Robert Bowers - Chief Financial Officer Don Miller - Chief Executive Officer.

Anthony Paolone - JPMorgan Chase Jed Reagan - Green Street Advisors Brendan Maiorana - Wells Fargo Vance Edelson - Morgan Stanley John Guinee - Stifel.

Greetings, and welcome to the Piedmont Office Realty Trust First Quarter 2015 Earnings Call. At this time all the participants are in a listen-only mode. A 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, Mr. Robert Bowers..

Thank you, operator. Good morning and welcome to Piedmont's first quarter 2015 conference call. Last night, we filed our earnings release and a Form 8-K, including our unaudited supplemental information. Both 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 risk and uncertainties that may cause actual results to differ from expectations 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. In addition, during this call, we'll refer to non-GAAP financial measures such as FFO, Core FFO, AFFO, property operating income, 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 with you our financial results after Don Miller, our Chief Executive Officer, discusses some of this quarter's operational highlights.

In addition, we're also joined today by various members of our management team, all of whom can provide additional perspective 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 today as we review our first quarter financial and operational results, including our leasing and capital markets activities for the quarter.

We are confident you will find this quarter’s results saw significant improvement in almost all metrics, as previously execute leases have commenced, related abatements have diminished, and lease-up of vacant space has continued.

I’m first of all pleased to report that our leasing activity for the quarter was strong totaling just over 817,000 square feet with 46% or approximately 375,000 square feet related to new tenant leasing. Importantly 160,000 square feet of this leasing or 44% was in Washington DC and Chicago.

Further, the vast majority of this new leasing related to currently vacant space, resulting in over 1% improvement in occupancy in just one quarter. We are also pleased to note that we experience compelling same-store cash NOI improvement at over 15%, as well as positive spreads on rental rates on both the cash and GAAP basis.

We ended the quarter at just under 89% leased and approximately 200 basis point improvement over the first quarter of one year ago.

Some of the larger leases executed this quarter include two key renewals from the Chicago market, Comcast and Windy Point I in suburban Chicago signed a seven-year extension for 73,000 square feet, and a large software company renewed approximately 64,000 square feet at Aon Centre until 2022.

Also in suburban Chicago, a certify, a subsidiary of American Express executed in 11 year new lease for approximately 40,000 square feet of vacant space at our to your peers place asset.

In Washington DC, the GSA tenant Corporation for National and Community Service has signed a 15-year new lease at one independence square for approximately 85,000 square feet, also access intelligence signed on 11 year 32,000 square foot new lease at 9211 Corporate Boulevard in Rockville Maryland.

In Atlanta, we signed an approximate 60,000 square foot new lease with Liberty Mutual Insurance at Suwanee Gateway One. Those were just a few of the highlights for the quarter, so please refer to our supplemental information for the more complete listing of significant leases executed in all of our markets during the first quarter.

I would like to note that given Suwanee Gateway is the last remaining asset from our original value-added strategy undertaken earlier in the cycle. We decided to drop the value-added analysis on our supplemental this quarter.

We've been pleased with the leasing of these properties, including the Medici in Atlanta, 1200 Enclave in Houston, 500 West Monroe in Chicago, and 400 TownPark in Orlando and the success of the strategy has been generated for Piedmont.

In general, we are encouraged by the momentum we’re seeing across all of our markets, including some that have been lagging the recovery such as Washington DC. While lease economics are still uneven by market, we continue to believe that quality assets located in superior locations will outperform general market conditions.

As we currently have no significant lease expirations for the remainder of 2015, we believe we should drive leased occupancy gains to over 90% for our in-service portfolio by the year-end.

Turning to our development projects, the office tower component of the 3100 Clarendon redevelopment project in Arlington, Virginia is now substantially complete with only punch list items remaining. The retail space facelift is now underway with the majority of this work expected to be performing in the second and third quarters.

Looking at the lease-up prospects for this asset, while the first quarter of 2015 showed negative absorption for the entire DC metro region.

For the second quarter in a row the submarkets inside the capital beltway collectively outperformed those outside the beltway with the most attractive office locations continuing to be metro centric amenity rich walk able environments such as those around all of our DC and Virginia assets, including 3100 Clarendon.

