Parkway Properties' (PKY) CEO Jim Heistand on Q4 2015 Results - Earnings Call Transcript

| About: Parkway Properties (PKY)

Parkway Properties Inc (NYSE:PKY)

Q4 2015 Results Earnings Conference Call

February 09, 2016, 9:00 am ET

Executives

Jeremy Dorsett - Executive Vice President and General Counsel

Jim Heistand - President, Chief Executive Officer, Director

Jayson Lipsey - Chief Operating Officer, Executive Vice President

Jason Bates - Executive Vice President, Chief Investment Officer

David O'Reilly - Chief Financial Officer, Executive Vice President

Analysts

Craig Mailman - KeyBanc Capital Markets

Jamie Feldman - Bank of America

Manny Korchman - Citi

Alexander Goldfarb - Sandler O'Neill

John Guinee - Stifel

Tom Lesnick - Capital One Securities

Brendan Maiorana - Wells Fargo

Dick Schiller - Robert W. Baird

Rich Anderson - Mizuho Securities

Michael Bilerman - Citi

Operator

Good morning and welcome to the Parkway Properties fourth quarter 2015 earnings conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Jeremy Dorsett, Executive Vice President and General Counsel. Thank you, Mr. Dorsett. You may begin.

Jeremy Dorsett

Good morning and welcome to Parkway's fourth quarter 2015 earnings call. With me today are Jim Heistand, President and Chief Executive Officer, David O'Reilly, Parkway's Chief Financial Officer, Jayson Lipsey, Chief Operating Officer and Jason Bates, Parkway's Chief Investment Officer.

Before we begin, I would like to direct you to our website at pky.com, where you can download our fourth quarter earnings press release and supplemental information package. The earnings release and supplemental package both include a reconciliation of non-GAAP financial measures that we discussed today to their most directly comparable GAAP financial measures.

Certain statements made today that are not in the present tense or that discuss the company's expectations are forward-looking statements within the meaning of the Federal Securities Laws. Although the company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, we can give no assurance that these expectations will be achieved. Please see the forward-looking statements disclaimer in Parkway's fourth quarter earning press release for factors that may cause material differences between forward-looking statements and actual results.

With that, I will now turn the call over to Jim.

Jim Heistand

Thank you for joining us today. I am pleased with our fourth quarter results as they reflect our ability to adapt to changing market conditions while continuing to execute our long-term investment, operational and financing strategy. Over the last 12 months, we have witnessed the continued strengthening of our office fundamentals across the majority of Sunbelt market and specifically our core submarkets, highlighted by positive net absorption and healthy rent growth. The one market that has deviated from the spread has been Houston, which continues to face headwinds was associated with the protracted slump in crude oil prices.

We have been very effective throughout the year in navigating this environment and have transformed the portfolio accordingly. Since January 2015, we have executed a successful capital recycling program, which has resulted in the sale of 20 assets totaling $624 million or $500 million at Parkway's share. These assets include a combination of non-core and legacy Parkway assets including seven legacy Houston assets and more recent acquisitions that we believe we have maximized value and generated outside risk-adjusted returns.

We sold the seven legacy Houston assets for an aggregate gross sale price of $179 million and have reduced our footprint in the market by approximately 1.3 million square feet. With the sale of the 300 Memorial and Town & Country completed subsequent to the end of the fourth quarter, our Houston portfolio is currently 3.1 million square feet and represents approximately 22% of our total portfolio.

While the increased competition for assets in our market has impacted the pace of our acquisitions as compared to previous years, we did acquire three assets in 2015 that firmly fits within our proven investment strategy. Through the acquisitions of One and Two Buckhead Plaza in Atlanta and Harborview Plaza in Tampa, we have gained additional scale in two key submarkets at pricing that we believe provides a clear there opportunity to unlock additional value than we thought.

Amidst an active year of capital recycling, we have continued to achieve impressive operating results. The highlights include leased a total of 2.77 million square feet in 2015 and our non-Houston market have delivered superior leasing results highlighted by approximately 19% year-over-year growth of leasing. Total new leasing for the year was executed at an average rate of $34.25 per square foot, an increase of 5.6% versus the average rate achieved in 2014.

We completed 1.6 million square feet of renewal leasing in 2015, leading to full-year customer retention of 78.3% and a 2.5% increase in the expiring rate. Our weighted average in-place rent for the portfolio was $32.27 per square foot at year-end, a year-over-year increase of over 12%. Our portfolio is now 92.7% leased. Not only is this an increase of over 270 basis points from the fourth quarter 2014, but it's an all-time high for this portfolio.

We also have continued to strengthen our balance sheet. Since the beginning of 2015, we have paid off approximately $153.7 million of secure debt at a blended cash interest rate of 6.1% which has improved our cost of capital. We ended the year with a net debt to EBITDA got ratio of 6.4 times, down 20 basis points quarter-over-quarter and back within our stated leverage range. Looking forward, we will continue to constantly evaluate the portfolio and identify opportunities to recycle capital, albeit at a slower pace. In particular, we will focus on the sale of a few remaining non-core legacy assets including an eventual exit from Philadelphia.

While the acquisitions market has become competitive, we will continue to be proactive and creative in our approach to identify select opportunities in our core submarkets. We may also pursue development opportunities in core submarkets such as the Charlotte CBD and Tempe. From an operational perspective, we believe we are well positioned to continue to drive favorable returns.

With the portfolio at 92.7% leased, we are focused on leasing up the few remaining vacancies in our portfolio, specifically the BMC space at CityWestPlace in Houston and our corporate center assets in Tampa. On renewal plans, we intend to continue to deliver strong customer retention levels and take advantage of the positive 11% and 7.8% at share mark-to-market spread that exists on 2016 and 2017 expirations respectively.

Lastly, we intend to further strengthen our balance sheet and lower our cost of capital by using proceeds from our recent dispositions to pay off cumbersome secured debt including $162.5 million in mortgage notes on Lincoln Place in CityWestPlace buildings One and Two that matured this year with beared weighted average interest rate of 6.1%.

In closing, due to the successful execution of our investment, operational and financing strategies in 2015, our portfolio currently consists of best-in-class assets in the strongest submarkets in the Sunbelt and we believe this portfolio, supported by Parkway's conservative balance sheet, is well-positioned to withstanding any near-term headwinds while simultaneously unlocking the considerable value that remains embedded within our portfolio.

Now with that, I will turn the call over to Jayson Lipsey to give an update on operations.

Jayson Lipsey

Thank you, Jim. The improvement in market conditions across our portfolio supported our intensive operational performance in 2015. In a recent report, CB Richard Ellis confirmed the improvement in market conditions in certain of our core submarkets. Specifically, CBRE reports that the Austin market recorded approximately 560,000 square feet of positive net absorption during the fourth quarter that closed on a record year that totaled 2.1 million square feet of net absorption.

