Robert Bowers - Chief Financial Officer Don Miller - Chief Executive Officer Ray Owens - Executive Vice President.

Dave Rodgers - Robert W. Baird John Guinee - Stifel Vance Edelson - Morgan Stanley Brendan Maiorana - Wells Fargo Jed Reagan - Green Street.

Greetings, and welcome to the Piedmont Office Realty Trust Second Quarter 2014 Earnings Conference Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Robert Bowers, Chief Financial Officer. Thank you, Mr. Bowers. You may begin..

Thank you, operator. Good morning and welcome to Piedmont’s second quarter 2014 conference call. Last night, in addition to our earnings release we also filed a Form 8-K which includes our unaudited supplemental information.

We encourage you to view all of this information which is available on our website piedmontreit.com, under the Investor Relations section. On today’s call, the company’s prepared remarks and answers to your questions will contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.

Forward-looking statements address matters which are subject to risks and uncertainties that may cause the actual results to differ from those we discuss today.

Examples of the forward-looking statements include those related to Piedmont Office Realty Trust’s future revenues, operating income, and financial guidance, as well as future leasing and investment activity. You should not place any undue reliance on any of these forward-looking statements, as they speak as of the date they are made.

We encourage all of our listeners to review the more detailed discussion related to risks associated with forward-looking statements contained in the company's filings with the SEC. In addition, during this call, we’ll refer to non-GAAP financial measures such as FFO, Core FFO, AFFO, and same-store NOI.

The definitions and reconciliations of our non-GAAP measures are contained in the supplemental financial information available on the company's website. I'll review our financial results after Don Miller, our Chief Executive Officer, discusses some of the quarter's operational highlights.

In addition, we're joined today by several members of our management team, who will participate during the question-and-answer portion of the call. I'll now turn the call over to Don..

Good morning, everyone, and thank you for joining us this morning as we review our second quarter financial and operational results. I will begin my remarks today with a general reflection on the business climate in our markets.

As we have discussed previously, our markets that are driven by the energy, healthcare and technology sectors continue to perform extremely well.

Recently we have begun seeing other markets in which we operate that have been persistently challenging to lease, now beginning to demonstrate tenant momentum, some of which is are seen in the markets where we completed larger leases this quarter.

Looking specifically at our leasing activity, I'm pleased to report that we executed approximately 760,000 square feet of leasing this quarter, with roughly half of the leasing related to new tenants. The largest lease completed this quarter was the long anticipated renewal with the National Park Service at our 1201 Eye Street asset in Washington DC.

Also in the DC market, the Institute for Justice signed a 12 plus year renewal and expansion for a total of approximately 30,000 square feet at our Arlington Gateway property.

It is nice to see this leasing activity in DC market along with increased perspective tenant inquiries within certain sub-markets particularly in the District and the RB corridor. I'm optimistic this momentum maybe an indication, this market is bottomed, it will begin to slowly improve.

Additional noteworthy leases in other markets during the quarter included a 162,000 square foot new lease with Schlumberger Technology at 1430 Enclave Parkway in Houston, Texas. Schlumberger is taking half of that building under new lease that extends two years beyond techniques, current lease expirations till the end of 2018.

Some of you may remember that Schlumberger was the sole tenant in another of our Houston assets that we subsequently sold but we were able to leverage this previous relationship to benefit our current portfolio.

In Phoenix, Arizona, GM Financial completed a seven plus year lease renewal and expansion, totaling just over 113,000 square feet at our Chandler Forum asset in Chandler, Arizona, bringing this asset now to 75% leased. Durata Therapeutics completed on approximately 27,000 square feet 12 year new lease through 2026 at 500 West Monroe at West Chicago.

And Children’s Hospital Los Angeles signed an approximately six year 20,000 foot lease expansion and extension at 800 North Brand Boulevard in Glendale, California. Expansion along with existing lease space totaled approximately 43,000 square feet. On the capital transaction side, it was an active quarter.

We acquired one asset, five Wall Street, a six storey182,000 square feet Class A property located in Burlington, Massachusetts that is 100% leased to three tenants.

