a compelling mosaic of sustained economic growth across the footprint and have resulted in steady demand for our well located BBD product and continued positive net absorption across our markets. In the first quarter we earned $0.72 per share of FFO which included almost a penny from land sale gains. Leasing activity was a robust 1.3 million square feet of second generation office. A couple of leasing highlights in the quarter included a 369,000 square foot early renewal and expansion at PPG place and a 44,000 square foot value add lease at One Alliance Center both of which Mike will touch on. We also made some solid progress leasing three buildings acquired during the last four months of 2014. These buildings encompassing 686,000 square feet were on average 82.2% occupied at their respective closing dates. At the end of the first quarter occupancy in these buildings was up to 86.8% up 460 bps. We have raised the midpoint of our 2015 FFO outlook by a penny mostly as a result of the land sale gain. Our guidance range is now 2.97 to 3.07 per share with a midpoint of 3.02 per share. Turning to investment activity and starting with development, our current $440 million pipeline comprise of seven projects in four markets encompasses 1.4 million square feet and 88% pre-leased. During the quarter we placed two 100% pre-lease MetLife buildings in service and delivered GlenLake V which is now 53% leased and we have LOIs in hand that will take leasing north of 80% at GlenLake V. Another 89 million of 91% pre-leased development will deliver over the course of this year with virtually all of the FFO impact coming in the second half of 2015. Also we’re pursuing opportunities in several of our markets with various prospects. We’re optimistic we will substantively add to our pipeline and therefore we are raising the low end of our 2015 outlook to $151 million from $100 million and leaving the high end at $250 million. With respect to acquisitions there is activity in the market place but not so much on the higher end of the quality scale. With regard to cap rates we have not seen any measurable compression over the past quarter but they are already undoubtedly rich. While pricing is frosty we continued to diligently evaluate opportunities in our BBDs where we can capture meaningful upside. Our guidance for acquisitions is unchanged at $50 million to $300 million. Turning to dispositions we continue to take advantage of today’s strong demand for assets. We have a well defined list of non-core properties in various stages of marketing and our outlook is unchanged at $100 million to $200 million. In summary we're pleased with how the year has kicked-off. Our teams taking advantage of improving market fundamentals to increase occupancy, grow net effective rents and create value through accretive development, strategic acquisitions and non-core dispositions. Finally, last week we announced Mike Harris will retire at the end of August. Ted Klinck will assume Mike’s role and there will be added responsibilities to others on the Highwoods team who will support Ted. Mike will be moving back to Memphis and is looking forward to spending more time with his family in his very well-earned retirement. On behalf of everyone at Highwoods Properties, I thank Mike for his nearly two decades of extraordinary service and dedication. It is a true honor to call Mike a close business partner and a dear friend. In short time, will you now cover operations?

