Q2 2019 Earnings Call

July 24, 2019

Operator: Good morning and welcome to the Highwoods Properties conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. If at any time during the conference you need to reach an operator, please press star 0. As a reminder, this conference is being recorded Wednesday, 24 July 2019. I would now like to turn the conference over to Brendan Maiorana. Please go ahead, Mr. Maiorana.

Good morning, and welcome to the Highwoods properties conference call. During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session.

At that time, if you have a question. Please press the one followed by the four on your telephone if at any time during the conference you need to reach an operator. Please press star Zero as a reminder, this conference is being recorded Wednesday July 24th 2019, I would now like to turn the conference over to Brendan Maiorana. Please go ahead Mr. Maier on.

Brendan Maiorana: Thank you, Operator, and good morning. Joining me on the call this morning are Ed Fritsch, Chief Executive Officer, Ted Klinck, President, and Mark Mulhern, Chief Financial Officer. As is our custom, today's prepared remarks have been posted on the web. If any of you have not received yesterday's earnings release or supplemental, they're both available on the investors section of our website at highwoods.com. On today's call, our review will include non-GAAP measures such as FFO, NOI, and EBITDA. Also, the release and 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 SEC filings. As you know, actual events and results can differ materially from these forward-looking statements.

Thank you operator, and good morning, joining me on the call. This morning are Ed Fritsch, Chief Executive Officer, Ted Klinck, President and Mark Mulhern, Chief Financial Officer as is our custom today's prepared remarks have been posted on the web if any of you have not received yesterday's earnings release or supplemental they're both available on the investors section of our website at Highwoods dotcom.

On today's call. Our review will include non-GAAP measures, such as FFO and NOI and EBITDA. There also the release and 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 SEC filings as you know actual events and results can differ materially from these forward looking statements company does not undertake a duty to update any forward looking statements I will now turn the call to add.

Brendan Maiorana: The company does not undertake a duty to update any forward-looking statements. I'll now turn the call to Ed.

Ed Fritsch: Thank you, Brendan, and good morning, everyone. As we've stated on many prior earnings calls throughout this cycle, fundamentals in our business remain healthy. Demand is stable from existing and prospective customers while supply remains in check across our markets. This backdrop, combined with healthy market occupancy levels across our footprint, support continued rent growth. Long-term interest rates are back to hugging 2%, and capital continues to be readily available for creditworthy borrowers. Based on what we're experiencing on the ground and evidenced in the metrics we reported last night, these "goldilocks conditions" are expected to continue, which we believe will support continued growth in NOI, additional high-quality development projects, and increasing FFO and cash flow. Our Q2 financial results support the basis for this favorable outlook.

Thank you Brenda and good morning, everyone.

As Weve stated on many prior earnings calls throughout the cycle fundamentals in our business remained healthy demand is stable from existing and prospective customers while supply remains in check across our markets.

This backdrop combined with healthy market occupancy levels across our footprint support continued rent growth.

Long term interest rates are back to hugging, 2% and capital continues to be readily available for credit worthy borrowers.

Based on what we're experiencing on the ground and evidence to the metrics. We reported last night. These quote unquote goldilocks conditions are expected to continue.

Which we believe will support continued growth in Hawaii.

Additional high quality development projects, and increasing AFFO and cash flow.

Our Q2 financial results support the basis for this favorable outlook.

Ed Fritsch: We delivered FFO of $0.87 per share and leased 1.1 million sq ft, including 329,000 sq ft of new leases and 108,000 sq ft of expansions. This healthy leasing volume was accompanied by strong economics, including GAAP rent spreads of +16.8%, cash rent spreads of +2.5%, and net effective rents of $16.69 per sq ft, 6% above our prior five-quarter average. This volume of work supports our increased occupancy outlook for year-end. It also helped reduce our 2020 expirations, especially the 210,000 sq ft renewal with Vanderbilt University Medical Center, our largest 2020 expiration. Given our Q2 performance and healthy outlook for the remainder of the year, we have revised our 2019 FFO outlook to $3.32 to $3.38 per share, representing a 1-cent increase at the midpoint. Occupancy declined 30 basis points sequentially to 90.9%.

We delivered FFO of 87 cents per share and leased 1.1 million square feet, including 329000 square feet of new leases and 108000 square feet of expansions.

This healthy leasing volume was accompanied by strong economics, including GAAP rent spreads of plus 16.8% cash rent spreads of plus 2.5% and net effective rents of $16.69 per square foot, 6% above our prior five quarter average.

This volume of work supports our increased occupancy outlook for year end.

It also helped reduce our 2020 explorations, especially the 210000 square foot renewal with Vanderbilt University Medical Center, our largest 2020 exploration.

Given our second quarter performance and healthy outlook for the remainder of the year.

We have revised our 2019 and FFO FFO outlook to $3 and 32 to $3.38 per share representing a one cents increase at the midpoint.

Occupancy declined 30 basis points sequentially to 90.9%.

Ed Fritsch: Most of the drop was attributable to temporary downtime on lease space where occupancy has yet to commence. As I mentioned, we expect occupancy to improve by year-end. We increased our year-end outlook by 25 basis points at the midpoint. The lower end of our 91.5% is 60 basis points higher where we ended the Q2, with the midpoint 100 basis points above our 30 June occupancy level. At this time, our year-end occupancy outlook assumes no backfill of the space vacated by Laser Spine and 5332 Avion, our 176,000 square foot property in Tampa's West Shore submarket. We continue to run parallel paths for the reletting of this building. The first path we are pursuing is a full building or near-full building medical users. We continue to have dialogue with prospects who would use the medical FF&E already in the building.

Most of the drop was attributable to temporary downtime on lease space, where occupancy has yet to commence.

As I mentioned, we expect occupancy to improve by year end, we increased our year end outlook by 25 basis points at the midpoint.

We lowered the lower end of our 91.5% is 60 basis points higher.

Where we ended the second quarter with a midpoint of 100 basis points above our June 30 occupancy level.

At this time, our year end occupancy outlook assumes no backfill the space vacated by laser spine and 53 32 way beyond our 176000 square foot property in Tampas West shore Submarket.

We continue to run parallel paths for the re letting of this building.

The first path, we are pursuing as a full building or near full building medical users. We continue to have dialogue with prospects, who would use the medical funny already in the building.

Ed Fritsch: This path would require the least amount of out-of-pocket cost for us and the shortest amount of downtime, though the number of prospects who need this much medical space is limited. Our second path is to convert the property to a traditional multi-customer office building. Here too, we have active interest from several prospects. We've priced out conversion of the common areas and have detailed projections for lease-up costs. We don't want to provide specifics on our cost projections at this time, given ongoing negotiations with our prospects. Our plan is to fully vet the medical prospects to retain as much optionality as possible before pursuing conversion to a single or multi-customer office building. Our development program continues to deliver strong results. In the quarter, we placed two properties in service that were 98.4% leased, had a total investment of $203 million, and comprised 524,000 sq ft.

This path would require the least amount of out of pocket cost for us in the shortest amount of downtime.

Though the number of prospects who need this much medical space is limited.

Our second path is to convert the property to a traditional multi customer office building.

Here too we have active interest from several prospects.

We've priced our conversion of the common areas and have detailed projections for lease of costs. We don't want to provide specifics on our cost projections at this time, given ongoing going negotiations with our prospects our plans to fully vet the medical prospects to retain as much operating optionality as possible before pursuing and conversion to a single or multi customer office building.

Our development program continues to deliver strong results in the quarter. We placed two properties in service that were 98.4% leased at a total investment of $203 million in comprised 524000 square feet.

Ed Fritsch: Riverwood 200, a $107 million, 300,000 sq ft multi-customer development in Atlanta, which was 39% pre-leased when announced, is now 97% leased with top-of-the-market rents. In addition, we delivered the $96 million, 224,000 sq ft, 100% occupied US headquarters from Mars Petcare in Nashville on schedule and on budget. In May, we announced Midtown One in Tampa in an 80/20 JV with the Bromley Companies. This $71 million, 150,000 sq ft, 100% spec development is within the now-underway 22-acre Midtown Tampa mixed-use project in the West Shore BBD. Bromley is the master developer for Midtown Tampa. The 390-unit multifamily portion would be developed by Crescent Communities. The 225-key dual-branded Element and Aloft Hotel is being developed by Concord Hospitality. The 220,000 sq ft retail and restaurant portion is being developed by Casto, which is approximately 50% pre-leased and will be anchored by Whole Foods.

Riverwood 200, or $107 million 300000 square foot multi customer development in Atlanta, which was 39% Preleased one announced is now 97% leased with top of the market rents.

In addition, we delivered a 96 million dollar 224000 square foot, 100% aren't recurrent us headquarters from Mars Petcare in Nashville on schedule and on budget.

In May we announced Midtown one in Tampa, and an 80 20 JV with the Bromley companies.

This $71 million 150000 square foot, 100% spec development is within the now underway 22 acre mid town Tampa mixed used project in the West shore BBD.

Firmly into master developer for mid town Tampa.

The 390 unit multifamily portion would be developed by Crescent communities. The 225 key dual branded element and a log hotel is being developed by Concord hospitality.

And the 220000 square foot retail and restaurant portion is being developed developed by casto.

Which is approximately 50% pre leased and will be anchored by whole foods.

Ed Fritsch: All developers for Midtown Tampa are funded and committed on their portions of the project. Midtown One, the multifamily hotel, and substantially all of the retail will be complete in 2021. We also have rights to partner with Bromley to build an additional 600,000 sq ft in 2 future office buildings at this destined-to-be vibrant mixed-use development. Needless to say, we're excited about being involved in this project, Tampa's first sizable true mixed-use development. In Raleigh, we leased 5,000 Centigreen to 100% one quarter at a projected stabilization date after starting this project 100% spec. Given all I just said about our development program, the only 2 projects in our current development pipeline with spec space are Glenlake 7 in Raleigh and Midtown One in Tampa, neither of which has gone vertical yet.

All developers for Midtown tamper, our funded and committed on their portions of the project.

Midtown one.

The multifamily hotel and substantially all of the retail will be complete in 2021.

We also have rights to partner with Bromley to build an additional 600000 square feet in two future office buildings at this destined to be vibrant mixed use development.

Needless to say, we're excited about being involved in this project Tampas first sizeable true mixed use development.

In Raleigh, we leased 5000, centregreen to 100% one quarter and a projected stabilization date after starting this project 100% spec.

