Good morning. Welcome to the Highwoods Properties conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we'll conduct a question-and-answer session. At that time, if you have a question, please press 1 followed by the phone on your telephone keypad. If at any time during the call you need to reach an operator, please press star 0. As a reminder, this conference is being recorded Wednesday, April 25, 2018. It's now my great pleasure to turn the conference over to Brendan Maiorana. Please go ahead, sir.
Thanks. Good morning. 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 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. You know, actual events and results 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.
Thanks, Brendan. Morning, everyone. Thank you for joining us. During our first quarter call in early February, we discussed the volatility of the financial markets, including the drop in the RMZ index. Financial markets remain in flux, with the U.S. 10-year yield hovering around 3%, and REIT stocks down around 10% on average thus far in 2018. Most REITs, including office REITs, are now generally trading at discounts to NAV. In contrast to share price performance of REITs, the fundamentals of the economy and our business platform are healthy. The key factors underpinning the positive outlook of our business continue to apply. Namely, the jobs picture remains positive. Our Southeastern footprint continues to outpace the national average. Markets continue to experience positive net absorption, construction costs are keeping a bridle on speculative development, and rents continue to rise.
Despite this year's decline in REIT equity prices, we remain confident in our ongoing ability to fund our development pipeline and other business initiatives. First, our very conservative debt metrics provide us with significant dry powder while remaining well within our long-stated comfort zones. Second, we continue to expect to sell around $100 million annually of non-core assets. Third, our cash flow continues to strengthen given the ongoing delivery and stabilization of our well pre-leased development pipeline. During the first quarter, we leased over 850,000 sq ft of second-generation office space, including 220,000 sq ft of new leasing and 171,000 sq ft of expansion leases. In addition to this solid volume, our leasing metrics were strong. We posted robust GAAP rent growth of 19.7%, healthy cash rent growth of 4.6%, strong net effective rents of $15.84 per sq ft, and an average term of six years.
The evidence of strong rent growth working its way through our portfolio can be observed in our same-property cash NOI that was up 2.9% year-over-year, despite modestly lower average occupancy and higher operating expenses. We are pleased to have delivered FFO of $0.85 per share during the quarter. Our first quarter results include $1.9 million or nearly $0.02 from the $4.8 million restoration fee in Raleigh we mentioned on last quarter's call, which Mark will discuss in detail. Turning to development, our $440 million pipeline is 83% leased on a dollar-weighted basis. We're progressing as expected across our pipeline. Our nine projects, including our two major build-to-suits, are tracking on time and on budget. The $96 million, 224,000 sq ft U.S. headquarters for Mars Petcare recently topped out and is projected to deliver in the summer of 2019.
Our $65 million, 219,000 sq ft third building for MetLife's global technology campus is right on track, and we're looking forward to delivering this project in 2Q of 2019. We are now at 90% at our $107 million, 299,000 sq ft Riverwood 200 project in Atlanta. While we still have more than a year before our targeted stabilization date, we have solid prospect activity that will enable us to achieve occupancy in the mid-90s. We're now 66% leased at 5000 Center Green, our $41 million, 167,000 sq ft property in Raleigh that we started 100% spec, and we have strong prospects that will bring us to over 90%. As a follow-up to our previously discussed negotiations with Asurion regarding a potential $252 million headquarters building in the Gulch district in CBD Nashville, we are working towards the execution of a mutually beneficial agreement by the middle of the year, and the process is tracking nicely.
Beyond Asurion, we continue to chase additional development opportunities, mostly on company-owned land, and we're comfortable with our outlook of $100 million-$350 million of 2018 development announcements. During the quarter, we closed on February 6th. We disclosed on February 6th that we had acquired two development parcels totaling nine acres in CBD Nashville using $50 million of 1031 exchange proceeds. Our overall core land inventory can support development of $1.9 billion of additional office. With regards to dispositions, we continue to have a well-defined pipeline of non-core assets at various stages of marketing. We are comfortable maintaining our disposition outlook for 2018 of $61 million-$136 million, including the pending $31 million sale of Highwoods Tower II, scheduled to close next week.
