Highwoods Properties, Inc. (HIW) Q3 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 will conduct a question-and-answer session. [Operator Instructions]. As a reminder, this conference is being recorded, Wednesday, October 28, 2015. I would now like to turn the conference over to Mr. Mark Mulhern. Please go ahead, sir.

Good morning everyone. This is Mark Mulhern, Ed Fritsch and Ted Klinck, are with me on the call today. As it’s our custom, today’s prepared remarks have been posted on the web. Also on yesterday’s release, we have announced the dates for our 2016 earnings releases and conference calls. If any of you have not received yesterday’s earnings release or supplemental, they’re both available on the IR section of our website at Highwoods.com. On today’s call, our review will include non-GAAP measures such as FFO and NOI. Also the release and the supplemental include a reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures. Before I turn the call over to Ed, a quick reminder that any forward-looking statements made during today’s call are subject to risks and uncertainties. And these are discussed at length at our Annual and Quarterly SEC filings. As you know, actual events and results can differ materially from these forward-looking statements. The Company does not undertake the duty to update any forward-looking statements. I’ll now turn the call over to Ed.

Thank you, Mark. Good morning everyone and thank you for joining us today. If Rip Van Winkle had commenced his infamous nap on August 4, the date of our last release and woke up just in time for this morning’s call, he wouldn’t think much has happened in the economy during the past three months. He’s see that Dow Jones continues to hover in the mid-17s, the 10-year U.S. Treasury continues to reside in the low 2s, oil prices continue to hang in the mid-to-low 40s, and the RMZ continues to hug 1,100. So, forgive old Rip for having dreamt that the Dow touched 15.3 that the 10-year hit 1.90, that oil traded at 38 and that the RMZ dipped below a 1,000. Despite August and September’s capital market volatility, there has not been a detectable impact on the steady demand for our well-located BBD product. During the quarter we leased 1.1 million square feet of second generation office space at robust net effective rents of nearly $14.50 per square-foot, 6.3% above our prior quarter average. Comparing to last year’s third quarter we also grew same-store cash NOI by 6.3% and increased occupancy 160 basis points. Our same-property occupancy was an even 93% at quarter end, 10 basis points higher than June 30. We are pleased to have delivered FFO of $0.77 per share during the quarter including $0.01 of acquisition costs. On September 30, we announced a series of investment activities that will enhance our BBD office presence. Buying Monarch Tower and Monarch Plaza in Buckhead, Atlanta and SunTrust Financial Centre in CBD, Tampa and effectively funding those acquisitions on at least a leverage neutral basis to the planned sale of Country Club Plaza in Kansas City will result in significant and sustainable long-term value for our shareholders. With these transactions, we expect to capture accretive growth in earnings and cash flow by selling the plaza at a meaningfully lower cap rate than the expected stabilized returns at Monarch Tower, Monarch Plaza and SunTrust Financial Centre. REIT [ph] substantial NOI upside with our newly acquired assets simplify our business model, reduce our annual G&A spend and return our leverage ratio to the low-end of our comfort zone. Monarch Tower and Plaza and SunTrust Financial Centre squarely fit our focus of owning BBD located office buildings at prices that offer upside through lease-up, rent roll, Highwoodtizing and operating efficiencies. With $449 million completed to date, we’ve exceeded our initial goal for 2015 acquisition guidance of $50 million to $300 million. The revised outlook we included in last night’s release assumes no additional acquisitions in 2015. The two buildings at Monarch Centre which we