Given all I, just said about our development program. The only two projects in our current development pipeline with spec space for Glenlake seven in Raleigh, and Midtown one in Tampa, neither of which has gone vertical yet. In addition, both have well over two years before reaching pro forma stabilization dates and we are pleased with the early level of interest on both projects.

Ed Fritsch: In addition, both have well over two years before reaching pro forma stabilization dates, and we are pleased with the early level of interest on both projects. Our development pipeline is now $503 million and 80% pre-leased. As a reminder, our 2019 development announcements outlook is now $112 to $375 million, with Glenlake 7 and Midtown One making up the $112 million announced so far. We continue to have conversations with pre-leased prospects across several markets. This sustained level of interest leads us to believe the depth of demand should remain attractive, which, when combined with our strong land position, balance sheet, and track record, positions us to capture some wins. Turning to non-core dispositions, early in Q2, we sold Metro Center in suburban Orlando, a two-building, 183,000 sq ft property for $32.5 million.

Our development pipeline is now $503 million and 80% Preleased.

As a reminder, our 2019 development announcements outlook.

It is now $112 million to $375 million with Glenlake, seven and Midtown one making up to 112 billion announced so far.

We continue to have conversations with pre leased prospects across several markets.

This sustained level of interest leads us to believe the depth of demand should remain attractive, which when combined with our strong land position balance sheet and track record record positions us to capture some wins.

Turning to non core dispositions early in the second quarter, we sold Metro Center in suburban Orlando, a two building 183000 square foot property for $32.5 million.

Ed Fritsch: Subsequent to quarter-end, we sold Dogwood in Raleigh, a 42,000 sq ft property for $4.7 million. We anticipate closing on a number of sales during the second half of the year, and therefore our 2019 outlook for non-core building dispositions remains $100 to $150 million. Subsequent to quarter-end, we also sold 53 acres of industrial land in Atlanta for $7.3 million and acquired a 0.7-acre office development site in CBD Raleigh for $6.6 million. We've kept our property acquisition outlook unchanged at $0 to $200 million. While very few high-quality properties in prime CBD locations have been available for sale, we continue to be tenacious in our search and evaluation of attractive on- and off-market opportunities while maintaining a commitment to prudent investing and portfolio enhancement.

Subsequent to quarter end, we sold dogwood in Raleigh of 42000 square foot property for $4.7 million, we anticipate closing on a number of sales during the second half of the year and therefore, our 2019 outlook for non core building dispositions remains $100 million to $150 million.

Subsequent to quarter end, we also sold 53 acres of industrial land in Atlanta for $7.3 million and acquired a 0.7 acre office development site in CBD, Raleigh or $6.6 million.

We've kept our property acquisition outlook unchanged at zero to $200 million.

While very few high quality properties in prime BBD locations have been available for sale, we continue to be tenacious in our search and evaluation of attractive on an off market opportunities, while maintaining a commitment to prudent investing and portfolio enhancement.

Ed Fritsch: Moving to the balance sheet, we reported a debt-to-EBITDA ratio of 4.74 times, below the midpoint of our stated comfort range of 4.5 to 5.5 times, even while continuing to fund our development pipeline without issuing any shares on our ATM during the past 2 years. Overall, our portfolio is performing well, with rents continuing to rise, and occupancy is projected to increase by the end of the year. Our recently delivered and highly pre-leased development pipeline will help drive increased FFO and cash flow. We have a land bank that can support approximately $2 billion of future development. We continue to have a disciplined approach and focus on capital recycling and portfolio improvement, which, combined with carefully managing OpEx, will result in improved operating metrics. Atop this, we have a strong balance sheet with multiple avenues to fund continued growth.

Moving to the balance sheet.

We reported a debt to EBITDA ratio of 4.74 times below the midpoint of our stated comfort range of 4.5 to 5.5 times.

Even while continuing to fund our development pipeline without issuing any shares on our ATM during the past two years.

Overall, our portfolio is performing well with rents continuing to rise and occupancy is projected to increase by the end of the year.

Our recently delivered and highly pre leased development pipeline will help drive increased FFO and cash flow and we have a land bank that can support approximately $2 billion of future development.

We continue to have a disciplined approach and focus on capital recycling and portfolio improvement, which combined with carefully managing our Opex will result in improved operating metrics on top as we have a strong balance sheet with multiple avenues to fund continued growth.

Ed Fritsch: Before I turn the call over to Ted, as you know, on 1 July, we announced a series of management succession moves that I initiated. After 37 years with Highwoods Properties, basically the entirety of my adult life, I will retire as CEO and member of the board effective 1 September. Ted will assume the role of CEO and director at that time. Ted and I have worked closely together since we recruited him as our chief investment officer in 2012. Him potentially succeeding into my role was an aspect of our conversations back in 2012. His in-depth transaction experience, real estate intellect, leadership skills, and industry contacts make for this to be a very smooth passing of the baton. Brendan, who we recruited in 2016, has been promoted to EVP of Finance and Investor Relations.

Before I turn the call over to Ted as you know on July Onest, We announced a series of management succession moves that I initiated.

After 37 years with Highwoods basically the entirety of my adult life I will retire as CEO and member of the board effective September Onest.

Ted will assume the role of CEO and director at that time.

Ted and I have worked closely together since we recruited him as our Chief investment Officer and 20 in 2012.

Tim potentially succeeding into my role was an aspect of our conversations back in 2012.

His in depth transaction experience real estate intellect.

Leadership skills and industry contacts make for this to be a very smooth passing of the baton.

Brendan who we recruited in 2016 has been promoted to SVP of finance and Investor Relations for an IND has been a terrific add to our team and he and Mark will continue to work together to communicate with our investors reserve our fortress balance sheet and maintain ample liquidity to fund our growth on a leverage neutral basis.

Ed Fritsch: Brendan has been a terrific add to our team, and he and Mark will continue to work together to communicate with our investors, preserve our fortress balance sheet, and maintain ample liquidity to fund our growth on a leverage-neutral basis. We also recruited Brian Leary to be our next COO. Brian joined us last week from Crescent Communities, where he served as President of his commercial and mixed-use business unit. He will work closely with our divisions, which are led by a group of long-tenured, highly experienced real estate professionals having, on average, 30 years of commercial real estate experience. With his background in architecture and development, Brian is also well-suited to work closely with the company's proven development team led by Randy Robertson, our Senior VP of Development. In addition to these moves, Highwoods is extremely fortunate to have a broad and capable team comprised of really good people.

We also recruited Brian leery to be our next COO, Brian joined US last week from press in communities, where he served as president of his commercial and mixed use business unit.

He will work closely with our divisions, which are led by a group of long tenured highly experienced real estate professionals, having on average 30 years of commercial real estate experience.

With this background and architecture and development, Brian is also well suited to work closely with the company's proven development team led by Randy Roberson, our senior VP of development.

In addition to these moves highwoods is extremely fortunate to have a broad and capable team comprised of really good people.

Ed Fritsch: I am fully confident the right platform is in place for Highwoods' continued success. I will dearly miss all those I have gotten to work with here at Highwoods and across the industry, from Wall Street to NARI, from our customers to professional advisors, from our vendors to all of you on this call. Thank you for listening, prodding, challenging, supporting, and sharing your candor and expertise. The time is right for these moves. Highwoods is comprised of a wonderful collection of people, and I believe the company's best days have yet to come. Ted?

I am fully confident the right platform is in place for Highwoods continued success.

Our daily Miss all those I've gotten to work with here at Highwoods and across the industry from Wall Street to neighboring from our customers to professional advisors from our vendors to all of you on this call. Thank you for listening prodding challenging supporting and sharing your candor and expertise. The time is right for these moves Highwoods is comprised of a wonderful collection of people and I believe the company's best days have yet to come.

Ted.

Operator: Thanks, Ed. Good morning. We had a strong operating performance during the quarter. Same property NOI growth was up 3.1%, even with average occupancy down 100 basis points year-over-year. Our robust leasing volume and strong rent economics support future growth in occupancy and NOI. Second-gen office leasing volume was 1.1 million square feet, including 329,000 square feet of new leases and 108,000 square feet of expansions. Atop the significant volume, rent economics were also stout. Gap rent spreads were positive 16.8%, and cash rent spreads were positive 2.5%, while net effective rents of $16.69 per square foot were 6% higher than our prior five-quarter average. While virtually all of our leases have compounding annual escalators, we've consistently posted positive cash rent spreads.

Thanks, Ed and good morning.

We had a strong operating performance during the quarter same property NOI growth was up 3.1%, even with average occupancy down a 100 basis points year over year.

Our robust leasing volume and strong rent rent economics support future growth and occupancy and NOI.

Second Gen office leasing volume was 1.1 million square feet, including 329000 square feet of new leases and 108000 square feet of expansions.

A top the significant volume rent economics were also style.

GAAP rent spreads were positive 16.8% in cash rent spreads were positive 2.5%.

While net effective rents a $16.69 per square foot or 6% higher than our prior five quarter average.

While virtually all of our leases have compounded annual escalators, we've consistently posted positive cash rent spreads.

Operator: In fact, 12 of the past 13 quarters, we've reported positive cash rent spreads and, over the same period, increased net effective rents by 15% and in-place cash rents by 13%. As expected, portfolio occupancy dipped 30 basis points to 90.9% at the end of the quarter before our projected improvement later in the year. Our year-end occupancy outlook has increased to 91.5% to 92.3%, with the midpoint of 91.9%, 100 basis points higher than where we ended the Q2, and this assumes no year-end occupancy at 5332 Avion. Specifically, we expect occupancy to increase by approximately 300,000 square feet by the end of the year, and we have about 200,000 square feet of new leases signed on vacant space but where occupancy hasn't commenced.

In fact 12 of the past 13 quarters, we've reported positive cash rent spreads and over the same period increased net effective rents by 15% and in place cash rents by 13%.

As expected portfolio occupancy dipped 30 basis points to 90.9% at the end of the quarter before our projected improvement later in the year.

Our year end occupancy outlook has increased to 91.5% to 92.3% with the midpoint of 91.9%.

100 basis points higher than where we ended the second quarter.

And this assumes no year end occupancy at 53 32 avionics.

Specifically, we expect occupancy to increase by approximately 300000 square feet by the end of the year.

And we have about 200000 square feet of new leases signed on vacant space, but were occupancy hasn't commenced.

