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, July 25, 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 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 athighwoods.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 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, Brennan, 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 2Q 2018 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 BBB 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 the 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 On average, new supply remains modest and finally, rents continue to rise.
This healthy macroeconomic outlook and strong demographic drivers across our footprint helped 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 1,100,000 square feet of 2nd generation office space, including 189,000 square feet of re lets and approximately 100,000 square feet 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. Further, 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 square foot.
Our strong leasing performance of late, with help from portfolio recycling, has resulted in cash rents that are 4.1% higher per square foot 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 2nd quarter largely addressed future lease expirations. In our latest ataglance, we list our 5 2019 expirations for leases greater than 100,000 square feet.
We've made excellent progress on 4 of the 5. We sold Highwoods Tower II where INC is located in Raleigh. We renewed UMA for their 150,000 square feet in Tampa. Subsequent to quarter end, we renewed AT and T's lease for their 105,000 square feet 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 Buckhead, including backfilling 55% of the former Tower Watson space at One Alliance and strong showings at Monarch. And in Richmond, where we've already backfilled 77% of SEI's 163,000 square feet, we have a lease out for Signature for the remainder of the space.
We continue to have success with our development pipeline. Our 2,000,000 square foot, dollars 725,000,000 line 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 square foot, dollars 285,000,000 headquarters building that is 98.3 percent pre leased. The project size grew from our soft announcement earlier this year of 479,000 square feet $252,000,000 As you will recall, this development will be on parcel of land we acquired early this year and we own a neighboring development parcel where we can develop another 700,000 square feet. 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 and 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 square feet of the pipeline, which equates to 1 third the is now 87% leased and we have solid prospects to bring this project into the mid-90s.
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-90s, while still 2 plus years from our pro form a stabilization date. In Nashville, at Virginia Springs 1, which we started 34% pre leased, we have a letter of intent with a customer that will bring this project to 100% pre leased more than 2 years ahead of pro form a stabilization. Finally, our in process build to suit projects, namely Virginia Urology in Richmond, will deliver next month on schedule. MetLife 3 in Raleigh is on schedule for delivery in the Q2 of 2019.
And the Mars PetCare the Mars Pet Care headquarters in Nashville is tracking nicely to deliver on time in the Q3 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 0.5 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 $100,000,000 to 285,000,000 dollars which we're out today with the Asurion build to suit and we've raised the high end from $350,000,000 to 3.85 $1,000,000 to reflect another $100,000,000 of potential announcements. Any additional development announcements this year are likely to be more typical sized projects of around $50,000,000 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 2 in Raleigh for $31,000,000 including an adjacent 2 acre parcel of land. We also sold 20 5 acres of non core industrial land in the Atlanta area for $3,000,000 Our disposition outlook remains $61,000,000 to $136,000,000 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 $200,000,000 to $200,000,000 as there aren't a lot of institutional quality assets available. For the few assets that we have seen in the market, pricing for BBB located Class A office properties remains highly competitive with initial cap rates carrying a 5 handle.
We continue to evaluate on and off market opportunities with a focus on prudent investing. But 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 the 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, and 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 5 2019 expirations greater than 100,000 square feet, we've now renewed 2 of them, UMA and AT and T, and in addition, closed the sale of Tower 2, 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 exploration 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 and assign leases in the latter half of the year. Now turning to our quarterly stats. We beat our prior 5 quarter average on several fronts.
We leased over 1,100,000 square feet of 2nd 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 square foot or 2.2% better. Our 2Q same property cash NOI growth was negative 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 1,400,000 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 2,000,000 square foot bucket 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 1st in the Southeast for projected population growth according to CBRE's 2018 Southeast US Economy Outlook. Population growth is expected to be 10.3% over the next 5 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. 2nd quarter was the 6th 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 2,700,000 square feet under construction, based on the strong net absorption, new supply is meeting market demand.
Out of the total new supply, 1,600,000 square feet is competitive to our BBD located product with approximately 3 quarters percent pre leased. We signed 171,000 square feet of 2nd generation leases during the 2nd quarter, which was approximately double the prior 5 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 11,000 Weston during November, We already regained possession of the space and there is a hub of activity hybridizing the building. We are optimistic about backfilling this space given the tightness in the submarket.
