Highwoods Properties, Inc. (HIW) Q4 2012 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. 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, February 13, 2013. I would now like to turn the conference over to Ms. Tabitha Zane. Please go ahead.

Good morning and thank you. On the call today are Ed Fritsch, President and Chief Executive Officer; Mike Harris, Chief Operating Officer and Terry Stevens, Chief Financial Officer. If anyone has not received a copy of yesterday's press release or the supplemental, please visit our website 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 planned dates for our 2013 financial releases and conference call. Also, following the conclusion of today's conference call, we will post senior management's formal remarks on the Investor Relations Section of our website under the presentation 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, joint ventures, rollover 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 2012 Annual Report on Form 10-K and subsequent SEC reports. The Company assumes no obligation to update or supplement forward looking statements that 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 toward 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 and thank you everyone for joining us today. On our last call, we discussed that the mere passage of time, the inevitable rival of Election Day in January 1st would resolve some of the uncertainties hanging over America's 2% economy. Now that several boxes of uncertainty have been checked, like them or not, businesses have a better sense for the rules of the road and they are able to strategize for growth accordingly. This has led to some optimism about the economic outlook as exemplified by the strength of the stock market. A burning question is whether business and employment growth will finally shift under the grind of first gear and fortunately drifting from one economic policy crisis to another will not accelerate business growth. If certain influential elected leaders can reach consensus on the proper way to manage today’s “crisis of the quarter” i.e. the pending budget sequester and give the American public hope that unbridled government spending will be curbed for the health of future generations, there is reason to believe that our economy may finally shift into a higher gear later this year. That’s a big gift but certainly possible. So in 2012, it was very solid year for us. We delivered FFO of $2.73 per share, a 5.8% year-over-year increase. We reported yearend occupancy of 90.9%, up from 90.0% at end of 2011, generated same store NOI growth of 3.6% on a cash basis and 2.8% on a GAAP basis, improved CAD by $11.5 million compared to last year, leased 4.9 million square feet with an average term of 5.3 years, acquired $296 million of core assets at an average cash cap rate of 7.4% and sold $158 million of noncore assets at an average cap rate of 6.8%. This solid performance further validates…

Thanks Ed and good everyone. 2012 was another productive year for Highwoods. On a year-over-year basis occupancy in our wholly owned portfolio increased 90 basis points to 90.9%. The average office lease term sign was 5.3 years. Office GAAP rents increased an average of 2.5% and same property cash NOI before term fees grew 3.6%. Looking at the fourth quarter, we leased 1.4 million square feet, a 27% increase over the third quarter. Occupancy in our wholly owned portfolio increased 70 basis points from the third quarter and same property cash NOI increased 4.9%. Office leasing accounted for 87% of total square footage signed in the quarter, with an average term of 5.4 years. GAAP rents on office leases signed increased 3%, while cash rents declined 6.4% and office occupancy at year end was 90%, up 80 basis points from the third quarter. Occupancy in our office portfolio remained higher than the overall market's occupancy in each of our core markets. Each of our top five markets reported positive absorption in the fourth quarter and over the past year these same markets combined to have benefitted from 5 million square feet of net absorption and pretty much no new construction. CapEx related to office leasing in the fourth quarter was $16.35 per square foot, a reduction from the previous quarter, but higher than the $15.34 per square foot average of the previous four quarters. Turning to our markets. With the acquisition of EQT Plaza in December, Pittsburgh is now one of our top five office markets, contributing 10.8% of our annualized office revenue. Yearend occupancy in our Pittsburgh portfolio was 91%, up 830 basis points from the fourth quarter of 2011 and 340 basis points from the end of 3Q. Looking to our Nashville division, it remains the top performer…