acquired for $303 million, 20% below replacement cost total 896,000 square feet and our next door neighbors to are One and Two Alliance Towers. The two Monarch buildings had never before traded and were owned by a 50-50 joint venture between an Out-of-State Pension Fund and the Sovereign Wealth Fund, with rents 12% below market and occupancy of 80% factoring in known near-term move-outs, Monarch Tower and Monarch Plaza should provide solid NOI growth. SunTrust Financial Centre is a 528,000 square-foot trophy office building ideally located in Tampa’s resurging CBD. We acquired SunTrust Centre for $124 million, 40% below replacement costs. Our investment includes $9.1 million of planned Highwoodtizing. We also expect to go on our significant NOI upside of the tower which is 77% occupied factoring in near-term move-outs. An added bonus of this acquisition is an adjacent one-acre city block valued at $2.2 million that is suitable for future development. The site currently provides 245 parking spaces. We believe this is an economically opportune time to capture the upside we have created in our retail dominated Country Club Plaza assets in Kansas City and redeploy the proceeds to effectively pay for these acquisitions. As many of you know, the Plaza is one of America’s most unique retail experiences that Midwest’s premier shopping destination and the crown jewel of Kansas City. NOI is now at its highest point since our acquisition of the J.C. Nichols Company over 17 years ago. We selected Eastdil Secured as our exclusive agent to list all of the plaza’s 804,000 square feet of retail space and 468,000 square feet of the plaza’s office space, redeploying proceeds from the sale of the plaza to acquire the two Monarch Centre buildings and SunTrust Financial Centre in reverse 1031 exchanges also enables us to efficiently differ a significant portion of the expected tax gain. Importantly, once this sale closes, our leverage will revert back to the low-end of our 40% to 45% comfort zone. During the quarter, we also closed out another joint venture investment, this time by selling our 20% interest in the building in Rocky Point submarket of Tampa for $7 million. Plus, we were paid back in full a $21 million secured loan we had provided to the joint venture back in 2012. Now only 2.1% of our revenues are generated by joint venture owned properties which is down 80% from its historic peak. Year-to-date we have sold $39 million of non-core buildings. We’re forecasting the sale of Plaza assets will occur no later than early 2016, which side of New Year’s Day closes on is a backseat issued to us in comparison to price and certainty. While it continues to be a routine part of our business to position non-core assets for disposal, the revised outlook included in last night’s press release otherwise assumes no additional dispositions in 2015. Turning to development, we’ve delivered $162 million of 96% leased development year-to-date. In addition, year-to-date we’ve announced another $153 million of new development activity encompassing 561,000 square feet that is currently 35% pre-leased. In total, we have 1.6 million square feet of 72% pre-leased development in our pipeline. Our current development pipeline representing investment of $522 million will provide meaningful NOI upside and cash flow stability as it delivers over the next several years. We continue to chase additional opportunities mostly on company owned land and have reaffirmed our guidance for 2015 of $200 million to $250 million. Finally, we have updated our 2015 per share FFO outlook, are raising the low-end $0.05 to $3.05 and the high-end by $0.02 to $3.08. The mid-point of our updated range is $0.035 higher than our August outlook and $0.06 higher than our initial 2015 guidance. Approximately half of the $0.035 increase from our prior guidance is the all-in impact of our September 30 announcements. The remainder is coming from continued improvement in our same-store NOI performance. I’ll now turn the call over to Ted to cover operational highlights. Ted?

