Good morning, and welcome to the Highwoods Properties Conference Call. During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session. As a reminder, this conference is being recorded October 24, 2018. I would now like to turn the conference over to Mr.
Brendan Mayerana. Please go ahead, Mr. Mayerana.
Thank you, operator, and good morning. Joining me on the call this morning are Ed Fritsch, President and Chief Executive Officer Ted Klink, Chief Operating and Investment Officer and Mark Mulhern, Chief Financial Officer. As is our custom, today's prepared remarks have been posted on the web. If any of you have not received yesterday's earnings release or supplemental, they're both available on the Investors section of our website at highwoods.com. On today's call, our review will include non GAAP measures such as FFO, NOI and EBITDAre.
Also, the release and supplemental include a reconciliation of these non GAAP measures to the most directly comparable GAAP financial measures. Forward looking statements made during today's call are subject to risks and uncertainties, which are discussed at length in our press releases as well as our SEC filings. As you know, actual events and results can differ materially from these forward looking statements. The company does not undertake a to update any forward looking statements. I'll now turn the call to Ed.
Thank you, Brendan, and good morning, everyone. While interest rates have increased and REIT stock prices have contracted, economic indicators remain sound and fundamentals in our business remain healthy with rising rents and steady demand from existing customers and new prospects. As you know, we've worked hard to have built a fortress like balance sheet. And while lowering leverage has modestly reduced near term earnings growth, we have arrows in our quiver to fund our development pipeline without meaningfully impacting our balance sheet metrics or triggering a prerequisite to issue additional shares. Turning to the Q3, we delivered FFO of $0.86 per share and leased 884,000 square feet of 2nd gen office space, including 278,000 square feet of relays.
In addition to solid leasing volume, we also posted strong leasing metrics. In the Q3, we garnered GAAP rent spreads of plus 18.5% and cash rent spreads of +3.2%. Net effective rents on leases signed in the quarter were roughly in line with our recent 5 quarter average. Furthermore, in 5 years' time, we've increased net effective rents by more than 25%. Given our strong leasing metrics, in place cash rents are up 4.9% compared to a year ago.
As anticipated, with Fidelity's known move out of 178,000 square feet from the 11,000 Weston Building in our Raleigh division, our occupancy declined 50 basis points to 91.3%. Excluding this move out, occupancy would have increased 10 basis points. As reflected in our outlook, we expect occupancy to improve by year end. We continue to generate growth with our development program. Since our last earnings call, we've scotched over 115,000 square feet of 1st gen leasing, which represents more than half of the remaining spec space in our development pipeline.
The strongest move in the quarter was at Virginia Springs 1 in Nashville, where we're now 100% pre leased, up from 38% last quarter. This strong leasing has accelerated this development project's projected stabilization date by 6 whole quarters ahead of the original pro form a from the Q3 of 2020 to the Q1 of 2019. Similarly, given our strong demand, we fully anticipate accelerating the stabilization of 751 Corporate Center in Raleigh, 6 or 7 quarters ahead of our original pro form a. Also, we placed 2 development projects in service, representing $67,000,000 and encompassing 223,000 square feet. First, our $29,000,000 87,000 square foot 100 percent leased build to suit headquarters and ambulatory service center for Virginia Urology in Richmond and second, 7 Springs II in Nashville, a $38,000,000 136,000 Square Foot project that is 74% leased.
After placing these two projects in service, our development pipeline is now $658,000,000 96 percent pre leased. This pipeline will provide meaningful cash flow as it delivers over the next few years. As a reminder, we have $190,000,000 of 100 percent pre leased development delivering in 2019. These projects are Virginia Springs 1 in Nashville, which I mentioned, will now be delivered and placed in service in the Q1 of 2019 our 3rd building at MetLife's Global Technology Center in Raleigh, which is on track to deliver in the Q2 of 2019 and Mars PetCare's U. S.
Headquarters in Nashville, which is scheduled to deliver and be placed in service in the Q3 of 2019. With regard to construction costs, we continue to see them rise at approximately 0.5 percent per month, in line with the zip code we've been experiencing over the past few years. As you know, we are largely insulated from cost increases in our current development pipeline given our build to suit projects are open book and we have GMP contracts in place for our multi customer development projects. During the past several years, demand for new space has remained strong despite higher rents. In addition, we continue to have conversations with a number of sizable pre leased prospects across several potential development projects.