Thank you Ed and good morning everyone. Our leasing activity continues to be strong. During the quarter we signed 128 leases for 1.3 million square feet of second gen office space with an average term of 8.3 years. This compares to the 2014 quarterly average of 1.1 million square feet with an average weighted term of 6.2 years. Net effective rent on second-gen office leases signed was $14.69 per square foot per year, 13% higher than the weighted average net effective rent on second-gen office leases signed in 2014. Our ability to push deal terms is enhanced by net positive absorption and the continuing wide gap between first and second gen rents, in most cases 20% to 30%. The ongoing increase in construction prices of about 0.5% a month continues to keep spec development in check. Average in-place cash rental rates across our office portfolio rose 4.2% to $22.70 per square foot compared to a year ago. For office leases signed this quarter, cash rent growth was positive 0.7% and GAAP rent growth was positive 9.8%. Occupancy in our wholly owned portfolio was 91.9%, up 270 basis points year-over-year and we remain comfortable with our occupancy outlook of 92.5% to 93.5% at year-end. Turning to our markets, Atlanta has absorbed almost five million square feet over the past four quarters. Occupancy in our Atlanta portfolio grew 120 basis points sequentially to 89.5%. During the quarter we signed a lease for 44,000 square feet with a new customer to take the remaining terrace floor at One Alliance Center. This lease commenced after quarter end, taking One Alliance’s occupancy to 91.6%, up from 67.1% at acquisition less than two years ago. The CBD Pittsburgh market remains very tight with Class A vacancy at 6% and our portfolio there is benefitting from these solid market fundamentals. Vacancy at quarter end in our portfolio was a mere 4.5% and we are pushing asking rates by an average of 5%. We are very pleased to have executed an early renewal and expansion of PPG Industries’ headquarters. They renewed 348,000 square feet and will expand by an additional 21,000 square feet, extending PPG’s commitment on 369,000 square feet through June 2031. Raleigh’s business environment continues to garner national accolades, such as recently being named the second best city in the U.S. for technology job creation by Forbes magazine. Year-over-year office employment growth was 2.8%, well above the national average of 2%. Asking rents in our Raleigh portfolio are up 5% year-over-year. During the quarter, we signed leases totaling 149,000 square feet with an average lease term of 9.5 years and significantly-enhanced net effective rents. We are particularly pleased with demand at our recently-acquired Bank of America Plaza, where we expect occupancy to exceed 90% by the end of this year as compared to 82% at acquisition. Nashville continues its reign as one of the Southeast’s strongest markets, enjoying another quarter of positive net absorption and shrinking office vacancy, particularly for Class A space, where vacancy is 3.5%. Asking rents in our portfolio are up 5%. As further evidence of the strength of the market, we quickly backfilled 66,000 square feet vacated by a customer who moved into property they own. The replacement customer, new to Highwoods, will take occupancy before June 30. In summary, overall leasing deal terms continue to improve. This includes an increase in starting rents, longer durations, fewer and fewer concessions and rising net effective rents. Before turning this over to Mark I’d like to go script for a minute if I May. Firstly I thank you for your kind remarks regarding my years of service. You’ve been a great friend and partner and I'll always cherish that friendship. My 19 years here in Highwood importantly been the most rewarded of my 44 year business career. I really can't a better company to be a part of and I confident this team will do excellent work. They truly are the best in what they do. I consider the entire 420 plus associates in this company, as my Highwoods family and I thank them for their support and friendship over the last 19 years. Now back to our original schedule of program. Mark?

Thanks Mike and congratulations on a great career. In the first quarter, on a per share basis, we delivered FFO of $0.72 or 9% growth over last year’s first quarter. In dollars first quarter FFO was 69 million versus 61 million in 2014 or 13% growth. Primary drivers for the growth in FFO relate to same property NOI from increasing occupancy and contributions from value added acquisitions slightly offset by lost NOI from dispositions. Also, first quarter 2015 benefitted from $763,000 of land sale gains. Quarter-over-quarter, same-store cash NOI growth was very strong at 10.5%. You may recall same-store cash NOI in the first quarter of 2014 was impacted by lower occupancy. We reiterate full-year same store cash NOI growth guidance of a healthy 5.5% to 6.5% but we expect quarterly same-store results to be lumpy. As a reminder, first quarter G&A is traditionally higher in Q1 due to certain equity incentive grants that must be expensed at the grant date rather than over the normal multi-year vesting period for employees who have met certain age and service eligibility requirements. We expect G&A to be lower in subsequent quarters and more consistent with prior year quarters two through four. Turning to the balance sheet, the changes from December 31, 2014 primarily relate to line-item shifts from development in process to land and buildings. This is mostly due to International Paper IV and the first MetLife building being placed into service. Amounts outstanding on our credit facility are slightly higher at March 31, 2015 reflecting the increased investment in development projects. We raised approximately 41 million of equity in the first quarter through our ATM program and the combination of operating cash flow, ATM proceeds and borrowings resulted in stable leverage of 41.8% at quarter end versus 41.7% at year-end 2014. As we noted on the last call, we have three secured loans, all bearing interest above 6% that we can pay off later this year prior to their stated maturity dates. One for 39 million is pre-payable at par at the end of the second quarter and two loans totaling 113 million are pre-payable at par late in the fourth quarter. We plan to refinance those obligations on an unsecured basis providing us more overall flexibility and lowering the effective interest rates. Gains and losses relating to early debt extinguishments, the net effect of which will be nominal, are included in our overall FFO outlook for 2015. A couple of noteworthy financial items for the remainder of the year. First, as Ed mentioned, additional portions of our development pipeline, such as the second MetLife building, will deliver later this year. These deliveries will contribute to an upward FFO trajectory particularly in the third and fourth quarters of the year. Second, we altered our full year FFO range primarily to reflect the land sale gain recorded in the first quarter. We are now forecasting full year FFO of 2.97 to 3.07 per share, which assumes weighted average fully diluted shares outstanding of 96.9 million to 97.7 million. Excluding $0.07 of land sale gains in 2014 and a penny this year, our outlook at midpoint represents a 6% year-over-year growth. Operator we are now ready to take your questions.

