Mark Mulhern - Senior Vice President and Chief Financial Officer Ed Fritsch - President and Chief Executive Officer Ted Klinck - Executive Vice President, Chief Operating and Investment Officer.

Jamie Feldman - Bank of America Merrill Lynch Emmanuel Korchman - Citigroup Tom Lesnick - Capital One Securities, Inc. Brendan Maiorana - Wells Fargo Securities, LLC. Dick Schiller - Robert W. Baird & Co. Jed Reagan - Green Street Advisors John Guinee - Stifel, Nicolaus & Co., Inc..

Good morning and welcome to the Highwoods Properties’ Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions]. As a reminder, this conference is being recorded today, Wednesday, February 10, 2016 [ph].

I would now like to turn the conference over to Mr. Mark Mulhern. Please go ahead, Mr. Mulhern..

Good morning, everyone. This is Mark Mulhern, Ed Fritsch and Ted Klinck, are with me on the call today. As it’s our custom, today’s prepared remarks have been posted on our website. If any of you have not received yesterday’s earnings release or supplemental, they’re both available on the IR section of our website at Highwoods.com.

On today’s call, our review will include non-GAAP measures such as FFO and NOI. Also the release and supplemental include a reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures.

Before I turn the call over to Ed, a quick reminder that any forward-looking statements made during today’s call are subject to risks and uncertainties, and these are discussed at length in our Annual and Quarterly SEC filings. As you know, actual events and results can differ materially from these forward-looking statements.

The company does not undertake a duty to update any forward-looking statements. Now, I’ll turn the call over to Ed..

Thank you, Mark. Good morning, everyone, and thank you for joining us. In 2015, volatility described Wall Street and that remain so in 2016. The Dow Jones is hugging 2016. The 10-year U.S. Treasury is in the high 1s, not the low 2s. Europeans are paying banks for the privilege of holding their cash.

Oil prices have dropped below $30 for the first time since the New Hampshire Primary – the 2004 New Hampshire Primary. Our view, however, is continuing turbulence on Wall Street and the unknowns in the political arena are not materially impacting the bread and butter of our business.

Out here in BBD USA, we believe the fundamentals of leasing office space in our footprint are good and should remain relatively positive in 2016. The jobs picture continues to improve. Markets are experiencing positive net positive absorption. Construction costs are keeping a bride on development, and rents are rising.

As demonstrated by our 2015 performance and our 2016 outlook on both the operational front and the capital investment front, we believe fundamentals are and will continue to be positive and should not be meaningfully impacted by what’s going on upon Wall Street or on the road to the White House.

During the fourth quarter, we leased over 1 million square feet of second generation office space with robust GAAP rent growth of 10.6%, at an average term of 6.9 years. Compared to last year’s fourth quarter, we grew same-store cash NOI by 4.4%, and increased occupancy, a 120 bps ending the year at 93.1%.

We’re pleased to have delivered FFO of $0.82 per share during the quarter, including a $0.01 of land sale gains. Our results were strong for the full-year 2015 as well, growing same property cash NOI by a robust 6.7% and delivering strong FFO growth of 6.2%. We believe we have set the table for another solid year in 2016.

We’re very pleased to have selected Taubman Centers and the Macerich Company from a deep pool of high-quality bidders as the buyer of our retail-centric, Country Club Plaza assets in Kansas City for $660 million, which blends to a 4.7 cap rate. The Taubman Macerich partnership has been excellent to work with throughout this process.

Their business acumen, communications, and efforts have been extremely proactive and absolutely two drawer. We’re also very appreciative of the work done by Eastdil Secured, the exclusive listing broker and conducting a fair expeditious and transparent process in the marketing of the plaza assets on behalf of our company.

Closing this transaction which is scheduled for March 1, is the next important step in our strategic initiative to capture accretive growth in earnings and cash flow by selling the Plaza at a meaningfully lower cap rate than the expected 7% plus stabilized returns on our recent BBD office tower acquisitions.

First, the sale will simplify our business model, reduce our annual G&A spend, and lower our leverage ratio to under 40%. A further upside to selling the Plaza is such an economically opportune time, as we will have $220 million of dry powder in escrow pending reinvestment in an additional 1031 exchanges and/or for general corporate purposes.