This transaction is consistent with our Boston Route 128 North acquisitions over the past few years, a targeted submarket that is experiencing strong demand from technology and healthcare related tenants. This acquisition complements our 2013 purchase of two nearby Class A properties also located in Burlington at 5 and 15 West Side Road.

This is a prime example of Piedmont’s aggregation strategy that we will continue to grow our asset base in the major cities in which we operate, focusing on select submarkets where we can leverage our operating skill and expertise along with local market knowledge to achieve strong risk adjusted returns for our shareholders.

In addition, we completed the previously reported sale of four non-core assets this quarter. On a combined basis, the sales total $34 million in gross proceeds. The four assets were located in non-strategic markets such as Detroit and Kansas City.

The sale of these assets further narrows our market selection and advances our objectives as we grow in the submarkets where we believe we have competitive advantages and can achieve meaningful market share.

You can see this strategy unfolding since our IPO with our aggregation in Route 128 Northern Boston, the RB Corridor in Washington, the Minneapolis market, Las Colinas and Dallas in the Buchanan and Central Perimeter sub markets of Atlanta.

To further demonstrate our progress and the strategic focus over 90% of our revenue is now derived from nine major U.S. markets with approximately two-thirds coming from CBD or urban infill locations.

Finally, to update you on our development projects, site work and foundation construction commenced in late April at Enclave Place, our planned 300,000 square foot 11 storey office tower in Houston. This project remains on track for completion in July 2015.

The Houston market is still very active and with Class A vacancy in the Energy Corridor, below 4%. At 3100 Clarendon in Washington DC, our project to reposition that asset for private sector usage is now on full swing with interior demolition work complete. Office tower work is projected to be substantially finished in early 2015.

The Clarendon sub market continues to offer excellent demographics with the young professional work force and transportation and retail amenities our firm is looking to attract top talent. We are seeing interesting in the building and are already working with several brokers and a few prospective tenants.

I do have one last announcement before I turn the call over to Bobby. As some of you are aware we've been transitioning into a more regionalized operating platform, one that embraces our geographic diversification focused on select sub markets within specific major U.S. office markets.

We have regional heads such as Bob Wiberg in Washington DC and Joe Pangburn in Texas that have local knowledge and relationships and ultimately responsible for our leasing, development, acquisitions and asset management within the respective regions.

I'm pleased to announce today that we are furthering this regional structure with the hiring of Tom Prescott, as our Midwest Regional Head in Chicago.

Many of you may know Tom as a Midwest native and 30 year real estate veteran with extensive leasing and development experience of primarily high quality office properties located largely in metro Chicago market as well as in California and Texas.

Having worked for Forest City Higgins Development and most recently for Metropolis Investment Holdings, Tom has a thorough understanding of the Chicago real estate market and deep relationships throughout the region and nationally.

He brings a positive thoughtful can do attitude to Piedmont and we expect him to transition to us by the end of the quarter. Tom will be joining us on future calls to add his perspective on activity within the Midwest Region. With that, I will turn it back over to Bobby to review our financials and expectations for the remainder of the year.

Bobby?.

Thanks Don. Well, I'll discuss some of the highlights of our financial results for the quarter, please review the earnings release and supplemental financial information which we filed last night for more complete details.

For the second quarter of 2014, we reported FFO of $57.7 million or $0.37 per diluted share, which was comparable to the second quarter of last year.

Core FFO which removes the impact of various insurance recoveries and acquisition costs was $56.6 million or $0.37 per diluted share for the quarter as compared to $0.35 per diluted share for the second quarter of 2013, reflecting several new leases commencing and properties acquired since June 30th of last year and the impact of our share buyback program.

These increases were partially offset by few explorations including the DIA space in Washington effective January 1st of this year and some downtowns between expirations and new lease commencements.

AFFO for the second quarter of 2014 was $0.15 per diluted share and reflects larger than typical straight line lease adjustments due to the commencement of several large long-term leases with free rent periods on the front end of the leases.

The largest of these leases and their abatement periods are detailed in the quarterly supplemental data that we filed for you last night. Many of these lease also have significant capital expenditures that were dispersed this quarter for tenant buildouts.