Thank you. [Operator Instruction]. Our first question comes from the line of Jamie Feldman with Bank of America Merrill Lynch. Please proceed with your question.

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

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

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

We do but we truly don’t go lease by lease to see if we mark to the market and that the varying expiration terms and different valuation of how it compares to market today and where it is in the building and how it’s built out et cetera. We think there is some upside but I think these asking rates combined with what we are seeing and being able to continue to get start annual accelerators on virtually every lease we signed is a good indicator.

And then I know you guys have mentioned rising construction cost or keeping supply in check. I think on the last call as you had mentioned the couple of markets that you are watching a little bit more than others, are there any now that you are getting more concerned about too much supply?

No, but we still are watchful with regard to Nashville and Raleigh on how much they have underway. In Nashville there is about 0.5 million square feet -- let me change that it's about 900,000 square feet that’s about two-thirds pre-leased and in Raleigh there is, looking forward -- I got it here.

It’s about the same thing, it's right at 900,000.

Yes, 790,000 square feet and it’s 40% pre-leased. But your comment also Jaime still applies with regard to construction pricing. We still see it escalating approximately 0.5% per month.

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

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

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

Just a couple of questions here, it looks like you guys sold a few under leased assets last quarter and just curious if your full year occupancy guidance contemplate some additional sales of vacant or lower lease buildings and maybe just how would you characterize the occupancy profile of the buildings that you plan to sell this year.

The guidance that we have Jed for year end of 92.5 to 93.5 for occupancy, we don’t take into consideration any acquisition disposition impact on that. So it’s void of that as what we owned today and so we don’t factor any acquisition disposition influences into that. I think that what we would sell in the remainder of the year and we've maintain guidance the same level 100 million to 200 million on that would not be -- the occupancies would be more in the mid 80s range on weighted average basis.

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

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

And then just maybe lastly on the concession environment looks like you had another quarter of kind of more moderate improvements leasing commission, is that a trend you think is here to stay or maybe just few words about kind of what you’re seeing on that side of the business.

Sure. So as market is tight and obviously there is fewer and fewer concessions to be add, I think we’ve talked in the past about how some of the early tails of concessions, things that predominately don’t show off in the supplemental like a disproportionate amount of parking, building signage when you don’t occupy majority of the building after hours ATAC, those types of concessions have been long flushed out. But there is still some discussion about pre-rent when the RFPs go out and I think we firmly have our hand on the negation button to win out on the number of those negotiations. So shifting the clear shift from turnkey TI deals to specific TI allowances being able to push the rent and continue to get the escalators that we like to have in these leases are becoming more and more in our favor.

And there is no doubt in our better BBD markets which is most of product we’re seeing a lot of concessions, almost non-existent. You still see the request of it said but from what it was even a year ago and circling back to projects it's much better than that.

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

So Mike you mentioned lease terms in your prepared remarks, they certainly were higher this quarter and looks like some of that was maybe attributable the PPG lease which was long. But I think you mentioned even Raleigh where I don’t think there was one particular large deal that was close to 10 years and overall with over 8 years. Are you guys pushing terms longer and what's driving the longer term the past couple of quarters versus I think your historic average which is been closer to five year average term.

Yes Brendan it was PPG clearly did have some skewing with 369,000 square feet that had 10 years of extension on their existing term, there was one reasonably large transaction here at Raleigh that had some influence on it. It too was longer than the 10 year term so it had some influence, we always like to push term, it's kind of taking the bird in the hand. So we really prefer to get more term with that comp sometimes a little bit more in the way of TI obviously in commissions that you get. But just knowing we don’t have to look at retrofitting that space with the roll over in five years or whatever is meaningful to us. I would say down the middle it's still though your average smaller mid size kind of let's call in the 10,000 square feet range, they're still looking at five to seven years that’s tend to what they prefer. But the larger tenants are making that type of investment and they do make significant investment over and beyond what we put in there they tend to want longer term as well, just to help them spread out their leasing cost over time.

Brendan just to put PPG in perspective if we netted it out we'd still be mid to high sevens on the 8.3. So we did have as you pointed out quite a few deals in other market that had long durations and it was part of our one of the initiatives within our strategic plan with the push for longer term rents. And back then we're in high 3s low 4s and so this has been a strategic objective for us now for going over 10 years and been able to get good credit customers to commit to a longer period of time inclusive of annual escalators has been of course how we've run the business. And if you look at on a per square foot spend of CapEx over the term at 302 for the quarter we're right in line with a five quarter average.

