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Highwoods Properties Inc (HIW 3.26%)
Q1Â 2019 Earnings Call
April 24, 2019, 11:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator --
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. (Operator Instructions) As a reminder, this conference is being recorded Wednesday, April 24, 2019.
I would now like to turn the conference over to Brendan Maiorana. Please go ahead.
Brendan Maiorana -- Senior Vice President, Finance and Investor Relations
Thank you, operator, and good morning. Joining me on the call this morning are Ed Fritsch, Chief Executive Officer; Ted Klinck, President and Chief Operating 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 and Chief Executive Officer
Thank you, Brendan. And good morning, everyone. Fundamentals in our business remain healthy with rents continuing to rise and stable demand from existing and prospective customers. Based on what we're experiencing on the ground and from the macroeconomic forecast we read, we expect a low-to-mid 2% economic growth environment to continue, which will keep unemployment low, productivity high, inflation in check and interest rates within the range we've seen during the past several years. We expect this steady as she goes backdrop to support healthy demand and keep a bridal on speculative supply.
Turning to our financial results. The sudden closure of Laser Spine on March 1st overshadowed an otherwise strong quarter of leasing and operating fundamentals. As many of you know, Laser Spine was an existing customer of Highwoods with an unblemished track record of timely payments and a strong credit profile when we came to terms on a build-to-suit for their corporate headquarters and surgery center in early 2014.
Declining revenues following the negative outcome of a high profile patient lawsuit coupled with taking on debt, drove a deterioration in their financial condition, which led to the sudden closure of their operations last month. We provided detail information regarding the financial impact of Laser Spine sudden closure in our March 3rd press release and again in last night's first quarter earnings release.
Mark will provide additional financial details in his prepared remarks. While, undoubtedly very disappointing and an unexpected sizable hit to our 2019 financials, the impact from Laser Spine is manageable. Even with losing a full year of NOI and cash flow from our 11th largest customer, we still expect to post positive same-property NOI growth and adequate cover our dividend.
Please be assured, our entire team is heavily focused and working hard to back-fill this space as quickly and prudently as possible. The Laser Spine lease has already been terminated as a part of Laser Spines liquidation proceeding. Therefore, we have unrestricted access to the entirety of the premises and we are free to sign leases with replacement customers.
The interest we are seeing in what we'll now refer to as 5332 Avion is encouraging. As a reminder, it's standard practice for us to design the structure of our properties to provide long-term flexibility, whether they'll be a build-to-suit or a multi customer buildings. We design the buildings configuration, floor plates, stair towers, main entrances, parking, et-cetera with that flexibility in mind.
This is particularly noteworthy for 5332 Avion with nearly half the tenant improvements are dedicated to medical space. However, we designed 5332 Avion with traditional office bones to provide flexibility. This standard practice is serving us well as we work through options to backfill the building. We're receiving strong unsolicited interest in 5332 from a number of highly qualified, full-building and multi-floor users. We are fortunate to have good activity ranging from prospects studying CAD drawings to performing test fits and discussing lease terms.
Turning to our financials, we updated our 2019 FFO outlook. The revised range is $3.29 to $3.39 per share. The $3.34 midpoint is down $0.16 from our prior outlook, which is driven by the full year $0.17 impact from Laser Spine and a $0.01 dilution from the sale of Metro Center in suburban Orlando. Neither of these items were included in our prior outlook and they are partially offset by improvement in the remainder of our business by $0.02. We also reduced our same property NOI growth outlook by 150 basis points solely due to Laser Spine. Excluding Laser Spine, our same property cash NOI growth outlook would be plus 2% to 3%.
We delivered first quarter FFO of $0.72 per share including the $0.12 per share Laser Spine impact. With the 723,000 square feet with strong leasing economics, namely GAAP rent spreads were plus 17.5%, cash rent spreads were plus 4.3% and net effective rents were $16.64 per foot (ph), 8% above prior five quarter average.
Occupancy declined 70 basis points sequentially to 91.2%, driven by the 60 basis points impact from Laser Spine. As indicated by the mid point of our outlook, we expect occupancy to improve by year-end, which assumes no reletting of 5332 Avion at this point.