This includes Epsilon at 6021 Connection Drive in Dallas whose lease began in July; Aon and Integrys, at Aon Center these leases have commenced during the first half of this year; and Independence Blue Cross at 1901 Market Street in Philadelphia we signed a lease last year.

Our total lease percentage was 87% as of June 30th, a slight improvement compared to either the first quarter of this year or second quarter of last year. The stabilized portfolio was 89% leased as of quarter end and our weighted average remaining lease term was 7.2 years at quarter end.

Cash basis same store NOI was down 2.5% as compared to the second quarter of 2013, primarily driven by down times before the commencement of two large replacement leases and initial abatement periods detailed in the supplement.

However as expected same store NOI improved considerably when compared to the first quarter of this year as abatement period for certain significant tenants began to burn off.

Keep in mind that we still have approximately 10% of our total leasable square footage contractually committed that is largely excluded from cash NOI that’s 1.4 million square feet of leases that are still in some form of abatement and another 700,000 square feet of executed leases for currently vacant space that have not commenced yet.

We believe the first quarter of this year represented the troll in same-store NOI comparisons and that we have now begun a period of growth in same-store NOI improving $4.5 million in the second quarter of this year over the first quarter.

Please note several other positive developments in the quarter, leases for recently occupied space that were executed during the quarter translated into an average 9% rental rate roll out, which will positively impact results as these leases commence.

Also committed capital per square foot per year of lease term was $2.62, continuing the trend of less capital per square foot per year of lease term that began in 2013. Keep in mind however, both of these quarterly metrics can be very inconsistent and therefore longer periods than one quarter should be used to evaluate trends.

Turning to the balance sheet. As of June 30th, our total debt-to-gross assets ratio was 36.6%. Although the overall ratio has not changed much since year end, I mentioned on last quarter's call that we've refinanced $575 million of secured debt this year for unsecured borrowings.

Approximately 80% of our real estate assets and operating income are now unencumbered by mortgages. Also as a result of refinancing our average cost of debt is now down to 3.5% with a weighted average maturity of over 5 years.

As of quarter end, we had approximately a $190 million of capacity on our line of credit and the only maturing debt in 2015 being a $105 million mortgage due in May of 2015. At this time I’d like to raise our 2015 annual guidance to the upper end of the previous range, to between $1.45 and $1.50 per diluted share for core FFO.

This adjustment is due to the leasing activity Don mentioned the acquisition of [Firewall] in Boston and slightly lower overall operating expenses. As I’ve stated previously I expect our metrics the last half of this year to improve over the first half as abatements expire and as certain significant leases for currently vacant space commenced.

I’ll now ask the operator to provide our listeners with instructions and how they can submit their questions. We’ll attempt to answer all of your questions now or we’ll make appropriate later public disclosure if necessary. Please try to limit yourself to one follow-on question so that we can address as many of you as possible. Thank you.

Operator?.

Thank you. We’ll now be conducting a question-and-answer session. (Operator Instructions). Thank you. Our first question comes from the line of [Jade Regan of Green Street Advisors]. Please proceed with your question..

Good morning guys.

It looks like the cash same store number ramps up maybe a little more quickly than expected and just wondering if that means a full year number might finish a little bit higher than your previous estimate? And then is it possible the trend could be positive here in the third quarter?.

Jade I think yes. We are pleased that it wasn’t a little more negative in the second quarter given our big negative trend and the first quarter. And I think we would say that it's at the low end of the range that Bobby talked about early in the year.

I think we had originally talked about five to eight, I think we're probably at the low end of that range now. And in the last couple of quarters you will probably see numbers that look at lot like the number you just saw with the big positive ramp up going into '15..

Okay, thanks. I have got to ask on DC and Chicago just if you can provide a little more color on just the activity you are seeing for some of the larger vacancies I mean the kind of velocity in market sounds like may be little bit more optimism in DC.

So just if you can elaborate on that and may be specifically on one independence if you're getting any traction from the media tenants you referenced last time?.

Yes I think by enlarge we are more optimistic across the board on leasing front. We're seeing good steady activity, especially in 20, 50 range across the board and doesn't take long to do many of those to add up pretty quickly.

