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, Wednesday, April 25, 2018. And it's now my great pleasure to turn the conference over to Brandon Maioneira.
Please go ahead, sir.
Thanks and good morning. Joining me on the call this morning are Ed Bridge, President and Chief Executive Officer Ted Klenck, 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 dotcom. On today's call, our review will include non GAAP measures such as FFO, NOI and EBITDAre.
Also, the release and supplemental include a reconciliation of these non GAAP measures to the most directly comparable GAAP financial measures. Forward looking statements made during today's call are subject to risks and uncertainties, which are discussed at length in our press releases as well as our SEC filings. As you know, actual events and results can differ materially from these forward looking statements. The company does not undertake a duty to update any forward looking statements. I'll now turn the call to
Ed. Thanks, Brendan. Good morning, everyone, and thank you for joining us. During our Q1 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 are now generally trading at discounts to NAV. In contrast to share price performance of REITs, 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 and 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. 1st, our very conservative debt metrics provide us with significant dry powder while remaining well within our long stated comfort zones. 2nd, we continue to expect to sell around $100,000,000 annually of non core assets. 3rd, our cash flow continues to strengthen given the ongoing delivery and stabilization of our well pre leased development pipeline.
During the Q1, we leased over 850,000 square feet of 2nd generation office space, including 220,000 square feet of new leasing and 171,000 square feet of expansion leases. In addition to the 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 square foot and an average term of 60 years. The evidence of strong rent growth working its way through our portfolio can be observed in our same property cash NOI 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 $1,900,000 or nearly $0.02 from the $4,800,000 restoration fee in Raleigh we mentioned on last quarter's call, which Mark will discuss in detail. Turning to development, our $440,000,000 pipeline is 83% leased on a dollar weighted basis. We're progressing as expected across our pipeline. Our 9 projects, including our 2 major build to suits, are tracking on time and on budget. The $96,000,000 224,000 Square Foot U.
S. Headquarters from Mars PetCare recently topped out and is projected to deliver in the summer of 2019. Our $65,000,000 219,000 Square Foot 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 $107,000,000 2.90 9,000 Square Foot Riverwood 200 Project in Atlanta. While we still have more than a year before our targeted stabilization day, we have solid prospect activity that will enable us to achieve occupancy in the mid-90s.
We're now 66% leased at 5000 Centigrene, our 40 $1,000,000 167,000 square foot 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 $252,000,000 headquarters building in the Gulf 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 face additional development opportunities, mostly on company owned land and we're comfortable with our outlook of $100,000,000 to $350,000,000 of 2018 development announcements. During the quarter, we closed on February 6th we disclosed on February 6th that we had acquired 2 development parcels totaling 9 acres in CBD Nashville using $50,000,000 at 10.31 exchange proceeds. Our overall core land inventory can support development of $1,900,000,000 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 $61,000,000 to $136,000,000 including the pending $31,000,000 sale of Average Tower 2 scheduled to close next week. Lastly, on the capital front, we continue to evaluate building acquisitions in BBD locations, but 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 and we anticipate ending the year with occupancy around where we ended the Q1 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, and 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 low average cost of learning.
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 2nd gen office space with an average term of 6 years. We garnered net effective rent of $15.84 per square foot, 9% above our prior 5 quarter average. We signed 220,000 square feet of 2nd 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 percent, well above the prior 5 quarter average of 14.7% and we were able to post healthy cash rent spreads of positive 4.6%. In addition to our 2nd gen leasing activity, we signed 74,000 square feet of 1st 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 recently delivered development projects. Our first quarter same property cash NOI was plus 2.9 percent 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 at much 25 basis points to 91.5 percent while maintaining the high end of 92.75%. We anticipate occupancy to decrease over the next couple of 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 Westin submarket in the Q3.
As a reminder, Fidelity's natural lease expiration is the end of November and we will receive the remainder of their full rent through the end of the natural term in Q3. Our 1,200,000 square foot in service portfolio in Weston was 100% occupied at the end of the Q1. Raleigh's job growth continues to fuel demand for high quality office space. Raleigh posted 2.0 percent 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 Abbess and Young, the overall market's Class A vacancy was 9.2%, a 100 basis point improvement since December 31. Class A rents were up 3.5 percent year over year. There's 2,500,000 square feet under construction spread across 6 submarkets. We believe 1,100,000 square feet is competitive through our BBD located portfolio and is approximately 50% pre leased. 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 square feet at our 5,000 Center Green development. This deal brings the project to 66 percent leased. There is strong interest in the remainder of the space and 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 square feet compared to the recent average of around 250,000 square feet. This quarter's absorbency was solely driven by Class A properties indicating continued demand for high quality product in Atlanta. We signed 217,000 square feet of 2nd 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 percent GAAP rent spreads. During the quarter, we signed 11 leases totaling 82,000 square feet in Buckhead.