So part of it seems like it's an evolution and an improvement of the portfolio over the past 10 years. And part of it's probably the business environment that we're in. Has -- where do you guys stand in terms of the annual escalators that you're getting now versus maybe where it's been historically has that moved to higher as well?

It is not, we're still in the zip code of 2.5. We certainly do some lower some higher and I think 2.5 is the general average where we have that. Don’t forget that when brokers compute their commission as based on what you can calculate day one would be the customers' obligation over the terms. So that’s included in that calculation and that usually helps to some degree.

Well said Brendan in a couple our markets particularly Pittsburgh and Kansas City which historically were flat rent markets or you might have getting bumps every three to five years. We're now getting for the most part annual escalators they are which is good I think that’s we were first mover in those markets and I think they're starting to follow suit. So we think that will help in those markets long-term.

You guys have done a nice job with occupancy and certainly with many of the big blocks of availability that you had in the portfolio. It did look like Richman moved down in the quarter about 350 may be 400 basis points in terms of occupancy anything in particular that happen in that market which caused the blip in the quarter.

We have one customer that move to a company owned building and we back filled it and the back fill takes occupancy in the third quarter.

And then Ed and Mike you guys mentioned a lot of the space that the blocks that you have that you knocked down on GlenLake, it sounds like there is great activity there the space of One Alliance which will come online. Are there many large blocks left in the portfolio the only one that comes to mind I think is Lakeside down in Tampa. But I couldn’t even think of any others if there any that'd be helpful.

That’s the largest opportunity is in Tampa Bay Park in Tampa as just mentioned Lakeside. We have had some activity on that we expect to be about a third of that back fill here shortly and we have some prospects for other parts of the building. If we get lucky with what we have in the works we could be 85% to 90% filled or signed by the end of the year.

We still have I think a full floor in LakePointe Two which is part of the PWC move out well. But activity there as well so you're right and given the status most of our markets larger blocks are just much in demand. So as we've said in the past if you got a large block you said a little bit of competitive advantage in the market.

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

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

Michael its Mark, nothing really that we haven't already called attention to in the first quarter because of the way our retirement plan works, we do have to expense some compensation that otherwise would have been amortized over a period but that’s really the main outlier in Q1. We do as you know have obviously with the little higher stock price a little higher incentive and bonus expense and that’s why we just nudge that $0.5 million or so in the guidance side.

So 2Q through 4Q should be relatively similar?

They should.

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

Mike, I think the answer is yes to both. We are looking at a number of things and there could be the later and there could be the former. I don’t mean that to sound like a Bill Clinton answer but it’s both really.

And then just lastly, I was just curious you dropped some the industrial and retail detail from the supplement is that just to streamline and point us in the right direction or is there anything I could read into that?

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

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

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

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

And then bigger picture you’ve had a lot of success choosing which markets to enter and you find yourself in some of the most exciting second tier markets in the country and you’ve also managed to avoid some of the weakest. So could you provide your updated thoughts on potential expansion markets, is there anything that might at the critical mass potential of Pittsburgh and anything you’d consider in Texas et cetera.

So good question Vance, we look at other market potential and we make a pretty good hobby that, we invest a fair amount of time studying I think that it would be fair to say that in general that from DC over the Texas would be the major footprint that we would be interested in with regard to potential expansions. So over not the last couple of years but inclusive over the last couple of years and well before that we have looked for opportunities to enter into potential Texas markets and DC and some other places in between like Charlotte and we just haven’t found the right collection of assets at the right pricing at the right time and in good locations that we want. So we look and we’ll continue to invest time studying that and I think that’s a general sense for where the footprint would be. We don’t have any interest in entering the market like New York, Chicago, LA that scale of market we like to be in a relatively dominant position in a mid tier market. We don’t see any synergies to be captivated if we jump all the way out to the West Coast to the Northwest doesn’t make sense for us and we like to be in markets that traditionally have economic demographics that outperformed national averages. So you take those three relatively self more criteria applying to that footprint from DC over to Texas and you have a pretty good sense for what we would look at.

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

Sure Vance when we think about the dividend obviously it's a balance right it's a balance between our capital expenditures our seed money for future development growth all those things in our mind benefit this shareholders. So we look at it and no question we constantly evaluating more continued evaluate but no near-term plan to do it different the dividend.

Our next question comes from the line of Charles Crossan with Jefferies & Company. Please proceed with your question.