Thanks Ed and good everyone. 2012 was another productive year for Highwoods. On a year-over-year basis occupancy in our wholly owned portfolio increased 90 basis points to 90.9%. The average office lease term sign was 5.3 years. Office GAAP rents increased an average of 2.5% and same property cash NOI before term fees grew 3.6%. Looking at the fourth quarter, we leased 1.4 million square feet, a 27% increase over the third quarter. Occupancy in our wholly owned portfolio increased 70 basis points from the third quarter and same property cash NOI increased 4.9%. Office leasing accounted for 87% of total square footage signed in the quarter, with an average term of 5.4 years. GAAP rents on office leases signed increased 3%, while cash rents declined 6.4% and office occupancy at year end was 90%, up 80 basis points from the third quarter. Occupancy in our office portfolio remained higher than the overall market's occupancy in each of our core markets. Each of our top five markets reported positive absorption in the fourth quarter and over the past year these same markets combined to have benefitted from 5 million square feet of net absorption and pretty much no new construction. CapEx related to office leasing in the fourth quarter was $16.35 per square foot, a reduction from the previous quarter, but higher than the $15.34 per square foot average of the previous four quarters. Turning to our markets. With the acquisition of EQT Plaza in December, Pittsburgh is now one of our top five office markets, contributing 10.8% of our annualized office revenue. Yearend occupancy in our Pittsburgh portfolio was 91%, up 830 basis points from the fourth quarter of 2011 and 340 basis points from the end of 3Q. Looking to our Nashville division, it remains the top performer…

Thanks Mike. Total FFO available for common shareholders this quarter was $56.3 million, up $3.0 million from fourth quarter of 2011. This increase primarily reflects $1.1 million higher same property GAAP NOI and $2.6 million higher NOI from acquisitions net of dispositions. For the full year, total FFO was nearly $218 million, up $21.3 million or 10.8% over 2011, driven primarily by same property GAAP NOI, up $7.9 million and NOI from acquisitions net of dispositions up $21.6 million. These positive effects were partly offset by higher G&A, lower joint venture FFO contribution and lower land sell gains. We also had a one time, $2.3 million merchant build gain in 2011. As a reminder in all my comments FFO, FFO per share and G&A amounts exclude property acquisition, preferred stock redemption and debt extinguishment cost which amounts are disclosed in a table in our Press Release. On a per share basis FFO for the quarter was $0.68. Fourth quarter FFO per share was $0.02 better than the preceding third quarter, primarily due to our Two Alliance and EQT accusations. Full year FFO was $2.73 per share, up $0.15 or 5.8% over 2011 and up $0.27 over 2010 and 11% increase in two years. The $0.15 increase in 2012 over 2011 was driven by the $21.3 million increase in FFO, partly offset by higher shares outstanding. As you may recall our original 2012 FFO outlook included a dilutive impact of $0.08 to $0.12 per share from planed dispositions and equity issuances in 2012 to return our balance sheet back to the same leverage level as before the acquisitions of PPG Place and Riverwood in September 2011. The actual deleveraging impact in 2012 ended up being just under $0.11 per share, mostly flowing through in the third and fourth quarters. Same property…

(Operator Instructions). Our first question comes from the line of Jamie Feldman with Merrill Lynch. Please proceed with your question.

I was hoping you could talk a little bit more about maybe improving demand from housing related or just any key themes you're seeing that give you a little more optimism after the beginning of the year, in terms of either job growth or tenant demand?

We have seen more activity as far as just pure showings and customers who show an interest in expansion versus just a pure renewal over what we have seen in the past. In addition if you look at the Southeast region versus other parts of the country, the December year-over-year growth versus the other areas of the country was either better by 2:1 or 4:1, somewhere in that range. So statistically from government statistics like Bureau of Labor Statistics and other sources, as well as what we’re seeing in the field, there is certainly an uptick in the volume of interest for renewals and expansions.

And specifically two markets Jamie, Tampa and Atlanta, where we’re seeing market improvement and that’s where we obviously have exposure with the moveouts we’ve discussed, it’s encouraging to see the pickup in those markets.

Okay. And then actually focusing on those moveouts, can you talk a little bit more about where you stand in marketing and prospects and what you baked into your guidance?

Sure, so we’ll take them in two parts. First 2800 Century Center which just as a reminder is where AT&T vacated a total of 221,000 square feet, 150,000 or so of that June 30, 2012. We are currently 48% released. We have LOIs out for 44% in addition. So that would get us to 92% at leased and we have additional prospects who have looked at the space as Mike defined in his comments and asked for rental information terms for another 18%. So that adds up to well over 100%. We expect that based on our guidance that we would be 90% by the end of this year.

You guys are usually pretty conservative, so you're feeling pretty good about that.

