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Piedmont Office Realty Trust Inc  (NYSE:PDM)
Q4 2018 Earnings Conference Call
Feb. 06, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Piedmont Office Realty Trust Fourth Quarter 2018 Earnings Call. All lines have been placed on a listen-only mode and the floor will be opened for questions and comments following the presentation. (Operator Instructions)

At this time, it is my pleasure to turn the floor over to your host, Robert Bowers. Sir, the floor is yours.

Robert E. Bowers -- Chief Financial, Executive Vice President and Administrative Officer

Thank you, operator. Good morning and welcome to Piedmont's fourth quarter 2018 conference call. Last night, we published our quarterly earnings release and filed an 8-K, containing our unaudited supplemental information. Both of these items are available on our website under the Investor Relations section.

On today's call, the Company's prepared remarks and answers to your questions will contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements address matters, which are subject to risks and uncertainties that may cause the actual results to differ from those we discuss today. Examples of forward-looking statements include those related to Piedmont Office Realty Trust's future revenues, operating income, dividends and financial guidance, as well as future leasing and investment activity. You should not place any undue reliance on any of these forward-looking statements, and these statements speak only as of the date they are made. We encourage all of our listeners to review the more detailed discussion related to risk associated with forward-looking statements contained in the company's filings with the SEC.

In addition, during this call, we'll refer to non-GAAP financial measures such as FFO, core FFO, AFFO and same-store NOI. The definitions and reconciliations of our non-GAAP measures are contained in the supplemental financial information available on the company's website.

Our senior management team is available today to address any questions that you may have. But first, I'll review some of our quarterly financial results and 2019 guidance after Don Miller, our Chief Executive Officer and Brent Smith, our President and Chief Investment Officer discuss 2018 annual and fourth quarter accomplishments. Don?

Donald A. Miller -- Chief Executive Officer & Director

Good morning, everyone and thank you for joining us on today's call. I'm very pleased with our 2018 annual and fourth quarter results in almost every area of the business, particularly in the leasing and capital allocation activities. Our 2018 leasing was active, totaling approximately 1.6 million square feet with approximately 256,000 square feet of leasing executed during the fourth quarter. Leasing was spread across our portfolio and a list of leases over 10,000 square feet that were signed during the fourth quarter is detailed in the quarterly supplemental information that was filed last night and is available on our website.

Perhaps, the most significant leasing news in 2018 is that we grew the portfolio's overall in-service leased percentage over 3% with limited expiration exposure for the next five years. At year end, the lease percentage was 93.3% and this increase is reflected in the continued multi-year growth in our same-store cash and accrual based net operating income.

Our economic occupancy, meaning occupancy related to leases actually paying cash rents, grew to 86.8% at year-end. That's up nearly 13 percentage points since 2014 and has led to some of the best same-store cash NOI growth in the office sector in the last four years. As we begin 2019, we have approximately 667,000 square feet of leases and abatement, from new tenant leases that have recently commenced and from renewals with upfront abatement periods. These abatements plus two known move-outs will flatten our NOI growth during the early part of 2019, but we project it will pick up thereafter.

For example, approximately 500,000 square feet of these leases will begin paying rents by the end of June 2019 and will lead to an acceleration of NOI growth in the latter half of the year. A list of the larger executed leases with current or upcoming abatements is contained in our supplemental information for your review. Bobby will address this topic further in his prepared remarks.

Perhaps more importantly, as we look ahead, we are seeing a great deal of tenant prospects across our portfolio. Activity has remained strong in the vast majority of our markets with approximately 1.5 million to 2 million square feet of space currently under letter of intent or in active negotiation. The Washington DC market has slowed however, given the amount of new supply and market specific issues such as federal government shutdown. Ironically, for Piedmont, leasing in DC represents almost all upside, as there is very little lease rollover for the company in the Washington DC area over the next five years.

In majority of our other markets, we're seeing nice growth in rental rates, particularly in the Burlington area of Boston and central perimeter submarket in Atlanta. Most recent questions regarding lease expirations are related to our 60 Broad building in New York, where we have approximately 800,000 square feet of space with New York State and New York City scheduled to expire over the next 14 months. While the government contracting process with numerous agencies to coordinate takes longer than with corporate clients, the New York State negotiations have progressed very smoothly and we anticipate a renewal in the near term.