Our preference is to redeploy these escrow proceeds to acquire BBD located assets at prices that offer upside through lease up, rent growth, Highwoodtizing, and/or operating efficiencies, as well as add to our inventory of infill land for future development.

Our $449 million of acquisitions during 2015, including Monarch Tower and Monarch Plaza in Buckhead, Atlanta and SunTrust Financial Center in CBD Tampa further bolstered our proven track record of harvesting values through our acquisition activity. We acquired all three of these buildings on September 30.

By year end 2016, within 15 months of our ownership, we expect to grow occupancy by 500 bps at Monarch Center and by 800 bps at SunTrust Financial Center. We have still more room for future office occupancy growth.

Turning to development, we delivered a $162 million of 97% leased office development in 2015, and we will deliver another $115 million of development currently 92% pre-leased development in 2016. These 2015 and 2016 deliveries provide meaningful NOI upside and cash flow stability and will boost our FFO this year and beyond.

Foundation work is well underway at Seven Springs II, our 131,000 square foot office development, which structured parking in Nashville’s highly desirable Brentwood submarket.

Having announced this project 100% spec in August of 2015, we’re excited to now have pre-leased 43% of the building, which is scheduled to be completed in 2Q 2017 and stabilized in 3Q 2018.

Our current in-service Seven Springs project, which consists of two office buildings encompassing 332,000 square feet plus 41,000 square feet of retail is 91% leased. Speaking of how we occupied BBDs, yesterday we announced we will develop CentreGreen III, an office building in West End, one of Raleigh areas BBDs.

Our 1.3 million square foot portfolio in the mixed-use Weston PUD is 98% occupied and houses a number of customers who are growing in a need of additional office space. CentreGreen III will be a 167,000 square feet office building with structured parking.

The total investment for CentreGreen III is expected to be $40.9 million, including the value of company-owned land. We anticipate construction commencing next quarter with delivery in 3Q 2017 and stabilization in 3Q 2019.

This announcement, our current development pipeline now totals $546 million, encompassing 1.8 million square feet and is 70% pre-leased. We continue to focus on improving the quality of our portfolio not just to acquisitions and development, but also by cycling out of non-core assets.

We project selling another $100 million to $200 million of non-core assets during 2016, and this is an addition to the $660 million Plaza sale. Finally, we have introduced our 2016 per share FFO outlook of $3.18 to $3.30 per share. The midpoint of our range would result in another year of strong FFO growth of over 5%.

This growth is primarily attributed to sound fundamentals in our same-store portfolio, where we project 4% to 5% growth in cash NOI. The full-year impacted developments delivered in 2015 as well as additional developments that will deliver over the course of 2016, and continued NOI upside from a value-add acquisitions.

As Mark will cover more detail, our FFO outlook does include the effect of selling the Plaza assets as expected is to happen on March 1, and the range of possible uses of the $220 million of dry powder to be held in escrow after closing.

Otherwise consistent with our long-held past practice, our FFO outlook does not include the effect of potential acquisitions and dispositions that may occur in the year. Before turning the call over to Ted to cover operational highlights, I have two quick shot outs. First, to NAREIT and second to our Kansas City team.

As you know, NAREIT serves an important role as the REIT industries voice among policymakers, the investment community, the media and numerous other important audiences. Too long pursued NAREIT initiatives came to fruition in 2016.

First, stock exchange listed equity REITs and real estate companies who now have their own headline sector in the Global Industry Classification System after the market closes on August 31.

Equity REITs and real estate companies having their own GICS headline sector further validates REIT-based real estate investment as an attractive asset class and should draw even more investor support and attention.

Second, the FIRPTA reforms passed as part of December 2015’s tax extenders bill should further encourage foreign investment in listed REITs by exempting foreign pension funds from FIRPTA and increasing the ceiling for all other investors from 5% to 10%.

Both of these important initiatives are the result of years of hard work by NAREIT, staff, and members. With a strong dose of appreciation and gratitude, we tip our head to Steve Wechsler and the rest of his very capable team at NAREIT. Finally words cannot properly expressed.

Our appreciation and admiration for Glenn Stephenson and our entire highly dedicated team in Kansas City.