Well, I did wear a tie just for the call. Would you feel good about the yellow eyes or out, we feel that most of the business terms have been negotiated. So we’re optimistic that a lot of that will hit and then the other prospecting has gone well as we’ve repositioned the building with the lobby, the motor court and the approach of the building. And then on LakePointe One and Two, again just as backdrop reminder, those are two buildings in our Tampa Bay Park in the west shore submarket of Tampa. PWC will be vacating in total when their lease expires 319,000 square feet that we will get back on May 1. They have turned around and re-let 24% of that 319,000 square feet. In addition of that we have strong prospects for another 75% to 80% of the building. We’ve had multiple full floors and multi floor showings, two just yesterday. So we feel about that in that we're still months away from getting the space back. We also as Mike referenced in his scripted comments, we've invested a fair amount of shoe leather and elbow grease working with two local architectural firms that have combined and done really good work and enabling us to re-position those buildings and making for example a heavily vegetated area between the two buildings and to more of a pedestrian motor court to really open it up and give it more of an urban feel along with a lot of other appointments that we’re going to do in and outside of the buildings. So these schematics alone have helped us with this marketing effort in addition to the fact that what Mike stated about, there aren't many large blocks available in the west shore submarkets. So, the last part of your question with regard to guidance, we estimate to be in the 40% range by the end of the year, given that we don't get it back until May 1 and we would need time to do renovations and then we feel about how this prospecting activity will play out as we close out the year.

Our next question comes from the line of Rob Stevenson with Macquarie. Please proceed with your question.

Just to follow up on that last question. Could you talk a little bit about where on the renewals at both Atlanta and Tampa, where the new leases are versus the expiring and what the expected spend on re-development or however you want to term it, TI et cetera is expected to go up for both of those assets.

On 2800 we're flat to positive 0% to plus 2%. On the re-let, as far as cash rent growth, we're little bit coy about putting out the TI allowance because we are obviously in conversations with a lot of prospective customers on both of these or all three of this buildings combined. I would say it’s a market allowance.

But we have pretty much taken this back to almost first generation space. So when AT&T moved out, we basically take the building back almost to shelf condition. So we almost look at it like first gen space from that standpoint.

But that $3.2 million - $3.3 million has been spent, motor court, lobby, that worked in the building. And then at Lakepointe, we expect rather than being up to be down, PriceWaterhouse had been in that building since the earth cooled and so the escalators had gotten ahead of asking rents. So we expect roll down in that building just north of 10% to 15% or in the 10% to 15% range. And then with regard to the building, the space in these two buildings is already 70% open space. So there's not a lot of demo to do in that office space but we are planning on spending in the $5 million to $6 million range to create the motor court, new canopies, new entrance ways and to do some parking deck work.

Okay, thanks for that and then you have a T-Mobile lease for about little over a 200,000 square feet expiring next year. Can you remind us which market that's in and what the latest conversation's been with them on renewing?

Well we have two separate leases with them that make up that space. One is out at the Highwoods Preserve and the other is in Tampa Bay Park and it's too early to comment on those. T-Mobile has been a heavy user of the space. They were one of the customers that came in and took a full building when we had the Highwoods Preserve open up back in the early 2000s and that park has been vibrant. So we feel relatively good about the way that they've consumed the space out there.

There are two different user groups within T-Mobile, so.

Do they both expire next year, or does one expire this year and one in three years from now, how does that?

They're both 2014 expirations.

one on January 1 and one in December.

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

Ed, so and then AT&T, I don't think you've answered this part in response to Jamie's question but AT&T at Windward, what's the sort of outlook there? I assume given that the move out isn't until, I think it’s November 1st, it's unlikely that you assume occupancy by year end, but what's the longer term outlook at Windward Plaza.

I'm sorry if I missed that with Jamie. Yes, it's actually in October 1, Brendan that we'll get that back. IT'S 246,000 square feet. Their rent hadn't escalated there like what it had done in Tampa Bay Park. So we see it right now to be below market. They have not given us official written notice but they have given verbal to Jim Bucket our DVP in Atlanta. We feel like it’s the best and we've studied it, we're not just doing this out of grandmother pride. We feel like it's the best large block of space outside of the perimeter. There are a lot of local amenities that it has access to. The building itself, as far as the plate and the skeleton of the building are good. We do have some planned improvements there too with regard to repositioning the lobby of the building, but the approach and everything else is in pretty good shape. So location amenities, the good bones, we feel relatively good about it. And it also has a very positive parking ratio, which is meaningful out there.

And the building is, Brendan, very adaptable, whether it's for a large user that wants a potentially as much as 50,000 square foot print to break it up down into two pods. It's really laid out pretty well. Our initial look at it is, it's not going to require as near as much from a renovation standpoint for example as we would at LakePointe or at 2800.

