Brendan Maiorana - Senior Vice President, Finance and Investor Relations Edward Fritsch - President and Chief Executive Officer Theodore Klinck - Chief Operating and Investment Officer Mark Mulhern - Chief Financial Officer.

James Feldman - Bank of America Merrill Lynch Emmanuel Korchman - Citigroup David Rodgers - Robert W. Baird & Co. John Guinee - Stifel, Nicolaus & Co., Inc. Joseph Reagan - Green Street Advisors Michael Lewis - SunTrust Robinson Humphrey, 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 on the date October 25, 2017.

It is now my pleasure to turn the conference over to Brendan Maiorana, Senior Vice President, Finance and Investor Relations. Please go ahead, sir..

Thank you, operator, and good morning, everyone. Joining me on the call this morning are Ed Fritsch, President and Chief Executive Officer; Ted Klinck Chief Operating and Investment Officer; and Mark Mulhern, Chief Financial Officer. As is our custom, today's prepared marks have been posted on the web.

If any of you have not received yesterday's earnings release or supplemental, they're both available on the IR section of our website at highwoods.com.

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

Before I turn the call to Ed, a quick reminder that any forward-looking statements made during today's call are subject to the 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. I'll now turn the call to Ed..

Thank you, Brendan, and good morning, everyone. Since our last earnings call, the biggest news in the office business this side of the Atlantic has been Amazon's post of HQ2.

While several of our cities have been mentioned by numerous pundits as contenders to land HQ2, we're not going to speculate on which metro area Jeff Bezos and his Amazon team may pick. However, we find their list of desired criteria a validation of our BBD strategy.

We're thrilled to see Amazon's HQ2 grocery list upon intended of desired attributes so closely align with the characteristics of our BBD markets, which include access to a well-educated workforce; growing population centers; a stable, business friendly climate; high quality of life; and attractive cost of living among others.

The unique manner and epic proportion of this posting is something all of us will pay close attention to as it unfolds. Regardless of what Amazon ultimately decides to do, the confidence they are showing in their long-term growth outlook with HQ2 can be viewed as a good story for the economy.

Shifting to Highwoods, fundamentals on the ground remain steady. We continue to see positive net absorption across our markets. New supply is highly pre-leased and less than 2% of total market, which mitigates the risk to office fundamentals.

The backdrop of continued positive net absorption and modest supply has driven a steady increase in net effective rents. Turning to the third quarter, we delivered $0.86 of FFO per share, about 4% higher than last year.

The quarter included a little over $0.01 of land impairment charges related to a parcel that we no longer expect to develop, but this charge was mostly offset by a term fee. Our strong financial performance was driven by continued growth in same property NOI, accretion from recently delivered development projects; and lower interest expense.

Given our positive results, we have increased our 2017 FFO outlook to $3.36 to $3.38 per share, which implies a penny and a half increase at the mid-point. On the operational front, same-property cash NOI growth was positive 3.4% in Q3.

We signed 1.1 million square feet of second gen office leases with a GAAP rent spreads of positive 11.3%, while cash rent spreads were slightly negative at minus 0.9%. Strong fundamentals across our markets and the beneficial impact of annual escalators has led to our sixth consecutive quarter of positive double-digit GAAP rent spreads.

Our occupancy was 92.1% at the end of Q3, a dip from the end of the second quarter driven by previously disclosed known move-outs in Atlanta and Richmond. At the 211,000 square foot former HCA space in Nashville, we're 46% re-let and now have strong prospects for another 30%.

In Richmond, we're already 77% re-let on the 163,000 square feet that SCI vacated in the third quarter, and we have prospects for the balance of the space.

In Buckhead, the two blocks encompassing 137,000 square feet returned to us in the third quarter by Morgan Stanley and Towers Watson have already been white-boxed and are well-positioned to capture large user demand in a submarket where the availability of large contiguous blocks is limited.

Disposition activity was heavy during the quarter, as we closed $93 million of sales, including our share of a joint venture sale. Most of these sales closed late in the third quarter, and we expect an additional $44 million of building sales to close in Q4.

As we've previously disclosed, our Q3 and Q4 disposition activity will be about $0.02 per share dilutive to 2017 FFO, and virtually all of that will affect the fourth quarter. As a reminder, in keeping with our strategic plan, we routinely evaluate our portfolio for non-core properties and expect to continue to be regular recyclers of assets.