Our development program continues to deliver robust results. For example, a full year and a half ahead of pro forma, we placed in service two properties that are a combined 99% occupied and represent a total investment of $56 million. 751 Corporate Center in Raleigh, our 91,000 square foot multi-customer property that we announced with 35% pre-leasing is now over 98% occupied and our 113,000 square foot multi-customer Virginia Springs I in Nashville is 100% occupied, up from 34% pre-leased at announcement.
Our development pipeline is now $635 million and 93% pre-leased. This pipeline will provide meaningful cash flow as it delivers over the next few years. With regard to construction costs, we continue to see them rise at approximately 0.5% per month, in line with the zip code we've been communicating the past few years. Demand for new space has remained strong despite higher rents.
As a reminder, our 2019 development announcements outlook is $100 million to $375 million with $41million announced so far with GlenLake Seven in Raleigh. We continue to have conversations with a number of sizable pre-lease prospects across several potential projects. This sustained level of interest leads us to believe the depth of demand should remain active.
Turning to building dispositions. Subsequent to the end of the quarter, we closed the sale of MetroCenter, a two-building 183,000 square foot non-core property for $32.5 million. This was the last of our suburban Orlando properties, down from a peak of 42% of the division's total square footage. Based on our completed work to date, we anticipate closing a number of sales during the second half of the year, and therefore our 2018 outlook for non-core dispositions remains $100 million to $150 million.
We've kept our acquisitions 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 carrying a five handle. We continue to evaluate on and off-market opportunities with a commitment to prudent investing.
Moving to the balance sheet. We issued $350 million 10 year bond in February with an effective interest rate of 4.38%. Adjusting for Laser Spine, our debt to EBITDA metrics remain in the middle of our stated comfort range of 4.5 to 5.5 times. Even while continuing to fund our development pipeline without issuing any shares on our ATM since the second quarter of 2017.
Overall, our property is performing well with rents continuing to rise and good interest and limited pockets of availability. Our highly pre-leased development pipeline will help drive increased FFO and cash flow as projects deliver. We continue to have disciplined focus on recycling capital and portfolio improvement, which combined with carefully managed OpEx will result in improved operating metrics. On top of this, we have a strong balance sheet with multiple avenues to fund our continued growth.
I'll now turn the call over to Ted.
Theodore Klinck -- Executive Vice President, Chief Operating and Investment Officer
Thanks, Ed, and good morning. During the quarter, we had strong leasing economics as evidenced by positive GAAP rent spreads of 17.5% and positive cash rent spreads of 4.3%. While also posting healthy net effective rents, $16.64 per square foot, 8% higher than our prior five-quarter average. At top, virtually all of our leases having annual escalators, we've posted positive cash rent spreads 11 of the past 12 quarters, including eight quarters greater than 3%. While over the same period increase in net effective rents by 14% and in-place cash rents by 10%.
Our portfolio is 91.2% occupied at quarter end, with five of our nine divisions 92.5% or greater. Atlanta and Raleigh are two largest divisions by square footage ended the quarter with occupancy below 90% and thus present sizable organic growth potential.
In addition to a positive backdrop with market fundamentals, we are optimistic about our portfolio and exploration outlook. We made meaningful progress the last several quarters, reducing future near term rollover risk, which leaves us with only 6.3% of revenues expiring for the remainder of 2019. And we're upbeat about renewal prospects of our large expirations through the end of 2020.
We expect occupancy to improve late in the year. Our year-end occupancy outlook is 91% to 92.3%, compared to 91.2% at the end of the first quarter. The midpoint of our year-end outlook of around 91.6% is 40 basis points higher than where we ended the quarter and assumes no year-end occupancy at 5332 Avion.
In a typical review of exploration is larger than 100,000 square feet, we have only one remaining in 2019. This 100,000 square foot build-to-suit for the FAA adjacent to the Atlanta Airport that we delivered in 2009. We remain confident in renewal. We have three remaining large expirations in 2020 and are confident in two of the three. We are very optimistic regarding renewals on the two largest expirations, 210,000 square feet with Vanderbilt in Nashville, a 138,000 square feet with the FBI in Tampa.