We continue to work with perspective tenants and anticipate having something positive to report there soon. We are also nearing the completion of on-play place in Houston, core and shelf instruction have substantially finished and we are now working on finishing the interior improvements in the lobby and common areas of the building.

The project remains on budget and on schedule for completion this summer. While overall space absorption remain positive in Houston in the first quarter it was at its lowest level on approximately two years. In addition, approximately 1.5 million square feet of sublease spaces have been added to the city-wide inventory since the end of 2014.

That said we are pleased that we continue to see leasing interest in the project with the drop in demand and the increase inventory may result in a longer lease up and greater concessions than we had originally anticipated. However, given our low basis, we believe we can compete very effectively for most prospects.

This one project is our only leasing exposure in Houston for several years.

While both of the DC and the Houston projects are nearing completion we've been approached by a number of leasing projects for various build-to-suite opportunities on some of the remaining raw land parcels in our portfolio and currently anticipate our next development activity will be a build-to-suite project and the attractive Lake Mary and Medici submarket of Orlando.

We’ll keep you appraised of as definitive plans unfold. Looking at capital markets transactions, as we stated in the previous quarters call given the current demand for quality assets, we believe now is a opportunistic time to shed non-strategic assets.

Therefore, during the first quarter we recycled proceeds from the sale of 3900 Dallas Parkway in Plano, Texas which is 120,000 square foot five-storey building that was a 100% leased, and to the acquisition of a high quality asset at Park Place on Turtle Creek and approximately 177,000 square foot 14-storey 88% leased Class A office building located and the procedures uptown Turtle Creek market.

Like One Lincoln Park, which we acquired last year, Park Place is an infield location and an excellent example of our transactional strategy and that we traded one of our remaining suburban assets with limited income growth potential and leveraged our local market knowledge to acquire a multi-tenant asset in the submarket was superior income and value characteristics.

Further of the transaction was accretive to core FFO and given Park Place is below market in-place rents enhances our overall growth profile.

Also during the quarter, we entered into a contract to sell Copper Ridge and approximately 268,000 square foot multi-tenant office building in Lyndhurst, New Jersey instructed in 1989 and approximately 87% leased to various tenants, including the anchor Ralph Lauren.

The contract became binding this month and the sale is anticipated to close in the next few days. Earlier this week, we also completed the sale of two additional assets 5601 Headquarters Drive in Plano, Texas for $33.7 million or $203 a square foot and River Corporate Centre in Tempe, Arizona for $24.6 million or $185 a square foot.

Both of these assets were single tenant properties located in non-strategic sub markets. All of these dispositions fall within our fiscal year forecast guidance and should not affect our previous year and estimates. I’ll turn it back over to Bobby to review our financial results and expectations for the remainder of the year.

Bobby?.

Thanks, Don. While I will discuss some of the highlights of our financial results for the quarter, I encourage you to please review the earnings release and supplemental financial information, which were filed last night for more complete details.

For the first quarter of 2015, we reported core FFO of approximately $60 million or $0.39 per diluted share, which is $0.03 higher compared to the same metric last year.

The commencement of several significant leases including a 200,000 square foot lease with Epsilon Data Management at 6021 Connection Drive and 160,000 square foot lease with INTEGRIS at Aon Center, as well as with the decline in the amount of outstanding operating expense abatements were key drivers of this increase.

AFFO for the first quarter of 2015 was $0.30 per diluted share and reflects the items I just mentioned, as well as decreased non-incremental capital expenditures and the effect of lower straight-line rent adjustments this quarter as a result of the completion of certain large tenant build outs and expiration of rental abatement periods during 2014.

As Don mentioned, our total lease percentage was approximately 89% as of March 31, up 100 basis points compared to year-end and 200 basis points over the first quarter of 2014. And our weighted average remaining lease term was approximately 7 years.

As we forecasted for the last year or two, and as Don stated, our property level NOI improved with an 18% increase and our same-store NOI increased 15% over the first quarter of 2014. On a GAAP basis, property level NOI and same-store NOI increased 10% and 6% respectively.