Lastly, on the capital front, we continue to evaluate building acquisitions in BBD locations. There aren't many high-quality assets that owners are willing to sell, and those who are, pricing remains elevated on what we have underwritten. In summary, our business remains strong. We're continuing to see steady interest from customers. We anticipate ending the year with occupancy around where we ended the first quarter, following a projected dip in the second and third quarters. As always, we're leveraging our brand and our synergistic platform while keeping a keen focus on expense management. With a more fortified balance sheet and essentially no debt maturities until 2020, we are well-positioned to fund our growth objectives. I'll now turn the call over to Ted.
Thanks, Ed. Good morning. As Ed noted, we remain upbeat about our outlook, given healthy fundamentals. Southeastern markets continue to benefit from a positive jobs and economic environment. Our markets have met or beaten the national average for annual employment growth 27 consecutive quarters. These regions continue to retain and attract highly qualified candidates, ranging from recent college grads to seasoned professionals, who are drawn to the diverse and dynamic career opportunities, high quality of life, and below-average cost of living. Employers benefit from access to this robust talent pool, as well as the business-friendly environment. Turning to the quarter, we leased 857,000 square feet of second-gen office space with an average term of six years. We garnered net effective rent of $15.84 per square foot, 9% above our prior five-quarter average. We signed 220,000 square feet of second-gen office leases and 171,000 square feet of expansions.
New deal volume was roughly in line with our recent average, while the expansion activity was approximately double our typical volume. Our strong leasing activity makes us optimistic for the remainder of the year. Rent spreads were strong this quarter. GAAP rent spreads were positive 19.7%, well above the prior five-quarter average of 14.7%. We were able to post healthy cash rent spreads of positive 4.6%. In addition to our second-gen leasing activity, we signed 74,000 square feet of first-generation office leases since our Q4 call in February. Our development pipeline is now 83% pre-leased on a dollar-weighted basis. Average in-place cash rents were 3.8% higher at quarter end compared to a year ago, which is indicative of solid rent growth over the last several quarters, healthy annual escalators on nearly all of our leases, and strong rents at recently delivered development projects.
Our first quarter same property cash NOI was plus 2.9%, despite average occupancy being down 50 basis points compared to Q1 2017, and operating expenses up around 3%. We've increased the bottom end of our year-end occupancy outlook 25 basis points to 91.5%, while maintaining the high end of 92.75%. We anticipate occupancy to decrease over the next couple quarters to around 91%, with an uptick at the end of the year to around 92%. The largest known move-out this year is Fidelity, who will give back 178,000 square feet in the Raleigh division's Weston submarket in the third quarter. As a reminder, Fidelity's natural lease expiration is the end of November. We'll receive the remainder of their full rent through the end of the natural term in Q3. Our 1.2-million-square-foot in-service portfolio in Weston was 100% occupied at the end of the first quarter.
Raleigh's job growth continues to fuel demand for high-quality office space. Raleigh posted 2.0% office employment growth year-over-year, 60 basis points higher than the national average. We expect the positive trends to continue with announced hiring initiatives from Credit Suisse, MetLife, and Ipreo, among others. Per Avison Young, the overall market's Class A vacancy was 9.2%, a 100-basis point improvement since December 31st. Class A rents were up 3.5% year-over-year. There's 2.5 million sq ft under construction, spread across six submarkets. We believe 1.1 million sq ft is competitive to our BBD-located portfolio and is approximately 50% pre-leased. We continue to generate strong rents, as evidenced by GAAP rent spreads of positive 22.2% on signed deals in Q1. Our in-service Raleigh portfolio is 94.3% occupied, up 180 basis points year-over-year.
