Good morning, 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. At that time, if you have a question, please press the one followed by the four on your telephone. If at any time during the conference you need to reach an operator, please press star zero. As a reminder, this conference is being recorded July 25th, 2018. I would now like to turn the conference over to Brendan Maiorana, Senior Vice President, Finance and Investor Relations. Please go ahead.
Thank you. Joining me on the call this morning are Ed Fritsch, President and Chief Executive Officer, Ted Klinck, Chief Operating and Investment Officer, and Mark Mulhern, Chief Financial Officer. As is our custom, today's prepared 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. 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 can differ materially from these forward-looking statements.
The company does not undertake a duty to update any forward-looking statements. I'll now turn the call to Ed.
Thank you, Brendan, and good morning, everyone. Macroeconomic conditions remain healthy nationally and across our southeastern footprint. Employment gains, including office-using jobs, have been strong across the country and generally even better in our markets. GDP growth has accelerated of late, and many economists expect 2Q18 to be a breakout quarter from the steady yet somewhat modest growth experienced most of this cycle. We continue to see healthy demand for our well-located BBD office product from current customers and prospects. During the past few years, we've often been asked our opinion on what inning are we in or how long will this cycle last. As we've stated before, we'll leave these predictions on the length of the cycle to others, but for now, the steady cadence of positive economic activity supports business growth from our customers and prospects.
The many drivers supporting our upbeat outlook include Southeast population and job growth, which are significantly outpacing the national average, supported by business-friendly environments, high-quality life, and affordability. In addition, our markets continue to experience positive net absorption. On average, new supply remains modest, and finally, rents continue to rise. This healthy macroeconomic outlook and strong demographic drivers across our footprint help drive strong leasing during the quarter and support a positive outlook for our operations. In addition to delivering $0.87 of FFO per share, we leased over 1.1 million sq ft of second-generation office space, including 189,000 sq ft of relets and approximately 100,000 sq ft of expansions. In addition to the solid volume, our leasing metrics were strong. We posted GAAP growth of 18.2%, while cash rent spreads have remained healthy, including this quarter's positive 2.3% growth.
We were successful generating longer-term leases at a weighted average of 6.8 years, and we posted healthy net effective rents averaging $15.24 per sq ft. Our strong leasing performance of late, with help from portfolio recycling, has resulted in cash rents that are 4.1% higher per sq ft compared to a year ago. As expected, portfolio occupancy dropped in the quarter compared to the end of 1Q, ending at 2Q at 91.8%. As we've discussed previously, we expect our occupancy to bottom in 3Q and rebound by year-end. The robust leasing volume in the second quarter largely addressed future lease expirations. In our latest at a glance, we list our five 2019 expirations for leases greater than 100,000 sq ft. We've made excellent progress on four of the five. We sold Highwoods Tower II, where INC is located in Raleigh.
We renewed UMA for their 150,000 sq ft in Tampa. Subsequent to quarter end, we renewed AT&T's lease for their 105,000 sq ft, and we continue to expect a renewal with the FAA in Atlanta, supported by the fact that the building was originally a build to suit for them and its proximity to Hartsfield International Airport. Seeing strong interest in our portfolio in Buckhead, including backfilling 55% of the former Towers Watson space at One Alliance and strong showings at Monarch. In Richmond, where we've already backfilled 77% of SEI's 163,000 sq ft, we have a lease out for signature for the remainder of the space. We continue to have success with our development pipeline. Our 2 million sq ft, $725 million pipeline is a stout 92% pre-leased on a dollar-weighted basis.
On Monday this week, we announced we have fully executed agreement with Asurion for a 551,000 sq ft, $285 million headquarters building that is 98.3% pre-leased. The project size grew from our soft announcement earlier this year of 479,000 sq ft and $252 million. As you will recall, this development will be on a parcel of land we acquired early this year, and we own a neighboring development parcel where we can develop another 700,000 sq ft. We're pleased to put this significant land investment into production so soon after acquisition. This project is a big win. I congratulate our team on their vision and hard work. I graciously thank our new customer. We are thrilled to welcome Asurion to our stable of large corporate clients and look forward to a long-term, mutually beneficial relationship.