Finally, as previously stated, T-Mobile will vacate 116,000 square feet at Highwoods Preserve V in Tampa in 2Q 2020. Given our lead time and solid early interest combined with a healthy parking ratio and efficient floor plate, we're optimistic about backfilling the space.
Now to our markets. Atlanta posted positive net absorption of 583,000 square feet in the first quarter as reported by CBRE. We're tracking 3.5 million square feet of multi-customer development under way, which is around 28% pre-leased. This represents 3% of total stock. Midtown has the most activity with around 2 million square feet under construction, while Buckhead only has one project with 340,000 square feet under construction.
We signed a 208,000 square feet of second-generation leases during the quarter with a robust GAAP rent spreads of 28%. We continue to make progress releasing the 228,000 square foot, 2635 Century Center property from the low of 20% occupancy in early 2018 to 57% at the end of the first quarter. Additionally, we have signed leases that will bring the property to 77%, plus LOIs for another 11%, taking the property to 88%.
At Riverwood 200, our 300,000 square foot, $107 million multi-customer development, which we announced 39% pre-leased is currently 97% leased, up nearly 600 basis points from last quarter and will be placed in service in the second quarter.
The Raleigh market garnered 611,000 square feet of positive net absorption during the quarter according to Avison Young. Class A asking rates increased 9% year-over-year and overall Class A market occupancy decreased slightly over the same period, ending the quarter at 89%.
During the first quarter, four buildings totaling 729,000 square feet were delivered, they were 83% pre-leased. Currently there is approximately 1.6 million square feet under construction, spread over six sub-markets that is 36% pre-leased, representing 3.2% of total stock. We signed a 112,000 square feet of second-generation leases during the first quarter with positive GAAP rent spreads of 12.7%. Our largest opportunity to increase -- our largest opportunity to increase occupancy is 178,000 square feet in 11000 Weston building.
We've negotiated lease terms with the prospect for 37% of the space and had solid interests in the remainder. According to CBRE, in Orlando during the first quarter there was 252,000 square feet of positive net absorption, including 75,000 square feet in CBD where our entire portfolio resides. Market occupancy improved 20 basis points since year-end to 91.3%, while it's 91.6% in the CBD.
Rents increased 3.6% during the past year in the CBD. There is 215,000 square feet under construction in the downtown market, which is 87% pre-leased. We signed 82,000 square feet of second-generation leases during the quarter, with positive GAAP rent spreads of 16% and a weighted average lease term of almost seven years.
Lastly, Tampa experienced positive net absorption of 141,000 square feet for the quarter, as reported by Cushman & Wakefield. Class A rental rates in the CBD in Westshore each increased 6.5% year-over-year where 92% of our portfolio is located. Occupancy remains healthy at 93.7% combined in these two submarkets.
We're tracking 400,000 square feet under construction in Westshore in the CBD, which is 87% pre-leased and represents about 2% of total stock. We signed 105,000 square feet of second-generation leases at strong GAAP rent spreads of 24.9%. We're focused on finding users to backfill the T-Mobile space of Preserve V upon their expiration in the second quarter of 2020. And of course, as Ed covered in his comments, we're reletting 5332 Avion.
In conclusion, we had a strong quarter of leasing with continued growth in net effective rents and healthy rent spreads. We're making good progress with future explorations and backfilling the few sizable vacancies in the second-generation portfolio.
Our $635 million, 93% pre-leased 1.6 million square foot development pipeline has only two projects that are less than 97% pre-leased. The leasing environment remains healthy is indicative of continued demand for quality, well-located, first and second generation office product. Mark?
Mark Mulhern -- Chief Financial Officer
Thanks, Ted. For the first quarter we delivered net income of $0.07 per share and FFO of $0.72 per share. The quarter included $0.12 per share of FFO charges relating to Laser Spine sudden closure.
I'll begin my comments on the quarter by walking through the details of the Laser Spine related charges. The $12.1 million of FFO related charges includes $1.1 million of accounts receivable credit losses, a $4.1 million write-off of the remaining balance of a note receivable and the rest is attributable to non-cash straight-line rent receivables and lease incentives. These items show up in our first quarter income statement in the rental and other revenue and other income line items.