At the end of 2Q, our 1,200,000 square foot in service Weston portfolio was 96.7% occupied and Class A vacancy in the submarket 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 and Wakefield, the markets posted positive net absorption for the 5th consecutive quarter, registering 158,000 square feet in 2Q. There's currently 1,800,000 square feet under construction set to deliver over the next 2 years.
New supply equates to 4.8 percent 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 2Q. We signed 95,000 square feet of 2nd gen leases with GAAP spreads of positive 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 negative 52,000 square feet for the quarter, but year to date is a positive 217,000.
Class A vacancy was 9% and asking rents increased approximately 8% since last year. We signed 396,000 square feet of 2nd gen leases, largely comprised of 2 sizable renewals. First is the renewal of Udome's 153,000 square feet. We're thrilled they renewed their long term commitment to Tampa Bay Park. The second was 103,000 square foot long term blend and extend of a lease previously set to expire in 2020.
Tampa signed deals during the quarter had a weighted average term of 8.6 years and GAAP rent growth was 15.0%. Our Tampa portfolio is 92.8% occupied at the end of 2Q. In conclusion, we had a strong quarter of leasing and prospect activity. And based on what we're seeing, we expect this to continue. Mark?
Thanks, Ted. In 2Q, we delivered net income of $50,700,000 or $0.49 per share and FFO of $92,200,000 or $0.87 per share. The quarter included 0.5 $0.01 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, but as I mentioned last quarter, we did recognize the final $1,900,000 portion of the Fidelity restoration fee. Compared to the Q1, the sequential drivers of the nearly $1,500,000 FFO increase were lower G and A by a little over $2,000,000 As you'll 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 $200,000,000 bond with an interest rate of 7.5%.
These were partially offset by lower NOI by $1,900,000 dollars 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 4.5 to 5.5x net debt to EBITDAre, and we have significant liquidity to fund our growth initiatives. With the addition of the Asurion headquarters build to suit to our development pipeline, we now have 368,000,000 dollars left to fund on our $725,000,000 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 $150,000,000 of forward starting swaps that locked the underlying 10 year treasury at 2.905 percent in advance of a potential financing before July of 2019. While we don't have any meaningful debt maturities before June of 2020, the LIBOR hedge on our $225,000,000 term loan expires in early 2019. We tightened our 2018 FFO outlook to $3.39 to $3.45 per share, keeping the midpoint at $3.42 per share. As you know, we don't 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 percent to+2 percent. For the first half of the year, we were at +0.8 percent, inclusive of this quarter's negative 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, plus modestly higher property taxes.
Before we take your questions, a few other items to note. First, as you know, our Q3 tends to be our lowest margin quarter of the year due to the seasonality of operating expenses. 2nd, as forecasted, we expect occupancy will bottom out in the 3rd quarter due to the impact of known vacancies and then trend upward by year end. And 3rd, for modeling purposes, at the midpoint of our outlook, we expect FFO to also bottom out in the Q3 before anticipated improvement in the Q4. Of note, we recognized the final $1,900,000 of the Fidelity restoration fee in 2Q.
In 3Q, we will recognize 2 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 Q3, creating a clean run rate from the Fidelity building, also known as 11,000 Weston in 4Q. And finally, as we have signaled for the past few years, our free cash flow continues to strengthen with the delivery of our well pre leased 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 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, Manny. Mark, maybe thinking about sort of the trajectory of earnings into 3Q, You mentioned occupancy being lower and also margin being lower. So I guess the question is how much lower will and I recommend you don't give quarterly guidance, but how much lower will 3Q FFO be versus 2Q?
Manny, it's Brendan. I'll take that one. So I think just you're right, we don't give quarterly guidance, but here's a couple of things to think about. So Mark mentioned that the $1,900,000 restoration fee that we recognized in the Q2 with Fidelity, That was the last quarter that we recognized that. So that will go away.