At a weighted average disposition cap rate of approximately 7.5%, pricing for these non-core properties was reasonable. Following the JV sale we closed in Q3, we now receive only 1.5% of our revenues from joint ventures. Regarding acquisitions, we continue to evaluate on and off-market opportunities with a focus on prudent investing.

The acquisition market has been relatively quiet thus far in the year, and while modestly improved of late, the preponderance of recent for-sale assets has been lower quality than what we're seeking.

There are a few opportunities we're monitoring, but at this point in the year, the likelihood of closing any acquisitions before the calendar flips is low. As a result, in our revised outlook table, we are assuming no building acquisitions will close before year-end.

Our development program continues to be a meaningful driver of earnings, cash flow and NAV growth for our Company. At $225 million of 82% pre-leased development starts encompassing 769,000 square feet announced so far this year, we have already exceeded the high-end of our original outlook of $220 million for 2017.

We continue to see opportunities for highly pre-leased development projects. While it's always difficult to forecast if and when a sizable user will commit to a development, we're encouraged by the conversations and level of activity.

Our overall development pipeline spreading across five markets encompassing 1.5 million square feet represents a total expected investment of $440 million, and is 78% pre-leased on a dollar-weighted basis.

At our $41 million, 167,000 square foot 5000 Centre Green development project in Raleigh, shell construction is complete and our first customers have begun to move in. We're now 46% pre-leased, up from 26% last quarter, and we have strong prospects for another 30% of the building, while we're still two years from pro forma stabilization.

With nearly $400 million of development delivered in 2017 that are, on average, 85% leased, we expect a meaningful increase in cash flow as these projects stabilize and cash rents commence over the next several quarters. Again, development is a core competency for us and an ongoing engine of strengthening cash flow and earnings growth.

The combination of strong operating fundamentals, a solid balance sheet, and stabilization of well pre-leased development projects sets the table for solid growth in cash flow for the next several years.

Ted?.

Thanks Ed, and good morning. As Ed noted, we continue to see steady fundamentals across our markets. It's noteworthy that six of our nine markets scored in Baird's top 10 public REIT markets in terms of office-using job growth in September. We've spoken often about strong job growth in Atlanta, Nashville and Raleigh.

It's nice to see Richmond, Tampa and Orlando also garnering accolades by being in the top 10. This report, plus many other regional forecasts, supports our view that steady fundamentals should continue for the foreseeable future. Turning to the quarter, we had increased leasing volume with attractive economics.

We leased 1.1 million square feet of second gen space with an average term of 5.2 years. As Ed mentioned, GAAP rent spreads were positive 11.3%, the sixth consecutive quarter of double-digit increases.

While our cash rent spreads were slightly negative after five consecutive quarters of positive spreads, the negative cash rent spread in Q3 was attributable to two renewals where we traded no TIs for a reduced face rate.

Evidence of improving rents in the portfolio is reflected by our average in-place cash rents at quarter end, which were 1.3% higher per occupied foot than a year ago.

This includes our recently delivered 500,000 square foot Bridgestone Americas tower, which is in our occupied square footage even though cash rent doesn't commence until the middle of the fourth quarter. As previously forecasted, our portfolio experienced three sizeable move-outs during Q3.

Total portfolio occupancy was down 60 basis points compared to Q2, ending at 92.1%. Based on signed leases in hand, we anticipate a recovery late in the fourth quarter. Our year-end occupancy outlook remains unchanged at 92.2% to 93.2%. Turning to our operational performance, we grew same property cash NOI by 3.4%.

The 50 basis point dip in average occupancy during the third quarter was more than offset by the contribution from annual rent escalators and leases commencing with higher cash rents. Our updated same property outlook for the year is 3.75% to 4.25%. The mid-point of 4.0% is nearly 100 basis points higher than our original outlook. Now to our markets.

In Richmond, the market has experienced steady growth, with office-using job growth during the quarter of 3.6%, more than twice the national average. According to Cushman & Wakefield, market vacancy was 7.5% at the end of the third quarter, down 150 basis points compared to the prior year. Average market asking rents increased 4.5% year-over-year.

On last quarter's call, we mentioned already re-leasing 64% of the 163,000 square feet that SCI vacated in August. Our re-let percentage is now up to 77%, and as Ed mentioned, we have prospects for the balance of the space. We signed 160,000 square feet of second gen deals in Richmond during the quarter with GAAP rent growth of 13.6%.

