Robert Bowers - CFO Don Miller - CEO.

Dave Rodgers - Robert W. Baird Jed Reagan - Green Street Advisors John Guinee - Stifel Nicolaus Vance Edelson - Morgan Stanley Michael Lewis - SunTrust Robinson Humphrey Brendan Maiorana - Wells Fargo Securities.

Greetings, welcome to the Piedmont Office Realty Trust Third Quarter 2014 Earnings 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, CFO of Piedmont Realty Trust. Thank you, Mr. Bowers. You may now begin..

Thank you, operator. Good morning and welcome to Piedmont's third quarter 2014 conference call. Last night, we filed our earnings release and a Form 8-K which includes our unaudited supplemental information both of which are 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 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, and these statements speak only 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. Now in addition, during the call today, 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 some our financial results after Don Miller, our Chief Executive Officer, discusses a few of the quarter's operational highlights.

Don?.

Good morning, everyone, and thank you for joining us this morning as we review our third quarter financial and operational results. As we will expand upon, Piedmont's operating performance is improving markedly as we transition from a period of high lease rollover to one of low rollover in 2015 and 2016.

We are excited about the prospects for Piedmont over the next few years. Let's start with our leasing activity this quarter. I'm pleased to report that we executed approximately 684,000 square feet of leasing. And I'm even more pleased to report that about 57% or 400,000 square feet of that was related to new leases.

That's the second highest quarter of new leasing for vacant space in the company's history.

Some of the more noteworthy new leases for vacant space signed during the quarter included Mitsubishi signed as 75,000 square foot, 11-year lease through 2026, at our 400 TownPark property in Lake Mary Florida, taking a value added property from 19% lease at the time of acquiring to 93% leased today.

Lockridge completed a new 49,000 square foot 12 year lease through 2027 at our 150 West Jefferson Street asset in Detroit Michigan, which spins our total occupancy into trade to over 90%. FedEx signed in approximately 65,000 square foot lease at our 8560 Upland Drive asset in Englewood, Colorado.

We are currently marketing this asset for sale and that's our only remaining JV property. Engle, Martin & Associates completed an approximately 40,000 square foot of 11-year lease at our Glenridge Highlands II property in Atlanta, Georgia. And Aon completed a 32,000 square foot 10-plus year lease at Crescent Ridge II, located in Minnetonka, Minnesota.

From the lease renewal perspective, the largest lease renewals included JLL's 15 year global headquarters leased at Aon center for almost 200,000 square feet, which expands and extends the expiration into 2032.

Other significant renewals during the quarter included a 21,000 square foot 7-year lease with Caelus Energy Alaska at One Lincoln Park in Dallas Texas and a 34,000 square foot 5-plus year lease renewal at 400 Bridgewater Crossing in Bridgewater New Jersey with Oracle.

Leasing activity was fairly well diversified across all of our markets and we've gotten the fourth quarter off to a strong start as well. Our greatest leasing challenges continue to be concentrated in the Washington DC market. Most of our available space in that market is in the district and in the RB Corridor.

We are seeing a number of prospects touring the various available spaces and had several proposals outstanding but the market remains competitive in bottoming rental rates have not yet begun to improve.

On the development front, our redevelopment of 3100 Clarendon is on budget and onschedule with the office tower work projected to be substantially complete in early 2015. Despite DC’s challenges, we’ve continued to be optimistic about 3100s prospects given it's premier location.

In Houston this past week, we poured the seventh floor of Enclave Place, our 300,000 square foot, 11 story office tower which is under construction in Houston's Energy Corridor. The project remains on budget and on track for completion in the third quarter of 2015.

The Houston leasing market remains vigorous with Class A vacancy in the Energy Corridor, below 5%. Of course, we’re diligently monitoring oil prices and market conditions as we focus upon leasing up this property.

From a transactional standpoint, we continue to execute on our strategy of building concentrations of assets in select, highly quality submarkets within top U.S. office markets.

To that end, during the third quarter we acquired one asset, 1155 Perimeter Center West, a 400,000 square foot Class-A property, well located within the Central Perimeter submarket of Atlanta. Perimeter Center West complements our nearby Glenridge Highlands II asset and brings our Atlanta area concentration to approximately 1.5 million square feet.

The project is 100% leased at below market rates and houses of the corporate headquarters for three different companies. It is easily accessed by commuters and adjacent to the MARTA station.