As of the end of the first quarter, we had 1.7 million additional square feet of leases that were in some form of abatement and another 500,000 square feet of executed leases for currently vacant space that’s yet to commence.

Since we have limited lease expirations over the next two years, we anticipate future leasing of currently vacant space to contribute to future cash NOI growth as the leases commence and abatements expire.

From a balance sheet perspective, we ended the first quarter with $2.3 billion in outstanding debt and approximately 38.7% total debt to gross assets ratio, which is consistent with where we were at year-end.

During the first quarter, we entered into $170 million unsecured term loan priced at 112.5 basis points over LIBOR and filled the empty space in our debt maturity schedule in 2018. The proceeds from the term loan were used to repay a maturing $50 million floating-rate loan and pay down on the outstanding balance on our $500 million line of credit.

Additionally, subject to quarter end, the proceeds from the asset sales Don previously mentioned and the line were used to pay off $105 million mortgage, the only remaining debt maturing for us in 2015.

As of March 31, we had a total of $500 million in forward-starting interest rate swaps for future fixed-rate financings, which capture today’s low treasury rates and manage our interest rate exposure going forward. Half of this may be used to hedge potentially issuance of debt later in 2015 and the other half in 2016.

At this time, I would like to affirm our annual guidance for 2015 in the $1.54 to $1.64 per diluted share range for core FFO.

As I discussed last quarter, while we expect annual cash NOI improvement to be between 8% to 10% increase over last year, please keep in mind that there will be some volatility between quarters as various abatements commence and burn off and with some seasonality in general and administrative expenses.

Also, we expect most significant changes in our balance sheet for the rest of the year with acquisitions and development funded by our dispositions. In summary, we are excited to see this quarter’s results as a reflection of several years of dedicated leasing efforts and we believe our outlook will continue to reflect this growth.

I will now ask the operator to provide our listeners with instructions on how they can submit their questions. We will 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?.

At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question is from Anthony Paolone with JPMorgan Chase. Please proceed with your question..

Don, I was wondering if you can talk to – as you look out through 2016, you have lower expirations, but you also got some known move-outs and you have a certainly leasing pace, you are running.

Can you kind of tie those together and give us a sense to how you feel about absorbing vacancy over the coming 18 months or so?.

Yeah, Tony, we would be glad to. I think we’ve said very consistently that we tend to produce 200,000 square feet plus a quarter of new tenant occupancy in our portfolio. Actually, it’s been a little higher than that, but just to be cautious we try to use a number of around 200,000 square feet.

This quarter, obviously, you saw we did almost double that. But if you assume that we do 200,000 square feet a quarter in new leasing and you’ve got three quarters of year left with very de minimis rollout of the portfolio at this point. That’s where we are coming up the 90% plus occupancy.

If you believe that we can continue the 200,000 square feet a year over the course of 2016, then we should continue to grow occupancy during 2016 as well, but maybe not quite as quickly depending on what happens in Nashville, Austin, and New Jersey.

So we still have forecasted growth in occupancy through 2016 despite a couple of those move-outs with using, what I would call, very conservative numbers and not giving a lot of credit to whatever renewals may happen in those buildings..

Okay, thanks.

And then just for Bobby, can you talk to where you see leverage and if you are looking at it from like a target net debt to EBITDA level or how you are thinking about that considering some ins and outs with dispositions and also you put in place the ATM?.

Yeah, I think we’ve talked before that we have internally a target of not having our debt to gross asset ratio of greater than 40% and today we are sitting a little over 38%. I’m not seeing a great change in our leverage ratio over the next 12 months to 18 months..

Okay.

And just comment on the ATM in terms of decision to put that in place or intention as to use it or not?.

The intentions there were simply just to have another arrow in the quiver as an option in case stock price moves, it’s in our current plans to have the ATM in place..

Okay. Thank you, guys..

Our next question comes from the line of Jed Reagan with Green Street Advisors. Please proceed with your question..

Hi, good morning, guys.

Can you share the cap rates you achieved on your recent asset sales and maybe how the pricing compared to your initial expectations?.

