Columbia Property Trust, Inc.
Q1 2015 Earnings Call Transcript

Published: 1 May 2015

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to the Columbia Property Trust First Quarter 2015 Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded; Friday, May 1, 2015. I would now like to turn the conference over to Mr. Tripp Sullivan of SCR Partners. Please go ahead sir.

[Tripp Sullivan:]

Thank you, Suzanna. Good morning. Welcome to the Columbia Property Trust conference call to review the company's results for the first quarter of 2015. On the call today will be Nelson Mills, President and Chief Executive Officer; Jim Fleming, Executive Vice President and Chief Financial Officer; and Wendy Gill, Senior Vice President of Corporate Operations and Chief Accounting Officer. Our results were released yesterday afternoon in our earning press release and filed with the SEC on Form 8-K. We have also posted a quarterly supplemental package and investor presentation with additional detail in the Investor Relations section of our website. Statements made on this call regarding expected operating results and other future events are forward-looking statements that involve risks and uncertainties. A number of factors could cause actual results to differ materially from those anticipated including those discussed in the Risk Factor section of our 2014 Form 10-K. Forward-looking statements are made based on current expectations, assumptions and beliefs, as well as information available to us at this time. Columbia undertakes no obligation to update any information discussed on this conference call. During this call, we will discuss certain non-GAAP financial measures. Reconciliations to comparable GAAP financial measures can be found in our earnings release and supplemental financial data. I'll now turn the call over to Nelson Mills. Please go ahead.

[Nelson Mills:]

Thanks, Tripp. Good morning everyone. Thank you for joining our call. We began 2015 with several important goals and we’re well in our way to achieving those. Our guidance included 500 to 600 million of acquisitions for the year and we already closed on 588 million of new properties in January. Within a 500 to 600 million of disposition targets also and those assets are being actively marketed. Leasing continues to be a top priority and we’re making significant progress with renewals and new leases across the portfolio. I’ll provide more details on key transactions and leasing activity in a month. Thus far we’re right on track with expectations. Here are few highlights for the quarter and as I mentioned we closed 588 million in acquisitions, we completed 230,000 square feet of leasing. Our portfolio is above 90% leased with occupancy above 91%, we enhance the balance sheet with issuance of 350 million of 10 year bonds at attractive pricing. We recorded normalize FFO with $0.52 per share for the quarter and our AFFO was $0.37 per share. In our last conference and at our February Investor Day in New York, we spend a great deal of time outlining our strategy, the transformation of our portfolio and capital allocation. I think its appropriate today to talk about our execution and our progress. I’ll discuss where we are in our major lease explorations and leasing for our recent acquisitions. Finally, I’ll update you on our expectations for the plan dispositions. As it stands today our portfolio is concentrated in 15 markets with 89% of the revenue coming from our top 10 markets. Host dispositions that will further narrow to 14 markets with 93% of revenue drop from the top 10. We will also generate 80% of revenues from multi-tenant properties and 70% from CBD properties. Other 30% we characterize as suburban approximately 15% of that is actually high quality urban in field such as Buckhead in Atlanta, The Galleria in Huston and East Palo Alto. Our top three markets in terms of revenue are now San Francisco, Washington DC and Manhattan. After the 2015 dispositions 47% of our revenues will be derived from these three high-barrier markets. There was quite a change from three years ago when we began our transition this high quality portfolio was substantial and better at rent growth is well positioned for solid growth NAV and cash flows over the next several years. Very importantly we have the team in place across the country to capitalize on the potential of this portfolio. We have capable regional leaderships on both coasts. We have motivated teams works on each property and we have proven partners, service providers and brokers in each of our key markets. Now, let’s take a look at our leasing progress beginning with the properties we just acquired in 2014 and early 2015. I’ll give highlight for each of these, starting with 221 Main Street in South End Market, San Francisco. We extended and expanded approximately 120,000 square feet with [0

[Jim Fleming:]