On behalf of everyone in Highwoods, we sincerely thank them for their focus, their commitment throughout, our 17-plus-year ownership of the Country Club Plaza and especially during this process, we wish them all the very best and we will forever have a deep sense of gratitude for their service throughout the tenure of our ownership.

Ted?.

Thanks, Ed, and good morning. As Ed noted, we had solid activity this quarter, leasing over 1 million square feet of second gen office space and year-over-year asking rents continue to increase. Average in-place cash rental rates across our office portfolio grew to $23.49 per square foot, 5.5% higher than a year ago.

Occupancy in our same-property office portfolio was 92.9% at year end, up 40 basis points from September 30 and up a 150 basis points year-over-year. Overall, occupancy was up 50 basis points from September 30.

For office leases signed in the fourth quarter, starting cash, rent declined 2.5%, while GAAP rent grew a robust 10.6%, average term of 6.9 years, or 19% higher than the prior five quarter average.

Turning to our markets, ULI’s recently published emerging trends in real estate like the Atlanta 5th, Nashville 7th, and Raleigh 11th on a list of the top U.S. markets for commercial real estate heading into 2016. In 2015, office job growth exceeded 3% in each of these cities, substantially exceeding the national average of 2.1%.

The ULI study also commented positively on several of our other markets, suggesting upward trending Pittsburgh is possibly the future Nashville, and highlighting Orlando and Tampa as noticeably improving markets.

While each city has its own local dynamics, its own unique collection of BBDs and its own set of unique opportunities and challenges, there’s a common theme across our markets.

And that our markets generally benefit from population growth and other demographics that consistently outperform national averages, affordability in a pro-business environment, growing in diverse economies, and quality of life, simply stated places where people love to live and work.

Turning to Atlanta, the market reported yet another quarter of positive net absorption, the 18th in a row. Our Atlanta portfolio is 92.4% occupied at quarter end, up 410 basis points year-over-year and a 110 basis points since September 30.

Demand for Monarch Tower and Monarch Plaza was totaled 896,000 square feet, have been very strong since we acquired the buildings on September 30. In just four months, we have signed renewals and re-let’s for 43,000 square feet at Monarch. Strong growth continues in Nashville.

385,000 square feet of positive net absorption in the fourth quarter, the market’s unemployment rate is 4.2%, 110 basis points lower than the national average, and occupancy in our portfolio was 99.2% at year end, up 20 basis points sequentially and up 280 basis points year-over-year.

We have signed LOI for most of the remaining 29,000 square feet of space available at our 203,000 square foot Seven Springs west development project. In addition, as Ed mentioned, we are thrilled to have already pre-leased 43% of the 131,000 square foot Seven Springs II project to a healthcare company, which will be a new customer for Highwoods.

Forbes magazine just ranked Raleigh number 5 on a list of America’s next boomtowns, saying the city has emerged as a tech hotspot. In Raleigh, the office market posted its 11th consecutive quarter of positive net absorption, and we garnered very strong average GAAP rent growth of 16.7% on second gen office leases signed during the quarter.

Occupancy in our Raleigh portfolio was 92.8% at quarter end, up a 120 basis points from September 30, and 270 basis points year-over-year. We just completed our Highwoodtizing of One Bank of America Plaza, the 17-story 374,000 square foot office building in CBD Raleigh that we acquired in September 2014.

We significantly repositioned the building by dramatically expanding the volume and scale of the lobby, refacing the first three floors, adding a 10-story entry defining curtainwall, modernizing the elevators and rebranding the multi-customer building as 421 Fayetteville.

Our Highwoodtizing efforts have already reaped the benefits and we have signed – as we have signed a 108,000 square feet since closing with cash rents a 11.6% higher than average in-place cash rents at the time of acquisition. In Richmond, where we have the dominant position in Innsbrook, the market’s leading BBD.

We leased a 107,000 square feet with a very stout GAAP rent growth of 16.6% and average term of 11.9 years. This includes a substantial renewal of the corporate headquarters of Hamilton Beach, a long-term Highwoods customer.

In conclusion, leasing volumes continue to be solid, reflecting positive momentum in our markets and demand for a well-located BBD office product.

With the previously disclosed known move-outs in SunTrust Financial Center and Monarch Center and a few other near-term explorations, we expect occupancy will dip to the 92% range during the first-half of the year and rebound towards 93% or better by year end.