Occupancy in our Richmond portfolio was 90.0% at September 30. It is expected to exceed 92% by year-end. Lastly in Richmond, we're on budget and on schedule to deliver our 100% pre-leased, $29 million build-to-suit for Virginia Urology in Q3'18.

Turning to Atlanta, in the last four quarters Atlanta's office employment growth has been the strongest among the 10 largest metro areas in the country. As Ed mentioned, occupancy in our Atlanta portfolio was impacted by the previously disclosed known move-outs in Buckhead that occurred in the third quarter.

We remain upbeat about Buckhead's long-term prospects, the quality and location of our assets and our ability to backfill these vacancies. Tampa has delivered on its long awaited reawakening during the last 12 plus months. According to JLL, asking rents in Tampa are up 6.1% during the past year while vacancy is down 140 basis points.

With no spec construction and a lack of large available spaces across the market, we continue to see strong growth in our portfolio. Our quarter-end occupancy was 94.1%, up 330 basis points year-over-year. We signed 130,000 square feet of second gen leases in the quarter with GAAP rent growth of 15.5%.

In Raleigh, the office market continues to benefit from strong economic growth and access to a talented workforce. Per Avison Young, Class A rents are up 5% year-over-year and Q3 net absorption was over 300,000 square feet.

While there is 1.7 million square feet under construction spread out across seven submarkets, we believe approximately 800,000 square feet is competitive to our BBD-located portfolio and is 50% pre-leased. Our in-service Raleigh portfolio is 93.9% occupied, up 60 basis points from Q2.

We posted solid GAAP rent spreads of positive 16.4% in Q3, the 9 consecutive quarter of double digit positive GAAP rent spreads. As we mentioned a few calls ago, one of our 2018 potential exposures is an approximate 175,000 square foot lease in Cary's Weston submarket of Raleigh that is scheduled to expire at the end of November 2018.

While still early, in the event the customer does not renew, we would be entitled to a meaningful fee. Our 1.2 million square foot in-service portfolio in Weston is 100% occupied. We should know more by year-end. Finally, in Nashville, leasing activity and rents remain strong.

Per Cushman Wakefield, Class A vacancy is aligned with overall market vacancy at 7.8%. New construction is 2.3 million square feet, down from 3.5 million square feet in 2016, and is 50% pre-leased. With vacancy low and job growth steadily in the top 10 nationally, we don't view - the new supply as a major risk to Nashville's fundamentals.

Our portfolio occupancy is 95.8%, up 10 basis points from Q2, and we posted solid GAAP rent spreads during the quarter of positive 16.7%. In conclusion, strong demographic trends, population and job growth, combined with low current vacancy and limited speculative development support healthy fundamentals across our markets.

Mark?.

Thanks Ted. We delivered third quarter net income of $57 million, or $0.55 per share, which included $19.8 million of gains from property dispositions, which are not included in FFO. Our FFO for the quarter was $91 million, or $0.86 per share, a 3.9% increase year-over-year.

As Ed, noted we received a penny of net termination fees, primarily from Towers Watson in Atlanta, which was more than offset by $1.5 impairment primarily for land in the Southwinds submarket that we recently exited in Memphis. These two items essentially offset one another, making our reported FFO of $0.86 a relatively clean number.

As Ed mentioned, we are pleased with our third quarter operational performance. We delivered same property cash NOI growth of 3.4% with average occupancy 50 basis points lower compared to last year.

The improvement in cash NOI is driven by healthy contractual annual rent bumps on nearly all of our leases, leases commencing where we achieved solid growth on rent spreads and the burn off of free rent on several leases.

Turning to our balance sheet and financing activities, we ended the quarter with leverage of 34.7% and debt-to-EBITDA of 4.5 turns.

While we are committed to grow generally on a leverage-neutral basis, we have the flexibility of funding the remaining $226 million of spending on our current development pipeline without the issuance of new equity and still maintaining debt-to-EBITDA around the mid-point of our stated comfort range of 4.5 to 5.5 times.

We had several important financing transactions close after the end of the quarter. First, we recast our revolving credit facility. Our new facility has a capacity of $600 million, that's up from $475 million, and we reduced the LIBOR spread from 110 to 100 basis points. We believe the $600 million size works well for our Company.