In addition, we have made good progress with the city and hopefully announce some definitive information related to these efforts toward the latter half of 2019.

An important point to keep in mind is that once we resolve the New York State and City leases, we will have an average of only 6.7% of our revenues and square footage expiring annually for the next five years, one of the lowest averages in our office peer group. In addition, the weighted average lease term of our entire portfolio should increase to nearly 8 years, the longest we are aware of in the office REIT sector. We completed several capital market transactions during the quarter and I'd like to turn the call over to Brent Smith to discuss those. Brent?

C. Brent Smith -- President and Chief Investment Officer

Thank you, Don. As you should expect at this point in the real estate cycle, especially given the discount to NAV for Piedmont and frankly most office REITs' trade, we continue to be a net seller in 2018. Piedmont sold a total of 15 properties and over 3.1 million square feet in 2018 with another significant asset under binding contract to sales in early 2019. With regard to approximately $590 million of disposition proceeds in 2018, we've recycled a portion of these funds into three accretive strategic assets, restructured and strengthened our balance sheet and bought back our own stock at what we believe is a significant discount to net asset value.

Furthermore, we exited multiple non-strategic markets and bolstered our competitive position by increasing our Class A office market share in key submarkets in Minneapolis, Orlando and Boston. Focusing on activity in the fourth quarter, we sold our last remaining West Coast asset, 800 North Brand Boulevard and recycled a portion of the proceeds into two assets in our core markets. 9320 Excelsior Boulevard, a value add asset in Minneapolis and 25 Burlington Mall Road in Boston. This redeployment of proceeds will result in approximately $0.03 of FFO accretion annually per share.

We begin 2019 with a binding contract to sell a 334,000 square foot Southwest Washington DC asset, One Independence Square for $170 million. The sale of One Independence has a number of strategic points for us, reducing our exposure to the Southwest DC submarket, disposing of our fully stabilized asset leased primarily to government tenants with limited further NOI growth potential and freeing up capital to initially reduce our leverage level and as appropriate invest accretively in other high yielding opportunities. We expect this transaction to close during this current quarter, subject to customary closing conditions.

Given the pricing achieved from recent property dispositions and our confidence in the underlying value of the existing assets in our portfolio versus the steep discounts in stock pricing in late 2018, we took advantage of this and repurchased 2.2 million shares of company stock at an average price of $17.13 per share during the fourth quarter. As of the year end, we have $87 million of capacity remaining under the Board-authorized stock repurchase program. With only two projects remaining outside our 8 strategic markets, our portfolio footprint continues to become more focused. I would also note both of these projects are well leased and highly liquid, enabling us to harvest the value created when the timing is optimal, aligning with other strategic initiatives. Future capital transactions will focus upon continuing to refine our holdings with our current target markets where we have local expertise, a concentration of assets and competitive advantages.

Each of these markets are characterized as having above-average job growth, excellent transportation access, heavy amenity basis, all ideal for our targeted corporate users in locations in or near educational centers, providing a well-qualified workforce. Finally, existing properties will be recycled when we believe full value for our shareholders has been attained and better opportunities for growth reside elsewhere. Considerations such as use of proceeds and tax implications will impact the ultimate timing of these transactions. However, we do envision continuing to be a net seller in 2019.

With that, I'll turn it over to Bobby to review the fourth quarter financial results and balance sheet and talk about our views on 2019. Bobby?

Robert E. Bowers -- Chief Financial, Executive Vice President and Administrative Officer

Thank you, Brent. While I'll discuss some of our financial highlights for the quarter, I again encourage you to please review the earnings release and supplemental financial information that's filed last night for more complete details. For the fourth quarter of 2018, we reported FFO and core FFO of $0.45 per diluted share. That's a $0.03 per share increased compared to the fourth quarter of 2017, despite significant net disposition activity during 2018.

This earnings growth per share can be attributable to higher occupancy levels to which Don referred and to continued growth in our overall rental rates, which now average approximately $36 per square feet in our portfolio. This earnings increase is also attributable to fewer company shares being outstanding as a result of our stock repurchase program. During 2018, the company repurchased 16.5 million shares of stock.