The Tempe submarket of Phoenix, where we delivered our Hayden Ferry III development in the third quarter witnessed a 10.6% year-over-year increase in Class A market rates while market vacancy is below 2.6% at year-end. In Charlotte, office market vacancy closed the year at 8.3%, the lowest rate recorded in 15 years with total vacancy in the CBD submarket down 6.2%.

The one exception, of course, has been Houston as the staying low oil prices continue to negatively affect our office market fundamentals. With respect to Houston, CBRE reports that excluding build to suit and single tenant deliveries, the Houston market realized approximately 1 million square feet of negative net absorption for 2015 compared to 5.5 million square feet of positive net absorption in 2014. The Class A Houston market delivered 11.6 million square feet of new office space during the year, which was approximately 38% preleased. An additional 6.7 million square feet is expected to come online in 2016.

And lastly, office lease rates were up modestly during 2015. However, this was primarily driven by new deliveries executed at high rates and limited price discovery. When yields are up, it eventually picks up in Houston. We believe this will result in a decline in average market lease rates and increased concessions.

As we expect headwinds in Houston to persist, we are focused on continuing to manage our portfolio effectively. We are leveraging public and private information to closely monitor the credit of our tenants. Additionally, the completed disposition of seven legacy Houston assets totaling approximately 1.3 million square feet since January 2015 had materially lowered the risk profile of the portfolio that will enable us to concentrate on our three remaining best-in-class Houston assets, Phoenix Tower, San Felipe Plaza and CityWestPlace.

By comparison, the average in-place rent at the seven Houston assets we recently sold was $24.50 per square foot while the average in-place rent at our three remaining assets in Houston was $36.62 per square foot. Therefore, we have you taken the appropriate steps to strengthen our position in Houston.

Further, the combination of strong leasing gains during 2014 along with the sales of legacy assets has minimized our near-term Houston expirations. Adjusting for the sale of 5300 Memorial and Town & Country as well as excluding the BMC moveout at CityWestPlace our pro forma 2016 Houston expirations totaled 190,000 square feet, which represents 6.2% and 1.4% of our Houston and total portfolio, respectively and a positive mark-to-market of 8.8%. Looking out to 2017, our pro forma expirations totaled 332,000 square feet, which represents 10.8% and 2.4% of the Houston and total portfolio, respectively and a positive mark-to-market of 16%.

Turning to fourth quarter operational performance for the total portfolio, we completed 631,000 square feet of total leasing. Fourth quarter leasing activity was executed at an average rate of $31.55 per square foot which represents a 2.1% increase in gross lease rates compared to our fourth quarter trailing average. Total leasing activity during the fourth quarter was done at an average cost of $5.32 per square foot which represents a 14% decline in leasing costs from the third quarter.

During the fourth quarter, we completed 214,000 square feet of new leasing, representing a 47%, quarter-over-quarter improvement in new leasing velocity. New leasing activity was executed at an average rate of $39.72 per square foot, which is not only an increase of $5.77 per square foot from the third quarter and it is also the highest rate achieved on new leases on record in Parkway's history. New leasing during the fourth quarter was executed at an average cost per square foot of $8.14. Given the all-time high new leasing rates achieved during the fourth quarter, we effectively reduced Parkway's concession ratio on new leases quarter-over-quarter by 290 basis points to 20.5%.

Our strong quarter of new leasing was driven by healthy lease economics within our Austin portfolio. Fourth quarter leasing was led by an eight-year 47,000 square feet lease with Main Street Hub at One Congress Plaza. Our current redevelopment of a lobby in outdoor plaza area at this asset is a driving factor in deal terms as we were able to achieve an additional $3 per square foot rate contingent on the completion of project. The Main Street lease validates the returns that we expect to generate upon the transformation of One Congress Plaza. As a result of the Main Street lease as well as approximately 44,000 square feet of new leasing during the quarter at San Jacinto Center, our Austin portfolio was approximately 95% leased as of January 1, 2016, an improvement of approximately 13 percentage points from occupancy levels a year ago.

We also realized strong leasing gains in Atlanta, specifically at our recently acquired One and Two Buckhead Plaza assets. We completed a total of 73,000 square feet of leasing at the two properties during the quarter, which included new leases that were executed at $40 per square foot gross rate compared to the weighted average of gross in-place rent at the two assets of $31.50 per square foot. Leasing at these assets was highlighted by the successful completion of a 45,000 square feet renewal of Raymond James at Two Buckhead, where we were able to unlock value by capitalizing on the positive mark-to-market.

Turning to renewals for the quarter. We completed 345,000 square feet of leasing, which resulted in strong customer retention of 81.9%. Fourth quarter renewal leasing was executed at an average rate of $27.97 per square foot which represented a negative cash renewal spread of 6.3%. This roll down was primarily driven by renewals in Jacksonville, Orlando and Tampa that were originally long-term leases and newly impacted annual rent bumps in these leases, in-place rent growth had exceeded market rate growth in these markets. These renewals represent a weighted average of 7.3 years in terms and were executed on average at market rate levels.

Average leasing costs on fourth quarter renewals totaled $6.90 per square foot which represents a quarter-over-quarter decline of approximately 27%. The impact of leasing gains and rent growth continues to drive outperformance within our same-store pool of assets. Specifically, we realized 6.3% growth in recurring year-over-year GAAP NOI at share. On a cash basis, recurring same-store NOI increased by 10.2% at share during the corresponding period.

Turning to occupancy. As of year-end, the portfolio was 90.7% occupied which is not only a quarter-over-quarter increase of 70 basis points but an all-time high for this portfolio. The portfolio is now 92.7% leased, another portfolio record and an improvement of 100 basis points compared to the previous quarter. We are increasing our full year 2016 occupancy guidance range to 91% to 92%. This increase is entirely a result of U.S. Airways' decision not to exercise its early termination option for its 225,000 square feet lease at the U.S. Airways' building in Tempe.

Finally, as a reminder, our 2016 occupancy guidance range includes the impact of BMC's pending moveout at CityWestPlace during the first quarter.

I will now turn the call over to Jason Bates to discuss our investment activity.

Jason Bates

Thanks Jason. As we covered a good amount of our recent investment related activity on our last call, I will be brief in my recap.

On October 1, we completed the purchase of Two Buckhead Plaza, a 210,000 square feet office building that is directly adjacent to our existing One Buckhead Plaza asset. We acquired the asset for a gross purchase price of $80 million and assumed a $52 million first mortgage shared by the property. Against the backdrop of increasing competition for quality assets in our markets, we are pleased with the execution of our 2015 acquisition, which totaled three assets for an aggregate gross purchase price of $286 million. Our 2015 acquisitions perfectly fit within our submarket investment strategy that allowed us to increase scale within the Buckhead, Atlanta and Westshore, Tampa submarket at attractive economics.