It provides us enough liquidity to fund near-term financing needs and serves as a short-term backstop if tapping the capital markets is not prudent. Second, we extended our $200 million term loan from January 2019 to November 2022, and reduced the LIBOR borrowing spread from 120 to 110 basis points.

Third, we paid down $125 million of our $350 million term loan, which matures in June 2020 and bears interest at a LIBOR spread of 110 basis points. We had a strong reception from the lenders in our bank group, and thank them for their continued support of our Company.

Looking forward, we have only one significant debt maturity between now and June 2020, namely a $200 million bond with a 7.5% coupon that matures in April 2018. We're looking forward to the interest savings opportunity we expect from refinancing this 7.5% bond.

As you may recall, we obtained $150 million of forward-starting swaps that effectively lock the underlying 10-year treasury at 2.44% with respect to a forecasted debt issuance before May 15 of next year.

Assuming we refinance the April 2018 bond with a long-term bond, we would have no significant debt maturities for two years and our maturity schedule would be well-laddered with flexibility to fill-in medium-dated maturities if we need to raise additional capital. As Ed mentioned, we updated our FFO outlook to $3.36 to $3.38 per share.

The revised mid-point of $3.37 per share is a $0.015 increase from the previous midpoint, and $0.035 above the midpoint of our original outlook, or $0.065 above when excluding dispositions that weren't contemplated in our original range.

As we noted last quarter, we expect approximately $0.02 of dilution in the fourth quarter from dispositions completed late in the third quarter plus expected closings in Q4. The improved outlook is predominantly driven by better than expected operational performance, partially offset by slightly higher G&A.

Taking the $2.55 per share of FFO that we have reported year-to-date, our imputed outlook for Q4 is $0.81 to $0.83 per share. There are several fourth quarter items that I will walk you through to help understand our revised full-year outlook. First, we expect $0.02 per share of dilution from dispositions.

Second, we will incur about three-quarters of $0.01 lower FFO from the accelerated amortization of fees associated with the credit facility recast and term loan extension. Third, lower JV fee income will reduce FFO by about three-quarters of $0.01. And lastly, lower NOI, driven primarily by lower average occupancy, will reduce FFO by $0.05.

So before we take your questions, I would like to reinforce a point that Ed made earlier. Year to date, we delivered $394 million of developments that are, on average, 85% pre-leased.

Due to pro forma lease-up periods and the impact of early possession revenue recognition, the cash NOI from these properties was negligible during Q3, but they were solid GAAP NOI contributors. As these burn-off cash flow from these properties obviously increases meaningfully. A significant portion of the increase in cash flow occurs in 2018.

The ongoing execution and delivery of our development projects strengthens our cash flow in 2018 and beyond. So operator, we are now ready for your questions..

[Operator Instructions] And our first question comes from the line of James Feldman with Bank of America Merrill Lynch. Please go ahead..

Great. Thank you.

I guess, Mark sticking with your last comment, can you just talk about the magnitude of that kind of cash NOI that will be coming online in 2018 that's not in the GAAP numbers?.

Yes, Jamie. So obviously, Bridgestone the biggest driver of those dollars. It's around, again, rough numbers around $20 million or so of cash increased year-over-year when you compare 2016 or 2017 to 2018..

Okay.

And then I guess sticking on a similar topic, just as we think about 2018 and same-store growth, you guys have had a lot of moving pieces in the portfolio this year, move-outs that you're making good progress on leasing, but can you just give us like the building blocks as we think about kind of either 2018 or - well, same-store growth and then earnings growth of like how things will ramp up over the quarters?.

Hey Jamie, it's Brendan. So I think as you think about same-store growth just generically, I'd tell you there's five main components that would drive those numbers. The first would be the rent bump that we get virtually all the leases that we have in place.

The second are rent spreads that we get both on what we've signed this year and then what we'll do next year. Third would be operating expenses. Fourth item is probably, I'd say that's conversion of GAAP to cash rent, if you're thinking about cash same-store NOI growth. And the fifth item would be occupancy.

So I think those are kind of the main building blocks, and the rent bumps, there's really probably not a lot of change between any given year. Rent spreads, I think those bounce around a little bit, but we've been fairly consistent over the last number of quarters.

OpEx, we probably would say, it's generally something that I think we've been fairly consistent on a year-to-year basis. And then from an occupancy perspective, I think that's to be determined as we go forward over the next few quarters.

We've talked about some of the expirations that we have, but we've also mentioned some of the progress that we've made. So I think it's just a combination of how well and how quickly we backfill some of the expirations.