We're pleased to announce a recently signed deal for approximately 35,000 sq ft at our 5,000 Center Green development. This deal brings the project to 66% leased. There's strong interest in the remainder of the space, we remain confident in our lease-up plans. Turning to Atlanta. Market fundamentals remain healthy, fueled by Q1 2018 year-over-year job growth of 2.0%, spurring Class A annual rent growth of 5.7%, as reported by CBRE. Net absorption moderated this quarter to positive 130,000 sq ft, compared to the recent average of around 250,000 sq ft. This quarter's absorption was solely driven by Class A properties, indicating continued demand for high-quality product in Atlanta. We signed 217,000 sq ft of second-gen leases in Atlanta with an average term of 8.3 years. Although TI has moved up, we continue to push rents, as evidenced by the quarter's positive 20.5% GAAP rent spreads.
During the quarter, we signed 11 leases totaling 82,000 sq ft in Buckhead. We remain very bullish on the Buckhead submarket in our portfolio, particularly given its quality and competitively advantaged location. The FBI vacated 137,000 sq ft Century Center in the first quarter. As we discussed on the last call, we backfilled 28% of the vacancy and continue to see steady activity on the remaining space. Finally, as Ed mentioned, we're now 90% leased at Riverwood 200 and have prospects to bring the building to the mid-90s. In Nashville, the unemployment rate is 2.6%, reported by Cushman & Wakefield to be the lowest of any U.S. metro area with more than 1 million people. Nashville office employment growth year-over-year was 2.5%, versus the national average of 1.4%. As mentioned last call, approximately 2 million sq ft delivered in Nashville throughout 2017.
The market is responding well to the new product as overall vacancy held steady in Q1 at 8.5%, Class A vacancy improved 20 basis points, ending at 9.3%. Our national portfolio occupancy was 95% at the end of Q1. We signed 141,000 sq ft of second-gen leases at robust GAAP spreads of positive 31.5%. Lastly, in Tampa, net absorption, as reported by JLL, was 247,000 sq ft, the highest in the last seven quarters. Overall vacancy was 11.4%, down 60 basis points compared to year-end. Class A vacancy decreased 40 basis points to 8.3%. Tampa's absence of development, stapled with 2.5% year-over-year office employment growth and dwindling supply of available quality office space, all contribute to a positive backdrop for rent growth. We are excited by the overall progress of Tampa and our portfolio, which was 94.2% occupied at the end of Q1.
In conclusion, positive fundamentals across our markets offer a healthy environment for our business. We anticipate demand for quality, well-located office space will continue. Mark?
Thanks, Ted. As Ed outlined, we delivered net income of $32.4 million, or $0.31 per share, an FFO of $90.7 million, or $0.85 per share, a 7% increase year-over-year. Compared to the fourth quarter of 2017, the sequential drivers of the nearly $2 million FFO increase were higher NOI by approximately $4.5 million, driven by higher average rents, higher NOI from recently delivered development projects, and a higher restoration fee from Fidelity that I'll describe in more detail shortly. These were partially offset by higher G&A by approximately $2 million. As you'll recall, this is the normal annual pattern for us, as we have increased expense from long-term equity grants in the first quarter of each year, and modestly higher interest expense due to closing our $350 million bond offering in early March, six weeks ahead of the repayment of our $200 million bond maturity on April 16th.
As noted in our release, effective with the first quarter, we are now reporting EBITDARE consistent with recent NAREIT guidance. With net debt to EBITDARE of 4.77 turns and leverage of 36%, our balance sheet remains in excellent shape. Our strong leverage metrics put us towards the lower end of our stated comfort range of 4.5-5.5 net debt to EBITDARE, and we have significant liquidity to fund our growth initiatives. As noted on page 17 of our supplemental, we've already funded 64% of our expected investment of $440 million on our current development pipeline. As I mentioned, we raised $350 million in a 10-year bond deal with an effective interest rate of 4.06%, after factoring in a $7.2 million gain from a prior hedge of $150 million of the underlying treasury at 2.44%.
The majority of the proceeds were used to pay down our revolving line of credit. We have zero drawn on our $600 million line of credit at quarter end. Subsequent to quarter end, we paid off the $200 million bond, which had an effective interest rate of 7.5%. We were very pleased with the execution of this offering, which extends our maturity ladder at a favorable fixed rate. Our next meaningful maturity is not until June of 2020. As Ed mentioned, we tightened our 2018 FFO outlook to $3.37-$3.47 per share, a midpoint of $3.42 per share, a $0.01 increase to our previous midpoint. While we typically do not include the effect of any future acquisitions or dispositions, our FFO forecast does assume the previously announced planned sale of Highwoods Tower II in Raleigh for $31 million closes May 1st, and the proceeds are held in 1031 escrow.
