Tabitha Zane – VP, IR and Corporate Communications Edward Fritsch – Presdient and CEO Michael Harris – EVP and COO Mark Mulhern – SVP and CFO.

Matthew Spencer – Robert W. Baird & Company Jamie Feldman – Bank of America Merrill Lynch Jed Reagan – Green Street Advisors, Inc. Brendan Maiorana – Wells Fargo Securities Tom Lesnick – Capital One Securities Steve Manaker – Oppenheimer & Co. Jim Sullivan – Cowen and Company John Guinee – Stifel Nicolaus.

Ladies and gentlemen, thank you for standing by, and welcome to the Highwoods Properties Conference Call. During today’s presentation, all participants will be in a listen-only mode. And afterwards, we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded, Wednesday, October 29, 2014.

And I would now like to turn the conference over to Ms. Tabitha Zane. Please go ahead. Ms. Zane..

Thank you, and good morning, everybody. On the call today are Ed Fritsch, President and Chief Executive Officer; Mike Harris, Chief Operating Officer; and Mark Mulhern, Chief Financial Officer.

If anyone has not received a copy of yesterday’s press release or the supplemental, please visit our website at www.highwoods.com, or call 919-431-1529, and we will e-mail copies to you. Please note, in yesterday’s press release we have announced the dates for our 2015 financial releases and conference calls.

Also, following the conclusion of today’s conference call, we will post senior management’s formal remarks on the Investor Relations section of our website under the presentations section.

Before we begin, I would like to remind you that this call will include forward looking statements concerning the Company's operations and financial condition, including estimates and effects of acquisitions and dispositions, the cost and timing of development projects, the terms and timing of anticipated financings and occupancy, revenue and expense trends.

This call will also include management’s outlook for 2014 full-year FFO and takes into account year-to-date results, including $0.06 per share in land sale gains recorded in the second quarter.

As a reminder, our FFO outlook does not include any effects related to potential acquisitions and dispositions that may occur after the date of this release, as well as unusual charges or credits such as debt extinguishment and property acquisition costs. Such forward-looking statements are subject to various risks and uncertainties.

Actual results could materially differ from those currently anticipated due to a number of factors, including those identified at the bottom of yesterday’s release and those identified in the company's 2013 Annual Report on Form 10-K and subsequent SEC reports.

The company assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events. During this call, we will also discuss non-GAAP financial measures, such as FFO and NOI.

Definitions of FFO and NOI and an explanation of management’s view of the usefulness and risks of FFO and NOI can be found towards the bottom of yesterday’s release and are also available on the Investor Relations section of the web at highwoods.com. I’ll now turn the call over to Ed Fritsch..

Thank you, Tabitha. Good morning, everyone, and thank you for joining us today. First, please welcome Mark Mulhern who joined our senior leadership team in September with the retirement of Terry Stevens. Terry was an extraordinary co-worker for the past 11 years and his work and dedication to Highwoods will always be held in the highest regard.

As you know, Mark served on our board and audit committee before transitioning into Terry’s role. He has a strong and broad accounting and finance background having held roles from auditor with PWC to CFO with Progress Energy. Mark is an excellent fit for our team and our culture and we are excited to have him on board.

Before covering third quarter results, a brief comment about the overall environment. Early autumn brought some surprises to the financial markets, including the return of volatility. Many prognosticators expected the wind-down of the Fed’s quantitative easing program would lead to higher interest rates.

This obviously did not occur largely because of economic sluggishness in Asia and Europe, compounded by complex international issues such as ISIS and Ebola. This has led to an increased demand for U.S. Treasuries and a more muted forecast for long-term interest rates. Conversely, on a relative basis, the U.S.

economy has been strong with an improving employment picture, low oil prices, and a strengthening dollar. As a result, in the trenches, we’re seeing a steady demand for our product. Now onto third quarter results.

2014 continues to be a productive year for Highwoods Properties as we’ve delivered solid leasing, increased occupancy, strong net effective rent growth, an expanding well pre-leased development pipeline, and Productive net investment activity. For the third quarter, we reported FFO of $0.71 per share and FFO of $2.16 per share for the nine months.

We have tightened our 2014 full-year FFO outlook to $2.89 to $2.91 per share, which excludes the $0.01 net impact from acquisitions and dispositions that we closed in August and in September. At the midpoint, this is directly in line with our July outlook which, as a reminder, excludes the impact of future investment activity.

Strengthening market conditions, declining vacancy, and the robust competition for high quality real estate assets have significantly influenced our investment activity in 2014.

The growing size and strength of our development pipeline is an example of our versatility in light of a heavily competitive acquisition environment, and the pace of our dispositions was also influenced by the strong demand for commercial real estate.