We are pleased to add this high quality property to portfolio and believe that the going in GAAP yield of 7.6% translates into a strong risk-adjusted return considering its relatively recent construction vintage and six years of average lease term remaining.

As we’ve done for previous acquisitions, we’ve posted to our website a detailed transaction overview for your review. Subsequent to quarter end, we also entered into a binding contract to purchase approximately 25 acres of land adjacent to our 400 Town property in Lake Mary, Florida.

This property is the only remaining undeveloped office parcel in TownPark, the highly successful mixed used development in Lake Mary, one of Orlando's strongest performing submarkets.

This land is located at the intersection of I4 and Highway 417 and we believe it is the best site in metropolitan area, particularly given the impending completion of Orlando's Ring Road, which will create immediate access to our site. We believe this site can accommodate over 650,000 square feet of office space.

As has been our long stated strategy, we continue to refine and narrow our footprint and we’ll also continue to exit non-strategic markets. Specifically we will focus our ongoing efforts on aggregating properties in select submarkets where we have or can build a significant relative presence.

You've seen this strategy unfold since our IPO in Cambridge and along 128 in Boston and Las Colinas and Preston Center in Dallas, in Buckhead and Central Perimeter in Atlanta, and a few other select national markets. We’ll be discussing this strategy in more detail during the NAREIT meetings beginning on November 4th, here in Atlanta.

And we look forward to seeing many of you during this event. We will be posting the presentation to our website for those who will be unable to attend. A critical part of this strategy is having strong regional leadership in place with deep relationships and a strong local market knowledge.

On that note, I am pleased that Tom Prescott, a Twin Cities native and 30-year veteran of the Chicago real estate market has officially joined the Piedmont team this quarter to head our Mid-West region.

Tom, as well as Bob Wiberg in Washington DC and Joe Pangburn in Dallas have joined us on the call today with all the other executives on our management team. Also regarding our corporate leadership and governance, I am pleased to announce that Washington DC area resident, Mrs. Barbara Lang will be joining our Board of Directors this coming January.

Barbara was most recently the long-tenured and influential president of the Washington DC Chamber of Commerce and has held prior executive leadership positions with IBM and with Fannie Mae. She now runs her own strategy consulting firm in DC and is on the board of publicly-traded Cardinal Bank in Washington.

We undergo this plan transition within the Board as two of our longest serving Board members tenure out over the next 12 months. Mr. Don Moss will retire from the Board at the end of this December, and Mr. Bill Keogler will be leaving by September of 2015.

I want to personally thank both for their leadership, thoughtful counsel and support since I joined Piedmont in 2007. Before we take your questions, I will now ask Bobby to briefly review our financial results and expectations for the remainder of the year. Bobby..

Thank you, Don. I’ll touch on some of the financial highlights for the quarter. However, as this information was included in the earnings release and supplemental financial information which were filed last night, I encourage you to please review these reports for more complete details.

For the third quarter of 2014, our reported FFO, Core FFO and AFFO was largely inline or slightly ahead of expectations. Our total lease percentage was 87.5% as of September 30th, up from 87% in June of this year. In addition, the stabilized portfolio was 89% least as of quarter end and our weighted average remaining lease term increased to 7.3 years.

As anticipated, same store NOI in the third quarter increased over 3% when compared to the second quarter of 2014, based on the expiration of rent abatements for several significant tenants.

We expect positive sequential quarter growth to continue for the next few quarters as we still have 1.7 million square feet of leases that are still in some form of abatement and another 600,000 square feet of executed leases for currently vacant space that is yet to commence.

Turning to the balance sheet as of September 30th, our total debt to gross asset ratio was 37.8%, up slightly with the acquisition of the 1155 Perimeter West Property. During the third quarter we amended our $300 million unsecured 2011 term loan to extend the term and facility from November 2016 to January 2020.

And to decrease the stated interest rate spread over LIBOR. Further subsequent to quarter end, we entered into additional forward-starting interest rates swap agreements to fix the interest rate for the extension period.

As a result, the all-in rate on the facility through the original maturity date of November 2016 is 2.39% and for the extension period the rate is 3.35%. Also during the quarter we entered into two new swaps for the last 100 million of the 300 million unsecured 2013 term loan.

Therefore, that facility is also now fully hedged and affectively fixed to 2.78% including the spread. As a result of the acquisition during the third quarter that Don referred to, we’ve increased our utilization of our $500 million line of credit to $440 million as of quarter end.

