Highwoods Properties - Earnings Call - Q2 2017

Transcript

Speaker 0

Ladies and gentlemen, good morning, and welcome to the Highwoods Properties Conference Call. During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session. As a reminder, this conference is being recorded today, Wednesday, July 2637. I would now like to turn the conference over to Brendan Mayorana, Senior Vice President, Finance and Investor Relations.

Please go ahead, sir.

Speaker 1

Thank you and good morning. Joining me on the call this morning are Ed Fritsch, President and Chief Executive Officer Ted Klink, Chief Operating and Investment Officer and Mark Mulhern, Chief Financial Officer. As is our custom, today's prepared remarks have been posted on the web. If any of you have not received yesterday's earnings release or supplemental, they're both available on the IR section of our website at highwoods.com. On today's call, our review will include non GAAP measures such as FFO, NOI and EBITDA.

Also, the release and supplemental include a reconciliation of these non GAAP measures to the most directly comparable GAAP financial measures. Before I turn the call to Ed, a quick reminder that any forward looking statements made during today's call are subject to the risks and uncertainties, and these are discussed at length in our annual and quarterly SEC filings. As you know, actual events and results can differ materially from these forward looking statements. The company does not undertake a duty to update any forward looking statements. I'll now turn the call to Ed.

Speaker 2

Thank you, Brendan, and good morning, everyone. Each quarter, we typically start our call with a few brief comments regarding the economy and business conditions. In reviewing my prepared remarks from the past few years, the commentary has been consistently consistent. Economic growth at around 2% has been positive, albeit below the long term trend. Inflation has been nominal.

Interest rates have remained low. Job growth has been modest and the capital markets have been accommodative for well capitalized companies. At the risk of sounding like a broken record or a podcast stuck on repeat, the current conditions appear once again in sync with the recent past. While seemingly stuck in second gear, this backdrop has proven to be a positive for our business. Office absorption has remained net positive, Speculative new supply has been held in check and well below past peaks.

Net effective rents have continued to improve and demand for highly pre leased development has been healthy. We believe we're well positioned to continue to capitalize on this monotonous macroeconomic environment. Our portfolio of BBD located office properties continues to garner strong rent growth. Our development projects will continue to strengthen our cash flows and drive value creation and our balance sheet has never been stronger. Other than the length of the cycle, we don't see any indications that the current economic conditions soon change.

In addition, we believe we're well positioned if and when conditions were to change. Our BBD submarkets are typically the last to de lease in a down market and the first to re lease in an up market. Our strong balance sheet provides us with the flexibility to pursue prudent growth opportunities via value add acquisitions and our strong and proven development program. Turning to the second quarter, we delivered $0.90 of FFO per share, 10% higher than the same time last year. The quarter included a penny from debt extinguishment gains.

Our strong financial performance was driven by better NOI in our same property pool, accretion from recently delivered development projects and savings from lower average interest rates. Given our positive results, we have increased the midpoint of our FFO per share outlook by $01 after factoring in $02 of anticipated dilution from planned dispositions not previously included in our forecast. In summary, we are pleased to deliver steady FFO growth while continuing to recycle out of non core properties. On the operational front, we posted strong same property cash NOI growth of positive 5.3%. Cash rent spreads on signed leases were positive 1% and GAAP rent spreads were positive 15.3.

This quarter was the fifth consecutive quarter of positive rent spreads, double digit positive GAAP rent spreads. Our occupancy was 92.7% at the end of Q2, the same as at the end of the first quarter. An increase in occupancy in our same property pool was offset by placing in our unoccupied 131,000 square foot industrial development project in Greensboro. Behind the scenes, disposition activity was heavy during the quarter and we expect those efforts will translate into closings that will occur in the latter part of the year. Therefore, we increased the low end of our disposition outlook from $50,000,000 to $105,000,000 The $105,000,000 includes the $13,000,000 sold in the first quarter plus another $92,000,000 of properties that are under contract with non refundable earnest money deposits.

We have additional properties entering the market for sale that could bring the total for the year to the high end of our guidance of $150,000,000 We anticipate dispositions will be dilutive to 2017 FFO by $02 per share with the impact primarily coming in the fourth quarter. As a reminder, in keeping with our strategic plan, we routinely evaluate our portfolio for non core properties and expect to continue to be regular recyclers of assets. We kept our outlook for acquisitions unchanged at $0 to $200,000,000 The acquisitions market is slow. For the few BBD located Class A properties that have come to market, we concluded pricing was out of sync with our view of the risk profile. We continue to evaluate on and off market opportunities with a focus on prudent investing.