AFFO was approximately $41 million for the fourth quarter and $171 million for the year, well in excess of our current dividend level. Same-store NOI was up approximately 9.2% on a cash basis for the fourth quarter of 2018 and up 6.5% for the year. On a GAAP basis, same-store NOI was up 5.2% for the fourth quarter and up 2.9% for the year. While individual quarters vary greatly in terms of the number of leases and the size of those leases completed, almost 1 million square feet of leasing was executed in 2018 for previously leased space. And cash rents for this space increased on average 2.4% and GAAP based rents increased 9.1%. Over 600,000 square feet of leasing was completed during the year for vacant space and was the primary contributor to the growth in the reported lease percentage increase to 93.3%.

Our average net debt to core EBITDA ratio for the fourth quarter of 2018 was 5.8 times and our debt to gross assets ratio was approximately 36% as of year-end. At December 31, 2018, we had approximately $295 million of capacity available in our $500 million line of credit. The financial team was active during 2018. The company paid down nearly $40 million of debt and refinanced or restructured over $1 billion of debt, including the $500 million line. With only 18% of our debt floating and 11% of our debt secured, we have no scheduled debt maturities until the fall of 2021. Any near-term cash operating surplus or unused disposition proceeds will be used to pay down our line and lower overall leverage.

At this time, I'd like to introduce our 2019 guidance in the range of $1.74 to $1.80 for core FFO per diluted share. The guidance incorporates the sale of One Independence Square in Washington DC during the first quarter of 2019 and the renewal of its GAAP NOI contribution, which was approximately $10 million in calendar 2018. No other significant capital markets activity is embedded within this guidance.

Also with a few large leases in abatement in the first half of 2019 such as the 254,000 square foot Schlumberger lease in Houston along with the downtimes between leases in Orlando and in Atlanta, our assumptions related to same-store NOI growth are in the range of 1% to 4% on both the cash and GAAP basis in 2019. However, we project that NOI growth should accelerate significantly in 2020 and 2021 as the previously mentioned leases commence and abatements burn off and these two large lease renewals in New York are anticipated to be completed with negligible abatement periods and sizable step-ups in GAAP rents. We are targeting our year-end lease percentage for 2019 to be in the 93% to 94% range. It's important to note, as you prepare your financial models for Piedmont, that our quarterly earnings can vary by a penny or two based upon the timing of seasonal expense items and more significantly due to any capital markets activity, should they occur. Again, we do believe we will be net sellers in 2019. In the event of a significant capital transaction, we'll obviously disclose what we believe the impact will be on our annual projections.

With that, I'll now ask the operator to provide our listeners with instructions on how they can submit their questions. We will attempt to answer all of your questions now or will make appropriate later public disclosure, if necessary. Operator?

Questions and Answers:

Operator

Thank you. The floor is now open for questions. (Operator Instructions) Okay. Our first question comes from Barry with D.A. Davidson. Please state your question.

Barry Oxford -- D.A. Davidson -- Analyst

When it comes to leasing and anybody can jump in and take this question, maybe if there is a little more color on the New York State lease. And then also if you could provide a little color on the SunTrust, releasing up of that building and where we stand there?

C. Brent Smith -- President and Chief Investment Officer

Hi, Barry. This is Brent. Appreciate your time today. As you know, regarding the state -- as you know, the New York State resides at 60 Broad, which is our 1 million square foot Class A asset in Lower Manhattan, just one block from the New York Stock Exchange. It's really a unique building with a wedding cake design that produces some amazing outdoor space and 360 degree views, three distinct lobbies, it's really -- creates a unique situation. In that, the lowest portion of the building, floors 2 through 11 do house the New York State. We continue to work through a detailed lease documentation and design of their space and admittedly, it's been a protracted process, but I'd say it's not been anything out of the ordinary for our GSA customers and tenant. Keep in mind, there are seven agencies and a multitude of stakeholders located both at the building and in Albany and there's a lot of play that goes into a lease and build-out of this scale. Both PDM and the OGS who oversee the agencies are working diligently to complete the lease before the end of March. And I would reiterate the transaction has not wavered from what we've discussed in the past, so, we're looking at 15 years of lease term, not inclusive of our renovation period at the building, market level TIs, very limited free rent and as we've noted before, a slight cash flow down and a meaningful GAAP roll-out.