We remain very bullish on the Buckhead submarket and our portfolio, particularly given its quality and competitive competitively advantaged location. The FBI vacated 137,000 Square Feet Century Center in the Q1. As we discussed on the last call, we backfilled 28% of the vacancy. We continue to see steady activity on the remaining space. Finally, Yvette 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 1,000,000 people. Nashville office employment growth year over year was 2.5% versus the national average of 1.4%. As mentioned in the last call, approximately 2,000,000 square feet delivered in Nashville throughout 2017.
The market is responding well to the new product as overall vacancy held steady in Q1 at 8.5% and Class A vacancy improved 20 basis points ending at 9.3%. Our Nashville portfolio occupancy was 95% at the end of Q1. We signed 141,000 square feet of 2nd gen leases at robust GAAP spreads of positive 31.5%. Lastly, in Tampa, net absorption as reported by JLL was 247,000 square feet, the highest in the last seven quarters. Overall vacancy was 11.4%, down 60 basis points compared to year end and 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 a 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 all 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 $32,400,000 or $0.31 per share and FFO of $90,700,000 or $0.85 per share, a 7% increase year over year. Compared to the Q4 of 2017, the sequential drivers of the nearly $2,000,000 FFO increase were higher NOI by approximately $4,500,000 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 and A by approximately $2,000,000 As you'll recall, this is the normal annual pattern for us as we have increased expense from long term equity grants in the Q1 of each year and modestly higher interest expense due to closing our $350,000,000 bond offering in early March, 6 weeks ahead of the repayment of our $200,000,000 bond maturity on April 16. As noted in our release, effective with the Q1, 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 to 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 $440,000,000 on our current development pipeline. As I mentioned, we raised $350,000,000 in a 10 year bond deal with an effective rate of 4.06 percent after factoring in a $7,200,000 gain from a prior hedge of $150,000,000 of the underlying treasury at 2.44%. The majority of the proceeds were used to pay down our revolving line of credit.
We had 0 drawn on our $600,000,000 line of credit at quarterend. Subsequent to quarterend, we paid off the $200,000,000 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 to $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 2 in Raleigh for $31,000,000 closes May 1 and the proceeds are held in tenthirty one escrow. The proceeds include $1,000,000 for an adjacent 2 acre land parcel resulting in a $0.05 land sale gain. So 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 3rd quarter due to the impact of known vacancies predominantly driven by Fidelity and then trend upward by year end.
2nd, for modeling purposes, at the midpoint of our outlook, we expect FFO in the second and third quarters will be roughly comparable to the Q1 before anticipated improvement in the 4th quarter. Of note, we recognized $1,900,000 of the Fidelity restoration fee in Q1, will recognize a comparable amount in Q2. In Q3, we will recognize 2 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 and after the Q3 creating a clean run rate from 11,000 less than in Q4 with no projected occupancy or rent. And 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 Thank And 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. I 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? Just give us an update, the same ones you've been talking about the last couple of quarters. And just when if you got leasing done, when it would actually help FFO?
Is it an 2018 or 2019 story?
Hi, good morning, Jamie. So it's Ed. I'll start off with a couple macro comments and then maybe Ted can give us some specifics on the more prominent backfills. So just we're encouraged on Q1, including the 220,000 square feet of new leases that we did and 171,000 square feet of expansion leases. And then also the leasing that we did on our development pipeline, so of our 1,300,000 plus square feet of office in our development pipeline, prior or as of our last call, about 325,000 square feet of that was available, our spec component.
And so 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. So we if you take it to 95% stabilized, we knocked out more than 25% of that since our last call. Then we did have good activity in bucket, while a small only a small piece of it was specifically for Towers Watson or Morgan Stanley. As mentioned in our comments, we signed 11 deals in bucket for 82,000 square feet, which was a meaningful percentage of our good activity in Atlanta for the quarter. And then Ted, if you'll just cover the more prominent ones.
Sure. Looking at our 2017 expirations, the 3 holes that we had, HCA, the 211,000 feet in Nashville, we're now 51% re let in Nashville. That's up from 46% last call. 1 of the 2 buildings is substantially backfilled. That's our 3,320 2 West End building.