Yeah. Hi, Jed, it’s Don. I’d be glad to do that. The deals that we did in Dallas and Phoenix were, as you might imagine, pretty aggressive cap rate deals because they are long-term leased single tenant buildings. And so, in Dallas, in particular, it was very aggressive, it was well sub-6 going in cap. Thanks to below-market rented building.

And the, Phoenix, it was sort of mid-6 range from a cap rate standpoint. The Copper Ridge deal is a little higher cap rate because we have above market lease in Ralph Lauren in that billing, but we also got very nice price – we will be getting very nice price per square foot for Northern New Jersey suburban real estate at just under $200 a foot..

Okay, thanks.

And with still a pretty good amount of room left around your disposition guidance, what other markets are you looking at selling at this point and maybe what kind of interest are you seeing in those assets?.

So we’ve got – the last remaining JV assets on the market, we’ve got Cleveland on the market, we’ve got a couple of smaller suburban assets in Atlanta and Phoenix coming to market and then we hope later in the year to move maybe some product in Detroit as well.

If that’s all the case, then I would tell you the deals that are in the market so far are getting very good reception. In fact every deal we sold this year has been well above our own internal NAV and the initial pricing we are getting on those deals and markets I just mentioned are also well above NAV.

So we are very pleased with the activity level we are seeing in the market. I am not sure anybody else is seeing the same thing selling today, it’s just a very active buyers market right now..

Okay. Thanks. And I don’t think I heard you – you mentioned this in the opening comments, but any update on the Aon sales process and could you just give us a sense of the bidding pool there, how that’s shaping up..

I lost the over/under. I thought it was going to be the first call question, not the second call question. Jed, we are getting very good activity levels as you might imagine.

The combination of a long term lease really stable rent rule with some upside in the income screen in creative plays you can make whether it’s residential or an observatory or something like that, that the market sees as an opportunity there I think drives us to believe that we are very not more optimistic than we’ve been in quite some time that that will clear.

But having said that, it’s going to take a very aggressive cap rate given the economics of the building and in a price that if we don’t get, we won’t accept. But I would tell you that we are far more optimistic than we were even three months ago on finding someone who will move to that pricing level.

We’re well into the 60, 70 type numbers on the signed CA [ph], level which for that size of asset is pretty remarkable..

And optimistic for partial sale or maybe the whole [indiscernible]?.

I would say still way too early to tell of judges because you just don’t know who might emerge on one side or the other that makes it more sense for us. So we are going to evaluate each of these individually and see where they go..

Okay, thanks. And I guess this is the last one for me if I may. Just kind of curious if you could give a little more color what are you seeing on the ground in Houston. Have you moved asking rates of the project yet or your competitors nearby are you seeing them move theirs. And then also you are seeing any oil related impacted in Dallas recently..

When a market like defaults as quickly as this market is falling and I mean the market fundamentals we don’t know yet.

But when the perception of a market falls like this, I think it’s very unusual to see people move asking rents and things like that because if there is no actual activity to prove out pricing, there is no price discovery from a rental rate standpoint, it doesn’t make any sense for anybody to actually change their asking rents.

They will change the take rent substantially if they want to try to make a deal if there is a real deal out there. And so it’s very hard to tell this early into a downturn what really is happening because there is so little rental price discovery. We have some activity at our building.

I am sure there is a handful of tenants out there that are pretty actively looking and we are getting all the tours and all the looks, but I am sure there will be much more aggressive economics than we wanted to accept if we were able to be successful. So obviously we are less optimistic than we’ve been on that building..

Okay, thank you..

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

Thanks. This is Steven here with Dave. I just had a question relating to same-store NOI guidance. Start at the year, we were around 10% and then headed back down to 8% to 10%.

How do you feel about the metric now and I guess how you back up or what’s the route to getting back to 10%?.

Okay. Hey, Steven, thanks for asking. Yeah, I think there probably was some confusion probably led by us on that issue because I think last year we were saying we felt very strongly that 10%. I think the term I used was baked for 2015.

And then in the last quarterly call, we revised that number to 8% to 10%, and I think that created some consternation among the investor base because of the term I’ve used being baked previously. The reason for the change last quarter to go to 8% to 10% was because we felt like we wanted to just to have some flexibility in the event.