Barry Oxford -- D.A. Davidson -- Analyst

Right. Got you.

C. Brent Smith -- President and Chief Investment Officer

Barry, on the SunTrust situation, there's been a lot of news in the marketplace about what may be happening there. We have not contributed to any of that, because we don't have anything ready to announce yet. We do, in our planning on doing a fair amount of renovation to the building, obviously the building is the most iconic building in downtown, but we feel like we can do some pretty creative things to take that to even to the next level. Our plans are being finalized as we speak, but we're still little ways away from being able to announce those. And we have some leasing activity at the building that's pretty promising, but too early to get into whether that's going to come to completion or not yet.

Barry Oxford -- D.A. Davidson -- Analyst

Great. Great. And then switching gears from last question, when we look at the Washington DC asset for $170 million and then we look at the fact that you bought back 2.2 million shares in the $17 range -- $17.13, is it fair to say that the use of those proceeds, should your share price go back down to the $17 levels, is it fair to say that we could see rise back in the market?

C. Brent Smith -- President and Chief Investment Officer

Well, so yes, we bought, obviously bought the 2.2 million shares in the fourth quarter. The fact that we are continuing to dispose of properties and proving out the value of our NAV to us every time we make another transaction, it does give us more confidence to be a buyer of our own shares, just because we're seeing a vast disparity between what do we think our real -- underlying real estate value is and what the shares are trading at. So not unlike a number of our peers who are doing the same thing right now, where we're just seeing dramatic value in our own shares. We feel like that can be a good use of proceeds upon disposition. I just would remind you, though, we are not going to lever up to buy back shares, we would only do it through the use of disposition proceeds.

Barry Oxford -- D.A. Davidson -- Analyst

Right, right. Got you. All right, I'll yield the floor. Thanks so much guys.

C. Brent Smith -- President and Chief Investment Officer

Thanks, Barry.

Operator

Okay. Our next question comes from Michael Lewis with SunTrust. Please state your question.

Michael Lewis -- SunTrust -- Analyst

All right. Great, thank you. In terms of known move-outs and roll, you talked about New York State and SunTrust. Could you also provide, if there's any update on RBs. I think, Siemens has an expiration at the end of the year and if there's anything else on the radar we should be aware of, which will help us kind of with the cadence of the NOI growth through the year?

C. Brent Smith -- President and Chief Investment Officer

Yes. I think RBs I would say is in a very similar situation to SunTrust. We have a much more modest renovation going on at that building that we'll just update some things including we have a a spectacular fitness center in the basement that building and we're refreshing that and then we're doing a little bit of work in the lobby. But the leasing activity has actually been very strong there as well. And so, I would say although it's too early to announce anything, we're optimistic we should have some good follow-on things to talk about in the coming quarters, given our activity level.

On the situation in Minneapolis, that lease expires at the end of the year and we're optimistic that we'll have a good outcome there. We've been engaged with the tenant for quite some time and we believe we'll have a really good chance of keeping that in a majority of that space. There could be a downside there, but we don't think it'll be a dramatic one.

Donald A. Miller -- Chief Executive Officer & Director

And then Michael, I'd add, looking into '20, early '20 to get to the New York City, as you know, that comprises floors 12 through 23 in 60 Broad just about the state and that lease will expire in April of 2020. And the New York City process like the New York State takes time, but there is one bit of good news is this envelope only has three agencies. So there's a few less parties to coordinate with. And while it's still early in the process, I think we are incrementally more positive on our potential to retain New York City to the customer at 60 Broad. There's not a lot of detail we can go into right now, but we, as we have said in the past, we're talking to them about 20 years of term, not inclusive of our innovation period of the building, market level TIs, limited free rent and I'd note again meaningful cash and GAAP roll out related to that lease. So we hope to have more details to share with you around the city later in the year.

Michael Lewis -- SunTrust -- Analyst

Thanks. And as far as your comments about being a net seller in 2019, obviously there is some -- there is a couple of properties left at this other buckets, one in Phili, two in Houston. You've got 1 property in Chicago, what kind of -- what do you think for putting stuff on the market and how much could you really sell, does a lot of it just depend on use of proceeds and kind of thinking about how much you're willing to shrink the company additionally as well?