Thanks Nelson. Good morning, everyone. We’ve accomplished a lot already in the first several months for the year with acquisitions, a successful bond offering and a lot of work towards the sale of our non-core assets. We’re on track with all of our expectations for 2015. I’ll speak for a few minutes about the financial results for the quarter and then spend some time on what all of these activity means for the quarterly cadence throughout the balance of the year. Starting with $0.49 of normalized FFO from the fourth quarter, we saw an incremental benefit of almost the fourth quarter impact from the January acquisitions offset a bit by borrowing costs to fund those acquisitions taking us the $0.52 for the first quarter. Same-store cash NOI net operating income for the first quarter with 1% lower than the prior year and down 1.7% from the fourth quarter. The sequential decline was primarily related to the leasing at 100 East Pratt and the Oracle vacancy at One Glenlake Parkway in Atlanta. The year-over-year decline was from the some same factors partially offset by leasing at University Circle. These results for the quarter were in line with our expectations and consistent with our full year guidance. Recall that our expectation for a 3% to 3.5% same-store cash NOI decline for the year essentially comes down to a handful of assets. 100 East Pratt Baltimore where we renewed price in 2014 for all of their space but at a lower rate, Key Tower for we agreed in 2013 to take back a 198,000 square feet this July and we simultaneously leased a 115,000 square feet of the relinquished space to a law firm commencing January of 2016. The exploration of the Oracle lease at One Glenlake at the end of January of this year one-third of which has already been backfilled with proposals out for the remaining space and the exploration of the full block lease at Market Square on June 30 of this year, 33% of which we have released today. These are partially offset by free rent burn-offs and new leasing at 5 Houston, 515 Post Oak, 221 Main Street and University Circle. You will note that our re-leasing spreads were very high this quarter more than 60% on a cash basis and over 80% on a GAAP basis. This was driven mostly by leases in San Francisco but a portion of the positive spread came from the lease at Market Square in DC. While we don’t expect quite as high rental for the full year, we are expecting the full year spreads to be substantially positive consistent with the overall roll-off we see in our portfolio. On Page 9 of our supplemental, you will see that our total GAAP interest expense was 21 million for the first quarter compared with 19.2 million in the fourth quarter and 17.4 million in the first quarter a year ago. These results include both interest expense and interest expense associated with interest rate swaps from our income statement. The increase was primarily due to our assumption of a $130 million loan when we acquired 650 California as well as additional financing to complete the New York City and Boston acquisitions which was initially a $300 million bridge loan and $140 million of borrowings on our credit facility and was partially replaced on March 9th with the $350 million bond issuance. Total capital expenditures in the quarter were 23.9 million compared with 26.1 million in the fourth quarter and 21.2 million in the first quarter a year ago. This capital was primarily result of the significant leasing we’ve accomplished over the past two years and consistent with the higher level of CapEx we previously disclosed for 2015. Adjusted FFO for the quarter was $0.37 per share which provided good coverage for our dividend. Our capital structure remains one of the strongest in the sector with our fixed charge coverage ratio at 4.2 times, our net debt to EBITDA at 5.9 times and our leverage ratio at 36.9%. All of these metrics reflect additional debt we used to fund our $588 million in acquisitions in early January and should remain close to these levels until we deliver the balance sheet as we complete the dispositions later this year. As I noted last quarter, one of our goals for 2015 is to significantly extend our debt maturities while maintaining flexibility with lower leverage. The unsecured senior bond offering we completed in March raised $350 million of ten year capital at 4.15% with a small discounted for yielding 4.167%. We used most of the proceeds to pay off our $300 million bridge loan. You may recall that our bonds were substantially oversubscribed which enabled us to upsize the issuance from 300 million to 350 million without increasing the rate and early trading has gone well with the spread over treasuries improving by 16 basis points in less than two months. This of course bodes well for our future unsecured borrowing costs. Our bond issuance accomplished and important piece of our capital activity for the year and extended our weighted average maturities to 4.2 years, but we still have work to do. We have a $200 million mortgage loan maturing this summer and a $100 million mortgage loan that can be prepaid at the same timeframe and we plan to pay these off with disposition proceeds. We’re also beginning to spend time on recasting our bank debt which will probably occur in the third quarter. Turning to our 2015 guidance as we noted in the earnings release, we did not make any changes to what we forecasted in February. I want to spend some time now helping explain the impact to the acquisition, disposition and leasing activity we’ve already completed and what we have projected for the rest of the year. With the $0.52 in the first quarter and taking into account the higher interest expense associated with the higher debt levels until the dispositions are completed. And replacing short term lower cost financing the longer term bonds we expect the first half of the year to account for slightly more than half of our full year guidance range of $1.85 to $1.91 of normalized FFO this year. The other major moving parts we can shed some light on are the timing of the dispositions, the projected total proceeds and the net operating income associated with those 14 properties. As Nelson mentioned earlier the strong indications of interest we received on the properties both one off and for the entire pool let us to believe we're looking at closings in the third quarter with sale amounts well within our range of $500-$600 million. It will be a good bit of variation from property to property, but also overall we expect cap rates for these sales will fall between 8% and 9%. Factoring in the loss of net operating income from these properties and assuming repay on debt instead of allocating capital for additional acquisitions, we expect quarterly normalized FFO late in the year to be in the range of low to mid $0.40 range. The timing of the dispositions as well as any additional acquisitions will ultimately have an impact on each quarter but directionally this should help break down the guidance. In addition to acquisitions and dispositions, we have talked a lot about our renovation and leasing activity over the few quarters and in at our recent Investor Day, both what we have accomplished already and what we have ahead of us in 2015, 2016 and 2017. Through the transformation of the portfolio, we have moved from a single digit, a mid single digit roll-down when mark-to-market to what we now estimate is a mid single digit roll up, and we believe after this year’s dispositions we will have a high single digit rolled up when compared to today's market rents. From this greater position of strength we are aggressively pursuing upcoming renewals and working with tenants to lock in longer terms. A great example is the recent lease expansion and extension with docu signed at 221 Main Street in San Francisco where we took leasing to 95% with a roll up of over 70% from previous loan. We have also recently signed a renewal lease at 650 California for 23,000 square feet at rates above our original underwrite. Our capital plans will impact our adjusted FFO this year and will likely push recurring capital expenditures higher year-over-year as we described, but we believe there will continue to be good lease, good long term return on our invested capital. Our dividend is set as a rate that allows us to transform the portfolio especially given our expectations that recurring capital spending should be down next year as an income growth from our recent acquisitions particularly the substantial roll ups we are already achieving in San Francisco will contribute to overall growth by 2017. The portfolio transformation is on track and right where we want it to be. We've sourced the right type of acquisitions to provide longer term growth and we're making good progress to excelling the non-core assets that aren’t part of this feature. And we continued to preserve the flexibility of one of the best balance sheets in the industry with attractive sources of capital. We look forward to updating our progress on our all fronts during the year. And Nelson I'll now turn it back to you for some closing remarks.