Thanks Ed, and good morning. Leasing volumes have been strong evidencing steady demand for our well-located BBD office product. With our occupancy at a healthy 92.6% and the nominal amount of competitive new products, we are well positioned to push net effective rents. As Ed noted, we have solid activity this quarter, leasing a total of 1.1 million square feet of second-Gen office space. And year-over-year asking rents continue to rise by 3% to 5%. Average in-place cash rental rates across our entire office portfolio grew to $23.36 per square-foot, 5.8% higher than a year ago. Occupancy in our same-property office portfolio was 92.5% at September 30, unchanged from June 30 and up 150 basis points year-over-year. Overall, occupancy was down 20 basis points from June 30, entirely due to the impact of 1.4 million square feet of value-add acquisitions that closed on the last day of the third quarter. We are pleased with the strength and diversification of our rent roll, customer mix and geographic BBD focus. Our top 20 customers represent less than 25% of our annualized revenues and no single customer other than the Federal government tops 2.5%. And even on a pro forma basis, after the sale of our wholly owned assets in Kansas City, each of our geographic markets accounts for less than 20% of our revenues. For office space assigned in the third quarter, cash rent declined 0.7% while GAAP rent grew a robust 9.6%. Net effective rents on second-Gen office leases signed were $14.46 per square-foot per year, 6.3% higher than our prior five-quarter average of $13.60. Turning to our markets. Atlanta was recently ranked number in job growth among top U.S. Metropolitan areas during the past 12 months according to the Bureau of Labor Statistics. Also, the market reported yet another quarter positive net absorption, 18th in a row. Our Atlanta portfolio is 91.3% occupied at quarter end, up 410 basis points year-over-year including a negative 90 basis points effect from the Monarch Centre acquisition. During the quarter, we leased nearly 200,000 square feet of second-Gen office space in Atlanta with very strong average GAAP rent growth of 16.4%. We are well positioned to capture additional occupancy particularly in Buckhead where we now own 1.9 million square feet of trophy office space, clustered in the most competitively advantage location in Atlanta’s best-said market. Specifically, our newly acquired Monarch Tower and Monarch Plaza, which total 896,000 square feet are 80% occupied when factoring in the near known, near-term move-outs. Our expectations for NOI upside at Monarch was 180,000 square feet of lease-up opportunity are kin to the performance we delivered at One Alliance Centre. Since closing in June 2013, we have grown occupancy at One Alliance Centre from 67% to 93% and increased asking rents of more than 15%. On the same day, we acquired Monarch Tower and Monarch Plaza we acquired SunTrust Financial Centre, a 528,000 square-foot office tower in CBD, Tampa. Tampa’s economy is turning the corner generating year-over-year job growth of 2.8%, well above the national average of 2.1%. We’re excited to be at the forefront of the resurgence of Tampa’s CBD. Good stuff is happening downtown. For example, there are over 6,000 residential units planned and/or underway. SunTrust Financial Centre is ideally located and offers spectacular views and high-walk score. With $9.1 million of planned Highwoodtizing we expect to further enhance the building’s trophy profile and garner meaningful NOI upside. The building is 89% occupied at closing and will be 77% when factoring in near-term move-outs. Overall, our Tampa portfolio was 88.2% occupied at quarter end, up 490 basis points year-over-year. We expect Tampa’s occupancy to dip in the near term particularly due to the non move-outs of SunTrust. Speaking of city’s surging CBD, New York Times recently quoted a Vanderbilt Professor as saying National is a “City on Fire” with nearly 0.5 million square feet of positive net absorption in third quarter alone, the market’s overall occupancy rate has climbed to 92.5%. This class A occupancy at 97.4%. Occupancy in our National portfolio was 99% at quarter end, up 130 basis points sequentially. In Raleigh, the office market posted its 10th consecutive quarter of positive net absorption. Occupancy in our Raleigh portfolio was 91.6% at quarter end up 150 basis points year-over-year. We leased 149,000 square feet of second-Gen office space with average GAAP rent growth of 15.8%. Since June 30, we’ve increased our leasing at our 166,000 square-foot GlenLake Five development project from 80.5% to 84.3% and have strong prospects that would move us into the 90s. Finally, CBD Pittsburg continues to be a stealth performance for us. Class A vacancy in the market remains very tight at 7.1%. Occupancy in our portfolio in Pittsburg was 96% at quarter end, up 160 basis points year-over-year and 50 basis points sequentially. At PPG Place, occupancy is now 95.4%. In addition, we’re excited about the energy and vibrancy being generated in the community as a result of our significant work to reposition PPG Place’s now 57,000 square feet of retail and entertainment space. We have opened two new restaurants, Five Guys and Poros, an upscale Mediterranean restaurant and we have another restaurant on the way, City Works, a Craft Beer Hub opening next spring. These joined Stalwart restaurant destinations, Ruth, Chris and Einstein’s. As an additional amenity to draw-in more visitors, a new ice-skating rink will open in time for this Thanksgiving, more efficient and much bigger, two thirds the size of an NHL rink, and two thirds bigger than the rink at Rockefeller Center. As we head into 2015 home-stretch, there are sound reasons to be optimistic about 2016. In yesterday’s release, we announced a 198,750 square-foot long-term renewal with Syniverse Technologies in Tampa’s I-75 submarket, but that was signed subsequent to quarter end. This is by far our largest 2016 lease exposure. With this renewal, only 8.6% of annualized revenues have 2016 maturity dates. The effect of this deal is shown in the expiration tables at top 20 customer list in this quarter’s supplemental, and will be included in the fourth quarter leasing statistics in next quarter’s supplemental. Mark?