C. Brent Smith -- President and Chief Investment Officer

Yes, Michael. I think you just properly characterized the challenge we deal with every day when we're thinking about various aspects of what we might sell and what we might hold, obviously there's tax considerations, there's use of proceeds considerations. There's just business strategy consideration, so all of those go into each individual decision. You will see I think as the year unfolds, the decisions that we're making as we speak right now in terms of what we're going to be bringing to market. We're not prepared to announce what those are right now, but we are trying to signal that we expect it will be likely selling more than we're buying this year just because it's still a relatively challenging environment for acquisition and we do have several things we like to try to bring to market for sale. But to comment, I know, quite yet it would be a little bit premature.

Donald A. Miller -- Chief Executive Officer & Director

I think I would add, we do see a little bit more promising of a pipeline for acquisitions either marketed or off market that we could redeploy into very strategically think some assets that will come to market should provide a nice opportunity to continue with our strategy and continue to gain a concentration within specific submarkets, so please stay tuned as we progress through the year and we'll give you more detail.

Michael Lewis -- SunTrust -- Analyst

Great. And kind of a Part B to that question, I'm curious how you're thinking about New York, and maybe it's a year still too early to talk about this, but you have some New Jersey assets and then you've got 60 Broad, assuming you resign the state and the city, you talked about maximizing value of that building with long-term 15-year leases on it, maybe that becomes a sale candidate. And then do you keep a toehold in New York or do you think, since that's obviously one of your markets with a lot of competition from REITs and sophisticated investors. Do you think New York is a long-term market for you guys?

C. Brent Smith -- President and Chief Investment Officer

This is Brent, Michael, it's a good and fair point. At that point, when we -- and if we are fortunate enough to accomplish signing both the city and the state, we will definitely evaluate if it is the right time to monetize, whether that's a full stake, partial stake, ground lease, fee hold, everything in between, you -- rest assured, we'll look for the best way to monetize value for shareholders. Longer term, there actually are no other REITs that play in lower Manhattan, which would be our focus. But there are, as you noted, other larger private landlords and we'll take that into consideration as we evaluate the long-term strategy for New York. But overall, we've had very positive returns and very good success there. And we'd like to continue that at least through the New York State and New York City deals and then we can probably evaluate further.

Michael Lewis -- SunTrust -- Analyst

Great, thank you.

Operator

Okay. Our next question comes from Dave Rodgers with Baird. Please state your question.

Dave Rodgers -- Robert W. Baird -- Analyst

Yes. Good morning, guys. I don't know if this is for Don or Bob, but maybe just going back to DC leasing activity prospects in the market and can you kind of dive in, has that just been a slowdown since the government shutdown or throughout the quarter, what are you seeing between the RB corridor and kind of the B-quality assets that you have in the district itself?

Donald A. Miller -- Chief Executive Officer & Director

Bob, you want to take that ?

Robert E. Bowers -- Chief Financial, Executive Vice President and Administrative Officer

Sure. I would characterize the market as really being down here in a sense, excuse me, that absorption in 2018 was the highest level since 2010. So generally, I think it's positive and in Virginia, even more so, I think the challenge in DC is really with the new supply coming on, which is pushing vacancy rate and making it a very challenging market. On the Virginia side, I think it's much more bullish. I think there's good signs of continued growth across the market, which we'll continue to see. And so I think there is a continuing amount of activity that's pretty good in our Arlington Holdings in Virginia and I think we'll expect to see that continue to grow. Amazon will have some peripheral effect probably to the positive on that, but downtown does remain challenged and with law firms continuing to contract and the federal government moving into their own space, it makes it that much harder. So we'd like to see more activity. We'd like to see less competition, but we're day to day slugging it out in that market to fill the buildings.

Dave Rodgers -- Robert W. Baird -- Analyst

Great. And then maybe for -- oh, go ahead.

Donald A. Miller -- Chief Executive Officer & Director

(inaudible) slightly distinguish, I think you are asking about our comments in the prepared remarks, we're really getting at sort of very short-term trend movements in terms of leasing and we had some really good activity, second, third quarter of last year. It seemed to slow down later in the year. And then I think with the government shutdown, things just sort of shut down for a couple of weeks, pardon the pun. And then -- but I think Bob is really talking about longer term.