Let's start with the $7.9 million of items impacting rental and other revenues. It's easier to walk you through the details using the table at the bottom of page four in our supplemental. The $7.9 million is broken down into three components. First, the write-off of $2.3 million of lease incentives is included in contractual rents. Second, the $4.5 million in straight-line rent credit losses are included in the straight-line rental income line item. And third, the $1.1 million in accounts receivable credit losses are included in other miscellaneous operating revenues.
We also wrote-off $4.1 million of notes receivable, which effects other income on the face of the income statement. These items make up the total $0.12 per share of FFO related charges from Laser Spine recorded in the first quarter. Additionally, we wrote-off $11.6 million of tenant improvements and deferred leasing cost associated with the building that affect only net income, not FFO. These items were recorded in depreciation and amortization on the income statement.
Excluding Laser Spine, the quarter was otherwise healthy and straightforward. We had no disposition or acquisition activity in the first quarter. We delivered MetLife 3, a $65 million, 219,000 square foot build-to-suit in Raleigh at the end of the quarter and therefore, it will contribute to FFO starting in the second quarter. As Ed mentioned, we updated our 2019 FFO outlook to $3.29 to $3.39 per share, representing a $0.16 per share reduction at the midpoint of our original range.
The main changes are $0.17 reduction related to Laser Spine, which is the $0.12 impact we recognized in the first quarter and approximately $0.05 per share impact for the remaining three quarters. Plus, an estimated $0.01 per share of dilution from the $32.5 million sale of MetroCenter in Atlanta that closed after quarter end.
Our updated outlook otherwise implies an improvement of $0.02 per share, given the sound business environment. Our outlook for 2019 same property cash NOI growth is now 0.5% to 1.5%. The $1.1 million accounts receivable credit losses related to Laser Spine is included in same property NOI in Q1, which combined with the foregone revenue for the remaining 10 months of the year equates to Laser Spine having a 150 basis points full-year impact on our 2019 same property growth outlook. Excluding Laser Spine, our outlook for same property cash NOI remains 2% to 3% on target with our initial expectations.
Our straight-line rental income outlook is down $4 million, driven by the $4.5 million straight-line rent credit losses associated with Laser Spine. Our year-end occupancy target is 91% to 92.3%. We ended the quarter at 91.2% and expect to be steady at the end of the second and third quarters before increasing in the fourth.
We reduced our G&A outlook by $1 million to a range of $39.5 million to $41.5 million, primarily driven by lower expected incentive compensation expense. The other items in our FFO outlook acquisitions, dispositions and development announcements and average shares outstanding remain unchanged.
Finally, even with the Laser Spine event, we remain confident in our 2019 dividend coverage and cash flow growth trajectory going forward. Our balance sheet remains in excellent shape, we issued $350 million of 10 year notes with an effective interest rate of 4.38%, with strong support from fixed income investors, allowing us to ultimately price at a spread of a 160 basis points over the US 10-year. With the all-in yield impacted by the hedge we placed on the $225 million of notional principal. We used the proceeds to repay our $225 million floating rate term loan that was scheduled to mature in 2020 and reduce borrowings on our credit facility. We have a well-laddered debt schedule with no maturities until the middle of 2021.
Our debt to EBITDAre ratio increased to five times excluding Laser Spine, right at the middle of our stated comfort range of 4.5 times to 5.5 times. As a reminder, this ratio is typically higher in the first quarter as we annualize the seasonally higher G&A in Q1 due to the timing of our annual long-term equity incentive grants.
Plus, scheduled NOI coming on online from the delivery of Mars Petcare's headquarters and MetLife 3 will bring the ratio in line with levels we reported the past several quarters, even as we continue to fund our remaining development pipeline. Lastly, we issued no shares on the ATM during the quarter, we continue to have strong access to capital and have many avenues to fund our continued growth.
Operator, we're now ready for your questions.
Questions and Answers:
Operator --
Thank you very much. (Operator Instructions) And our first question comes from the line of Blaine Heck with Wells Fargo. Please go ahead.