Let's have a few quick questions here filling in for Tyler by the way this morning. You mentioned potential expansion or at least you're looking at the Texas market. Just given where oil and gas prices are right now. Are you seeing any sort of asset dislocation there would get you interested in the market currently where as longer term basis the assets might be worth more than they are today? Is that something that you're seeing in that market right now?

Charles good question, I just want to underscore that. We've been looking Texas for years so it hadn’t just been of recent that we've been doing that so I just wanted to be sure I was clear on the communication I may not have been. But we've been looking at Texas in other markets and we think it's a good habit to do that no what's going in markets that relatively in close proximity to where we are. But we haven’t seen throughout the years of looking there of the right opportunity for us to make an investment. And we continue to watch it but we don’t see that as of this point in time for the right entry point.

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

Sure just a recap folks it's about 166,000 square feet we announced it in fourth quarter of '13 at 25% pre-lease last quarter we were 42, this quarter we're at 53. And we expect to have leases signed that would take us north of 80 by the end of the second quarter. So we expect to have the north of 80 by the end of the second quarter and then we have prospects beyond that but we don’t have signatures out at this point in time.

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

I would go with the later, they've compressed a lot to date. Certainly it depends a lot on what a buyer or seller maybe thinking as far as their need to get out when they would get out. But I think that as you underscore they are rich now and we don’t expect them to get much richer but they are rich.

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

My congrats on the retirement that gives us all hope that eventually will all be there too and get to enjoy it. Ed just curious as you think about the acquisition and distributions, at least on the distribution side you said had a number of things non-core at various stages. Within that 100 to 200 do you have anything under contract to sell or under letter of intent just as we start thinking about potential timing and execution of those sales?

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

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

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

And where has CapEx come out, as you think about the range on that 100 to 200?

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

And you've any desire to sort of tap in if there has been any sort of interest in buyer sort or expand the universe of markets they look at to potentially sell joint venture interest in any of the sort of core assets and you deal this 100 to 200 to be non-core but you do have any interest in either a joint venture for core asset or sale of the core asset out, right?

We don’t Michael, I don’t want you to interpret that as we wouldn’t but we don’t have a whole lot of that. If you look at our JV revenue we’ve dramatically reduced our exposures to JV by a significant amount. I think that over the last 10 years we have sold almost 80% of our JV revenues. We find that the complexity that comes with joint ventures causes a loss of maybe few more brand sales then we’d like to and it restricts our ability to be stealth and fleet on the ground day to day. And of course a lot of that depends on who the partner is but JV assets are almost every instance encumbered, a 100% of the time they are encumbered so then you have yet not only a JV partner and some time the JV partner who brings the judiciary with them and then a lender as well. Just we think it adds complexity and it makes it more difficult to be reactive to needs the building prospecting et cetera. So we prefer the flexibility of being wholly owned that doesn’t mean that we wouldn’t do JVs and we certainly still have some but we don’t have a high appetite to off-lay risk in the version of the JV for our portfolio at this time or any aspect of it.

In your opening comments you talked about substantially -- substantively add to the pipeline of the developments and you obviously raise the bottom end to 150 from a 100, you’re talking little bit about sort of the state of those prospects in terms of sizing of potential built to suit how much is going -- $100 million land bank, how much of that is land that you own today that you can bring into production versus landing you'd have to go and acquire.

So few things, it’s across three different states, I know that’s not what you meant, sorry. They are in different states of negotiation, I think that as we’ve said in the past that if you look on average of the development that we’ve done in recent past. The average deal size is about 50 million. Obviously we’ve done -- we’ve got biologics that’s about 15 we’ve got Bridgestone that’s around 200 but the average deal is been in the 50 million. So we gave guidance out to the year we said think two to four projects for this year and approximately the $50 million range. We feel relatively good about our ability to be in a situation to announce the 150 wouldn’t have raised that number. But we kept the high end at the 250. There is certainly conversations that are ongoing that could take us to the 250 but they are difficult to predict at this point in time. And so, with regard to the overall land portfolio we have 496 acres and we consider about 420 of that to be core. It depends on the prospect. Some of this land we would need to go buy in order to accommodate the user tend to how we won the Bridgestone deal. And then others, the land that we have fits perfectly for their use, can do what we did for the MetLife deal. So the land that we have all support over $1 billion worth of development, I think if the next $1 billion of development that we do I would say that it would be fair assume that 50% to 70% of that would be on company owned land and 50% to 30% would be on land that we would buy to accommodate that user.