We also made strong leasing progress on the remainder of the development pipeline since our last earnings call. We signed leases for 100,000 sq ft of the pipeline, which equates to one-third of the previously available space. We've seen strong interest in our development properties in Raleigh. 5000 CentreGreen, which we started completely spec, is now 87% leased, and we have solid prospects to bring this project into the mid-nineties. As a reminder, we're still more than a year from our projected stabilization date. At 751 Corporate Center, also in Raleigh, which we started 35% pre-leased, we are now 89% leased and have strong prospects to also bring this building to the mid-nineties, while still two-plus years from our pro forma stabilization date.
In Nashville at Virginia Springs I, which we started 34% pre-leased, we have a letter of intent with a customer that'll bring this project to 100% pre-leased more than two years ahead of pro forma stabilization. Finally, our in-process build-to-suit projects, namely Virginia Urology in Richmond, will deliver next month on schedule. MetLife III in Raleigh is on schedule for delivery in the second quarter of 2019, and the Mars Petcare headquarters in Nashville is tracking nicely to deliver on time in the third quarter of 2019. Some uncertainty has arisen regarding the potential impact of the widely discussed tariffs on steel and aluminum. As you would expect, we pay careful attention to construction costs and see pricing real time from our many projects.
Construction costs continue to rise at approximately a half a percent per month, very much in line with the zip code we've been experiencing and expressing over the past few years. The more dominant driver recently has been the cost of labor, both skilled and unskilled, while material prices have played a lesser role. Unfortunately, tariff chatter alone is beginning to impact the price of metal goods. Thus far, the overall cost effect has been very nominal. While the potential exists for tariffs to become more impactful, we don't anticipate them to be a huge disruptor. As you know, we are largely insulated from cost increases on our current development pipeline since most of our build-to-suit projects are open book, and we have GMP contracts in place for our other developments.
During the past several years, demand from users has remained strong despite experiencing higher first-generation rents due to escalating construction costs. This sustained interest gives us confidence that the depth of demand should remain attractive as construction costs and rents continue to increase. Of course, we will continue to carefully monitor market dynamics as we evaluate future development opportunities. We've raised the low end of our outlook for development announcements from $100 million to $285 million, which we're at today with the Asurion build-to-suit, and we've raised the high end from $350 million to $385 million to reflect another $100 million of potential announcements. Any additional development announcements this year are likely to be more typical-sized projects of around $50 million. Development continues to be a core competency for us and an ongoing engine of strengthening cash flow and earnings growth.
Turning to dispositions, as previously forecasted, we sold Highwoods Tower II in Raleigh for $31 million, including an adjacent two-acre parcel of land. We also sold 25 acres of non-core industrial land in the Atlanta area for $3 million. Our disposition outlook remains $61 million-$136 million. We have prepared a number of non-core properties for disposition, and as usual, we expect to be regular sellers of non-core properties going forward. We've kept our acquisitions outlook unchanged at $0-$200 million, as there aren't a lot of institutional-quality assets available. For the few assets that we have seen in the market, pricing for BBD-located Class A office properties remains highly competitive with initial cap rates carrying a five handle. We continue to evaluate on and off-market opportunities with a focus on prudent investing. At this point in the year, the low end of our outlook range seems likely.
In summary, strong leasing activity in our operating portfolio and continued crisp execution across our development program combined with carefully managed operating expenses and a strong balance sheet sets the table for growth in earnings, cash flow, and NAV over the next several years. I'll now turn it over to Ted.
Thanks, Ed, good morning. Overall, the demand we're seeing across the portfolio makes us upbeat about our leasing prospects for the next several quarters. As Ed mentioned, we've taken care of several large expirations from our 2019 list, and we've renewed a large 2020 expiration. Out of the five 2019 expirations greater than 100,000 sq ft, we've now renewed two of them, USAA and AT&T, and in addition, closed the sale of Tower Two where INC is located. Further, we feel confident about landing a renewal with the FAA, especially given the building's proximity to the Atlanta airport. At this juncture, T-Mobile is the only large 2019 expiration that we're unsure about. We expect to get a better sense about their renewal likelihood by year-end.