Blaine Heck -- Wells Fargo Securities -- Analyst
Thanks, good morning. Mark, maybe I'll stick with you real quick for the first question. I wanted to touch a little bit more on the revised same-store NOI guidance. So it seems like you had two kind of competing factors that would change same-store with a negative 1.5% from the loss of Laser Spine and then the positive from the increase in occupancy expectations. But it seems like only the negative was taken into account in terms of full year same-store expectations. So were there any other factors considered in that revision or is there maybe some conservatism built in at this point?
Brendan Maiorana -- Senior Vice President, Finance and Investor Relations
Hey, Blaine, it's Brendan, I'll start and then maybe Mark will chime in. So from the occupancy standpoint, the occupancy outlook that we give is really a year-end number as opposed to average for the entirety of the year. And so, while, we do expect that our year-end occupancy outlook excluding the impact from Laser Spine is better compared to what we provided in February. Most of that occupancy isn't programed to move into the portfolio until late in the year and likely doesn't carry a lot of cash impacts.
So I think that's probably the biggest adjustment versus -- the occupancy versus what you saw in terms of same-property change. So you're right though, the change in same property outlook, the reduction of 150 basis points at both ends of the range is solely attributable to Laser Spine.
Blaine Heck -- Wells Fargo Securities -- Analyst
Okay. So it's just more of a timing issue there on the occupancy?
Brendan Maiorana -- Senior Vice President, Finance and Investor Relations
Correct.
Mark Mulhern -- Chief Financial Officer
Okay, that's helpful. And then Ed or Ted, can you give a little bit more color on T-Mobile. We're about a year out after the extension. So, how would you characterize the interest there? And is it a situation where you could potentially have something signed before T-Mobile moves out? Or kind of what sort of downtime are we looking at there?
Edward Fritsch -- President and Chief Executive Officer
Hey, Blaine. So their expiration isn't until now April of 2020, because we did that extension as you mentioned. We have good prospects for half to 100% of the building we've done showings. It's a strong submarket as far as just blocks of available quality space, it would be in our favor. I think I would be reticent to predict when we would have something signed, but given the level of activity I wouldn't think that we would endure any significant amount of downtime between when they would come out and when we'd be able to have the space recommitted to a large degree. Ted will you?
Theodore Klinck -- Executive Vice President, Chief Operating and Investment Officer
No, I think that's right. I think that's right. Good activity so far, but still early.
Blaine Heck -- Wells Fargo Securities -- Analyst
Okay. Good to hear. And then, Ed, how you guys are fortunate to have some land adjacent to Nashville yards where Amazon will be going. There's a lot of construction waiting to be leased in Nashville as a whole, but given your location there. Are you guys having any discussions with potential anchor tenants or build-to-suit tenants that you can talk about? And is there -- is there a possibility to go under construction there on that additional space, while you're still building out Asurion, assuming you would get a lease?
Edward Fritsch -- President and Chief Executive Officer
Yeah, great question. So just to put a little context to that for everyone. So, right across from where Nashville yards is where Amazon is going. We're developing the 551,000 square foot build-to-suit for Asurion's headquarters. And then, immediately across the street from there we have another track of land that house the Tennessean Newspaper. And we acquired that in total and half of that land is what's going to Asurion, the other half will support between 900 and 1.2 million square feet in two separate towers on a podium. And so we have full design concepts for both of those towers, so that prospects can get a complete sense for the design of the building, the feel of building, the functionality, everything from back house to lobby to floor plates.
And yes, we have presented this to a number of prospective users who have been looking at the market and maybe not just looking at this market, but this market in concert with other places that they may consider going, but I guess what I would say in summary is, I think we have a very attractive design, we have some significant flexibility in that, we could do two towers in total for over a 1 million square feet for a or multiple users or we could do this shorter tower for a user or the bigger. So it gives us a lot of flexibility and the design is well advanced and we're in the field of play with others as we compete for those considering that very active market.
Blaine Heck -- Wells Fargo Securities -- Analyst
All right. Great. Thank you.
Edward Fritsch -- President and Chief Executive Officer
Thanks, Blaine.
Operator --
And the next question is from Jamie Feldman with Bank of America Merrill Lynch. Please go ahead.
Jamie Feldman -- Bank of America Merrill Lynch -- Analyst
Great. Thank you, and good morning. I guess just sticking with potential development. Can you talk about some of your sites in other markets that are getting some interest? And maybe what those prospects look like?