We will continue to pursue acquisition and development opportunities with joint venture partners or otherwise that provide us additional scale and economic advantages within our core submarkets and offer us the appropriate risk return profile. We have entered into a joint venture agreement with an affiliate of Crescent Communities for the opportunity to develop an office building in the Charlotte CBD and as Jim mentioned, we may pursue other development opportunities in other core submarkets such as Tempe. We will only move forward on development projects that we achieved desired preleasing and anticipated return levels as we did in the Hayden Ferry III project in Tempe.

Turning to dispositions announced since last quarter conference call. On December 23, we completed the sale of Millenia Park One, a 157,000 square feet office building located in the Millenia submarket of Orlando. When we originally purchased this asset in 2014, we intended to build scale within the Millenia submarket consistent with our general investment strategy. We were not able to gain critical mass within the submarket and decided to take advantage of the strong demand for high quality assets in Orlando and monetize our investment. We recognized a gain on the sale of Millenia Park One of approximately $3.5 million.

Subsequent to quarter-end, we completed the sale of 5300 Memorial and Town & Country, two Legacy Parkway Houston assets for an aggregate gross sales price of $60 million. With the completion of the sale of these two properties we have disposed of seven Houston assets since the beginning of 2015 for an aggregate gross sale price of $179 million. As a result of these three sales, we lowered the total size of our Houston portfolio by 1.3 million square feet or approximately 30%. While we remain committed to the long-term viability of Houston, we believe the sale of these legacy Parkway assets is consistent with our stated strategy of continuing to prune non-core assets and repurpose proceeds. It will allow us to focus our attention on our remaining three best-in-class Houston properties. This brings our total dispositions since January 2015 to 20 assets for an aggregate gross sales price of approximately $624 million, of which $500 million is Parkway share, representing a gross blended cash cap rate of approximately 6.5% and 6.9% at share.

Looking forward, by the end of the second quarter, we expect to sell Two Liberty Place, a 941,000 square feet asset located in the Philadelphia CBD that is owned in Parkway's Fund II, in which Parkway has a 19% ownership interest. Once the disposition is completed, we will have successfully turned over approximately 90% of the portfolio that was in place at the time of the Eola merger, leaving only three Legacy Parkway assets in the portfolio, the Stein Mart Building in downtown Jacksonville, 3350 Peachtree located in the Buckhead submarket of Atlanta and Citrus Center located in the Orlando CBD.

Finally, on February 5, 2016, we completed the previously announced sale of our 80% interest in Courvoisier Centre, a 343,000 square feet office building located in the Brickell submarket of Miami at a gross asset value of $175 million or $510 per square foot which represents a cash cap rate of approximately 4.1%. As part of this newly formed joint venture, we will retain a 20% interest in the asset and will continue to perform the property management and leasing services at the asset.

Concurrent with the sale, the joint venture closed on a 106.5 million first mortgage note, which has a fixed interest rate of 4.6%, matures in March 2026 and is interest only through the maturity. Recapitalization of Courvoisier Centre resulted in $154.3 million in net proceeds to Parkway.

I will now turn the call over to David to give an update on financial results.

David O'Reilly

Thanks Jason. We completed the fourth quarter with FFO of $0.34 per diluted share. Our FAD during the fourth quarter was $0.13 per diluted share. Our fourth quarter FFO was impacted by $1.9 million or $0.02 per diluted share in one-time charges.

There were nonrecurring items that I would like to mention. First, we incurred of $503,000 charge related to the prepayment fee associated with paying off in full a loan secured by 5300 Memorial and Town & Country that totaled $17.2 million. Second, we incurred a realignment expense of $520,000 primarily related to severance payments made in conjunction with rationalizing our staffing in light of our reduced portfolio size. Lastly, we incurred $1.3 million in acquisition cost primarily associated with our purchase of Two Buckhead Plaza which closed on October 1.

Our full year 2015 FFO was $134 per diluted share. Our reported FFO for the full year includes a number of one-time charges totaling $5.4 million or $0.05 per diluted share and includes in addition to the fourth quarter one time charges that I just mentioned, $4 million related to the prepayment of high cost secured debt and $768,000 in acquisition costs, which are all partially offset by other nonrecurring items.

Lastly, our FAD for the full year was $0.61 per diluted share. We have provided a reconciliation of FFO, recurring FFO and FAD to net income on page nine of the supplemental report.

Our net debt to adjusted EBITDA ratio closed the quarter at 6.4 times, down 20 basis points from the previous quarter and now within our stated range of 5.5 to 6.5 times. Adjusting for the $60 million sale of 5300 Memorial and Town & Country and the $175 million recapitalization of Courvoisier Centre as well as BMC's expected moveout of 303,000 square feet at CityWestPlace during the first quarter of this year and the expected sale of Two Liberty Place in the second quarter, our pro forma net debt to adjusted EBITDA multiple would be 6.1 time.

Our successful capital recycling program has allowed us to opportunistically retire cumbersome debt, lower our cost of capital and strengthen our balance sheet in the following ways. Our weighted average GAAP interest rate closed the year at 3.5%, down 40 basis points year-over-year and 10 basis points from the third quarter. Our interest coverage ratio ended the fourth quarter at four times, up from a year-over-year level of 3.8 times. Our fourth quarter annualized unencumbered pool NOI has increased by $11.8 million year-over-year to $76.9 million and currently represents over 41% of our total NOI versus 30% a year ago.

As Jim briefly mentioned, in the second quarter, we plan to pay off $162.5 million of debt secured by Lincoln Place in Miami and CityWestPlace buildings One and Two in Houston with the net proceeds from the sales of 5300 Memorial, Town & Country and Millenia Park One as well as the recapitalization of Courvoisier Centre.

Lastly, we currently have zero balance on our $460 million revolving credit facility. And with the expected repayment of the secured debt referenced earlier, we will have an unencumbered asset base that could support over $250 million of additional borrowings. With the anticipated repayment of both Lincoln Place and CityWestPlace One and Two, we will have only $335 million of maturities for 2017. We believe that the combination of our investment grade rating, reduce leverage and substantially increased borrowing capacity gives us tremendous flexibility in addressing these maturities.

Turning to guidance. We are adjusting our previously updated full-year 2016 FFO range to $1.20 to $1.31 per share. The midpoint has come down by $0.07 per share to reflect both the recurring impact from reduced NOI resulting from our recently completed dispositions and the expected sale of Two Liberty Place as well as the one-time interest expense impact of the early repayment of the mortgage debt secured by Two Liberty Place.

We have provided updated guidance ranges for the underlying assumptions related to our 2016 FFO outlook in our fourth quarter press release, but there are a few changes I would like to highlight. First, we have lowered the midpoint of our full-year recurring cash NOI guidance by $7.5 million to account for $88.2 million in the completed dispositions of Millenia Park One, Town & Country and 5300 Memorial as well as the expected sale of Two Liberty Place. Second, we have lowered our full year G&A expense by $500,000 at the midpoint to reflect our efforts to better align G&A with our reduced portfolio. Third, we expect to incur a nonrecurring charge of approximately $2.2 million at share related to the early prepayment of debt on Two Liberty Place.