We haven't -- we're not seeing the big, big deals we would like to see in a lot of places but we are starting to see some both government and media activity.

At on independence we'll see if any of those translate, I would say those are the hardest deals to get done right now, but much more optimistic that we would have been even just a couple of months ago around NREIT. And then Downtown Chicago we're seeing a lot of activity [and West Monroe] right now, a little slower still at Aon.

But across the board from our last call, feeling better and better about leasing activity across the portfolio..

How would you characterize GSA kind of leasing activity at the moment?.

I would say picking up; not active, but picking up and they're genuine activity and prospects that we haven't been seeing up till now starting more recently. The economics won't be what we were seeing a year or two ago by any stress of the imagination, but there are least deals out there that we feel like we've got to shot at..

Okay.

And on the higher Midwest regional head, just wondering if that single Chicago remain core marketing your portfolio going forward or I mean I guess how do you think about that market from here on?.

Yes, I think Jade, we've always said that downtown Chicago will certainly continue to be a key market for us, we'll probably continue to lower our exposure in the suburbs over time as we get the opportunity to move those asset sale properly timed. And then of course Minneapolis is a key market for us as well.

And Tom will be over seeing that as well; in fact, he is a native of Minneapolis, so he is got -- and went to school, University of Minnesota, so he is got a lot of connections up there as well. So he’s a perfect higher from that standpoint..

Okay, go first. Alright, thanks. I'll jump back in the queue..

Thanks Jade..

Our next question is from the line of Dave Rodgers of Robert W. Baird. Please proceed with your question..

Hi, good morning guys. Maybe Don or Ray, give us a little more color on the acquisition pipeline that you're seeing out there for the product that you're really looking for? How deep that might be? And maybe the flip side of that Don is dispositions you had success with.

I mean do you feel like you can bring more to market now at better pricing relative to putting new money to work?.

Yes, I think the acquisition environment is as difficult as we've ever seen it. Obviously we are really pleased with the deal we did in Boston this quarter. I’ll let Ray put some more color on that.

But it is helping us get in position to market a few more assets here in there, we'll probably bring in a couple of more in the fall and probably being able to do some things that we may not have been able to do by getting ahead of the game by buying the Boston deal and so we'll be able to help ourselves get some more sort of I’ll call it non-strategic dispositions out the door.

So we are feeling good about that. The deal in Boston, I think we are particularly pleased about because we are able to do it off market. Every deal we are bidding on right now seems to be a feeding frenzy. We hadn’t until recently seen a lot of the other publicly traded REITs be as aggressive this year.

And now more recently we are hearing about rumors of deals going off at very, very high prices that we just can’t seem to make any sense out of and some are even to our peer group. And so we are little bit concerned by that because we have seen this before and we are going to continue to maintain our discipline on the acquisition side.

Having said that, obviously there are always going to be strategic acquisitions we need to fill in the gaps with as we continue to refine the portfolio.

So Ray, anything you add to that?.

Yes. Dave, I was just going to echo the off market characteristic about that Boston deal. We have been chasing that deal around for probably two years, just working with that particular owner of their and really working that relationship. So we saw benefits of that but it did take a long time.

And as Don mentioned, the type of deal that we are going to continue to look at, there is a lot of more competition but we are going to once again be very strategic in anything that we are aggressively looking at, so that it fits our strategy that we have outlined.

And then just reflecting on the dispositions, we think we will rewarded it for working those particular assets, doing the leasing on them, identifying when the capital markets might reward us for those. And I think we executed at pricing and levels that might have surprised some people. We are going to continue to do that.

But once again, we are refining, we are not retooling, we’re just refining the portfolio..

Great, thanks for that color. And then maybe a follow up for Bobby with regard to CapEx for the second half of the year.

You gave both incremental and non-incremental, but I guess given the leasing that you have done and the amount of space that’s coming in, can you just kind of remind us what the spend looks like for the second half of the year on an all-in basis?.

Yes, give me a second, as I look that up. Okay? As I'm looking at capital expenditures for the last half of the year, I would say probably spend around $40 million between the last two quarters for non-incremental you got it..