[Nelson Mills:]

Thank you, Jim. We're going to keep pressing forward on the execution of the strategy. We're now competitively positioned in the stronger market with substantial rent roll up opportunities in the relatively newer term and we've have the team to make it all happen. Over the longer term, we'll continue to seek opportunities to improve the portfolio in our platform. We're determined to further establish Columbia as a high quality, growth oriented must-owned company. Thank you for this opportunity to provide our update. We look forward to answering any questions you may have. Operator with that one, I'll take questions.

[Operator:]

Thank you ladies and gentlemen [Operator Instructions] And our first question comes from the line of Vance Edelsonwith Morgan Stanley. Please proceed with your question.

[Vance Edelson:]

I want to ask how much the mark-to-market at 650 California and 221 Main has exceeded your initial underwriting assumption as we’re hearing a lot about rents obviously continuing to rise in San Fran and even some triple-digit rents per square foot for some of the best floors in some of the best buildings and there’s the scarcity of large blocks as you mentioned, so could you give us a feel for how much these buildings have exceeded your own expectations?

[Nelson Mills:]

So forgetting about 221 Main South market property which we acquired in April of last year, we had in place rents for about $37 on average and we acquired it. And our underwriting was for average rent around 55. We’ve experienced much better than that. We’ve leased over 30% of the building since then as, I mentioned earlier, up to 95% with coupled big block spaces, so we on those deals were achieving $15 to $20 higher even than our underwriting. So with that layered in as I mentioned we had a three year plan to roll our yields up the opening yields almost 300 basis points within three years and we’ve just we’ve accomplished almost all that already. So that’s going pretty well. 650 Cal we’re really just getting started that’s a north of market asset the inflation rents are slightly higher on average and the roll off not quite it’s steep. We are expecting $20 to $25 roll ups from in place there. The good news about that property is we have a substantial near term role 130,000 feet coming in the next year and half or so and we’re going to be able to assemble a large block of several floors there which is a real scarcity in the market. So we have high expectations for that property as well.