This sustained level of interest leads us to believe the depth of demand should remain attractive as construction costs and rents continue to rise. As a reminder, our initial 2018 development announcement outlook was $100,000,000 to $350,000,000 With our $285,000,000 Asurion build to suit announcement, we surpassed our original midpoint by $60,000,000 Turning to building dispositions, our current 2018 outlook is $80,000,000 to $120,000,000 with $31,000,000 closed thus far. We continue to expect a number of non core asset sales to occur before year end. We've kept our acquisition outlook unchanged at $200,000,000 For the few assets that have been in the market, pricing for BBD located Class A office properties remains highly competitive with cap rates in the mid-5s to low-6s. We continue to evaluate on and off market opportunities with a commitment to prudent investing.
In summary, strong leasing activity in our operating portfolio and continued focus on disciplined capital recycling combined with carefully managed operating expenses, a strong balance sheet and a very highly pre leased development pipeline sets the table for growth in our cash flow and NAV over the next several years. Ted?
Thanks, Ed, and good morning. We continue to see strong demand for our well located BBD product. We've already made very good progress on our 2019 expirations. In the list of 5 2019 expirations greater than 100,000 square feet, we've taken care of 3: UMA and AT and T through renewals and INC by selling Highwoods Tower 2 at attractive terms to a user. This leaves the FAA and T Mobile.
We're confident in the probability the FAA will renew its 100,000 square foot lease given its location and their sole occupancy in the building. Regarding T Mobile, we're not prepared to make a decision yet and their 116,000 square foot lease doesn't expire until the end of November 2019. We're paying attention to supply levels across our footprint. While there has been a modest increase in development activity, supply remains below prior peak levels and net absorption has been healthy, which has broadly enabled the markets to remain at equilibrium. I'll touch more on Nashville and Raleigh, where development has been more notable when I turn to the market overviews.
Solid fundamentals underscore that strong market demographics continue to appeal to businesses seeking to relocate to our footprint. Now turning to our quarterly stats. We leased 884,000 square feet of 2nd gen office space, including 278,000 square feet of new leases. The new deal volume was approximately 30% higher than our prior 5 quarter average, while GAAP rent spreads were robust at 18.5% and cash rent spreads were healthy to positive 3.2%. Evidence of our strong leasing performance working its way into the portfolio can be observed by our average in place cash rents at quarter end, which were 4.9% higher than a year ago.
Our 3rd quarter same property cash NOI was positive 1.4% despite lower average occupancy compared to last year. Decline in occupancy was more than offset by contribution from annual rent escalators and leases commencing with higher cash rents. Our updated year end occupancy outlook is 91.5 percent, down 25 basis points from the midpoint of our original outlook. The decline in the midpoint is almost solely attributable to the unforeseen bankruptcy of a 62,000 square foot industrial user in Greensboro. At the end of the quarter, our industrial portfolio was 95.5 percent occupied, so we feel good about our ability to backfill this block.
We anticipate occupancy improving in the 4th quarter, driven largely by signed leases that are scheduled to commence before year end. Now to our markets. The Atlanta market's net absorption in the 3rd quarter was 175,000 square feet as reported by CBRE. This result is particularly strong considering 2 high profile move outs. State Farm vacated 185 1,000 square feet in central perimeter as they continue their consolidation into their owned campus, and AT and T vacated 300,000 square feet in Midtown and Buckhead.
We do not believe any of this space is competitive to our nearly 2,000,000 square foot Buckhead portfolio. During the quarter, there was 2,200,000 square feet of office under construction across Atlanta or approximately 1.6% of stock. Midtown accounted for more than half of the development, while nothing was underway at the end of the quarter in Buckhead. We signed 109,000 square feet of 2nd gen leases during the quarter, with strong GAAP rent spreads of 29.5% and a healthy average term of 7.6 years. The quarter included meaningful progress in our Buckhead portfolio.
Half of the 109,000 square feet were re let signed in Buckhead, and we've agreed to terms for an additional 86,000 square feet. We look forward to executing those deals before year end. Raleigh saw 162,000 square feet of positive Class A net absorption during the quarter as reported by Avison Young. This takes the year to date figure to positive 7 100 and 10,000 square feet, while Class A asking rates have increased 5% year over year. We estimate there are 3,000,000 square feet of office under construction in Raleigh or 4.5 percent of total stock.
