Tabitha Zane - VP, IR and Corporate Communications Ed Fritsch - President, CEO and Director Mike Harris - EVP and COO Mark Mulhern - SVP and CFO.

Jamie Feldman - Bank of America Merrill Lynch Dave Rodgers - RW Baird Jed Reagan - Green Street Advisors, Inc. Brendan Maiorana - Wells Fargo Securities Tom Lesnick - Capital One Securities Emmanuel Korchman - Citigroup Vance Edelson - Morgan Stanley John Guinee - Stifel Nicolaus Michael Salinski - RBC Capital Markets.

Good morning 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, February 11, 2015.

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

Thank you, and good morning. 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, we have already posted 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 dispositions and acquisitions, the cost and timing of development projects, the terms and timing of anticipated financings, rents, occupancy, revenue and expense trends and so forth.

Such statements are subject to various risks and uncertainties. Actual results could materially differ from those currently anticipated due to a number of factors, including those identified at the bottom of yesterday's release and those identified in the company's 2014 Annual Report on Form 10-K.

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..

Good morning and thank you for joining us. We had a busy and productive 2014 highlighted by significant additions to our development pipeline.

Our outlook for 2015 amidst this positive economic environment reflects continued steady customer demand for our BBD-located product robust same property NOI growth prospects and strong momentum from our well leased development deliveries and execution on our value-add acquisitions.

Here's a look at our 2014 highlights, which help build a firm foundation for 2015. We delivered FFO of $2.91 per share including $0.74 in the fourth quarter, leased 5.5 million square feet of office, grew occupancy 200 basis points and announced over $700 million of investment activity.

Development is an important part of our growth and value proposition. In 2014, we expanded our already robust pipeline by adding five projects totalling $347 million that are 92% pre-leased. The largest, the $200 million headquarters building for Bridgestone Americas in Nashville, is a BIG win for our Company.

It represents an excellent opportunity for us to expand our presence in Nashville's thriving downtown SoBro district and is only a block from The Pinnacle at Symphony Place, where we grew occupancy from 85% at acquisition to 98% in just 15 months.

In November, we delivered a $56 million, 100% pre-leased headquarters expansion for International Paper in Memphis. Our remaining development pipeline totals $493 million, encompassing 1.6 million square feet, and is 89% pre-leased.

We are very pleased with the three value-add properties we acquired in 2014 totalling $165 million and encompassing 686,000 square feet. One Bank of America Plaza in CBD Raleigh. Lincoln Plaza in CBR Orlando and our JV partner's 50% interest in Innsbrook Center, located in Innsbrook, Richmond's BBD.

The combined occupancy of these three properties and acquisition was 82%. We expect to grow occupancy at these buildings akin to the 823 basis points of occupancy growth we have achieved in the $548 million of BBD-located assets we acquired in 2013. With respect to dispositions, we continued to cull our portfolio.

In 2014, we sold $195 million of non-core assets, encompassing nearly two million square feet in 35 buildings across seven markets plus 44 acres of land.

In keeping with our pledge to grow on a leverage neutral basis, we funded acquisitions and development with operating cash flow, proceeds from dispositions and $104 million of new equity, ending the year with leverage at 41.7%.

Turning to 2015, our markets are expected to continue to post solid numbers in terms of population growth, job growth and positive net absorption. Second gen supply continues to tighten, we are seeing improved net effective leasing terms and we enter 2015 with no large rollover exposures.

The positive macro-economic trends in our markets and expectations of solid leasing, combined with last year's leasing successes, will result in robust same store cash NOI growth of 5.5% to 6.5% in 2015 as well as continued growth from our value-add acquisitions.

Our results will be further bolstered by the $56 million of 100% pre-leased development that delivered late last year and another $178 million of currently 82% pre-leased development delivering over the course of this year. Given this, we expect a solid 2015 with FFO of $2.95 to $3.06 per share.

And, just to underscore what you know, our FFO outlook always excludes the impact of any unannounced acquisitions and dispositions.

Regarding expected investment activity for 2015, we will continue to pursue acquisitions of BBD-located buildings that make strategic sense for our company and where we believe we can achieve meaningful upside at appropriate investing spreads given our assessment of the asset's risk profile.

In the development arena, the strength of our current pipeline is an example of our versatility. Atop our current 1.6 million square foot development pipeline, we are having constructive conversations with additional prospects and are optimistic, we will add to our pipeline as the year progresses.

In closing, 2015 marked the 10th anniversary of our strategic plan. The plans core tenants, people, portfolio, communications and balance sheet continue to drive our company's focus.

I thank our board for their continued engagement and support and I also thank and applaud my co-workers who sell them if ever, accept individual credit appraised for their good work and you continue to successfully execute on our plan.