[Vance Edelson:]

And then I’m guessing that a year ago you probably already had a sense but the plan was to unload many of the dozen or so buildings that are now on the block. Overall are you happy with the timing from a pricing standpoint now that you’re presumably in negotiations and that you could have gotten the ball rolling way back then and probably didn’t done with it by now, but instead do you feel these 8% to 9% cap rates that you mentioned are lower than what you would have faced a year ago so perhaps the timing is working out for the better?

[Nelson Mills:]

I don’t know that they’re much tighter for these markets and these assets and they would have been a year ago but they don’t seem to have [indiscernible] either. We’re getting substantial interest across all these markets and these are suburban a lot of these half of them are single tenant some of them have a near term explorations and couple of them are vacant so these aren’t these are the – there’s a reason we’re selling all these, but the demand has been strong. It’s hard to express the expectations for those sales in terms of cap rate for the reasons I mentioned, but we wouldn’t want to wait much longer to get this done with that way but the capital flows are still pretty strong and we feel good about the execution.

[Nelson Mills:]

And Vance just on the cap rates I don’t want you to read too much in that and the only reasons I gave you that is to try to help you understand the impact that everyone understand the impact that’s likely to happen to our NOI and our FFO as we move forward with the dispositions. One of the deal we’re clear on that and now that we’re getting some a better handle on the dis – the likely sales price I do think that there’ll be some little variation in the cap rates though because some of those properties have short term leases others are vacant they are the least desirable properties in our portfolio.

[Vance Edelson:]

And then one question for you Jim and then I’ll get back in the queue. You suggested that the dividend is set at a comfortable level if I heard you correctly even with the pending sales in the second half, so I guess the question is not to put you on the spot, but as you recognized the mark-to-market opportunities across the portfolio over the next year or so. Is the dividend increase at all realistic in 2016 or should we view the dividend as more stable?

[Jim Fleming:]

Vance I would be – we were missed if I didn’t say that the dividend is a Board decision and it’s something that the Board looks at pretty regularly, I will say that we tend to look that on a longer term basis, we’ve noted that our capital expenditures this year or likely to be higher than 2014 or than 2016. We don’t tend to look at it on that shorter timeframe, we tend to look at it longer term. We do have relatively predictable business with long lease terms and we’re getting our debt maturity extended out to where our interest will be more predictable as well. But I would say as we feel comfortable with there it is right now given what we’re seeing, we’ll continue to look at it some point. Yes, we do anticipate that we’ve be in a position to increased the dividend given the growth we expect in the portfolio, but I really can’t tell you when that will be.

[Operator:]

Our next question comes from the line of Sheila McGrath with Evercore. Please proceed with your question.

[Sheila McGrath:]

I was wondering if you could talk a little bit more about dispositions, what types of buyers are looking at the properties, are mostly one-off or portfolio? And then finally how should we think about use of proceeds that’s a lot of capital coming back in third quarter?

[Nelson Mills:]

Sure Sheila, so it’s all across the Board. There 14 assets half of those both in terms of value and number or in suburban Chicago. So, we are getting a lot of interest from full portfolio buyers for that entire block. And there is a possibility we made of guide up some of those net lease deals and some of those are multi-tenant, there are different buyers interest in that. So right now, we’re in the process, we have a lot of interest, we have a lot of offers and we’re sorting out how to get best execution at best pricing. So we’re getting both portfolio buyers and one up buyers. That’s true for suburban Chicago, that’s true for the entire portfolio. We’re actually in discussions for potential buyers for the entire work in assets. Less likely but that’s the possibility as well. So moving on well, I wish we could be more transparent that exactly where we think is but we’re in discussions negotiations with the market. So we’ll probably there, but we look forward to reporting an outcome of next given close an outcome next quarter. So in terms of use of proceeds, our plans or to pay our leverage back down, we’re in the 36% range today and that those proceeds we think it’s back down it’s very low 30, 31 or so. And then we’ll see from there, but that’s the short-term that they are going to use for the fund.

[Jim Fleming:]

And Sheila on the pay down of debt and I realize we could become active again and doing another transactions once to get there but in terms of the short-term, we do have a $200 million mortgage loan that comes due in July. We also have a $100 million mortgage loan that can be pay between July and September and then we have about a $100 million so line of credit. So that’s $400 million, so it’s a nice match in terms of timing. And so that’s pretty convenient and then as Nelson said we’ll be delevered and we’ll be in a position where we have a larger income before, we have a lot of borrowing capacity, we’ll be in good position then.