However, we do anticipate receiving sales proceeds related to some potential fourth quarter dispositions and we are actively considering financing options both secured and unsecured to reduce the balance outstanding on our line of credit and to pay off $105 million mortgage note coming due in May of 2015.

Now at this time with stronger new leasing than we originally forecasted for the year, I’d like to narrow our annual guidance for 2014 for the top end of our previous guidance to a range of $1.48 to $1.50 per diluted share for core FFO.

We will follow our usual practice of issuing formal 2015 guidance in early February after we've completed our annual budget cycle.

However, from a broad perspective as we have been indicating from sometime, we're expecting our core FFO to grow on an annual basis in the range of $0.08 to $0.12 per diluted share and cash NOI to increase significantly as our 2015 lease expiration schedule remains low as executed leases commence and as rent abatements burn off.

As such, we are announcing the first of what we hope will be a recurring event that is a raise in our dividend rate by 5% to a quarterly dividend of $0.21 per share starting with this December’s dividend. With that, I will 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.

Operator?.

Thank you. (Operator Instructions) Our first question is from the line of Dave Rodgers of Robert W. Baird. Please proceed with your question..

Good morning, guys. Thanks for the color, Don. Wanted to reach out and talk about dispositions a little bit. I think, Bobby, you mentioned some 4Q disposition proceeds, but maybe go into a little bit more color of kind of what that program might entail in terms of disposition assets.

Given the recent success you have had on leasing of some of the non-core assets, do you expect those to move a little bit faster now? Any color around kind of what you are thinking on dispositions in the fourth quarter as well as 2015? It would be helpful..

Sure. Got you, Dave. The specific sign what we anticipate right now is we've got a handful of deals in the market right now, a couple of under contracts and we anticipate if everything work like we thought right now, which you know how that never goes quite the way we expect.

But if it went just the way we thought today, we'd probably close say 50 to 100 between now and the end of the year and then another 100 to 125 in the first half of next year.

And that ranges from some assets that we've done some recently leasing on to some assets that are a non strategic markets that we talk about for some time that have finally had some things happen that allow us to move them for the value we think they are worth.

So, hopefully that gives you a bit of a sense but I think we've got between now and the end of next year, a little over $200 million budgeted. That does not account anything we might do with Aon Center which obviously changes the metrics dramatically on that..

Any sense of pricing of those, Don?.

Well pricing is good, I don’t – I'm not sure we calculated an average FFO yield on that group of assets. At least I don't have it with me, we may, talk about that later, but nobody in the room -- everyone is shaking their head. Nobody has that number in front of us..

Okay. And then follow-up. On the DC proposals you talked about, it sounds like it's maybe too early to talk specifics, but I guess in terms of economics, sounds like they are still challenged.

But can you talk a little bit more about kind of the size? Would those be meaningful leases that you are talking to now and maybe some of the locations, whether you are talking Clarendon or DC proper with some of these former OCC space, et cetera?.

Well both the Chicago and Washington look like we're going to have a much better fourth quarter than we had third quarter. We had several deals slip from the third to the fourth quarter that have now already been signed frankly in the fourth quarter that are in those markets.

So we expect to have a little better fourth quarter in those markets including some activity in some buildings that we hadn't been seeing up to now. We have some optimism around a decent size lease at one independence and some good 10,000 to 20,000 productivity across the broader portfolio in DC.

So, we expect the fourth quarter will be materially better than the third and frankly in DC we’re seeing fairly good activity albeit at very lousy economics..

All right. Thank you..

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

Good morning, guys. I guess just following up on DC and Chicago a little bit; do you feel like there is sustained momentum in those markets? I know you kind of expressed some more optimism on the last call and now this call.

Does it feel like something has fundamentally changed there? Are things still seeming tenuous? And I guess just maybe how would you characterize kind of generally those two markets that you're feeling?.

At a high level we are seeing Chicago market tightened up nicely particularly Downtown. But frankly as - for a number of quarters now, we had some pretty activity in the burps and we’re fairly well leasing the suburbs now. But downtown, and particularly at 500 West Monroe, we’re seeing pretty good levels of activity there.

And then I would say on the tour side in Washington, we've seen a big pick in activity in recent months particularly in that, like I said that 5,000 to 20,000 foot range and we converted a few in the third quarter and I think we're pretty optimistic for quite a few more in the fourth quarter.