Mike?.

Thanks, Ed and good morning, everyone. Our operating performance was once again strong in 2014. We leased 4.5 million square feet of second gen office with an average term of 6.2 years up from 5.7 years in 2013 GAAP rent growth on office leases signed was over 10%, up from 5% in 2013.

Net effective rents on second gen offices were $13 per square foot per year, 9% above 2013's average year-end occupancy was 91.9%, up 200 basis points from year end 2013. In the fourth quarter, cash rent growth on office leases signed was positive 1% GAAP rent growth on office leases signed was a strong 15% on an average term of 5.5 years.

Net effective rents on second gen office leasing were $13.70 per square foot per year and same store cash NOI, before term fees was up a robust 4.5%. As shown in our 2015 outlook, we expect this growth trend to continue.

Our ability to push net effective rents is enhanced by the shrinking supply of second gen space in our markets and the continuing wide gap between first and second gen rents. Turning to our markets, Raleigh continues to be one of our strongest, and was recently ranked by Forbes magazine as the fourth fastest growing city in the U.S.

The Raleigh economy is being fuelled by technology, healthcare and professional services and the region added over 21,000 jobs in 2014, driving unemployment below 5% for the first time since the Great Recession. Our Raleigh portfolio is performing well with asking rents up 5% from a year ago. Our $110 million build-to-suit for MetLife is on schedule.

Building one will deliver on February 15, and building two on April 15. GlenLake V, our multi-customer development will deliver this quarter and is now 42% pre-leased. We have leases out for signature that will bring leasing up to 56%.

The Pittsburgh office market reported another solid year with rising asking rents declining vacancy and positive net absorption. In the CBD, Class A vacancy is 5.3% and asking rates are up 5% year-over-year. Occupancy in our Pittsburgh portfolio is 94.6%, up 160 basis points year over year, and the average remaining lease term is 6.1 years.

During the quarter, it was announced that US Steel will be relocating within downtown. They will vacate approximately 400,000 square feet in the UPMC building into a build-to-suit on the former Igloo site. This is slated for 2018. Atlanta's office market is benefitting from continued meaningful job growth and little new supply.

The market absorbed 1.4 million square feet of space in the fourth quarter and almost 5 million square feet in all of 2014.

When our economy continues to strengthen and remains an attractive location for firms looking to relocate in the Southeast, as evidenced by Mercedes Benz recent announcement that it is moving its US headquarters from New Jersey to what will be company-owned offices.

At year-end, our Atlanta portfolio was 88.3% occupied, up 610 basis points from a year ago, and asking rents are up 5% year-over-year. We expect continued occupancy improvement in 2015 driven by leasing and value-add acquisitions such as GlenLake North and South and One Alliance Center. The Florida economy continues to improve.

In Tampa and Orlando, unemployment is declining and both markets had positive net absorption for the fourth quarter and full year. For example, in Orlando, occupancy has grown 450 basis points in the 1.3 million square feet we acquired from our JV partner in July 2013.

Our markets continue to strengthen and the outlook is for more economic growth and job creation. Sustained demand and the wide delta between first and second gen rents bode well for our leasing prospects this year.

Mark?.

Thanks Mike. For the fourth quarter, we reported FFO of $0.74 per share, in line with last year's fourth quarter. In dollars, fourth quarter FFO was $70.5 million in 2014 versus $69 million in 2013 or 2.2% higher. For the full year of 2014, we reported FFO of $2.91 per share, 2.5% higher than 2013's full year FFO per share.

Again in dollars, our FFO for 2014 was $272.6 million versus $252 million in 2013 or an 8% increase over last year. Other than carving out $319,000 of acquisition costs in the fourth quarter and $873,000 of acquisition and debt extinguishment costs for the full year, these FFO numbers are consistent with the NAREIT FFO white paper.

The primary FFO growth drivers in both the quarter and the full year primarily related to acquisitions and development, partially offset by dispositions. Also, 2014 interest expense was $6.9 million lower than 2013. Reduced interest rates and higher capitalized interest more than offset the slight increase in overall debt.

Turning to the balance sheet, the changes from December 31, 2013 primarily relate to development in process where as of year-end 2014 we have invested $206 million.

This is comprised of eight projects in various stages of development including International Paper in Memphis, MetLife in Raleigh and Bridgestone Americas in Nashville making up the largest components of the $206 million. We raised $104 million of equity in 2014 through our ATM program.

This combined with operating cash flow and proceeds from dispositions, enabled us to grow the company while maintaining our strong balance sheet on a leverage-neutral basis. We ended the year with leverage of 41.7% and our debt to EBITDA ratio was comfortably under 6 times.