The other thing we like to point out and we mentioned in the prepared remarks is just that the good news is, although we may not be adding to our occupancy as quickly as we like to in DC all the time, we've got nothing going out the backdoor because there is just very little lease rollovers for the next five years in DC for us. So the good news is we haven't got any loss out the backdoor.

Dave Rodgers -- Robert W. Baird -- Analyst

Great, thanks. And then maybe second question either Don or Brent tackle this. Can you just talk about kind of overall lease economics in your portfolio and the leases that you've been signing and kind of how those economics are trending, both at a face rate as well as kind of the net economics on the deals?

Donald A. Miller -- Chief Executive Officer & Director

Yeah. And obviously, every quarter is a little different for us, some of it's lumpiness, some of it's just a matter of where the leases get signed. Fourth quarter, the mark-to-markets were worse than we've seen in quite some time, largely because of the relatively small quarter from a total leasing standpoint and the two largest leases that we did that fell into the same-store pool, if you will. One was in Houston and one was in Washington. So obviously two of the weakest markets that we deal in, and so the numbers were not as attractive. Having said that, when we look at our portfolio more broadly, I think we're still forecasting as rents move up in some places that we're still around 5, little north of 5% on a mark-to-market basis across the portfolio. That doesn't mean there is going to be a substantial amount of lumpiness on a cash mark-to-market basis going forward quarter-to-quarter.

Dave Rodgers -- Robert W. Baird -- Analyst

Great. I appreciate the color, thank you.

Operator

Okay. Our next question comes from Daniel Ismail with Green Street Advisors. Please state your question.

Daniel Ismail -- Green Street Advisors -- Analyst

Great, thanks guys. Good morning. Just curious as to -- as you guys continue to shrink, are there any tax implications of the upcoming sale or future sales down the road?

Donald A. Miller -- Chief Executive Officer & Director

There are no tax implications thus far, obviously other than the one special dividend we made at the end of last year. I think we ended up paying at the first quarter of 2018. That was -- that special dividend was made because we obviously had a gain that was in excess of what we need to distribute. That same thing could happen again to us if we are unable to redeploy proceeds back into 1031s or otherwise. We do have some assets that have some very large gains in them. The good news is that usually means we made a pretty good round trip transaction. So it's not a -- it's a high-class problem, but it's a problem nonetheless and so it will either be forcing into 1031 in assets or doing special distributions. Obviously, I think we prefer the former to the latter.

Daniel Ismail -- Green Street Advisors -- Analyst

And curious as to -- as you look at a disposition -- potential disposition candidates, how has pricing in your own underwriting been say year-over-year for those types of assets you guys would be looking to dispose of?

Donald A. Miller -- Chief Executive Officer & Director

So Dan, you're just asking me, of the portfolio of non-core, how does it value today versus say 12 months ago?

Daniel Ismail -- Green Street Advisors -- Analyst

Yes. Have you guys noticed, just either when you guys are underwriting these or going out, looking at the markets yourself, have you guys noticed any of these assets perform better or worse than your expectations and just how pricing has been to your point?

Donald A. Miller -- Chief Executive Officer & Director

Got you. I guess, I'd bifurcate it into two areas, the non-core that we have in Phili and Houston are single tenant, long-term lease deals. So that's not really probably something that we're generally looking to acquire. And I'd say pricing in that type of environment still is highly credit focused and is somewhat interest rate dependent. So it's been good that rates have kind of come back in over the last six months. And I'd say it's probably, pricing would continue to affirm our view of NAV for those assets, whether it was 12 months ago or today, so I wouldn't say there's any deterioration there. In terms of multi-tenanted deals, which is generally what we're chasing, I would say bidding pools have been, depending on the market and depending on whether or not the asset is down the fairway or a little bit off and so I think those that are down the fairway, smaller bidding pools, the pricing is generally held, things with here on and I think we've seen maybe back up on pricing, not dramatic, but I'd have to say in 2% to 5% range unless there's really something problematic that it can't get financed. But with the market -- with capital and debt financing being very readily, I think our own values have been affirmed overall for our view, if you look at 800 North brand and one indeed to being the most recent, I'd say that's right in line with where we expected a transaction to occur.