Yes. And is it a little too early, given that you haven't gotten official notice yet to have significant tenant interest or LOIs or anything like that?

Well, we have shown the building a few times, just in a preliminary manner. But yes, I think that since we're so far out from that, it's early to be able to build that book of business. We have made good progress in a short period of time with how we'll recast the common area of that building. And Jim and his team have put together marketing materials and have defined a marketing plan to show that space. So I think it is a little bit early but we're not fearful of getting that space back. And also Brendan, I misspoke, it's 223,000 square feet, not 246,000. Sorry.

And then, the other one that I don’t think you guys view as a major concern, but I just wanted to ask to sort of get the update on is on the Life Point space that they'll be moving out of the two buildings, that they're moving out of in Maryland Farms, I think it's in Nashville. I think it's 146,000 square feet total and then they go into the new Seven Springs development. I think that's either at the end of this year or maybe it's the very beginning of ‘14. Is there the back fill prospects there? How does that look like for those two spots?

Great question. And you're dead on with your statistics Brendan. It is exactly 146,000 square feet, just a little more backdrop on that, maybe for others is that, we're doing a built-to-suit for their headquarters of 203,000 square feet in our Seven Springs development, which is across the interstate from where the buildings are that they'll be vacating. The submarket as a whole is just shy of 5 million square feet and it’s 95.4% occupied. Within that 5 million we own about 1.25 million and we’re just shy at 96% occupied. We’ll get the space back; the first of 14 as you suggested. It’s in two different buildings. One is 103,000 square feet and it’s a solid block of space among four floors. It will be the only big block of space in Brentwood that’s available for the next two years and we’ve already had very good activity on it even though we’re this far ahead of it, given the tightness of that submarket and the well-publicized built-to-suit that’s underway across the interstate. So Brian and his team have already had several showings for multi-floor users and we don’t expect him to multitenant any of the flour floors. And then the other building, that’s 43,000 square feet and its more multiple suites. We have very good prospects right now. Again what we define as strong prospects, somebody who has seen the space in person and asked for rental quote for about 50% of that. So you’re right, we are very comfortable with the space that will get back with Five Point (ph) assuming, that they don’t come back and ask to keep some of it.

Sure and is there any material move in the rents one way or the other?

Not really.

Okay grate and then I had a question for Terry. Just I think you mentioned this in your prepared remarks, about the movement of GAAP rent to the cash rent in 2013, which is a pretty big help and I look at the guidance that you’re putting out for straight line rent for 2013, I think it’s $12 million to $15 million per year guidance. When I look at straight line rent in 2013, it was about $19 million but my recollection was that both Two Alliance and EQT had sizable portions of free rent, which were probably somewhere between $6.5 million or $7 million for a full year, I think for 2013. So is the same store number really benefiting very significantly from this drop in the same store pool of free rent going to cash rent in ‘13?

Yes, in the same property pool Brendan, straight line rents will be down about $7 million year-over-year, converting into cash primarily from that swing from straight line to cash rent. So there is still a fairly big reduction or that positive improvement for cash rents flowing through the same property pool.

And not to think about 2014 but if I gather you’ll get a similar, I don't know if it'll be the same magnitude but that will be the similar sort of dynamic as Two Alliance and EQT start paying cash rent from free rent that they are paying in ‘13.

That will start happening too, probably more on ‘14 and ‘13. EQT and Two Alliance are not in the same property pool yet in ‘13. That will come in the pool beginning in ‘14. But you're right.

Yes and then just for consistency sake, as you guys put the details in the NAV page within the supplemental, when you're showing that NOI, that is a true cash basis NOI and to the to the extent that you've got this sizeable free rent and any of the new acquisitions, you're not adding to that number. That would be additive to the NOI run rate if that free rent comes on, is that right?

That’s' right. That's projected cash rents for the year. And just going back to EQT, that building as you know was acquired already at a very high occupancy. There wasn't a lot of lease up coming into our acquisition. So there's not that much free rent in the EQT building. It was more in Two Alliance where we had that.

Okay I thought there was something maybe it’s not considered free rent but there is a pretty large discrepancy between the cash and the GAAP numbers and I thought a portion of it was like credited and then roughly half of it was …..

Partly of that is maybe FAS141 where you have to mark leases and so forth to market.

And EQT’s rents are like 7% below the market.