That will be partially offset by the extra 2 months of rent that we'll recognize in the 3rd quarter for Fidelity's natural lease expiration at 11,000 Weston. So the net of the impact on Fidelity between the 2nd quarter and the 3rd quarter sequentially is probably in rough numbers between $1,000,000 $1,500,000 less in the Q3 attributable to the restoration fee offset by those couple of months of extra rent. And then in addition to that, if you think about our normal quarterly revenue number of, let's call it, broad stroke to $180,000,000 of revenue. Typically, our Q3 on a sequential basis compared to the 2nd quarter is about 100 to 100 25 basis points lower with respect to operating margins. So that's probably another, let's call it, dollars 2,000,000 So I think all else equal, just those kind of 2 items could probably give you a pretty good sense of kind of the sequential pattern between the 2nd Q3 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 built pursuit done quickly. Are those the types of deals you're looking to replicate? Or what other sort of land opportunities are you looking at?
Yes. We are looking for land opportunities. And just to put that in context, Manny, today we have about 135 $1,000,000 worth of land, dollars 105,000,000 of which is core. Since the last 5 years or so, we've placed in service about $85,000,000 sold about $50,000,000 and bought about $91,000,000 So net net, we're down about $45,000,000 worth of land. The $105,000,000 that we have now will support about $1,700,000,000 in development, just shy of 5,000,000 square feet if we use an average of $3.50 a square foot to build.
So 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. So 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. But 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 in hand when we're making our presentation.
Thanks, everyone.
Thanks, Brandon.
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 or if there's some opportunity to maybe get some of that back towards the end of the year?
Yes, 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 start out with a little cold in the early part of the year.
So I think it's timing more than anything. We do expect a little higher on a forecasted basis, a little higher year over year operating expenditures to 2018 compared to 2017. But again, most of it is property taxes and utilities in terms of the big items.
And then is labor or higher labor costs playing into it at all or not really?
Not really.
Okay. And then 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 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-twenty 20 have it re let.
I'm just curious for an update.
Sure. So FBI, which is 137,000 square feet and a multi customer building that we call 2,635, FBI moved out in February. And so we've been advertising that build and they've been there for since 1992, so an extended period of time. So we're recasting amenities, redoing the lobby, restrooms, parking, just everything that it needs after such a long tenancy. And we hope to have those complete by the end of Q3.
And so to date, we're 28% re let on that. We're using the building, which is a sister image of this building across the street, 2,800, which is same size, design, etcetera, as a model. And you may remember, a number of years ago, AT and T came out of that building in total, and it took us 2 years to backfill it. So 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%. So we're 25% of the way through and 28% re let at this point in time, using that same timeline. Then just one other footnote, Jamie, in Century Center, we have 1,400,000 square feet and we're 95% occupied sans the 2,635 building. And then the Fidelity building, which we call 11,000 Weston, in the Weston submarket, another comparative to like what I just gave you for Century Center. We have 1,200,000 square feet that's 97% occupied.
This building has been occupied consistently over the last 20 years. So we just got it back the 1st July and we're doing all the things that we would typically do to a building that's now 20 years old. So as soon as we got it back, we commenced with replacement of HVAC roof, wet seal the building, parking lot work, the typical things that we do. The dollar amount that we are expanding is basically in line with the restoration fee of $4,800,000 that we received from Fidelity. We'll have all this work done by the end of the year, if not before.
And we have a multitude of prospects ranging from 25% of the building to 100% of the building.
Okay. Thank you. And then 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. So 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, Gene.
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?
Yes, I think it would extend into 2019. So we mentioned that we have about 300,000 square feet there that's vacant. And 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. And so we're now about a third inked re leased on that. We have a good prospects for another third of that, but I think to say that we would be 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 progress as you and I now have said, but I think January 1 for all that to be re let is a little bit quick.
Yes. I was thinking just more on the execution side rather than rent paying, but that's there. And then wanted to touch on the AT and 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?
It's basically, they renewed for a 5 year term and the rent went up about 3% and they took it as is, so no TI.
Okay, great. And then 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. But 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. So given where we are in the cycle, do either of those markets worry you guys on the supply side looking forward?
Yes, 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. And 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. And based on the absorption we've seen, we think demand is tracking with the new supply.
So 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?
Yes. So we're obviously there's a couple of 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. So what we typically pay pretty close attention to Rob is what our payback percentage is. And over the long run, we've typically been between 12% 15% on that. This quarter, we're just below just a tad below 13%.