We have provided our initial 2015 FFO outlook of $2.95 to $3.06 per share, which at the mid-point, is a 6% increase from 2014, when you exclude 2014 land sale gains of $0.07. In dollars, the midpoint of our FFO range for 2015 is $292 million versus $273 million in 2014, a 7% increase year-over-year.

As a reminder, while we forecast expected ranges for acquisition, disposition and development activity, we do not include the operational or funding impact from any potential investment activity in our FFO outlook until such transactions are announced. This is consistent with past practice.

Our FFO outlook for 2015 is also consistent with NAREIT FFO white paper. Therefore, going forward, we will not exclude unusual charges or credits such as debt extinguishment losses or gains and property acquisition costs in our headline FFO. We will obviously continue to clearly quantify any such items in future earnings releases.

Two things to keep in mind regarding the trajectory of our 2015 FFO outlook. First, G&A in the first quarter is expected to be about $3 million higher than the run rate for the subsequent quarters because of the company's annual equity grants are customarily made in March.

As you may remember, under GAAP certain annual long-term equity grants must be expense to grant date, rather than over the normal multi-year vesting period for employees who have met the age and service eligibility requirements under the company's longstanding retirement plan.

Second, as Ed mentioned we have $178 million development delivering over the course of the year which will mostly impact our second half results. In terms of financing plans for 2015, we have three secured loans all bearing interest above 6% that we can pay off this year prior to their stated maturity dates.

One for $39 million is prepayable at par at the end of the second quarter and two, totalling $114 million of prepayable at par late in the fourth quarter. We expect to refinance those obligations on an unsecured basis providing us more overall flexibility and lowering the effecting interest rates.

Gains and losses related to these early debt extinguishments the net effect of which will be nominal are included in overall FFO outlook for 2015. In 2015, we will continue our commitment to grow on a leverage neutral basis and stay within our leverage comfort zone of 40% to 45%.

To that end, we provided a range of expected weighted average fully diluted shares outstanding rather than pinpointing in exact weighted average estimate as in prior years. Operator, now we're ready for your questions..

[Operator Instructions] and our first question is from the line of Jamie Feldman with Bank of America Merrill Lynch. Please go ahead..

So focusing on the guidance, can you talk a little bit about the probability of the acquisitions and dispositions and the development starts and then expected yields?.

Sure, with regard to volume is each of those categories obviously acquisitions in development vary to some degree, development as I said in my prepared comments were in, what we believe to be constructive and positive conversations with a number of users regarding a number of projects.

We announced them as soon as they're executed and it would be our hope that we would have some announcements before the end of the first half of the year. On acquisitions, we're looking at a number of things. We still find acquisition pricing where cap rates have compressed and to be relatively expensive.

I think, we were very pleased with what we were able to acquire in 2014 and expect some good value-add there as we move occupancy and push rents. Some of the acquisitions it depends on what actually comes to market and on the disposition as we've said in the past.

We've at no time in the past 10 years that we sold an asset to meet some debt obligation or financing obligation that we worked those predicated upon, lease renewals and how they underwrite. So I think that, we'll control that and we feel very comfortable with the range we've given on all three of these..

Okay, I guess for the disposition specifically do you have a cap rate baked into your guidance?.

No, we don't put acquisitions, unannounced acquisitions or developments or dispositions in our guidance. We exclude that, always have.

In regards to, I'm sorry?.

I said, I knew that. If I could check that question from the record, I'd appreciate..

A retraction. Jamie with regard to yields, we on the development, we said in the scripted remarks that we average a GAAP yield of 9% and, we don't get much more specific on that because obviously we are in competition on a number of these build-to-suit and projects.

So we don't give specific numbers, but I think its good information for you all to know that we're around 9% GAAP on average for our development pipeline. And on acquisitions, we've seen cap rates compresses as you'll have in the capital markets.

The volumes continue to increase successively over the last four years on a national basis and within the south east footprint well cap rates have compressed. We don't expect cap rates to move much from where they're now, but they're tight margins on some of these projects that are coming to market and being sold..

Okay and then following up on a developments, if you were to compare your pipeline of potential developments, potential signings of this time last year would you say it's larger or smaller or about the same..

I would say the bread box is about the same, but what actually delivers in signs, just depends on how those conversations go. Bridgestone with a big win and a lot of those don't come along on that scale year-after-year, but we do have a substitute conversations with others, but no on that same lump sum scale of the $200 million, right now..

We have two years in row between MetLife and Bridgestone where we have almost kind of career opportunities that came around, hard to project those..

Okay, alright. Great thank you..

Our next question is from the line of Dave Rodgers with Baird. Please go ahead..