[Sheila McGrath:]

And next you did acquire a lot of assets obviously in the beginning of the year. Are you still active looking at additional assets? Is there anything that has interest to you over the past couple of months just on the acquisition side?

[Nelson Mills:]

Yes Sheila, we are very active and only have a healthy pipeline, there is nothing on the Board that we expect to do or announce in the next few months. But that could change in a quarter or two. I mean we are saying after active in the pipeline. In our key market for assets that need our strategy. So nothing in the near-term, no.

[Sheila McGrath:]

And then last if you could just give us a little bit more detail on. How things are going in New York on both your properties there any like commentary on new tenant interest in either property? That will be great.

[Nelson Mills:]

Sure. So beginning with -- this is the property that jump, they currently the occupied there are lease expires in October of ’16, the gross break there in the half ’17. And we began with CBRE marking that several months ago as I mentioned we’ve just built out the marketing space and we’re doing some other common area improvements, but the building is new built in ’01 with the newest properties in the sub market and clean and it’s ready to go. So we’re excited about that. We’re getting a lot of interest, we’ve had full floor offers already from law firms and financial tenants and other tenants and even some tech interest and so that effort has been quiet for many years and fully leased to Jones Day for many years and we’ve just reintroduced it to the market. So it’s creating quite a buzz with there. So that is where we are little optimistic there, our plans are to try to get substantial portion maybe even half leased under contract and leased by the time Jones Day lease and that’s the goal, that’s the target. So the flipside of that is we want that momentum but we also want to push rates, so we got to strike that balance but we’re very optimistic that we’ll get some good progress on that soon. On 315 Park Avenue South, this is a 100 year old historic building, a beautiful property well located in a strong sub market. As we mentioned we hired L&L Holding Company this is what they do, this is their bread and butter the historic property in Midtown South they do a great job, had phenomenal success with other locations like 200 feet, 114 feet and that team is excited about this opportunity and we’re excited to have them on it. Of course we’re very involved as well. We’re getting good traction there we’re in discussions to renew extend and expand existing tenant there and we’ve got several other prospects both retail and office, so that’s going well. Again early days, we’re doing a few fiscal enhances there but really rolling that out in a big way from a marketing standpoint in a couple of months in the city, so we’re very excited about both of those.

[Operator:]

Our next question comes from the line of Mitch Germain with JMP Securities. Please proceed with your question.

[Unidentified Analyst:]

I just wanted to get an update on the marketing plan at 222 East 41st just seems like there have been some delays in the process. Are we still on track for May 8th opening, maybe talk on where the hits have been at that space? Thanks.

[Nelson Mills:]

The leasing interest have been…

[Unidentified Analyst:]

Right, the market center in general.

[Nelson Mills:]

Yes so the marketing center is under construction the target date was May 8th I think, we’re on track for that. That’s a week away, so I haven’t been up there in a week or two, so it maybe May 15 I’m not sure, but we’re on target for getting that done and we’re very excited about that it’s going to be spectacular space in a real way to shop the property so that’s it’s on track

[Unidentified Analyst:]

And then maybe where is the pricing been on the full floor offers?

[Nelson Mills:]

Well it’s been expected I think lower floors it’s where most of the early where we’re taking most of the early interest and mid 60s to high 60s, it’s where those come in which was as expected and we expect the lower block space to be in that range mid to high 60s and then pushing much higher on upper floors so an average in the mid 70s is kind of what we’re thinking right now. So, so far it’s right in line with expectations.

[Operator:]

Our next question comes from the line of Brad Burke with Goldman Sachs. Please proceed with your question.

[Brad Burke:]

Jim, just a question on the guidance, I realized there are a lot of moving parts this year so I wanted to make sure I understood the progression correctly. Is there any reason to think that versus what you did in the first quarter that there would be a big pull back in FFO for the second quarter and I realized that you have higher debt and little bit higher interest on that debt, but at the same time you also got a penny or two benefit from your hotel business as well just due to the seasonality whether there might have been anything unusual in the first quarter that it’d be expected to roll off in the TQ?

[Jim Fleming:]

Brad I think you got it, those were really the moving parts, you’re right. The hotel was actually doing little bit better last year was little bit of an off year for the hotel and I think that’s the big part of our business but it was a little bit off year because we had a renovation going on which has been completed and there is definitely seasonality and so we would expect the second quarter to be a bit better. Those of you who got the relatively small number though as you know, the bigger number really is the debt and we increase our depth very early in the year about one weekend to the quarter when we acquired the New York, Boston and Western properties that gap pretty inexpensive gap that because it was largely a bridge loan and with short term floating rates and then the rest was using our line of credit. And we have moved most of that now to the volume transaction at 4.1 and 5, so it has to increase the rate and that’s the main thing. I don’t think there was anything unusual in the first quarter versus the second quarter. So I think we got a pretty good hand on it.