So, I wouldn't say there is a fundamental change in the marketplace. There is still supply demand in balance and its still a tenants market by - but I think it is slowly but surely starting to try to climb back out but that's not reflected in the economics yet. .

Okay.

Then for Chicago CBD, are you seeing a decent number of bigger requirements floating around the market that could be candidates for your buildings or is it sort of more the small to midsized guys?.

It is more of the midsized guys. The 25 to 50 is seemingly where we're getting most of the activity and so we're working sort of - from the bottom of stack-on on 500 West Monroe for some of those kinds of tenants. And lot of them are very good credit tenants, so it's the Piedmont kind of credit that we’re looking for..

Okay. On the Orlando land site, just wondering what the game plan there is and if you have any kind of immediate plans to move forward on something. Maybe just talk a little bit about the timeframe and how you -.

On the Lake Mary you said..

Yeah..

That's a fairly lengthy conversation and maybe we’ll talk about it little bit more at Mary next week. But basically because of the opportunity that we had with owning the building down there and the leasing activity going on, we were seeing a lot of build-to-suit candidates that were larger than the vacancy we had.

We were fortunate enough that Mitsubishi came along and decided to take the remainder of the vacancy in that building, so we are in effect full there now. But the activity we saw encouraged us to see if we couldn't take a position in what is a very desirable submarket, an environment that was created at TownPark it is first class.

And so, what we thought we’ll try to do given that we’ve got some strong relationships down there and strong local partnership with the group down there that we’re working with, we feel like we’re going to be in front of all the major activity that's going on there and we’ll create some build-to-suite activity for us.

I don’t think you’ll see us do anything in the speculative realm unless it was just a partial building that we added on to an existing prerelease or something like that. But we feel very bullish about the land and fill like very good about the basis that we’re in at..

Okay, that's helpful. Just last one from me. Curious on the JLL renewal, just wondering if you could talk a little bit about how they are space usage changed in that requirement.

And did they -- was there any major changes in employee density or kind of increased common areas or sort of how they approached that new fit out?.

It's interesting because there is still couple of years away from the expiration and probably a year or more late from starting to change out the use of the space. It's still little early to tell how they’re going to use it.

They had been bumping up against base capacity constraints in the space already and so it didn’t surprise us if they wanted to expand. But I think their expansion is just the demonstration not to speak for them but a demonstration of their confidence in their business going forward.

But I do believe that there’ll be reformulating the space pretty dramatically even though it was already fairly advanced in the era that it was put together in 2006 and 2007 but as you know space needs continue to change and so I suspect we’ll do something pretty creative there..

Okay, it makes sense. Thanks a lot..

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

Thank you. Clearly you guys have done some good things in the capital market side of the equation. Share buybacks $320 million, a little under $17 a share. The share price is now over $19 a few years later.

Are you an issuer of equity at this number or not?.

John, that's a fun question that we deal with around the shop quite a bit. We're probably an issuer as we get very close to our NAV or above, which I think we’ve been fairly transparent that we believe that that has well into two-handle range on it.

And so I’d say there is probably a fair distance to go for our stock before we would be willing to issue at these levels. But with the volatility we've seen in the market, that could be only a week or two sometimes. And so we're always trying to be cognizant of the opportunity to issue if we think that makes some sense.

And given the growth we think we have over the next year and some of the good things happening in the front we are optimistic we’re going to get there. But time will tell..

Okay. Then can you drill down a little bit on the 1155 Perimeter Center West? I think that is a little nontraditional in terms of the square footage..

A little bit John, its actually interesting building.

Cousins built it, I thought they did a great job with it and we've always loved the bonds of that building, the infrastructures they've got there, whether it’s from loading docks are above standard, the fitness center is spectacular, they’ve got a really nice cooking facility there and that's probably the reason Arby's is in the building.

But they have also got a big trading floor kind of space that's about 80,000 feet of the 370 or thereabouts. And as a result when we first look at the building back in 2007, when the previous buyer bought it, we can look at that as sort of challenging space. It might be a little bit difficult.

That space is now become really, really attractive space and in fact you have seen it three different tenants have occupied their space over the course of time now and there is virtually very little downtime between the tenancies in that building. So its shows a lot of different types of tenants use it.