And maybe start with Mike a question with regard to leasing. I think in the fourth quarter leasing activity had slowed a little bit in terms of new leasing, but the economics were really strong.

So I get this as we look into 2015 a two-part question, one is what you seeing and off the bat in terms of leasing activity in 2015, the demand for space and then the second is do you have guidance for leasing spreads or talking about overall economics in 2015 on leases?.

Sure. Dave. First of all, lease activity is just now getting to 2015 is very good.

We are seeing the opportunity to start pushing rents that started a while back, but we're in BBD submarkets, which really helps there are clearly less options today for the tenants as supply shrinking, so that gives us hopefully a better pricing power, but we're also talking about portfolio that's now pushing 92% lease, so we have less inventory to deal with.

So from a pure volume standpoint it makes a little bit difficult because we're down to only 8% of the portfolio. So I think we're encouraged, I think that we had a meeting back in the fall with our all of our recent directors and I think to personally they're all encouraged and what they expected to see into 2015..

And then the second part with regard to leasing spreads or broader economics..

Sure, one we're seeing better leasing spreads. You could see we had positive cash growth this quarter, can't see that's necessarily a trend because that gets to be a little bit lumpy, but we are still getting good bumps. We're seeing bumps increases in some markets and some markets.

We are doing less turnkey deals more allowances which helps us try to control the CapEx spend. So all in all, I would say that we believe that, this spread will continue to improve..

Great and then, Ed maybe one for you on a follow-up with regard to the acquisitions, is any decent amount of acquisition guidance include taking down some additional land and how you're looking at land acquisitions with the development pipeline ramping for this year?.

We have a little component of land or about four different tracks that we're in talks with, I don't believe that all four would close in 2015, but I was sum it up by saying it's a nominal amount of 50 to 300..

Okay that's good and then finally, maybe a question for Mark.

Mark, you talked about your 2015 debt maturity versus secured maturities have you taught about kind of reaching out to 2016 and then I think, you've got an unsecured bond that's pretty high cost out in 2018, I don't know if it's worth kind of going out that far given where spreads are today, but have you thought about that and what do you think about doing in 2015 more aggressively?.

Yes, Dave what you see and what you heard in the script was, we've got three things. We think we can do and prepay early effectively in 2015, so they're on the maturity schedule couple of them in 2016, so we are pulling some things forward, where it makes economic sense for us.

Obviously have been encouraged by lower rates here and I know we've got a small pick up here, but by in large with rates where they're pretty comfortable with our debt portfolio. We look at all these things, we look at them in economic terms about the cost of going early. So we will continue that as we go forward in 2015..

Alright, great. Thank you..

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

Just wondering, if you can give an update on the supply picture in your markets and whether you feel like development pipeline there getting into a concern zone any locations at all?.

Hi, Jed. I guess there were two markets where it's higher than what we like to see, Nashville and Raleigh. There are few spec projects or have spec components in both of those markets Raleigh more so than Nashville.

I don't think that there are any red flags, but I do think that we need to be cognizant of the amount of space that's coming online, predominantly next year in both of those markets. They are not heavily concentrated in any one submarket, but they are and so they don't necessarily compete prospect for prospect, but when you add it up.

I think those are two markets, where we're paying particular attention to it and elsewhere, we're just really not seeing it. And also, I'm sorry, Jed.

Also just to underscore that, there continues to be pressure on construction pricing both labour and materials and I think that gap between second and first gen will continue to be somewhat of a regulator or a governor on the volume of construction that comes online that spec component..

Okay, that's helpful and you talked last time about another 25 bps to 50 bps of cap rate compression in your markets. Just wondering, if you can specify kind of what you've been seeing more recently any movements particularly with the interest rate decline.

I mean, have you seen a similar type of move, is it been sort of flattish maybe just a little bit on that?.

Sure, so if you look at market data that's published by various entities and you kind of mix it all together, it looks like the cap rates for 2014 were sub 6% in the CBD's and about 7% in the suburbs on a national basis and that's not too dissimilar to what we're seeing in the south east.

So it's compressed 30 bps to 50 bps depending on how you look at it year-over-year 2014 over 2013 and there might be some compression on that, going into 2015, but we don't see much at all. The volume is going to be interesting going forward because we think a lot of what's traded is in hands, is not likely to traded again in the near term.

So we'll be interesting to see, what actually comes to market in 2015..

Is there a better bet these days for kind of the lower quality, non-core stuff, would you say?.

Well, I think that the volume of prospects that we see for what we're looking to sell is pretty steady. What we get to see is a result of our dispositions. We haven't seen a change in volume of perspective buyers over the last say, two quarters.

It remains to be heavily focused on local and regional entities, small private, equity firms and occasionally we'll see a non-traded REIT.