So I think that probably gives you the building blocks to how to think about same-store, but it's a little bit early to get into specifics with respect over the next few quarters..

Okay. And then just finally for me. I know you've pushed - you reduced your acquisition guidance.

Are you still working on a potential close in the early part of 2018 or these deals are off the table?.

We're looking at a number of things for 2018, but we did think that the chances of getting anything close prior to year-end 2017 are very slim..

I guess what I'm asking is the ones that you thought you were going to do in 2017, are those still on the table?.

Some yes, some no, and some added.

Does that make sense?.

All right. Thank you..

The pull that makes up the 200 is different, but we are certainly looking at a number of things right now..

Okay. Great. Thanks a lot..

Thanks Jamie..

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

Hey. Good morning, guys. Ed, just going back to sort of the conversation you had about Amazon, but not specifically about Amazon.

If we think about the other build-to-suits that you've been approached with, do you see tenants sort of using the Amazon approach of let's get cities to bid, let's look sort of nationally or maybe even globally, and then wherever we get the best deal, we'll go? Or is it more targeted than that?.

I would say this. It's always been a part of the process for decades, but I would say that it's not the sole driver. The first step of the Amazon tango and what we see in a lot of explorations that are multi-state covered, a significant component of that is what would be on the Governor's letterhead.

So that plays into the mosaic of the decision process, but then other things quickly come into play like available and capable employment pool and infrastructure and sites and pricing, cost of living, right to work, et cetera, coming behind us.

But that's usually that the first aspect of these multi-state searches include a significant component of what the tax incentives would be..

Great. And then switching to the comments for a second, we've heard from I guess you guys and also peers that constructions cost have been going up I guess significantly is the right word.

Have you seen pressure on your yields because of those rising construction costs?.

Well, I think that's been big piece of what has held speculative construction at bay in the cycle.

There's been a limited amount and hasn't been because banks have withheld or it's because we've finally learned our lesson and not built ourselves into a recession through overdevelopment, or it has been that pricing continued to climb, and in fact, they climbed even during the recession. There wasn't any abatement during the recession.

That shifted from commodities to talent back to talent and a little bit off the commodities but it's continued to increase over the last 10 years at a pretty steady pace. So I think the gap between what it cost to go into the first-gen space versus second-gen space illustrate that, and I think that's what's kept a lot of new construction at bay.

And obviously, not only new construction but it's woven its way into BI and GI spending.

And I don't know how much if any impact, these named storms will have, but you have to think that there have certain componentry of construction, maybe it's a different level of tradesperson, but some of the commodities will certainly be in the hot demand for a short period of time in restoring Houston and Florida and the Keys..

So would you feel comfortable sort of helping us quantify how much yield pressure you may be seeing on your either in-process or future developments?.

I really think it comes down to - are you willing to step up for the new building. And so the gap between first and second gen, let's call it 25%, and I could argue 20% and I could argue as much as 35% depending on where we are. I think it is more just a matter the customer having the need for whatever reason to go into new space.

Either it doesn't exist or they want to consolidate multiple locations into one that guard efficiencies and synergies.

Do they want to create a new image? Do they want to present to their employment pool and to their clients and the community or do they want to restack and they're willing to pay up for that? So to me, it's really - the construction pricing going up, let's say, on average, 5% to 6% per annum, I don't think that's really going to drive a difference in that decision if the spaces are there that they want to upgrade..

Thanks Ed..

Sure, Manny..

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

Yes, good morning guys. Ed, I wanted to just ask a question maybe a big picture for you. It looks like your economics has settled into a nice spot here. You did talk about your cash spreads earlier, and so appreciate that detail.

But I guess as you look at your overall volume of leasing, overall economics on leasing settling into a pretty narrow range, do you feel like that's where the market is? Are we having kind of at a top point in terms of lease economic and volume? With the discussions you're having, kind of give a little bit more color on that if you would..

Sure, Dave. What I think our lease economics continue to - again like you said, sort of hang at a pretty tight range quarter-by-quarter. We're seeing a little bit of pressure on TI, but we think we're getting commensurate increase at rental rates to go with that. I think the supply and demand fundamentals are strong.

As Ed mentioned, construction is not out of control so - and we're seeing slow steady job growth. So demand has been steady - are showing through steady across our markets. So I think hopefully, things can stay where they are. And a couple of trends we are seeing is we have mentioned two no TI deals.

