Q4 2019 Earnings Call
Good morning, and welcome to the Highwoods properties earnings call. During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session at that time. If you have a question. Please press the one followed by the four on your telephone.
Anytime during the conference you need to reach operator, Please press star Sarah.
A reminder, this conference is being recorded Wednesday February 5th 2020.
I'd now like to turn the conference over to Brendan Marotta. Please go ahead Mr. me right now.
Thank you operator, and good morning, joining me on the call. This morning, our Ted Klinck, our Chief Executive Officer, Brian <unk>, Our Chief operating Officer, and Mark Mulhern, Our Chief Financial Officer as is our custom today's prepared remarks have been posted on the web if any of you have not receive.
Yesterday's earnings release or supplemental they're both available on the Investor section of our web site at Highwoods Dotcom on todays call. Our review will include non-GAAP measures such as at that though and Hawaii and EBIT. There also the release in supplemental include a reconciliation of these non.
GAAP measures to the most directly comparable GAAP financial measures.
Forward looking statements made during today's call are subject to risks and uncertainties, which are discussed at length in our press releases as well as our S. Easy filings as you know actual events and results could differ materially from these forward looking statements. The company does not undertake a duty to update any forward looking statements.
I'll now turn the call to Ted.
Thanks, Brendan and good morning.
2019 wasn't an eventful and productive year for Highwoods.
We ended the year strong with impressive fourth quarter leasing results, an alpha with a high end of or outlook.
Our team is laser focused on executing our market rotation plan.
Increasing occupancy and rents in the portfolio.
Finding additional opportunities to further strengthen cash flow and drive or long term growth.
Our markets continue to outperform national averages across a wide array of economic and real estate metrics.
Population and office using job growth, you're driving demand for office space in our Bbds.
To that end you along as 2020 emerging trends in real estate three of our cities were listed in the top four nationally for markets to watch.
Six of our eight were included in the top 11.
There is great momentum across our portfolio footprint as we continue to see numerous corporate relocations into our markets.
2019 included a lot of positive activity, namely entering Charlotte, What's the 436 million dollar acquisition of Bank of America Tower.
Making significant progress toward our plan to exit.
The Greensborough and Memphis.
Back filling a significant portion of 11000, Weston and 53 30 to 80 on.
Announcing $150 million of development.
And placing in service $300 million of development, there were combined 99% leased.
We accomplish this while transitioning the CEO and COO roles.
Posting strong leasing and portfolio fundamentals.
We're pleased with this momentum because we start 2020.
Turning to our 2019 result, we delivered alfalfa over $3.33 per share.
As you know our results were impacted by the balance sheet write offs associated with laser spine sudden closure and the first quarter and the one time costs from our market rotation plant.
These are excluding these items or f. AFFO and same property NOI growth would have been in the upper half of the outlook range. We provided at the beginning of 2019.
During the year, we leased 3.9 million square feet in a second Gen office space, including 1.3 million square feet of new leases.
With combined to GAAP rent growth of 18.5%.
Cash rent growth of 4.7%.
All while keeping leasing costs consistent with prior trends.
Same property cash in why growth was up 1.3%.
Were 2.8%, excluding the impact of Ela sorry.
This compares to our original outlook of positive 2.0 to 2.3, 0.0%.
We announced three spec development projects totaling $150 million.
As we disclosed in the last Night's press release, when like seven is now 100% Preleased.
Stabilized three quarters ahead of pro forma.
Our 500 million dollar development pipeline is now 77% Preleased.
We also placed five developments in service comprising 900000 square feet.
Representing $300 million of investment, but are combined 99% occupied.
These projects were 52% Preleased when announced.
Development continues to be a key growth engine for our company.
Turning to our market rotation plan, we've completed $323 million roughly 75%.
Phase one dispositions so for.
Including the pending $40 million sale of the Norwood.
We remain on track to complete phase one in the second quarter.
We've used these proceeds to pay down debt associated with the fourth quarter acquisition of Bank of America tower in Charlotte.
An asset in a high growth market with upside through leasing through lease up an expansion potential.
As we stated in August when we first announced our plan we expected phase one to be initially f., a phone neutral and cash flow accretive.
Based on 2020 outlook and execution, thus far we're on track where their initial expectations.
Our balance sheet remains in excellent shape, we have ample liquidity to fund our growth prospects.
Coding continued investment in our development pipeline.
Turning to Q4, we delivered FFR 91 cents per share.
The 5.4% year over year increase.
Our leasing performance was excellent.
We leased 1.2 million square feet of second Gen office space with a gap rent growth of 19.8% cash rent growth of 6.1%.
We accomplished this volume of leasing with net effective rents of $18.17 per square foot.
14% higher.
And our prior five quarter average.
This includes Backfilling half 53, 32, avionics and renewing and expanding our largest remaining exploration through 2022.