(Operator Instructions). Our next line comes from the line of Dave Rogers with Robert W. Baird. Please proceed with your question.

Maybe you could talk through the acquisition pipeline a little bit in the volume that you are seeing today versus six or 12months ago, how you feel about the ability to close on these and what types of deals might be back filling the pipeline?

There is not a tremendous amount that's trading in our backyard. We've been fortunate that some of the deals that we've recently done, we've been able to do off market. So I think that we’ve had a good blend of off market and those that have been marketed. I think that as we look at some of the offering memorandums that have come to market to date late in ‘12 and early in ‘13, the quality hasn't been what we would have hoped it to be for some of the things that have come to market. Obviously we are evaluating anything that is in or footprint whether it’s for sale or not but those that have come have been a little bit less attractive. We're working on a number of transactions. We think that the volume of transactions will continue to improve. Certainly there is a lot of money out there with regard to financing options for others and we feel that we're well fortified to acquire the right assets. I know you'd prefer us to buy vacant and fully leased but I think we're properly managing that risk. But we feel quite confident about the guidance that we put out there and I don't want to miss the opportunity to underscore the ability that we have on our team, not just our team that sits, but having brought Ted Clinck on, who is 25 year absolute pro bowler on this. We've got a very strong team to be able to go out and wake up each day looking for opportunities whether they're on or off market.

And I guess maybe a follow up to that on the development side, you gave the guidance toward new development starts that you're hoping to get to this year. Is that all build-to-suit or do you get greater confidence as the year progresses maybe at a Cool Springs or somewhere else that you could start to do a little bit of spec in measured chunks.

Yes, measured chunk, I would want to qualify that just a little bit, I think that if it's in the right place with the right anchored tenant that we would consider that. If we had a user come and they weren't in a position to take the entire building but they were a strong anchor or a strong collection of anchors that we might do that, but being extraordinarily selective about what submarket that we would do that in, but most of what we're pursuing or referenced in our script and in the guidance are really carried over from I want to say 2012, but some of the conversations started in 2010, and then 11 and 12, and I've made the reference to maybe some of these are finally coming to fruition for us. So we're further down the line with regard to space programming and finish selections and negotiations. Nothing signed until it's signed, but there's reason to believe that we'll have better momentum in ‘13 than we've had with regard to development and a predominant amount of it would be preleased.

Okay and then just a question for Terry. The ATM has been a good program for you. Can you talk about how much you have left under the current authorization and I guess then also have you thought I guess with spreads coming in on the offerings the way we've seen them, have you thought about going back to a more traditional methodology as it relates to funding some of the acquisitions and maybe just eliminating some of the daily bleed on the stock.

Sure David. We have $40 million left under the authorized ATM program that’s in place today. In terms of would we go back to regular offering it, I think it would all depend on the size and the use of proceeds. We have been noticing the tighter spreads as you mentioned and which is encouraging for smaller acquisitions, where you only need maybe 15 million to 20 million ATMs perfect. If we get something larger, then you know taking the risk off the table of financing that over a period of time and going with a marketed deal may make more sense. We're very pleased with how the ATM program worked for us in 2012, but we're open to going both ways, again based upon our needs next year.

Our next question comes from the line of Omotayo Okusanya with Jefferies. Please proceed with your question.

Just a quick question about leasing spreads. They remain negative but generally moving in the right direction. As I start thinking more about the back half of 2013, going to 2014, going to 2015, would you generally see as where you think trends are going, at what point do we kind of see an inflection point to get positive mark-to-market, especially as we start talking about leases that were signed in 2008-2009 starting to come up for renewals.

Yes, Tayo, great question. We think there are a few moving parts there. One is that as the economy although, we all know it’s waddling towards improvement, it’s not even a fast paced walk but it is continuing to improve that particularly in the Class A space there is becoming less and less of that available. At the same time, there has been virtually no new construction. So we think that is actually creating an opportunity and gives us reason for optimism. I think it's reflected in how quickly we have had very attractive activity at both 2800 and the two LakePointe buildings in Tampa. There is going to be an opportunity where maybe the customer doesn’t have 100% control of that negotiation baton and we actually get a hand on one end of it. I think, given the absence or the dramatic reduction in quality blocks of space and no new product coming online that may give us that cloud. All of our leases, I shouldn’t say all, but virtually every one of our leases, there might be one or two that don’t have, but virtually all of our leases have annual kickers in them. So the annual kicker is really if we have roll down, and we get caught up within a year or two and our average lease term has being extended through our strategic plan from what it has traditionally been, we’ve been averaging well over five years now for last couple of years. The leases that we signed in the gut of the great recession in let’s call it ‘09 and first half of ‘10, some of them were short but some of them would have a longer period of time. So well we won’t hit those into like which you said maybe in ‘15 late ‘14 and ‘15. That’s a long answer to your short question but we see that some of the stars and the timing is actually working in our favor and as we focus more on we’ve termed the BBDs, the Best Business Districts and now more than 50% of our NOI comes from are BBDs, that you will be in an even better position to capture that.