The impact of this increase in interest expense is partially offset by expected reduction in recurring interest expense as a result of the debt payoff and proceeds from asset sales that will reduce our projected credit facility balance for the remainder of the year. Beyond the expected sale Two Liberty Place, we have not assumed in our guidance any speculative acquisitions, recapitalizations or development activity, nor any additional dispositions or capital raising activity.

With that, I thank everyone for joining us and turn the call back over to the operator to open it up for Q&A.

Question-and-Answer Session

Operator

[Operator Instructions]. Our first question is coming from Craig Mailman of KeyBanc Capital Markets. Please proceed with your question.

Craig Mailman

Hi. Good morning, guys. Jayson, maybe we could just start with the BMC space, maybe an update of what traffic could look like there and just some updated thoughts on what you guys are looking for from a pricing concession standpoint, given your comments about potentially having a decline in rents and higher concessions later in the year?

Jayson Lipsey

Good morning, Craig. I think our pipeline still remains relatively full at BMC. I think that we haven't even gotten the space back. We expect to get it back this quarter at which point it will actually help our leasing process. Very hard to show space that's occupied. But we have prospects. I think we had a handful of serious prospects. I would say, generally leasing in Houston is slower today. Things are not moving nearly as quickly as they were a year ago.

So I don't expect that any of those prospects are going to move particularly quickly. But as expected, it is a best-in-class asset. We are making all the tour lists and I think that the campus is compelling enough that we are attracting a variety of users from various other submarkets outside of the Westchase submarkets. So generally the pipeline is really good.

There has not been a ton of pricing discovery in the market. So it's hard to say where the market is on a spot basis today, but my expectation would be, free rent disappeared from Houston. I would expect that free rent is back in the range of a month per year lease term. I would expect that we would be getting a relatively full TI package, which is probably the order of $5 a square foot of lease term.

And I think that while we have been expecting $28 net rates and I think we have got some deals in the pipeline that supported those rates in CityWest today, we want to be ahead of the market right now. So I think that we will meet the market in terms of where the market rental rates are.

Jim Heistand

Hi Craig. This is Jim. Just one of the reasons we remain long-term bullish on the asset is, this asset's historical occupancy has always been in the high-90 through a number of cycles. As you all know, it's a unique amenity rich campus that's hard to replicate. So while we expect it to go slower, we think this will outperform the broader market.

Craig Mailman

Okay. That's helpful. Then I guess, Jim, for you. Your stock price is basically giving you guys almost no value, probably no value.

Jim Heistand

Negative value.

Craig Mailman

Negative value. If you guys do get the BMC space buttoned up in 2016 and you still continue to trade like this, does it makes sense to just dump Houston, now that any negative pricing expectations are already more than built into the stock and then just use proceeds to continue to delever or buyback stock?

Jim Heistand

I think, Craig, here is how we are looking at it. Obviously we are aware of the Houston exposure and the drag it has on our stock. I think as we look at it, the one asset that we would look to maybe do something this year, we could have some incremental leasing at Phoenix Tower that I think could position it for a sale this year. And if we were, that brings the exposure down to 18%.

And then if you think about, so what would be left, that will be San Felipe and CityWest which in our view are extremely high-quality assets that we think will over time outperform the market. And then if you assume that anything that we do incremental, we are not assuming large incremental acquisitions or potentially development, but anything that we would do would be outside of Houston that would naturally bring down the percentage of the company's ownership in Houston.

So now with that said, if we lease that up and there's opportunities to extract good value for that, we would consider anything, but what I am not intending to do is to dump a really high quality asset at the wrong time in the market, in my view.

Craig Mailman

Okay. Thank you guys.

Jayson Lipsey

Thanks Craig.

Jim Heistand

Thanks Craig.

Operator

Thank you. Our next question is coming from Jamie Feldman of Bank of America. Please proceed with your question.

Jamie Feldman

Thank you. Good morning. Can you talk about what you are seeing in the investment sales market? You have been pretty active sellers. Just what's the buyer appetite like? What kind of financing they are using? And in any changes since late last year and early this year with all the market volatility?

Jason Bates

Hi Jamie. This is Jason Bates. I would tell you that the demand is probably best described as choppy right now. The high-quality assets don't seem to have a home with a lot of demand from the more core capital sources. For some of the more marginal product, sort of word on the street that I have been hearing from the brokers and we have seen firsthand as we sold through some of our lower quality assets were, the buyer list were a little thinner. The bid sheets were a little thinner. The pricing seemed to hold up okay, but certainly the back half of the year was a choppy market. And as we headed into 2016 here with lenders getting new allocation it seems to have smoothed a little bit, but I wouldn't call the demand across the board robust. I think it's still pretty targeted.

Jim Heistand

And the debt market, Jamie, is a little bit bifurcated in that, as Jayson mentioned, the new allegations are coming in with the insurance company lenders and the portfolio lenders, but the volatility that's come in and stayed within the CMBS market has made borrowers who use that market less aggressive in their pursuit of new acquisitions.

Jason Bates

With that said, Jamie, we have got great pricing, great proceeds on the Class A debt that we displaced, but that was in real time.

Jamie Feldman

Okay. And then I guess a similar macro question on the leasing market. Your Sunbelt markets are probably a little bit more protected from market volatility at least two years. Just what are you guys seeing on the leasing side in terms of decision-making and to throwing it all and walking away from deals?

Jayson Lipsey

Jaime, we have not seen ant slowdown in our leasing velocity. The pipeline remains pretty full at this point and that's on less vacancy. The two big areas where we need to make a lot of progress this year are in Houston, which we already talked about and Tampa. And in Tampa specifically, the pipeline remains very full. In fact, I would say recently we have seen a pickup in activity in Tampa. So generally fundamentals are very, very good. I think that the caveat is that's for our portfolio, which is best-in-class assets in the best submarkets, but we have not seen any decline in activity or interest-earning deals getting pulled.

Jamie Feldman

Okay. Can you talk a little bit more about Corporate Center and the leasing upside there and what you think you could do in terms of timing?

Jim Heistand

Well, again the pipeline is very full for those buildings. We actually have the largest block of vacancy in the Westshore submarket which continues to perform very well. So the interest has been good. I would love to say that there is some stuff to announce on this call, but it's a little premature, but I do think that the deals we have in the pipeline are going to help us make considerable progress in 2016 backfilling the vacancy that we have. So that the activity is there, we just need to convert some of these deals.

Jamie Feldman

What's in your guidance for those buildings?

Jim Heistand

That's a good question. I think that we have got in our guidance here, just from memory, it's probably about, call it, 40,000 or 45,000 square feet of net absorption is in those buildings.

