Highwoods Properties Inc

NYSE:HIW

Earnings Call Transcript 2018-Q3

[Operator]

Good morning, and welcome to the Highwoods Properties conference call. [Operator Instructions]. As a reminder, this conference is being recorded, October 24, 2018. I would now like to turn the conference over to Mr. Brendan Maiorana. Please go ahead, Mr. Maiorana.

[Brendan Maiorana, IR]

Thank you, operator, and 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 any of you have not received yesterday's earnings release or supplemental, they're both available on the Investors section of our website at highwoods.com.

On today's call, our review will include non-GAAP measures such as FFO, NOI and EBITDAre. 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.

[Edward Fritsch, President, CEO & Director]

Thank you, Brendan, and good morning, everyone. While interest rates have increased and REIT stock prices have contracted, economic indicators remain sound, and fundamentals in our business remain healthy with rising rents and steady demand from existing customers and new prospects. As you know, we worked hard to have built a fortress-like balance sheet. And while lowering leverage has modestly reduced near-term earnings growth, we have arrows in our quiver to fund our development pipeline without meaningfully impacting our balance sheet metrics or triggering a prerequisite to issue additional shares.

Turning to the third quarter, we delivered FFO of $0.86 per share and leased 884,000 square feet of second-gen office space, including 278,000 square feet of relets. In addition to solid leasing volume, we also posted strong leasing metrics. In the third quarter, we garnered GAAP rent spreads of plus 18.5% and cash rent spreads of plus 3.2%. Net effective rents on lease assigned in the quarter were roughly in line with our recent five quarter average. Furthermore, in five years' time, we've increased net effective rents by more than 25%. Given our strong leasing metrics, in-place cash rents are up 4.9% compared to a year ago. As anticipated, with Fidelity's known move-out of 178,000 square feet from the 11000 Weston building in our Weston - in our Raleigh division, our occupancy declined 50 basis points to 91.3%. Excluding this move-out, occupancy would have increased 10 basis points. As reflected in our outlook, we expect occupancy to improve by year-end.

We continue to generate growth with our development program. Since our last earnings call, we've scotched over 115,000 square feet of first-gen leasing, which represents more than half of the remaining spec space in our development pipeline. The strongest move in the quarter was at Virginia Springs I in Nashville, where we're now 100% preleased, up from 38% last quarter. This strong leasing has accelerated this development project's projected stabilization date by 6 whole quarters ahead of the original pro forma, from the third quarter of 2020 to the first quarter of 2019. Similarly, given our strong demand, we fully anticipate accelerating the stabilization of 751 Corporate Center in Raleigh 6 or 7 quarters ahead of our original pro forma. Also, we placed two development projects in service representing a total investment of $67 million and encompassing 223,000 square feet. First, our $29 million, 87,000 square foot, 100% leased build-to-suit headquarters and ambulatory service center for Virginia Urology in Richmond. And second, Seven Springs II in Nashville, a $38 million, 136,000 square foot project that is 74% leased. After placing these 2 projects in service, our development pipeline is now $658 million and 96% preleased. This pipeline will provide meaningful cash flow as it delivers over the next few years. As a reminder, we have $190 million of 100% preleased development delivering in 2019. These projects are Virginia Springs 1 in Nashville, which I mentioned, will now be delivered and placed in service in the first quarter of 2019; our third building at MetLife's Global Technology center in Raleigh, which is on track to deliver in the second quarter of 2019; and Mars Pet Care's U.S. headquarters in Nashville, which is scheduled to deliver and be placed in service in the third quarter of 2019. With regard to construction costs, we continue to see them rise at approximately 1/2% per month, in line with the ZIP code we've been experiencing over the past few years. As you know, we are largely insulated from cost increases in our current development pipeline given our build-to-suit projects are open book, and we have GMP contracts in place for our multi-customer development projects.