During the quarter, we announced $362 million of investment activity, including the expansion of our development pipeline by $115 million through the addition of two well pre-leased projects, both of which are on company-owned land, a 176,000 square foot, 100% pre-leased build-to-suit for Laser Spine Institute in Tampa; and a 203,000 square foot, 76% pre-leased sister building to the recently delivered LifePoint build-to-suit in Nashville where AIG will be our anchor customer.

Including these two projects, our $349 million development pipeline spans five markets, encompassing 1.3 million square feet and is 85% pre-leased. The projected stabilized GAAP yield on this pool is approximately 9%.

We continue to have positive discussions with a number of prospects and are optimistic our pipeline will continue to expand over the next few months. Having already reached the high-end of our earlier outlook for 2014 development announcements, we have increased the high-end of our range from $150 million to $250 million.

As I mentioned earlier, we took advantage of the continued strong demand for real estate assets, selling $155 million of non-core assets for non-FFO gains of $36 million. Subsequent to quarter-end, we sold our remaining Atlanta industrial building, a 200,000 square foot property and an adjacent industrial tract of land for a total of $11.4 million.

We expect to sell up to an additional $15 million of non-core buildings before year-end. On the flip side of the frothy real estate market is that competition for institutional quality assets remains extremely competitive and we have seen cap rate compression.

In our view, assets without significant future upside are trading at prices out of sync with their risk profile.

As evidenced with our September acquisition of the 82.1% leased One Bank of America Plaza in CBD Raleigh, we are focused on harvesting opportunities to acquire BBD located buildings at prices that offer upside through lease-up, rent growth, Highwood- tizing and/or operating efficiencies. Bank of America Plaza certainly fits these criteria.

We acquired this 17-story, 374,000 square foot, multi-customer building for $92 million, 25% below estimated replacement cost. Our investment includes $8.3 million of planned Highwood-tizing. This building will provide solid NOI growth. We will provide 2015 outlook with the release of our fourth quarter results consistent with our historic practice.

That being said, the very good work done by our team will provide meaningful NOI upside as we move into 2015. First, $178 million of development will be delivering during 2015. In addition, we will have a full-year of NOI from the International Paper build-to-suit, which will be placed in service by year-end 2014.

Second, we will continue to garner NOI upside from our relatively recent value-add acquisitions. And third, same-store NOI growth will be strong as occupancy grows, particularly as TI construction wraps-up and new customers take possession of larger vacancies.

We are very pleased with our progress this year as we continue to build a firm foundation for a strong 2015.

Mike?.

Thanks, Ed, and good morning. Our third quarter was solid with 1.3 million square feet of first and second gen office leasing. Office occupancy at September 30 was 90.6%, up 140 basis points year-over- year and 40 basis points sequentially. At quarter end, average in-place cash rental rates across our office portfolio rose 3.4% from a year ago.

Cash rent growth on office leases signed in the third quarter declined 4.1% driven, in part, by backfills signed at LakePointe in Tampa. GAAP rent growth on office leases signed was positive 3.5%.

We are very pleased to have achieved net effective rents on second gen office leasing of $14.14 per square foot per year, more than 15% above the prior five-quarter average of $12.26 per square foot per year.

Net effective rents have increased each year this year, a function of our higher quality, BBD focused portfolio, strong brand and greater negotiating power as vacancy in our portfolio continues to shrink.

Turning to our markets, Raleigh’s economy is in full-swing with office employment growing 3.7% year-over-year, well above the national average of 1.7%. Net absorption in the quarter exceeded 500,000 square feet, the highest quarterly figure since the third quarter of 2007, and totaled 1.4 million square feet year-to-date.

We are taking full advantage of the robust economy in Raleigh, where we have three development projects underway. Two projects, MetLife and Biologics, encompassing a half million square feet, are 100% pre-leased and are on schedule to deliver over the course of next year.

The third project, GlenLake V, encompassing 166,000 square feet and located in our 100% occupied GlenLake Park, is 25% pre-leased. Activity has been good and we expect pre-leasing will eclipse 45% by the end of the year.

As a reminder, GlenLake V is scheduled to deliver by the end of second quarter 2015 and pro forma to stabilize in second quarter 2017. The sequential change in occupancy in our in-service Raleigh portfolio reflects the acquisition of One Bank of America Plaza, which was 82.1% leased at acquisition.

Atlanta’s office market continues to strengthen with over one million square feet of net absorption in the third quarter and year-to-date net absorption of 3.6 million square feet. Occupancy in our Atlanta office portfolio was 88% at quarter end, up 110 basis points year-over-year and 50 basis points sequentially.

Asking rents are up an average of 6% to 7% year-over-year. At One Alliance Center, leasing has been strong, resulting in occupancy of 84.4% at quarter end, up over 1,700 basis points in the 15 months since acquisition. We expect the occupancy of our Atlanta assets to increase steadily through the end of 2015.