Our development program continues to be a core competency of our company. At $225,000,000 of 82% pre leased development starts encompassing 769,000 square feet announced so far this year, we've already exceeded the high end of our original outlook of $220,000,000 This $225,000,000 includes $99,000,000 of new projects announced subsequent to the end of the first quarter. In addition, during the second quarter, we placed $2.00 $8,000,000 of 96% leased development in service and signed a total of 245,000 square feet of first gen leases. Our development pipeline now encompasses 1,500,000 square feet, a total investment of $440,000,000 and is 76% pre leased. The largest of our recent development announcements is the $65,000,000 219,000 square foot third building for MetLife's Global Technology Campus in Raleigh.

This announcement comes less than two years after we delivered their first two buildings. This 50% expansion announcement is a flattering endorsement of the Triangle area and MetLife's confidence in the Highwoods team. As part of yesterday's earnings release, we announced Virginia Springs 1, a $34,000,000 109,000 square foot 34% pre leased office building in the Brentwood submarket, a Nashville BBD. Construction is scheduled to commence in the fourth quarter and the building will be built on company owned land which we acquired last year. Brentwood has vacancy of 7% and there is no office development underway.

Our 1,700,000 square foot portfolio in Brentwood is 92.6% occupied. And our $107,000,000 299,000 square foot Riverwood 200 development project in Atlanta, shell construction is complete and our first customers moved in during the second quarter. We're now 79% pre leased two years in advance of pro form a stabilization. Shell construction is also complete at 7 Springs II, our $38,000,000 135,000 square foot project in Nashville. We increased the pre leasing percentage to 63% during the quarter and have a number of active prospects.

Stabilization is projected for the 2018. We continue to see a pipeline for potential highly pre leased development projects. While it's always difficult to forecast if and when a sizable user will commit to a development, we're encouraged by the conversations and level of activity and therefore have increased the high end of our development announcements to from $220,000,000 to $275,000,000 Our average development project announcement is around $50,000,000 so the high end of guidance includes the potential for one additional announcement before year end 2017. Again, is a core competency for us and an ongoing engine of strengthening cash flow and earnings growth. The combination of strong operating fundamentals, a solid balance sheet and the delivery of well pre leased development projects sets the table for continued growth over the next several years.

Ted? Thanks, Ed,

Speaker 3

and good morning. We had solid activity this quarter. Fundamentals across our markets have remained consistently healthy over the last several quarters. We continue to see long term dynamics benefiting our markets. Simply stated, people enjoy living and working in the Southeast, where population and job growth are routinely above the national average.

Raleigh had major employment growth announcements from numerous companies this quarter. Included in these are more than 1,000 expected new hires from both Credit Suisse and Infosys, a new entrant to Raleigh, plus MetLife's planned growth at our campus for them. Nashville has been our highest growth market this cycle. It continues to attract new residents and employers, and its existing companies continue to expand their office footprint. Atlanta, our largest market, has garnered many corporate relocations, and the organic growth of large corporate users has been strong.

With limited new speculative supply and solid growth, the outlook in Atlanta continues to be bright. This past weekend, a New York Times article highlighted Pittsburgh is a growing tech center. Demand from leading tech companies such as Google, Uber, Facebook, Amazon, and Apple will help drive office absorption across the market. There's also healthy demand from legal, financial, and professional services firms as well as corporate users. The combination of a palpable urban vibe, affordable cost of living, and steady stream of graduates from local universities has Pittsburgh on the map for employers seeking well educated talent.

Turning to our stats for the quarter. Total portfolio occupancy held steady from Q1 at 92.7%, and office only occupancy increased 50 basis points to 92.9%. As Ed noted, rents continue to move up, and this was a fifth consecutive quarter with both positive cash rent spreads and double digit positive GAAP rent growth. Further, our in place cash rents per square foot are up 2.6% from the prior year, even with Bridgestone's 500,000 square feet where we're not receiving cash rent as this lease is still under early possession GAAP rent recognition. We leased 575,000 square feet of second gen office space with an average term of six point one years in this quarter, and year over year asking rents continue to move higher.