So the remaining is in Brentwood at Ramparts. That submarket is still strong. It's about 10% vacant. We're about 9% vacant. That includes our vacancy at Ramparts.
So, still feel good about the market. The hybridizing at Ramparts is now complete. We've had good positive broker feedback and steady activity there, but still have some work to do. In Buckhead, we had 2 spaces, 1 in 1 Alliance and 1 in Monarch Tower, totaling about 137,000 feet. Right now, we're 4% re let.
And just as a reminder, 3 alliances now substantially leased and there's no new construction underway in Buckhead. And 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. And 3 Alliance did pull forward a lot of 2019 expirations, which I think is one of the reasons why the slower activity. But the space shows well, excellent ingress, egress, great quality space, and we're getting positive feedback.
We're doing a lot of showings. So we're still optimistic on that. And then the third one is in Richmond FCI, 163,000 feet. We're 77% relet there and excellent prospects for the balance of the space.
Okay. Do you have anything from Buckhead in your 2018 guidance or from any additional leasing in any of these spaces in your 2018 guidance?
Yes. 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 our other couple. FBI, they left earlier this in the first quarter, 137,000 feet and we're 28% re let. And we continue to have steady interest there as well. High advertising is well underway. The FBI, when they vacated, they've been in that space since 1992.
And so there's a pretty big hybridizing project we're well underway on. It's similar to what we did at 2,800 Century Center a few years ago in which we backfilled that space in about 24 months.
Okay. Thank you. And then I guess just taking a step back, I think the regional economies are starting to digest tax reform and lack of SALT deductions. I mean 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? I mean, how would you say I mean, a lot of your markets are HQ2 markets still in 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. It really hasn't been there. I think the fundamentals reflect that things continue to be quite positive.
Our next question comes from the line of Emmanuel Kornjian with Citi. Please proceed with your question.
Hey, good morning, everyone.
Good 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, I mean, we feel very good about our ability to fund our development pipeline. Of the $440,000,000 now, we're 2 thirds percent already funded. We do have non core dispositions we expect to do in the $100,000,000 plus or minus range this year, and we do have continuing strengthening cash flow that we would also put towards that. So 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
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. It's you can't pick up a newspaper It's you can't pick up a newspaper or periodical or meet with somebody without it being a topic. I mean, it's like trying to guess who shot JR. It is just it's an everyday topic of keen interest. And there are pros and cons and people who speak both in their editorials on both sides of that.
We're very pleased that 4 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 4 of the 20 speaks to the quality of the footprint. Thanks, Seth.
Sure. Thanks, Manny.
Our next question comes from the line of Dave Rodgers with Baird. Please go ahead.
Hey, good morning. Ted, I wanted to follow-up on your comments about concessions being higher, but you're being able to get higher face rents as well. So I guess, what do you see in terms of total economics, flat, up slightly, down slightly? And then maybe take that to the next step with Ed in terms of where our development returns 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. On a renewal and one of the decent sized new lease. We back either one of those out, not both of them, just either one of them Dave, it's Ted. In terms of our leasing, it's really it can be lumpy quarter to quarter.
And I think this quarter, you saw it jump up a little bit. That was really due to 2 leases. 1 was a total restack on a renewal that required higher TI and then one was a new deal, decent sized new deal that required a long term lease that if you backed either one of those out, not both of them, but just either one of them, our 5 quarter our numbers this quarter would be below our 5 quarter average. So, while it can be lumpy due to 1 or 2 leases, I think on average, things have stayed relatively consistent for
us. And 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. But there still remains a material gap there where it is a deliberate decision for a user to go from 2nd to 1st gen.
I mean, it's a meaningful decision to step up to the 1st gen. And 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 and because of the just the lack of space because of where construction costs are going, you can ask for a bigger spread on that?
Yes, I don't know that I don't think I would like to say yes to that, Dave, but I think that we've kind of stuck with pigs get fat, hogs get slaughtered. We think that maintaining our ability to get an 8 plus percent return on GAAP in the face of rising rates is 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. And what we've been able to achieve on our development pipeline over the past years and what we currently have underway and 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.
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? And 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?
Yes. I think it would really be very marginal. The bigger issue, Blaine, is the absence of quality trophy, institutional quality assets coming to market. And there continues to be a wall of capital that is pursuing the higher quality ones. And I think the transaction that occurred with 3 Alliance is probably a very good petri dish for that.