Jamie Feldman

Okay. And then finally, Jim I missed it, I think you said what you got the mark-to-market in the portfolio was when you started your comments?

Jim Heistand

I don't know. Did I?

Jamie Feldman

I thought I heard something, unless maybe that's what I missed, but you never actually said it.

David O'Reilly

Yes. The mark-to-market on the expirations, Jamie, is on page 30 of the supplemental. In 2016, --

Jim Heistand

Sorry --

David O'Reilly

The share price.

Jim Heistand

As you thought, 11% in 2016 and 7.8% in 2017.

Jamie Feldman

Okay. And then what would GAAP leasing spreads have been in the quarter?

Jim Heistand

They have been about flat, Jamie. I think on a GAAP basis, when we reported it as cash and I think it's probably worth going into a little detail because I know I read in your note that it was an area that you wanted to talk about. I think that is there are a couple of overarching comments.

The first is that all of the renewal leasing we did during the quarter, in my thinking, was very positive leasing. And all of it was done, in my opinion, at or above market rates. This is just a little bit of an anomalous quarter in that we happened to have a few material leases in Florida that were long-term leases in the order of sort of 10 years that had escalated 30% or so from when they were struck with reimbursement revenue on top of that and so we marked them to market, they would just roll down.

I think probably the most notable example I can give you of that is a renewal and expansion we did in Jacksonville with Fidelity. We did the deal at market rate which is consistent with our embedded growth rate that we reported in supplemental. It was a 100,000 square foot renewal, 50,000 square feet expansion. It necessitated a relocation of an existing customer from Deerwood into another one of our buildings in the Deerwood submarket. And so overall really fantastic deal. It just had a negative mark-to-market because it was a 10 year lease and it was rolling down to market from a very above market escalated rent.

Jamie Feldman

Okay. Great. Thank you.

Jim Heistand

You got it.

Operator

Thank you. Our next question is coming from Manny Korchman of Citi. Please proceed with your question.

Manny Korchman

Hi. Good morning everyone. In response to the previous question, you said that you wouldn't want sell the asset at the wrong time in the cycle. Can you quantify how big an impact that wrong time is right now? So have cap rates moved up by whatever basis points? Or is it because you have to sell vacancy? How are you thinking about that comment?

Jim Heistand

Are you talking specifically about Houston?

Manny Korchman

Yes. I think that's what you were talking about when you made the comment.

Jim Heistand

Yes. That's correct. We understand how the exposure to Houston has been a drag on the stock, okay. Yet the flipside is, as we look at the basis we have in the assets that I talked to about keeping San Felipe and CityWest and we look at the rental rate both today and where we think things will settle out, those are still very good metrics on those asset based on our basis. And so what I am saying is, I would be reluctant on those two assets to go to sell those at anything maturity below our basis given the economics we still think we can achieve in those assets.

Phoenix Tower, as you know, once Cousins bought the rest of the Greenway, we stated early on that it wasn't part of our long-term strategy because we couldn't get anymore scale in that market. We had looked to monetize that. So that asset, we think, is a bit different. And so to the extent we can add some incremental leasing and get valuations that we think are appropriate, again for the lease rate we have in there, we would look to dispose of that. So that's kind of how I am looking at it and hopefully that answers your question, but would be happy to speak more if it doesn't.

Manny Korchman

Have you seen an actual move in cap rates in Houston?

Jim Heistand

Well, there hasn't been that many trades in the market. We sold some of our very low-quality legacy Parkway assets, I will ask Jason, the cap rates for those in Houston blended?

Jason Bates

Somewhere between a 7.5% and 8.5% cap generally.

Jim Heistand

That's right. Clearly, those are things we were selling regardless of what the price of oil was. And there has been some of the bifurcation. There has been some very high quality with longer-term credit leases that have still gone for cap rates in fives there. So there hasn't been a lot of price discovery on quality asset that we sit here today. So our view is, if we can make some incremental leasing in Phoenix Tower, we are going to find out what the pricing would be on that. And if it's within a range that we think is appropriate, we will execute a sale.

Manny Korchman

And then just going back to BMC for a second. Let me ask it sort of bluntly. If you were to lower the rate, would you get a lease signed? Or is it just a matter of a lack of classical demand?

Jim Heistand

I think what we are seeing right now, Manny, is there is just not a ton of leasing velocity in the market. I think that the trajectory of leasing velocity is increasing. But we are starting from a very, very low base right now. And so I think that, to my earlier comments, we will meet the market at CityWestPlace. I do think that the buildings are best-in-class. I think we will fetch the highest rates in the market. But right now, we are very focused on mitigating the vacancy of the building. And so I would expect that rates are going to come down as leasing velocity increases. So I don't think that I could drop rate to a really low level right now and have any dramatic increase in velocity.

Manny Korchman

Great. Thanks guys.

Jim Heistand

Thanks Manny.

Operator

Thank you. Our next question is coming from Alexander Goldfarb of Sandler O'Neill. Please proceed with your question.

Alexander Goldfarb

Hi. Good morning down there. I think in your opening comments you talked about a JV with Crescent to do a development in Charlotte and then mentioned a potential for development in other markets. Can you just give some more color on the Charlotte JV? And sort of curious, especially with where the stock is, one, how you would be funding it? And two, how that fits into, I think what investors would like, which is to see occupancy in the portfolio move up, so how a development project would help sort of achieve that goal for investors?

Jason Bates

Hi Al. This is Jason Bates. I would say, we secured the opportunity to participate when and if the time is right on terms that we would find acceptable. So I don't know that this is something that I would characterize as that we are plowing into on a speculative basis or anything of that nature. It's going to be an opportunity, if and when the time is right that we would collectively pursue that. As we think about development and where that fits, as we have talked about it in the past, it's furthering of all the investment strategy for the high-quality portfolio that we want to continue to build and it would be incremental in that fashion.

Jim Heistand

It would be incremental into the submarkets we already have some dominance. So what we would be looking to do is, in Tempe, as you know, we have got five buildings that are all full, an incremental development there at yields that we think the investors would be pleased with no different in Charlotte and that both of our buildings are literally almost 100% full. And so to the extent we had a substantial prelease that gave us outsize returns with a high-quality asset, we think that would be additive. And what we did is, not buy the land, the owner in Charlotte owns the land and we are contributing some money for redevelopment and it's basically given us the options as we think there is a possibility that could occur.

To your earlier comment, Al, we have continued to increase occupancy. If you look at where we are right now, all of our markets, but Houston and Tampa, are in the 90s and many cases high-90s. So we are very focused on continuing to grow occupancy. And given the static nature of the portfolio, if we sit here today with less opportunities, that occupancy will become to be more evident as we continue going forward.