During the past several years, demand for new space has remained strong despite higher rents. In addition, we continue to have conversations with a number of sizable preleased prospects across several potential development projects. This sustained level of interest leads us to believe the depth of demand should remain attractive as construction costs and rents continue to rise. As a reminder, our initial 2018 development announcement outlook was $100 million to $350 million. With our $285 million Asurion build-to-suit announcement, we surpassed our original midpoint by $60 million.

Turning to building dispositions, our current 2018 outlook is $80 million to $120 million, with $31 million closed thus far. We continue to expect a number of noncore asset sales to occur before year-end.

We've kept our acquisition outlook unchanged at $0 million to $200 million. For the few assets that have been in the market, pricing for BBD-located, Class A office properties remains highly competitive with cap rates in the mid-5s to low-6s. We continue to evaluate on- and off-market opportunities with a commitment to prudent investing.

In summary, strong leasing activity in our operating portfolio and continued focus on disciplined capital recycling, combined with carefully managed operating expenses, a strong balance sheet and a very highly preleased development pipeline, sets the table for growth in our cash flow and NAV over the next several years. Ted?

[Theodore Klinck, EVP, Chief Operating & Investment Officer]

Thanks, Ed, and good morning. We continue to see strong demand for our well-located BBD products. We've already made very good progress on our 2019 expirations. From the list of 5 2019 expirations greater than 100,000 square feet, we've taken care of three, the UMA and AT&T through renewals through renewals and INC by selling Highwoods Tower Two at attractive terms to a user. This leaves the FAA and T-Mobile. We're confident in the probability the FAA will renew its 100,000 square foot lease given its location and their sole occupancy in the building. Regarding T-Mobile, they're not prepared to make a decision yet, and their 116,000 square foot lease doesn't expire until the end of November 2019.

We're paying attention to supply levels across our footprint. While there has been a modest increase in development activity, supply remains below prior peak levels, and net absorption has been healthy, which has broadly enabled the markets to remain at equilibrium.

I'll touch more on Nashville and Raleigh, where development has been more notable when I turn to the market overviews. Solid fundamentals underscore that strong market demographics continue to appeal to businesses seeking to relocate to our footprint.

Now turning to our quarterly stats. We leased 884,000 square feet of second-gen office space, including 278,000 square feet of new leases. The new deal volume was approximately 30% higher than our prior five quarter average, while GAAP rent spreads were robust at 18.5%, and cash rent spreads were healthy at positive 3.2%. Evidence of our strong leasing performance working its way into the portfolio can be observed by our average in-place cash rents at quarter-end, which were 4.9% higher than a year ago. Our third quarter same-property cash NOI was positive 1.4% despite lower average occupancy compared to last year. The decline in occupancy was more than offset by contribution from annual rent escalators and leases commencing with higher cash rents.

Our updated year-end occupancy outlook is 91.5% to 92%. This range implies a midpoint of 91.75%, down 25 basis points from the midpoint of our original outlook. The decline in the midpoint is almost solely attributable to the unforeseen bankruptcy of a 62,000 square foot industrial user in Greensboro. At the end of the quarter, our industrial portfolio was 95.5% occupied, so we feel good about our ability to backfill this block. We anticipate occupancy improving in the fourth quarter, driven largely by signed leases that are scheduled to commence before year-end.

Now to our markets. The Atlanta's - the Atlanta market's net absorption in the third quarter was 175,000 square feet, as reported by CBRE. This result is particularly strong considering 2 high profile move-outs. StateFarm vacated 185,000 square feet in Central Perimeter as they continued their consolidation into their owned campus, and AT&T vacated 300,000 square feet in Midtown and Buckhead. We do not believe any of this space is competitive to our nearly 2 million square foot Buckhead portfolio. During the quarter, there was 2.2 million square feet of office under construction across Atlanta or approximately 1.6% of stock. Midtown accounted for more than half of the development, while nothing was underway at the end of the quarter in Buckhead. We signed 109,000 square feet of second-gen leases during the quarter, with strong GAAP rent spreads of 29.5% and a healthy average term of 7.6 years. The quarter included meaningful progress in our Buckhead portfolio. Half of the 109,000 square feet were relets signed in Buckhead, and we've agreed to terms for an additional 86,000 square feet. We look forward to executing those deals before year-end.