There's just not a lot of that type of product coming to market. And when it does, it seems like the pricing is extremely aggressive. So I think it's more of that, that's casting or defining the acquisition market as opposed to this move in interest rates.
Okay. That makes sense. And then when I look at some of your strongest markets from a rent growth and rent spread basis over the past several quarters. 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.
So I guess I'm wondering if it's just a matter of getting a pre lease at 1 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?
Yes. So you nailed it with option A to your in your answer to your question. It's more finding anchor customers. So we have 2 predominant places we can do this. 1 is in Westshore at a development we call Independence Park.
And so we have a building there and we have 3 pads where we can do others. So we have presented to folks on that. And in fact, we're optimistic that we would be able to do something there sooner than later. But it comes down to capturing the appropriate scale of the anchor customer for that. And then the second is when we bought SunTrust Financial Center in Downtown Tampa, we also acquired the neighboring block.
And on that block, we can build 500,000 or so square foot tower. We might modify that bigger or smaller depending on what we're able to capture in prospecting there. But certainly have concepts that are fairly well defined that enable us to be in the market to chase prospects. And just as a reminder, both Orlando and Tampa were late to come back when the recovery occurred. They were their hangover lasted from the recession, lasted longer than other markets that we're in.
And so their rent growth and vitality now are showing stronger later in the recovery than the others. So we hope some of this development comes with that.
Great. That's helpful. Thanks, Ed.
Sure, Blayne.
Next question comes from the line of Jed Regan with Green Street. Please go ahead.
Good morning, guys. Good 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. When we put out our most recent At A Glance, which is on our website, we listed on the back of Page 6 some there. So we basically anyone who's any customer that's 100,000 square feet or more, we put on there. One of those is in a building that we'll sell next week. So that takes care of that.
So that leaves us at 4, and we feel very good about 3 of the 4. It's still a little bit early, but we'll see how they play out. But no known move out from of any customer that's 100,000 square feet or more in 2019 as of this point.
Okay, that's helpful. And then I missed some of the opening remarks, but it sounds like you're seeing face rent growth in your markets, but 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? And if so, maybe kind of order of magnitude how much? Yes.
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. I mean, 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. So, markets still feel good, still getting good activity, good job growth in our markets. So not a lot of new construction. So we still feel good about the overall fundamentals.
And that 9%, I guess how representative is that of your markets? I know in the past you've talked about maybe 2% to 5% kind of market rent growth across your footprint. Is that still accurate?
Yes. No, I think it is. Again, few of the markets on the upper end of that, the Nashville, Tampa, we're really pushing. Raleigh is still really strong and then we got a few of our markets on the lower end, but I think it hasn't really changed in the last several quarters.
Okay. That's helpful. And then 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 some 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.
So between dispositions proceeds, free cash flow from the business and then then again, we've got plenty of firepower with respect to the metrics to be able to fund the development pipeline. So I think we're in good shape with respect sources of capital and but that's the reason for the move on the share count, not anticipating that we'll be in the ATM.
Okay. And I think I heard Ed say $100,000,000 or so on dispose. 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.
Yes. Okay, perfect. Thank you, guys.
Thanks, Chad.
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 JR with a 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 'eighty one.
Yes, 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 going to get some debt cost savings. Looks like your lease economics analysis is getting a little better. You've got almost $2,000,000 for the next 2 next quarter coming in from the Fido restoration and then a little pop in extra rent from Fido in the Q3.
And you're implying that, that all equates to about an $0.85 FFO for quarters 23, but then maybe up a couple of pennies, dollars 0.87 just maybe in the Q4. What's the pop in the Q4 that gets you there?
Hey, John, it's Brendan. So yes, there's a Thanks. I'll try to live up to that. There's a decent amount of movement within line items within the 1st three quarters. You're right.
So we got the Fidelity restoration fee in the Q1. We'll get a comparable amount in the second quarter. Really what's likely to happen is you'll we'll have occupancy that will dip a quarters
relative to the
first will probably be offset by the and third quarters relative to the first will probably be offset by the occupancy dip. And then as we build back into the 4th quarter, we expect occupancy to get higher and then we would expect to get more NOI from some of the recently delivered development projects as we build into the Q4. So I think you're right in terms of your trajectory of the quarters on a high level basis, but and there's a few moving parts that are in there, but 4th quarter should be pretty clean. There's no fidelity impact in there, with an improvement in occupancy.
Great. Thank you very much.
Thanks, John.
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.