In addition to shoring up many of our large future expirations, we also made meaningful progress elsewhere in our portfolio that we believe will materialize into signed leases in the latter half of the year. Now turning to our quarterly stats. We beat our prior five-quarter average on several fronts. We leased over 1.1 million sq ft of second-gen office space, a 30% beat. The average dollar-weighted term was 6.8 years compared to 6.0 years. GAAP rent spreads were positive 18.2%, 230 basis points higher, and net effective rents were $15.24 per sq ft or 2.2% better. Our 2Q same property cash NOI growth was -1.1%, as same property average occupancy was down 140 basis points compared to last year.
Of note, rent in our same property pool was flat even though occupancy was down, driven by solid cash rent spreads we've achieved over the past many quarters and the healthy annually compounding rent bumps we have on nearly all of our leases. Occupancy is projected to bottom in 3Q, as we've now gotten back 178,000 square feet from Fidelity in Raleigh. As a reminder, we're getting full economics from Fidelity through their original November expiration date. Now to our markets. Atlanta's Class A asking rates have increased 4.2% year-over-year as reported by CBRE. There's currently 1.4 million square feet of office under construction, or approximately 1% of stock, none of which is located in Buckhead, where interest has picked up substantially since our last earnings call.
Our nearly two-million-square-foot Buckhead portfolio was 83.3% occupied at the end of 2Q, equating to more than 300,000 square feet of occupancy upside. Already in 3Q, we signed a lease for 42,000 square feet and expect to sign additional leases totaling a similar amount before our next call. Turning to Raleigh. The market ranks first in the Southeast for projected population growth, according to CBRE's 2018 Southeast U.S. Economy Outlook. Population growth is expected to be 10.3% over the next five years, more than twice the national projection of 4.2%. The positive economic and demographic trends are translating into increasing office employment, which grew 2.2% year-over-year, 80 basis points higher than the national average. Fundamentals remain strong in Raleigh. The second quarter was a sixth consecutive quarter of positive net absorption of at least 500,000 square feet, as reported by CBRE.
Class A asking rates increased 2.5% year-over-year. While there is 2.7 million square feet under construction, based on the strong net absorption, new supply is meeting market demand. Out of the total new supply, 1.6 million square feet is competitive to our BBD-located product with approximately three-quarters percent pre-leased. We signed 171,000 square feet of second-generation leases during the second quarter, which was approximately double the prior five-quarter average. GAAP rent spreads were strong at positive 28.1%. As I mentioned earlier, while Fidelity is paying their full economics on the lease of 11000 Weston through November, we already regained possession of the space, and there is a hub of activity Highwoodtizing in the building. We are optimistic about backfilling this space given the tightness in the sub-market.
At the end of 2Q, our 1.2 million square foot in-service Weston portfolio was 96.7% occupied, and Class A vacancy in the sub-market was 7.7%. Nashville's unemployment rate remained unchanged from 1Q at 2.6%. Office employment grew 3.1% year-over-year versus the national average of 1.4%. According to Cushman & Wakefield, the market posted positive net absorption for the fifth consecutive quarter. Registering 158,000 square feet in Q2. There's currently 1.8 million square feet under construction set to deliver over the next two years. New supply equates to 4.8% of total stock, which, based on Nashville's strong demand trends, we'd expect to be absorbed with little impact on market vacancy. Our Nashville portfolio was 94.4% occupied at the end of Q2. We signed 95,000 square feet of second-gen leases with GAAP spreads of +20%. Lastly, Tampa's office employment grew 1.6% year-over-year, 20 basis points above the national average.