[Brad Burke:]

Okay, that’s helpful and I guess continue on the guidance. Am I right that you are not giving same store guidance anymore and if so, are you at least to able to give us a sense of directionally where you thinking the same store is going to shake out this year versus when you last gave us that update a few months ago?

[Jim Fleming:]

We actually the base of that little bit internally, we still believe that the negative 3% to 3.5% same store is expecting. But we just got a whole lot of questions about it last quarter, a lot of people really were focused on that and the problem is -- they are two problems really, one is it is the moving target in terms of what is same store because we have a lot that’s going on the portfolio transformation. The other way is it’s really not a very good metric for us right now, not really good measure of how we’re doing as you may know we had over 60% roll up in the leases that we signed this quarter. A lot of those are on property that are not on a same store accrual and so it’s with $1.2 billion of acquisitions over the last year that have substantial role of that same store metrics discount has augment. It is where it is that we still think it’s the same we just, we had not really provided any real guidance in terms of leasing spreads and we thought maybe we’re putting too much emphasis on that, so what I would say is when we think we really gotten through the transitional little bit more and a more stabilized and we think it the better metric for how to look at our company in the performance will, put it back out. But we are not trying to hide and we really do think it’s still about the same model.

[Brad Burke:]

Okay. I understand that the rational and I appreciate the update. Just something I may have misheard this but the portfolio that you are selling is that ’15 properties or is that ’14 properties you are targeting?

[Jim Fleming:]

It’s ’14.

[Brad Burke:]

Okay. I missed its 15 and one point. Okay and I guess the last one just for Nelson, as you moved further long in the sale process you’ve seen a pricing the market we give you for some of your asset. Does that change in thinking or how you thinking about the portfolio transition strategy that you have been executing and whether or not you will continue to execute on that in 2016?

[Nelson Mills:]

So these ’14 assets really complete that original plan of exceeding these suburban lower performing sorts of assets. So that stage or that first stage is this completion. As we’ve discussed before Investor Day and elsewhere, we still have some great assets in the portfolio not necessarily long-term core assets in markets like Cleveland suburban, Maryland so forth that we’re not likely to be in long-term. But we had no current plans in ’16 or otherwise to sell those. If the right opportunity comes along the portfolio or the compelling acquisition comes along and we have a compelling use for the capital we’ll certainly consider that. Now I think point your question is capital demand from [indiscernible] and all, we’ll say these days it’s very strong and should we be taking advantage of that to move along with further transaction type transition. That’s true and that is something we talk about and consider. But at the same time we now complete the transition, we’ve got to stabilize well performed portfolio. It’s 47% from these half year markets balanced with some really good yielding properties like what I mentioned Key Tower Cleveland and others. So we’re trying to balance those next steps with also maintaining of solid deals, so long way of saying really trying to compelling use for the capital down the road. We can take more this off table but there are no current plans to do so.

[Brad Burke:]

And I guess that’s a subway to the last question and a follow up. I mean Jim you talked about potentially increasing dividend longer term and I appreciate that’s a Board decision. But if you were to continue the portfolio transition strategy, I mean just naturally selling assets that are yielding 8 to 9 caps and what you’re doing now call it 7 caps or so for some of the other things that you might sell later on and just gives you less cash with. So would you potentially think about taking your dividend down to be more in line with some of the high barrier to entry office peers, if you were continue that transition strategy or is that not really something we can consider doing?