We want to restructure some of these leases that are coming up down the road or do something that are just in the best interest of the company to maybe offer some free rent on a larger lease or something like that, and that gives you a little flexibility where you don’t have a situation where you walked in to the 10% number.

Having said that, now that we are a little further along, we are still guiding to 8% to 10% but I would tell you the betting line internally will be closer to the 10% and the 8%, and if we do end up at 8%, it’s going to be because we’ve done some really good things long term for the portfolio.

So we still feel very good around the 10% number and we just have to see what happens. Obviously sometimes that gets impacted by what buildings fall out of the portfolio in ’15 as well based on our disposition activity and that can change things a little bit.

So anyway, hopefully that clarifies more broadly the change that we gave you last quarter from 8% to 10% because it really is still very much towards the upside of that ranges in our internal belief..

Thanks. That’s a good color. And then we talked about the markets you are exiting. Is there any color you can give on where you’re trying your attention to in terms of acquisitions perhaps this year and maybe even more long term the way you think about your current markets? Thanks..

Yeah, we’ll be glad to see. Nothing is changed along those lines from what we talked about previously there.

We are still doing the best we can to find reasonable value in places where we have a combination of factors, existing product boots on the ground, good inside relationships with all the players in the community, what we think is a competitive advantage because there was not a lot of other substantial REIT exposure to those markets.

And so those are the places that we are focusing our attention and it tends to be right now Route 128 North in Boston, it’s the Dallas submarkets, it’s some places in Florida where you heard we mentioned we may be doing some things from a build-to-suit standpoint down in Orlando, we feel like we got a nice play going on there right now and in Minneapolis to a great degree as well, we are very still focused on.

So all of those places are places that we like to try to continue to build our portfolio. And then if we find an more opportunistic play in a place like Washington or other places where there is some dislocation then we would probably get after it, but we don’t necessarily anticipate that’s going to happen anytime soon..

Great. Thank you..

Our next question is from Brendan Maiorana with Wells Fargo. Please proceed with your question..

Thanks. Good morning. So, Don, if you – I appreciate the answer to the last question about where you are looking. If you were able to get strong pricing on Aon, it would obviously be a lot of capital in the door for the company and probably be at a very low cap rate given one where the occupancy is and just two that it’s in a big market like Chicago.

Would you sort of think about that from maybe a little bit more of – I wouldn’t say transformational deal, but it would in-bound you to take those proceeds and look at one of the primary markets and redeploy there, where it could be earnings neutral, NAV neutral.

But can I step you into a bigger position and one of the primary markets, and I know you’ve looked to go into..

Yes, good question Brendan. I think that you are hitting on one of what we would call kind of four possible strategies with proceeds from Aon and the course what happens over the course of the next four to six months as that asset comes to fruition will give us the ability to focus on which strategy we might decide to employ.

But it could range from very much what you just said, which is one of the offense, what I would call the offense strategies which would be redeploy that money back into primary markets, not necessarily the Atlantis and the Minneapolis of the world, but the Boston, New York and Washington to the world where we have a good presence as well.

And we could probably do that without being substantially dilutive or even dilutive at all, and obviously change our exposure from Chicago to a place like that. So that’s strategy number one.

Strategy number two would be, if our stock continues to trade at, we deem to be a material discount to NAV, then may we plough some of our proceeds back into buying our shares back again. We’ve had great success with redeploying back into the stock and given where we think our NAV is, I would say where we are confident our NAV is.

We very comfortably would be considering buying back shares and there is lots of ways to go about doing that as well. And I think there is always a possibility of using that cash to become more offensive in the strategic or M&A realm as well, that’s one of the offense situations you consider.

And then finally may be last way to look at it is, maybe you give some money back if you just don’t feel like it’s the right time to use it. I think that’s the lease likely of the scenarios, but it’s one that we would have to consider..

Okay, great.

And is sales of the Sears or Willis Tower, is that a good comp for Aon and how do you sort of strip out the non-office portion of that sale like, how shall we think about the sale, if that is a good comp what do you think kind of the office portion of that price spend?.