Jason Bates

Yes. Al, to address your point on funding, that is something that we obviously need to sell fund at our current stock prices. Using our current debt to fund the development is not in the cards. As I mentioned on the prepared remarks, we are down to 6.1 times, both pro forma to the announced sales, including Two Liberty and also assuming our for the moveout of BMC. So if you are making sure if we are going to make pro forma adjustments, we are fair on both sides of the ledger. Undrawn facility, $250 million in addition to our undrawn $460 million facility of our borrowing base capacity. So we have the ability to do it.

To the extent that we are going to keep this on a net neutral basis, we would have to sell further a low growth asset to reinvest into a high growth, high value creation development opportunity. If we do it right and if we are able to do it like we did with Hayden Ferry III, it will come into the portfolio at 90% leased and be a drain to our short-term reported supplemental occupancy. But as you know, we are going to make long-term decisions that create the most value for our shareholders and not focus as much on what shows up in next quarter supplemental.

Alexander Goldfarb

Okay. But I guess getting to that point on the occupancy, if we just look at page 30, it seems like in addition to Houston there are other markets that are around 90 or in the 80s. And just it would seem like to the extent that you guys can really boost those numbers and clearly you deliver great job on the leasing front, it seems to be that's the biggest potential for value creation. So that was --

Jason Bates

Alex, I would encourage you to look at not just page 30, but to also go back a page to 29 and look at the percentage leased as it relates to the same building. Probably the most notable example is in Austin where we are showing 82% occupied but about 95% leased across those buildings. So really there is only two holes left, which is Tampa and Houston and trust me, we are focused every single day on filling those vacancies.

Jim Heistand

Yes. And let me say this. Given the amount of transaction volume this team has done over the past four years as well as the amount of leasing that's been done, given all of the value-added acquisitions, I don't think by having a one or two potential development is in any way, shape or form going to reduce our ability to continue to lease.

Alexander Goldfarb

Okay. I appreciate that. Next is, on G&A. David, the $500,000 in reduction, do you think there is a potential for more? Or is that sort of a minimum to maintain the platform?

David O'Reilly

No. I think there is the opportunity and a hope that we have the ability to continue to keep that in check and continue to reduce that throughout the year. We are very reluctant when it comes to our unique capital at Parkway in terms of having to let folks go. We value our employees very much. And finding good people is incredibly difficult and some of the changes we made over the past 90 to 120 days were difficult ones as we have to balance, keeping good people for the possibility of growing the portfolio in the future versus running a slightly higher G&A and it's a tough decision here but one we felt like we had to make as the prospects for new acquisition and growth is getting smaller and smaller, given the market conditions that we see. We do think there is additional room to trim and we are hopeful that over the coming quarters we are going to be able to continue to bring that down.

Alexander Goldfarb

Okay. And then just a final question for Jason. On your tenant watchlist, has anything changed in the past six months? Have you gotten concerned about potential for more sublease space or any of your tenants having business trouble? Or is everything pretty much the same now as it was six months ago?

Jason Bates

Well, we have definitely seen the pace of new sublease space slow. So while there is a huge wave of sublease space that hit the market over the last 6 to 12 months and that trend seems to have slowed. But in terms of the credit quality of our customers in Houston specifically, there are several customers that are concerning. And so we are keeping a very, very close eye on all of those customers, I would say to-date, we have had no accounts receivable issues. So all of our customers, they are paying on time, but with sustainable energy prices, it puts a lot of pressure on the energy industry in general. And so we are watching it very closely.

Alexander Goldfarb

Thank you.

Operator

Thank you. Our next question is coming from John Guinee of Stifel. Please proceed with your question.

John Guinee

Two questions, Jim. First, you guys have done a great job of identifying assets where the tenants are relatively price insensitive and you can choose the rental rate, but at the same time you are still spending a lot of money in releasing costs. Do you guys have a formula? Or do you guys have a back of the envelope where you can pro forma that? You are spending $6 or $7 per square foot per lease year. You need to get more than a 3% or 4% cash, 10% to 12% GAAP mark-to-market and help people understand the value really being created on an active CapEx basis?

Jayson Lipsey

John, this is Jayson Lipsey. So we look at our leasing economics in a variety of different ways. I think the first and most importantly way look at it is, is the incremental leasing we are doing consistent with our underwriting and does it increase the net asset value of the building?

And so on all of our major leasing decisions, we use ARGUS as our primary analytic tool to determine whether or not we are creating real value given the incremental capital we have to spend to do the leasing. The quick metrics we look at are, what is the net present value of the lease economics when you take into account capital, what is the net effective rate when you back out capital per square foot per year and what are the gross lease rates relative to what we believe the market is.

And so I know the capital may appear elevated. but in our opinion all the leasing that we are doing has been significantly value accretive to the portfolio and in particular very consistent with market turns. When you take into account the significant rate increases we have been able to achieve, it's very good investment for the capital we are spending to get it.

John Guinee

Great. And then second question. Jim, when you think about optimal size for your business, what do you think it is in terms of total enterprise value, i.e., what sort of total enterprise value do you need in order to be in the markets you want and have the scale in the market and cover the G&A?

Jim Heistand

John, it's a good question. We have given it a lot of thought. And my view is, if you are going to be public long-term, I think scale is important because there is certain embedded G&A cost associated with being public that just don't go away. And so as I look at it from an ideal standpoint, actually as a minimum size, I think somewhere in the $3 billion to $4 billion equity market cap is something that rationalizes everything. And so I don't know that you have to be a certain particular size, I would tell you that I think in our view, we are too small as we sit here today. So clearly something north of where we are, kind of in that $3 billion to $4 billion equity market cap, if I was to give you an answer.

John Guinee

That's a good answer. Thank you.

Operator

Thank you. Our next question is coming from Tom Lesnick of Capital One Securities. Please proceed with your question.

Tom Lesnick

Hi. Good morning. My first question is on One Congress. I think you mentioned in tour prepared remarks that you saw some ancillary benefit to the rest of the building from the redevelopment in the Plaza. I was just wondering, how is leasing of the Plaza comparing to your original underwriting expectations, did you bake in the ancillary benefits into that expectation? And then third, are you guys potentially seeing any percentage of rent from the retail on the ground level?

Jayson Lipsey

Well, I think that to be specific on the Plaza, it is 100% leased at this point. We did one large lease with a best-in-class restaurant hospitality operator in Austin who basically handles all of the food service operations in Plaza for us. I think the base lease is very consistent with our underwriting expectations. We did not really factor in any upside in terms of percentage rent. And so my expectation is that there is significant opportunity there as the project is getting a lot of attention in Austin and think it's going to be very successful execution. I think where there is more upside is in the run rates that we are able to achieve in the building. As I discussed is just my prepared remarks, the Main Street lease is a perfect example where the market told us that the redevelopment is worth $3, at least. And so I think that there is significant upside in that project. When completed, it's going to create a lot of value to the building.