With office employment growth of 3.5% year-over-year, double the national average, the Nashville economy continues to grow at a pace that places it in the top 10% of U.S. metro areas according to a recent Cassidy Turley market report.

Occupancy in our Nashville portfolio was 96.4% at quarter end, up 170 basis points year-over-year and 220 basis points sequentially. Year-over-year asking rents are up 5%.

Quarter-end occupancy at The Pinnacle at Symphony Place was 94.8%, a substantial increase over the 84.9% occupancy at acquisition just last September, and occupancy is forecasted to be 98% by year-end. Last month, we announced a new development project in Nashville, Seven Springs West.

This 203,000 square foot LEED-certified, multi-customer office building will be located in the highly-desirable Brentwood submarket, a BBD. AIG has pre-leased 76% of the building, which is expected to be completed in the third quarter of 2016. Currently, our Seven Springs Park encompasses 373,000 square feet that is 96.8% occupied.

While the recovery in Tampa has been slower than in many of our other markets, it is bouncing back as evidenced by the continued contraction of large blocks of available space. A highlight for our Tampa division was completing the backfill of 90% of the space PWC vacated at LakePointe One and Two.

Since our July conference call, we have signed four leases totaling over 100,000 square feet, all of which is scheduled to commence by the end of the first quarter of 2015. Another highlight was being awarded a new headquarters for Laser Spine Institute in the Westshore submarket, Tampa’s most prominent BBD.

This 176,000 square foot, 100% pre-leased office building being built on company-owned land will be delivered by the end of the first quarter of 2016. Ed outlined why there are sound reasons to be optimistic about 2015.

One more reason starts with the sizable renewal we announced last week, a 199,000 square foot lease on favorable terms with Vanderbilt University in Nashville. Based on annual revenues, this was by far our largest lease expiration in 2015. This renewal is reflected in the expiration table in our Supplemental but not on the leasing statistics page.

Inclusive of this renewal, as we sit here today, only 9.2% of annualized revenues are scheduled to expire during 2015.

I now turn it over to the rookie, Mark?.

$0.014 in lower G&A from lower incentive compensation and $0.008 in higher NOI from acquisitions and development. Turning to the balance sheet, we ended the quarter with leverage of 41.6%, down from 42.4% at the end of the second quarter of 2014. During the quarter, we prepaid a $36.9 million secured loan and have no remaining debt maturities in 2014.

As Ed mentioned, we have updated our FFO outlook to $2.89 to $2.91 per share from $2.88 to $2.94 per share in Q2. As Tabitha mentioned, we do not include any impact from potential investment activity in our FFO outlook until such transactions close. This is consistent with our long-held past practice.

Our 2014 full-year FFO outlook obviously takes into account year-to-date results, including $0.06 per share in land sale gains recorded in the second quarter.

Before we take your questions, as you know, I was at the board table over the last few years as Terry and the team executed the strategy to further strengthen the balance sheet and earn improved ratings from the rating agencies.

These moves had the full support of our board and we will continue to adhere to our strategy of maintaining a flexible and conservative balance sheet. As you heard today, the company is in very good shape.

We intend to fund our continued external growth, especially our robust development pipeline, and our modest debt maturities in 2015 with a combination of disposition proceeds, debt and equity, including through our ATM program.

I am excited to be part of this great team and I look forward to meeting many of you at NAREIT next week and other investor events in the coming months. So, operator, we are now ready for your questions..

(Operator Instructions) One moment please for the first question. And our first question comes from the line of Dave Rodgers with Robert W. Baird. Please go ahead..

Hey, good morning. It’s Matt here with Dave. In the quarter you had a nice spike in your net effective rents for leases signed in the period.

That’s by are mentioned in over three years, could you maybe talk about what was driving that increase? Was it the overall health of your markets or maybe just the mix and what do you expect going forward?.

Hey, Matt, it’s Ed. We’ve seen a pretty good trend of that number increasing quarter-over-quarter and we give the primary attribution of that to the improvement of the portfolio as we continue to churn assets, something that we’ve been doing for quite some time in the improvement in the portfolio.

So it’s a combination of having sold assets with lower net effective rents, acquiring and developing assets with higher net effective rents, the value add on acquisition. We’ve been able to increase occupancy at higher rents and then certainly the overall marketplace just being in better condition.

We as all landlords went for a period of time where we didn’t get to see the negotiation baton with the customer and now we have a firm grasp on that. So I think those things come together to substantiate while we’re seeing that steady trend..

Matthew Spencer – Robert W. Baird & Company:.

:.