So I think that audience for our dispositions is relatively unchanged in the last couple of quarters, but on the acquisition side I think we're seeing on the competition front for what we would like to buy, no real new players but just more of the same type of players from pension funds to institutions to large private equity funds, non-traded REITs even locals that are backed by others.

So it seems to be the volume of capital that are pursuing quality assets continuous to be very strong..

Okay, great thanks..

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

Mike or Ed, I think this year it seems like its setup pretty well for you guys from an occupancy standpoint and my recollection is, you don't have any major tenant role or at least role that is at risk for move out. So your guidance is sort of up 50 basis points to up 150 basis points occupancy from the beginning of the year to the end of the year.

How should we sort of think about the goal post of getting to those occupancy ranges? And do you think, maybe you could with the portfolio that you now have that you could even push at or above the high end of that range longer-term..

Yes, good morning, Brendan. I think that, the guidance that we put out that's self-evident we think it's very doable. Otherwise, we wouldn't put it out there.

Where we ended the year for 2014 was on the low-end of what we had guided towards and I think actually it may have been a question from you, prior quarter about how we felt about that and my response was, it just depends on the timing of when a lease will commence because we felt like we had the leases in hand.

We just haven't established start dates, so those leases have come together and so we feel very good about what we've been able to back fill along with what we've been able to lease in our acquisition value-add pool. So I think, all that comes nicely together and as a result, we have a high level of comfort in the 92.5% to 93.5% for year-end, 2015.

And we'll still have leases roll and I think it will be lumpy from quarter-to-quarter. For example, we've got 70,000 square feet of industrial leases rolling in the triad in first quarter. So it will move from quarter-to-quarter, but we feel very comfortable.

We'll get to the 92.5% to 93.5% and we'll look at 2016 guidance after that, but there is reason to believe, that the world holds together it is today economically, that would be a range that we'd be able to sustain..

Okay, that's very helpful. And maybe just the following onto that, I'm sorry Mike, you mentioned Pittsburgh, U.S.

deal moving out I know that building isn't that close PPG or EQT, where you guys have new buildings there, but is there any concerns that maybe fundamentals in Pittsburgh are going to slow down from there, move out or do you still feel like the market dynamics in Pittsburgh feel pretty strong?.

I think it still feels good for us. Brendan first of all, in U.S. field it's going to be moving out of the UPMC building that transaction will not even occur probably until 2018, the space they will be vacating, it's got some challenges. It's going to require them to go in and do some asbestos abatement, ADA compliance etc.

So it could drag even further into that, but I do believe that and we're at the primarily with EQT and PPG place in the south end of Pittsburgh, CBD which we like, we think that's if there is a better location, we've been there. We think the south end is a better place to be.

So I think that fundamentally, we still think is good, but again that transaction looming out there, three years, four years out and we have our eye on it. I will say that and clearly [indiscernible] team are taking a good look at locking down our customers there, while we can..

Okay and Mike maybe one more for you.

Healthways has been in the news maybe there is some corporate transaction, I think they hired an advisor or something like that, they're a big tenant of yours, you've got a lot of time left on that lease, but just, do they have any cancellation options or anything like that in that lease that they have with you in Nashville?.

No, Brendan they have over 8 years left on that lease, its firm term, no early termination option. So and they're in the Cool Springs submarket, which is very strong. So it's been like at this point, it's secure..

Okay great and then just last one, Mark.

This development spending that you expect to do in 2015, do you have a rough estimate of what that's likely to be?.

Yes, Brendon. You have to recall, what I said in my remarks where as we spend about $206 million, we have that on the balance sheet in this development progress, so think about that math, we had a 550 development pipeline, so if you take through 2 off 550, that's 350 left.

I think we'll spend somewhere in the neighbourhood of half of that or something like in 2015. You know as we get through, we get started and get going on Bridgestone here and finish up the two MetLife buildings and deliver some of the buildings in the pipeline. So that's a rough estimate..

Okay, great. Thank you..

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

I just wanted to talk about the ability to prepay a few of those pieces of debt this year.

I mean given the pre-significant drop in interest rates over the last few months have you guys thought at all about entering a forward contract and locking the rate and take away uncertainty given that you have no needs this year?.

Yes, we have so let me just tell you, what I would say about all that. So if you think about the mixing bowl of options that we have to finance the company. You know think about dispositions, so you saw our guidance on disposition some of that timing wise, we can't predict all that. So we'll have some proceeds from dispositions.

We've given you some indication that will still realize the ATM for equity as we needed, so that's another source of capital. Obviously, we've got operating cash flow.

So on the maturities, what I would say is, we balance all the time the cost of debt compared to what we're trying to achieve in terms of delivering on FFO and doing all of that and then you look at the premiums to refinance early. We're constantly analyzing that and looking at it and having regular dialog about rates and all that.