That was for non-incremental?.

Yes, that's what shows up as your adjustment to AFFO..

And then the incremental and the development components as well?.

Well, the incremental always got accumulated at this point, about $16 million in obligations and that will be really controlled to a great extent by some of the tenants, but it's not a significant number..

Obviously, the incremental piece will be largely controlled by the development deals, not a lot of other new leasing. The much larger number will be the development capital..

Okay, great. Thank you, guys..

Thank you. Our next question comes from the line of John Guinee with Stifel. Please proceed with your question..

Great. A couple of questions. First, I guess Don or maybe Bob Wiberg, $150, $160 a foot for a 3,100 Clarendon, what is that? Is that a gut all the way down to the steel frame or is that just a gut of all the MEP and no rebuild, so what's the magnitude and what's the finished product look like compared to the current product? One.

And then two, can you sort of talk about basically the for a similar building, the relative pricing or the leasing dynamics of Southwest versus Crystal City versus Rosslyn-Ballston versus Tysons Corner with the Silver Line now open?.

Yes. Hey John I’ll throw that to Bob and if I have any color to add I have any color to add I’ll jump back in.

Bob, are you there?.

Yes, yes John. As far as the 3100 the really the large renovation it’s not taking it all the way to down to the frame in terms of taking up the entire but we’re taking up parts of the site but it incurred all-on to make it (inaudible) those sections then really opening up the outstanding views that that building has.

Internally we’re doing all the mechanical and electrical systems we’re doing the entire reconfiguration of the lobby in the metro level to that project. And then on the first two floors which is sort of retail podium and its entirely to make it much more contemporary and then redoing the plaza upfront.

So, the product could be at the end of the day will be much different than what you see today and on the interior substantially different and as I mentioned all the mechanical electrical, so it will compete very well in the A sector that.

And then in terms of the market the higher rents I would say still are the highest rents are still in Roslyn today and then I’d say probably Clarendon because there is still a little space and then Boston going that way and I’d say it’s a crystal city as far as total rents remain the lowest..

And where is the Independence Center where does the Southwest fit in relative to say Roslyn?.

Well Roslyn is, they’re trying to hit rents that are still mid 50s on the new product and that’s substantially above where southwest could be the new product in southwest is the (inaudible) building and they’re trying to get just under the cap that above $49, so it is the newest product down there and then it comes down below that..

Refresh my memory what’s the GSA cap in Northern Virginia?.

Yeah it's high 30s to low 40s we can't tell you exactly because we're really aren't worked with GSA in that market today..

Got you, okay thank you very much..

(Operator Instructions). The next question is from the line of Vance Edelson from Morgan Stanley. Please go ahead with your question..

Hi, good morning guys.

You mentioned maintaining with discipline I think that was partially in reference to one particular market but could you just share your latest thoughts on return requirements on acquisitions across all markets, are you willing to more aggressively underwrite it all given the competition and the liquidity out there, to keep the external growth going what are you updated thoughts on return requirements?.

Yes I think that obviously everybody has ran in the return requirements to some degree and of course it's going to move around depending on what market you are in.

And so I don’t know there is you could possibly be competitive and by anything including the deal we've already bought this quarter without having bought those in and so we have I always a little reluctant to talk about what our return expectations are against that sort of a competitive issue.

But I think there is clearly that's the case I would also say thought that we're getting to the point where I think we feel like and I am not sure lot of our peer group doesn't feel the same way to some degree that even if you are successful you are not necessarily buying accretively even at today low debt rate you could finance 3.5 before long-term basis but if you're buying 4 and you don't get growth then there is not really -- you are not really adding anything accretively here you are just adding assets.

And so I think that we feel like there is probably better times in the cycle to buy you get into the whole theory should you be accumulating core, at what point of cycle should be accumulating core versus value-added and we sort of has in whole series about that, we'll talk more about that probably when we have groups get together and give you more theories about that.

But I think now it's a very difficult time in the cycle to be line to accumulate aggressively. I'd never seen a point like this in the cycle of my career and I've seen four of them where something hasn’t got hammered if they were aggressively buying at this point..