When narrowing that perspective to our competitive set, the percentage of new supply is less than 2% of stock and is approximately 50% pre leased. We signed 233,000 square feet of 2nd gen leases during the Q3 with a weighted average term of 7.5 years. This includes the 105,000 square foot AT and T renewal I mentioned earlier. GAAP rent spreads were a solid 17.4%. We're pleased to see continued strong demand for 1st and second gen space in Raleigh.
Lastly, as reported by CBRE, Nashville posted positive net absorption of 151,000 square feet during the quarter 460,000 square feet year to date. We're tracking a little over 3,000,000 square feet under construction, which is roughly 30% pre leased. Approximately 70% of this total is in the urban submarkets, where we have 1,600,000 square feet in our operating and development portfolio, but we have essentially no vacancy or any meaningful lease expirations until 2025. The remaining amount under construction is spread out from Brentwood to Cool Springs. We continue to feel good about our Nashville portfolio with our ability to maintain strong occupancy and capture improving rents.
We ended the quarter with occupancy of 92.7% across our 4,200,000 Square Foot operating portfolio. We signed 78,000 Square Feet of 2nd Gen leases at GAAP rent spreads of 21.9% during the quarter. In conclusion, our strong leasing results and current level of activity indicate that demand remains healthy. Consistent net absorption across the broader markets has kept occupancy levels steady as new supply delivers. Continued demand for our well located BBD product keeps us upbeat that we'll be able to continue reducing future exploration risk while leasing up pockets of vacancy.
Mark? Thanks, Ted.
In the Q3, we delivered net income of $33,200,000 or $0.32 per share and FFO of $91,600,000 or $0.86 per share. The quarter was clean other than the accelerated $1,300,000 rent payment from Fidelity at 11,000 Weston in our Raleigh division, which was their normal quarterly rent plus $500,000 for their October November rent. Rolling forward from 2nd quarter FFO of $0.87 per share, the major change was the final recognition of the restoration fee from Fidelity in the 2nd quarter of $1,900,000 partially offset by their aforementioned extra 2 months of rent recorded in the 3rd quarter. We saw the normal seasonal increase in utility costs in the Q3, but this was partially offset by lower repair and maintenance expense. We reported same property cash NOI growth of 1.4% with average occupancy 200 basis points lower compared to last year.
Included in same property growth is the 1 point accelerated rent payment from Fidelity. This is classified as a termination fee in the press release and in the table on page 4 in our supplemental package. As you know, we typically exclude termination fees from our calculation of same property NOI growth. Because the payment was to satisfy their full original obligation under the lease, it was appropriate to include their accelerated payment in same property NOI. Our same property NOI growth in 2018 does not include recognition of the restoration fee.
Eliminating the extra 2 months of rent received from Fidelity in the Q3 and adjusting for their impact on our reported occupancy, same property NOI would have increased 0.9% with average occupancy down 140 basis points. Higher same property cash NOI was driven by healthy annual bumps on nearly all leases and solid growth on 2nd gen leasing, partially offset by higher straight line rent. Turning to our balance sheet. We ended the quarter with leverage of 35.5 percent and net debt to EBITDAre of 4.77 times. We haven't issued any shares on the ATM since the Q2 last year.
We are committed to grow within our target debt to EBITDAre operating range of 4.5x to 5.5x and have the flexibility to fund the remaining 325,000,000 dollars on our current development pipeline without the prerequisite of issuing shares or selling assets. As we mentioned last quarter, we obtained $150,000,000 of forward starting swaps that lock the underlying 10 year treasury at 2.905 percent in advance of a potential financing before July 2019. We don't have any debt maturities until our $225,000,000 term loan matures in June of 2020. As a reminder, the 1.68 percent LIBOR hedge on that term loan expires in January 2019. Other than this term loan, we have no debt maturities until 2021 and our maturity schedule is well laddered.