Daniel Ismail -- Green Street Advisors -- Analyst

Great, thanks guys.

Operator

Okay. Our next question comes from Anthony Paolone with JP Morgan. Please state your question.

Anthony Paolone -- JP Morgan -- Analyst

Thanks. Just a couple of detailed ones here, maybe for Bobby, can you you give us a sense as to CapEx budget for 2019, given potentially doing something listed in New York, and you've talked about Orlando CapEx in the past?

Donald A. Miller -- Chief Executive Officer & Director

Tony, I'll start it, Bobby's flipping through some papers as well to see if he can give you more specificity. But I think the easiest way to try to project the capital budget is to suggest that, we expect a similar amount of CapEx per square foot per year of lease turn on the leases that we're doing today. And what I mean by that is New York State, some renewal activity, et cetera on a blended basis that we would have seen over the last several years. So obviously we've ranged from upper 4s to mid 6s on a total leasing commission and TI per square foot per year of lease term. If you add all that up, I think we're going to be in that same range. So a lot of the question becomes how much leasing you get done. The simple answer is, OK, we know it's New York State or we strongly believe it's going to be New York State, and then how much more do you get done? And once you factor that in, that gets you to pretty close to what you should expect our CapEx spend to be for the year.

Anthony Paolone -- JP Morgan -- Analyst

Okay. And so then I think, just the -- where the year-end occupancy guidance is for that 93 to 94 range, that's pretty consistent. So effectively the roughly 1.7 million square feet that expires in 2019, that should be roughly about the level of activity you're kind of expecting for this year to keep occupancy pretty flat, is that fair?

Donald A. Miller -- Chief Executive Officer & Director

That's a good way of looking at it. Yes, that's pretty clever. Yeah.

Anthony Paolone -- JP Morgan -- Analyst

Okay. And then just to understand the economics on the One Independence sale, you mentioned $10 million of GAAP NOI in calendar year, I guess, 2018. Just trying to get a sense to like what the run rate or a stabilized cash looks like on that because I think in the back of a sub, the -- it sounds like the actual like economic NOI at the moment is a bit lower than where the leased rate is?

Robert E. Bowers -- Chief Financial, Executive Vice President and Administrative Officer

That's right, Tony. We've done a couple of leases at the assets. So there is a little bit of free rent still within the asset itself of One Independence. We haven't disclosed what the cap rate or implied cap rate would be for the year, but if I were to kind of say, it'd be a mid-to-low 5s, similar to an 800 North brand was, very stable asset, we're approaching over 95% leased on that and it was a unique situation where, given the government and GSA tenants, there is not a lot of cash flow growth from an NOI perspective. So given all those factors and the weighted average lease term of over eight years, you said, you know -- now we've created as much value as we probably could, and it is time to push that one out the door. And we feel like we got -- are getting great execution.

Anthony Paolone -- JP Morgan -- Analyst

Okay. So it sounds like low-5s once the cash is all up and running there and on a GAAP basis like for modeling purposes, the $10 million divided by the 170, so like 5.9 cap to take it out of our numbers?

Donald A. Miller -- Chief Executive Officer & Director

That's generally in line, maybe it's a bit high.

Anthony Paolone -- JP Morgan -- Analyst

Okay. Great, that's all I got. Thank you.

Donald A. Miller -- Chief Executive Officer & Director

Thanks, Tony.

Operator

(Operator Instructions) Our next question comes from John Guinee with Stifel. Please state your question.

John W. Guinee III -- Stifel, Nicolaus & Company -- Analyst

Great. Very nice quarter, guys. Congratulations. Talk through just where you think besides the City of New York, where do you think you can get say a cash rent bump over 10% in the major markets in which you operate?

Donald A. Miller -- Chief Executive Officer & Director

Obviously, that's a dramatic example of one. The problem, I think, John, in giving you an easy answer on that is that it really depends on when the last round of leasing was done and what level of rent it was done at. There's a number of our leases in our portfolio that will see greater than 10% cash rollups. But that's more unique to the situation of that lease than it is to the market rent. So, I mean, I think, we would share, I think the bigger question you're asking is, if you have 2% to 2.5% steps in your leases, unless rents grow by at least that amount or more plus something, you're not going to be getting a big step up in cash rents. I think guilty as charged, yes, that's true in the office space business, fairly, broadly. And so typically, we're not getting 10% plus cash rollups on deals unless there is a unique situation that are coming so far and that's pretty universal across the office space industry with maybe the odd difference of opinion on a West Coast market or the occasional situation on Midtown South or something like that. So I don't think there is very many places where you tend to see that very often.