Well, on acquisitions it’s a pretty broad topic there, so we’re clearly seeing a very competitive environment. If you look at all that we bought in each of the last three years, 2011, 2012 and 2013, we invested amounts that were substantially higher than where we are year-to-date today.

We’re seeing that low interest rates and this unbridled sea of capital that’s out there continue to cause cap-rate compression. But to more specifically answer your question, we’re definitely in the hunt. We are remaining disciplined underwriters.

I would say that it’s fair to say that we’ve lowered some of our return expectations or hurdles given what we’re seeing now as far as the strength and the duration of the strength of fundamentals, and the fact that new construction still is relatively dormant. So we have a very good acquisition team. I’d say, one of the better ones out there.

I think that our team does an excellent job with pre-bid due diligence. We all invest significant time in understanding all the attributes of the market, the sub-market and the asset before bidding. And you can be assured that we’re thoroughly evaluating every opportunity that comes to market.

With regard – specific regard to One Bank of America Plaza, as we said in the comment it is a building that happens to fit all criteria. The occupancy is in the low 80s. We predict it will clip better than 90% by the end of next year.

There are opportunities to advertise it from the BI perspective, there is an opportunity to increase rents there and there is some operating efficiencies on the expense side that we feel that we can capture. So it checks all the attractive boxes for us..

Great. Thanks for that. I appreciate the color..

Thanks, Matt..

Our next question comes from the line of Jamie Feldman with Bank of America Merrill Lynch. Please go ahead..

Great. Thank you. Good morning. I was hoping. I know you gave some color on the call.

But just, if you could talk more about your stronger outlook for development starts, are these all built-to-suit, are these – are some of them spec, what markets and is it all on your normal end?.

Good question, Jamie. So holistically, just with regard to development. We’re real pleased to have $349 million underway that’s 85% pre-leased and covers five different markets. To put your question in perspective, just with what’s in the pipeline 84% of the money is being invested today are on Highwoods’ own land.

We’re in a number of conversations for development. The preponderance continues to be a heavily anchored or a 100% pre-leased built-to-suit projects. Majority of it remains on company owned land as you know we have 429 acres of land that would support $1.1 billion of new development. We’ve been saying all along that development is hard to predict.

Lots of conversations, but it’s hard to predict when the buzzer will go off on the oven and you can pull it out, but I would say that we were comfortable enough to increase the high end of our 2014 guidance by $100 million based on various conversations we have ongoing right now, and in hopes that the buzzer goes off on at least a couple.

If you take the $349 million of development we have under way divided by the seven buildings it just happens to come to $49.9 million, let’s call it $50 million, so our average is $50 million. So I think it’s better to say that we continue to see good opportunity in the 175,000 square foot to 200,000 square foot range buildings..

Okay. And then to Mark’s comment before in terms of financing, I assume that those comments in terms of using the ATM and using dispositions would apply to the new pipeline as well..

Yes, Jamie, it’s Mark. I think one of the advantages we had and Ed went through, the development pipeline is, I think we’re in a very good shape, have a good strong balance sheet have flexibility about raising capital.

And I do expect to continue kind of what Terry and the team have done here and that is use a variety of sources for capital, that dispositions. It’s the debt markets, it’s the equity markets and the ATM program has been very good to us as you saw in the numbers we posted today. So yes, I would expect more of the same going forward..

Okay.

And then, looking across your markets it looks like Raleigh was the one with some occupancy decline and I know you had – you had asset sales there too, but is there anything else beyond acquisitions and dispositions that moved that occupancy number down?.

Well, you’re right. The main thing is the acquisition number. We bought Bank of America, that’s 374,000 square feet and it was low 80s occupancies, so that was the most impactful aspect of that.

And then we had a couple of customers that did move out that weren’t of significant size but we did have a couple of customers move out, one to a built-to-suit downtown..

And Jamie, this is Mike. We’ve already got good activity for backfilling on a substantial amount that space. So our leasing folks are all over it and I would expect that in the next few quarters we’ll be making significant progress on bringing that back up..

Okay. And I guess, along those lines my last question.

Can you just refresh us where you stand on backfilling the major vacancies in the portfolio, kind of what’s left to do?.

Edward Fritsch:.

So really the only hole that we have left is Lakeside which 91,545 square feet and we had said that what we wanted to do that building was have a little bit of a Bobcat demolition derby inside.

So we’ve spend a lot of time and energy gutting that building, redoing, common area finishes, et cetera and it’s getting to a point now where it’s starting to show better. But really that’s the only hole that we have left and we got that space back at the beginning of this year, it’s not a carry-over from last year..

Okay. And then Ed, you had said, you expect strong same-store NOI growth next year.

Do you care to characterize what the means in terms of a range?.