[Jim Fleming:]

Let me respond this best I can to that Brad. I would say as Nelson said is sales will complete the plan that we setup about to accomplish, about three years ago. And before we listed, we said our dividend that a level that we feel comfortable with to give us a flexibility to get there and we still feel on track to be there. And we think it’s going to give us a very good portfolio. If you think about -- include one there are you think about the -- in New York or some others with very long-term leases. A good stable assets, they’re providing good cash flows. If we did nothing else, we think the growth and the portfolio that we’ve introduce some of the acquisitions, we’ve done its going to clear good bit of additional NOI, a good bit additional cash. And I can tell you when but I think at some point we’ll allow us to increased the dividend. You’re asking a good question, which is would we want to go ahead and become just a purely high barrier REIT, it’s not made that decision that’s not who we are today, if we did, we certainly have to look at everything. I will say, I don’t think the sales that we’re talking about now or really necessarily an, really not a good indication of what we could sell some of those other assets. As you may recall we sold oppose building and suburban Boston for below 6.5 cap and we sold an AT&T building Atlanta for a high 6 cap. And there are assets with good long-term leases. At least today tend to coming pretty good pricing and we’ll actually there is not a whole lot of dilution as we look at on a three year timeframe between that and something like 650 California or 315 Park Avenue South or 221 Main. And so we have to take a look at that we’ve not done that, it’s certainly a good question and something we’ll consider once we get this transition behind this.

[Nelson Mills:]

And a lot of that has to do with how successfully and how quickly, we can lease-up the value-add bucket and we’ve acquire last year. The reason those were lower cap properties triple reasons. One is the rewind I mean the lower high barrier little cap market, but also we bought value-add, we bought lease of opportunity. So as we refill that bucket and I think is that leasing done lower trends up that by this is opportunity to go to do some more that. So we feel that where we are right now and we’re focus on completely in dispositions and leasing these properties. And so far it’s where we want to be.

[Operator:]

[Operator Instructions] And our next question comes from the line of John Guinee with Stifel. Please proceed with your question.

[John Guinee:]

Thank you, Jim and Nelson and thanks for meeting me and DC earlier this month. Everything here make just perfect, perfect sense accept not reinvesting the proceeds and maybe weak investing half or two-thirds of the 500 million to 600 million of expected disposition proceeds. Or did you implicitly say that was on the table. I don’t see anything wrong with running your leverage up into the mid to high-30s?

[Nelson Mills:]

No, that’s right. And as I mentioned, we are actively pursuing opportunities. And first things first. First thing, I mean we -- okay.

[Operator:]

Our next question is a follow-up question from the line of Vance Edelson with Morgan Stanley. Please proceed with your question.

[Vance Edelson:]

Just a couple follow-up. Back on the June daily space sounds like the interest level is strong which is no surprised and I think you mentioned in the prepared remarks that it would be several months before we see the occupancy after the leasing as accomplish. So any color you can provide on the free rent that’s going to require there the tenant improvements and like would the great?

[Nelson Mills:]

Well, roughly just with respect the Vance. We hope to get leasing done, lease is done well before Jones Day’s termination. Obviously, they are occupying the building all with the 24th floor. And as of now they’re schedule to continue occupy through that date. So there has been some discussions after the leaving few months early but so far that it’s not, that’s not, its owned. So just giving access to the building after October, it will take a few months for to get the transition and now to begin the build out space. So occupancy is probably 1st of 17 for these new leases and then some six to nine months for rent period probably likely and so really the cash flow don’t really get rolling in a serious way until mid-17. Now we’re going to anything we can to accelerate that and I think the important part is to have those leases in place and have that momentum well before the Jones Day expiration. And as I mentioned earlier, those had a point Vance, we don’t -- while we’re anxious to get momentum, we’re anxious to get property lease, these are 10 to 15 year decisions in a strengthening market. So we want to push rents and push value too. So we’ll doing best to stock that balance.

[Vance Edelson:]

Okay sounds like reasonable approach. And then finally just given the several on rest in Baltimore which perhaps is overdone in the press. Could you tell us how 100 East Pratt whether the storm if there was one?

[Nelson Mills:]

That all went relatively well tragic several days, tragic need to that city. And our team was right there very involved and what they could to protect and serve those tenants. We were efficiently close for one day there in the hit of it. We increased security presence there, it were no major instances there a lot of the heavy or turmoil was not right there is that part of the city, but there was some. But the team is on it we were getting hourly updates there for a while and I got certainly increase security we’ve got 200 okay. But officially close one day and some of the tenants to a couple of days, but it’s all back, we all can doing okay.

[Operator:]

Mr. Mills, there are no further questions at this time. I’ll turn the call back to you. Please continue with your closing remarks.

[Nelson Mills:]

Well, thank you everyone. We really appreciate this opportunity and we especially appreciate the questions. Thank you for those. And we look forward to our next quarterly update and hope to see many of you at maybe in June. Thank you.

[Operator:]

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation. And ask that you please disconnect your lines.