As Ed mentioned, we updated our FFO outlook to $3.42 to $3.45 per share. At the midpoint, this is a $0.01.5 above our previous outlook and $0.025 above our original outlook. We also updated our same property cash NOI outlook to +0.8 percent to 1.2%. Last quarter, I mentioned we expected to trend towards the low end of our original outlook of +1 percent to plus 2 percent. The reduction is primarily due to several sizable renewals signed even earlier than we hoped that have a free rent component and were not included in our original outlook.
As you've seen in our revised outlook, our straight line rent forecast increased $6,000,000 at the midpoint compared to our original outlook, mostly relating to our same property pool. Taking the $2.58 a share of FFO that we've reported year to date, our imputed outlook for the 4th quarter is $0.84 to $0.87 per share. Finally, as you know, we will provide 2019 guidance during our Q4 call, but in the interim, there are some items I would like to highlight. First, as Ed mentioned, we are scheduled to deliver $195,000,000 of 100 percent pre leased development over the course of 2019. We estimate the 2019 FFO accretion inclusive of the burn off of capitalized interest and reflective of the stage takedown of MetLife's 3rd building will be approximately 0 point dollars to 0.05 dollars per share.
2nd, I mentioned earlier that the potential for a fixed rate debt financing prior to July 2019. Given the maturity of the 1.68 percent LIBOR hedge in January 2019, we would likely use the proceeds to refinance our $225,000,000 bank term loan and reduce our line of credit balance. With the treasury lock in place and the U. S. 10 year hovering in the low 3s, the all in interest rate on a new debt financing would likely be in the mid-4s.
Under this scenario, the full year impact of such a refinancing would be somewhere around $0.05 per share compared to our Q4 2018 run rate. 3rd, we currently have a little over $500,000,000 of floating rate debt. While this is modest relative to our overall asset base, any increase in LIBOR would drive our interest expense higher. And last, like other REITs with in house leasing teams, starting in 2019, we will be required under GAAP to expense certain leasing related costs for non commissioned employees. Based on 2018 projections and prior year actuals, we estimate the annual FFO dilution from this accounting change in 2019 will be approximately $2,500,000 or $0.025 per share and will appear in G and A.
Looking forward, as we've signaled the past few years, our free cash flow continues to strengthen and we expect this to continue with the delivery of our highly pre leased $658,000,000 development pipeline. While the timing will impact our cash flow in any given quarter, we feel very good about the long term cash flow trajectory for the company. Operator, we are now ready for your questions.
And our first question is from the line of Jamie Feldman with Bank of America Merrill Lynch. Please go ahead.
Great. Thanks and good morning. I was hoping you guys can give more specific details just on the largest vacant blocks you're trying to lease in Buckhead, FBI Atlanta, Fidelity, SEI and many others I might be missing?
Sure, Jamie. I don't think you missed any. So just take them in the order that you gave them. So in Buckhead, we were a third, relet on that on our last call, and that's how we sit at the end of third quarter. Will be twothree of that will be re let.
It's now inked by the end of the year. So we've made very good progress on that since our last call. We've also made very good progress on SCI. It was 76% at last report, and we've leased an additional 20%. So we're now 96% roulette on that.
At FBI, we're 32 relit. We have another 6% that is a strong prospect, so that would put us at 38%. And as you know, we undertook some heavy hybridizing there, and that FBI had been in the space and this is a multi customer building since 1992. And that hybridizing now is 90 plus percent complete. So the building is pretty well cleaned up.
We're punching it out now and be commissioned next month, so we'll be in good shape there for showings. And then 11,000 Weston where Fidelity vacated early, but as you know, paid rent through November of 2018. We are also hybridizing that building where we received just shy of $5,000,000 from NIM and restoration fees. It's a well positioned building right beside the MET Global Technology Campus. And so we're repositioning all the mechanical roof, parking lot, etcetera, and that will be commissioned end of this month, early next month.
We have prospects for that building that we've done showings for from anywhere from 25% to 100% of the building.
Okay. Thank you.
Sure.
And then I guess, Mark, your thoughts on the big movers in 2019 were helpful. But I guess when we think about it from a same store perspective, I got out this was a pretty confusing same store quarter. Can you just help us think through the drivers of same store growth for next year or internal growth? A lot of the things you talked about were more external and investment?
Yes, Jamie, I'm going to let Brendan do it because he's steeped in the numbers. So he's got a good explanation for how that all hangs together.