Mark?.

Thanks, Ted. We had a strong fourth quarter in a very positive full-year. For the fourth quarter of 2015, we delivered FFO per share of $0.82, including a $0.01 of land sale gains. The year-over-year comparison is $81 million of FFO in fourth quarter of 2015, or $0.82 a share versus $70 million of FFO in 2014, or $0.74 a share.

That’s a 16% increase year-over-year in dollars and a 11% increase in per share amounts. The primary FFO growth drivers for the quarter were higher same property NOI, due to higher occupancy and higher rents.

Contributions from our value-add acquisitions, particularly, the Monarch and SunTrust acquisitions that we closed on September 30, that were temporarily financed with low-cost floating rate debt and developments coming online slightly offset by lost NOI from dispositions.

For the full-year, we delivered FFO of $3.08 per share, reflecting continued solid operating performance of our properties, as well as the positive impact of development deliveries in our acquisitions.

We are also pleased with the performance of our same property pool, delivering 6.7% year-over-year growth in cash NOI and exceeding the high-end of our original outlook. Turning to the balance sheet, we ended the year with leverage of 44.9% and our debt to EBITDA ratio was 6.1 times.

This includes the $350 million bridge facility used to temporarily fund the acquisitions, which we will pay off on March 1 with proceeds from the sale of Country Club Plaza. As you know, we have been generally operating within a targeted leverage range of 40% to 45%, as measured by the ratio of total debt and preferred stock to gross book value.

The Plaza assets, which are under contract for $660 million have a gross book value of $372 million. Using the contracted sales price rather than gross book value, our leverage would have been 2% lower at year end, and our conservative nature we believe it is appropriate to adjust our target leverage range to reflect this difference.

So going forward, our plan will be to operate within a target leverage range of 38% to 43%. After the Plaza transaction closes, our leverage will be in the 38% to 39% range and our debt to EBITDA ratio will be comfortably below six times.

We utilized the ATM in the fourth quarter to issue 744,000 shares at an average sales price of $43.54 per share and raised $32 million, continue our commitment to fund our growth on a leverage neutral basis. You may have noticed, we filed a Form 424(b) and related 8-K this morning with the SEC to refresh our ATM program.

This new program allows us to sell from time to time up to $250 million of common equity at market prices. As you know, keeping an ATM program in place is one of the many arrows we like to keep in our capital raising quiver.

As Ed mentioned, we have provided our initial 2016 FFO outlook of $3.18 to $3.30 per share, which at the midpoint is a 5.2% increase over 2015. In dollars, the midpoint of our range for 2016 is $321 million versus $299 million in 2015 a 7.2% increase year-over-year. We’re also forecasting a strong 4% to 5% growth in same property cash NOI.

The primary FFO growth drivers for 2016 will be contributions from the SunTrust and Monarch acquisitions, the impact of 2015 and 2016 development deliveries, and higher same property NOI from higher average rents. These positive drivers will obviously be partially offset by a lost NOI from the sale of the Plaza.

This year’s outlook includes various outcomes with respect to the $220 million of escrowed funds that will remain after the reverse 1031 funds are released from escrow, upon the sale of the Plaza. Our preference is to use those funds to acquire more BBD located buildings and land.

Other possible options include paying down debt and/or other general corporate purposes, which could include paying out remaining capital gains in the form of a special dividend. All of those possible outcomes have been factored into the range of our 2016 FFO outlook.

In the lower section of our guidance table, we have given 2016 guidance around acquisitions, dispositions, and development that are above and beyond the already announced activity related to the Plaza.

And consistent with our practice, we do not include the operational or funding impact from the potential incremental investment activity in our FFO outlook until such transactions are announced. The nuance of the Plaza sale being announced, but not yet closed, caused us to make this distinction and provide clarity around our outlook for 2016.

Two things to keep in mind regarding the trajectory of our 2016 FFO outlook. First, as is typical this time of the year, G&A in our first quarter is expected to be about $3.6 million higher than the run rate for subsequent quarters, because the company’s annual equity grants are customarily made in March.

And as you may remember under GAAP certain annual long-term equity grants must be expensed at the grant date rather than over the normal multiyear 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 a $115 million of 92% pre-leased office development delivering over the course of the year, which will mostly impact our second-half results. Operator, we are now ready for your questions..