TIs are generally moving up with escalating construction costs, but we've been mostly successful in recouping these costs with higher rents. Over the last four years, average net effective rents on second gen office leases signed have increased approximately 25%. Turning to our operational performance in the quarter. We grew same property cash NOI by 5.3% over the prior year. We attribute this to higher average occupancy and in place rents plus lower operating expenses.

We expect NOI growth will moderate in the 2017 due to the timing and seasonality of operating expenses and the previously disclosed move outs. Overall, we're pleased we were able to increase our same property NOI growth outlook again this quarter. Our updated outlook is 3% to 3.75% growth, which we view as positive considering average occupancy in the same property pool is projected to be modestly lower year over year. We ended the quarter with 92.7 occupancy, and our year end outlook remains unchanged at 92.2% to 93.2%. I'll first start with a brief update on our work to backfill some of the larger 2017 move outs we have previously disclosed.

In Nashville, at the end of Q1, we had re let 37% of the former 210,000 square foot HCA space. We're now at 44% and have strong prospects that would take us above our year end goal of 50% re let. In Richmond, we mentioned last quarter that we had already released 39% of the 163,000 square feet that SCI is scheduled to vacate in the third quarter. We moved that the re let percentage to up to 64% at the end of the second quarter, and we have prospects for approximately half of the remaining space. We feel good about the level of interest we're seeing.

In Atlanta, as previously disclosed, we'll get back 136,000 square feet in two blocks in the third quarter. These move outs are heavily driven by customer M and A activity. The positives are the blended in place rents are approximately 10% below market, and there aren't a lot of large blocks of Class A space available in Buckhead. Sticking with Atlanta, we continue to generate strong rents as evidenced by GAAP rent spreads of positive 30.5% on signed deals in Q2. The positive backdrop of fundamentals and the quality of the blocks of space we will soon have available combined to make us confident will drive NOI upward as occupancy normalizes.

We've seen the most year over year improvement in our Tampa portfolio, where occupancy is up four twenty basis points. Our occupancy is 93.1% and activity remains healthy. We signed 96,000 square feet of second gen leases in the quarter with GAAP rent growth of 19%. According to JLL, asking rents in Tampa were up 3.8% over the last twelve months. At SunTrust Financial Center, we're now 89.7% occupied, up from 77% when we acquired it less than two years ago.

With no new speculative office construction and healthy demand from a diverse group of users, we expect solid fundamentals to continue. In Raleigh, the market continues to show steady growth. Per Addison Young, Class A rents are up 5% year over year and vacancy is down 140 basis points to 9%. Our portfolio is 93.3 occupied, up from 91.9% a year ago. We've been watchful of the new supply, which is now 2,100,000 square feet or 4.5% of the market.

At 38% pre leased and spread across numerous submarkets in Raleigh and Durham, we believe the level of supply is meeting market demand. Less than 1,000,000 square feet of this supply is competitive to our BBD located office portfolio. Finally, in Nashville, leasing activity and rents remain strong. Per Cushman and Wakefield, market vacancy is six point nine percent and six point zero percent for Class A properties. Class A asking rents are up 10% year over year.

New supply is 2,500,000 square feet or 6.7% of inventory, which is approximately 60% pre leased. New supply levels are down from the peak in 2016, and net absorption was robust in Q2 at 667,000 square feet. The market's steady demand suggests the remainder of this new product will be appropriately absorbed. Our portfolio occupancy is 95.7%, up 150 basis points from Q1, and we posted solid GAAP rent spreads of 15% in Q2. In conclusion, the positive fundamentals across our markets offer a healthy backdrop for our business.

Solid demand for our well located DVD office product should support strong organic NOI growth going forward. Mark? Thanks, Ted. During the quarter, we delivered net income of $37,600,000 or $0.37 per share, a 16% increase year over year and FFO of $94,500,000 or $0.90 per share, a 10% increase year over year. Rolling forward from the $0.80 per share of FFO we delivered in Q1, the increase in Q2 was driven by the following items.