(Operator Instructions). Our next question is a follow-up question from the line of Jamie Feldman with Merrill Lynch. Please proceed with your question.

I’m hoping you could talk a little bit more about the Cools Springs land, what do you think you’re all in development cost will be there what are the prospects and then can we start to see land banking for you guys going forward?

Let me take the first part and then Mike can follow up. Just as far as land banking, we have about $20 million or so of land that we consider to be non-core of our 648 acres. So we consider about 560 or so to be core. So we’re actively marketing the other 82 acres because the highest and best use is not office at this juncture. The remaining land, that which is core is land where we have building pads, buildings sites, akin to Jamie what you’re familiar with at GlenLake development in Riley where we have three buildings on the ground and we have pads for the future four buildings. So all the infrastructure is in place, the sands is there, the branding is there, the synergies are being built. So that to us is core land for future build-out for new customers and expanding existing customers. With regard to building, we’re in preparation over the weekend and last couple of days I told everybody, we’re not going to use the word or the term land bank unless it refers to where a pawn meets the land. So our view is that this is good raw material but we're not looking to fatten up on this raw material much further. We just feel like the Cool Springs opportunity is a track of land that we have been in pursuit of for some period of time to be back in businesses as we've said in the Cool Springs sub market. It's very vibrant. We already have active prospects for over 200,000 square feet of builder-to-suit there. It is early in the life of the track of land. We really have just closed on it, named it and are working with blocking exercises to figure out how best to lay out the infrastructure and then the four different components, hotel, residential, retail and office. We think that given how exclusive this land is and how attractive the side is that this will be deck parking, not surface parking. So it will be a dense retail development. There are a lot of corporate headquarters that are in this area, the most recent was Nissan North America, which occupies a 1.5 million square feet, here in very close proximity to where we are and as I said in my comments, we’ve delivered about 1 million square feet that’s very well leased, mid 90s in Cool Springs. So we’re out of land there. But are we looking to take down $15 million to $30 million tracks in each of our markets, the categoric answer to that is no.

Jamie, this is Mike. Just to add on to what Ed said, I think the thing that really attracted us to this piece aside from the location, which is just really premiere, was the mixed use nature of the same and we're really focusing on this live-work-play concept that we see in this track bringing combining with SouthStar and what they intend to do with sizeable retailer. This is more than amenity retail. This is just 310,000 square feet of retail walkable amenities, 300 hotel keys, 650 residential units which is a combination of both multifamily and single family and we’re the exclusive office developer really creates community and Franklin. Franklin is really the city of which Cool Springs resides in and we're still got to go through some process for our planning but we've already started, we will be submitting a response to an RFP for a late delivery, I think it’s 2015, it’s a build-to-suit. So we’re throwing this project in the hat for that. So that's our first I guess prospect and we barely closed on this thing. So really excited about that component of it.

What do you think your all-in development cost will be there?

For our land, our acquisition cost was $15 million for the 68 plus about another $10 million of our share of infrastructure. So you're going to be in at about 1950 in FAR (ph) thereabouts.

We expect it to be within the norm of 10, plus or minus percent of the total build out.

Okay, and then Terry can you talk a little bit about, you talking about back filling some of these larger spaces in your 2013 guidance; can you talk about what you're thinking on AFFO this year?

I would say Jamie that we'd probably be positive but maybe in roughly the same range that we were this year, just the low few millions. We still have a little bit of a backlog on TIs from stuff that we signed this year yet, to get paid out. So just working through all that, I think we're going to be in positive territory but not dramatically different from this year.

Right, but you do expect to cover the dividend.

Yes.

And we did cover it Jamie, we are at $6 plus million positive.

Yes. We're positive in ‘12 and expect to be positive in 13.