In terms of the occupancy -- the high end of the occupancy guidance of 93.5 to the end of the year. When you look across your markets, is there certain markets or is there even certain assets that you’re targeting to get there? I am just curious as you look down that list where that biggest potential is to get that occupancy gain?

Good question. So obviously the markets with the lower occupancy today have the greatest opportunity for gain in virtually all of our markets in which they get in, in all of our markets we forecast year-end to be higher than where we were at the end of last year or now which is the 91.9. So we expect growth there in some of these markets where we’re already 95 to 96, we can maybe move a couple of percentage points but there is not a lot of upside there and then we have like Atlanta and Raleigh where it’s lower we think we have some significant chance for upside there.

And then Tampa where we’ve talked about the vacancy that trying to move that as well even Nashville which as we've touted is been extremely strong market and we're 95.3 I believe in that market as we pointed out we had a move out of a pretty sizable customer already back fill but that occupancy will pick back up as we go into the next quarter so there'll hope would be a blip there as well.

But as you think about that 150 basis points call it lower north of 400,000 square feet. Is there any chunky pieces as we think about getting to that in terms of certain building leases or certain major tenant leases to achieve that occupancy level.

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

We made comfortable with as clearly with the low end of that. We may have to get a little bit of luck to get the high end but most of it's being inked and just hasn’t commenced yet. Were Mike mentioned where we had a customer moved out to a now a company owned building and we back filled it, we have some leasing at Lakeside and some other places. Somebody asked earlier about Richman we back fill that 70,000 square and that’s inked and will start third quarter. So what gets us to the low end, I think would be fair to say as mostly inked. The One Alliance deal that we talked in materials of 44,000 square feet it's just commencement deals.

And one other one just on the built to suits that you're targeting, these three to four deals. How many those are in state moves versus added state relocations?

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

Our next question is a follow up question from Jed Reagan with Green Street Advisors. Please proceed with your question.

Just a quick follow on related to Michaels question. Can you talk about which markets you are most focused on today in terms of the new acquisition development opportunity that Ed talked about three states maybe if you could offer little more color. And then are you looking at any portfolio or entity level investment opportunities that might seem interesting at this point in the cycle.

On the states Jed I'd prefer not to be too specific about that we're in competition with others. And I think it wouldn’t be too hard to try for some to figure that out but hopefully we'll have some announcements for you here in the not too distant future. With regards to entity level we typically don’t comment on those types of things but we've grown and transformed this company through buying and building mostly one-off assets. And we found that to be a very productive way to have transformed the portfolio and to be where we are today and if it's not broken why fix it.

[Operator Instructions]. Our next question comes from the line of John Guinee from Stifel Nicolaus. Please proceed with your question.

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

That’s what he said.

And if you mentioned this Ed everything is running really well and you hit speed bumps. Have to updated people on HCA and Syniverse Technologies recently?

Yes, we have. With regard to Syniverse what we said I believe on the last call and number of times in one-on-one is that they have a new CEO, we think it's positive news given the comments that we've read in the media when about what they're trying to do with the business. It appears there business is good we feel that there is a good probability that they would stay but it's still early. So hopefully we'll know something, expire into what third quarter or fourth quarter of '16. So we're seven quarters out before the expiration date.

And from what we gather their workforce is substantial in that north part of Tampa so they really like the building, and the user there is an executive group that has an office in downtown Tampa with the new CEO. He is pretty much touted that he tends to follow the lead of workforce in terms of where they are located. So we are encouraged by that.

And then with regards to HCA we all know that they are in the process of building a building and so their space is located in sub markets that have single-digit vacancy low single-digit vacancy, the majority of their lease doesn’t expire until '17 so it’s early there but there is staggered expiration dates we feel good about the space and it’s in sub markets that are highly desirable.

Is this $26 square foot which looks like it's your gross rent here does that reflect above or below market for that product.

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

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

We’re blacked out for this component until February 10th of the year.

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

And then a last question and I’m not sure if it’s public and not expect you not to say anything if it wasn’t. But did the Concourse deal up in the permanent market of Atlanta ever happen?

Did it ever happen?

Yes, did somebody buy it, is that officially off the market?

Yes, it’s been in the media that it has been bought by BLT. I don’t know if it’s a 100% ownership, but I understand its traded hands.

At least safe up there pal.

Now, it’s incredibly over done by the media I would just love to strangle everyone at CNN and FOX et cetera. Don’t get me started.

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

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

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