NOI from our customers early possession of Bridgestone Americas headquarters of $04 per share, debt extinguishment gains of zero one dollars per share, the normalization in G and A that equated to $02 per share. As you know, our first quarter G and A is customarily higher due to the routine expensing of equity incentive costs under our long standing retirement plan. Sequential improvement in same property NOI of $02 per share, much of this improvement is driven by seasonality that we usually see in Q2. And as Ed noted, there were also other lower than anticipated operating expenses in the quarter. And finally, lower interest expense of $0 per share.

These items make up the $0.10 increase in FFO. Turning to our balance sheet and financing activities, we ended the quarter with leverage of 35.3% and debt to EBITDA of 4.56 turns. Importantly, while we are committed to grow on a leverage neutral basis over the long term, we are able to fund the remaining $271,000,000 of spending on our development pipeline without the issuance of new equity and still maintain a debt to EBITDA around the midpoint of our stated comfort range of 4.5 times to 5.5 times. We had several important financing transactions this quarter. The first is a new $100,000,000 secured loan with a twelve year term that carries a 4% interest rate.

These proceeds were used to pay off a $108,000,000 maturing secured loan with an effective interest rate of 4.2%. This refinancing extends out our maturity ladder at a competitive fixed rate while further driving our unencumbered NOI to a record level for us at 96%. Second, we entered into floating to fixed interest rate swaps through January 2022 with respect to an aggregate of $50,000,000 of LIBOR based borrowings, which effectively fixes the one month LIBOR at a weighted average rate of 1.69%. Third,

Speaker 0

as

Speaker 3

I mentioned on our last call, we obtained $150,000,000 of forward starting swaps that effectively lock the underlying ten year treasury at 2.44% with respect to a forecasted debt issuance before May 15. As Ed mentioned, we updated our FFO outlook to $3.33 to $3.38 per share, a penny increase from the previous midpoint of $3.345 per share. As noted in our earnings release, this increase incorporated anticipated dilution from planned dispositions we forecast will close in the remainder of 2017. Most of this dilution will affect our fourth quarter results. When factoring in this $02 of estimated dilution, our apples to apples FFO outlook is up $03 per share at the midpoint.

While these dispositions are dilutive to FFO, we don't expect they will alter our trajectory of strengthening cash flows in 2017 and beyond. It's worth considering a few modeling items for the 2017 and going forward. Our same property cash NOI growth is expected to moderate in Q3 and Q4 due to the timing and seasonality of operating expenses and the back half of the year impact of the known vacancies that we have discussed. Other income is projected to drop due to the non recurring debt extinguishment gains realized in Q2 that are not forecasted to repeat in the second half. Higher interest expense due to lower capitalized interest and higher share count.

With that, operator, we are now ready for your questions.

Speaker 0

Our you. First question comes from the line of Manny Korchman.

Speaker 4

So given the positive remarks you had about both sort of Nashville and Pittsburgh, if we were to push you really hard and say what's going be the next market that you go into sort of the way

Speaker 2

you did Nashville, what would that be Ed? So a new market for us or where new dollars would more likely be invested? Sure. Both. So the answer on the first with regard to new markets, we look at markets as you know that aren't gateway cities.

So we're not interested in trying to elbow our way into New York or LA as examples. We like to be kind of the big dog on a medium sized porch in mid tier cities. We also like cities that have demographics that outperform national averages and we've seen that in our current footprint. So we would look for cities that mimic having demographics that outperform national averages. And then proximity to our current footprint makes a lot of sense.

So let's say that Portland has really good demographics. It's not a gateway city, but geographically it doesn't make sense to us. So we have routinely looked in markets that basically go from DC over to Texas And that leaves you with about a half a dozen or more markets in that footprint that we routinely look at for a right opportunity to enter as we found in Pittsburgh, but we haven't found pricing or assets or scale to be in alignment yet with our investment objectives. And then with regard to just dollars invested going forward, you would predominantly be in this part of the cycle on the development side given acquisitions is pretty quiet right now. And we're looking at a good handful of additional developments in addition to what we have in our current development pipeline, but it's very difficult to tell what may or may not come to fruition on the build to suit side.

But I can tell you that of the handful that we're pursuing, it crosses five different markets for us.

Speaker 4

Great. And then if we think about the move outs that are coming in the latter half of this year, how much capital do you think you'll have to put into those spaces to get them released?