Operator: To be clear, we have forecasted renewals yet to be signed along with known move-outs. There is additional speculative leasing to be completed, we're confident about our year-end outlook. In addition to good activity on some of the vacant spaces in the portfolio, we're optimistic about the near-term expiration outlook. We made meaningful progress over the past several quarters reducing future near-term rollover risk, which leaves us with only 4% of revenues expiring for the remainder of 2019. We made progress reducing our 2020 expirations. In our typical review of expirations larger than 100,000 square feet, we have only one remaining in 2019 and two in 2020. The FAA is in a 100,000 square foot build-to-suit adjacent to the Atlanta airport that is scheduled to expire later this year. We remain confident in a renewal.

To be clear, we have forecasted renewals yet to be signed along was known move outs. So there is additional speculative leasing to be completed.

But were confident about our year end outlook.

In addition to good activity on some of the vacant spaces in the portfolio, we're optimistic about the near term exploration outlook.

We made meaningful progress over the past several quarters, reducing future near term rollover risk, which leaves us with only 4% of revenues expiring for the remainder of 2019.

And we made progress reducing our 21 2020 explorations.

In our typical review of explorations larger than 100000 square feet.

We have only one remaining in 2019.

And two and 2020.

The FAA is in 100000 square foot build to suit adjacent to the Atlanta Airport that is scheduled to expire later this year.

We remain confident in a renewal.

Operator: For 2020, we renewed 210,000 sq ft with Vanderbilt University Medical Center in Nashville in the quarter, which leaves us with only 138,000 sq ft with the FBI and 116,000 sq ft with T-Mobile, both in Tampa. We remain confident in a renewal with the FBI while T-Mobile is an expected move-out. Now to our markets. Atlanta posted positive year-to-date net absorption of 930,000 sq ft, as reported by JLL, with overall asking rents of $30 per sq ft and Class A at $32 per sq ft. We're tracking 3.6 million sq ft of multi-customer office development underway, which is 27% pre-leased. This represents 3% of total stock. Midtown has the most activity with around 2 million sq ft under construction, while Buckhead has one 340,000 sq ft project under construction. We signed 171,000 sq ft of second-generation leases during the quarter with positive gap rent spreads of 17%.

For 2020, we renewed 210000 square feet with Vanderbilt University Medical center in Nashville in the quarter, which leaves us with only a 138000 square feet with the FBI and 116000 square feet with T mobile.

Both in Tampa.

We remain confident in renewal with the FPI.

While T mobile has an expected move outs.

Now to our markets.

Atlanta posted positive year to date net absorption of 930000 square feet as reported by JLL.

But overall asking rents of $30 per square foot in class a $32 per square foot.

We're tracking 3.6 million square feet of multi customer office development underway, which is 27% preleased.

This represents 3% of total stock.

Midtown as the most activity was around 2 million square feet under construction, while Buckhead has one 340000 square foot project under construction.

We signed a 171000 square feet of second generation leases during the quarter with positive Geff GAAP rent spreads of 17%.

Operator: Occupancy was 88.4% at the end of the quarter, and as I mentioned earlier, we expect this to improve by the end of the year as occupancy commences on signed leases. As Ed mentioned, we placed Riverwood 200, our 300,000 sq ft, $107 million multi-customer development into service at 94% occupied, and we have leases in place that will bring occupancy to over 97% by early 2020. Based on our success at Riverwood 200, we're now marketing Riverwood 300, where we can build a 175,000 sq ft office building. Turning to Raleigh, according to Avison Young, first-gen asking rates hit $40 per sq ft during the quarter, a 7% year-over-year increase. Class A market occupancy ended the quarter at 90%. Currently, there is approximately 1.2 million sq ft under construction spread over six submarkets but is 26% pre-leased, representing 2% of total stock.

Occupancy was 88.4% at the end of the quarter and as I mentioned earlier, we expect this to improve by the end of the year as occupancy commences on signed leases.

As Ed mentioned, we placed riverwood 200, or 300000 square foot 107 million multi customer development into service at 94% occupied.

And we have leases in place that will bring occupancy over 97%.

By early 2020.

Based on our success at Riverwood 200 were now marketing River with 300.

Where we can build a 175000 square foot office building.

Turning to Raleigh, According to Avista Neon first gen asking rates hit $40 per square foot during the quarter, a 7% year over year increase class a market occupancy ended the quarter at 90%.

Currently there is approximately 1.2 million square feet under construction spread over six submarkets, but is 26% preleased, representing 2% of total stock.

Operator: We signed 200,000 sq ft of second-generation leases during Q2 with healthy gap rent spreads of 22%. Our largest opportunity to increase occupancy is the 178,000 sq ft, 11,000 Weston building. We signed a lease for 46,000 sq ft earlier this month, which will show up in our 3Q leasing stats, and we have a strong prospect for additional space in the building. Our Raleigh portfolio occupancy was 86.1% at the end of Q2, which was driven by lower temporary downtime between customers moving out and into their space. Similar to Atlanta, we expect occupancy to improve by year-end as occupancy commences on signed leases. Nashville finished Q2 with year-to-date net absorption of over 250,000 sq ft, as reported by Avison Young. Asking rates grew 2.7% year-over-year, while overall vacancy remained flat. Class A vacancy decreased to 7.6%.

We signed 200000 square feet to second generation leases during the second quarter with healthy GAAP rent spreads of 22%.

Our largest opportunity to increase occupancy as the 178000 square foot 11000 west in building.

We signed a lease for 46000 square feet earlier this month.

Which will show up in our.

Three key leasing stats and we have a strong prospects for additional space in the building.

Our Raleigh portfolio occupancy was 86.1% at the end of the second quarter, which was driven by lower temporary downtime between customers moving out any into their space.

Similar to Atlanta, we expect occupancy to improve by year end as occupancy commences on signed leases.

Nashville finished the second quarter with year to date net absorption of over 250000 square feet as reported by Addison Young.

Asking rates grew 2.7% year over year, while overall vacancy remained flat.

Class a vacancy decreased to 7.6%.

Operator: We're tracking 2.5 million sq ft under construction, which is 25% pre-leased and represents 6% of total stock. During the quarter, we signed 352,000 sq ft of second-generation leases with gap rent spreads of 16.8%. As mentioned earlier, this included the 210,000 sq ft renewal with Vanderbilt University Medical Center, our largest 2020 expiration. We also placed in service, with cash rent commencing, the 224,000 sq ft, $96 million US headquarters for Mars Bedcare. Lastly, in Tampa, Class A rental rates increased 8.7% in the CBD and 11.3% in West Shore. 92% of our Tampa portfolio is located in these two CBDs. We're tracking 930,000 sq ft of new construction in West Shore and the CBD, which is 41% pre-leased and represents about 3% of total stock. We signed 128,000 sq ft of second-generation leases at gap rent spreads of 18%.

We're tracking 2.5 million square feet under construction, which is 25% preleased and represent 6% of total stock.

During the quarter, we signed 352000 square feet, the second generation leases, the GAAP rent spreads of 16.8%.

As mentioned earlier. This included the 210000 square foot renewal for the Vanderbilt University Medical Center, our largest 2020 exploration.

We also placed in service with cash rent commencing the 224000 square foot $96 million us headquarters for Mars Petcare.

Lastly, in Tampa class, a rental rates increased 8.7% in the CBD, 11.3% in west shore.

92% of our Tampa portfolio is located in these two bbds.

We're tracking 930000 square feet of new construction west shore, the CBD, which is 41% preleased and represents about 3% of total stock.

We signed a 128000 square feet of second generation leases at GAAP rent spreads of 18%.

Operator: We continue to focus on the T-Mobile space at Preserve 5 in North Tampa and Midtown 1 and 5332 Avion in West Shore. There are a number of differences among these 3 opportunities: geography, price point, and timing. In conclusion, we had an excellent quarter of leasing with robust volume, healthy rent spreads, and strong net effective rents. We're making good progress with future expirations and backfilling the few sizable vacancies in the second-generation portfolio. Our $503 million, 80% pre-leased, 1.2 million sq ft development pipeline has only 2 projects with any availability, and in both cases, we are more than 2 years out before pro forma stabilization. The leasing environment remains healthy and is indicative of continued demand for quality, well-located, first and second-gen office products. Before I hand it over to Mark, I'd like to make a quick comment about Ed's retirement after 37 years at Highwoods.

We continue to focus on the T mobile space that preserve five in north Tampa.

And mid town, one and 53 32, avian and west shore.

There are a number of differences among these three opportunities.

Geography price point and timing.

In conclusion, we had an excellent quarter of leasing with robust volume healthy rent spreads and strong net effective rents.

We're making good progress with future explorations and Backfilling the few sizable vacancies the second generation portfolio.

Our $503 million, 80% pre leased 1.2 million square foot development pipeline has only two projects with any availability and in both cases, we are more than two years out before pro forma stabilization.

The leasing environment remains healthy and is indicative of continued demand for quality well located first and second Gen office product.

Before I hand, it over to Mark like to make a quick comment about his retirement after 37 years at Highwoods.

Operator: On behalf of our board of directors, management team, and 445 coworkers, I say thank you, Ed, for everything you have done for Highwoods. Thank you for your leadership, dedication, professionalism, and passion for everything Highwoods. Your presence will be missed, but you won't be forgotten. Mark?

On behalf of our board of Directors management team and 445 coworkers.

I say, thank you Ed for everything you've done for Highwoods.

Thank you for your leadership dedication professionalism and passion for everything Highwoods.

The presence will be missed but you will be forgotten.

Mark.

Catherine Harrison: Amen to that. Thanks, Ted. We delivered net income of $39.4 million or $0.38 a share and FFO of $93.1 million or $0.87 a share. FFO per share was flat year-over-year, although last year's Q2 included $1.9 million final installment of the Fidelity restoration fee and full NOI contribution from Laser Spine. Fortunately, our growth has offset these two items, which illustrates the healthy fundamentals of our business. Other than a half a penny of impairment charges on a non-core land parcel in Memphis, the quarter was clean from a reported FFO perspective. There was a gain on disposition from the sale of Metro Center, which was not included in FFO, and there were no meaningful term fees.

Amen to that thanks, Ted we delivered net income of 39.4 million or 38 cents, a share and FFO of $93.1 million or 87 cents a share.

FFO per share was flat year over year, although last years second quarter included 1.9 million final installment of the fidelity restoration fee and full contribution NOI contribution from laser spine.

Fortunately our growth has offset these two items, which illustrates the healthy fundamentals of our business.