Thanks Ted. We had a strong third quarter that ended with a series of investment announcements that would be very positive for our balance sheet, earnings and value creation in 2016 and beyond. For the third quarter of 2015, we delivered FFO per share of $0.77 including $0.01 of acquisition costs. The year-over-year comparison is $75 million of FFO in 3Q ‘15, or $0.77, versus $66 million of FFO in 2014 or $0.70 per share. That is a 14% increase year-over-year in dollars and a 10% increase in per share amounts. The primary FFO growth drivers are higher same property NOI due to higher occupancy and higher rents, contributions from value-add acquisitions and developments coming online, slightly offset by lost NOI from dispositions. As Ed mentioned, we have raised and narrowed our full year FFO guidance to $3.05 per share to $3.08 to reflect continued solid operating performance of our properties as well as the projected $0.018 positive net impact of our September 30 announcements. We included a table at the top of page 2 of the press release, itemizing the per share effects of these announcements which consisted of $0.068 of NOI from Monarch Plaza and Monarch Tower and SunTrust Financial Centre, offset by $0.01 of acquisition expenses that were recorded during the third quarter, $0.014 of borrowing cost to fund the acquisition at LIBOR plus 110 using our bridge and credit facilities. And finally $0.026 of anticipated severance cost required to be accrued in the fourth quarter due to our intent to close the Kansas City division office upon the closing. We have raised the low-end of our full year same-property cash NOI guidance by 50 basis points to 6.5% and the high-end by 30 basis points to 6.8%, reflecting our confidence in the positive momentum we see in our markets and overall results. We also updated our G&A expense outlook for the year to $40.5 million to $41.5 million. The $4 million increase at the mid-point from our prior outlook is primarily due to the acquisition and anticipated severance cost I just mentioned. One item to note with respect to our plan to sell substantially all of our wholly owned Country Club Plaza portfolio, page 95 of the 2014 10-K shows last year’s GAAP NOI contribution from our wholly owned properties in Kansas City of $34.5 million. This includes two wholly owned office buildings totaling 149,000 square feet that are not part of Eastdil’s offering package. Those buildings contributed $1.8 million of GAAP NOI in 2014. We are working on exiting those buildings as well as value-adding our JV investments in Kansas City. Turning to our balance sheet, we ended the quarter at 45.1% leverage versus 42.1% at June 30, this includes borrowings to temporarily fund the acquisitions, which we expect to pay down no later than early 2016 upon the sale of Country Club Plaza. We received great support from our Bank Group and we were able to obtain $350 million unsecured bridge facility at the same spread over LIBOR as our current revolving credit facility to fund the acquisitions in Atlanta and Tampa. We initially borrowed $250 million and expect to borrow the remainder to pay-off $106 million, 6.9% secured loan that is pre-payable on November 12. We utilized the ATM early in the third quarter issue 1.2 million shares and raised approximately $49.7 million continuing our commitment to fund our growth on at least a leverage neutral basis. We view the September 30 acquisitions as effectively self-funding given our plan to sell the Country Club Plaza assets. We will continue to be measured and opportunistic in our use of the ATM to fund pay applications in our development pipeline. Operator, we are now ready for your questions.