Our next question comes from the line of Michael Knott with Greenstreet Advisors. Please proceed with your question.

Mike or Ed, could you talk about the trends and net effect of rents across your markets? Are rents ready to grow a little, are concessions easing yet?

I think it depends on what pocket, what market, what submarket we're in which is I know is a little bit of an evasive political answer but it really does. I do think that from a macro view, that we could look at this as, things are coming together so that holistically things are moving, the regression analysis is going in the right direction, particularly as in-fill locations, Class A blocks of space, become less available and new construction isn't on a near term horizon. In the new construction which is, it's much more likely to be heavy build-to-suit than what it was back in the last cycle as far as pure spec.

And Mike you have some of the smaller customers oddly, little bit of an inverse would you think. The bigger customers are tended to lose some leverage because it’s said there are dwindling number of large blocks. So they have limited opportunities and the disparity between new rents for build-to-suit or new building are still pretty wide compared to existing product. So I think you have more opportunity to push the envelope a little bit for the larger tenant. The smaller tenants that are more commodity space, certain submarkets there's a plethora of suits available there and I think we won't have quite as much opportunity to move rates on those but even those are starting to come down a little bit. So that's why we're again pretty encouraged with the big blocks that we have in Tampa and Atlanta.

And Michael I think that as we are at this 90% occupancy level, that gives us a little bit more pricing power in the better sub markets as we move forward. So we have seen concessions coming down some and we have also seen what Terry and his team have had to do with regard to reserves for potential bad debt. That metric continues on a very positive regression analysis that the line there is clearly going in the right direction, as well as the number of extend and blends have really dropped off dramatically. So there are tell-tale signs that would suggest that your premise is right.

I'd also say that with the economy slightly improving, we are seeing customers that were previously in B Space are now saying, hey look things are picking up, they are looking to recruit for employment and they are stepping into higher quality spaces. So we are hopefully the recipient of that with our better in-fill Class A properties.

And then just with respect to tenant psychology, how important is the efficiency issue, less space per employee and then are more tenants planning for growth in their business with respect to their space needs than before, or is that about the same, not much?

I think that there is a higher confident, you used the word psychology, so we are in a little bit of an abstract arena here. But I do think that there is a higher comfort level. As I mentioned in the scripted comments about just where we are in the world, I mean a lot the unknowns have been answered and the answers may not be what people want them to be, but at least they know what a lot of the rules are right now as far as regulation, taxation, cap in trade, where that's probably headed and things like that I think are important to have some sense to that. I also think that thesis’s that have been written and heavily publicized about a suggested dramatic downsizing of square feet per person, I think that-that maybe much more applicable in markets where the rental rates are $75 to $90 a square foot, as opposed to $20 to $28 a square foot. And I also think it's important to make a clear discernment between what we call me space versus we space. We have seen some customers where you as an associate within the firm get less space to you. But the collaborative workspace, what used to be a few vending machines and a laminate table is now and elaborate cafe of sorts and there is other areas for collaboration. So, I think that we went through a lot of conversation as an industry about hoteling years ago, about off shoring years ago, about Y2K years ago, and it was a whole lot more bark than bite and I think that particularly in our market where we’re sub $32 - $33 per square foot is the highest into range, that this isn’t going to be the threat that some of these widely distributed thesis’ suggest would be the case for us, meaning us being an industry.

Can you update us on your thoughts on additional new market expansions, especially in the context of one of your peers recently making a bold bet on Houston?

We really haven’t deviated from where we were. We still have an interest in markets where the demographics outperform the national averages, where there is geographic synergistic benefits to that. We need to be able to get in at the right entry point. We need to be able to find in-fill. We don’t have a grocery list though that’s so selective that it has to be perfect before we’ll do it and I think we’ve proven that, I don’t mean this to sound self-serving for the company but I think that we’ve evidenced that the move into Pittsburgh was a good move for our investors, to be able to hit 91.5 a year and half ahead of pro forma at PPG and already moved occupancy at EQT and to expand of the footprint since we got in by 40%. I think all that really works well for the bottom line. I think that as we study these other markets, that it would be same genre, something within this southeast region from Pittsburgh to the other side of Texas is somewhere we spend a lot of time studying but we also don’t want to catch a falling knife in Houston, if we have to go in and pay a 4.8% cap rate in order acquire an asset where they’ve already enjoyed all the upside.