Yes. Hey, good morning, Jamie. So it is you're right, it is kind of a confusing quarter from the numbers for same store in the Q3. I think if we look at the overall year to date numbers through the 9 months, and we adjust for fidelity in terms of the extra couple of months that we got year to date and adjust them out of kind of the revenue and out of the occupancy impact. And then let's also just adjust for the straight line headwinds that we're encountering in 2018.
What we find is that, year to date our cash NOI growth would be up about 1.3% with occupancy down about 1.2%. So I think if we didn't have the occupancy headwinds, I think you could see that cash NOI in 2018 would be up, call it, in the mid-2s. And I think that relationship with in terms of what we do with respect to annual bumps across all our leases and then where we've been signing cash rents, I think with no occupancy headwind or tailwind, I think that's probably a good guide long term in terms of how to think about top line. And then just with respect to 2019, I don't think we're in position to talk about specifics on occupancy or straight line rent adjustments or any impact that OpEx might have, we'll do that in February. But I think that should give you a good longer term sense of where trends are happening in the portfolio.
Okay. That's helpful. And then last question for me. Just you had mentioned potential conversations from our build to suit. Can you just give more color around those?
Sure. So we have traditionally said almost routinely on these calls that we are in conversation with about a handful of prospects And where we are in those conversations varies from early introductions to test fits. And so we are basically pricing well over $300,000,000 worth of development right now, about 775,000 square feet roughly. It's a protracted process on all of these as we witnessed in the past. But we feel given the volume of conversations continue to replenish our development pipeline, which today is pretty stout and very well pre leased.
Okay. Thank you.
Sure. Thanks, Jamie.
Our next question comes from the line of Blaine Heck with Wells Fargo. Please go ahead.
Thanks. Good morning. Ted, you touched on this a little bit in your prepared remarks, but I was just reading about the continued wave of speculative office construction in Raleigh with properties under development being leased up at a solid clip and developers continuing to start new projects. So I guess 2 part question. Number 1, does any of the newer supply concern you at this point?
Is any of it directly competitive with your space downtown where you might have expirations coming up? And then number 2, maybe more for Ed, just kind of to play devil's advocate, you guys have done great with your development pipeline this cycle. But given the strength you've seen in growth and demand, are there any markets you think that you could maybe be leaving some money on the table and not being a little aggressive in starting projects with lower pre leasing than you typically have?
So, I'll take the first part. In terms of Raleigh, as we mentioned, it's about 3,000,000 square feet or so, and that's spread out across 6 different submarkets and is approximately 50% pre leased. And that will get delivered over the next, call it, 18 months, 18 to 24 months probably. Drilling down, our competitive set is really closer to $1,200,000 and that's also a little bit more than 50% pre leased. So I think right now, really the new construction is meeting demand if you look at the historical absorption in Raleigh.
So we feel like it's sort of matching up pretty well. In terms of downtown competitive space, there's 2 buildings in the CBD under construction, both reasonably small buildings and one 65% pre leased or so, the other is about 85%. So not a lot of spec space, nor do we have a lot of expirations downtown in the next in the near term. So really not overly concerned right now. It seems to be keeping pace with demand.
So Blaine, I'll take the second part of that, and thank you for the comment about the development program that we have. I think when we look back at some of the things that we've started and we think about where pre leasing was on 5,000 Centigrene, Glenlake 5, Riverwood 200, Virginia Springs 1, etcetera. They were heavy spec components of those buildings, with Riverwood 200 being the largest. So we were less than onethree pre leased when we first announced that building. We're going to meet or beat pro form a stabilization on that.
So I think we've been well cadenced on how we've balanced buildings that have heavy spec component versus build to suits. So we have the ballast of the build to suits stapled to these buildings that we've done on more of a speculative basis. I don't know that we've missed dollars of opportunity. I think that we've been very deliberate about how we've gone about this, and I think that there's no reason to believe that we wouldn't continue to maintain the methodology that we've had in the past where we can put together a smaller scale development that has some meaningful spec component to a build to suit and be well balanced with how we're managing the risk aspect of that, particularly given how successful we've been on those that have had spec space and us being able to, across the board on average, beat our performance stabilization dates.
Great. That's very helpful. And lastly, CapEx per square foot in concessions were a little higher this quarter. Can you guys just talk about any trends you guys are seeing in your markets with respect to TIs and free rent?