The technology tenants, the particular the ones that are now really likes it a lot. And I think its actually an asset to the building now rather than a detriment where we might have thought seven or eight or nine years when we looked at the building originally..

Great, thank you very much..

Our next question is from the line of Vance Edelson of Morgan Stanley. Please go ahead with your question..

Terrific, thank you. Another question on Perimeter Center. Could you describe the competitive landscape for the acquisition? We’re all aware of the strong private and sovereign wealth demand, even in markets like DC, where the fundamentals aren't there yet.

So how would you characterize what you experienced in Atlanta with this purchase? How competitive was it?.

Yeah. Little bit of interesting process that took place there. Since it’s a building that we knew well and wanted for a long time, we had been in constant contact with the seller of that building over the last number of years expressing our interest in it.

They, to their credit went – decided to go to the market through a broker but we preempted the brokerage process and put in a strong offer on the front that they thought was worthy of acceptance, and so they went ahead and accepted that offer rather than going through rounds of proposals.

Don’t know where the pricing would have gotten to if we gone through rounds of proposals. We could all debate that, but we feel really good about the price that we got and so we’re very happy about moving forward on the transaction..

Okay, well done.

And given your continued solid land position, you already answered on Orlando, but any thoughts on additional development priorities, which markets might be attractive and would most projects be build-to-suits and so forth?.

Yeah, what we’re seeing – and it’s a sort of a funny phenomena at this point in the cycle, Vance, but we’re seeing a lot of people coming out and saying they need a build-to-suit because they’ve got name the number, 100,000 square feet in a building somewhere in the various sub-markets that are in.

And their landlord is jacking their rent up, and so their natural reaction is, gee, I need to go out and look for other space because my landlord is jacking my rent up, only to find out there really isn’t very many other existing spaces available and so then they go out to the build-to-suit market and find out that, oh, lo and behold, the cost to develop a build-to-suit is far in excess of what the landlord was trying to jack them up to.

And so, a lot of this demand is relatively false demand admittedly, but you got to sort of go through the process with people to make sure that they understand what’s available to them out there.

So having said that, there will be some who are serious because they just need more space or whatever the case maybe, but we’re seeing across the board - Atlanta, Dallas, the Orlando opportunity - that we are seeing a lot of activity on the build-to-suit front.

Now, whether they’ll come to fruition given the pricing gap between existing rents and the cost to build, we’re not sure. The other thing we should point out on 1155 that we didn’t - maybe didn’t make highlight is that that property does come with an acre of vacant land.

Don’t know how much we can do with that, but at a minimum it’s an additional parking site. At a maximum it maybe an out parcel pad or something we could do with it..

Okay, very interesting. Thank you..

(Operator Instructions) The next question is from the line of Michael Lewis with SunTrust. Please go ahead with your question..

Good morning. You reported a very small loss on litigation settlements after several quarters of recoveries.

And I realize that's not in your core FFO calculation, but I was just wondering if we’re basically done there or if there's potential for additional gains or losses?.

I am not sure what that little bit small amount would be.

Bob, do you know what that is?.

Not in the current year. You must be speaking cumulatively. There was a small loss that we’re seeking still, insurance recovery. But there is no additional expense associated with that..

Everything that was ever paid on a litigation issue was reserved at the time of the payout, we’re still pursuing insurance firms for additional reimbursement and – but that hasn’t resolved yet..

Okay..

So to speak, nothing but upside at this point because it’s already there..

So potential gains, if anything?.

I mean, I guess there could be modest amount of legal fees still to pursue the remainder of the insurance proceeds, but that's small dollars..

The gain would be excluded from our core FFO projections to you guys..

Okay. I was also wondering if you could talk a little bit more about your decision to raise the dividend and how that kind of fits into the best uses of capital. Your yield is already very competitive.

I realize you have some proceeds coming in to pay down the line, but maybe you could give a little more behind that thought process?.

Yeah, Michael I think it’s sort of two fold issue, one is that, we've always said we would try to be forward looking in all of the things that we make decisions on, and as you know we expect to earn less than a dividend we’re paying out this year from an AFFO standpoint.

But that's largely is a result of a really positive event, it equates took place last year when we extended the lease with IBC up in Philadelphia and gave them a pot of money to draw at their discretion not knowing if they would or not and getting a really solid return on that money. Well, they drawn a fair amount of that money this year.