Thank you. [Operator Instructions] And our first question comes from the line of Jamie Feldman with Bank of America. Please go ahead..

Thank you. Good morning..

Good morning..

So, I guess, just thinking about the proceeds from CCP sale, I guess, the first question is, how much is the taxable gain, if you were to pay a special dividend? And then secondly, can you just talk about what you think is out there in terms of both places you want to buy land and where you want grow the portfolio?.

So, Jamie, it’s Mark. On the special dividend question, the capital gains, we’re going to do reverse 1031s, as we laid out in the table of about $430 million to the Monarch and SunTrust properties that we closed in September 30, and then we’ll have that remainder leftover.

It’s hard to say exactly what the capital gain is going to be, and these are all separate parcel. So you can’t tell you exactly, but it’s in a $100 million range kind of number in terms of what might be qualified for the special dividend..

And, Jamie, this is, Ed. For the second part of your question, we think we’ve got lots of options. We’re looking at a lot of different things. We’re looking mostly in market at product that we think would be additive to our strategy. Then it includes some components of land. Our land bank is about half of what it was from 10 years ago.

We’ve put a fair amount of land, about 248 acres into service and built 4.5 million square feet on it. So we think that this would be an opportune time to do a little bit of replenishing on the land side, so we’re looking at few parcels here and there. So we think lots of options, we’re underwriting a lot of things.

We’re underwriting a little bit more than $0.5 billion worth of assets plus some land right now to evaluate..

And our next question comes from the line of Manny Korchman with Citi. Please go ahead..

Hey, guys, good morning..

Good morning..

Maybe we can spend sometime talking about the buyer pool, both for the Kansas City assets, as well as the other planned dispositions you guys have lined up for the year?.

Well, I think it’s premature on the second part as far as just been able to give you good visibility on what we’ll do later on in the year Manny. We only have a normal amount that’s in market right now, about $15 million, and then we’re working on books for another $60 million to $100 million worth.

But as far as the process with Country Club Plaza, which again, we think Eastdil did a yeoman’s job on. It was just a tremendous amount of interest. The interest was eclectic and broad. And we were fortunate that many of the perspective buyers were highly qualified and well-positioned to move and move quickly in without a lot of question marks..

All right.

And then, Mark, again, this might be a little bit premature, but cap rate sort of expectations on the sales do you have plans?.

On disposition you mean?.

Yes..

Yes, I think, it just varies by market. It just depends on what we ultimately bring to market. As Ed said, we’re preparing some things. Obviously, the rent rolls are important and the markets are important. So I hesitate to really kind of give you any specificity around that..

All right. Thanks, guys..

Thank you..

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

Hey, good morning, guys. I just -realquickly on Raleigh. Obviously, GlenLake Five is still about 88% leased and not stabilized. But you guys went ahead with the new development in Raleigh.

Since that’s your home market, I was just wondering if you could comment on kind of the leasing momentum in that market right now and what gives you confidence and your ability to lease the new development up quickly?.

Hey, Tom, it’s Ed. Few things. One is, we have other buildings on the ground there that are virtually 100% leased. We started GlenLake Five at 25% pre-leased. We moved it up to 88% over this past quarter, and our pro forma project just haven’t stabilized five quarters from now, six quarters from now, second quarter of 2017.

So to get another 5 percentage points of occupancy over four quarters, five quarters of time is a – we think it a very achievable task. We think the building has done well as far as quality, the rent roll, and how it’s leased up.

So its performance certainly gives us comfort to do more, specifically to CenterGreen since it’s in the same basic geographic area. We have the overall market – the Kerry market 7.7%, I’m sorry 7.7 million square feet, it’s 7.5% vacant, so it’s strong. We owned 1.3 million square feet within Weston, we’re 98% there.

We have four buildings on the ground in CenterGreen that total just shy of 400,000 square feet they are 100% leased. We’ve got customers in the Weston development that are growing in the need of space. So a kind of the strategy that we used at GlenLake either we build another product and capture their growth, so we begin to lose customers.

And we think GlenLake’s proven out quite well. And we have high confidence that CenterGreen III will do the same. We’ve also launched some in another markets either the building – the Seven Springs II building that we announced, we announced it in August, and we’re 40% and it was 0% pre-leased and we’re 43% now.