Net absorption, as reported by JLL, was -52,000 sq ft for the quarter, year-to-date is a +217,000. Class A vacancy was 9%, asking rents increased approximately 8% since last year. We signed 396,000 sq ft of second-gen leases, largely comprised of two sizable renewals. First is a renewal of UMA's 153,000 sq ft. We are thrilled they renewed their long-term commitment to Tampa Bay Park. The second was 103,000 sq ft long-term blend and extend of a lease previously set to expire in 2020. Tampa's signed deals during the quarter had a weighted average term of 8.6 years, GAAP rent growth was 15.0%. Our Tampa portfolio was 92.8% occupied at the end of Q2. In conclusion, we had a strong quarter of leasing and prospect activity, based on what we are seeing, we expect this to continue. Mark?
Thanks, Ted. In Q2, we delivered net income of $50.7 million, or $0.49 per share, FFO of $92.2 million, or $0.87 per share. The quarter included $0.005 of land sale gains, which were essentially offset by dead deal costs related to development projects we are no longer pursuing. There were no meaningful term fees in the quarter, as I mentioned last quarter, we did recognize the final $1.9 million portion of the Fidelity restoration fee. Compared to the first quarter, the sequential drivers of the nearly $1.5 million FFO increase were lower G&A by a little over $2 million. As you will recall, this is the normal annual pattern for us as we have increased expense in 1Q from long-term equity grants each year. Modestly lower interest expense due to repayment of a $200 million bond with an interest rate of 7.5%.
These were partially offset by lower NOI by $1.9 million, driven by lower average occupancy, lower term fees, and modestly higher operating expenses. With net debt to EBITDARE of 4.65 turns and leverage of 35.3%, our balance sheet remains in excellent shape. Our strong leverage metrics put us towards the lower end of our stated comfort range of 4.5x-5.5x net debt to EBITDARE, we have significant liquidity to fund our growth initiatives. With the addition of the Asurion headquarters built to suit to our development pipeline, we now have $368 million left to fund on our $725 million pipeline. We continue our plan to fund our business on a leverage-neutral basis.
However, even if we were to fund the remainder of the development pipeline without any ATM issuance or non-core dispositions, we estimate, upon stabilization of the development pipeline, our net debt to EBITDARE would rise only half a turn from current levels. During the quarter, we obtained $150 million of forward-starting swaps that locked the underlying 10-year treasury at 2.905% in advance of a potential financing before July of 2019. While we do not have any meaningful debt maturities before June of 2020, the LIBOR hedge on our $225 million term loan expires in early 2019. We tightened our 2018 FFO outlook to $3.39-$3.45 per share, keeping the midpoint at $3.42 per share. As you know, we do not include the impact of any future acquisitions or dispositions in our FFO outlook. However, as Ed mentioned, we kept our outlook unchanged for acquisitions and dispositions.
We kept our same property NOI growth outlook for the full year at +1%-+2%. For the first half of the year, we were at +0.8%, inclusive of this quarter's -1.1%. While it's still early and there are several moving pieces in our outlook range, we are trending towards the low end. This is primarily due to several 2019 renewals signed even earlier than we hoped, that have a free rent component which burns off this year and obviously was not included in our original 2018 outlook.
Modestly higher property taxes. Before we take your questions, a few other items to note. First, as you know, our third quarter tends to be our lowest margin quarter of the year due to the seasonality of operating expenses. Second, as forecasted, we expect occupancy will bottom out in the third quarter due to the impact of known vacancies and then trend upward by year-end. Third, for modeling purposes, at the midpoint of our outlook, we expect FFO to also bottom out in the third quarter before anticipated improvement in the fourth quarter. Of note, we recognized the final $1.9 million of the Fidelity restoration fee in 2Q. In 3Q, we will recognize two extra months of rent from Fidelity, which includes its payment of the originally scheduled rent under its lease that would otherwise run through November.
These unusual items relating to Fidelity's departure end after the third quarter, creating a clean run rate from the Fidelity building, also known as 11000 Weston, in 4Q. Finally, as we have signaled for the past few years, our free cash flow continues to strengthen with the delivery of our well pre-lease development pipeline and consistent performance of our same store portfolio. While timing will impact our cash flow in any given quarter or year, we feel very good about the long-term cash flow trajectory for the company. Operator, we are now ready for your questions.