Sure. With respect to the quarter for us, we had a significant amount of new leases done, about 30% higher new leasing versus renewals this quarter. So I think that's largely what attributed to our slight tick up in CapEx this year. I think our pay or this quarter, our payback ratio was still within our historical range. But now having said that, look, I do think there is some pressure on TIs through most of our markets.
I think we've done a pretty good job managing that. We pay attention to net effective rents. And if we're going to give an extra Humbet of TI, we're going to get it back in rent. So while there is some pressure on it, I think we've been able to manage it pretty well.
Great. Thanks, guys.
Thanks, Blaine.
Our next question comes from the line of Manny Korchman with Citibank. Please go ahead.
Hey, guys. Good morning. This is Jill here with Manny. I'm just curious, what are some of the characteristics of the assets you're looking to sell by the end of the year? I know you said it's non core, but which market type of asset and how you see the market for these assets selling today?
So, hi, Jill, it's Ed. We have 4 buildings that are out in the market that we're working on. They're spread across Atlanta, Tampa and Orlando. They're all what we define as noncore, which means that they're not in the sweet spot of the BBD where we like them to be. We do have very active interest on all of them, and we expect most to close, if not all, before year end, hence where we have the top end of our guidance.
But they're very much in keeping with what our dispositions have been over the last several years.
Okay. And just you've always noted how cautious shall remain on investing in this lower cap rate environment. So what would be the plan to the proceeds, about $70,000,000 to the midpoint I think, right?
Correct. We would just pay down our line.
Okay, great. Thanks guys.
All right. Thanks,
Our next question comes from the line of Dave Rodgers from Baird. Please go ahead.
Yes. Good morning, guys. I just wanted to follow-up on a couple of different comments you made, I think, in your prepared comments and tie it back to kind of development and development spend and get your thoughts. And so maybe Ed, I'll ask you the question directly. I think in Mark's comments, he said you guys wouldn't really be selling substantially more assets.
If I got that right, Ed, in your comments, you said you wouldn't sell equity or change the balance sheet. You got $325,000,000 left to spend in development. And then I'll tie in the arrows and the quiver comment you made earlier, Ed. So give me a sense of, are you guys talking maybe some joint venture funding? It hasn't really been your way.
Would you consider maybe more market sales versus just kind of non core? What's the best way to fund this development, especially if you're going to backfill the pipeline with another $300,000,000 or $400,000,000 as these current properties mature? So if that made sense, I'd love your thoughts.
Yes. So I'll take the first part of that, Dave. I think what we were saying was that in order to fund the remainder of what we have right now, that we could not issue any more stock and stay within our stated comfort range for our debt metrics. And given how much we've funded thus far, how much we have committed on our current development pipeline that we would be able to do that. In addition, we could take on about another $300,000,000 still stay within our comfort zone.
So that we were just really testing the limits of that of how much could we do and still not be out of our long stated comfort range for our debt metrics. And basically, what it comes down to is funding the remainder of our current day commitments plus another 300,000,000
dollars Okay. Then I guess maybe I'll follow-up with that is what's your comfort level in doing that versus staying at your current leverage or working lower just kind of given where the environment is and how you see opportunities out there?
Yes, David. I'm sorry.
Yes, David, it's Mark. So listen, I think we've as you know, our balance sheet is in really good shape. Our metrics compare very favorably to peers. We're in a really good spot with respect to kind of the right level of leverage on the balance sheet. So we feel like we've got a lot of flexibility.
And just to maybe put a finer point out, we didn't say never. I mean, I would still expect kind of a disposition level consistent with what we've done previously. We've been in the 100 ish, 150 ish a year kind of on dispositions. So we still think that's probably in the cards going forward. And I think we've got a lot of flexibility on the maturity ladder and just an ability to flex up if we need to relative to getting opportunities where we get real value.
Our highly pre leased development pipeline delivering gives us improved cash flow. So we feel like we're in a pretty good spot.
Our next question comes from the line of John Guinee with Stifel. Please go ahead. Great.
Okay. Just a very maybe not very smart question, but Mark, when you were going through your FFO, the refinance on the debt, that's a $0.05 hit to FFO, correct?
Correct. If we were to do that, that's correct.