So that's kind of how I would think about it. We pointed you to this the three items that we think will get done in 2015, we'll consider and look always at the portfolio and see if there is anything that's attractive to us..

Alright, thanks and then I guess over to last few years, you guys have been able to underwrite pretty healthy yields on your developments. I guess going forward, how are you seeing construction among land materials and labour trending and how is that really translated through on your underwriting.

Should we expect any compression there?.

Well, we've said that we're continuing to average non-GAAP on our development projects. We really haven't seen land move as much as we've seen labouring commodities that's averaging about 1.5% per month increase, a number of our projects are open books. So we're protected on that.

We try not to give too much detail on how we price this because we're in an open competitive bid process on a number of these and we don't want to disclose too much that could be used against us, as we take some of these development projects..

Okay, that's fair and I guess my last questions are two-parter.

First I guess, how should we be thinking about leasing CapEx for 2015 and then obviously you guys have a very strong dividend track record, but today how are you and the board is thinking about the dividend going forward and is there, say a target a FFO payout level you'd like to reach before thinking about an increase?.

So the first part is, with regard to leasing CapEx while we see a very good fundamentals I don't want you to leave the call with the impression that our leasing agents are not having to leave their desk because the phone calls coming in for people wanting to lease space keep them from even going to launch.

We still have to get up and take a shower and get after it, every morning to do leasing, but what we are able to do is, we're doing more and more deals that have TI allowances rather than turnkey. We are doing less with regard to concessions particularly concessions that are on the margins and not necessarily show up all the time in the supplemental.

We are still seeing customers be very deliberate about how they take down space, so it's not going back to where look I need 35, so I'm going to lease 50, to protect myself on expansion or they're being deliberate about space programming, but they're moving in a less protracted manner towards a decision.

So we think, leasing CapEx we've seen come in a little bit, as we have more control in the negotiations and fewer turnkey and more TI allowances. On the dividend, we had positive for 2014.

We expect that number to significantly move up or potential to significantly move in 2015 over what we experienced in 2014, so that will make the fourth year in a row, that we've been CAD positive.

We look at it obviously each quarter, we've been able to use some of these free cash flow to help fund our development pipeline, which we think is a very good use of proceeds. Particularly, given how well pre-leased or development pipeline has been and we think will continue to be.

We like to just be comfortable that there is enough consistency in that and sustained free cash flow to the point where we would make a change in the dividend that would have some meaning..

Alright, great. Thanks again, nice year..

Our next question is from the line of Emmanuel Korchman with Citi. Please go ahead..

I'm here with Michael as well. Ed, if we just think about the 9% yield that you guys quote and if we look at the deliveries that have been completed in 2014 and will be completed in 2015.

How do we think about the stabilized yield versus the going in the sort of the year one going in yield on this?.

Well that is a GAAP yield that 9%. Is that what you're asking, Manny? What's the GAAP? Because they're predominantly everything will deliver in 2015 is a 100% pre-leased what we delivered in 2014 was 100% pre-leased. So there is no lease up time.

All the leases are long-term, they were outs and they each have an annual escalator in them and that's what we factor into that, to give you that 9% that weighted average 9% for what is in our pipeline right now..

Got it and then if we look at sort of the large built-to-suit landscape akin to on a MetLifes and Bridgestones of the world, can you just talk about what the landscape is like for those types of tenants for space and sort of how much, if you want to call lead time, you had in those kind projects.

So Bridgestone for example, you know was that 2-year type project or that comes together quickly and just what you, however comfortable your time on what you're participating and looking at right now?.

Sure, so the first part of your question. Just in general, we always have to look at those things as multiyear projects from first conversation to the announcement.

These companies are very deliberate about how they go about looking for and both of those were potential relocations and I guess even the Bridgestone is and that is moved from airports submarket to SoBro. MetLife, the project that we're building for them it will serve the Americas.

So theoretically, they could have landed anywhere within the Americas to do that work. So there is a lot of work that goes on before we even start talking about what the building elevation is going to look like and how all that's going to come together.

What's the governor is going to do with regard to tax incentive, what's the employment pool look like, what's the cost of business? It's - I shouldn't say always but it's traditionally a multiyear project because there are so many factors to evaluate as CEOs and boards and investors make decisions on what community, what geographic area to go to before you even start to then delve into.

Okay, now that I've decided on these or narrated to these, let's say three markets. Now I need to understand, what's available within those three markets and they look at the universities and employment pool and who the developers are what sites etc.

and then there is the process to go through on that and then once, they lean towards on, then there is other exercise that you go through with regard to lease negotiation and how the building would look, form and function..