Thank you. Ladies and gentlemen, if you would like to register a question, please press the one followed by the four on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the one followed by the three. If you're using a speakerphone, please lift your handset before entering your request. Once again, ladies and gentlemen, if you would like to register a question, please press the one followed by the four on your telephone. Our first question comes from the line of Manny Korchman with Citi. Your line is open. Please go ahead.
Hey, good morning, everyone.
Good morning.
Mark, maybe thinking about sort of the trajectory of earnings into 3Q, you mentioned occupancy being lower and also margin being lower. I guess the question is, I recommend you don't give quarterly guidance, but how much lower will 3Q FFO be versus 2Q?
Hey, Manny, it's Brendan. I'll take that one. I think just you're right, we don't give quarterly guidance, but here's a couple of things to think about. Mark mentioned that the $1.9 million restoration fee that we recognized in the second quarter with Fidelity, that was the last quarter that we recognized that will go away. That'll be partially offset by the extra two months of rent that we'll recognize in the third quarter for Fidelity's natural lease expiration at 11000 Weston. The net of the impact on Fidelity between the second quarter and the third quarter sequentially is probably in rough numbers between $1 million and a million and a half, less in the third quarter attributable to the restoration fee offset by those couple of months of extra rent.
In addition to that, if you think about our normal quarterly revenue number of let's call it broad stroke to $180 million of revenue. Typically, our third quarter on a sequential basis compared to the second quarter is about 100 to 125 basis points lower with respect to operating margins. That's probably another, let's call it $2 million. I think all else equal, just those kind of two items could probably give you a pretty good sense of kind of the sequential pattern between the second and third quarter that we could expect.
Thanks, Brendan. Ed, maybe one for you. You spoke about difficult acquisition environment. What about on the land side of things? What opportunities are you seeing out there to buy land? You were successful recently in Nashville and then got the build-to-suit done quickly. Are those the types of deals you're looking to replicate, or what other sort of land opportunities are you looking at?
We are looking for land opportunities. Just to put that in context, Manny, today we have about $135 million worth of land, $105 million of which is core. Since the last 5 years or so, we've placed in service about $85 million and sold about $50 million and bought about $91 million. Net-net, we're down about $45 million worth of land. The $105 million that we have now will support about $1.7 billion in development, just shy of 5 million square feet if we use an average of $350 a square foot to build. Given the productivity of the development pipeline, we've obviously consumed a goodly amount, and we have a multitude of discussions going on today across many of our divisions, looking to replenish some of the land that we've been able to place in service. We're sticking with a heavy focus on our BBDs.
It will be a cadenced amount. We're not going to go all whole hog on land. We think it's important to have that ingredient when we get in front of prospective customers, particularly build-to-suits, to be able to have the land entitled fee simple and when we're making our presentation.
Thanks, everyone.
Thanks, Manny.
Our next question comes from the line of Jamie Feldman with Bank of America Merrill Lynch. Your line is open. Please go ahead.
Great. Thank you. Can you talk more about the expense, the year-over-year increase in same-store expenses, and whether you think those will remain elevated? If there's some opportunity to maybe get some of that back in towards the end of the year.
Jamie, it's Mark. We've had a little higher property taxes than normal. We've had some assessments in some of the jurisdictions that have been a little higher than we maybe forecast. Utilities have kind of bounced around a little bit as well. We started out with a little cold in the early part of the year. I think it's timing more than anything. We do expect a little higher, just on a forecasted basis, a little higher year-over-year operating expenditures to 2018 compared to 2017. Again, most of it is property taxes and utilities in terms of the big items.
Okay. Is higher labor costs playing into it at all or not really?
Not really.
Okay. It looks like you guys made great progress on your 2019 expirations and even some of the big larger vacancies. Can you talk more about the FBI in Atlanta and then just kind of plans to get the Fidelity space ready to lease? I think you said in the past you're looking at kind of mid-2020 to have it relet. I'm just curious for an update.