Hundred 60000 square feet with Med solutions and Nashville.
We ended the quarter with portfolio occupancy of 92.2%.
Towards the upper end of our outlook of 91.7% to 92.3%.
The volume of work accomplished in 2019 sets us up well for the next several years.
We expect cash flow to further strengthen as we move forward.
Bolstered by improving rents development deliveries and the impact of our market rotation plant.
As a result, we've increased our dividend for the fourth consecutive year to an annualized rate of $1.92 cents per share.
Since the beginning of 2017 or dividend is up 13%.
In last nights earnings release, we provided our initial 2000 20-F AFFO outlook of $3 in 60 cents to $3.72 per share.
As I mentioned earlier 2019 was impacted by some unusual items.
But even when excluding these 2000 20-F AFFO growth is up more than 4.5% at the midpoint.
Our outlook includes same property cash in why growth.
3.25% to 4.25%.
And yearend occupancy 91.0% to 92.3%.
As highlighted in the press release anticipated the impact of Phase. One dispositions is included in our 2000 20-F O outlook.
Our outlook for additional dispositions is 100 250 million.
As is our custom these have not been included in our F F O local outlook.
Our acquisition outlook has a low end of zero in a place holder of 200 million at the high end.
Our development announcement outlook is 100 to 250 million.
We're having conversations with several large anchor prospects and have spec projects on the drawing board, where we see continued demand for new product.
This gives us confidence that we will likely at more projects to our development pipeline in 2020.
In closing I applaud our team for their dedication and focus throughout 2019.
As I mentioned earlier, there was an eventful year for Highwoods and threw out our team has remained focused on leasing space and achieving strong rent growth.
Controlling operating expenses.
Finding high quality development projects that provide attractive risk adjusted returns.
And recycling assets consistent with our effort to continuously improve portfolio quality.
We enter 2020 with a solid foundation and the ingredients for improved growth over the next few years.
Our balance sheet is in excellent shape with ample room to fund future growth plans.
EUR 500 million dollar development pipeline will deliver and stabilize through 2022.
And we have organic upside potential in our portfolio to rent and occupancy growth.
Brian.
Thanks, Ted and good morning, everyone. We finished the year strong and capped off a solid year of growth from our leasing teams in the fourth quarter.
Second generation office leasing volume was over 1.2 million square feet, including 398000 square feet of new leases, our highest <unk> quarterly new leasing volumes since mid 2014, and we captured gap rent spreads have a positive 19.8% and cash rent spreads have a positive 6.1%.
Our high quality BBD located portfolio has enabled our leasing team to drive rents higher however, even more impressive is that consistent improvement in net effective rents.
This quarter was especially noteworthy with net effective rents of $18 in 17 cents per square foot, 14% above our prior five quarter average.
These healthy lease economics are showing up in our financial metrics, where we expect strong 20, joining same property NOI growth, but even occupancy projected to be consistent year over year.
And the fourth quarter, we posted same property NOI growth of 1.1% or up 2.6%. Excluding 53 30 to 80 on in Tampa.
Our portfolio occupancy increased 80 basis points sequentially to 92.2% finished the year towards the upper end of our 91.7% to 92.3% range.
The biggest gains in sequential occupancy where in Tampa in Raleigh included and yearend occupancy is 92000 square feet with fanatics at 53, 32, avian and Tampa.
Chairs there are tamper team for getting some solid points on the board so far at 53 32.
We are underway converting the three lower floors to traditional office at 53, 32, Avianca, where we believe it will be one of the top office buildings in the west shore Submarket.
In Raleigh, there were several medium size users that drove the improvement and yearend occupancy without getting the benefit of 98000 square feet at 11000, Weston that was signed but where occupancy hadn't yet commence by year end.
Reducing our near term rollover risk is a constant focus and our hard work in this space during 2019 will pay dividends and 2020 m. beyond.
We only have 29% of revenues expiring through 2022, which is approximately 500 basis points lower than the average at this point during the past three years, and we expect our future rolled over to diminish even further as we complete the market rotation plan with Greensborough and Memphis carrying a disproportionate share of our near term role.
Specifically and as Ted mentioned earlier in the fourth quarter, we renewed hundred 33000 square feet with Med solutions, it's running 21 expiration and expanded them by an additional 27000 square feet.
We also renewed 91000 square feet with Marsh in Atlanta, which included a downsize a 32000 square feet, but where expiring rents were well below market.
And after renewing Metlife in Tampa, and Vanderbilt Nashville earlier in 2019, and signing a 238000 square foot extension with the state of Georgia early and 20, joining we're left with only three expirations greater than 100000 square feet do 2022.
As we mentioned previously we expect chemo would've vacate 116000 square feet in Tampa and the middle of 20, joining the other two expirations are GSK leases one in Atlanta, where we have the FAA and a 100000 square feet, where they remain and hold ever status as we work on terms of renewal and the other in Tampa, where we have the FBI.