The proceeds include $1 million for an adjacent two-acre land parcel, resulting in a $0.005 land sale gain. Before we take your questions, a few other items to note. First, our same-property cash NOI growth is expected to moderate in the remainder of the year due to lower average occupancy and the timing and seasonality of operating expenses. We expect occupancy will bottom out in the third quarter due to the impact of known vacancies, predominantly driven by Fidelity, and then trend upward by year end. Second, for modeling purposes, at the midpoint of our outlook, we expect FFO in the second and third quarters will be roughly comparable to the first quarter before anticipated improvement in the fourth quarter. Of note, we recognized $1.9 million of the Fidelity restoration fee in Q1. We'll recognize a comparable amount in Q2.
In Q3, we will recognize two extra months of rent from Fidelity, which includes its payment of originally scheduled rent under its lease that would otherwise run through the end of November. These unusual items relating to Fidelity's departure end after the third quarter, creating a clean run rate from 11,000 less than in Q4 with no projected occupancy or rent. Finally, as we've signaled for the past few years, our free cash flows continue to strengthen with the delivery of our well pre-leased development pipeline and consistent performance of our same-store portfolio. 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. One moment please for the first question. Our first question comes from the line of Jamie Feldman with Bank of America Merrill Lynch. Please go ahead.
Great. Thank you, and good morning.
Good morning.
Appreciate all the color. I'm hoping you guys can focus a little more on the largest leases you have to backfill or the largest vacancies you have to backfill. Give us an update, the same ones you've been talking about the last couple of quarters, just when, if you got leasing done, when it would actually help FFO. Is it a 2018 or a 2019 story?
Hey, good morning, Jamie. It's Ed. I'll start off with a couple macro comments, then maybe Ted can give us some specifics on the more prominent backfills. Just, we're encouraged on the activity. Fundamentals continue to be very strong as exhibited by what we were able to publish for first quarter, including the 220,000 square feet of new leases that we did and 171,000 square feet of expansion leases. Also the leasing that we did on our development pipeline. Of our 1.3+ million square feet of office in our development pipeline, as of our last call, about 325,000 square feet of that was available or spec component. We knocked out 74,000 square feet of that since our last call, which knocks that back to about only 250,000 square feet of available space.
If you take it to a 95% stabilized, we knocked out more than 25% of that since our last call. We did have good activity in Buckhead while only a small piece of it was specifically for Towers Watson or Morgan Stanley. It was mentioned in our comments. We signed 11 deals in Buckhead for 82,000 square feet, which was a meaningful percentage of our good activity in Atlanta for the quarter.
Ted, if you'll just cover the more prominent ones.
Sure. Looking at our 2017 expirations, the three holes that we had, HCA, the 211,000 feet in Nashville, we're now 51% relet in Nashville. That's up from 46% last call. One of the two buildings is substantially backfilled. That's our 3322 West End building. The remaining is in Brentwood at Ramparts. That submarket's still strong. It's about 10% vacant. We're about 9% vacant. That includes our vacancy at Ramparts, still feel good about the market. The Highwoods-tizing at Ramparts is now complete. We've had good, positive broker feedback and steady activity there, still have some work to do. In Buckhead, we had two spaces, one in One Alliance and one in Monarch Tower. Totally about 137,000 feet. Right now, we're 4% relet. Just as a reminder, Three Alliance is now substantially leased, there's no new construction underway in Buckhead.
As Ed mentioned, we've had pretty good activity. It just hasn't been on this space, in terms of getting deals signed up yet. Three Alliance did pull forward a lot of 2019 expirations, which I think is one of the reasons why the slower activity. The space shows well, excellent ingress, egress, great quality space, we're getting positive feedback. We're doing a lot of showings, we're still optimistic on that. The third one is in Richmond, FCI, 163,000 feet. We're 77% relet there, excellent prospects for the balance of the space.