Raleigh saw 162,000 square feet of positive Class A net absorption during the quarter, as reported by Avison Young. This takes the year-to-date figure to positive 710,000 square feet, while Class A asking rates have increased 5% year-over-year. We estimate there are 3 million square feet of office under construction in Raleigh or 4.5% of total stock. When narrowing that perspective to our competitive set, the percentage of new supply is less than 2% of stock and is approximately 50% preleased. We signed 233,000 square feet of second-gen leases during the third quarter with a weighted-average term of 7.5 years. This includes the 105,000 square foot AT&T renewal I mentioned earlier. GAAP rent spreads were a solid 17.4%. We're pleased to see continued strong demand for first- and second-gen space in Raleigh.

Lastly, as reported by CBRE, Nashville posted positive net absorption of 151,000 square feet during the quarter and 460,000 square feet year-to-date. We're tracking a little over 3 million square feet under construction, which is roughly 30% preleased. Approximately 70% of this total is in the urban submarkets, where we have 1.6 million square feet in our operating and development portfolio, but we have essentially no vacancy or any meaningful lease expirations until 2025. The remaining amount under construction is spread out from Brentwood to Cool Springs. We continue to feel good about our Nashville portfolio with our ability to maintain strong occupancy and capture improving rents. We ended the quarter with occupancy of 92.7% across our 4.2 million square foot operating portfolio. We signed 78,000 square feet of second-gen leases at GAAP rent spreads of 21.9% during the quarter.

In conclusion, our strong leasing results and current levels of activity indicate that demand remains healthy. Consistent net absorption across the broader markets has kept occupancy levels steady as new supply delivers. Continued demand for our well-located BBD product keeps us upbeat that we'll be able to continue reducing future expiration risk while leasing out pockets of vacancy. Mark?

[Mark Mulhern, EVP & CFO]

Thanks, Ted. In the third quarter, we delivered net income of $33.2 million or $0.32 per share and FFO of $91.6 million or $0.86 per share. The quarter was clean other than the accelerated $1.3 million rent payment from Fidelity at 11000 Weston in our Raleigh division, which was their normal quarterly rent plus $0.5 million for their October and November rent. Rolling forward from second quarter FFO of $0.87 per share, the major change was the final recognition of the restoration fee from Fidelity in the second quarter of $1.9 million, partially offset by their aforementioned extra two months of rent recorded in the third quarter. We saw the normal seasonal increase in utility costs in the third quarter, but this was partially offset by lower repair and maintenance expense.

We reported same-property cash NOI growth of 1.4%, with average occupancy 200 basis points lower compared to last year. Included in same property growth is the $1.3 million accelerated rent payment from Fidelity. This is classified as a termination fee in the press release and in the table on Page 4 in our supplemental package. As you know, we typically exclude termination fees from our calculation of same-property NOI growth. Because the payment was to satisfy their full original obligation under the lease, it was appropriate to include their accelerated payment in same-property NOI. Our same-property NOI growth in 2018 does not include recognition of their restoration fee. Eliminating the extra 2 months of rent received from Fidelity in the third quarter and adjusting for their impact on our reported occupancy, same-property NOI would have increased 0.9%, with average occupancy down 140 basis points. Higher same-property cash NOI was driven by healthy annual bumps on nearly all leases and solid growth on second-gen leasing, partially offset by higher straight line rent.

Turning to our balance sheet, we ended the quarter with leverage of 35.5% and net debt-to-EBITDAre of 4.77x. We have haven't issued any shares on the ATM since the second quarter last year. We are committed to grow within our target debt-to-EBITDAre operating range of 4.5 to 5.5x and have the flexibility to fund the remaining $325 million on our current development pipeline without the prerequisite of issuing shares or selling assets.