We’re just finishing up the foundations of the building. I think there’s a good track record there..

Got it. I appreciate that insight. And then just quickly on Orlando, obviously, that market has been late sort of recover this cycle and is lacking some of your other markets in occupancy. And hasn’t really shown too much improvement over the last four quarters.

I was just wondering how you think about that market long-term? And your plans with some of your land and development opportunities there?.

So we’re bullish on that, both Orlando and Tampa have been a little bit late coming to the party with regard to the recovery. With regard to Orlando, specifically where CBD focus there, we like the assets that we owned.

If you look at the demographic information that’s published by various sources, whether it would be rent growth or expansion, the numbers are good. And we think that we also have some work that’s underway.

For example, in the landmark’s building if you go into that lobby right now, it’s a war zone, and we’re doing some significant Highwoodtizing there as well. The pricing at which we bought our partners out, we think it’s very attractive basis for us. We have a very good team on the ground led by Steve Garrity.

So we have no big worries about Orlando, we think it’s just a little bit slow in coming.

Ted, do you have anything to add to that?.

No, look, I think, we are consolidating now the suburbs over time. We were in a couple of different submarkets now. We think the CBD is what you want to be in Orlando. So it’s a good core submarket for us, and I think, we certainly expect it to pickup over the next 12 months..

Got it. I appreciate the color there. Thank you..

Thanks, Tom..

And our next question comes from the line of Brendan Maiorana with Wells Fargo. Please go ahead..

Thanks. Good morning. First, just, Ted, so you mentioned occupancy down to 92% in the first-half of the year from 93% to where ended it.

Is that attributable to the known move-outs in Monarch and SunTrust, or is there – were there some other customers that were planning on vacating it earlier in the year?.

Those are the two biggest components of it. But obviously there is various other smaller guys that add up to a little bit. But the two biggest components both at Monarch and SunTrust..

Okay, great.

And then, Mark, so just mechanics of the guidance, you said with respect to the 220 that’s going to be held in escrow, is it kind of fair to assume either, if you go down the route of paying down debt or investment of those proceeds into new acquisitions? Is that be something that would be slated kind of middle part of the year, or back-half of the year as opposed to something that would contribute to earnings or lower interest expense around the time that you’ve got the proceeds?.

No, Brendan, you’ve got it right. It’s going to be back-half of the year. The way it works is, we close on March 1. We have till April 15 to identify properties and then we have till September 1, I guess, until to close and identify the acquisitions.

In our guidance what we’ve done is, we kind of could have gone down one or two past right? We could have assumed that we were going to buy something which we again can make some assumptions about timing and cap rates. The other assumption is, we don’t find anything to buy and we would break the escrow take that money and pay down debt.

And you’re right, that would be a back-half of the year decision, and then if we had to face the prospect of a special dividend that would obviously be very late in the year. So there are some potential interest savings as a result of that, and those two scenarios really are very, very close in terms of numbers..

Okay, great. And so you mentioned your leverage, kind of, it goes down, I think, you probably get to kind of 38% sort of post closing of Country Club Plaza. There’s about $325 million left to spend on the development pipeline.

How does that – what do you think the spend is likely to look like in 2016 versus the remainder of that, which I guess would be predominantly in 2017?.

Yes. So the pipeline, as you know is pretty robust. We’ve got obviously the Bridgestone, the biggest piece of the pipeline delivering in 2017. So I would say, it’s in the 100 to 150 range in terms of development spending that we would have in 2016.

And again, we’ve got a lot of flexibility with respect to both their line of credit that we have available and then as you know, we have the ATM available to us as well. But I think we’re in reasonably good shape on being able to finish all that and keep leverage where it is..

Right.

I guess, it looks like your disposition, at least, at kind of the midpoint of the guidance outside of the Plaza, you’d be a net seller relative to the acquisitions?.

That’s correct..

Okay. All right, great. Thanks..

Thanks, Brendan..

Thanks, Brendan..

[Operator Instructions] Our next question comes from the line of David Rodgers with Baird. Please go ahead..