Okay. Do you have anything from Buckhead in your 2018 guidance or any additional leasing in any of these spaces in your 2018 guidance?
Yeah, really, to answer that part of your question, Jamie, most of this hits in 2019 across the board for this activity.
Jamie, I ought to probably jump in real quick on other couple. FBI, they left earlier this, in the first quarter, 137,000 feet, and we're 28% relet, and we continue to have steady interest there as well. Highwoods-izing's well underway. The FBI, when they vacated, they'd been in that space since 1992. There's a pretty big Highwoods-izing project we're well underway on. It's similar to what we did at 2800 Century Center a few years ago, in which we backfilled that space in about 24 months.
Okay. Thank you. I guess, just taking a step back. I think the regional economies are starting to digest tax reform and lack of SALT deductions. Any change in the tone or the pace of conversations you're having with potential corporate relocations to your markets, just in general or based on tax reform?
None tied to that.
Okay. What about just in general? A lot of your markets are HQ2 markets, so on the top 20. Has that changed anything? Are you seeing any change in tone or pace, or it's about the same?
I would say it's about the same. I think the fundamentals reflect that things continue to be quite positive.
Okay. All right. Thank you.
Thanks, Jamie.
Our next question comes from the line of Emmanuel Korchman with Citi. Please proceed with your question.
Hey, good morning, everyone.
Morning, Manny.
If we just think about asset sales, maybe just what's your appetite for selling some core properties and then using those proceeds to further the development pipeline?
Well, I think from a balance sheet perspective, Manny, we feel very good about our ability to fund our development pipeline. Of the $440 million now, we're two-thirds % already funded. We do have non-core dispositions we expect to do in the $100 million plus or minus range this year. We do have a continuing strengthening cash flow that we would also put towards that. I think on a macro sense, we would be reticent to take core assets and put them to market to fund that, given the strength of the balance sheet, proceeds from dispositions, and strengthening cash flow.
Thanks for that. In terms of Amazon HQ2, how often does that topic come up in your office, and can you share updated thoughts there?
Every 15 minutes. You can't pick up a newspaper or periodical or meet with somebody without it being a topic. It's like trying to guess who shot J.R. It's an everyday topic of keen interest. There are pros and cons in there, and people who speak both in their editorials on both sides of that. We're very pleased that four of our markets are in the top 20 finalists. We'll see how it falls out. Obviously, Vegas and other people have certain odds on certain markets, but I think that having four of the 20 speaks to the quality of the footprint.
Thanks. That's all.
Sure. Thanks, Manny.
Our next question comes from the line of David Rodgers with Baird. Please go ahead.
Yeah, good morning. Ted, I wanted to follow up on your comments about concessions being higher, but you're being able to get higher base rents as well. I guess, what do you see in terms of total economics, flat? Take that to the next step with Ed, in terms of where our development return's improving as well, and how do you see construction costs?
Sure. Just from a leasing economic perspective, I think that can be lumpy quarter to quarter. I think this quarter was a little bit higher than our five-quarter average, but it was really two leases. One was a total restack on a renewal, and one was a decent-sized new lease. Either one of those out, not both of them, but just either one of them, our metric would go down below the five-quarter average from a CapEx view. Dave, it's Ted. In terms of our leasing, it can be lumpy quarter to quarter. I think this quarter, you saw it jump up a little bit. That was really due to two leases. One was a total restack on a renewal that required a higher TI, and then one was a new deal, a decent-sized new deal that required a long-term lease.
If you backed either one of those out, not both of them, but just either one of them, our numbers this quarter would be below our five-quarter average. While it can be lumpy due to one or two leases, I think on average, things have stayed relatively consistent for us.
Dave, I'll take the second half of that. Just with regard to the gap between second- and first-gen rents. It's narrowed some because of the strengthening rent growth in second-gen space. It's modified a little bit by the unfortunate continued increase in the cost of new construction. There still remains a material gap there, where it is a deliberate decision for a user to go from second to first gen. It's a meaningful decision to step up to the first gen. Fortunately, given the lack of significant amount of spec new development, that's a lot of what's driving our ability to consummate these build-to-suit projects.