There is a stick or shock in some of our markets with customers. So we've done many more than just the two that I mentioned on the prepared remarks that flipped us to negative cash. But there are some customers that are saying, just give me the lowest rate and then I'll put in my own TI or I'll take the space out of this.

So we have seen more lately on some markets we've seen in the past..

Great. Thanks for that. And then maybe a specific question on leasing. The space in Buckhead that you talked about white-boxing but in the early activity there I realize that, that was just vacated this quarter. But any thoughts around what the activity might be on that phase..

Continue to show it. We have weekly showings. We have called our Atlanta team really on a weekly basis, but this point really, there's nothing talk about. I can't say we have any strong prospects that will actively show in the space..

Great. Last for me. Maybe to Mark, on the higher G&A, if you mentioned it in your comments, I certainly missed it. But any pursuit cost written-off in there, such as compensation or anything in the G&A number that went up for guidance that we should be aware of..

Yes, Dave. The pursuit cost will be very small but a majority of that is the higher incentive comp..

Okay. Great. Thanks guys..

Thanks Dave..

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

Great. Two questions, thanks. First, Brendan, how much free rent is in 3Q? You talked a lot about your sources and uses of GAAP versus cash on your development.

But how much free rent is in 3Q that we should think about to get a good NAV?.

So John, Mark mentioned in response to an earlier question mentioned that cash flow that's coming online with respect to the development project, so I think he mentioned somewhere, call it, rough numbers of - on an annualized basis maybe there's $20 million or so that sort of flows in overtime kind of 2018 versus 2017. That's a rough number.

So we could get back to you with maybe some more specifics, but I think that's a reasonable way to think about the amount of free rent that's associated with many of development projects..

So is it safe to say that within your $9-plus million of straight line deduct $5 million of that was free rent?.

I think that from, let's say - yes, I would call it not - I would say that is a reasonable ballpark for GAAP rent versus cash rent. So it's not really a concession but there's a lot of early possession rent that's in there so a non-cash rent..

Okay. And then the second, you guys do a fabulous job of your leasing statistics and I think your quotes sort of negative or usually relatively mark-to-market on cash and low double-digits on GAAP. And some people might present that or think that's good.

But when you're spending $3.50 per square foot per year to go flat cash to cash and 10 up GAAP to GAAP, that looks to me or that feels to me like very weak or.

Am I missing something?.

Well, John, I think, when I look at our payback percentage, in our supplemental, we're looking at - we're getting paid back and we think about 13% of rents, 13.5% of our rent stream over the term to get paid back our capital. So I think those metrics really aren't too bad if you look at our as compared to some our competitors.

I mean when we look at our leased deals, we look at a few things. Obviously, net effective rents, which take into account all the CapEx we're spending, and I think as long as we're growing net effective rents, we're also looking at obviously, when we creating value, we do think we're creating value on the incremental capital investment.

Some cases, you may be willing to spend a little bit more if we lock in a customer on a long-term basis, there's an asset we're getting ready to sell. Net-net we think our economics aren't too bad..

Okay. Thank you..

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

Hey, good morning, guys..

Good morning, Joe..

Can you give any color on how the recent asset sales in Memphis and Raleigh just compare to your overall portfolios in those markets in terms of average rents, location, building age, that sort of thing?.

Sure. So in Memphis really it's a tale of two cities there. There's the Poplar Corridor and then there's not Poplar Corridor.

And so with the sale of the Southwinds assets, the $7 billion we had there, we're now solely concentrated in the Poplar Corridor which is by far the best ABD in Memphis, and there are more institutional quality buildings on Poplar versus what were basically three and 4-storey brick and glass buildings at Southwinds.

And then in Raleigh, same situation. This is a collection of three buildings that actually if you line them up next to the Southwinds building, all tenant that will look very much alike. They were in the West side of Raleigh.

So the quality was low, the rents were lower, and it's just our traditional efforts to recycle at a lower quality non-core assets and use that money to fund development and acquisitions..

That's helpful.

And can you share a cap rate for the kind of each individual portfolio? I know you gave the aggregate, but kind of within Memphis and within Raleigh?.

It's about a tie between the two. And what we have in the Q that we have also mentioned for closing before year-end, the $44 million that would also be in the same zip code of the 7.5..

Okay, great. Appreciate that. You guys mentioned the potential lease exposure on carry and then you've got the FBI move-out you've talked about in Atlanta previously.