Yes, on February we’ll put our guidance, we’re 15, but strong I would say is bigger than a breadbasket. There’s lots of reasons to feel confident about where NOI growth is going, given that develop like we’ll have a full year of IP. We’ll have these backfills. As Mike outlined, we’ve been successful in leasing up some of these value-add assets.

I think he pointed out One Alliance in his script going from 67% to better than 84%. We’ve taken Pinnacle from 84.9% to just shy of 95%. We’ve made good movement in other areas. And now it’s (inaudible). We bought it at 82.1%, we expect it to clip 90% million by the end of the year.

So with the developments these backfills and good fundamentals, I think there is good reason to feel confident in that growth..

Yes, Jamie, one other thing to add on that same-store numbers, I know there’s some noise in the numbers here and I think just on some of the early reports people are wondering about our guidance for 2014 on same-store NOI.

I think which I got a look at is our fourth quarter of 2013, we had a fair amount of vacancies, you know the names, in Atlanta and Tampa in particular. So I think that with filling those vacancies makes those comparative numbers a little tough.

And I think then that the acquisitions, that we’ve made in 2011 and 2012 picking up the occupancy in those has really helped on that same-store NOI numbers. So I agree with that, we have I think a good path here going into 2015, on that topic..

Okay. Great. Thank you..

Thanks. Jamie..

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

Good morning, guys..

Good morning, Jed..

Just you talked at about the cap-rate compression that you’re seeing and I’m just wondering if you’ve seen meaningful compression herein over the last three months or so, is that more just a general comment about trends you’re seeing over your 2014?.

Yes, I would call it meaningful, even though it’s in the 25 bps to 50 bps range over the 90-day period that we outlined. For institutional quality assets that don’t have unusual customer concentrations and we’re good, well can see development project that they were delivered regardless of when that was.

There’s no doubt that there has been an uptick in the level of investment interest in mid-tier markets if you will. It seems like money that was chasing assets in the gateway coastal markets has more than found its way into the mid-tier cities and now part of the competitive landscape..

So I think last time you talked something could even have high-five handle to, call it, 6%, does that mean that that same building might trade in the mid-five today?.

I think it’s fair to say that a mid-five could be seen..

Okay.

And how about sort of the lower quality locations and more commodity type of stuff, any compression there or is that lagged or just flat?.

I think it’s just been – the only change there has been a higher level of interest, a deeper better pool. The 170 that we closed on year-to-date and probably do another 13 to 15 before the end of the year.

It’s certainly not keeping pace with the trophy infill BBD assets, but there is certainly a market out there and that’s why we’ve gone above the high-end of our guidance for 2014, because we’ve seen a steady demand different pricing, but a steady demand and good stuff to get off our books..

Okay.

And just wondering if you can talk about just general comments on the leasing pipeline today versus say 3 months ago and maybe if you’re seeing any rent growth acceleration in your markets?.

So the volume of the leasing that we’ve done throughout the past three quarters has been robust. We always decide what the differences between solid, robust and strong, but the last three quarters have been very good. And occupancy across the board is getting better in each of our market.

And so there are fewer and fewer large blocks of Class A space in urban infill locations and so as result we as landlords are having a better day at the negotiation table. We continue to see depending on the market somewhere between 2% and 7% year-over-year asking rate increase on terms. We’re having a greater influence on the level of TI.

And we’re seeing some deals with a nominal amount of TI being need in order to consummate the renewal. And, Jed, while we’re on it I think Mike touched on it with regard to expirations and the renewal that we did for Vanderbilt.

That’s a good book of business to have signed and we feel good about going into this year, as we sit today only 9.2% of annualized revenues are due to expire in 2015 now. We don’t have a single customer with the lease of 75,000 square feet or more we think that’s due for expiration.

We don’t have any customer who represents let’s call it $2 million or more in annual revenues that’s up for expiration. So next year we don’t have a lot of exposure, a lot of it’s been put to bed and we signed another 101,000 square foot renewal between Vande press release we put out and as we said here today..

Michael Harris:.

:.

Okay, great. Thank you..

Thanks, Jed..

Our next question comes from the line of Brendan Maiorana from Wells Fargo. Please go ahead..

Thanks, good morning. Hey, Mike, were you able to offer the terms of the Vande lease.

I think you mentioned that it was positive or it was favorable terms, but it’s on a – sort of flattish cash roll up on GAAP, the TI dollars and things like that?.

Hey, Brendan. Ed, I just waved my hand at Mike and said, let me start on that one. So we have – we included it in the expirations page of the supplemental but we didn’t include it in the leasing page.

And we seldom like to give exact terms of each deal, so that we’re tipping our end to the market or being respectful to our customer, but sufficed to say that we did get a rent growth – positive rent growth in the 3% or so range. We have no downtime.