Do you feel, Ed, that returns on the development are getting better because of the tighter market? Because just the lack of space because of where construction costs are going, you can ask for a bigger spread on that?
Yeah, I would like to say yes to that, Dave. I think that we've kind of stuck with the pigs get fat, hogs get slaughtered. We think that maintaining our ability to get an eight-plus % return on GAAP in the face of rising rates as a result of the increased cost of the capital and the materials, the construction of it, is the proper way to continue to run the business. It's certainly very healthy in what we've been able to achieve on our development pipeline over the past years and what we currently have underway. Stable to that, what we're optimistic about what we're chasing. We feel very good about where we are and remain disciplined on that.
That's helpful. Thank you.
Sure. Thank you.
Ladies and gentlemen, once again, thank you for your question. Please press one, four on your telephone keypad. Next question is coming from the line of Blaine Heck with Wells Fargo. Please proceed.
Thanks. Good morning. Maybe for Ed or Ted to follow up on that last point. We've seen kind of a pretty big move in the 10-year thus far this year. Have you guys seen any evidence that the increased rate is having an effect on the investment sales market? Do you think that could affect pricing to an extent that you'll either have opportunities to buy or, on the other side, difficulty selling more?
Yeah, I think it would really be very marginal. The bigger issue, Blaine, is the absence of quality trophy institutional quality assets coming to market. There continues to be a wall of capital that is pursuing the higher-quality ones. I think the transaction that occurred with Three Alliance is probably a very good petri dish for that. There's just not a lot of that type of product coming to market. When it does, it seems like the pricing is extremely aggressive. I think it's more that that's casting or defining the acquisition market as opposed to this move in interest rates.
Okay, that makes sense. Then when I look at some of your strongest markets from a rent growth and rent spread basis over the past several quarters, a few come up consistently, Nashville, Raleigh, Tampa, and Atlanta. You guys have development projects in each of those markets except for Tampa at this point. I guess I'm wondering if it's just a matter of getting a pre-lease at one of your Tampa land sites to go ahead with development, or is there something else maybe that could be keeping you guys cautious? If it's a matter of just pre-leasing, maybe you can talk about any prospects you might have there.
Yeah, you nailed it with option A in your answer to your question. It's more finding anchor customers. We have two predominant places we can do this. One is in Westshore at a development we call Independence Park. We have a building there, and we have three pads where we can do others. We have presented to folks on that. In fact, we're optimistic that we would be able to do something there sooner than later. It comes down to capturing the appropriate scale of the anchor customer for that. The second is when we bought SunTrust Financial Centre in downtown Tampa, we also acquired the neighboring block. On that block, we can build a half a million or so square foot tower. We might modify that bigger or smaller depending on what we're able to capture in prospecting there.
Certainly have concepts that are fairly well-defined, that enable us to be in the market to chase prospects. Just as a reminder, both Orlando and Tampa were late to come back, when the recovery occurred. Their hangover from the recession lasted longer than other markets that we're in. Their rent growth and vitality now are showing stronger later in the recovery than the others. We hope some of this development comes with that.
Great. That's helpful. Thanks, Ed.
Sure, Blaine.
Next question comes from the line of Jed Reagan with Green Street. Please go ahead.
Morning, guys.
Morning.
Can you give us any color on known or potential larger move-outs for 2019? Do you have any read on that yet?
Sure. Jed, when we put out our most recent at-a-glance, which is on our website, we listed on the back of page six, some there. We basically, any customer that's 100,000 sq ft or more, we put on there. One of those is in a building that we'll sell next week, that takes care of that. That leaves us at four, and we feel very good about three of the four. It's still a little bit early, but we'll see how they play out. No known move-out of any customer that's 100,000 sq ft or more in 2019 as of this point.