Other than a half a penny of impairment charges on a non core land parcel in Memphis, the quarter was clean from a reported FFO perspective.

There was a gain on disposition from the sale of Metro Center, which was not included in FFO and there were no meaningful term fees compared to the first quarter and adjusting for that credit losses, and write offs associated with laser spine sudden closure the sequential drivers of the improvement in FFO.

Catherine Harrison: Compared to Q1 and adjusting for the credit losses and write-offs associated with Laser Spine's sudden closure, the sequential drivers of the improvement in FFO were higher NOI by a little less than $5 million. This was driven by higher average rents, improved operating margins, and contribution from development deliveries, primarily MetLife 3 and Mars Petcare. Lower G&A by a little less than $3 million. As you know from prior years, this is the normal annual pattern for us as we typically have higher expense in Q1 from long-term equity grants each year. We expect G&A to be roughly steady from Q2 levels over the remainder of the year. These items were partially offset by higher net interest expense attributable to reduced capitalized interest following the delivery and stabilization of development projects and slightly higher miscellaneous other expenses.

Were higher NOI by a little less than $5 million. This was driven by higher average rents improved operating margins and contribution from development deliveries, primarily Metlife three and Mars Petcare.

Lower GNS by a little less than $3 million as you know from prior years. This is the normal annual pattern for us as we typically have higher expense in Q1 from long term equity grants each year.

We expect GDP to be roughly steady from Q2 levels over the remainder of the year.

These items were partially offset by higher net interest expense attributable to reduced capitalized interest.

Following the delivery and stabilization of development projects and slightly higher miscellaneous.

Other expenses.

Catherine Harrison: We adjusted our 2019 FFO outlook to $3.32 to $3.38 per share, implying a $0.01 increase in the midpoint to $3.35 a share. The normal seasonal pattern for operating expenses traditionally results in the Q3 being the lowest operating margin quarter of the year. In addition, there were some operating expenses we originally forecasted for the Q2 that will actually occur in the Q3. Occupancy at 30 September will likely be similar to 30 June, with improvement by the end of the year, as both Ed and Ted mentioned. We kept our outlook unchanged for acquisitions and dispositions, and as you know, we don't include the impact of any future acquisitions or dispositions in our FFO outlook. We kept our same property cash NOI growth outlook for the year at plus 0.5% to plus 1.5%.

We adjusted our 2019 FFO outlook to $3.32 to $3.38 per share implying a one cents increase in the midpoint to a 335 a share.

The normal seasonal pattern for operating expenses traditionally results in the third quarter being the lowest operating margin quarter for of the year.

In addition, there were some operating expenses, we originally forecasted for the second quarter that will actually occur in the third quarter.

Occupancy at September Thirtyth will likely be similar to June 30 with improvement by the end of the year as both Ed and Ted mentioned.

We kept our outlook unchanged for acquisitions and dispositions and as you know we don't include the impact of any future acquisitions or dispositions and our FFO outlook.

We kept our same property cash NOI growth outlook for the year at plus 0.5% to plus 1.5%.

Catherine Harrison: As a reminder, this outlook includes the negative impact associated with Laser Spine's closure. Excluding 5332 Avion, same property cash NOI would be 150 basis points higher. We increased the straight-line rental income outlook by a little over $1 million. This largely coincides with our improved year-end occupancy outlook as more occupancy is expected to commence before year-end, where its meaningful cash flow contribution isn't expected until 2020. With net debt to EBITDA of 4.74 turns and leverage of 35.9%, our balance sheet remains in excellent shape. The contribution of MetLife 3 and Mars Petcare during the quarter helped drive our net debt to EBITDA ratio lower in the quarter. Our strong leverage metrics put us towards the lower end of our stated comfort range of 4.5 to 5.5 times net debt to EBITDA.

As a reminder, this outlook includes the negative impact associated with laser spines closure.

Excluding 53 32, Avi on same property cash NOI would be 150 basis points higher.

We increased the straight line rental income outlook by a little over $1 million.

This largely coincides with our improved year end occupancy outlook as more occupancy is expected to commence before year end, where it's meaningful cash flow contribution isn't expected until 2020.

With net debt to EBITDA were up 4.74 turns and leverage of 35.9% our balance sheet remains in excellent shape.

The contribution of Metlife, three and Mars Petcare during the quarter helped drive our net debt to EBITDA ratio lower in the quarter.

Our strong leverage metrics put us towards the lower end of our stated comfort range of 4.5 to five point time.

5.5 times net.

Debt to EBITDA there with the addition of Midtown one in Tampa, we have $310 million left to fund on our 503 million dollar type development pipeline.

Catherine Harrison: With the addition of Midtown 1 in Tampa, we have $310 million left to fund on our $503 million development pipeline. We have ample flexibility to fund our development pipeline and additional growth opportunities and stay well within our stated comfort range. Further, we have no debt maturities until the middle of 2021 and therefore can be opportunistic raising additional capital to increase liquidity and further improve our maturity ladder. We expect to continue to fund our business on a leverage-neutral basis. However, even if we were to fund the remainder of the development pipeline without any ATM issuance or non-core dispositions, we estimate upon stabilization of the development, our net debt to EBITDA would rise less than a half a turn from current levels.

We have ample flexibility to fund our development pipeline and additional growth opportunities and stay well within our stated comfort range.

Further we have no debt maturities until the middle of 2021, and therefore can be opportunistic raising additional capital to increase liquidity and further improve our maturity ladder.

We expect to continue to fund our business at a leverage neutral basis.

However, even if we were to fund the remainder of the development pipeline without any ATM issuance or non core dispositions. We estimate upon stabilization of the development, our net debt to EBITDA would rise less than a half a turn from current levels.

Catherine Harrison: As a reminder, we've been able to keep our leverage metrics in the lower half of our stated comfort range while continuing to fund the development pipeline and issuing no shares on the ATM during the past 8 quarters. Before we take your questions, one other item to note. As we've signaled for the past few years, our free cash flow continues to strengthen with the delivery of our well-pre-leased development pipeline and consistent performance of our same-store portfolio. While timing will impact our cash flow in any given quarter or year, we feel very good about the long-term cash flow trajectory for the company. Operator, we are now ready for your question.

As a reminder, we've been able to keep our leverage metrics in the lower half of our stated comfort range, while continuing to fund the development pipeline and issuing no shares on the ATM during the past eight quarters.

Before we take your questions one other item to note as we signaled for the past few years, our free cash flow continues to strengthen with the delivery of our well pre leased development pipeline and consistent performance of our same store portfolio.

While timing will impact our cash flow in any given quarter or year, we feel very good about the long term cash flow trajectory for the company.

Operator, we're now ready for your questions plants.

Thank you guys.

Operator: Thank you. If you would like to register a question, please press the 14 on your telephone. You will hear a 3-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the 1 followed by the 3. One moment, please, for the first question. Our first question comes from John Guiney with Stifel. Please proceed.

If you would like to register a question or two stress to one four on your telephone you will hear we're at three tone prompt to acknowledge your request.

If your question has been answered then you will like to withdraw your registrations. Please press. The one followed by the 331 moment. Please for the first question.

Our first question comes from John Guinee with Stifel.

Please proceed.

Brendan Maiorana: Great. Nice quarter. Ed, I think you were one of the best CEOs in the business and even a better person than I personally. I'm really going to miss you. I hope you and your family have a great few more decades and you get everything done in life you want it to get done. No questions from me. Thanks.

Great nice quarter, a add on.

I think you are one of the best Ceos in the business.

And even a better person and I personally I'm really going to Miss you.

I Hope you and your family have a great to few more decades and.

You get everything done in life, you wanted to get done.

No questions for me thanks.

Operator: Thank you so much, John. Very kind. Next question comes from Manny Korchman with Citi. Please proceed.

Thanks, so much John very kind.

[noise] next question comes from Manny Korchman with Citi. Please proceed.

Ed So I also thought that I wish you congratulations on your retirement.

Ed Fritsch: Ed, I also wanted to wish you congratulations on your retirement. Everything you've done for the company and growing the company and building the team, but also the stuff you've done for the industry as well as for the investors and the analysts in terms of the constituencies, I think is going to be missed. I sort of want to know who's going to inherit the book of Eddisms and all the creativity that you've had. A book really does exist. Who's going to have all the creativity with all the customer events and all those marketing materials and the company culture that you've built? Who's going to take that baton internally to keep that spirit alive?

Everything you've done for the company and growing the company.

In building that team, but also the stuff you've done for the industry as well as for the investors and analysts in terms of the constituencies.

I think it's gonna be missed.

And I sort of want to know who's going to inherit the book of Ed Isms.

And all the creativity that you had.

Oh, a book really does exist.

Great.

[laughter], but you know who's going to have all the creativity with all the customer events and all those marketing materials and company culture that youve built who's going to take that on internally to get to to keep that spirit alive.

Operator: Well, first, of course, I appreciate John's comments and yours as well. I've been very fortunate to be able to be here for this tenure. Very little, if anything, at Highwoods is done by any one individual. The decisions that we make, whether it be a marketing pitch to a prospective Build-A-Suit user or the pricing on something that we're going to buy or sell or build, it's a very collaborative environment. Lots of people are pouring sweetener into the coffee here. We're very fortunate that there's no one individual that brings that to the table. It's truly a collaborative team effort where the furthest thing you would imagine from a dictatorship or autocratic environment. I'm fully confident that the creativity and the intellect and the drive and the dedication is here in huge amounts.

Well first of course I appreciate John's comments in years as well I've been very fortunate to be able to be here for this tenure.

Yeah, we we very little if anything at Highwoods is done by any one individual and the decisions that we make whether it be a marketing pitch to a perspective build to suit user.

Or the pricing on something that we're going to buy or sell or build a it's a very collaborative environment and.

Lots of people are poor and sweetener into the coffee here and so we're very fortunate that there is no one individual that.

Brings that to the table, it's it's truly a collaborative team effort, where the first thing you would imagine from a dictatorship or autocratic environment. So I'm fully confident that the creativity and the the intellect and the drive and the dedication is here in huge amounts.

[Analyst] (Citi): You mentioned when you recruited Ted a number of years ago that the discussion about potentially taking over was part of that. I guess as Ted takes over, Ted, is there any differences in terms of how you want to run the company or anything strategically that you have on mind that would be different from how things have been occurring in the past?

And then like you mentioned when he recruited Ted a number of years ago that the discussion about potentially taking over was part of that.