Hey, good morning guys. This is Dick Schiller here with Dave. Just a quick balance sheet question. You guys have a $315 million bridge facility you mentioned you’re going to payoff with the proceeds. You’ve marked $430 million of that to repay from the acquisitions of Monarch and SunTrust.

What’s the note payable that will be paid off to bridge that $80 million difference?.

Dick, it’s Mark. That will be on the line, so in other words….

Okay..

You’ve got – we fund our development generally by borrowing short-term off the line, and then when it gets to particular levels, we will term out. But I would just assume that the bridge loan of $350 million gets paid off and the excess would go towards reducing borrowings on the line of credit..

Okay, great. Thanks.

And then switching over to dispositions in which markets are your remaining non-core assets located that if you want to dispose off?.

I mean, it’s a little eclectic. We’ve got smatterings here and there. What we’re working on right now is in Atlanta and Greensboro and then we have some other projects that we’re working on. As you know we have some additional assets in Kansas City that weren’t part of the offering memorandum.

So we’re looking at the right positioning of those from a rent roll perspective in the right time to dispose those then we have some other just miscellaneous assets in Raleigh, Florida, et cetera..

Okay, great. Thanks a lot, guys..

Thank you..

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

Hey, good morning, guys. We heard a few off-street talking about leasing pipeline slowing down so far this year, or expected to slow down later this year, and I know you touched very briefly on that in your opening remarks.

Just any more color on what you’re seeing on the ground year-to-date? And are there any signs of tenants taking a pause in your markets?.

We haven’t seen any dramatic movement on that, Jed. We – the fundamentals are fairly good. Some markets obviously stronger than others, but the volumes are showing that we have a good – we’re in earnest pitching five development projects who knows, if any of them will come to fruition.

But all five are in-market growth, which we think is another good telltale. So all in all, we haven’t seen any deliberate pause on that front..

Okay, thanks. And then maybe somewhat related on the capital market side of things.

Are you seeing any changes in the size of bidding tenants or pricing for assets in your markets just given some of the global headwinds or more choppiness higher borrowing costs on the debt side?.

Yes, Jed, it’s Ted. This – so far this year, we haven’t – the deal flow in general has been slow, so hadn’t been a whole lot price discovery.

But I think in general from what we’re seeing from late last year then early this year in a few other markets, the trophy assets the pricing remains very strong and there’s still a deep and diversified buyer pool. But when you get beyond the absolute AA’s and trophies, I think price is still good.

But the buyer pool maybe sins out a little bit, not as deep. And as a result, probably it takes a little longer to get deals done. I think, lower quality assets require leverage. I do think the debt markets are still very liquid today. So, again, not as deep as a trophy assets, but still plenty of buyers out there..

And plenty of capital..

Plenty of capital..

On that lower quality side, I mean, are you seeing a change in that sort of thin bidding time, or is that consistent with what you’ve been seeing relative to the higher quality?.

I think it’s been fairly consistent. I don’t think we’ve seen a big change on that. Again, we haven’t had deals out in the market for the last few months. We’ve been working on CCP. So we haven’t had a lot of data points check that.

But as we talked to other market participants, whether it would be private buyers or brokers, I don’t think we’re seeing a huge change yet..

Okay. Fair enough. Thank you..

Thanks, Jed..

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

Jamie?.

Just a follow-up to the last question in terms of any change in the cycle here. You talked about growing your land bank starting new speculative development and gave pretty bullish outlook at the beginning the call versus some of the other markets around the country where people might be more concerned.

But can you just talk about how you’re thinking about running your business, given what we do see out there on the macro side and how you think maybe some of the risk mitigation you might be putting into place?.

Sure. So we continue to run what we consider a fairly conservative shop. If we think stand-up doubles is a good day and that’s kind of what we shoot forward, not going for the fence every time we go to the play.

I think, we are making good use of the capital that we have by having a lot of capital activity, and at the same time reducing our overall debt load. We think the use of the 4.7 money that we’ve generated from the Plaza, anything above 4.7 is accretive.

On the land bank is just standing back and saying, we put 240 acres into play and we’ve been fortunate that we won some significant awards as a result of having a mosaic that’s appealing to the user inclusive of some good land positions. So we are not looking out.