And 138000 square foot build to suit building and we're working towards a long term renewal.
From here lets drill down on our markets, where office fundamentals remain strong driven by a common thread of robust demographic trends population job in a wage growth low cost of living and conducting business and serving as centers of higher education and innovation.
In Atlanta as reported by CB Ari the market posted positive net absorption of 726000 square feet in the fourth quarter and 1.7 million square feet for the year with average class a rents across the market up 4.5% year over year.
We're tracking 5.9 million square feet of competitive office development underway, which is 57% pre leased over.
Over half of which is in Midtown and where we have no direct exposure.
Our Atlanta team signed a 176000 square feet of second generation leases during the quarter with GAAP rent spreads have a positive 13%, while occupancy was essentially unchanged and in the quarter at 89.8%.
Turning to Raleigh, where it was recently ranked at the second best market to watch in the United States and utilize emerging trends report high demand and following vacancy of driven class a rates up 4.7% year over year and new office buildings in the urban core now have asking rates of $40 per square foot or higher according to analysts in young.
We're tracking approximately 2.1 million square feet of competitive construction were just spread over five submarkets is 38% Preleasing represents a 5.1% of competitive stock.
Our Raleigh team signed a 184000 square feet of second generation leases during the fourth quarter with healthy GAAP rent spreads have a positive 31%.
Folio occupancy improved 150 basis points sequentially to finished the year and 90.1% or.
Additionally, our Raleigh team has pre leased 100% of Glenlake seven our 41 million dollar 126000 square foot development project. We're pleased this drug they will stabilize in the first quarter of 2021 three quarters ahead of pro forma for color. The last three spec projects started in Raleigh.
5000, Centregreen 751, corporate center and now Glenlake seven are all now 99% plus leased.
Finally, the home of next year Super Bowl, and Tampa, where class a rental rates continue to increase in the CBD and west shore Submarkets that bbds when the majority of our portfolio is located.
According to Cushman, and Wakefield office rents increased 5.6% year over year in class a occupancy in west shore in the CBD is it combined 89.5%.
We're tracking 1.1 million square feet of competitive construction in west shore, and the CBD, which is 33% prelease and represents 4.2% of competitive stock.
During the quarter, our team signed 347000 square feet of second generation leases with GAAP rent spreads have a positive 22%.
Portfolio occupancy improved 350 basis points sequentially to 93.2%, which benefited from the fanatics lease at 53 32 avian.
At 53, 32 have younger underway with a lower three four repositioning to prepare the balance of the building for traditional office users.
As a reminder, our standard development practice is to design properties, including build to suits to provide long term multi customer office flexibility.
We believe the fanatics Lisa validates the flexibility we purposely include and all of our developments.
To wrap up I couldn't be prouder the results our team delivered within another excellent quarter of leasing with robust volume and strong net effective rents.
We've advanced our goals with regard to future rollover and enter training training with a lower three year forward expiration total and we've had entering any of the past several years.
The leasing environment remains healthy across our markets and bbds for the high quality and well located workplace options. Our portfolio provides finally, our 500 million dollar development pipeline is 77% preleased with good interest in the two projects would spec space remaining and we're poised to capture growth as a proxy.
Next in the pipeline deliver and 2021 and 2022.
Mark.
Thanks, Brian as Ted outlined 2019 was an active in productive year for our company.
We delivered at that both $3.33 per share at the high end of our revised outlook.
As you know there were 17 cents of unusual items in 2019 that impacted f., though.
Most notably the non operational balance sheet write offs associated with laser spines sudden closure in the first quarter and the costs associated with the market rotation plan.
Excluding these items, our AFFO would have been right at the midpoint of our original outlook and this includes 10 months of lost and alive from laser spine as well as the dilutive impact from the sale of Metro Center in Q2, which together reduced 2019 AFFO by six cents per share.
In the fourth quarter, we delivered net income net income of 58 cents per share an f. FFO of 91 cents per share.
As expected we recorded three cents per share of ally do that November 14th acquisition of Bank of America Tower, which was offset by two cents a share of additional interest expense for the pre funding and funding of the acquisition.
And one cent of additional accrued severance costs associated with the planned closures of our offices in Greensboro and Memphis.
And last nights release, we provided our initial 20 20-F FFO outlook of $3 in 60 cents to $3.72 per share.
At the midpoint FFO is up approximately 10% year over year.
Excluding the onetime items that impacted 2019, or 2020 outlook still implies 4.6% year over year growth at the midpoint.
As we mentioned in August when we announced our market rotation plan, we expected phase one to be initially EFO neutral and cash flow accretive.
While there's still work to be done to complete phase one we're on track to meet our overall initial expectations and we're confident there is significant long term growth potential for us at B of a tower and in Charlotte overall.
In addition to our FFO outlook. Some other items that were included in our 2020 outlook same property NOI growth of positive 3.255% to 4.25%.