Okay. That's helpful. I missed some of the opening remarks, sounds like you're seeing base rent growth in your markets, also rising concessions. I'm just curious on if you kind of look at that on a net effective basis, do you feel like you're seeing growth across your markets at this point? If so, maybe kind of order of magnitude, how much?
Yeah. Hey, Jed, it's Ted. I think last quarter we were up, net effective rents were up 9% from last year. We're continuing to see it. We are pushing rents. You saw our GAAP and cash rent spreads this quarter, which are really strong. We've generally been able to keep the concession packages generally in line with our historical averages. Markets still feel good. Still getting good activity, good job growth in our markets. Not a lot of new construction. We still feel good about the overall fundamentals.
That 9%, I guess, how representative is that of your markets? I know in the past you've talked about maybe 2%-5% kind of market rent growth, across your footprint. Is that still accurate?
Yeah. No, I think it is. Again, few of the markets are on the upper end of that. The Nashville, Tampa, we're really pushing. Raleigh's still really strong. We got a few of our markets on the lower end, I think it hasn't really changed in the last several quarters.
Okay. That's helpful. Maybe last one for Mark. It looks like you lowered share count guidance a bit for the year. Can you just give me a little color on that decision, and then whether that means you might need to ramp up dispositions or tap the line for some additional proceeds, potentially?
Sure, Jed. As you know, we've been active users of the ATM in the past and funded development pipeline kind of on a leverage-neutral basis with the ATM. With where the price is, we obviously haven't done anything in the ATM. We think we've got plenty of flexibility with the leverage metrics where they are. We've obviously got some, Ed referred to, we've got some dispositions planned for the year. Between dispositions proceeds, free cash flow from the business, again, we've got plenty of firepower with respect to the metrics to be able to fund the development pipeline. I think we're in good shape with respect to sources of capital. That's the reason for the move on the share count, not anticipating that we'll be in the ATM.
Okay. I think I heard Ed say $100 million or so on dispo. I guess if I took that literally, that would get you to sort of the high end of your disposition range. Is that the right way to think about that?
It is.
Yep. Okay, perfect. Thank you, guys.
Thanks, Jed.
Our next question comes from the line of John Guinee with Highwoods. Please go ahead.
John Guinee with Highwoods? Okay. Ed-
We're hiring every analyst that we can.
Oh my God. Ed, you mentioned, "Who shot J.R.?" with the reference to Amazon. Not everybody on this call is as old as you and I. Can you actually give us the date that TV show was playing?
1980, maybe 1981.
Most of the people on this call weren't alive then, okay? Remember that. Here's what I can't figure out is, you're gonna get some debt cost savings. Looks like your lease economics analysis is getting a little better. You've got almost $2 million for the next quarter coming in from the Fidelity restoration, and then a little pop in extra rent from Fidelity in the third quarter. You're implying that that all equates to about an $0.85 FFO for quarters two and three, but then maybe up $0.02, $0.87, just maybe in the fourth quarter. What's the pop in the fourth quarter that gets you there?
Hey, John, it's Brendan. Yeah, there's.
Genius.
Thanks. I'll try to live up to that. There's a decent amount of movement within line items within the first three quarters, you're right. We got the Fidelity restoration fee in the first quarter. We'll get a comparable amount in the second quarter. What's likely to happen is we'll have occupancy that will dip a little bit in the second and third quarters. That G&A savings that we get, just the normal seasonal pattern that we'll get in second and third quarters relative to the first, will probably be offset by the occupancy dip. As we build back into the fourth quarter, we expect occupancy to get higher, we would expect to get more NOI from some of the recently delivered development projects as we build into the fourth quarter.
I think you're right in terms of your trajectory of the quarters on a high-level basis. There's a few moving parts that are in there, fourth quarter should be pretty clean. There's no Fidelity impact in there with an improvement in occupancy.
Great. Thank you very much.
Thanks, John.
Bye.
There are no further questions on the phone line.
All right. Thank you, Carlos, for moderating, and everybody, thanks for dialing in. As always, if you have any follow-up questions, please don't hesitate to give us a call. Thank you.
Ladies and gentlemen, that concludes today's call. We thank you for your participation and ask you to please disconnect your lines.