Okay, that's good perspective. And then for my follow-up one of your peers referred to sequestration just yesterday and while your government exposure is well contain.

So you get the sense that your overall DC leasing would be stronger for government tenants were more and expansion mode and what I'm getting out is how dependent the conservative DC market in general on government strength to kind of prosper anytime soon in this type of environment?.

Yes, I mean I think clear obviously, the more government leasing there will be down the better with although a lot of our buildings are not purely government buildings. They may have been and we've been doing work to them to get them away from the government sector, because we think that side is going to be weaker going forward.

But you've heard me say many times that notwithstanding some a recent pickup and some activity in DC, I think we still believe that long-term DC is going to be a little bit tougher market just because of the overhang of less government space and more efficiency among government users.

And as a result that can help but put a little bit of examples on the Washington DC market longer term. So I would tell you that we're probably in the camp that this is going to have a hard time growing run this fastest or rest the marketplace over the foreseeable future..

Okay. It's very helpful. Thank you..

Our next question comes from the line of Brendan Maiorana with Wells Fargo. Please proceed with your question..

Thanks, good morning. Hi guys.

So Don if I heard you correctly, it’s probably a question for Bobby, but Don you mentioned that I think in your opening remarks you had nice progression in terms of the NOI and it sounds like if we just take the same store pool assume that remains the same throughout the remainder of the year, but kind of 66 million that you put up in this quarter that number probably stays about the in Q3 and Q4 is that right?.

No that number would actually maybe stay similar grows a little bit in the third quarter but remember the number I am saying stays the same is the percentage down from last year and we would grown same store NOI second to fourth quarter by $5 million, $6 million.

And so with this percentage growth stay the same we would still be growing by $5 million or $6 million from the second or fourth quarters..

Okay. So growing another 5 million or 6 million kind of quarterly run rate by the end of the year. And with that, given that do you still I think last quarter you mentioned you felt like same store NOI growth in 2015 was likely to be up 10%.

Is that still a fair number as you think about the leases that you did this quarter and what’s set to commence as we go into ‘15?.

Let me clarify the earlier question a little bit.

What I guess I am getting at is by the fourth quarter we think we will percentage wise, sorry absolute dollar up the level that you just talked about, but percentage wise each quarter we think we will see similar downturn to what saw this quarter, a small negative number which then translates into about $5 million of run rate growth between now and the end of the year.

Does that makes sense Brandon?.

Yes absolutely, got it..

So then I am sorry the follow up question was next year’s growth, yes, I think we are still expecting near double digit growth next year in same store NOI. And depending on leasing activity between now and the end of the year, that could grow a little bit more.

But right now I think, we think right around that 10 number feels pretty good give or take a little bit..

Okay. So, I'm just kind of thinking about that math correctly.

That probably push you at somewhere between on a same-store pool $25 million to $30 million of year-over-year NOI growth next year, which even relative to that Q4 run rate for this year is still up in average of about $2.5 million to $3 million per quarter average, next year versus where you are going to end this year?.

Well, I may not be answering your question. But I think we agree that same-store NOI we think has $30 million of growth in it next year, yes. I think you asked a certainly different question, that I may not have hit on..

No, well I was asking a separate question sort of in that statement, which is if you did 61.5 in Q1, you did 66 this quarter. Let's say you kind of have a natural progress up of another $5 million combined, between Q3 and Q4. So you end Q4 at $71 million.

You have $30 million of growth next year compared to the total amount that you put on NOI growth for 2014 or NOI for 2014.

Your quarterly numbers and average for 2015 are still higher by $2.5 million to $3 million versus what you are implicitly guiding to for the Q4 number this year that's kind of the math that I'm coming up with, I'm just wondering if there is anything I'm missing?.

It gets complicated because you get population differences, different aspects and…...

Yes, I'm assuming no population differences, I was just kind of….

Well, I am not sure I can answer your question clearly I am looking at a different population set as you are, so I am not sure I have that in front of me to give you clarity, because the overall same-store number grows dramatically because we have a bigger pool of assets to compare to. .

Okay. Maybe it’s better for offline..

Yes. We may deal better offline, sorry about that..