So you've got it. And to get in
I'm sorry, I just want to clarify that's to the kind of the 4th quarter run rate when you think about it. So that's how I would compare it on a full year basis.
So if I have a $0.04 to $0.05 positive on development, dollars 0.05 negative on debt, dollars 0.025 negative on the capitalization shifting to expensing of leasing guys, another $0.02 on G and A natural increase, another $0.02 on the 4Q dispose. We are sort of way underwater before we get to same store NOI. What's same store NOI to the positive?
So again, I'm a little reluctant to give you specifics on 2019. I was trying to give you some things to think about relative to that. But John, we have our we've got our usual bumps in all the leases. So we'll still have some growth from just naturally from the portfolio. I think you made some commentary about the development.
We expect that to be a contributor, although again, it's got some timing element to it as well in terms of when it comes in during the year. But by and large, we're just trying to make sure people are calibrated with respect to how they're thinking about the go forward picture for the company.
And John, I just wanted to add to that. In addition to the development, those are the development deliveries for 2019 that Mark spoke about. We had development deliveries in 2018 that are not fully stabilized that we expect to where we have some additional leases which will commence and where we would project additional leasing to take place and get some NOI on that in 2019. So it certainly wasn't a fulsome look with respect to kind of all the drivers of 2019, but I think it was a few things out there just to highlight that are some likely or known moves as you think about rolling from the 4th quarter into what your estimates or your model may suggest for 2019?
So if I took that Brendan into account, which essentially the timing on the lease up on 2018 and the timing on 2019, what would that how would that improve FFO? Is that worth a penny or a nickel?
I think it depends a little bit on kind of leasing and things like that, but there's Really? It's within that range. Let's call it that. Okay.
And then just back of the envelope, it looks to us as if your FAD number is sub-fifty on average and your dividends $0.46 Is that the right way to look at it? And you're getting pretty close to dividend to FAD being on at parity or
am I doing bad numbers there?
So I don't think you're doing bad numbers necessarily, but I do think some of it's timing relative to the way the CapEx has flowed. So you'll see a little higher CapEx in the quarter, I guess, Ted referred to some of the leasing we've done. We expect to continue kind of consistent with maybe the last few years of coverage relative to the amount of CAD available to fund after CapEx to fund the dividend. So we expect to maintain that range even in the face of the dividends we've increased as we've made in the last couple
years. Great. Thank you very much.
Sure.
Our next question comes from the line of Scott Forst with State Street Global Advisors. Please go ahead.
Yes. I wanted to go over again the potential supply you talked about it before a refinancing of debt. Just to be clear, you had talked about the term loan maturing in 2020. You have a LIBOR lock in place until January of next year. So what I'm and you've talked about the treasury lock.
That's separate and apart from that in advance of a potential senior unsecured note financing. I've got those facts right, correct?
You do.
Okay. So what we're looking at is potentially before, I mean, it looks like your timing for the last couple of deals has been sometime in February, not locking you down there at all. But the point is you would be looking at potentially supplies sometime early next year after your LIBOR lock goes away to refi the term loan ahead of its maturity and as well as cleanup revolver balances, which you disclosed are about 180 $4,000,000 at quarter end. Is that the right is that what you're saying
now? So listen, what we try to do is kind of lay out the facts. As you know, I think we've got a lot of flexibility on timing and what we do here. So, we really just wanted to kind of lay out the facts that we have the treasury lock in place. We've got some timing around that.
We've also got this term loan that's got a LIBOR hedge that expires. And as you properly note, we're spending dollars on the development pipeline as well. So that's kind of how I would think about it just in general in terms of sources and uses.
Okay. That helps. And what you had talked about in terms of your leverage metrics, you like them where they are. Is it fair to assume that they're going to be managed in the current context of what you've reported?
Yes. I think we've put that 4.5 to 5.5 debt to EBITDA net metric out there as a target. We're obviously on the lower end of that at 477 at the end of the quarter. We're comfortable there. Again, we've got some flexibility and from timing wise, those may bounce around a little bit from quarter to quarter.
But again, given the dispositions we have, the flexibility we have on debt side of the balance sheet, we're comfortable in those metrics.
Okay. Thank you.
You're welcome.
And there appears to be no further questions on the phone lines at this time. I'll turn the presentation back for any final comments.
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