Manny Korchman: You mentioned when you recruited Ted a number of years ago that the discussion about potentially taking over was part of that. I guess as Ted takes over, Ted, is there any differences in terms of how you want to run the company or anything strategically that you have on mind that would be different from how things have been occurring in the past?

And you know.

I guess as Ted takeover fed is there.

Any differences in terms of how you want to run the company or anything strategically that.

You have on mine that would be different from how things have been occurring in the past.

Ted Klinck: Hey, Manny. Really, the short answer is no. I mean, we've had a well-defined strategy that's been in place for a long time. I think the company is going to continue to evolve, but I don't expect any significant changes going forward. We got a great team, great strategy, and we're going to keep doing the same thing.

Hey, Manny I'm really knew the answer short answer is no I mean, we've had a.

Well defined strategy has been in place for a long time.

I think the company is going to continue to evolve, but I don't expect any significant changes.

You know going forward, we got we got a great team great strategy, we're going to keep doing are doing the same thing.

Hey, guys. Its its many here with Michael we like team work there too so.

[Analyst] (Citi): Hey, guys. It's Manny here with Michael. We like teamwork here too, so. Mark, it looks like the entirety of the guidance list was driven by higher gap or straight-line rents. You mentioned that was on leasing that got accelerated into 2019. Is there anything specific there that you can highlight or maybe expirations that renewed or didn't expire that you felt would?

Manny Korchman: Hey, guys. It's Manny here with Michael. We like teamwork here too, so. Mark, it looks like the entirety of the guidance list was driven by higher gap or straight-line rents. You mentioned that was on leasing that got accelerated into 2019. Is there anything specific there that you can highlight or maybe expirations that renewed or didn't expire that you felt would?

[laughter] Mark it looks like that the entirety of the guidance lift was driven by.

Higher gap for straight line rent.

You mentioned that was on leasing I got it got accelerated and also many 19 is there anything specific there you can highlight or maybe expirations that that you have renewed or didnt expire they felt wouldn't.

[noise] well Nashville was you know obviously, we did a the Vanderbilt lease early so that was a contributor but you're right. I mean, I think you know the rise in guidance. It was just overall good.

Mark Mulhern: Well, Nashville, obviously, we did the Vanderbilt lease early, so that was a contributor. You're right. I mean, I think the rise in guidance was just overall good rent growth and some timing of expenses as well. You heard us talk about we probably had some expenses that shifted into Q3 versus Q2. That would be the kind of primary driver. Brendan's going to add something to this.

Rent growth and some timing of expenses as well. So you know you heard us talk about.

We probably had some expenses that shifted into Q3 versus Q2, and so that would be the kind of primary driver spread it's going to add something to this.

Brendan Maiorana: Yeah. Hey, Manny. What I would say is, just in Ted's comments, talked about a couple hundred thousand square feet of leases that are signed but haven't yet commenced on vacant space. I think that number has moved up relative to what we talked about after the Q1. I think that's probably the biggest driver, and that's helping drive the improved occupancy outlook by year-end. Candidly, those leases carry some free rent in 2019, which is driving that straight-line number up. Your observation is correct that most of the FFO drive in increase in 2019 is attributable to straight-line rent. However, that will translate into cash as we move into 2020.

Yeah, Hey, Manny you know what I would say is just it ted's comments talked about a couple of hundred thousand square feet of leases that are signed but haven't yet commenced on vacant space. So I think that number has moved up relative to what we talked about after the first quarter. So I think that's probably the biggest driver and and that's helping drive the improved occupancy outlook by year end and and candidly those leases carry some free rent in 2019, which is driving that straight line number up. So your observation is correct that most of the AFFO drive in increase in 2019 is attributable to straight line rent. However that will translate into cash as we move into 2020. So we feel good about the ability to lease that space up being better position in terms of portfolio occupancy at the end of the year.

Brendan Maiorana: We feel good about the ability to lease that space up, be in better position in terms of portfolio occupancy at the end of the year, and then what that does in terms of the run rate as we go forward.

Okay, and then what that does in terms of the the run rate as we go forward.

Thanks, everyone and congrats.

[Analyst] (Citi): Thanks, everyone, and congrats on the promotions.

Manny Korchman: Thanks, everyone, and congrats on the promotions.

Thank you Michael Thank you Manny.

Operator: Thank you, Michael. Thank you, Manny.

Operator: Our next question comes from Rob Stevenson with Janney Montgomery Scott. Please proceed.

Our next question comes from Rob Stevenson with Janney Montgomery Scott. Please proceed.

[Analyst] (Various): Good morning, guys. I will let others try to continue to make Ed tear up over there. A couple of questions. In terms of the expected stabilized yield on the current development pipeline, where are you guys pegging that these days, and what's your hurdle rate on the new development starts going forward?

Rob Stevenson: Good morning, guys. I will let others try to continue to make Ed tear up over there. A couple of questions. In terms of the expected stabilized yield on the current development pipeline, where are you guys pegging that these days, and what's your hurdle rate on the new development starts going forward?

Hi, Good morning, guys I will let others try to continue to make at tier up over there but.

A couple of questions in terms of the.

Expected stabilized yield on the current development pipeline, where are you guys pegging that these days and what's your hurdle rate on the new development starts going forward.

Operator: We've been pretty steady with a 8+% gap rate return on our development pipeline. It's been that for some time, Rob, and we're still able to perform it and achieve that.

We've been pretty steady with the eight plus percent GAAP rate return on our development pipeline its been that for some time Robin we're still able to a pro forma and achieved that.

[Analyst] (Various): Okay. In terms of looking forward, I mean, is the cost basis in the land that you guys control such that that continues? Does that require rates needing to maintain current levels or increase to go further? Just trying to think about it in terms of land bank and future starts versus where you guys have been over the last few years.

Rob Stevenson: Okay. In terms of looking forward, I mean, is the cost basis in the land that you guys control such that that continues? Does that require rates needing to maintain current levels or increase to go further? Just trying to think about it in terms of land bank and future starts versus where you guys have been over the last few years.

Okay, and so from you know in terms of looking forward. I mean is that is the cost basis in the land that you guys control.

Such that that continues does that require rates needing to maintain current levels or increase to go further.

Just trying to think about it in terms of land bank in future starts versus where you guys have.

Been over the last few years.

Operator: Well, the land bank certainly is of an aid to us. I think it's more of an aid to where we can get in front of a prospect and say, "Look, we fee simple title, own piece of land that has utilities and infrastructure, and it's ready to go." We get more an advantage of having that plus our balance sheet and track record as opposed to a cost advantage, although in some cases, it is a modest cost advantage. It's much more the latter of what you said. It's the rising rental rates that have had to be in sync in order to achieve those returns. Obviously, all developers are experiencing the same with regard to the construction price. I think this rise in first-gen market rates has continued to be in sync with the rise in construction costs.

Well the landbank certainly is of an aid to us, but I think it's more of an aid to where we can get in front of a prospect and say look we have a Wi Fi simple title own piece of land.

That has utilities and infrastructure and its ready to go so we get more advantage of having that plus our balance sheet and track record as opposed to a cost advantage. Although in some cases. It is a modest cost advantage, but it's much more of the latter of what you said, it's a the rising rental rates that have.

Had to be in sync in order to reach to achieve those returns, but obviously.

All developers are experiencing the same with regard to the construction price and so I think this does rise in first Gen market rates has continued to be in sync with the rising construction costs.

[Analyst] (Various): Okay. Given the elevated CapEx and TIs this Q2, given your occupancy and your aggressive leasing goals, how long before you guys expect to return to a more normalized level for the portfolio?

Rob Stevenson: Okay. Given the elevated CapEx and TIs this Q2, given your occupancy and your aggressive leasing goals, how long before you guys expect to return to a more normalized level for the portfolio?

Okay, and then given the elevated capex and T.I.s this quarter.

Given your occupancy in your leasing aggressive leasing goals, how long before you guys expect to return to a more normalized level for the portfolio.

So Rob I guess, what I would say is.

Brendan Maiorana: Rob, I guess what I would say is if you look at I think you're probably referring to the TIs that we expensed via the CAD statement. If you look at that number, you're right. Your observation is correct. That number is elevated. If you think about what we've expensed year to date versus what we've committed, we've expensed between TIs and leasing commissions about $58 million in the first two quarters of the year. In terms of our commitments, those numbers are about $42 or $43 million. There's normally some level of timing which has an impact there. What we would expect going forward is that the level of commitments will equal out with the level of expense in any given quarter or over the year.

If you look at the I think you're probably referring to that T.I.s that we expense to via the CAD statements. If you look at that number you're right. Your observation is correct that number is elevated.

And if you think about what we've expensed year to date versus what we've committed we've expensed between Ti and leasing commissions about $58 million in the first two quarters of the year in terms of our commitments. Those numbers are about 42 or $43 million. So there is normally some level of timing, which has an impact there. What we would expect going forward is that the level of commitments will equal out with the level of.

Of expense in any given quarter or over the year. So those things should normalize, which I think as mark alluded to in his prepared remarks makes us pretty confident about the cash flow outlook going forward. So I think if you look at the level of commitments on a quarter to quarter kind of basis I think over the the past many quarters that is a good run rate in terms of what we would.

Brendan Maiorana: Those things should normalize, which I think, as Mark alluded to in his prepared remarks, makes us pretty confident about the cash flow outlook going forward. I think if you look at the level of commitments on a quarter-to-quarter kind of basis, I think over the past many quarters, that is a good run rate in terms of what we would expect to expense via the CAD statement in any given quarter or year.

Expect to expense via the CAD statement and in any given quarter or year.

[Analyst] (Various): Okay. Lastly from me, in terms of dispositions for the remainder of the year, are you guys currently marketing stuff now, or is it likely, depending on where you fall in your range, driven by people approaching you?

Rob Stevenson: Okay. Lastly from me, in terms of dispositions for the remainder of the year, are you guys currently marketing stuff now, or is it likely, depending on where you fall in your range, driven by people approaching you?

Okay, and then lastly for me in terms of dispositions for the remainder of the year are you guys currently marketing stuff now or.

Operator: Yeah. Good question, Rob. We have completed the 37 that we've talked about. We have another 41 under contract that gets us to 78. Based on what we're working on now and proposing to put in market, we see achieving the high end of our guidance to be the right mark. Obviously, it'll be later in the year, so there won't be a significant amount of dilution affiliated with that, but later in the year.

What we're working on now and proposing to put in market, we see achieving the high end of our guidance to be the right Mark.