There was no outside broker involved, Jimmy Miller, one of our heroes in Nashville, did that deal without an outside broker, so there is no outside broker commission. It was good terms all the way across the board. It was good piece of work. They’re good customer and we’re glad out that one scotched – in the way of renewal.

And really we don’t have anything over $2 million in annual revenues that expires now until November of 2016..

Okay, great. So your occupancy guidance by year-end is at the low-end, it’s up 80 basis points from where we ended the quarter.

At the high-end, it’s up 150 basis points so there is – I gather there is a lot of leases that our set to come on or I can’t recall whether or not 5405, whether the – I think it was two tenants for that building have come on or some of that is attributable to space down in Tampa or if there are some other big leases that are embedded in the Q4 gains, do you expect?.

Edward Fritsch:.

So we have a number of those where they really don’t take possession of space in earnest until first quarter early second..

So there is a little bit of variability in your occupancy target by year-end. So I gather there – there’s probably some leases that you’re working on, maybe they commence, maybe they don’t. But given what you highlighted, which is a very low role year now for 2015.

Is there any reason to think that you by the end of 2015 you shouldn’t at least be sort of at that 92.5% or maybe 93% range – at the high-end of your year-end 2014 occupancy guidance?.

I think that again we’ll just to keep this all of safe territory we’ll give out the 2015 guidance, but when we put out fourth quarter results, but I think that you’re right, there is good reasons to believe that the portfolio should be better occupied at the end of next year than it is at the end of the this year.

And then the only thing I want to amend on your comment, you said maybe they commence, maybe they don’t, they will commence. It’s just whether they commence in 2014 or 2015..

Yes, correct. Sorry….

No problem. Just want to be sure..

And then I don’t know if this is Ed or if you want to take this or maybe Mark. But, so….

Is it EBITDA? I’m going to give it to Mark..

It’s maybe related to that, so it’s even more detailed so I’m going to indoctrinate you into that, what’s it called here. So the straight line number in Q3 picked up on the same-store basis and I think that was really the reason why your same-store number went from a positive in Q2 versus negative on a cash basis in Q3.

But if I look at what’s – what you’ve done year-to-date and what your guidance is for the year, it effectively implies that the mid-point, probably plus 3.5% to 4% in Q4, which part of that is what you highlighted, which is you kind of have an easy comp quarter compared to last year in Q4.

But I would think that given the lease up that you expect there is probably free rent associated with those leases as they come into Q4.

So I am just – I am kind of interested in the sort of how you get up to that plus four numbers, because I would gather a lot of the occupancy gains you’re going to get our cash paying in fourth quarter?.

Yes, Brendan, there is a little bit of that, and I don’t know if I would call it free rent as much as I would early possession. So in other words, we didn’t give a lot of rent concessions, but we do have some early move-in. So you are right, there is some cash trade on that.

But what I would say, again, I think, if you look at the comparisons, I think, the big thing is really those that fourth quarter weakness in 2013 with other vacancies that we had. But I understand your point about cash, but I do think, at least, today, that’s how the number shake out.

We expect to have a pretty strong cash NOI number in Q4 and get that number, at least, in the range that we affirmed..

Okay, great..

Brendan, this is Mike, I mean, the dip over into Mark's world. I think that’s Accounting 101, like 45 year ago..

Need to help..

But just as a reminder from the purpose of determining GAAP rents, when the tenant takes possession if they are doing their own TI, at that point in time, we start GAAP rents versus if we do the TI work, it goes with the normal lease commencement date. So we talk about early possession, that’s what we are alluding to..

So that that process mirrors what, Brendan, what you and others you see frequently on the retail side, where a merchant comes in, takes possession of the space and builds out their own store. That – it’s been a long deem that’s when GAAP rent needs to begin and we have a couple of customers who have done that..

Sure, okay. Okay, all right. Well, thanks a lot, guys..

Sure, thanks..

Our next question comes from the line of Tom Lesnick with Capital One Securities. Please go ahead..

Hi, good morning, guys..

Good morning, Tom..

I just wanted to follow-up on Jed's question earlier on cap rate compression and capital flows. I think, you mentioned that you’ve seen about 25 basis points to 50 basis points over the last 90 days or so.

But are you – by market, are you seeing more compression in some markets relative to others?.

Tom, I would say that there's not enough data points for us to give you a sound answer on that. We haven’t seen institutional quality assets trade before the time period we are talking about versus within the time period we are talking about in enough markets to tell you that that’s happening.

Our window into that is deals that we've chased, what comes out real capital analytics and deals that we sold. And we sold different quality assets than what we've either chased and/or acquired.

But they are just – there aren’t enough – haven’t been enough trades on both sides of that timeline for us to tell you that that – it's – it varies significantly from market to market. But we can through common sense, I guess, say that markets like Atlanta, Nashville, and Raleigh are warmer than some of the other markets that we are in.