[Operator Instructions]. And our first question comes from the line of Vance Edelson from Morgan Stanley. Please proceed with your question.

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

Good morning, Vance. Thank you. We prefer not to put a number out there whether we pit it against replacement cost or just a general number for what it may trade at. We don’t want to do anything that might tank what we expect to be a highly competitive process.

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

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

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

Yes, hopefully they will lead to something as you saw our guidance remained unchanged at $200 million to $250 million and we’re just north of $150 million right now. We’re in multiple conversations, as we’ve always said, it’s tough to tell when those things come out of the oven and whether it’s our oven or someone else’s. But we are undoubtedly in multiple conversations and we’re optimistic. I think the real question would be, does it fall in ‘15 or early ‘16.

Okay. That’s very helpful. Thanks Ed.

Thanks Vance.

And our next question comes from the line of Jamie Feldman from Bank of America. Please proceed with your question.

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

Sure. So our Riverwood 200, you may recall, we announced it early June it’s 39%, by mid-July we had boosted pre-leasing to 66%. We’re just now hopefully next week, we’ll pour slab on grade and we won’t do the first elevated slab until around November 7 or 9. So, we’re a long way from getting that building completed, it doesn’t complete until second quarter of ‘17. We have prospects of that we’re talking with but I wouldn’t put them in negotiation category yet. But we certainly here are having showings and conversations about the remaining 34% of that building. And the other one that you mentioned was Seven Springs where we have the 203,000 square feet underway. You may recall that our previous customer originally took five of the seven storeys and then grew to six of the seven storeys. Again that building is not due to be complete until second quarter of ‘17, so we have plenty of time on that. Nashville is I think it was in Ted’s comments is on fire. Our occupancy there in the portfolio is 99%. I think there is really nothing to worry about there. In fact to the point when we decided to start Seven Spring’s west, the 131,000 square-foot building which falls in the same part. And currently we have prospects for that that would equate to about a third of the building. And we’re just now starting to scratch the ground.

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

Well, the market is in very good shape. There are a couple of development projects, we’re doing a few and then there is a couple in the - there is one that’s likely to happen out in Cool Springs what we call Franklin II. And then there is one occurring in the Golf [ph] that would recently be completed Golf Crossing. It’s 90% leased at this point and then 1201 [indiscernible] is 70% leased at this point. So, and this is really not a whole lot of spec space that which is being built or is underway, it’s really in good shape.

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

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

Correct.

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

Okay. And are there certain markets where you think there is more opportunities than others?

I think it’s in scale and obviously the activity that we see, the scale of Atlanta is different than the scale of the other markets that we’re in. But cities like Nashville and Raleigh and Pittsburg are all very vibrant now. And the others aren’t far behind. We’ve continued to pursue the long-talked about wish-list.

Okay, thank you.

Thanks Jamie.

And our next question comes from the line of Manny Coachman from Citi. Please proceed with your question.

Good morning guys.

Hi Manny.

If we think about the newest acquisitions, you spoke to Highwoodtizing the buildings, what’s sort of the timing of getting those improvements in place and then where are you in your expectations of leasing those to sort of more full levels?

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

And then occupancy upside assumptions, what about those new acquisitions?

Yes, that’s what I said, we would expect to be stabilized over the first few years and be at a low-to-mid 7s return. And that’s what we were suggesting when we mentioned that, the sale of the Plaza would be the meaningfully lower cap rate that we expect to stabilize the 1.4 million that we just bought in the mid-to-low 7s. And we expect to sell Country Club Plaza for something sensitively meaningfully below that cap rate lines.

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

We would expect that, we’ll see how it plays out. I think that, it’s really only a couple of categories. So the retail component is just over 800,000 square feet and the office in total is 468,000, a portion of that 468,000 just over 200,000 square feet is in second storey office. I think bifurcating that from the retail would take some work. But then the Valencia Tower which has 263,000 square feet of office would be more, easy to separate out. And obviously bidders would have that opportunity to bid along those lines.

Great. That’s it from me. Thanks Ed.

You’re welcome.

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

Thanks, good morning.

Good morning.

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

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

So, Brendan, it’s structured so that we would have a reverse 1031 for the approximate 430 we’ve invested and then we have the potential to do a forward 1031 on additional proceeds as long as we can identify within the certain amount of time of closing and then we’d have six months thereafter to close on what we identify.

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

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

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

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

Yes, Brendan, just a couple of things to add. So, it’s $0.01 a share rough numbers when you exclude the severance cost we think about current savings, G&A savings going forward. I will say too that we potentially have some positive impact on our capital expenditures. Obviously the age of the Plaza and the nature of that and the re-tenanting that takes place required some maybe heavier capital than some of our other properties. So we’re optimistic about that as well.

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

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

Okay, great. All right, thanks again.