Edward Fritsch -- President and Chief Executive Officer
Sure. Jamie, it's Ed. Good morning. We have, I would say, of our top five prospective opportunities as they sit today and obviously the jocking (ph) of these changes as presentations progress and people decide which -- in which markets they want to be in or not. One of our top five, they are spread across four different markets, which is a positive for us. It's not five prospects all considering a site in a markets since our top five are spread across four, we take that as a continuing positive sign.
There are different points of interest and some of it is anchor customer versus a complete build-to-suit, but now -- we from a conservative perspective would feel comfortable initiating construction based on the volume of space that they would taken and what their forecast for growth would be as we work through the design and construction process. So, I hate to say much more than that, because -- until you have something inked, it's not inked, but I would say that our conversations are positive and given the volume of design work that we have for trophy Class A buildings across our footprint, we feel like we're in the hunt on a number of them.
Jamie Feldman -- Bank of America Merrill Lynch -- Analyst
Okay, thank you. And then you had mentioned in many of your markets that there is supply coming in, a lot of it's not necessarily in competitive submarkets, but can you talk about the impact on rent growth and what you're seeing and what you're expecting in rent growth across your markets?
Edward Fritsch -- President and Chief Executive Officer
Yeah. I'll start and then Ted can give you some addition to that. Our perspective of that is, even though that we and the markets have enjoyed an uplift in rental rates, and I think we've underscored that in Ted's comments in the script. The spread between first-gen and second-gen remains wide and we've been saying that for a number of years now. But given the cost of new construction, despite the appreciation of second-gen rates, that gap continues to remain quite wide and that's in the -- like the 20% to 35% range. So you still have to have a very deliberate need or want to be in first-gen space versus second-gen space and willingness to pay that first-gen premium as a result of what it just flat out cost to build it from scratch nowadays.
And I think that gap has been there for three years now, maybe more and we don't see that subsiding in the way that construction prices continue to increase as I referenced in my script, they are approximate 0.5%. So I think Jamie, again it's a bit of a bridal on new development. I think we will keep -- continue to keep it in check, but certainly there are those who are recognizing that cost and willing to pay it. But there is a premium to pay and I think as a result, others are opting to take an appreciation in second-gen, but not making a full lift of the 20% to 35% increase to first-gen.
Jamie Feldman -- Bank of America Merrill Lynch -- Analyst
Okay. So, I guess when you think about the second-generation space, are you seeing any slowdown in rent growth there?
Theodore Klinck -- Executive Vice President, Chief Operating and Investment Officer
Jamie, this is Ted. We really are. I mean, just to add on to what Ed said. Really the new construction has really served a lift -- the second-gen buildings as well given that wide gap. So the second-gen buildings have been able to draft off the new construction. So we continue to see rents grow in virtually all of our markets. I continue to think it's in that 2% to 5% range depending on the market, while the most is Raleigh, Tampa, Nashville right now for us.
Jamie Feldman -- Bank of America Merrill Lynch -- Analyst
Okay. Thank you. And then last question form me. I mean, it sounds like you guys are pretty surprised by LSI as was the market. I mean, is there anything as you look back that you thought you should have or could have done differently in terms of whether it was like having more of a credit watch or communicating differently based on what went down?
Mark Mulhern -- Chief Financial Officer
Yeah. Jamie, its Mark. Whenever these things happen, obviously, we look back and try to figure out what we missed or what we could have done differently. We've got 1700 or so customers and we've got a pretty regular approach to getting financials, reviewing forecast, we monitor credit reports, follow the news about our customers and we stand pretty close communication with them and obviously monitor the payment history.
In this particular case we were aware they were having some financial issues and we had been following them closely, and we -- so we relayed to you, they started paying us on a weekly basis. And so we were pretty close to this one, but we really didn't have any anticipation that this thing was going to go the direction it went, we thought potentially if they went to a bankruptcy, it would be a restructuring not certainly one when they shut their doors. But we're going to continue to look at our process and make sure that we're staying on top of all this, but we have again a pretty regular process and it's been well tested over time. So it's unfortunate, the timing was obviously not good for anybody, but now we've got a great building and a great piece of real estate. So we're optimistic about the outcome here and we just have to play through this little patch here.