Yearend occupancy of 91% to 92.3%.
Straight line rent of 32 to 34 million.
And Gionee of 40 to 42 million.
And then average shares outstanding of one of 6.6 to one of those seven point Sixmillion.
So a couple of items to note regarding.
Our 2020 outlook.
First there are significant change is expected to our same property pool other than the addition of a few development properties that were placed in service and exclusion of the phase one dispositions, which weren't projected data meaningful impact on same property numbers.
Second 53 30 to 80 on is included in the same property pool, while we'll record GAAP revenue from fanatics in 2020, we currently anticipate no cash and alive from 53 32 Avianca in 2020.
Third our occupancy is negatively impacted by 30 basis points from the phase one dispositions and thus we expect occupancy will drop in the first quarter.
Following the sale of the 94.2% occupied industrial portfolio.
Fourth our straight line rent is expected to be higher in 2020 compared to 2019, primarily due to leases at B of a tower and fanatics at 53 32 Aevenia.
Fifth our Gionee outlook includes 700000 severed severance expense in Q1 2020 associated with the closing of the Greensborough and Memphis offices.
Six deliveries from our development pipeline are projected to contribute significantly to earnings in 2020, as our current 500 million dollar pipeline will not deliver and stabilize until 2021 and 2022.
Seventh and finally, we have no major financings plan for 2020 as our balance sheet is in excellent shape.
In summary, we project solid growth in 2020, driven primarily from organic growth in our operating portfolio.
This highlights the healthy fundamentals across our business, coupled with a higher court quality portfolio mix of markets that positions us for stronger and more sustainable growth over the long term.
Last night, we also announced an increase in our annualized dividend from $1.90 to $1.92 per share.
When evaluating the dividend, we balance our cash flow outlook needs for capital reinvestment in the portfolio and our taxable income levels.
The market rotation plan and our development pipeline will continue to contribute to our strengthening longer term cash flow profile.
Our leverage levels increased at year end following the acquisition of B of a tower and prior to receipt of the majority of proceeds from phase one of the market rotation plan.
However, even with temporarily Ella leverage our balance sheet was in excellent shape at year end with debt to EBITDA of 5.2 times.
After receiving proceeds from last week's industrial sale, our credit facility balance is currently $34 million down from $221 million a year end.
We expect another 40 million and proceeds from the sale of the no would plus additional proceeds as we complete the remainder of phase one.
After issuing 750 million of long term unsecured notes in 2019.
Our maturity ladder is in great shape, and we have less than 300 million of floating rate debt outstanding.
We haven't issued any shares on the ATM since the second quarter of 2017.
We're committed to grow within our targeted debt to EBITDA operating range afford a half times to five and a half times and have the flexibility to fund the remaining 277 million on our development pipeline without the prerequisite of issuing shares.
We remain confident in our ability to fund our growth initiatives and maintain a strong balance sheet.
Finally, as you may have noticed made some routine FCC filings yesterday and this morning.
Under FCC rules S. Three shelf registration statements Sunset every three years.
It spend three years since our last shelf filing.
As a result last evening, we filed a new S. Three with the FCC. This was a joint shelf filing by the read and the operating partnership that registers and Indeterminant number of debt securities preferred stock and common stock for future future capital markets transactions.
With this new shelf in place, we also needed to refresh our ATM program, which we filed via form for 24 be this morning.
This new program allows us to raise from time to time up to 300 million of common equity at market prices less a 1.5% discount.
As you know keeping an ATM program in place is one of the many arrows, we'd like to keep in our capital raising quiver.
Operator, we're now ready for your questions.
Thank you if you looked like to register for a question. Please press Star one followed by the four on your telephone you will hear at three Tom from to acknowledge your request. If your question has been answered and you would like until we sell your registration. Please press the one followed by the strain.
Our first question is from the line of John Tiny with Stifel. Please go ahead.
Great.
This call guys. Thank you one question.
I kept hearing that.
The.
Asset recycling was going to be.
For all but after that how our cash flow accredo. Some a little surprised to see that you chose to raise your dividend by only 1% any any thought process. There can you expand on that a bit.
Yeah, John It's it's Mark Mulhern as you know.
The Capex was a little higher the last couple of quarters. So we have high confidence that the cash flow profile. The company is going to continue to improve development deliveries and with some of the leasing activities that we've done we try to keep it close to inline with our taxable income and so balancing all those.
Things, we felt like that was an appropriate move to make and.
We continue to evaluate as we go forward.
Yes, but I thought the whole deal was a capex that's going to come down.
Yeah, Yeah, we always we believe it will I mean, obviously, we just completing the sales are those assets so that the capex.
Decline will will happen as we go forward and no question.
Great. Okay. Thank you very much for sure.
Thank you.
Our next question is from the line of Jamie Feldman.
Oh.