It’s really relatively nominal after HCA and these acquisitions.

Yes, okay. Thank you.

Thanks Brendan.

[Operator Instructions]. And our next question comes from the line of Dave Rodgers with Robert W. Baird. Please proceed with your question.

Yes, good morning guys.

Good morning.

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

Sure. So, first, I wouldn’t want to leave the impression that we have to buy in order to protect all the proceeds that we would hopefully garner from the Country Club Plaza sale. I think we have a number of options. We can fund about and we can pay down debt, we can do more Highwoodtizing. So there are options in addition to acquisitions. On the disposition side, there are assets that we are working to sell outside of Kansas City, listing today with Eastdil. We also have properties there, there are two buildings in total about 150,000 square feet that we wholly own that are not in the listing and off the Plaza proper that we would work to market. And then we have a couple of buildings that were on joint venture that we may consider the same. And then for other buildings which are, it’s usual in the trenches day to day, how our lease expirations, what would be the right time to get out of it. We kind of shamelessly [ph] underscore that we’ve been fortunate in light that we haven’t had to sell anything in order to meet some expiring debt instrument or financial obligations. So we’re disposing to continuing to improve the portfolio and do it, where the timing is best with regard to rent roll. So, I think you would see us do some of that and we’ll obviously give out guidance early next year on what we would expect 2016 dispositions to be.

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

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

Okay, thanks. Last comment or question maybe on Pittsburg. How do you view on the risks on Pittsburg and I guess I wouldn’t just say energy but maybe the risk of new construction there, you mentioned in one of your comments vibrant for Pittsburg and I just wanted to kind of back to that and get a recap on that market. Thanks.

So, in Pittsburg it’s really only two projects. It’s your Four PMC and then a project called the Gardens. So Four PMC is a build-to-suit for their headquarters. So there will be 100% pre-leased to them. They’re in a couple of other buildings they call it One and Two and 3 PMC. We believe that One and Two PMC will be backfilled by them as they pull people into Four PMC. So, there may be some other buildings in downtown that they take some space out, we’ll have to see. And the other project is now about 50% pre-leased and coming online in the not too distant future. So I think it’s not a growth of space, the project is only 125,000 square feet in total. So, with half of that pre-leased, it’s not a tremendous amount of space for a market of that scale. In the long-term outlook for Pittsburg remains strong, very heavily diversified economy and it’s really done well from the time we’ve gotten there. And I think Andy and his team continue to do things to not only improve the properties that we acquired but energize them again to what Ted was saying in his script. I mean the idea that we would ever own a Zamboni and lease space to Craft Beer Hub, all in one location it’s a good day for us.

All right, thank you.

You’re welcome. Thank you.

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

Hi, good morning guys. I’m curious if you’re seeing any changes in maybe the size of bidding tents or just the valuation environment generally across your markets perhaps with impacts from market volatility or changes in borrowing costs, especially on the CMBS side. Anything you’re seeing there?

Yes, Jed, this is Ted. We really haven’t. I mean, I think it’s still been for the quality assets, some highly competitive project guys are still, I think the abundance of debt and equity capital is still there. So, we have not seen a significant change in the last several months.

Okay. And cash re-leasing spreads have sort of been stuck right here for the past couple of quarters and just wondering to what extent that the function of market mix and how representative do you think that is as we kind of look out into ‘16?

I think that U.S. is nominal, it’s kind of barely negative and in some quarters it’s slightly positive, hadn’t been dramatic in either way. But we have gotten away from significant negative. I still think we’re a victim of our annual kickers that we get in virtually every lease that are pretty strong compound annually. We do feel like it’s a good opportunity for us to continue to push rents, asking rents year-over-year up again 3% to 5% in virtually all of our products. So, again we’ll give out guidance for ‘16 early next year but I would expect that the GAAP would say very strong. And that reflects those kickers that we continue to be able to get annually compounded in each lease.

An order of magnitude sort of your average kicker these days, either portfolio wide or kind of what you’re getting on lease assigned today?

Two and three quarters to three, the Syniverse deal for example is two and three quarters.

Okay. And that’s pretty representative of your portfolio over Raleigh too?