So, it’s driven down, we're going to drive down our AFFO during 2014, but that also allows us to look forward and see that we expect a very dramatic increase in AFFO next year because AFFO is a little harder to project than FFO because of the timing that you don’t control on the call of capital.

But all of our models are showing us earning a $1 or more or probably between $1 and $1.10 on AFFO basis next year.

And if that's the case and we’re right, and we think we are, than raising that dividend to $0.84 from $0.80 still keeps us well within the payout ratio range of our peer group and that signal for you guys that we’re very optimistic about our business.

We feel really good about where things are going and we just want to make sure everybody knows that..

Thanks, just one last one. You talked a little bit about your two active developments. If my math is right, it looks like the cost of the two projects is either at the high end of the range you gave last quarter or maybe slightly above and you pushed back the stabilization date for Clarendon just a quarter or two.

So there may be nothing there, I was just wondering if there's any additional detail to give or if your yields are kind of still on track..

Actually Michael, nothing has changed at the real estate level. I am not sure we’ve done the best job we can of communicating consistently on what's happened, but we’ve always thought that the Enclave Place would be at July 15 delivery. We have known that from day one.

If we'd ever communicate anything differently than that that was our mistake, but July 15 is delivery date and the dollar amount was sort of $85 million to $90 million total delivery. That includes land value.

We have reported things between $84 million to $88 million and $85 million to $90 million and that's a nomenclature differential that’s our own fault, and I think a couple of analysts picked up on that last night. But the $85 million to $90 million number includes land, the $84 million to $88 million doesn't Okay.

So, that's sort of the explanation on that. Now in Clarendon, that hasn’t changed at all as well. The confusion rather comes around whether we're talking about Phase I or Phase II. Phase I is the office redevelopment, that's still scheduled to be done on the first quarter of 2015, as we’ve always said it would.

And the dollar amounts haven’t changed on that although we've reported slightly different dollar amounts depending on which report you've looked at. And again, that's our fault, we need to be more concise on those kinds of numbers.

The second phase which is the retail phase, which doesn’t affect our income showing because the retailers are already in place, is scheduled for more like the second quarter of next year.

But because they're already in place, we move that piece of the delivery back and focused on delivering the office space so that we can try to accommodate tenants there as early as possible.

Does that make sense?.

Yeah, I follow. Thanks..

Okay. Thank you..

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

Thanks. Good morning. Hey Don, so I understand kind of the ramp in AFFO and that spurs you to kind of look at the dividend.

But is AFFO really the right metric to look at given that you guys have been running at around $10 million to $12 million a quarter of incremental leasing dollars and TI dollars? I don't really think that's related to development, given that your two development projects -- I presume you haven't spent any TI dollars at Enclave Place or 3100 Clarendon.

It is a pretty meaningful kind of impact to true cash flow, not AFFO, so how do you kind of think about the operating cash flow of the business relative to the dividend level? Because it seems like it's, even with a big ramp next year, probably going to be below $0.84..

Boy, I am not sure we agree with Brendan, but it's sufficient to say that, we often don’t. So I guess what I am trying to get – I'll try to explain to you is that, we had a value – series of value added properties we bought in 2011 and 2012.

We are been leasing those up, we've had particular success with those recently as you know, and as result has driven up some of the incremental costs.

Clearly, if we’re down longer than we’d like to be in DC and some of the buildings or maybe some more incremental cost that come associated with that, and that is part of the reason for the strong increase in AFFO.

But we continue to see strong growth in AFFO as we move forward because there’s still little lease rollover over the next few years but we don’t have a lot of capital coming out that’s non-incremental. So, as we go that’s just a call that we made and we feel like that's the right call..

But your -- I understand the roll from the existing tenant base is low, but you also 85% occupied and I think 87% or 88% leased. I know you want to move that number up, so I'm not sure if stuff is going to be classified as incremental or non-incremental, but regardless it is TI dollars. It's leasing dollars and it's dollars going out the door.

And your leverage is at a point where I think you are comfortable, but I don't feel like you think it's below target. And as you stated earlier, your NAV is -- you are trading below your assessment of NAV. So I would think, given that you are still a lease-up story, that you would want the most optionality on your capital.

And I know we are only talking about $6 million here, but just from a signaling standpoint I would think you would want the most optionality and it feels like taking the dividend raise gives you a little less of that optionality..