So we've seen that we've 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. And then related to that, I mean, 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?
Yes, that's a long good that's a 6 pack kind of conversation, because there are lots of opinions on that. But what we've seen is and we won't drag this out too long, but it goes back to the me versus we space. And the me space that I specifically get in most situations is less than what I occupied in prior years. But the amount of we space is 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 and more of a casual, more of a den type setting as opposed to a formal boardroom type setting. So in the end, and we've carefully studied this, that we feel like the overall demise premise isn't dramatically changed at all when you add in the expanded break rooms and knee space offsetting the contraction in the lease space versus the space that's allocated just to the individual.
Does that make any
sense to you, Rob?
Okay. Yes, perfect. And then 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, 26. You guys thinking at this point about 27 year debt on or you just wait until the $200,000,000 $225,000,000 of 2020 debt is addressable and put 5 year money on at that time?
Yes, it's a great question. Obviously, 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, a $225,000,000 term loan that expires in January of 2019. And with spending on the development pipeline, where is there a chance that we are in the market before the 2020 maturity.
Staying where they are. We've had a little bit of low here and now we're back at staying where they are. We've got a little bit of low 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 it's in the market sometime in the next 6 to 9 months or so.
Okay, guys. Thanks.
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.
And 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?
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. So we have followed customers when they've us to be involved with the development project with them. So 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.
Our next question comes from the line of Aleksey Sinha with SunTrust. Your line is open. Please go ahead.
Good morning. This is Aleksey Synica on for Michael Lewis today. Two quick questions. First one is, could you please give a little more color on the Asurion built 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?
So 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 refine their space programming and scope, and that's what drove the expansion. So the building is comprised of 2 or the project is comprised of 2 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. And then one building is 8 stories and one building is 9 stories. And at 2 different points above the main level, they connect by way of a connecting bridge. So we added a floor to each of those buildings. So that's what grew it from the $479,000 to the $571,000 The price per square foot, obviously, because we're not putting anything more into the land and some other things, went down from $526,000 to $517,000 a foot.
And 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. And we think that the unique urban design that the good people at Hastings came up with and we've worked with them on this, it 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, we not obvious, so that I want to point it out. We did not change the parking count when we expand the building. So the parking ratio is now at 3.5 per 1,000.
Okay. Thank you. And then my last question, I read an article that B Work recently opened its 4th 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 of 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. And I think it's playing out just as companies are exploring alternative work strategies to maximize their efficiencies and collaboration and certainly recruiting retention is important.
So 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. So they went there for a short period of time. They outgrew it or they didn't like it or whatever. So I don't think it's for everybody.
But certainly, it's something that's a trend that's growing, growing quick, and it's something we're closely watching as well.
And 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. And so we've done a few leases with them in our portfolio. So 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.
Our next question comes from the line of Dick Schiller with W. Baird. Your line is open. Please go ahead.
Hey, good morning guys. A question on the development pipeline with a 92% lease realized it's increased in size and scale, but the leverage at the lower levels of your range. If you guys got that big project, let's say another $250,000,000 project, would you guys do it? Or are you still looking for something smaller? You mentioned $50,000,000 projects
to stay within your development pipeline range.
Yes. So if we had a creditworthy 1% build to suit or heavy anchor user of that scale, absolutely, this is our core discipline is to develop. And if the economics were there, we would absolutely do it. The $100,000,000 is just refining of guidance for 2018 based on what we've been able to achieve to date with the $285,000,000 and then just giving some forecast, 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. But absolutely, if we add the right economics, the right credit and the opportunity to deliver for another year of this scale, we would do that.
Okay. Thanks, Ed. And a question on Atlanta on the jobs front. In our monthly note, we've seen a slowdown in the office using employment in Atlanta. Do you guys have any thoughts there?
And are you guys seeing the same thing?
Really, Ed talked about on earlier his comments, Buckhead has been great. See actually pick up in demand. I think we saw the stats the last couple of quarters and there are some IT jobs that maybe were lost in Atlanta that affected the numbers. But 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 is really picked up in the last couple of quarters.
There are no further questions queued up over the phone lines at this time. I will now turn the call back over to our presenters for any final remarks.
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