As we mentioned last quarter, we obtained $150 million of forward starting swaps that lock the underlying 10-year treasury at 2.905%, in advance of a potential financing before July 2019. We don't have any debt maturities until our $225 million term loan matures in June of 2020. As a reminder, the 1.68% LIBOR hedge on that term loan expires in January 2019. Other than this term loan, we have no debt maturities until 2021, and our maturity schedule is well laddered.

As Ed mentioned, we updated our FFO outlook to $3.42 to $3.45 per share. At the midpoint, this is $0.015 above our previous outlook and $0.025 above our original outlook. We also updated our same-property cash NOI outlook to plus 0.8% to 1.2%. Last quarter, I mentioned we expected to trend towards the low end of our original outlook of plus 1% to plus 2%. The reduction is primarily due to several sizable renewals signed even earlier than we hoped that have a free rent component and were not included in our original outlook. As you've seen in our revised outlook, our straight line rent forecast increased $6 million at the midpoint compared to our original outlook, mostly relating to our same-property pool. Taking the $2.58 a share of FFO that we've reported year-to-date, our imputed outlook for the fourth quarter is $0.84 to $0.87 per share.

Finally, as you know, we will provide 2019 guidance during our fourth quarter call. But in the interim, there are some items I would like to highlight.

First, as Ed mentioned, we are scheduled to deliver $195 million of 100% preleased development over the course of 2019. We estimate the 2019 FFO accretion, inclusive of the burn-off of capitalized interest and reflective of the staged takedown of MetLife's third building, will be approximately $0.04 to $0.05 per share.

Second, I mentioned earlier the potential for a fixed-rate debt financing prior to July 2019. Given the maturity of the 1.68% LIBOR hedge in January 2019, we would likely use the proceeds to refinance our $225 million bank term loan and reduce our line of credit balance. With the treasury lock in place and the U.S. 10-year hovering in the low-3s, the all-in interest rate on a new debt financing would likely be in the mid-4s. Under this scenario, the full year impact of such a refinancing would be somewhere around $0.05 per share compared to our fourth quarter 2018 run rate.

Third, we currently have a little over $500 million of floating rate debt. While this is modest relative to our overall asset base, any increase in LIBOR would drive our interest expense higher.

Last, like other REITs with in-house leasing teams, starting in 2019, we will be required under GAAP to expense certain leasing-related costs for noncommissioned employees. Based on 2018 projections and prior year actuals, we estimate the annual FFO dilution from this accounting change in 2019 will be approximately $2.5 million or $0.025 per share and will appear in G&A.

Looking forward, as we've signaled the past few years, our free cash flow continues to strengthen, and we expect this to continue with the delivery of our highly preleased $658 million development pipeline. While the timing will impact our cash flow in any given quarter, we feel very good about the long-term cash flow trajectory for the company.

Operator, we are now ready for your questions.

[Operator]

[Operator Instructions]. And our first question is from the line of Jamie Feldman with Bank of America Merrill Lynch.

[James Feldman, Bank of America Merrill Lynch]

I was hoping you guys can give more specific details just on the largest vacant blocks you're trying to lease in Buckhead, FBI, Atlanta, Fidelity, SCI and any others that I might be missing.

[Edward Fritsch, President, CEO & Director]