And our goal isn’t to own all the land that abuts ours, but there are some parcels that we want to own that we think would be good to bring in. So it to me that’s just replenishing at a modest level. The volume of spec development that we are doing it’s been very calculated. It’s ballasted with some highly pre-leased good credit development.

So we don’t think that we’re going on a way out on the spectrum with the amount of spec development that we have, it’s been in small and deliberate doses.

We continue to invest a fair amount of time and effort and creativity and repositioning buildings akin how we did the 421 Fayettevillebuilding that used to be called Bank of America, and we’ve done this with a dozen other buildings that are leading to higher rents.

So, for example, in the 421 building, we’ve done about 100,000 square feet of leasing there at rents that are a 11% higher than what was in place before. So we’ll continue to do that. So I think it’s a – we’re not going too deep into any one category, and we’re being conservative about how we do it and it’s all been leverage-neutral to delevering..

Okay. That’s helpful. Thank you..

Thanks, Jamie..

And our next question comes from the line of John Guinee with Stifel. Please go ahead..

John Guinee, how are you?.

Hey, good morning, John..

First, I’m assuming the front cover the supplemental with Country Club Plaza is a tribute to Glenn and his team?.

Correct..

It looks like a picture, but Glenn actually painted that..

He is a very talented person as is his team, so I’m sure, you’ll miss him..

Really..

All right. So this is actually a question for Mark. And I don’t know if you’d have this handy or you could guess, but if you answer with authority, we will believe you. You guys have been pretty consistent $0.15 to $0.20 FFO growth per share, 5% or 6% per annum.

And there’s a handful of levers that make that work the ones that come to mind right now are you guys have a very low cost of equity capital you’ve been accessing your ATM, you’re bringing down your debt cost, you’re delivering development, you’re having some rental rate growth, and same store NOI increases and you’re also doing some asset recycling.

If you were to look at those different drivers that help you with that 5% to 6% annual FFO growth, is one of them dominant and one of them – and a couple of them not really relevant, or how would you look at, when you’re figuring out what really matters, Mark, what does matter the most?.

So, John, it’s a really good summary that you gave. And I would say a couple of things. I’d also add to that equation operating expenses are, operating folks or asset management folks have done a – just an outstanding job of managing costs and getting the contracts services, where they need to be just paying attention to the whole equation.

But, you got to – if you look at it just broadly, obviously, the development deliveries have helped us a bunch, right? When you think about just having that additional NOI from the developments coming in and layering and in multiple years, I think that’s an important thing. The other thing that’s really helped is the value-add acquisition.

So, when you look at our same property number, which was a pretty strong 6.7% for the year, a lot of that goes back to the acquisitions we made in 2013 and the occupancy we’ve been able to add and the rent growth we’ve been able to add.

So our guys in the field have been out hustling and doing a good job of raising occupancy, raising rents, and then we’ve obviously watched it on the cost side as well. And I think those are the general flavors of what I would say is most important to what we’ve done. Ed may have a different opinion..

I would just add a footnote that, I think all of them are reliant on the foundation of a good balance sheet. So in order to do a lot of the things that Mark and you just enumerated without the strength of the balance sheet, I think, it would be a tougher sell.

So for us to get in front of a Fortune 100 prospective customer and pitch to them our ability to build them a building, as being able to do without any financing contingencies and being able to evidence to that – to them is essential.

As being on a call and doing a buyer interview with a broker on behalf of their seller to be able to have our first step forward be the balance sheet and give them comfort that we have the ability to close, I think, is important. And that trickles all the way through to us meeting with the customer who leases 15,000 square feet.

And they know that when centrifugal chiller goes, we have the money to do it and that will happen and it’s all predicated on the balance sheet. So I think all the things that you enumerated make up the list, but it’s all stands on the foundation of a healthy balance sheet with a good maturity ladder..

Ed, a great answer. I’ll catch you offline, Mark. My back of the envelope is roughly half of it just comes from the lower interest cost, but we’ll talk offline..

Sure..

Thanks a lot..

Yes, sure..

Thanks, John..

Thanks..

And gentlemen, there are no further questions at this time..

Thank you, everyone. Again, if you have any additional questions, don’t hesitate to give us a call. Thank you..

Ladies and gentlemen, that does conclude our conference for today. We thank you for your participation. Have a great rest of the day, everyone. You may disconnect your line..