I think some Erica please go ahead.
Thank you. So yeah, we've had a couple of management teams comment on how business feels today versus this time last year I'm just curious to get your thoughts you had a very good quarter you had some nice leasing spreads it seems like supply is picking up in your markets.
Maybe just kind of big picture thoughts on that comparison.
Sure Jamie it's Ted.
No I think our business fundamentals feel really good.
We have with our boots on the ground or local genes. We have certainly frequent calls to understand where activity is how tour activity is we monitor sublease space expansions, so not say compared to last year, it's equally as good and we feel pretty good last year. So you know our demand really.
Across all of our markets and Submarkets continue to be good tour activity.
We're seeing a lot of inbound new companies move in our markets are benefiting from a lot of job growth. So you know compared to last year I'd say, it's right on par.
And are there certain markets that feel different than this time last year.
Not materially where I think I'd call one out I think.
Demand just it's really good across the board.
Okay.
And then I know you Didnt include phase two asset sales in your guidance, but to the extent you get them done during the year.
How do we think about the potential earnings impact or do you think you might match fund that with acquisitions I know, you've got acquisitions and not in your guidance, but in your potential guidance I should think about it was moving pieces.
Sure I'll start maybe Brendan can jump in terms of just phase two.
Obviously feel good about phase one completing the last 25%.
Within the timeframe, we mentioned hopefully in the second quarter.
So feel good about that with regard to phase two.
We've got broker opinions of value on a majority of the assets we've had a.
Several inbound calls from interested parties. So we are in discussions on a few of those assets. Although we don't have a timetable now having said that our disposition guidance. We put out there is 100 150 million and I would tell you a majority of that is going to be likely going to be phase two assets.
So right now in terms of the timing again, we don't have any assets on the market. We are in discussions sobi several months at the earliest before I think you'd see any activity.
Yes, Jamie the only thing I'd add to that is that 100 150 million of dispositions that are not included in the FFO outlook is pretty typical for us.
And then we also have an acquisition range of zero to 200 million, which also is not included in that FFO outlook. So as your question suggested I mean, it does depend a little bit on where things ultimately shake out with respect to dispositions and acquisitions, but included within the parameters of the.
Of the outlook range is roughly matched funded between acquisitions and dispositions.
And do you think you could do that EFO neutral.
If you do match fund.
I think it depends I mean, certainly I guess as you look at the acquisitions that we've done over the past I.
I mean, we've only done one over the past four years at this point that that cap rate was lower than the disposition cap rates for our typical hundreds 150 million of sales per year, but I think as we exhibited with the market rotation plan, we found creative ways to make that roughly.
FFO neutral so I think there's anything I guess I'd say it probably depends.
Okay and then just finally from me can you talk about the Pittsburgh enrich Finland, you acquired in the quarter and is this just some of the land you that might fall into the bucket of interest from for build to suits already or is this kind of longer term hold.
Hey, Jamie Brian we are here a great question I'm glad you asked it so take Richmond first.
Richmond acquisition was 8.8 acres of land that kind of catalyze isn't unleashes the nine acres surrounding it that weve owned for quite some time, so you're looking at about a 18 acre mixed use master plan that can be kind of unleashed and support the 1.5 million square feet of Aki.
Despite office that we have around it in the Innsbrook.
Market, there and so based on our initial kind of master planning, we can get about 900 multifamily units and the plan another 300000 square feet of office.
A couple of hundred hotel keys in some retail to really create a strong mixed use environment that we would most likely master develop and have partners and other folks come in who do that for a living and there's been tremendous.
Interest in inbound on that so that's where the Richmond story is so it does actually allow us to land and present to build to suit sites right on Interstate 95 in a way that we can't right now to Pittsburgh. This is a very interesting acquisition in the east Liberty high barrier to entry.
Market is down the corner from or Google has a major presence in Philips is.
Building out a build to suit it's across the street from a brand new.
Targeted Warby Parker Ace hotel.
Whole foods.
And but novos as well so it's a very interesting market for a small opportunity, but were really bullish on it because of the tremendous tech growth in the neighborhood, including.
Locally mentored Unicorn do Orlando.
And how soon would you start on either of those projects.
So on the Pittsburgh, when we're going through designs and pricing. So we'll have some flexibility to do that at our own timetable on with regard to Richmond, It's a really a master planning and.
Process and so I think through the end of the year, we'll finish that work and then be talking to inbound interested parties to help us with a mix of uses during that time.
Great. Thank you very much.
Sir.
We have a follow up questions from John dining with Stifel. Please go ahead.
Oh great.
Two questions one you sort of half answered already thank you what Pittsburgh in Richmond, What's your Oh by the time, you're entitled and got your Masterplan all figured out.
What's your basis per square foot for the had ready dart.
Hey, John Thanks for the question a couple of things and I'm glad you triggered a.