Obviously later in the year, so that there won't be a significant amount of dilution affiliated with that but later in the.

[Analyst] (Various): Okay. All right. Thanks, guys. Ed, you will be missed.

Rob Stevenson: Okay. All right. Thanks, guys. Ed, you will be missed.

All right, Thanks, guys and Ed you will be missed.

Operator: Thanks so much, Rob. I'll miss it as well.

Thanks, so much Rob I'll Miss it as well.

Our next question comes from Blaine Heck with.

Operator: Our next question comes from Blaine Heck with Wells Fargo. Please proceed.

Wells Fargo. Please proceed.

Thanks, Good morning.

Brendan Maiorana: Thanks. Good morning. Mark or Brendan, I just wanted to touch a little bit on Same Store NOI. As you guys mentioned, you had a benefit this quarter from some expenses being pushed into Q3. Should we expect that to cause a meaningful dip in Same Store in Q3? Are there any other nuances that could affect the quarterly kind of cadence as we look out throughout the second half of the year? Hey, Blaine. It's Brendan. I would say so normally, our normal seasonal pattern as you go from Q2 to Q3 is we tend to drop about 130 to 140 basis points in terms of operating margin. That's just a long-term trend for us. Last year, that dip was more shallow than that.

Marker Brendan I, just wanted to touch a little bit on same store NOI. As you guys mentioned you had a benefit this quarter from some expenses being pushed into the third quarter.

Should we expect that to cause a meaningful dip in same store in Q3 and are there any other nuances that could affect the quarterly kind of cadence as we look look out throughout the second half of the year.

Hey, Blaine its Brendan.

I would say beyond so so normally our normal seasonal pattern as you go from Q2 to Q3 is we tend to drop about 130 to 140 basis points in terms of operating margin. That's just long term trend for us last year that dip was more shallow than that and as you correctly point out there were some operating expenses that we expected to incur in Q2 that we now expect to incur in Q3. So if you take that comment maybe that means that the operating margin in Q3 would dip a little bit more than the normal seasonal pattern that we've incurred so there's there's a little bit of movement margin between the second quarter and third quarter. So that's an aspect of it. In addition to that last year. If you'll recall, we took five months of rent from fidelity.

Brendan Maiorana: As you correctly point out, there were some operating expenses that we expected to incur in Q2 that we now expect to incur in Q3. If you take that comment, maybe that means that the operating margin in Q3 would dip a little bit more than the normal seasonal pattern that we've incurred. There's a little bit of movement margin between the Q2 and Q3, so that's an aspect of it. In addition to that, last year, if you'll recall, we took 5 months of rent from Fidelity in the Q3 as they paid the entirety of the remainder of their term in the Q3, which was an expiration of 30 November. We recorded all of that in our Q3 2018 Same Store numbers, and we'll comp against that in the Q3 of this year as well.

In the third quarter as they they paid the entirety of the remainder of their term and the third quarter, which was an exploration of November thirtyth. So we recorded all of that in our third quarter 18, same store numbers and we'll comp against that in the third quarter of this year as well. So those couple items create a little bit more headwind as we think about the third quarter versus what we did in the second quarter for 2019.

Brendan Maiorana: Those couple items create a little bit more headwind as we think about Q3 versus what we did in Q2 for 2019. Okay. That's helpful. Ted, can you just give a little bit more color on T-Mobile? I think you guys talked about having a prospect there for half the space when T-Mobile is out in April 2020. Is that still in discussion, and how would you characterize interest in the rest of the space?

Okay. That's helpful.

Ted can you just give a little bit more color on T. Mobile I think you guys talked about having a prospect there for half the space from T Mobile's out.

In April next year is that still in discussion and how would you characterize interest in the rest of the space.

Ted Klinck: Sure. What we may end up doing with T-Mobile, they may end up staying a little longer than they otherwise would have, so maybe three months or so. In terms of the prospects, the one we were talking about last quarter, it's sort of gone quiet. I don't think they've landed anywhere. Right now, those discussions have sort of gone on hold for us. No real other active prospects on that right now. We're hopeful we can get T-Mobile staying there a little bit longer and then give us a little bit more time.

Sure.

So we may end up doing T mobile they may end up staying a little longer than they otherwise would have so maybe three months or so.

In terms of the prospects. The one we've we were talking about last quarter, it sort of gone quiet.

I don't think they've landed anywhere but.

So right now those discussions have sort of gone or going on hold for us.

No real other active prospects on that right now so we're hopeful we can get T mobile stay in there a little bit longer and then give us a little bit more time.

Brendan Maiorana: Okay. Great. Ed, last quarter, you talked about a handful of prospects for potential development spread across some of your major markets. Can you or Ted give us an update on where those negotiations stand and whether you think it's likely you guys have another development announcement by the end of the year?

Okay, Great add last quarter, you talked about a handful of prospects for potential development.

Spread across some of your major markets.

Can you or Ted give us an update on where those negotiations stand and whether you think it's likely you guys have another development announcement by the end of the year.

Yes, so I do anticipate that we which still have activity and that's why we maintain the range of the 112 to 375, we added the 12 to to properly cover what we have announced to date between Glenlake seven in mid town one.

Operator: I do anticipate that we would still have activity, and that's why we maintain the range of the $112 to 375. We added the $12 to properly cover what we have announced to date between Glenlake 7 and Midtown 1. We anticipate getting lucky. It's not done until it's done, that's why we maintain that guidance and hope that some of these conversations that are ongoing in a number of markets would mature into an award.

But we anticipate.

Getting lucky you know its not done until it's done.

But that's why we maintain that guidance and hope hope that some of these conversations that are ongoing in a number of markets would mature into an award.

Okay, great and congrats on a great career and enjoy retirement.

Brendan Maiorana: Okay. Great. Ed, congrats on a great career and enjoy retirement.

Operator: Thanks so much, Blaine.

Thanks, So much point.

[noise].

Operator: Our next question comes from Jamie Feldman with Bank of America Merrill Lynch. Please proceed.

Our next question comes from Jamie Feldman with Bank of America Merrill Lynch. Please proceed.

Brendan Maiorana: Great. Thank you. Congratulations to Ed, Ted, Brian, and Brendan. Ed, best of luck in the next chapter, and we're glad we got to spend some time with you on your home turf not that long ago to see all you've accomplished. Thank you.

Great. Thank you congratulations to add Ted Brian and Brendan.

Ed Best of luck in the next chapter and we're glad we got to spend some time with you on your home turf not that long ago.

CL you've accomplished so thank you.

Operator: Thank you, Jamie.

Thank you Jamie.

Brendan Maiorana: I guess just focusing on the LSI space, you had mentioned a couple conversations for Full Building Medical User. Can you just talk more about the depth of that pool and then how long do you guys wait before you do decide to take the next route?

So.

I guess just focusing on the LSAG space you had mentioned a couple of conversations for full building medical user can you just talk more about the depth of that pool and then how long.

How long how long do you guys wait before you do decide to take this the next route.

Operator: Yeah. Great question, Jamie. You're right. We are in conversation with some prospects about them taking it not both, obviously, one or the other of those that we're talking to as a full building or near full building, as I said in my prepared remarks. Those conversations are going on. We want to fully exhaust those to see if that's something that we can consummate before we would make the decision to go ahead and convert the building. Given the quality of those conversations at this juncture, we want to continue to run those rabbits. We haven't wanted to put any deadlines on ourselves because it depends on the twists and turns of the conversations that we're having with these other opportunities. We want to just fully vet those.

Yeah, Great question, Jamie So you're right we are in.

Conversation with some prospects about.

Them, taking it not bolt obviously one of the one of the other of the those that were talking to.

As a full building or near full building as I said in my prepared remarks, and so those conversations are going on.

We want to fully exhaust those.

To see if that's something that we can consummate before we would make the decision to go ahead and convert the building and given the quality of those conversations at this juncture, we want to continue to run run those rabbits.

We havent wanted to put any deadlines on ourselves because with depends on on the.

Twists and turns of the conversations that we're having with these other opportunities. So we want to just fully vet those were our best estimate right now that we would be able to do that within the next 60 days plus or minus.

Operator: Our best estimate right now that we would be able to do that within the next 60 days ±. If we are unsuccessful in reaching agreement with either of those, then we would very likely make the decision to go ahead and convert the building to a multi-customer environment. If we did that, we would anticipate being of a decision sometime in October. We do have a good handful of full-to-full-plus floor users from the office side, and we're kind of slow-walking those conversations right now as we vet these other two. Certainly, we're hosting tours and maintaining contact with those who have expressed interest on the office side if these others don't play out.

If we are unsuccessful in reaching agreement with either of those.

Then we would very likely make the decision to go ahead and convert the building.

To a multi customer environment.

And then if we did that we would anticipate being.

Have a decision sometime in October .

And then we do have a good handful of full to full.

Plus floor.

Users from the office side.

And we're kind of slow walking those conversations right now as we get these other two but certainly we're hosting tours and maintaining contact with those who have expressed interest on the office side. If this these others don't play out.

Thank you that's helpful to you.

Brendan Maiorana: Thank you. That's helpful. Is there enough traditional office use to fill the whole building, or not yet? Not really?

Is there enough.

Traditional office he is to fill the whole building or are not yet and that really.

Operator: Well, we have a handful of prospects that it just depends on how much of all that would make. It's early in the process with them given that they know that our primary interest is leasing the building to a single user for the medical use. The demand in Tampa is obviously very good, and we would anticipate being able to fill the building up with the office users once we made the decision and then went full bore in the pursuit of those suspects and prospects.

Well, we have a handful of prospects that.

It just depends on how much of all that would that would make so it's early in the process with them given that.

They know that are our primary interest is.

Is leasing the building to a single user for the medical use but the demand and Tampa is obviously very good and we would anticipate being able to to fill the building up with the office users.

Once we made that decision and then went full bore in the pursuit of those suspects and prospects.

Brendan Maiorana: Okay. Then shifting gears to Midtown 1, it's kind of a unique project given that it's part of a larger mixed-use project. When you think about the development pipeline going forward, do you see more of those types of opportunities? If that's the case, how do you think about your land bank and where it sits versus the prospects of those kinds of investments?

Okay.

And then shifting gears to Midtown line, it's kind of a unique project given that it's part of a larger mixed use.

Project.

When you think about the development pipeline going forward do you see more of those types of opportunities and if that's the case, how do you think about your land bank and where it sits versus.