Sure, Jamie. I don't think you missed any. So just take them in the order that you gave them. So in Buckhead, we were 1/3 relet on that on our last call, and that's how we sit at the end of third quarter. We'll be - 2/3 of that will be relet. It's now inked by the end of the year. So we've made very good progress on that since our last call. We've also made very good progress on SCI. It was 76% at last report, and we've leased an additional 20%, so we're now 96% relet on that. At FBI, we're 32% relet. We have another 6% that is a strong prospect, so that would put us at 38%. And as you know, we undertook some heavy Highwoodtizing there, in that FBI had been in the space and is a multicustomer building since 1992, and that Highwoodtizing now is 90-plus-percent complete. So the building is pretty well cleaned up. We're punching it out now and be commissioned next month, so we'll be in good shape there for showings. And then 11000 Weston, where Fidelity vacated early but, as you know, paid rent through November of 2018, we are also Highwoodtizing that building where we received just shy of $5 million from them in restoration fees. It's a well-positioned building right beside The Met Global Technology Campus. And so we're repositioning all the mechanical, roof, parking lot, et cetera, and that will be commissioned end of this month, early next month. And we have prospects for that building that we've done showings for from anywhere from 25% to 100% of the building.

[James Feldman, Bank of America Merrill Lynch]

Okay. And then I guess, Mark, your thoughts on the big movers in '19 were helpful. But I guess, when we think from a same-store perspective, again, this was a pretty confusing same-store quarter, can you just help us think through the drivers of same-store growth for next year or internal growth? A lot of the things you talked about were more developed - were more external in investment.

[Mark Mulhern, EVP & CFO]

Yes, Jamie, I'm going to let Brendan do it because he's steeped in at numbers, so he's got a good explanation for how that all hangs together.

[Brendan Maiorana, IR]

Yes, hey, Jamie. You're right, it is kind of a confusing quarter from the numbers for same-store in the third quarter. I think if we look at the overall year-to-date numbers through the nine months and we adjust for Fidelity in terms of the extra couple of months that we got year-to-date and adjust them out of kind of the revenue and out of the occupancy impact, and then let's also just adjust for the straight line headwinds that we're encountering in 2018, what we'd find is that, year-to-date, our cash NOI growth would be up about 1.3%, with occupancy down about 1.2%. So I think if we didn't have the occupancy headwinds, I think you could see that cash NOI in '18 would be up, call it, in the mid-2s. And I think that relationship with - in terms of what we do with respect to annual bumps across all our leases and then where we've been signing cash rents, I think with no occupancy headwind or tailwind, I think that's probably a good guide long term in terms of how to think about top line. And then just with respect to '19, I don't think we're in position to talk about specifics on occupancy or straight line rent adjustments or any impact that OpEx might have. We'll do that in February. But I think that should give you a good longer-term sense of where trends are happening in the portfolio.

[James Feldman, Bank of America Merrill Lynch]

Okay. That's helpful. And then last question for me. Just - you had mentioned potential conversations from more build-to-suit. Can you just give more color around those?

[Edward Fritsch, President, CEO & Director]

Sure. So traditionally said, almost routinely on these calls, that we are in conversation with about a handful of prospects, and where we are in those conversations varies from early in reductions to test-fits. And so we are basically pricing well over $300 million worth of development right now, about 775,000 square feet roughly. It's a protracted process on all of these as we've witnessed in the past. But we feel, given the volume of conversations that we have ongoing with regard to overall demand, that we'll be able to continue to replenish our development pipeline, which today is pretty stout and very well preleased.

[Operator]

Our next question comes from the line of Blaine Heck with Wells Fargo.

[Blaine Heck, Wells Fargo Securities]

Ted, you touched on this a little bit in your prepared remarks, but I was just reading about the continued wave of speculative office construction in Raleigh, with properties under development being leased up at a solid clip and developers continuing to start new projects. So I have two part question. Number one, does any of the newer supply concern you at this point? Is any of it directly competitive with your space downtown where you might have expirations coming up? And then number two, maybe more for Ed, just kind of to play devil's advocate, you guys have done great with your development pipeline this cycle. But given the strength you've seen in growth and demand, are there any markets you think that you could maybe be leaving some money on the table, not being a little more aggressive in starting projects with lower preleasing than you typically have?