Well I think your point is the way we look at it $6 million changing to $5 billion organization dramatically. And it’s a recognition of the fact we want to maintain a strong payout ratio in our space and it’s a recognition of the conference we have going forward.

So, if we don't accept that's answer, that's okay, but that's how we feel about it Brendan..

Fair enough. Okay. Just anything that we should be thinking about -- Bobby, I know there's lots of details in terms of the tenants that you have that are the renewal deals that you did, which there's a lot of.

Is there anything we should we thinking about from a free rent period that could have a big impact beyond what you've disclosed in the supplemental?.

Brendan, we detailed on page seven of the supplemental 1.8 million square feet leases that are greater than 50,000 square feet. That will have a significant impact on our increase forecast of cash flow and cash NOI for us.

You’ve already seen in this third quarter and here going into the fourth quarter where Aon and the space that was in downtown there will start using cash flow for us. Catamaran, Union Bank out in California will start to do some cash all that is detailed for you in page seven, and those are the significant drivers for you..

Brendan, we are always going to try to give you advanced warning, say 12 months or so in advance, of any unique free-rent periods that are going to hit, it might be a result of a lease we did some long time ago or something we took over in a building that we bought or something like that.

But to try to project it multiple years in advance, makes it a little harder. So we just try to stick to the discipline of providing an information 12 months or so in advance..

Sure, that's helpful. Last one just KeyBanc.

Any -- what is the likely mark-to-market as you guys try to re-lease that space? Is it roughly in line with the market or are they significantly one way or the other?.

The markets are rough there. That expiration isn’t for six more quarters. So a lot of it will depend on what happens to the market but resuming that not a lot changes in New Jersey, that would be a markdown to the extent we can get some leasing done there. But that will be a leasing challenge - that will one of our leasing challenges..

Okay. Great. Thanks for color..

Thank you. We have follow up from the line of John Guinee with Stifel. Please go ahead with your question..

Great. This is just sort of a curiosity question, whoever handles the lease negotiations. When I look at page seven, thank you for focusing me on that, Bobby -- it's got some interesting abatement periods which are a few months here, a few months there, here a year, there a year, everywhere year.

What is the thought process from your perspective on wanting to do this? And what is the thought process on a tenant wanting to have sort of a non-traditional abatement schedule?.

John, I will be glad to answer that. It's art not science obviously what we always to do is upfront as much as the free rent as we possibly can on less there is a situation where we have something certain about the credit of the tendency. And then we want to try to get some money as soon as we can to recoup some of our investment.

But in most of the cases you're looking at where there are fairly good credit tendency. Quite often we stagger it out a little bit because they have some reasons that the tenant quite often have some reasons to pay some at certain point in time and not at others.

And quite often we are at the mercy of what they want to do timing wise and we just had to sort of build into our model.

So, I would say more often than not is what driven by the tenant, where they don’t really care when they take it, but they want to take it multiple years for some store NOI reasons we try to match up the months of the year that it happens so that creates as little volatility in our same store NOI numbers as we can.

But like you said, quite often that's derived by the tenants desire not ours..

Any chance in the future you would bifurcate your straight line effect on lease revenues to free rent and more traditional straight lining, just to help people understand this sort of lumpy nature?.

Have you seen other people doing that, John. I don't know that we have, I understand the benefits you guys are getting and something we are to think about it.

Have you seen anybody else do that yet?.

You know, I've got to think about that. If we ask for it, we always get the information, we just only ask for it on occasion when it seems to be significant..

Obviously we want to be careful about giving it to anybody without giving it to everyone at the same time. But let us think about that a little bit, I understand the needs that’s why we try to put the information on page seven in there as I think that should help you model that as well as you possibly can..

Yes, but we are not going to go to that level of detail. Thank you..

Thank you. (Operator Instructions) At this time, I will turn the floor back to Mr. Miller for closing remarks..

Okay. Well thank you everyone. What didn't come up in the call, was the fact we have new Board Member joining us. I hope it isn’t missed that we bought on someone that we think has got a lot of great capabilities for our Board, she will be joining us in January.

She is a former chairman, of Chamber of Commerce of Washington DC and a lot of local relationships there. Hopefully that significance and symbolism isn't lost on the marketplace and obviously the optimism we have expressed from the dividend increase and the activity we’re seeing in leasing side is very exciting to us.

So we thank you for attending the call. And we look forward to following up with some of you. Take care..

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