The prospects of those kind of investments.

Ted Klinck: Sure. This is Ted. We are certainly looking at different opportunities in various markets. I think it's just part of the way the whole office market is changing. I think as we look at changing office demands, companies are increasingly looking at highly amenitized office space, and their workers want cool space, and they can walk to lunch, walk to amenities. We are looking at that in most of our markets. In terms of our land bank, we're always looking at just like we rank our buildings, we always are looking at our land bank as well to see what is in the right location, what other land we need to supplement that for. Really, there's no change there that we're always looking at it. I would think going forward, if we can get in some of these middle-of-some-mixed-use type projects, that'd be a goal of ours.

Sure This is Ted.

We are we're certainly looking at different opportunities in various markets I think it's just part of the way the whole office market is changing.

I think as we look at the changing office demand.

Companies are increasingly looking at.

Highly amenitized office space within their workers want cool space and they can walk to lunch walk to amenity. So we are looking at that in most of our markets.

In terms of our land bank.

We we were always looking at just like we rank our buildings. We always are looking at our land bank as well to see what is in the right location, what other land we need to supplement that forward. So.

Really it's and that's in there is no change there that we're always looking at it but I would think going forward.

If we can get in some of these middle of some mixed use type projects that would be a goal of ours.

Okay and when you think about you guys are constantly talking about the handful of projects are any of those other similar kind of mixed use for you'd be part of a larger project are there more staff standalone.

Brendan Maiorana: Okay. When you think about, I mean, you guys are constantly talking about the handful of projects. Are any of those others similar kind of mixed-use where you'd be part of a larger project, or they're more standalone build-as-is?

Build to suits.

Ted Klinck: Really, it's both. We've got conversations along both scenarios.

Really it's both.

We've got conversations along.

Both both scenarios.

Brendan Maiorana: Okay. All right. Thank you.

Okay.

All right. Thank you.

Operator: Thanks, Jamie.

Thanks, Jamie.

Our next question comes from Dave Rodgers with Baird. Please proceed.

Operator: Our next question comes from Dave Rogers with Baird. Please proceed.

Brendan Maiorana: Yeah. Ted, wanted to start with you if I could, just one more on Tampa since we haven't talked enough about it, I guess. I wanted to ask about the three different kind of submarkets those buildings are in. You're clearly seeing demand in one location, and then it sounded like maybe T-Mobile not as much. I guess what's driving the unique demand in each location that doesn't sound like maybe it's overlapping from one to the next or industry demand, etc.?

Yes, Ted wanted to start with you if I could just one more on Tampa since we haven't talked enough about it I guess I wanted to ask about the three different kind of Submarkets. Those buildings are in you are clearly seeing demand in one location and then it sounded like maybe T mobile not as much. So I guess, what's driving that and then the unique demand in each location that doesn't sound like maybe at the overlapping from one to the next.

Sure just as we land et cetera.

Ted Klinck: Sure, Dave. As we talked about, I mentioned the prepared remarks. It's really geography, price point, and timing that differentiates the three opportunities. Starting with T-Mobile, as you alluded to, it's a more suburban location along the I-75 corridor in the northern part of Tampa. It's more of a back-office location. Look, I wouldn't read too much into the lack of demand or prospects up there yet. We still got nine months or so before we get that back and maybe longer if we extend T-Mobile in the short term. That market is still strong for us overall. It is more of a back-office, lower price point versus the other two deals, which are in West Shore. Regarding those, I think those are more price point and timing is the difference in those.

Sure Dave as we talked about I mentioned in the prepared remarks, it's really.

Geography price point in time in the differentiates the three opportunities starting with T. Mobile have you alluded to it's really into some more suburban location along the I 75 corridor in the northern part of Tampa, It's more of a back office location in look I think I wouldn't read too much into the lack of.

Demand or prospects up there yet we still got ISL nine months or so before we get that back and maybe longer if.

We extend T mobile on short term so that that market is still strong for us overall.

So.

But it is more of a back office lower price point versus.

The other two the other two deals which are in west shore. So regarding those I think those are more price point and timing is the difference in those 53 32, there's going to be priced 10, 15% lower than mid town Tampa as well as its availability now versus Midtown Tampa, we've we've barely scratched the surface in terms of starting construction going wont be delivered till 2021. So we would hope we can get 50, threethirty to backfill and leased up.

Ted Klinck: 5332 is going to be priced 10% to 15% lower than Midtown Tampa, as well as its availability now versus Midtown Tampa. We've barely scratched the surface in terms of starting construction. The building won't be delivered until 2021. We would hope we can get 5332 backfilled and leased up before then.

Before then.

Great. That's helpful. And then maybe on Buckhead, you talked about new construction underway in Buckhead in Atlanta.

Brendan Maiorana: Great. That's helpful. Maybe on Buckhead, you talked about new construction underway in Buckhead in Atlanta. Can you maybe talk about price point there, what you would anticipate anyway versus kind of where you guys are at and how well positioned you feel against the new competition there?

Can you maybe talk about price point, there what you would anticipate any way versus kind of where you guys are at and.

How well positioned you feel again.

Against new competition there.

Ted Klinck: Sure. Buckhead, there's really just one building under construction, Buckhead. It's over across the street at Phipps Plaza. It's Simon's doing as part of a redevelopment on a portion of their mall. It's 340,000 square feet or so. They're starting it all spec. Asking rates are in the low $50s. We think versus our 1 and 2 Alliance and really all of our Buckhead assets are closer to the low $40s. There's a pretty large delta from a price point standpoint. We feel pretty good that we should be able to compete against that building.

Sure. So Buck has it really just one building under construction by CAD, it's over across the Street Phipps Plaza Simon's doing as part of a.

Redevelopment on a portion of their their their mall 340000 square feet or so.

They are starting it all spec asking rates are in the low fiftys.

So while we think versus our.

One and two alliance and well really all of our bucket assets are closer to the low fortys. So there is a pretty large delta from price point standpoint.

So we feel pretty good that we should be able to compete against that building.

Okay. That's helpful and lasted for Ed Congratulations on really I think building a great team and a great company and if nothing else you should be rewarded for that so.

Brendan Maiorana: Okay. That's helpful. Last just for Ed, congratulations on really, I think, building a great team and a great company. If nothing else, you should be rewarded for that. Congratulations. Good luck.

Congratulations good luck.

Operator: Thanks so much, Dave.

Thanks, so much safe.

Our next question comes from Jon Petersen with Jefferies. Please proceed.

Operator: Our next question comes from John Peterson with Jefferies. Please proceed.

Brendan Maiorana: Great. Thank you. I would certainly echo all the things that have been said about Ed. Thanks, Ed, for all your help over the years.

Great. Thank you certainly echo all the things that have been said about how about Ed. Thanks, Ed for all your help over the years.

Ted Klinck: Thank you, John.

Thank you. Thank you.

Brendan Maiorana: Yeah. In Nashville, it's one of the places that Amazon's going to. I think they recently signed about a 500,000 square foot office lease in that market. I know you guys own some land not too far away. Just curious if you have any update on maybe conversations you're having with other potential tenants out there that might be looking at the Nashville market more now that Amazon has a bigger presence there.

So.

In Nashville, Yes.

One of the places that Amazon go into I think they recently signed up I think it's about a 500000 square foot.

Office lease in that market I know you guys on some land not too far away. Just curious if you have any update on maybe conversations you're having with.

With other potential tenants out there that might be looking at the Nashville market more now that Amazon has a bigger presence there.

Operator: Yeah. There's no doubt that having Amazon in the hood is a good thing. I think that Nashville and the state of Tennessee has done a phenomenal job in their recruitment of business. It seems like with each good name that comes to the market, it begets the next good name that comes to the market. With Amazon's announcement of the 5,000 people coming there and what they'll take down initially, it's nothing more than rumors now, but certainly lots of rumors flying that that number could be growing by a material amount based on the fallout in Long Island City. Then our project called 1100 Broadway, it's really two towers on a single platform. The large would support 670,000 sq ft, and the smaller one would support 463,000 sq ft for about 1.1 million plus.

Yes, there's no doubt that having Amazon in the Hood is a good thing.

I think that to Nashville, and the state of Tennessee has done a phenomenal job.

In their recruitment of business and it seems like with each good name that comes to the market. It begets. The next good name that comes to the market. So with Amazon's announcement of the 5000 people coming there and and what they'll take down initially.

It's nothing more than rumors now, but certainly lots of rumors flying that that that number could be growing by a material amount.

Based on the fall out in long Island City.

And then our to our project called 11 under Broadway, which really two towers on a single platform. The large would support 670000 square feet in the smaller one would support 463000 square feet per.

About a million one plus.

Operator: We've obviously presented either or both of these towers to a number of prospects. I think the proximity to where we are with the build-as-it we have underway with ASSURION, the other infrastructure improvements that are being made by the city of Nashville in the immediate area, and then, of course, the development that not only Amazon's going into Nashville yards but also the neighboring hotel and entertainment area. It's just land in an excellent location, and we're very optimistic that it will serve us well.

We've obviously presented.

Either or both of these towers to.

A number of prospects I think the proximity to where we are with the build to suit we have underway with assureon.

The other infrastructure improvements that are being made by the the city of Nashville in the immediate area and then of course, the development that not only amazons going into Nashville yards.

But also the neighboring.

Hotel and entertainment areas, it's just a.

Let's just land in an excellent location and we're very optimistic that it will serve us well.

Brendan Maiorana: Do you think that in the past, you've talked about how that land was probably earmarked for the next economic cycle. I guess given how long this one's lasting and how strong things are going in Nashville, is there a possibility of something happening there over the next few years, or is it still further out?

Do you think that I think in the past you talked about how that that land was probably earmarked for the next economic cycle, but I guess, given how long this one glassy and how strong things are going in Nashville as it is there a possibility of a of something happening there over the next few years or is it still further out.

Operator: Well, I would say there's definitely a possibility, but I also want to maintain expectations. We all agree that we're in extra innings in this economic run. With interest rates where they are and the indicators we continue to see and the US being relatively safe haven in comparison to the global markets, there's no reason for you or me to not continue to be optimistic about Nashville, the Southeast, and particularly this site.

Well I would say there is definitely a possibility, but also want to maintain expectations. We all agree that we're an extra innings in this in this weak economic run, but with interest rates, where they are and the indicators. We continue to see in the U.S. being relatively safe Haven in comparison to the global markets others Theres. No reason for you or are we to not continue to be optimistic about Nashville, the southeast and particularly the site.