[Theodore Klinck, EVP, Chief Operating & Investment Officer]

So I'll take the first part. In terms of Raleigh, as we mentioned, it's about 3 million square feet or so, and that's spread out across six different submarkets and is approximately 50% preleased. And that will get delivered over the next, call it, 18 months - 18 to 24 months, probably. Drooling down, our competitive set is really closer to $1.2 million, and that's also a little bit more than 50% preleased. So I think right now, really, the new construction is meeting demand if you look at the historical absorption in Raleigh, so we feel like it's sort of matching up pretty well. In terms of downtown competitive space, there's two buildings in the CBD under construction, both reasonably small buildings. And one is 65% preleased or so, the other is about 85%. So not a lot of spec space nor do we have a lot of expirations downtown in the next - in the near term. So really, not overly concerned right now. It seems to be keeping pace with demand.

[Edward Fritsch, President, CEO & Director]

So Blaine, I'll take the second part of that, and thank you for the comment about the development program that we have. I think when we look back at similar things that we've started and we think about where pre-leasing was on 5000 CentreGreen, GlenLake V, Riverwood 200, Virginia Springs 1, et cetera, there were heavy spec components of those buildings with Riverwood 200 being the largest. So we were less than 1/3 preleased from we first announced that building. We're going to meet or beat pro forma stabilization on that. So I think we've been well cadenced on how we've balanced buildings that have heavy spec component versus build-to-suit, so we have the ballast of the build-to-suit stapled to these buildings that we've done on more of a speculative basis. I don't know that we've missed dollars of opportunity. I think that we've been very deliberate about how we've gone about this, and I think that there's no reason to believe that we wouldn't continue to maintain the methodology that we've had in the past, where we can put together a smaller scale development that has some meaningful spec component to a build-to-suit and be well balanced with how we're managing the risk aspect of that, particularly given how successful we've been on those that have had spec space in us being able to, across the board on average, beat our pro forma stabilization dates.

[Blaine Heck, Wells Fargo Securities]

Great. That's very helpful. Then lastly, CapEx per square foot in concessions were a little higher this quarter. Can you guys just talk about any trends you guys are seeing in your markets with respect to TIs and prerent?

[Theodore Klinck, EVP, Chief Operating & Investment Officer]

Sure, with respect to the quarter for us, we had a significant amount of new leases done, about 30% higher new leasing versus renewals this quarter. So I think that largely would attribute to our slight tick-up in CapEx this year. I think our payer this quarter - our payback ratio was still within our historical range. But now having said that, look, I do think there is some pressure on TIs through most of our markets. I think we've done a pretty good job managing that. We pay attention to net effective rents. And if we're going to give an extra bit of TI, we're going to get it back in rents. So while there is some pressure on it, it's - I think we've been able to manage it pretty well.

[Operator]

Our next question comes from the line of Manny Korchman with Citibank.

[Jill Sawyer, Citibank]

This is Jill here with Manny. I'm just curious, what are some of the characteristics of the assets you're looking to sell by the end of the year? I know you said it's noncore. Which market type of asset? And how you see the market for these assets selling today?

[Theodore Klinck, EVP, Chief Operating & Investment Officer]

So Jill, it's Ted. We have four buildings that are out in the market that we're working on. They're spread across Atlanta, Tampa and Orlando. They're all what we define as noncore, which means that they're not in the sweet spot of the BBD where we like them to be. We do have very active interest on all of them, and we expect most to close, if not all, before year-end, hence so, where we have the top end of our guidance. But they're very much in keeping with what our dispositions have been over the last several years.

[Jill Sawyer, Citibank]

Okay. And just, you always noted how cautious you remain on investing in this lower cap rate environment. So what would be the plans in proceeds? About $70 million from midpoint, I think, right?

[Theodore Klinck, EVP, Chief Operating & Investment Officer]

Correct. We would just pay down our line.

[Operator]

[Operator Instructions]. Our next question comes from the line of Dave Rodgers from Baird.

[David Rodgers, Robert W. Baird & Co.]