And so, it’s fair to expect that the compression would be more noticeable if institutional quality assets were to come to market in those three cities..

All right, that’s fair. I appreciate that color.

My other question just had to do with the lending side of things, are you guys seeing any trends recently in the life insurance secured market, whether it would be covenant surprising?.

Well, we really haven’t, but that doesn’t mean it’s not happening. We have been working hard for a number of years to reduce the amount of secured debt we have on our assets. And I think we had in our script, maybe your Mark, that we are now like only 18% – 17%, 18% of our NOI is encumbered.

We are seeing that secured debt, we prefer not to have secured debt on our portfolio and that it gives us more flexibility to do the things that we want to do.

We recognize that secured debt is part of the mosaic of a capital stack, but given the upgrades that we've enjoyed by the rating agencies and given the flexibility that gives us and given the significant reduction in paperwork, and the fact that it really makes the leasing agents, the broker's life easier in that.

They are not having to try and market a lease instrument that’s burden with lender language and lender approval rights. We just see it as the right track to stay on. So we are not involved very much in the secured debt arena..

Okay. At the recent (inaudible) Conference in New York, there was a lot of discussion about the secured lenders and that you are seeing a return to some pretty aggressive pricing things like interest on loans that were prevalent back in 2006 and up into 2007, very aggressive higher LTV.

So, yes, I think it is giving extremely competitive in that market, but it’s just not the area we want to go in..

Understand. I appreciate that color. Thanks, guys..

Sure, Tom..

Our next question comes from the line of Steve Manaker with Oppenheimer. Please go ahead..

Thanks. Good morning..

Hey, Steve..

Quick question on Raleigh, in the space that you have the tenants move out, were those markets above or below current rent levels?.

Edward Fritsch:.

:.

Great. Thank you so much..

Sure..

(Operator Instructions) Our next question comes from the line of Jim Sullivan with Cowen. Please go ahead..

Thank you. Good morning. Ed, I'm curious how you would characterize the changes in demand across your markets over the last two or three years? And so I have two specific questions.

When you review your discussions with tenants around lease expirations, are you seeing more tenants looking to downsize or upside today and or upsize today? And secondly, to what extend your market is benefiting from new tenants who are looking to relocate into the markets from outside the region?.

Okay, so two silos there, Jim. The first part with regard to just a general consensus on when we meet with the prospect your customer and they are either looking to renew with us or relocate of brand X to move into Highwoods building or they taking less space than they were previously in.

We are seeing that in a couple of industries, law firms, in accounting, some in finance seem to be the situation. But I would say, the preponderance of the prospects whether it would be an existing customer for renewal or someone moving in, we are seeing business growth. We are seeing adding head count.

We are seeing good competition for qualify well educated people in our backyards. And that’s not every building in the portfolio, but I would say the preponderance are at a point, where they are adding headcount..

As far as the benefit of migration into the Southeast statistically where there is the Bureau of Labor Statistics or if you follow Mayflower Moving Companies published a statistics, it’s to the good. MetLife is a perfect example that with the 427,000 square feet that we are building for them, they are hiring locally and it’s pure new net absorption.

International Paper's headquarters expansion that we are doing for them, obviously with a good expansion in there, that’s pure benefit to the local market. So I think that there is – I would say that the world is in great and our brokers are able to just sit at the phone and take orders.

But I will say that if you will and get after, it seems to be that there is good business to be add out there, and we’re in the business of taking good advantage of that..

Jim, it’s Mike, one last bit of color. For the better part of the first part of the recovery, call it, 2011 or 2012, there was absorption of shadow space that that customers had as a hangover from the recession and those didn’t grew into it, they are now out of that, so they are now into true expansion space.

So I think we’re definitely seeing and most of our leases are coming through expansion options being exercised and growing with the exception of the few industries that they had talked about where you've had some consolidation of law firms and some restacking based upon how technology had changed your businesses..

If we look at the profile, Jim, the 1.3 million plus square feet that we have underway today is expansion..

Yes..

Okay. And shifting the focus to the supply side, Ed, I understood you did say in your prepared comments that you have lowered your hurdle for developing yields.

Where are those hurdles today?.

No, I didn’t say that..

Okay. Edward Fritsch I don’t recall saying that. I mentioned on acquisitions that that we had softened our hurdles to some degree, but not on development. But….

What would the spread be between acquisitions and development then?.

Edward Fritsch:.

:.

Okay.

And then finally for me, in which of your markets if any, are you seeing or expect some spec office construction that might impact your view on rent growth potential or occupancy rates in those markets?.