I thought that I didn't answer before the east of Liberty Pittsburgh location with regard to entitlement. It is basically fully entitled the which is a pretty big thing to have in Pittsburgh and so in that case, just from an f. buildable. If they are foot, you're probably into the mid to high thirtys.
For where we are thinking for that building and then if you look at the lanford basis on Richman, it's really low it's about $8 in change that's just not even including the additional nine acres. Its catalyzing that we've had for some time at a pretty low base are so.
Good points, there and if I started adding.
The fair value of the vertical development, obviously, you had it up that Bert you know positive quite a number so little early that kind of nail that down as we go through our process, but we really love the entry points.
Okay and then.
Mark or a brendan regarding raising equity via the ATM what was the the top task when you raised equity last in 2016 and 17, you nowhere you.
Topped out and where do you think it's appropriate to raise equity on the next go around meaning 2020.
John I don't have that number right at my fingertips, but it's a you know in the 51 52 very close to $52. So just under 52 is the way I would've thought about it.
You know, we obviously a filed a shelf and authorized a new ATM, we'd like to have that flexibility I wouldn't necessarily make a call on price you know we've been able to fund.
Oh, the there will be of acquisition with disposition proceeds and kind of been able to keep the balance sheet in really good shape. So we're not England do something here on the ATM, but we'd like to have the flexibility and if it makes sense. If we have an opportunity. We we've got a chance to fund we have to 77 277 million left to fund on the device.
And then pipeline, which we have plenty of capacity to do here. So.
Again, we're we're trying to just make sure we have all our options open.
Great. Thank you. Thank you.
Our next question is from the line of Blaine Heck with Wells Fargo. Please go ahead.
Great. Thanks, Good morning, maybe another one for Mark or Brendan I, just wanted to touch a little bit more on same store guidance wanted to see if you could dig into some of the major drivers.
Brian I think mentioned Theres not much of an uplift in occupancy implied in the yearend occupancy guidance number. So I guess can you just give some detail on whether that 3.75% mid point.
Is driven mostly by you know an uplift in rents is there any expense moderation in there or is there some component of burn off of free rent, that's playing a big rule.
Yeah, Hey, Blaine its Brendon good question. So overall, yes at the midpoint as you mentioned up 3.75% is included in the guidance within that number is average occupancy that is down a little bit that is predominantly driven by.
The remaining phase two assets in Memphis, So excluding those average occupancy within the same store pool would be up a little bit and probably for the core eight markets excluding.
The residual phase two assets, we think that.
Same property growth would probably be up 25 to 50 basis points higher than the range that we provided last night really it's being driven by.
Our revenue growth overall, so our revenue growth is up probably around 4%.
On the overall pool expenses are up a little bit more than that so it's not an expense driven its not an expense driven metric for this for this year that same property growth, it's being driven more by topline. We've got expenses that are probably up on balance around 4.5% and taxes are the biggest driver of that.
Overall increase so we think it shows a lot of health within the business and the positive leasing fundamentals that we've been reporting over the past many quarters. We think are showing up in that same property growth and there's I think you also asked a little bit about straight line rent, it's helping a little bit so the cash number we would expect to be.
A little bit better than the GAAP number for 2020, but that's pretty typical for us I wouldn't say that that's a major driver of the underlying same property guidance that we provided.
Okay got it thanks very helpful. And then switching gears over to kind of earnings NFS. So that's kind of a follow up on an early <unk> earlier question.
How should we think about the effort. So cadence this year given that you guys have so many moving pieces you've got the NOI from phase one dispositions that will be going away as you get those sales done you have.
Possibly you have additional sales throughout the rest of the year and they've got some gionee headwinds in the first quarter, but you also have on the other side you have some upside from a full quarter of view of a tower, maybe a little upside from development deliveries and leasing throughout the year, how do all those drivers interact with each other and can you give us any sort of an idea.
Where does that quarterly AFFO inflection point or or bottom.
Correct.
So so blamed just I'll start and Brenda can chime in and add color. If we need to so you know our AFFO guidance. We expect obviously just as you describe a little gionee increase in the first quarter. The way, we treat our incentive payments and we think that some of that's going to get offset by some of the you know you still have.
Some of the phase two assets contributing so.
We actually expect that I suppose gonna be out of upward trajectory towards the back half of the year in our typical opex.
Highest quarter for Opex in Q3, but we do expect some you know upward trend in NFV FFO as we get towards the towards the end of year and that's kind of in our corporate in our guidance.
Great. Thanks, guys.
Thank you. Our next question is from the line of Rob Stevenson with Janney Montgomery Scott. Please go ahead.
Hi, good morning, guys.
Can you talk about where prices have come out on the completed Memphis Greensboro dispositions, thus far versus your expectations heading into the process.
Sure in terms of where we are so far.