We don't have much more insight than others to, but on one level Sears is, Willis is so good comp because it is an older iconic building in Chicago, there are West Loop or East Loop so there is a little difference there, but overall from the office building component of the building's, I would say the comp is not far off.

We've heard all kinds of different numbers about where the income stream is for the antenna and the observation deck relative to the buildings NOI and so it is a little hard to get your arms around, but suffice to say they’re building on a per square foot basis as worth materially more than ours because of the Skydeck and antenna income that they’ve got that we don't have.

We actually believe that there may be an opportunity in ours and if we didn't sell it, we may pursue some of those opportunities, but the point is, it’s a little hard to disaggregated and if I was to throw numbers out I would be kind of unfair to our competitors there because I’m not sure our numbers are accurate..

Fair enough and then just Bobby, so, you guys have 1.7 million square feet that is under abatement if you have the roll forward schedule, so we’ve kind of got NOI based on your roll forward schedule and probably likely move out of KeyBanc and maybe partial [indiscernible] beyond that how should we think about just kind of the in-place annual escalators that are in the portfolio and how that could impact the next 12 months to 18 months and then how should we think about the 1.6 million square feet of role that you have over the remainder of 2015 and 2016 and free rent or likely free rent that might come from new leases that would come from the - or renewable leases that would come from that role..

I think - we are struggling because I think there is three or four questions and I’m not sure which one was - comes first Brendan.

I think the easy answer to your first question is 2% to 3% is pretty common across our portfolio in some markets like Chicago, pretty consistently 3%, other markets is as little as 2%, it is very rare that we ever get less than 2% on the step. It is occasional, but it is not very often.

So, I would say if you go into the mid-point of that that’s probably a reasonable guess from that standpoint..

Okay.

And then what I was trying to get at with the role that's coming due is, is it fair to think that as that role comes up, I think you’ve 1.6 million square feet, let’s say you renewed all of it, or you replaced it with existing tenancy or what have you? Is it fair to think that you’re going to have free rent on that upon either renewal or a new tenant coming in that might be six months on average or a year an average or something like that such that that's not all the cash flow in the same way it this right now?.

Let me, that probably falls in the real estate area a little bit more so Brendan, I’d take that as well, but if you really focused on sort of the – if you look through the end of 2015 we got virtually no, I mean we got a couple of 20s and a 40 or something like that that are rolling through the end of 2015, but the rollover is sort of minimus it is almost surrounding here.

So really what you're talking about is the three larger leases in 16 and you got to remember they are in three different places, one is New Jersey, where yes, of course there will be dramatic amount of free rent if we were able to re-tenant it, we may turn around and sell that building towards the end of this year or early next year, so that may not be an issue for us, but the point is, if we were to hold it and try to lease it back up, yes there would be free rent associated with that.

If you go to the other two Nashville and Austin that’s probably two of the strongest markets in the country, and no, I don't think we’d see much in the way of free rent in the events of renewals of either the primary leases or the sub-leases in the case of the Austin building because those markets are so strong.

So the pre-rent would be pretty de minimis. So it really kind of, you almost had to break it down to which market you are in and what the prospects are for that particular building and so hopefully that helps you. That gives two out of the three, the downtime should be relatively minimal..

Okay great, very helpful. Thanks for the time..

Hey and by the way I never answered Jed’s question on, you remind me of that on Dallas and it relates that Dallas and Austin we’re really not seeing dramatic changes in those markets from a leasing and activity level as it relates to oil, you know I think we’ve seen different statistics and I wouldn't want to be quoted as this being a fact, but the general numbers we see from the brokers are that Houston is substantially in excess of 50% from an office occupancy standpoint in the oil or related industries; and Dallas is like 5% to 7%.

So it shows you what a dramatic difference there is between those two markets and so given that they are both in Texas, I can see why people might feel like they behave a little more similarly, but we really haven't seen that and haven't seen that from a activity level standpoint either..

Okay that's a great..

Hopefully that helps..

Yeah that's helpful. So Jed and I both thank you for that one. Thank you..

Thanks Brendan..

[Operator Instructions] Our next question is from Vance Edelson with Morgan Stanley. Please proceed with your question..

Thanks. Good morning.