Okay that’s helpful and then just a question on your land comments. It sounds like you want to monetize the portion of your land bank that won't eventually be office. And just to be clear you have limited or no appetite for staying involved in some of those land parcels where maybe there is an alternative use besides office, your preferences to monetize, not to stay involved?

Yes, that's an excellent question Michael. Its only about $20 plus million worth of land. We have state involved in two previous transactions, both of them in the Town of Cary, which is the Raleigh. We contributed a piece of land for a multifamily development and then as soon as it was close to stabilized we sold it and we doubled the proceeds that we would have garnered had we just sold the land outright. We have another one underway right now, that basically adjoins the first one that we did. So we're looking to do the same thing there. We'll look at these others to see what the opportunities are. So I think having done two like in this past evidences that we have the appetite and the willingness to do it as long as the risk profile is appropriate. But we're not looking to become multifamily developers. And both of these past cases Michael is where we contributed land but the partner took a 100% of the risk on the construction loan.

Okay so we won't see you in student housing anytime soon?

Only to visit my daughter.

And then last question from me, can you pitch me on why you bought the Greensboro assets. I would have thought Greensboro is a market that's closer to your sell list than your buy list.

Well Winston -Salem struggled and we called out from the peak, we're more than 80% gone from what we had in Winston-Salem but we think Greensboro is a viable market as long as we can be the dominant brand in that market and we clearly are. And that's why we own both industrial and office. The buildings that we've bought are the best location, ground zero, good opportunity to Highwoodtize, great residential neighborhood that backs up to it and they make money. So, we didn’t see a reason to pass on it given the synergies, the pricing and our opportunity to make them dramatically better than what they are today. With all due respect to the prior owner, it just wasn't their focus, which meant hanging fruit for us and you can ask any of the customers in nine of those buildings, we hit it with shock and awe within ten minutes of closing and stayed on it for a week and we’ve made significant improvements in those and to be able to garner 9% plus returns where we already have a team and a brand, it just made good sense to us.

Also Michael, our team there in Greensboro under Rick Dehnert, really they're the best by far in that market and we've already seen great comments from the customers in the two buildings we bought, only owned them a month or less and already seen a huge turn. We think that'll convert to high retention in those assets long term and then opportunity to grow rents there. So that was kudos to Rick and his group for staying after this as well as the Church Street MOBs that we bought last quarter.

And our occupancy in Greensboro if you break it out and try it is 93.4% leased. So we're well leased and making money.

Our next question is a follow up question from the line Brendan Maiorana with Wells Fargo. Please proceed with your question.

I just had a cleanup one for Terry. Per your guidance it looks like diluted shares and units is $84.8 million average throughout the year. If I look at the end of the December 31 balance, it looks like it's $84 million. So is there an assumption that there will be equity issued throughout the year, even though I think included in the guidance you don't assume the impact from acquisitions or anything like that?

We did assume a few more shares that would be issued. The yearend leverage was 43.9 and we built in an average of 43.7 in the guidance. So we took the shares and assumed some additional shares or equity to get the leverage down a couple more tenths of a percent, that's basically it.

Okay, has anything been issued on the ATMs?

The only thing was the 6.6 million that I mentioned in my comments that were done in very early January. I think it was about 200,000 shares, $6.6 million were issued in January.

Our next question is a question from the line of John Guinea with Stifel Nicolaus. Please proceed with your question.

I missed the lion's share of this but out of curiosity Ed, in the old days when you were buying something like Cool Springs, you'd probably be competing with Duke and maybe a couple of other reits. Who else is out there looking to buy this magnitude of land with a long term development horizon these days? Who's your competition on that?

Well there're a few competitors out there. Boyle has been a competitor. then the….

Southern Land, then you had JPMorgan and Spectrum. So there was heavy competition.

But we feel John that, this will sound very self-serving, but a lot of that is just pure office development and we're out to be an integral part of a high density for product type mix use development that would clearly differentiate ourselves from the others, really creating a true live-work-play environment as opposed to free standing office.

Okay. And then probably my more important question is, who is going to win tonight? Duke or UNC?

Well two things, Duke is likely to win. They are favored by 11 and then secondly I'm sorry that you missed a lot of the call because we've been remarkably positive.

And there are no further questions at this time.

Thank you everyone. We appreciate you taking the time to participate. As always if you have any follow up questions, we'd love to have an opportunity to resolve them for you. Thank you so much.