We closed two buildings, we announced the about 90 million of sales in the fourth quarter, our that was roughly a 666.6% cash and GAAP yield and then the industrial portfolio combined with the Norwood, which is going to close here in the next couple of weeks that's related.
Combined.
6.1% cash and GAAP as well so while we've been very pleased with phase one thus for certainly its met our expectations.
Okay, and then what's nor would close is what's the rough dollar value of remaining on the total market access between Memphis in Greensboro.
So as a reminder, we still do have remaining 25% of phase one to get done. So you know it's somewhere in that you know.
Probably mid three hundreds something like that.
Okay and then.
You guys are always good about talking about 100000 square foot move outs any incremental known move outs of note in sort of 50 to 100000 square foot range sitting here today that may have higher rents and have.
An impact on you guys.
Sure. So let me just run down maybe the 2000 Twentys and the first three we've talked about now for few quarters.
First is the essay, which is actually an hold over now expired last year third or fourth quarter. There's on month to month, we're still confident we're going to get a renewal done with those guys. That's the right at 100000 feet and we've got to T. Mobile that's going to be vacating 116000 feet.
At the end of the second quarter.
And we've got prospects there for a couple of full floor users, but very early we're just we're touring so just starting to talk to those guys and then on the F.B. I is towards in the fourth quarter about 138000 feet and we feel pretty confident we're in discussions with those guys as well and think we're going to get a long term.
Renewal out of the FBI. So your question after that we've got about an 85000 square foot customer.
That expires at the end of the first quarter, we feel very confident thats going to be a renewal we're deep into negotiations. There. So we feel good about that and then after that we dropped down to about a 68000 foot customer that is very close to being renewed as well. So we feel very comfortable both.
Those and then after that it drops down to 61, and that's a vacate we it's a customer that we just we move to another building and downsized a little bit and we have some pretty good prospects to backfill half of that already so after that were really sub where we do have one more 54000 foot or we've already backfill half.
With that so we think we've taken care a lot of the big ones or feel good about him.
Okay. Thanks, guys appreciate it.
Our next question is from the line of Adam Kubacki with Morgan Stanley. Please go ahead.
Hey, guys. Thanks for taking the question just wanted to get your thoughts on any incremental opportunities for growth in Charlotte now is the market rotation plan as a little further underway what kind of deals you're seeing in the market. What your appetite is for I'm forgetting a little bit more.
More aggressively pursuing something.
Good morning, Adam Brian Larry here. Thanks for the question on the Queen City I'm also the de facto kind of division lead on on shot at the moment so.
We've been spending a lot of time quality time, and Charlotte with our.
Friends and partners, there and feel optimistic that kind of a multi pronged approach with regard to land development acquisitions are going to bear fruit.
We believe through that theres opportunities to source off market and be aggressive if we need to but I think it's got a great story across multiple submarkets in Charlotte.
Got it. Thank you and then just one more you mentioned previously that youre, starting to develop sort of spec suites to get small tenants and alternative to co working just kind of wanted to get your latest thoughts on that project and how you think it's how you think it's playing out.
Sure this Ted it's playing out really well.
So couple of years ago, we made a concerted effort.
To start the specs, we program really in all of our our markets and to date, we've built out.
I think its little over 100000 square feet of spec suites, and the we track how long how bake it and how long were the space vacant prior to build it out and how long after we build it out and the metrics.
From a velocity standpoint have been very attractive to us. So it's a program it's working.
We were pulling some of those customers out of existing co working spaces as well just capturing demand that they want an immediate plug and play with modern space. So our specs, we programs working pretty well.
Great. Thank you.
The next question is from the line of money Korchman with Citi. Please go ahead.
Hey, guys Ted I believe in your prepared remarks, you talked about kicking off the new developments. If you had to guess today and what markets with those new developments bid.
I'm sure you know I think we've got right now more than a handful very active discussions going on we've made pitches for both build to suit.
Building users as well as partial building users and we've made those pictures I think and.
For different markets multiple pitches and a couple the markets.
So right now it's sort of hard to tell you know sometimes these discussions can go on for a long time. So we don't know exactly when something may hit or even if it's going to hit it also.
Four of our markets, we've got active discussions going on and it just depends on sort of the timing of the customer.
If all four of those word ahead would you be outside of the range and you gave in guidance or is that included the possibility for all of those starts.
Well very rarely if we hit all of our Oliver pitcher who made its the some of these things are multi well at least one on multi city.
Still so if we hit all of them I think we'd be outsider or guidance, but again, that's sort of typical for us. We've got all we've got a lot of active discussions going on and we have been a 100%.
Probably ever.
Great. Thank you.
Thank you.
As a reminder, if he would like to register for questions. Please press star one follow up by the for the next question is from the line from Jamie Feldman with Bank of America. Please go ahead.
Thank you.
Very strong leasing spreads in the quarter can you talk about Iraq outlook for this year and then just maybe just the mark to market of the portfolio today.