No problem. Just second question, so Don, you mentioned kind of your submarket strategy and I think you mentioned RB Corridor, Minneapolis, Las Colinas, Buckhead and Route 28 or Burlington, when I kind of just quickly add up those submarkets, I think it’s probably around 4.5, 5 million square feet of space.

So it’s call it 20% of your portfolio, maybe a little bit more than that.

How do you kind of think about as you’re trying to cluster the portfolio in submarkets, where you stand in the progression of where you ultimately want to be and where you are now?.

Well, I mentioned those submarkets just as examples of submarkets, so we have grown our portfolio in the last year or so. That wasn’t mean to be an exhaustive list of the places where we’re concentrating our efforts. We’re going to -- like I sort of mentioned [Vance] earlier, we’re going to be going through more of that as we go through the year.

And like I said, we’re going to have a presentation at NAREIT there we’ll probably define some of that a little bit better for you.

But nothing radical going on, it’s all around refining the portfolio, selling off the non-strategics which were down to only handful left and re-concentrating our efforts in those places like the ones I mentioned plus downtown Chicago, plus Houston, plus downtown New York, maybe a nod or two in New Jersey.

Paces like that where we are effective, don’t have as much REIT competition, all those kinds of things come together and we feel like we’re very effective competitors. So I don’t know if there is anything more -- any other conclusion to draw from there, we’re just highlighting those as places where we’ve grown more recently..

Yes.

That sounds -- any sense of kind of how much if the acquisition market is challenging out there and you can dispose-off the assets that you don't want to hold but if you have tough time acquiring, how much of the portfolio do you think is concentrated where you wanted to be, if you can, without assuming additional acquisitions?.

Yes 70% to 80% today is in what we would call very strategic sub markets or in what I would call a non-strategic keeper building.

And we talked about this with a lot of you, Downtown Philadelphia might be an example or may be Caterpillar financial building in Nashville where you just got strategically located assets that are critical facilities to their tenancy and we got a lots of term and credit and we're just clipping coupons and creating value for the shareholders that way.

So, I’d say you add all that together, that approximates to about 80% the portfolio.

Okay, all right. Thank you..

(Operator Instructions). The next question is a follow-up from Jed Reagan of Green Street. Please go ahead with your question..

Hi, guys. I guess just following up on Brendon’s question.

So with some of the lofty pricing out there especially in the gateway markets, does it make you want to consider exiting I think what you hear for call, the concentration market but some of these frothier places like in New York or Los Angles perhaps harvest there and your refocused efforts in areas where you have been more successful in aggregating product..

Jed, we're always thinking about what markets we're going to be in and what we aren’t. I don’t know that I am prepared to say that we're making any big decisions on that front until we have chance to talk you little further about that, may be in November. But I would say that we're always evaluating that.

It is so hard to redeploy those assets back in somewhere else that you got to really think about it very carefully. So, I guess the point is yes, we're always thinking about it and we'll give you more clarity on that November, if there is any decisions have you made..

Okay.

And does the sort of the core pricing environment make you want to ramp up your development pipeline at all, as many of your competitors are doing?.

Yes, let me follow-up on the last question, just answer and then answer your question.

But I think we told the number of people in the marketplace that we -- one of the things we are concerned when went public and I know the street was concerned about, it was the potential dilution from selling off our non-strategic assets and buying assets that are unbalanced, more located in strategic markets.

And we did a full analysis of what we've done since ‘11 on that. And interestingly, I think it’s $800 million of buys and $800 million of sales roughly. And our going in FFO yield on the buys has been 6.8 and purely coincidently are going out FFO yield that we're giving up on the sales has been 6.8.

And interestingly our buys have been less occupied than on ourselves. So on average, we've actually been slightly accretive on our capital allocation activity. So I think we mentioned this to you, we're very proud of that and something we think we can continue to do because of the discipline we brought this table.

And the development side, we're certainly not going to go hog wild. We do have several really nice pieces of dirt that we've accumulated in the palm of the market kind of quietly we have made a big deal about it, but we've land parcels in Atlanta, one in Dallas, we've got another one under contract that if it moves forward we be very pleased.