But there is also, a big component of this are the incentives that are being offered by the various jurisdictions and those really weigh heavily on the competition from market-to-market and quite often given as we talked about the spread between the new construction cost and existing, those incentives really play into very heavily, where they land..

You know that's what I meant and the conversations with the governor. It's usually, what are they getting off the governor's letterhead that and how that plays into their decision and I'm not saying that the most aggressive letterhead means that that's where they're going, but it is a part of the early component of the negotiations or the evaluation.

On the second part, you know we continue to see companies that are looking to move and I think Mercedes is the most recent vivid example, them coming out of New Jersey and making the decision to go into Atlanta, Georgia. There will be a company-owned building, but still it's a migration of a household name into our footprint..

Thanks for that, colour..

[Operator Instructions] our next question is from the line of Vance Edelson with Morgan Stanley. Please go ahead..

First just bigger picture on acquisitions and dispositions.

You were marginally in that seller in 2014 and could go either way this year and a lot of that's beyond your control, but if you had it your way, would you like to see Highwoods as a next seller given where cap rates are likely to be this year and are you comfortable with that concept or would you really like to see the company grow through acquisitions and is that to you a more favourable outcome, when we think about 2015 that Highwoods is a net buyer..

Good morning, Vance. In 2014 it was, yes we sold more than we bought, but not by a significant margin and we certainly chased more in the acquisitions than we bought. So I think that, we would like to be more of a net buyers than the net seller. We have made dramatic improvement in the portfolio over prior years in our dispositions.

We also announced almost $350 million of development in 2014, so I think that has to factor into to a significant degree. On and maybe, I'm taking liberties with how you ask the question, but maybe I see it as, we were last year, I saw us a net investor as oppose to a net divester.

Given the fact, that we did over $500 million of acquisitions in development and only sold $183 million.

We'll continue to call from a bottom of our portfolio and as I've mentioned in an earlier response we'll do that predicated on have a building underwrite for us and now we see the appetite in the marketplace to sell those and we'll continue to work that and I think, if we own a 100 buildings, we'll always look at after we buy or build more buildings that are like numbers one through 10 and now how do we get out of buildings 90 through 100..

Okay, makes sense and then speaking of the bottom of the portfolio. Could you bring us up-to-date on the non-core land holdings, almost 100 acres, is this a good time to be monetizing that or do you think, you get higher price down the road..

Well, we've been doing that. I think that's a regulated amount to as we work with some of that in rezoning and putting it to the market for alternate uses other than office, which is how most of this is selling.

So we've been involved in some of this rezoning, we've been successful in the past of converting some of our non-core lands for use for multi-family.

In some cases, we've actually contributed the land and become a JV partner with no debt exposure and in equity investors, by way of contributing the land and then selling the project at stabilization rates and more than doubling our money. So the lands that we sold in the past is going for apartments, hotels, etc.

and we're continuing to work our way out of that portfolio, but we don't see any incentive to do a blue light special and trying to get it all out in 2015, we'd rather invest a little sweat equity, find the right people and be involved in rezoning to maximize the value of that..

Okay, got it and then lastly, tenants strength by vertical and the relative demand from newer types of tenants versus traditional like law firms.

You mentioned some of what's driving Raleigh in the prepared remarks, but across the broader portfolio what are you seeing in terms of changing makeup of the inbound interest you're getting right now?.

Yes, not as dramatic a change, in Raleigh we mentioned and we see clinical research and pharmaceuticals and biosciences and financial services health care, technology, certainly insurance. Bridgestone is a retailer and R&D.

We really haven't seen a dramatic change in the makeup of which companies are looking for space, I think the fortunate thing is that, we're in markets that are very well diversified with regard to economy that we're not in markets that are heavily dependent on any one industry and I think our portfolio also mirrors that fairly well and that we, don't have any division that represents greater than 15.3% revenues and we don't have any customer than the federal government that represents more than 2% of revenues.

So I think the diversity of the economies that we're in are well reflected in the diversity of how we receive revenue by cities and by customer..

Okay, that's great. I'll leave it there. Thanks..

Our next question is from the line of Omotayo Okusanya with Jefferies. Please go ahead..

This is Charles standing in for Tayo, thanks for taking the questions. Most of mine have been answered so far, so just keeping real quick.

I apologize if you, Ed already said, but in the guidance did you include term fees for 2015?.

We do not, we have I shouldn't say, historically we have broken out our term fees for you, the term fees that we would anticipate are in our 2015, we just haven't put them up specifically because they're relatively de minims..

So Charles, I'm sorry just to add to that. You've made a good catch there. We have been in prior years, in guidance we've shown that. We just think it's such a de minimis number at this juncture that it's really no ways, so we've called that out of the guidance table..