Great and then I.

Brendan Maiorana: Great. I guess given where we're at in the cycle, I think in the beginning, you used the term Goldilocks in terms of, I think, capital availability and economic growth and whatnot. We've seen some M&A among some of your public peers in the Southeast markets. Kind of curious what your appetite is to go out and find some larger office portfolios to grow the scale of the company.

Given where we're at in the cycle I think in the beginning you used the term goldilocks.

Terms of and capital availability in economic growth and whatnot, we've seen some M&A among some of your public peers in the in the southeast markets.

Kind of curious what your appetite is to go out and find some larger office portfolios to grow the scale of the company.

Operator: Well, I think that our answer on that is pretty consistent along the board. We're constantly looking. We look for opportunities, whether it be a single entity, a single street address, a collection of buildings in a portfolio, or a company. We have been on that track for many, many years. We've done a lot of acquisitions over the years. Something that we invest a significant amount of time studying. If and when the right opportunity presents itself and we're able to make a pencil and we think it's good, I think that we have the team and the balance sheet and the expertise to pursue it.

Well I think that.

Our answer on that is pretty consistent along the board you know we're constantly looking we look for opportunities whether it be.

Single entity.

Single Street address.

A collection of buildings in a portfolio or a company. So we we have.

Then on that track for many many years, we've done a lot of acquisitions over the years and something that we invest a significant amount of time studying and if and when the right opportunity presents itself and were able to make a pencil and we think it's good.

I think that we have the team in the balance sheet and the expertise to pursue it.

Brendan Maiorana: Great. Just one more. I'm kind of curious at this point in the cycle what you think full occupancy of your portfolio should be.

Great and just one more im kind of curious at this point in the cycle, what you think.

Full occupancy of your portfolio.

It should be.

Operator: I'm glad you said should. I was going to say 90.9, but we think of equilibrium nowadays in the 92.5 to 93.5 range. I think we're on a good trajectory right now based on where I think that we would be headed based on current leasing. If we look at what's available in 2021 for future expirations, we've already have very high probability that of the 432,000 square feet that's 100,000 square feet or more that's expiring in 2021, we have high probability on renewal for more than 90% of that square footage. We feel based on yes, we have T-Mobile when we have 5332. If we're able to make this good prospect that Ted mentioned at 11,000 Weston, give us some time on 3332, T-Mobile really stands as the one that we would have to lease.

I'm glad you said should I was going to say 90.9, but [laughter].

Yeah, we think of equilibrium nowadays in the 90 to five to 93 five range and I think were you were on a good trajectory right now.

Based on.

Where where I think that we would be headed.

Based on on current leasing so we look at what's available in 2021 for future expirations we've already.

Have very high probability that of the.

432000 square feet, that's a 100000 square feet or more that's expiring in 2021.

We have high probability on renewals more than 90% of that square footage. So we feel.

Based on yes, we have T mobile when we have 53 32.

But if we're able to make this good prospect that Ted mentioned at 11000 Weston.

Give us some time on 33.

32, then T mobile really stands as the one that we would have to lease and and we have basically a year from now if we get the additional three months on that so I think the trajectory going into 2020, and then continuing on into 2021 from a rollover perspective is exceedingly good.

Operator: We have basically a year from now if we get the additional 3 months on that. I think the trajectory going into 2020 and then continuing on into 2021 from a rollover perspective is exceedingly good. Rental rates continue to see a nice gap in cash appreciation, and the development pipeline stays robust. All reasons to feel very good about it.

Rental rates continue to see a nice GAAP and cash appreciation and the development pipeline stays robust.

All all reasons to feel very good about it.

Brendan Maiorana: Sounds great. Thank you very much.

Sounds great. Thank you very much.

Operator: Thanks, John.

Thanks, John .

Our next question comes from Danny Ishmael with Green Street Advisors. Please proceed.

Operator: Our next question comes from Danny Ishmael with Green Street Advisors. Please proceed.

Brendan Maiorana: Great. Thanks. Ed, I just wanted to echo the comments on congratulating you on a great career and wishing all the best in the future.

Great. Thanks, and I just wanted to echo the comments on congratulating you on a great career and wish him all the best in the future.

Operator: Thanks so much, Amy. I appreciate that. You all have been mighty good to understand our story throughout the years, and we greatly appreciate that.

Thanks, So much Jamie appreciate that you all have been.

Mighty good to understand our story throughout the years and we greatly appreciate that.

Brendan Maiorana: Well, thank you. Just a few quick ones for me. We saw a few articles on changing ownership at the ovation sites. Just curious if you can provide us any update on some of the moving pieces there.

Well. Thank you and just just a few quick ones from me we saw a few articles on changing ownership at the ovation sites I. Just curious if you can provide us any update on sort of moving pieces there.

Sure it's Ted so the.

Ted Klinck: Sure. It's Ted. The lender foreclosed on the site back really around 1 July 2019 is when they took possession of it. As we've probably talked to you guys about, we've been following it for the last several years as the former owner was in default. The lender hasn't. Certainly, we've been in contact with them. They're working on their strategy and all that, but we're staying certainly close to the situation. We're definitely engaged and following what's going on. That's sort of where we are today. There's a lot of interest is what the lender's telling us. They believe it'd be good complementary and good developers for the site. We continue to stay in touch with them.

Lender foreclosed on the site.

Back.

Really around July one is when they took possession of it. So it's as we've probably talked to you guys about we've been following it for the last several years as a former owner was in default so.

The lender hasn't.

Certainly weve been in contact with them.

They're working on their strategy and all that but we're staying certainly close to the situation.

We're definitely engaged and following what's going on.

So that's sort of.

Where we are today theres a lot of interest is what the lenders telling us they believe would be good complimentary good developers for the site. So we continue to stay in touch with them.

Operator: Danny, just to underscore, this is a reminder. The total track is 143 acres. We own fee simple 66. It's a clear line of demarcation between what we own free and clear versus what the lender now owns. Of the residual, the 70-plus acres, if you take our 66 out of the 143, what went into foreclosure was about 35 of those acres. Just to be clear, that's the component that Ted's speaking to.

And David just to underscore just as a reminder, the total track is 143 acres.

We own fee simple 66, so its a clear line of demarcation between what we own free and clear versus what the lender now owns but of the residual 70 plus acres. If you take our 66 out of the 143, what went into foreclosure was about 35 of those acres and so thats just just to be clear that's the component that Ted speaking to.

Brendan Maiorana: Okay. Thanks. That's helpful. Maybe just lastly, on some of the suburban dispositions, I'm just curious as to some of the trends you're seeing in terms of divergences in fundamental performance between some of the more suburban assets and your BBD markets in terms of net effective rent growth and pricing in terms of cap rates.

Okay. Thanks, Thats helpful and maybe just lastly on some of the suburban and dispositions I'm just curious as to some of the trends you're seeing in terms of fundamental divergences in fundamental performance between.

Some of the more suburban assets added to your BBD.

Markets and in terms of net effective rent growth and pricing terms of cap rates.

Sure.

Ted Klinck: Sure. We're continuing to see it certainly varies by market and submarket and even down to the building level. As a company, we track net effective rent growth virtually all the way down building by building. We've consistently seen net effective rent growth really throughout the majority of the buildings of our portfolio. I think the net effective rent growth's probably been a little slower on some of the suburban assets, but it does continue to grow. The demand we see is still robust out in our suburban product. Not everybody wants to pay the freight and wants to be in the urban location. Suburbans continue to perform pretty well for us.

We're continuing to say it certainly varies by market and Submarket, even down to the building level.

As a company we track.

Net effective rent growth virtually all the way down building by building and we've considered consistently seen net effective rent growth.

On really throughout the majority of the buildings or portfolio I think the net effective rent growth probably been a little slower on some of the suburban assets, but it does continue to grow.

The demand, we see still robust out in our suburban product not everybody wants to pay the freight and wants to be in the urban locations. So.

Suburbans continued to perform pretty well for us.

Brendan Maiorana: In terms of pricing on the dispositions, no major changes from original underwriting in terms of proceeds?

And in terms of pricing on the dispositions.

No major changes from original underwriting.

In terms of.

Proceeds.

Ted Klinck: Not really. There's probably a consistent number of bidders that we've seen the last two or three years, probably down from, call it, three or four years ago. There's still plenty of bidders to make a market. Pricing's staying right in line with what we expect.

Not really there's still.

There's probably been consistent number of bidders that we've seen the last two or three years, probably down from call three or four years ago, but there's still plenty of bidders that make a market pricing staying right right in right in line with what we expect.

Operator: We think interest rates certainly help with the change of that and now the hugging of the 2 and some of suggesting a below 2 come Q1. I think that certainly helps us on the sale of the non-core versus the pricing on trophy assets.

And we think interest rates certainly help.

With the change of that now the hugging over the two and some of suggesting a below to come first quarter I think that certainly helps us on on the sale of the non core versus the pricing on trophy assets.

Brendan Maiorana: Great. Thanks, Ed.

Great. Thanks, guys.

Operator: Thanks, Danny.

Thanks Danny.

Our next question comes from Chris Lucas with capital One Securities. Please proceed.

Operator: Our next question comes from Chris Lucas with Capital One Securities. Please proceed.

[Analyst] (Various): Hey. I don't have any questions, Ed. I just wanted to thank you for your help over the years and congratulate you on a wonderful career. Looking forward to continuing to work with the team as it moves forward. Thank you.

Operator: Hey. I don't have any questions, Ed. I just wanted to thank you for your help over the years and congratulate you on a wonderful career. Looking forward to continuing to work with the team as it moves forward. Thank you.

Hey, I don't have any questions Ed I just wanted to thank you for your.

Your help over the years and congratulate you on a wonderful career and.

Looking forward to.

Continuing to work with it.

The team as it moves forward.

Operator: Thanks so much, Chris. Appreciate your professionalism and your comments. Much appreciated.

Thank you. Thanks, so much Chris appreciate your professionalism your comments much appreciated.

There are no further questions at this time.

Operator: There are no further questions at this time.

Operator: All right. Thank you, everyone. As always, if you have any follow-up questions, please don't hesitate to give us a call. Thanks so much.

Alright, thank everyone and as always if you have any follow up questions. Please don't hesitate to give us a call. Thanks so much.

That does conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect your lines have a great day everyone.

Operator: That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. Have a great day, everyone.

Q2 2019 Earnings Call

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