I just wanted to follow up on a couple of different comments you made, I think, in your prepared comments and tie it back to kind of development and development spend and get your thoughts. And so maybe, Ed, I'll ask you the question directly. I think in Mark's comments, you said you guys wouldn't really be selling exponentially more assets, if I got that right. Ed, in your comments, you said you wouldn't sell equity or change the balance sheet. You got $325 million left to spend in development, and then I'll tie in the arrows-in-the-quiver comment you made earlier, Ed. So give me a sense of - are you guys talking maybe some joint venture funding? Has it really been in your way? Would you consider maybe more market sales versus just kind of noncore? What's the best way to fund this development, especially if you're going to backfill the pipeline with another $300 million or $400 million as these current properties mature? So if that made sense, I'd love your thoughts.

[Edward Fritsch, President, CEO & Director]

Yes, so I'll take the first part of that, David. I think what we were saying was that in order to fund the remainder of what we have right now that we could not issue any more stock and stay within our stated comfort range for our debt metrics. And given how much we've funded thus far, how much we have committed on our current development pipeline that we would be able to do that. In addition, we could take on about another $300 million and still stay within our comfort zone. So that we were just really testing the limits of that, of how much could we do and still not be out of our long-stated comfort range for our debt metrics. And basically, what it comes down to is funding the remainder of our current-day commitments, plus another $300 million.

[David Rodgers, Robert W. Baird & Co.]

Okay. Then I guess, maybe I'll follow up with that is, what's your comfort level in doing that versus staying at your current leverage or working lower, just kind of given where the environment is and how you see opportunities out there?

[Mark Mulhern, EVP & CFO]

Dave, it's Mark. So listen, I think we've - as you know, our balance sheet is in really good shape. Our metrics compare very favorably to peers. We're in a really good spot with respect to kind of the right level of leverage on the balance sheet. So we feel like we've got a lot of flexibility. And just to maybe put a finer point out, we didn't say never. I mean, I would still expect a kind of a disposition level, consistent with what we've done previously. We've been in the 100-ish, 150-ish a year kind of on dispositions. So we still think that's probably in the cards going forward. And I think we've got a lot of flexibility on the maturity ladder and just an ability to flex up if we need to relative to getting opportunities where we get a real value. Our highly preleased development pipeline delivering gives us improved cash flow. So we feel like we're in a pretty good spot.

[Operator]

Our next question comes from the line of John Guinee with Stifel.

[John Guinee, Stifel, Nicolaus & Company]

Great. Okay. Just a very - maybe not very smart question. But Mark, when you were going through your FFO, the refinance on the debt, that's a $0.05 hit to FFO, correct?

[Mark Mulhern, EVP & CFO]

Correct. If we were to do that, that's correct.

[John Guinee, Stifel, Nicolaus & Company]

So you've got...

[Mark Mulhern, EVP & CFO]

And I'm sorry, just want to clarify that. It's still the kind of the fourth quarter run rate when you think about it. So that's how I would compare it for on a full year, full year basis.

[John Guinee, Stifel, Nicolaus & Company]

So if I have a $0.04 to $0.05 positive on development, $0.05 negative on debt $0.025 negative on the capitalization shifting to expensing of leasing guides, another $0.02 on G&A natural increase, another $0.02 on the 4Q dispos, we're sort of way underwater before we get to same-store NOI. What's same-store NOI to the positive?

[Mark Mulhern, EVP & CFO]

So again, I'm a little reluctant to give you specifics on a 2019. I was trying to give you some...

[John Guinee, Stifel, Nicolaus & Company]

Whisper, whisper.

[Mark Mulhern, EVP & CFO]

Some things to think about relative to that. But , John, we have our - we've got our usual bumps in all the leases, so we'll still have some growth from - just naturally from the portfolio. I think you made some commentary about development. We expect that to be a contributor. Although, again, it's got some timing element to it as well in terms of when it comes in during the year. But by and large, we're just trying to make sure people are calibrated with respect to how they're thinking about the go-forward picture for the company.