And for the most part there are opportunities to create build-to-suit activity, there could be another expect building down the road someday, but very unlikely and in virtually all cases those properties are adjacent to existing builds we already own.

So they are very strategic from our perspective they could serve to do other things for us like build parking or amenities or otherwise but they also could serve as opportunities to develop..

Okay, thanks.

You talked a little bit about cap rates it sounds like you are continuing to see those trend down in your markets and just wondering if you guys could kind of quantify the magnitude of change you have seen over say the past three months or so?.

Because every deal is different when you deal in short incremented harder yet I would say though clearly cap rates continue to quote unquote come down lower in particularly the southeast markets more recently we have seen a few deals go off that I think it surprised everyone on the pricing that they have gone up at some of those are not pubic yet so you will be hearing more about them soon but they are at deal the prices were even if you leased up a little bit of vacant space they have or something like that you might get into the 6s that sort of remarkable to us one of the mill good suburban product in Atlanta or Charlotte or Florida or otherwise where you are seeing those kinds of yields be driven.

So it’s vacancy is basically valued more highly than occupancy these days and you could argue that that makes some sense because the occupancy might be under rented but you still got to put the capital in to get at least topic set (inaudible) so again we just continue to be fairly shocked by the pricing we are seeing more recently specially in sort of non-primary markets..

Okay, thanks. And then on the topic of leasing cost we have seen come sessions remain elevated and even increased for some of your competitors and just wondering if the reduction that you guys have been seeing kind of constitute what you think is a consistent trends or is it part of Johnny’s conclusion just to add on sort of operating….

Yes. I mean, obviously we're pleased, because what you have to do though is look at very long time frames for us and any of our competitors. But we were pleased with the numbers have come down, but I would say it tends to be more a function of the types of deals we've done more than it is anything else or where those deals are located.

So, I wouldn't tell you that I think the markets now are $2.62 a foot market, per square foot per year lease term for us. Far from it, I would say that's more of anomalies and anything else. What I would tell you that we don't think that going forward, if we print a quarter that shows $5.50 or $6 of that's the market either.

We think the market is trending down slightly and we are starting to see some other benefits that in our quarterly numbers. But it's not a huge move. .

Okay, great. And just last one from me. With some other kind of job growth and positive economic indicators, picking up out there.

Just wondering if you are feeling that in your portfolio specifically in terms of rent growth picking up or more tenants and expansion loan?.

Yes, I got, I think without a doubt from my positive comments earlier on our leasing pipeline, we'd reflect the fact that we're seeing a lot of expansions now for the first time in many, many years. We're seeing a fair amount of new activities coming out that we wouldn't have necessarily seen before, it's growth not trading around tenants.

So there is still some of that, so a lot of that actually, but there is some growth that we haven't been seeing in sometimes. So we're as optimistic as we've been in a long time across the portfolio..

Great. Thanks for all the color..

Good. Thanks..

The next question is a follow up from the line of John Guinee with Stifel. Please go ahead with your question..

Great.

As usual Brendan asked a very, very good question and could I just request so whatever the answer you gave him in terms of same store quarter by quarter tax growth in NOI you publish somehow?.

Yes, John. Obviously, we’re not going to selectively disclose if we can possibly keep that information out there publicly. So let me see how we can do that because obviously we’re not going to give Brendon anything we would give anybody else too. So, we’ll figure out how to do that. Thank you..

Yeah, great..

Thank you. At this time I will turn the floor back to Mr. Don Miller for closing remarks..

Yeah, well thank you everyone for attending our call this quarter. I think that we feel like we had a really good follow-on quarter to what was obviously the most difficult quarter that we had in this part of this cycle.

We see an awful a lot of growth in the portfolio, a lot of hidden potential whether through the lease up of some of our development properties or otherwise that we think can continue this growth pipeline for several years to come given the low levels of turnover that we have in the portfolio over the next two or three years.

So, we feel as good as about this company as we felt since we’ve been public and we hope you show enthusiasm. Thank you very much for calling..

Thank you. This concludes today’s teleconference. You may disconnect your lines at this time. We thank you for your participation..