Yes, I’m sorry the portfolio of Raleigh I would say would be close to the mid-2s.

Okay. Great. Thank you.

You’re welcome.

And our next question comes from the line of John Guinee from Stifel. Please proceed with your question.

Thanks. A question for you Ed and a question for Ted, this is a softball ad so get ready. When you look at the last couple of years, what you’ve done is downsize your JV portfolio, sold out at industrial selling retail, continue to sell non-core, demonstrated internal growth, demonstrated external growth, created a really clean easy-to-understand balance sheet, 20% max portfolio concentration in any market, modest land position, clearly creating value on a fixed cap rate analysis, deep solid management team, portfolio dominated by BBD assets. So Saturday afternoon, what are you going to be for Halloween? What is the perfect Highwoods Halloween costume? I’ll give you tips to answer that, let me ask Ted, King and Queen deal in Concord’s deal up in the perimeter, knowing what you know about the perimeter market now would you have done that deal?

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

Great. Thank you.

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

Great. Thanks a lot.

Thank you, John.

And our next question comes from the line of Tom Lesnick from Capital One Securities. Please proceed with your question.

Hi guys, good morning. I just wanted to walk through kind of the development activity and what’s kind of come online. So, for GlenLake, obviously 84.3% leased but stabilization isn’t expected until 2Q of ‘17. I’m just curious how much has actually commenced to date and why kind of the long runway there for stabilization?

Well, we - we have a long tradition good or bad of being a conservative company. And we think that when we announce projects that have any spec component in them that we need to reflect in our returns, what we think it could take for us in the way of lease-up. So we include the lease-up interest in that number when we put together our pro forma. We’re optimistic that we’ll beat that period of time as I mentioned with regard to GlenLake we have strong prospects now that would take us north of 90 but just from the time that somebody starts looking to test fitting to lease negotiations to permitting build-out move-in, in it’s first-Gen space so you’re having to ceiling wall, you’re starting from scratch basically. It takes a period of time to do that. But I feel very comfortable that we will meet or beat our underwriting on GlenLake Five and really that’s not a, it’s not a project, a development project in the system that we would have any nervousness about with regard to what we put in the supplemental from day one and from we announced any particular project.

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

Yes, great question. So, Plaza 211, I’ll give you one-minute of background on this. This is a department store in excess of 50,000 square feet for halls. And we basically stripped it back to just the skeleton of the building, the mechanical, for saw windows, everything, we stripped it out. And then, we have built it back to be about 28,000 square feet plus parking. Where we are right now is, we are in negotiations for LOI for substantially all of the space. The reason for the quarter drift there was really construction time but we have what we think could be a marquee user that we wanted to see how discussions went with them these pull we encumbered the space maybe with another prospect. It’s all positive news. And I think it will be 211 as a whole, the availability of it and these LOIs that we’re in conversation about will be seen very positive by the prospective buyer.

Understood. And then, one quick question on the source of uses for 2016, obviously there is a lot of flexibility there with regards to the Plaza proceeds and paying down the bridge and the line and possible 1031 exchanges. But I guess, in terms of just the comfortability level with the balance on the line of credit. How should we be thinking about what level you’re willing to go to before potentially terming that up?

So, Tom, its Mark, we as you know had kind of signaled before we made these acquisitions that we were likely to do some kind of a term-out either in fourth quarter of 2015 or first quarter of ‘16. I think because of the Country Club Plaza process, we probably pushed that out maybe a couple of quarters. I do think in the back half of ‘16 there is the potential that we will be in the buying market. I just think it just depends on development spending, where we end up with the Plaza, what we do with proceeds there. So, I think we got a lot of flexibility in the capital stack in terms of what we’re going to do going into ‘16. But we will, as we noted in the release, we’ve got a maturity that will pay-off here in November, that’s got mid-6 coupon. And so, I think we’re in really good shape. We’ll have a very small of maturities in 2016 after we get this one early, so nothing significant on the maturity front. And again we will kind of play it by years as we decide on the line balance.

All right, great, I appreciate it. Thanks. Nice quarter.

Thank you.

Thanks Tom.

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

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

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