Sure Jamie as Ted.
I think.
Our mark to market.
We try not to say it but it's.
We're definitely under under under market as we as we continue to go through this cycle. We're optimistic that just the discussions we have the activity. We have so we're going to be able to capture the continued increase in market rents over the next over the next year. So I think we've got roughly 10% of work or.
Customers expiring and we should be able to capture we think pretty healthy spreads going forward as well similar to what we've done the last several quarters.
Okay, and then I think yeah, when you talked about the different markets. It sounds like you know kind of four 4.5% rent growth pretty typical in your markets. This past year, what do you think that looks like for 2020.
Yes, I'd put them in maybe in two different buckets, you know the higher end might be even six or 7% last 12 months or six day to even its Raleigh Nashville.
Tampa, and Charlotte and Atlanta, the minimum a lower in call it 2% to 3%, there's probably Pittsburgh Orlando enrichment.
I think thats, probably fair barometer for the next 12 months.
Okay.
And then just in terms of large blocks you have left to lease.
Can you just talk us through the leasing pipeline.
Sure the largest block who's going to ensure the largest blocks going to be.
Backfilling T mobile into the second quarter and I briefly touched on that we've had a couple of full floor prospects I wouldn't say strong prospects, yet, but they too are the space.
We're in a Indus early discussions.
After that it's the last three floors at 53 32 avian I'm very similar there I mean, we're in process of white boxing the lower three floors, right now and as well as doing tours of the building.
So that's about 90000 feet or so.
And then after that it's really a few fifties.
And.
A couple of floors, obviously owner development.
We've we've got two buildings still a lot of spec space, Virginia Springs to and mid town.
Tampa.
Those buildings, we've still got over a year.
Well, Virginia Springs, I think delivers later this year than Midtown Tampa next year. So we still got some runway to to get some activity there and we're seeing.
Good good prospects on both those we just got to convert into leases.
Okay, and then last now that you have some visibility on the final planet Avi on what do you think that total cost capex cost to reposition those floors and get them leased up will be.
So just on the capital again, we're still so while we've got we're pricing it I think we.
Some of it depends on the.
There's a variability just on what the prospect of the user needs. If Youve tour. The building it does have.
Staircase right in the front. So if we can get somebody to take the first couple of floors will save money by not having to take out the grand staircase. There is an extra elevator at the end of the building that depending on the potential user they may or may not want and then there's so much extra H.B.A.C. as well on one of the floors that may or may not stay so there's a little.
A bit of a range, there, but I'd say, the capex between white boxing and and.
And improving the some of the building is $3 million to $4 million in that range.
Including the conversion from medical the office correct, yes that is.
Jamie that is the conversion from sort of the medical the office right and then I think from a Ti and leasing Commission leasing capital perspective, I think you have probably a pretty good handle in terms of what those costs would be and with obviously we've got.
A little over half the building leased and then will you know do deals that will we would expect would be in line with market for the balance.
What a market you guys right now.
Hey, Jim market T.I.s.
You know, we're probably looking at.
Up to 35 to $50 a foot depending on the rental rate, we get generally $5 per year of lease years. This for a new lease.
Okay, Alright, great. Thank you.
We have a follow up questions from Blaine Heck with Wells Fargo. Please go ahead.
Thanks, just one more probably for Brian Atlanta seen an influx of supply over the last couple of years and there seems to be a decent amount of potential speculative construction. That's teed up to go I think most of it has been concentrated in the mid town markets, So far which is.
Not or your properties are but are you guys concerned at all with the amount of construction affecting the overall rent growth potential within the market as a whole or do you see enough kind of demand to keep rents moving up.
Playing great. Great question, you know it's in June we were actually talking about Atlanta, specifically as you probably know.
Ted and I both lived there for a good period of our career and had been following it very closely with our team in Atlanta, So while most of the new growth is in Midtown.
You are starting to see some of those big moves in speculative moves be rewarded by occupancy is the likes of Google continues to expand there and if you saw the headline as even yesterday Macy's announced 400 jobs that are relocating out of San Francisco into mid towns Atlantic station into the.
T. Three building there. So we were talking about just kind of occupancy or vacancy. If you will has been somewhat static but rents continue to grow I think for the the best located walkable office product so.
You know, we're sitting back obviously feeling really good about where we are in buckhead and continuing to kind of tell a little different story there and.
From a bucket standpoint.
Obviously looking very closely at Midtown love all the fundamentals, but I think were fairly optimistic you know about what's happening in Atlanta, where rents continue to grow.
And people continue to move there by the truckload.
Great that's helpful color.
And there are no other questions at this time, let's turn the call back tier.
Well, thanks, everybody for joining us. This morning, if you have any follow up questions were here and available if not we'll talk to next quarter. Thank you.
That does conclude the conference call for today, we thanks for your participation and ask that you. Please disconnect your lines.
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