Jim Heistand

From an underwriting perspective, Tom, we can look at percentage rent or higher rent in the rest of the building to justify the Plaza renovation. We thought that we were generating an appropriate risk adjusted return and appropriate return on our invested capital, just based on whether or not we were able to ease the retail sell without the benefit of percentage rent, which is included in that lease. So just the fact that Jayson was able to completely lease that food hall really generates the return that we underwrote to make that investment. Getting $3 a foot or more on Main Street lease, being able to get percentage rent, that's all upside compared with how we look at it on the underwriting.

Tom Lesnick

Got it. Thanks. And then my second question, you guys are obviously paying down your 2016 maturities with the proceeds from the sales. But as you said, longer term, do you guys have a target in mind, whether it's a percent of enterprise value or debt to EBITDA on what your leverage levels would look like?

Jim Heistand

So what we have seen is for a long time, Tom, is that we like to be between 5.5 and 6.5 times on a net debt to EBITDA and trying to keep the capital structure preferred as well. So net debt and preferred EBITDA in the 5.5 to 6.5 range, being at 6.4 today and pro forma for the announced sales at 6.1, we feel like that's a great spot to be long-term. Having coverage ratios of interest coverage four time, fixed charge 3.8, pro forma for the sale of the repayment having over 40% of our NOI unencumbered and undrawn line of credit with an additional borrowing capacity of up to $250 million, are all what we think are tremendous credit statistics, especially for a company of our size and we don't feel like we need to improve materially from here long-term in terms of our goal. Our goal is to continue to shift from secured to unsecured and maintain a balance in our borrowings and continue to keep our fixed charge coverage at really high comfortable levels where it is today.

Tom Lesnick

All right. Appreciate the insight. Great.

Jim Heistand

Thanks Tom.

Operator

Thank you. Our next question is coming from Brendan Maiorana of Wells Fargo. Please proceed with your question.

Brendan Maiorana

Thanks. Good morning. Davit, to start, it looked like the expenses in your same-store pool were down significantly. Was there something unusual that was going on there? Or maybe there's something that I just don't recall that caused them to be significantly higher?

David O'Reilly

I think one of the largest drivers there were tax refund this quarter as compared to last year. We don't have a lot of seasonality as we are not signing a lot of our buildings in the Sunbelt. So there was not much out there other than this year we had a little bit of tax refunds that we were able to offset those expenses.

Brendan Maiorana

Okay. But I gather, I know the only guidance change going forward was attributable to the disposition outlook, but your topline number at revenue basis was down this quarter versus last year, but going forward, you still expect that we should see growth in terms of the topline number?

David O'Reilly

I think on a year-over-year basis, given that we have been net sellers of assets, the topline revenue number on a cash basis will grow but on a GAAP basis will not. And that is where we will pipe mostly towards our GAAP and cash same-store guidance, Brendan. So we are still projecting on a midpoint basis negative NOI that's largely driven from topline revenues on a GAAP basis being down as a lot of free rent has burned off and we deal with the impact of the BMC moveout, but from a cash basis that 11%-ish same-store guidance number, it is implying a topline cash revenue growth year-over-year.

Brendan Maiorana

Okay. As you get burn off of Statoil and some of that other stuff.

David O'Reilly

Yes, exactly. When free rent becomes cash, it's a wonderful thing.

Brendan Maiorana

Sure. Yes. And then, I don't know Jayson or Jason must be maybe. Jason, so you mentioned in response to Alex's question earlier, some tenants are on that watchlist in Houston, but no AR issues, but just on the watchlist given where oil is now. Can you maybe quantify the percentage of your Houston tenant base that you guys are paying close attention to, given where oil is today?

Jason Bates

I would say, Brendan. It's sort of 10% or less of the Houston portfolio right now. And again, we don't have any AR issues. We are watching seat counts very closely just to see if people are reducing headcount. I think today most companies that are reducing headcount have actually increased headcount within our locations as a soft to consolidate into their headquarters of best-in-class basis. So it's probably around 10% or so of the portfolio.

Brendan Maiorana

Okay. Great. And then last one, just throwing out to anyone who wants to answer, just longer-term how do you guys think about your Miami strategy, given that JV for Courvoisier and then Lincoln Place, which is an asset that's pretty locked up for a number of years, but has an optionality a few years out. How should we think about what you guys would like to do in Miami over the medium to long term?

Jim Heistand

Brendan, this is Jim. We obviously like the market long-term. Pricing had gotten fairly expensive for us to incrementally grow. We think there will be opportunities. The condo market there has slowed a bit. And so our hope is over time, there is opportunities to come in with something and to the extent, depending up on where our stock price is and our availability of capital, the partner that we did our Courvoisier are interested in growing with us to the extent we wanted to further JVs with them. So you could see us do more in a JV format in Miami unless pricing gets to a point where it's more opportunistic for us to come in wholly-owned.

Brendan Maiorana

Okay. Great. Thank you.

Operator

Thank you. Our next question is coming from David Rodgers of Robert W. Baird. Please proceed with your question.

Dick Schiller

Hi. Good morning guys. This is Dick Schiller here with Dave. We spoke about BMC already. What about U.S. Airways, with them deciding to stay in the building? Do you know if they have any future plans and what they are going to do with the building? And piggybacking off that, is Statoil still expected to get back space here in the third quarter?

Jayson Lipsey

So with regard to U.S. Air, we do not know what their plans are at this time. With regards to Statoil, we are expecting them to return 75,000 square feet in the third quarter of this year. And that's included in our occupancy guidance range and in all of our metrics. So that is a certain moveout at this point.

Dick Schiller

Okay. Great. And you spoke to your leverage targets in your prepared remarks with your share price where it's trading at today, do you have any plans to buy back any stock?

Jayson Lipsey

I think that as Jim said on a number of our conference calls, we look at everything all the time and I think the Board will evaluate the stock buyback as it always does. When we get together, I think that a lot of the considerations that we look at with a stock buyback are the same this quarter that have in the past. Can we do it on a leverage neutral basis? Can we do it with an upside, given the size of our company and the float? And can we get it at a large enough discount NAV to actually create value for the remaining shares that we don't buy back across the board. So there is a number of considerations. We debate them all the time and it's has something that's always on the table.

Dick Schiller

Okay. Sure. Very helpful. Thanks. And then lastly, per the leasing that went down in Florida that brought the cash releasing spreads down, did free rent have anything to do in that? Or is it simply just long tenure leases that were being rolled down back to market?

Jayson Lipsey

No, it's not driven by free rent. These are long leases that had escalated over a long period of time, had escalation numbers in the in-place rent number and were just rolling down to market.

Dick Schiller

Okay. Great. Thanks guys.

Jayson Lipsey

Thank you.

Operator

Thank you. Our next question is coming from Rich Anderson of Mizuho Securities. Please proceed with your question.