[Brendan Maiorana, IR]

And John, I just wanted to add to that. In addition to the development, those are the development deliveries for 2019 that Mark spoke about. We had development deliveries in 2018 that are not fully stabilized that we expect to - where we have some additional leases which will commence and where we would project additional leasing to take place and get some NOI on that in 2019. So it certainly wasn't a fulsome look with respect to kind of all the drivers of '19, but I think it was a few things out there just to highlight that are some likely or known moves as you think about rolling from the fourth quarter into what your estimates are or your model may suggest for '19.

[John Guinee, Stifel, Nicolaus & Company]

So if I took that, Brendan, into account, which is essentially the timing on the lease-up on '18 and the timing on '19, what would that - how would that improve FFO? Is that worth a $0.01 or a $0.05?

[Brendan Maiorana, IR]

I think it depends a little bit on kind of leasing and things like that, but there's - it's within that range. Let's call it that.

[John Guinee, Stifel, Nicolaus & Company]

Okay. And then just back of the envelope, it looks to us as if your FAD number is sub-50 on average and your dividend's $0.46. Is that the right way to look at it? And you're getting pretty close to dividend to FAD being on that parity. Or am I doing bad numbers there?

[Mark Mulhern, EVP & CFO]

So I don't think you're doing bad numbers necessarily, but I do think some of it's timing relative to the way the CapEx is flowed. So you'll see a little higher CapEx in the quarter. I guess Ted referred to some of the leasing we've done. We expect to continue kind of consistent with maybe the last few years of coverage relative to the amount of CAD available to fund - after CapEx to fund the dividend. So we expect to maintain that range even in the face of the dividends we - increases we've made in the last couple of years.

[Operator]

[Operator Instructions]. Our next question comes from the line of Scott Powers with State Street Global Advisors.

[Scott Powers, State Street Global Advisors]

I want to go over again the potential supply. You talked about it before refinancing of debt. Just to be clear, you had talked about the term loan maturing in 2020. You have a LIBOR lock in place until January of next year. So what - and you've talked about the treasury lock that's separate and apart from that in advance of a potential senior unsecured note financing. I've got those facts right, correct?

[Mark Mulhern, EVP & CFO]

You do.

[Scott Powers, State Street Global Advisors]

Okay. So what we're looking at is potentially before - I mean, it looks like your timing for the last couple of deals has been sometime in February, not locking you down there at all. But the point is you would be looking at potentially supply sometime early next year after your LIBOR lock goes away to refi the term loan ahead of its maturity and as well as clean up revolver balances, which you disclosed are about $184 million at quarter-end. Is that the right - is that what you're saying?

[Mark Mulhern, EVP & CFO]

So listen, what we try to do is kind of lay out the facts. As you know, I think we got a lot of flexibility on timing and what we do here. So we really just wanted to kind of lay out the facts that we have. The treasury lock in place, we've got some timing around that. We've also got this term loan that's got a hot LIBOR hedge that expires. And as you properly note, we're spending dollars on the development pipeline as well. So that's kind of how I would think about it just in general in terms of sources and uses.

[Scott Powers, State Street Global Advisors]

Okay. That helps. And what - you had talked about in terms of your leverage metrics, you like them where they are. Is it fair to assume that they're going to be managed in the current context of what you've reported?

[Mark Mulhern, EVP & CFO]

Yes, I think we've put that 4.5 to 5.5 debt-to-EBITDA metric out there as a target. We're obviously at the lower end of that at 4.77 at the end of the quarter. We're comfortable there. Again, we've got some flexibility. And from timing-wise, those may bounce around a little bit from quarter-to-quarter. But again, given the dispositions we have, the flexibility we have on the debt side of the balance sheet, we're comfortable in those metrics.

[Operator]

And there appears to be no further questions on the phone lines at this time. I'll turn the presentation back for any final comments.

[Edward Fritsch, President, CEO & Director]

Thank you, operator, and thank you, everyone for dialing in. And as always, if you have any additional questions, please give us a call. 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.