Jamie Feldman -- Bank of America Merrill Lynch -- Analyst
Okay. All right. Thank you.
Mark Mulhern -- Chief Financial Officer
Sure.
Edward Fritsch -- President and Chief Executive Officer
Thanks, Jamie.
Operator --
Our next question is from Manny Korchman with Citi. Please go head.
Emmanuel Manny Korchman -- Citigroup Inc -- Analyst
Hi. Good morning, guys. Ted or Ed, just sticking to Laser Spine. Best case scenario if you got a single-tenant user for the building and when will they need to come in for us to see the financial benefits with regards to 2020. When we will get that least sort of signed? And if it had to go multi tenant, how much of an investment will that take and similar question on timing?
Edward Fritsch -- President and Chief Executive Officer
Hey, Manny. So there is such a wide array of what could backfill this building. And so, it could be anything from somebody taking it as is, to us dividing the building up into a multi-customer situation where it could be both medical and office, or all of one and none of the other. So I think that the safest thing and most appropriate thing for us is just to underscore that we don't include in our revised outlook any occupancy in the building for the remainder of the calendar year. In the interim we're working these number of conversations very actively and has our undivided attention. But I think for us at this juncture, particularly given the number of active conversations that we're hosting, that is probably best at this point in time to just underscore that there could be quite a mosaic of different terms and conditions and best for us to get a little bit further into this so that we could -- we can give you something that's more definitive as we work toward an agreement with a party or parties.
We've obviously done some costing of what it would take to convert pieces and parts or all of the building in one direction or another and we have CAD drawings available for prospective users to study, which a number of them are. We're very thrilled with where we are from a legal situation as far as the lease being terminated and us having full possession in control of the building and free to move about the cabin and lease it with whomever we like at this juncture. But I just think that there's such a wide array of possibilities that we might catch ourselves and going down one rabbit hole or the other at this juncture. But I think the positive thing is that, the volume of activity that we have is virtually all on an unsolicited basis. We haven't sent out a teaser, we haven't held held a broker function, et-cetera, et-cetera. These are inbound inquiries that we're feeling.
Emmanuel Manny Korchman -- Citigroup Inc -- Analyst
That was it from me. Thank you, Ed.
Edward Fritsch -- President and Chief Executive Officer
Thanks, Manny.
Operator --
And our next question is from Dave Rodgers with Baird. Please go ahead.
Dave Rodgers -- Baird -- Analyst
Yeah. Good morning, guys. Maybe I start with Ted. Ted, you talked a couple of times about occupancy strength, but mostly near year-end. Can you talk about how much of that might be signed in leases, ie: the Century Center leases that you talked about earlier versus kind of what's just still in the prospect stage. So what gives you that confidence into the year-end to have that occupancy boost.
Theodore Klinck -- Executive Vice President, Chief Operating and Investment Officer
Sure, Dave. Certainly, we still have some more wood to chop this year, but just given the number of tours we're conducting, the demand we're seeing from customers out there. And I think we pulled forward a lot of the demand as well. We have like 6.5% remaining this year, a lot of that is in the queue, but there is still some work to do, but just given where we -- we're seeing the demand and seeing the customers and the tours and all that, I think we feel pretty good about where we are. But there is still some work to be done this year.
Brendan Maiorana -- Senior Vice President, Finance and Investor Relations
Hey, Dave, it's Brendan. I'm just going to follow-up on that a little but. With respect to the same store and the cash commencement of leases. Clearly, we put up 0.1% in the quarter, the average -- the guidance for the year, the range is 0.5% to 1.5%. So there is obviously a clear indication that we expect same property growth to improve as we move throughout the year. And I think just to give you a little bit of color. We would expect that both the second and third quarters would be probably toward the lower half of that range with a strong fourth quarter. There -- as Ted mentioned. there is some leasing to get to -- which we have programed in, which will impact that fourth quarter from a cash perspective on same-store NOI growth. But most of that are leases that either have been signed, but haven't yet commenced or are leases that may have commenced from a GAAP perspective, but where cash hasn't commenced yet.