So, it’s clearly a big positive that you have limited expirations this year, not a huge amount next year either, but can you capitalize on the relative comm this year by proactively focusing on next year’s expirations and perhaps getting some those squared away?.

Yeah, Vance, we are – as you can probably imagine, we are actively – especially on those larger deals, we are actively in negotiations on all of those deals, that why we’ve been able to give you fairly good guidance on where we think things are headed.

But they can still change because there is always other people trying to get those tenants away from us. But the point is that we are actively engaged in all three of the larger deals, I think there was maybe two other deals of any size that we are actively engaged and working those as well. Yes, absolutely, is the answer..

Okay, great.

And then could you also expand on the decision to unload Copper Ridge in New Jersey, whether that was a more asset specific decision or whether it’s any reflection of your views on the future of the office market in Jersey?.

I think I can probably honestly say both, Vance. Obviously, that’s a building that’s approaching 30 years old, still pretty good quality asset. But northern New Jersey, especially certain submarkets, aren’t terribly robust right now. We still have some term left in the Polo lease. And so, we just felt like it was the right time to move it.

We’ve found somebody who thinks very highly of the building once we move forward with it. And so, for all those reasons, we think it’s a good overall transaction for us, very pleased with our execution on that.

But, yeah, I think the market in New Jersey is – we’re certainly not going to be rewarded for having more concentration rather than less concentration in northern New Jersey going forward..

Okay, great. And then, finally, if you could just expand a little bit on DC and Chicago in the way that office demand is coming back, some of your more significant lease signings during the quarter were in those two markets, which have been slower to recover.

So, do you think the recent signings at Aon Center and Windy Point and One Independence Square are a real sign of improvement and a sign of more leasing demand ahead?.

Yeah, you know, it’s interesting, Vance. We’ve had some pretty good success with the last year or two in suburban Chicago, in particular. I mean we are virtually fully leased with the exception of a couple of small little spaces in suburban Chicago.

And then in Downtown, the activity levels have been strong enough that the overall – Downtown office market things are just getting better and better. So, as a result, we feel – in particular, in Chicago, we feel pretty darn bullish.

And we think that’s part of the reason why we are seeing activity level we are seeing Aon as I think the market sees that there is pretty good activity level there and some upside in those story. So, we are optimistic that we are going to see continued activity levels at 500 West Monroe particularly right now.

And then we’ve got some new activity at Aon that we haven’t been seeing up until recently that we are starting to see now. So we are encouraged by that. In Washington, I think the recovery is far from ongoing, but we are seeing continued increase in leasing requests towards and RFPs.

And so that’s been encouraging, but it’s going to continue we think to bounce along the bottom for some period of time and I don’t think there is any reason to believe that there is huge upside there.

But having said, we’ve got more large activity going there than we’ve had in probably 2 years to 2.5 years whether that converts to actual activity or not – completed activity or not, we will see..

Okay. That’s very helpful. Thanks..

Our next question is from John Guinee with Stifel. Please proceed with your question..

Great. Okay. Hey, thanks, Don. [indiscernible] wonderful to see the asset recycling kicking in. Your timings turning out to be pretty good, I think and I hope. Couple of a combination question. You mentioned three big leases, Independence Square, Rockville, that building out in Gwinnett County, big leases, those were sort of stubborn vacancies.

And if you could sort of elaborate a little bit on the TI leasing commission package to get those things leased, that would be great.

And then also tie it into page 32, which is your non-incremental versus incremental CapEx because what’s interesting about it is over the last couple of quarter, a lot more of your CapEx has been incremental or value creating and less has been non-incremental. There seems to be a significant shift there and I’m trying to tie the two together..

Okay. Fair enough. I think we can do that for your, John. On the three deals that you referenced in particular, of course, every story is a little different. The deal in Gwinnett County was actually relatively low TIs because of the smaller or shorter term lease. They didn’t want to go long-term.

So I think they are coming out of pocket substantially as a tenant themselves to spend some money on the building. And so that was a relatively low lease rate – I’m sorry, low TI allowance in a fairly solid lease rate. So we felt very good about that.

The Maryland deal, the smaller one up in Maryland, the 30,000 footer was relatively high TI package, I don’t remember the exact amount [indiscernible]. And as a result, we did relatively market rents on that deal, but I will give you that in a second.