Sure. FBI, which is 137,000 sq ft in a multi-customer building that we call 2635, FBI moved out in February, we've been Highwoodtizing that building. They've been in there since 1992, so an extended period of time. We're recasting amenities, redoing the lobby, restrooms, parking, just everything that it needs after such a long tenancy. We hope to have those complete by the end of third quarter. To date, we're 28% relet on that. We're using the building, which is a sister image of this building across the street, 2800, which is same size, design, et cetera, as a model. You may remember a number of years ago, AT&T came out of that building in total, and it took us 2 years to backfill it.
Using that same timeline, we're about 25% of the way through it, and obviously there's been a huge volume of construction ongoing in it, and we're about 28%. We're 25% of the way through and 28% relet at this point in time, using that same timeline. Just one other footnote, Jamie. In Century Center, we have 1.4 million sq ft, and we're 95% occupied, sans the 2635 building. The Fidelity building, which we call 11000 Weston, in the Weston sub-market, another comparative to what I just gave you for Century Center. We have 1.2 million sq ft that's 97% occupied. This building has been occupied consistently over the last 20 years. We just got it back the 1st of July, and we're doing all the things that we would typically do to a building that's now 20 years old.
As soon as we got it back, we commenced with replacement of HVAC, roof, wet seal of the building, parking lot work, the typical things that we do. The dollar amount that we are expending is basically in line with the restoration fee of $4.8 million that we received from Fidelity. We'll have all this work done by the end of the year, if not before. We have a multitude of prospects ranging from 25% of the building to 100% of the building.
Okay, thank you. Just a final one for Mark or Brendan. I think in your comments you had said you were trending towards the lower end of the range. It sounded like that's just on cash same store. Is that FFO also, or that was just a same store comment?
No, Jamie, that was just on same store. You obviously saw the negative 1.1 for the quarter. I just think right now, looking at our forecast, we're thinking we're going to be towards the lower end of the guidance on same store. That was not germane to FFO.
Okay. All right, thank you.
Thanks, Jamie.
Our next question comes from the line of Blaine Heck with Wells Fargo. Your line is open, please go ahead.
Thanks. Good morning. Ed, you mentioned strong activity at the Buckhead vacancies. At this point, given the interest you're seeing, do you think it's a fair expectation to see the rest of that space leased by the end of the year, or do you think some of that leasing could extend into 2019?
Yeah, I think it would extend into 2019. We mentioned that we have about 300,000 square feet there that's vacant. Yeah, I think we've had a lot of focus on the Morgan Stanley and Towers Watson move out that total about 135,000 square feet. We're now about a third inked re-leased on that. We have a good prospect for another third of that. I think to say that we would have rent paying by the end of this year on all that space, I don't think it will be that quick. We have seen good progresses you and I now have said. I think January 1 for all that to be relet is a little bit quick.
Yeah, I was thinking just more on the execution side rather than rent paying. Fair. Just wanted to touch on the AT&T renewal you guys got after the quarter. Can you guys give any more color on that lease, in particular the new term and/or mark to market?
Yeah, it's basically, they renewed for a five-year term. The rent went up about 3%. They took it as is, no TI.
Okay, great. Lastly, Ted, a couple of your markets have seen pretty significant supply over the last few years, and thus far, I think the demand has been strong enough to absorb the new construction. It seems as though both Nashville and Raleigh in particular, have a lot under construction as compared to stock, and potential projects also in the pipeline. Given where we are in the cycle, do either of those markets worry you guys on the supply side looking forward?
Yeah, sure. Certainly, we're watching it, as we have the last couple of years. We've taken the historical absorption, tracked that back for several years through the cycles. I think right now we feel while there is an elevated level of new construction, there is a lot of continuing tenant demand for new space. Based on the absorption we've seen, we think demand is tracking with the new supply. Again, we continue to keep an eye on it, but I think we feel markets are still in pretty good shape.
Great. Thanks, guys.