Rich Anderson

Thanks. Good morning, guys. Just one question for anyone in the room. How would you describe the differences between the buying public in three segments of your portfolio, first Houston, second Jacksonville and third everything else? Are there very different types of investor looking at those assets today?

Jim Heistand

Yes. I think what's interesting is, as we understand it, there is quite a bit of money that's on the sidelines looking to make an entry point in Houston at the right pricing point and as I said earlier, there hasn't been, Richard, a lot of price discovery there. But there is the more value add opportunistic buyers that have lined up to take advantage of it. And so I think that obviously who wants that for Houston. It's interesting, Jacksonville, we just talked about Fidelity rate. While we rolled it down from what it had accumulated to, we had bought the buildings that the rents in-place for $18.50, $19 and we took that deal to $22 and there is still room to run with no development going on. So there is more interest in a Jacksonville asset, should we want to monetize it today than it was three years ago when we bought it.

As to the rest of the portfolio, there is a tremendous amount of interest. And in fact, we get inbound opportunities to sell something, should we want to, across the board. And that, even in the face of the volatility in the market, there still continues to, as Jason spoke earlier, a lot of interest for the high-quality core assets. And I think what's interesting what we found is that in the people who have expressed interest, unsolicited interest, what they really looked for, what they really like is instead of buying one building in Charlotte or buying two buildings in Tampa, the portfolio concentration of quality that we have assembled in those markets has more appeal and a higher price pipeline by buying all of that than one asset.

Rich Anderson

That's really great color. Thanks, Jim. And just as a quick follow-up, are you seeing any of those three buckets that I brought up, interest from international players you spoke to and all that? Or is that not just taking effect yet?

Jim Heistand

I find those to be more elusive. Everybody has got foreign capital. We were successful, obviously, with foreign capital in Miami. So there is more foreign capital looking to come into the market and what I will say is, there is more core buyers, core fund buyers in our Sunbelt markets then they were a year ago. That's a fact.

Rich Anderson

Okay. Great. Thanks. I appreciate it.

Operator

Thank you. Our next question is coming from Manny Korchman of Citi. Please proceed with your follow-up question.

Michael Bilerman

Hi Jim, It's Michael Bilerman. How are you?

Jim Heistand

I am lovely, Michael. How are you?

Michael Bilerman

Lovely. You have a look at --

Jim Heistand

My stock is $12.75. How great can I be, right?

Michael Bilerman

$12.75. It was $12.12.

Jim Heistand

I don't look on the tall, man.

Michael Bilerman

Well, you talked about the significant wanting to do share buyback in a significant discount against, the sell side has your NAV $18 to $19. That would define, at least in my view, as significant? Is that not appetizing enough for you to want to do that?

Jim Heistand

Listen, if you are asking to buying it like $500 million at $12.25, I would do it in a heartbeat. I think the problem for us, given the size of it being able to get it at that pricing would be somewhat of a challenge. And being able to do it on leverage neutral basis, being able to get that much size, yes, from a discount perspective, Michael, the math works. It is absolutely appetizing enough. And it meets the other criteria and find the proceeds to do it on leverage neutral basis without cutting into the meat of the company, that's another question and one that we continue to work on.

Michael Bilerman

Well, how do you view and I recognize you have lost income that's having some offset, but you have been a little more aggressive at selling assets, how much of that was getting her leverage in check versus getting it to be below average? And so I am just curious as you think about that goalpost as well?

Jim Heistand

Well, let me back up just a minute. I think a lot of our sales have been a function of non-core assets that we just didn't believe strategically were going to perform and have as a higher return going forward. If you think about Houston, we had 3 million feet when we came in Houston of really bad assets. All of those assets are gone. We still have 3 million feet, but it's a higher-quality base. So we have been selling fro more of a strategic ownership standpoint and obviously delevering at the same time.

But back to your point, I could hear every day and I have got 1.7 million shares of Parkway, so we sit here and debate and we looked at every opportunity we can to create the value that we think is embedded in the portfolio if that share buyback that we can either structure through perhaps selling some more assets at high pricing or JV-ing assets and buying back the shares at the right price, we will do that. And there is nothing that's not on the table, Michael, for us if we get something done to get that.

We feel like we have created a lot of value in this portfolio and we all like the fact that it is not reflected in our share price right now.

Michael Bilerman

Well, we have had this discussion over time about strategic alternatives and rather than just buying back stock or selling assets, selling the company and you have always, you have some companies in the past, you have been very strategic. Do you think you missed the opportunity, call it 12 to 18 months ago, to execute a sale transaction? Or is that something that could be executed in this sort of environment?

Jim Heistand

I think that without a doubt, the environment 18 months ago would have been much better than it is today, okay. I think that today the environment as we sit here, especially as it relates to Houston, is more challenging today to get something done at pricing that we think is appropriate. Now what I mean by appropriate, if I were to sell of each one of these assets by itself, what would that be worth? And so you know, it's definitely harder today to do that but my point is if somebody were to have provided us an appropriate pricing that we think is reflective of what the company is worth, we would always entertain that. And so I think right now, given the market volatility, it's not like people are banging down the door to get something done.

Michael Bilerman

I think back to when you did the joint transaction with Brandywine on -- thank you. I haven't had all my coffee. Do you think about, is there a someone or multiple parties for Parkway that can look at taking Houston and someone else takes the remaining? So being able to pair two people up together to execute a transaction?

Jim Heistand

Those are all things we currently look as we sit here. That's a good idea, but we have been thinking about as well.

Michael Bilerman

Thank you.

Operator

Thank you. We are showing time for one final question today. Our final question is from Jamie Feldman of Bank of America. Please proceed with your follow-up.

Jamie Feldman

Thanks. Just a quick follow-up on the U.S. airspace. I think you said in a answer to a prior question was you are not sure of their plans. Can you just walk us through the timeline and different way this could play out?

Jim Heistand

So Jaime, what I could tell you first off is that in our previous guidance and in our guidance today, U.S. Airways has same occupancy in that space for the entirety of the year since the termination option would have been affected the last day of 2016. Because we did not receive the notice, their lease is in effect for at least the next five years and other than that I am not sure that we can provide a lot of color or detail in terms of other ways it could play out. Because right now we have a tenant with a lease that's in full effect and we value those highly.

Jamie Feldman

Okay. So just to be clear, that extends the lease for five more years, right? Is that what you said?

Jim Heistand

At a minimum. Their actual lease term is beyond that. They have another termination option in five years.

Jamie Feldman

Okay. All right. Thank you.

Operator

Thank you. At this time, I would like to turn the floor back over to management for any additional or closing comments.

Jim Heistand

We thank everybody. Great questions and we look forward to seeing everyone soon at [indiscernible] conference and thank you again. Have a great day.

Operator

Ladies and ,gentlemen thank you for your participation. This concludes today's teleconference. You may disconnect your lines at this time. And have a wonderful day.

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