And then the deal in Downtown DC, which maybe the reason for your question to start with was the GSA came out with a fairly high TI ask, it’s a common practice for them more recently, come out with very high TI packages and you make it that sort of a non-negotiable part of the transaction.

And so then you are just bidding on the rent to reflect that higher TI. So you have the TIs very high in the CNCS [ph] deals in the triple figures, but we also built that into our rate and we are able to get rents that were at or above where OCC was when they left the building back a couple of years ago.

And as a result, I am not sure we felt like in this market environment, we’re going to be able to maintain rate and we were, but it cost a little bit money to get there. And in fact on that particular deal, we were told that several people bid below us, but they wanted to go for the higher quality building. So that’s exactly what we hope.

That’s the story we hope to hear in these markets. Back on the Axis intelligent steel, I think we are in probably people putting small prints in front of me. I think we are in the $60 range on that John..

Okay..

And that’s a 11-year deal and then answered your question on the incremental versus non-incremental.

Yes, absolutely more is coming from incremental but I think it comes from the very issues you are referring to and that is that a couple of these stubborn vacancies we’ve had particularly as you look at some of the Washington D.C., you are going to see a much higher relationship of incremental to non-incremental going forward, because we have so little roll over and deals that are not renewals or leasing right after we are losing another tenant, they would b considered incremental, the way the market does that.

And so I don’t make the rules, I just live by them but because I never thought that, that process made a lot of sense but that’s the way the market does it and so we emulate the market on that..

So the deals that you just described that those TI dollars show up in incremental value creating CapEx..

That’s correct and of course they have all the new additional revenue to go along with them as well in places where we weren’t getting revenue in actually a number of years ago..

Perfect. Okay, hey, thanks a lot..

Good. Thank you..

Our last question is from Jed Reagan with Green Street Advisors. Please proceed with your question..

Hi guys. Just a quick follow-up. Can you remind me what the Nashville exposure is for 2016 on the leasing front and just a little color around status there and sizing of exposure..

Yeah. So we got two buildings there, Jed, you may know. One is leased to a company called Comdata and the other is leased to Caterpillar Financial. Caterpillar Financial lease goes out into the 2020s, the Comdata lease goes out into mid 2016. And so that’s the lease that you are seeing as the exposure in 2016 in Nashville..

How many square feet of that?.

Right at 200,000..

200,000 okay. Thanks.

And then just you also talked about the potential build-to-suit opportunity at Lake Mary, can you give any color around potential size or timing there?.

Yeah. As you may remember in the last quarter, we announced that we bought some land there that is – part of it is part of a town complex that Colonial Properties had build as one, I would call one of the early stage live work play kind of projects around the country, had a lot of success with it, built another number of office buildings in there.

We bought the last billing they built in there, while it was virtually vacant a couple of years ago and now leased up. And then subsequently from Mid-America we bought the land because it was no longer residential land or commercial land. So we bought that closed on it late last year about 25 acres.

So we’ve got in a ballpark of 500,000 feet to 600,000 feet of developable office sites plus some retail and hotel that we would probably bring in to further the amenity based on the part which – that’s a fantastic park away at the intersection of I4 and the new beltway that’s being completed right now.

And so it’s really a sexy real estate and as a result what’s happening is a lot of people are looking at [indiscernible] and realizing there about to go to four years of construction on I4, and so a lot of folks are getting out and going up to Lake Mary. And we are setting right in the path of a lot of those build to suite opportunities.

So we are in final throws with one and optimistic about another flows or come to fruition. James and myself that we feel optimistic that we are going to see a lot of activity there over the next year or so..

Okay. Thanks so much..

At this time, I would like to turn the call over to Mr. Don Miller, for closing remarks..

Again as always thank you very much for your participation on the call.

I think as you can see or sense from our enthusiasm we are really excited to be at this point in our evaluation rather than going to the last three or four years of all of that lease roll over and having report numbers on to talk about? So we are very excited about where we are headed and hope you all and share that enthusiasm, and look forward to catching up further as you have other questions.

Have a great day..

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