Our next question comes from the line of Robert Stevenson with Janney Montgomery Scott. Your line is open. Please go ahead.
Good morning, guys. Can you talk about how much upward pressure you're seeing these days in terms of tenant improvements per square foot? Is the growth just all material labor cost, or are the tenants pushing that as well these days?
Yeah. Obviously, there's a couple things happening there with regard to us being able to capture longer-term leases, and I think this quarter is a very good example of that. What we typically pay pretty close attention to, Rob, is what our payback percentage is. Over the long run, we've typically been between 12% and 15% on that. This quarter, we're just a tad below 13. I guess to sum it up, we've been able to capture term and rents in sync that offset the increased demand for TI dollars.
Okay. Related to that, when you look back at your leasing over the last few years, are you seeing any meaningful changes in the square footage per employee that tenants are utilizing across your portfolio or in any of your markets or assets specifically?
Yeah. That's a six-pack kind of conversation, because there are lots of opinions on that. What we've seen is, and we won't drag this out too long, but it goes back to the me versus we space. The me space that I specifically get, in most situations, is less than what I occupied in prior years. The amount of we space has dramatically expanded with regard to, specifically designated areas for meetings and lots of other things as far as collaborative areas and open areas where people can get together and meet and collaborate outside of the confines of a conference room, in more of a casual, more of a den-type setting, as opposed to a formal boardroom-type setting.
In the end, and we've carefully studied this, that we feel like the overall demised premise isn't dramatically changed at all when you add in the expanded break rooms and me space offsetting the contraction in the we space versus the space that's allocated just to the individual. That make any sense, Rob?
Yeah. Perfect. One last quick one for Mark. 10 years pushing back towards 3%. How are you thinking about longer-term debt these days, and anything driving you to do something sooner rather than later? You guys have that hole in your maturity schedule in 2024, 2025, 2026. You guys thinking at this point about putting seven-year debt on, or you just wait until the $200 million, $225 million of 2020 debt is addressable and put five-year money on at that time?
Yeah, it's a great question. Obviously, we watch it, debate, look at it carefully all the time. I think you saw we put a swap in place, just to build some flexibility into next year. We do have a LIBOR swap on a term loan, the $225 million term loan that expires in January of 2019, and with spending on the development pipeline, there's a chance that we are in the market before the 2020 maturity. We look at it carefully and closely. Obviously, rates have bounced around. Depending on what you believe and listen to, you don't know if they're going higher or staying where they are. We've had a little bit of lull here, and now we're back, it looks like, on the increase, but we're paying attention to it.
I wouldn't be surprised to see us in the market sometime in the next six to nine months or so.
Okay, guys. Thanks.
Ladies and gentlemen, as a reminder, if you would like to register a question, you may press one followed by the four on your telephone. Our next question comes from the line of John Guinee with Stifel. Your line is open. Please go ahead.
Hey, all. Good morning. This is Aaron Wolf on for John.
Hey, Aaron.
Hey. Quick switching gears back to the land bank. Are you currently looking to replenish the Atlanta land bank, given now that it's about an acre?
We are.
Okay. Great. Thank you. My last question, you've been successful in developing build-to-suits in core markets. Is there any interest or talk of looking outside your core markets for build-to-suit opportunities?
Well, we have followed customers in the past, outside of our market, where they've had a positive experience with us and asked us to do something for them outside of market. We've worked with FedEx in Colorado. We've worked with the federal government in Alabama, Mississippi, other states. We have followed customers when they've asked us to be involved with the development project with them. The answer to that is yes. Is it a heavy focus of our business? No, we're much more interested in expanding and rotating the portfolio in our existing core markets.
Okay, great. Thanks for taking my questions.
You're welcome. Thank you.
Our next question comes from the line of Alexei Senyuka with SunTrust. Your line is open. Please go ahead.
Good morning. This is Alexei Senyuka for Michael Lewis today. Two quick questions. First one is, could you please give a little more color on the Asurion build-to-suit, specifically why the project is now bigger in scale and has anything else changed besides the square footage and the cost? Can we assume the yield is unaffected and in line with your other developments?