Right and just to make sure you know that, we made it in our prepared remarks. We are next year 2015 will be in compliance with the NAREIT white paper on FFO, so we've made some distinctions in my comments about that sort of expect that..

Okay, that's helpful. Thank you.

Next question, then as I think about the development starts that you had guided here to 2015 and look at 2014 and I look at 2014's actual starts that you had, I mean you're significantly above the guidance that you projected for 2014 granted a lot of that had to do with the Bridgestone project and I'm just kind of thinking as we go into 2015, what's the other sort of sense of potential that development pipeline as that development start might be exceeded again by say some of these more these lumpier projects? Thank you..

Charles, what I would say is that we're comfortable with the guidance that we put out. If we're fortunate to be, we'll be the first ones to tout that, but we are rest assured that we put a lot of time and thought into both the low end and high end of all components of guidance that we release and we think that they're all very Reasonable ranges.

None of them, will we achieve if we don't get up and work hard together as a team, but we think that there's certainly the low end is doable and we think that the high end is not shooting blind folded from half court.

We think that they're achievable, but something are going to have to happen in our favour to hit that and in the past, we've exceeded the high end and more is come together than what we had anticipated or thought was high odds of happening, when the first initiate guidance..

Okay, that's helpful. I guess, just lastly on that. I'm just trying to make sure on this.

As the environment, the competitive environment for development gotten a little bit more aggressive over the past year that would keep you from saying that guidance could be exceeded?.

No there is no new competition this year, that we didn't have last year, the year before that. I think that, I'm trying not to spray my own elbow patting ourselves on the back here, but our land portfolio, our balance sheet, our people; our track record put us in position to compete.

By no means, does it put us in a position to win every one of these deals, but we're certainly we think strong competitors in the development arena, but we haven't seen new competition enter the fray as we pursue deals in 2015, that we didn't compete against successfully and unsuccessfully in 2012, 2013, 2014..

Okay, alright. I appreciate the colour, guys. I'll jump off now. Thank you..

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

Ed, let me congratulate you on what appears to be hitting on all eight cylinders, while keeping G&A in check and actually decreasing I think, your land held for inventory or held for development by $30 million year-over-year, if I'm reading it correctly..

Thank you, John..

One question that was, what is a blue light special?.

Sorry, that's a reference to a merchant, which I'm sure you never crossed a threshold..

I know and neither have you, when is the last time you've actually been in a Kmart? Alright, serious questions.

I hear in the dialog that you're actually going to present a NAREIT defined FFO next quarter?.

We're John; we're trying to comply with the white paper. So we've traditionally left out acquisition cost and debt extinguishment. We built that all into the guidance and we intend to comply with the white papers closely as we can..

Good and then as your acquisition range of $50 million to $300 million so wide, is that totally a function of whether you're successful on the king and queen building or concourse one and two up north in the perimeter submarket of Atlanta?.

No..

Great, that was a great, answer. Ed..

Little too wordy, but no..

You don't want to expand on that, do you?.

No..

Alright, thanks a lot..

Our next question is from the line of Michael Salinski with RBC Capital Markets. Please go ahead..

Just going back to the question, you said you're not the lease term fees you're including in there, moving to the near REIT definition, is there any landfill gains and merchant building gains or anything else like that and the numbers we should be aware at this point?.

We think, particular to $0.07 of landfill gains that we had in 2014, so it around just about $0.07. Next year again, we will be, even though we are going to this the FFO NAREIT definition, we'll be clear about anything that's unusual.

Obviously, as Ed said, we're, we've got some potential landfills that may or may not result in gains or losses, but we'll definitely spell that out for you in all our public disclosures..

Okay that's helpful and then just, second.

I mean good visibility on 2015, a little bit organic growth there, just preliminary thoughts on 2016, at this point just in terms of any vacates, we should be aware of?.

Let's see, the HCA 2017. HCA in 2017 is really the only one of size that we are staying close to, HCA is in a multiple number of spaces with us and they are doing a company-owned project in Nashville.

So we expect to get a fair amount of space back from them and then we have Syniverse in the fourth quarter of 2016, which is 199,000 square feet and that's in Tampa and that one is too early to call..

Okay, that's helpful. Then finally, just touching back on disposition plans. I mean, are we looking at much the same so much of what we saw last year just clearing up some of the markets or is there a maybe plans to or maybe a little bit more value harvesting..

No, door number one..

Number one, okay. Fair enough. Thanks guys..

And there are no other questions at this time. I will now turn it over to Mr. Fritsch..

Thank you, operator and thank you everybody for dialling in. As always, we're available for any questions, you may have. Please don't hesitate to give us a holler. Thanks..

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