So I think we've got a lot of built in growth into the same property pool. And then in addition to that, we've got quite a bit of growth from the development pipeline, which will come online from leases that have been signed, but haven't yet commenced. And there is about -- compared to what we put up in the first quarter on an annualized GAAP basis, there is about $5 million to $6 million of additional NOI from projects that have delivered, but where we haven't fully -- have not yet fully stabilized. And then in addition to that, on a cash basis that number on a annualized NOI basis cash is around $10 million to $12 million. So there's quite a bit of built in growth into our current portfolio.
Emmanuel Manny Korchman -- Citigroup Inc -- Analyst
Yeah. That's helpful. Thanks Brendan and thanks Ted too. And maybe Ted, sticking with you just for one more question. With regard to the demand from tenants that you're seeing, are you still thinking fairly broad-based demand, not necessarily by market, but by tenant type, in terms of maybe a tech tenant versus financial tenant. What are you seeing kind of in that prospect pool?
Theodore Klinck -- Executive Vice President, Chief Operating and Investment Officer
It's definitely broad based, but at the same time it is somewhat market dependent. I think the overarching themes just overall would be certainly technology financial professional services and then certainly co-working continues to lease space and grow in most markets. So I think it's those three categories primarily.
Emmanuel Manny Korchman -- Citigroup Inc -- Analyst
Great. That's helpful. And then maybe just a last question for Ed or Ted. I don't know if you commented on this earlier, but just, obviously, with the big M&A announcement in your space. Is there anything you can or would comment with regards to often your interest there and potentially any involvement with your?
Edward Fritsch -- President and Chief Executive Officer
No.
Emmanuel Manny Korchman -- Citigroup Inc -- Analyst
All right. Thanks, Ed.
Edward Fritsch -- President and Chief Executive Officer
Sure.
Operator --
(Operator Instructions) Our next question is from Adam Grabowski with Morgan Stanley. Please go ahead.
Adam Grabowski -- Morgan Stanley -- Analyst
Hey, guys. Thanks for taking the question. Just wanted to ask one last question on Laser Spine. As you have sort of started to have discussions with potential new tenants, as you start to think about the impact on 2020. Do you have any idea of what the mark-to-market could be at that asset or what the potential upside could be?
Edward Fritsch -- President and Chief Executive Officer
Yeah. Good question, Adam. We ask ourselves that about eight times a day. And I kind of give you a political answer here. I just go back, there is such an array of possibilities that I think it's just early for us to even put a range out there, in a way of is a line in the sand as to what we would expect. Obviously, we're trying to relet this as prudently as possible with the appropriate level of speed and success. I just think it's early for us to try and post that at this point in time. Excellent question, but we're looking for the right blend of user credit worthiness and timing.
Adam Grabowski -- Morgan Stanley -- Analyst
Got it. Thank you.
Edward Fritsch -- President and Chief Executive Officer
As soon as we have a dial-in on that, we will be the first ones to put something out. I promise.
Adam Grabowski -- Morgan Stanley -- Analyst
Sounds good. Thanks, guys.
Edward Fritsch -- President and Chief Executive Officer
Thanks, Adam.
Operator --
And gentlemen, there are no further questions. I'll turn the call back over to you.
Brendan Maiorana -- Senior Vice President, Finance and Investor Relations
Thank you, operator. And thank you, everyone for dialing in. As always, feel free to give us a howl (ph) if you have any additional questions. Thank you.
Operator --
Ladies and gentlemen, that concludes the call for today. We thank you for your participation. Everyone have a great rest of your day. And you may disconnect your line.
Duration: 48 minutes
Call participants:
Operator --
Brendan Maiorana -- Senior Vice President, Finance and Investor Relations
Edward Fritsch -- President and Chief Executive Officer
Theodore Klinck -- Executive Vice President, Chief Operating and Investment Officer
Mark Mulhern -- Chief Financial Officer
Blaine Heck -- Wells Fargo Securities -- Analyst
Jamie Feldman -- Bank of America Merrill Lynch -- Analyst
Emmanuel Manny Korchman -- Citigroup Inc -- Analyst
Dave Rodgers -- Baird -- Analyst
Adam Grabowski -- Morgan Stanley -- Analyst
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