I'll do it in backwards order. The answer is yes, you can make that safe assumption with regard to the yield, that it is in line with what we've provided. They just needed more space as they refined their space programming and scope, that's what drove the expansion. The project is comprised of two buildings built upon a pad. The pad has embedded parking, some of it below grade, some above grade, and then a super floor for the main level. One building is eight stories and one building is nine stories, and at two different points above the main level, they connect by way of a connecting bridge. We added a floor to each of those buildings. That's what grew it from the 479,000 to the 571.
The price per square foot, obviously because we're not putting anything more into the land and some other things, went down from 526 to 517 a foot. I think that answers your question, but we're really excited about it. This is a wonderful project for Highwoods. We're very excited to be working with Asurion and that they chose us. We think that the unique urban design that the good people at HASTINGS Architecture came up with, and we've worked with them on this, will be a true add for the urban setting downtown Nashville.
Okay, great. Thank you for those details.
I'm sorry, one other thing. Obviously, not obvious, I want to point it out. We did not change the parking count when we expanded the building, the parking ratio is now at 3.5 per thousand.
Okay, thank you. My last question. I read an article that WeWork recently opened its fourth location in Atlanta, and they likely expect to grow to over 15 locations in a couple of years. Maybe you can talk a little about your views on co-working firms as tenants. Do you think their rapid growth increases fundamental risk in the markets where they have a large presence?
Sure. This is Ted. Certainly, it's growing. I think you're seeing both growth through both the national and the regional and the local players, I think it's playing out just as companies are exploring alternative work strategies to maximize their efficiencies and collaboration. Certainly recruiting retention's important. We're watching it, and we'll see how it plays out. What I will say, we've had some success in actually getting some customers taken out of those co-working types of groups. They went there for a short period of time, they outgrew it, or they didn't like it, or whatever. I don't think it's for everybody, but certainly it's something that's a trend that's growing quick, it's something we're closely watching as well.
We've done a few deals with Industrious, which is WeWork-like, but definitely have a different brand and a different tact. Probably one of the bigger differentiators is they typically take down space in smaller quantities than WeWork does, so we've done a few leases with them in our portfolio. We have some exposure and experience with it, which we think has been positive for us to witness, but it's certainly in a very small dose when you compare it to the scale of our portfolio.
Okay, great. Thank you. That's it for me.
Good. Thank you.
Ladies and gentlemen, once again, as a reminder, if you would like to ask a question, please press 1 followed by the 4 on your telephone. Our next question comes from the line of Dave Rodgers with Robert W. Baird. Your line is open. Please go ahead.
Hey, good morning, guys. A question on the development pipeline. With a 92% lease, realize it's increased in size and scale, the leverage at the lower levels of your range. If you guys got that big project, let's say another $250 million project, would you guys do it? Are you still looking for something smaller? You mentioned $50 million projects to stay within your development pipeline range.
Yeah. If we had a creditworthy, 100% build-to-suit or heavy anchor user of that scale, absolutely. This is our core discipline, is to develop, if the economics were there, we would absolutely do it. The $100 million is just a refining of guidance for 2018 based on what we've been able to achieve to date with the $285, then just giving some revised forecast of what we think the upper end of that range could be by year-end in the way of additional announcements in 2018. Absolutely, if we had the right economics, the right credit, and the opportunity to deliver for another years of this scale, we would do that.
Okay, thanks, Ed. A question on Atlanta on the jobs front. In our monthly note, we've seen a slowdown in office using employment in Atlanta. Do you guys have any thoughts there, and are you guys seeing the same thing?
Really, as Ed talked about on earlier his comments, Buckhead's been great. We're seeing actually pick up in demand. I think we saw the stats the last couple of quarters, and there's some IT jobs that maybe were lost in Atlanta that affected the numbers. Overall, I think Atlanta, we're seeing demand that is fairly broad-based from an industry perspective, and we think fundamentals are still very good, and the demand has really picked up in the last couple of quarters.
Great. Thanks, Ted.
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