Any other sizable known or possible move-outs next year even into 2019, if you have that kind of early visibility?.

Not really other than what we mentioned on the call in the prepared comments. That really capitalizes it. As we look at 2019, we have five leases there that are for 100,000 square feet or more. We feel really good about four of them and it's a bit early on the fifth..

Okay. Perfect. Maybe just last one for me. We work and others - obviously co-working is on the rise, you're national including some of your markets. Just kind of curious on how you're thinking about that movement.

I mean are you likely to sign more leases with some of those companies? Are you looking to experiment with maybe your - with flex leasing, more flex leasing or potentially a co-working concept of your own?.

We've done a little bit of both. We certainly signed leases with some. So we've had Regus for a long time. And I know that they're kind of like the older version and they're making their conversions towards more of a modern day.

And we've signed couple of leases with industries, so we put our toe in it, but we are monitoring very closely how much exposure we would have to that type of space. It's certainly of interest and we read about it.

The Lord & Taylor announcement was of interest I think to the entire office community, and we'll see how it goes, and obviously, what everybody else is wondering is how will this type of industry do in a downturn since they haven't been through one of those yet. So it will be interesting to see that level of performance.

And then the second part of your question, we have only on a - we've created plug and play spaces, what we haven't done as [indiscernible] with the concierge and the granola bars. But as far as the actual build out at the space, we have done suites of that type in urban settings that have proven to be fairly successful.

It's growing somebody in and we've actually seeing some significant growth out of the spaces into director leases of - on a larger scale..

And are you willing to do kind of more flexible terms on those types of deals?.

Yes. And it's a modest amount of space and really its plug and play type of space, so we haven't put significant capital on to it. What we hope we do is we grow a customer out of it..

Is there a thought of doing more of that over time or you kind of like the amount you've done so far?.

I think we'll continue to do it at a modest level. I don't think it would be ever become a significant component of our annualized revenue, not in the near-term anyway..

So 5%-ish maybe a little less?.

I would say less. But yes, I think that's a fair - a fair cap. We would put a tickler in here if we reach 5% to address it on the prepared remarks..

Okay, great. Thank you for all the color. Appreciate it..

Thanks Jed..

[Operator Instructions] Our next question comes from the line of Michael Lewis with SunTrust. Please go ahead..

Hi, thank you. My first question is kind of a two-parter, the increase in the same-store NOI guidance. I was wondering if the dispositions had any impact, the changing pool. And in the second piece, it looks like this other miscellaneous operating revenues, is higher than I think I've seen it.

Could you just remind me what's in that and maybe what's a good run rate for modeling?.

Sure, Michael. And our first question, I think on the fluctuation between the quarters and dispositions have a little impact and that probably helped a little bit in Q3 and will be a little negative in Q4. I'm sorry I had a slip around a slight negative in Q4.

But so the way I think about that is from our guidance, the beginning to the year to the end, really no significant impact - they net out the impacts in Q3 and Q4, so no real impact as a whole.

And then on the other revenue side of things, one thing that had shown up that's been positive for us that is maybe better than we anticipated some upside in parking and we've taken control some of the parking garages in urban cities and manage the parking on our own. We have gotten some in terms of that.

And then we alluded to some JVs as having some impact on the same-store numbers for this year as well..

Okay. Thanks. My second question, I think you said that if you lose that 175,000 square foot tenant in the middle 2018, you're entitled to a fee. I was wondering if you could just give a little more color on that.

Is that actually like an early term? And could - if you could comment on how big are we talking about?.

Yes, Michael, it's Ed. It's late 2018, I think we get back in November of if they were to move out. It's early to say we would be meaningful-sized fee I can't quantify the size of the [bread box] right now, but it would meaningful and scale, but it just a bit early on us - for us to quantify that more..

Okay. Understood. My last one is about maybe you could talk a little bit about the challenges of redeploying proceeds into [10 51s].

And is it too early to think that may be there might be a special next year?.

Yes. I think it's a little too early on that. Obviously, we have put some of these dollars into [10 31s] and are interested in utilizing that if we can but I think it's a little too early to comment on that at this point..

Okay. Thanks..

There are no further questions at this time. I'll now turn the call back to Mr. Fritsch..

Thank you everyone for dialing in and always don't hesitate the call as with any follow-up questions. Thank you, operator..

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..