Robert E. Bowers -- Chief Financial, Executive Vice President and Administrative Officer

I would add, John, though across the portfolio, again approximately rollups of 5% to 10%, when you blend it through the whole portfolio. So we'll have some that are above that and a few that are below that, but net-net, we should be continuing that trend line.

Donald A. Miller -- Chief Executive Officer & Director

The only thing I'd add to that, John. Sorry. You may want to ask another question. The only thing I would add to that is the two places we are seeing it right now frankly is in Boston and in Atlanta. I think we made comments on that in the prepared remarks, where we've seen very, very strong roll ups in rents in the last few years in our central perimeter submarket in Atlanta and in Burlington in Boston. And so, those two places, we are seeing a number of leases, get 10 plus percent cash rollups on deals, but I can't tell you that that's across the board, across the 16 million square foot portfolio.

John W. Guinee III -- Stifel, Nicolaus & Company -- Analyst

Got you. And then your building in Philadelphia, is that Blue Cross Blue Shield, I can't remember, how many years left on that lease and when does that go to market?

Donald A. Miller -- Chief Executive Officer & Director

That lease expires in 2033. So we have -- still have 14.5 years or so left of lease term, and as we've sort of thrust and parried on that question for number of years now, that's a building that we just feel like there is no reason to move it to market as long as it has top 10 years plus of lease term until and unless it makes sense for us strategically to do so, because frankly as with 2% plus steps and net rents and a fantastic location and a long-term lease with a good credit, we're not exactly losing value on that asset at this point in time and so it's something that we'll continue to monitor and when we think the time is right, given it's got a humongous gain on it, we will have to be thoughtful about when we bring it to market, but the answer is, there's not immediate plans to do so.

Robert E. Bowers -- Chief Financial, Executive Vice President and Administrative Officer

I'd add John, with that building, a CBD location, the way Blue Cross Blue Shield has created, a campus there, an urban campus that asset will be highly liquid and sought after credit rated or credit like entity. So we feel pretty good about the liquidity and we'll monetize it at the right time and redeploy those proceeds.

John W. Guinee III -- Stifel, Nicolaus & Company -- Analyst

Makes a lot of sense. Okay, thanks.

Operator

Okay. Seeing no further questions, I would now like to turn the call back over to Don Miller for closing remarks.

Donald A. Miller -- Chief Executive Officer & Director

Thank you, operator. Just to wrap up, and I think I mentioned something in the call that I'd like to reiterate that is that we are seeing a lot of really good leasing activity across our portfolio right now. Obviously, you never know whether those things will translate into confirmed and signed leases. But obviously state, city in New York is a big chunk of square footage. But overall, we're working on 1.5 million, 2 million square feet of either letters of intent or active negotiations. Much of that could fall apart still, but the answer is, we're really excited about how much has got going and combine that with the amount of vacant space leasing we did last year. And I think that's why you're seeing some still embedded growth in the portfolio, despite the fact that we're net sellers. And so we continue to remain very optimistic and very positive about the platform for the company going forward. And thank you for joining us today.

Operator

Thank you. This concludes today's conference call. We thank you for your participation. You may disconnect your lines at this time and have a great day.

Duration: 43 minutes

Call participants:

Robert E. Bowers -- Chief Financial, Executive Vice President and Administrative Officer

Donald A. Miller -- Chief Executive Officer & Director

C. Brent Smith -- President and Chief Investment Officer

Barry Oxford -- D.A. Davidson -- Analyst

Michael Lewis -- SunTrust -- Analyst

Dave Rodgers -- Robert W. Baird -- Analyst

Daniel Ismail -- Green Street Advisors -- Analyst

Anthony Paolone -- JP Morgan -- Analyst

John W. Guinee III -- Stifel, Nicolaus & Company -- Analyst

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