So, Jim, good question. As to know surprise, as I mentioned in a response to an earlier question, we’re seeing trades and we’re seeing good activity and more growth in landlord favored leasing fundamental terms in markets like Atlanta, Raleigh, and Nashville. And, in fact, that’s what we are seeing the development occur on somewhat of a spec basis.

So there are few buildings in Raleigh. There is a significant building in Buckhead, that’s going up fewer spec and there is some buildings in Nashville, both down in Cool Springs and in the gulch that are going up. I would – and I'm reminding somebody who has probably forgot more about real estate than I know.

So I would expect, but just as a reminder of the delta between first-gen and second-gen rents, I would summit is the widest, it’s been and quite some time, if not during my 32-year career at Highwoods.

We’re seeing anywhere from 20% to 30% differential between what you can lease second-gen space for versus what you would have to lease first-gen space for. We continue to see construction pricing rise at about 0.5% per month, so that’s meaningful.

So construction pricing is raising, the delta – and we’re seeing an increase in second-gen, but that gap is still substantial between second and first-gen.

So my point on that is that the prospect pool for first gen is probably has painted on the deck, no diving, because there is not quite that deep, not everybody who leases space in the market, is willing to undertake a 20% to 30% increase in occupancy cost to being Class A.

Some will, obviously, because there is some – if there weren’t some, nobody be drive in a BMW and Audi or Mercedes. But it’s not the full anybody who is leasing space is fodder for somebody who is building spec development..

I think some of the companies that are looking at first-gen space that would take that leap are looking at how they’re making it more efficient. So they may be looking at downsizing somewhere going into true Class A plus opportunity, higher rent per square foot, but less square feet, so they can justify from that.

We are also seeing it being used as a recruiting tool, because it’s a big competition for talent out there and a lot of companies say, we have to have new decks [ph] in order to attract the talent. .

So I think it’s fair to concluded at this point in time the spec construction that you're beginning to see, you don’t think will impede the rent growth potential, you feel you have coming in the next couple of years?.

Actually think that it will help lift it, because when you go out shop and you’ll see what the price of the first-gen is and you won't feel so bad about paying 5% to 10% more for what you've got..

Okay. That’s great. Thanks, Ed..

Thanks, Jim..

Our next question comes from the line of John Guinee from Stifel. Please go ahead..

Hi, John Guinee here.

Hey, just a curiosity, when was the Plaza building in Raleigh built?.

28 years ago..

Okay. And is just that curiosity again, these punch-out windows an issue for you guys in this kind of market, looks a little bit like the (inaudible).

No, we see that facade of that building to be an opportunity, in fact, I'm sorry, it was built in 1986, John.

No, we think that there is plenty of advertising opportunity on that building starting with the approach to the building, the lobby area, and we think that there are some things that can be done on the facade of that building with regard to creating curtain wall et cetera.

How much of that is to be decided, but we allocated about $4.5 million of purchase price to making improvements and their studies are well underway..

So you actually would change the punch-outs to a curtain wall?.

You could, you wouldn’t do the entire building or we wouldn’t, but there are certainly opportunities to do that..

Gotcha, okay. And then this is more of an accounting question. But notice that you've spoken aggressively about a great time to be a seller and maybe not a great time to be a buyer.

But then your disposition range for 2014 is very tight, where your acquisition range essentially for the rest of the year is between 0 and 210 million square feet – $210 million, I'm sorry.

Do you have a template 1031 Exchange requirements on the recent dispositions regarding taxable income issues, or is the wide range in both acquisitions between now and the end of the year of $0 million to $210 million just to give yourselves flexibility?.

Well, flexibility, but we wouldn’t keep that range if we didn’t have street addresses that we were in pursuit of. On the disposition side, John, I think it’s just – is much more in our control.

And we know what we have on our contract right now, which is about $13 million worth of dispose, which would get us to the revised high-end of our disposition guidance. So given, we know the exact state of those negotiations and what money is hard, and who the perspective buyer is, it’s a much more predictable side of the business.

On the acquisition side, we submit a bid, you submit a bid. Mike submits a bid. We just – we don’t have quite the Intel on that. And so you don’t know until the broker or the seller calls and say, it’s been awarded to – you have been awarded to another company.

So we’re in the hunt on some things, and we don’t know whether it will be over or $208 million worth..

Yes, John, I would say, the only thing I would add, John, is that….

Taxable gains or taxable income issues on this would almost necessitate an acquisition in the next six months?.

I'm sorry, say that again?.

Are there taxable gains or taxable income issues, which would necessitate any acquisitions in the next couple of quarters?.

No..

Oh, great. Thank you..

Sure..

And there are no further questions on the phone lines. I'll turn the presentation back over to you..

All right. Thank you, everyone. I appreciate your time on the call and as always if you have any follow-up questions, don’t hesitate to holler. Thank you..

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