Speaker 2

Think probably the biggest disproportionate amount, Manny, would be and I know this is reaching into next year would be the FBI because we have a heavy dose of hybridizing that we need to do there and we'll get that space back in February. But as far as the HCA Space and the SCI Space, we've already invested the dollars in both of the HCA buildings, which was divided 100 Three-twenty 2 and the other ramparts. Those improvements have been the common area advertising improvements have been complete. And then the TI dollars will just be in sync with market. There's no unusual aspects of that or at SCI in Richmond.

Okay. Thanks, Ed. You're welcome.

Speaker 0

Our next question comes from the line of Jamie Feldman with Bank of America Merrill Lynch. Please go ahead.

Speaker 5

Thank you. Good morning. I guess just sticking with some of the Atlanta vacancy to come. Can you maybe just talk about asking rents and specific leasing pipelines or tenant interest breaking out the bucket space, the two bucket spaces and then also from the FBI is how we should be thinking about timing and what that demand pipeline looks like today?

Speaker 3

Sure, Jamie. This is Ted. First, in Buckhead. I think we're asking rents in Buckhead in those buildings generally mid-30s, which is about 20% below the three Alliance Building new construction just got delivered. So we're signing deals in that range today.

Feel like the market there's nothing else under construction, so we think the market and there aren't a lot of new big blocks available in the market. So we feel pretty good about leasing that up. Get just a reminder, we get about half the space back at the end of this month and about half at the August. We've already had numerous showings on the space. So I think we're gonna wait that up in due time.

With regard to the FBI, they vacate February 1. We're already starting to show that as well and seeing a lot of activity, including a strong prospect for about 18% of the space. We feel real good about leasing that up in a fair amount of time as well.

Speaker 2

And then with regard to your question about where it stands in market, combined, the two tranches that we'll get back in Buckhead are about 10% below market and the FBI space is basically equal to market today.

Speaker 5

Okay. And the FBI space, is that something you would break up?

Speaker 2

Absolutely. Absolutely. It's it's it good question, Jamie, because you would normally think that it's a field office, so it would be a single customer building. But they actually occupy 136,500 square feet of a 228,000 square foot building. So it is a multi customer building today.

So yes, we would absolutely lease by four. In fact, we have a good prospect for a floor at this juncture.

Speaker 5

Great. Thanks. And then you didn't talk a lot about Orlando. Can you just update us on what you have going on there? Is that a market you want to stay in longer term?

Just latest thoughts.

Speaker 2

Sure. Yes, it's a core market for us, no doubt. Our investment in Lincoln Plaza, we have site downtown that we have schematic drawings for what we can do up to a 300,000 square foot build to suit right across from our Cat Plaza 1 And 2 with integrated structured parking. Yes, it's a you may remember we bought DLF out a number of years ago and we think that that the basis in which we bought that 1,300,000 square feet very attractive. And Orlando has been slower to come back after the recession, but we're certainly seeing that market show some positive signs akin to what we've experienced in Tampa.

Raleigh, Nashville, Atlanta came back quicker and Tampa was slow to do it. But now Tampa is, I think Ted said in his comments, probably one of our hottest leasing markets right now and we're hopeful that Orlando is not far behind that.

Speaker 5

Okay. And then just last question is, I think you had mentioned five potential build to suits you're working on. Is that all on Highwoods Land? And what does that mean for yield?

Speaker 2

All but one are on Highwoods Land. And the yield what we have said in the past is we don't like to speak to anything specific because then the competition knows what we're quoting from project to project. But we've consistently averaged eight plus on a GAAP return for our development projects.

Speaker 5

Okay. All right. Thank you.

Speaker 2

Thanks, Jamie.

Speaker 0

Our next question comes from the line of Dave Rodgers with Baird. Please go ahead.

Speaker 6

Hey, good morning guys. Mark, maybe just start with you on Bridgestone. With the contribution in the second quarter a full quarter contribution, I guess other way

Speaker 0

of asking that is, is

Speaker 6

there any incremental contribution in the third quarter?

Speaker 3

No, Dave. Yes, there was a full contribution in the second quarter and we'll see a similar number in Q3.

Speaker 6

And I assume the big straight line rent had the Bridgestone addition. I guess maybe as we roll forward over the next quarter two or three and into 2018, can you talk about kind of what the rent adjustment would look like both with the asset sales that maybe you're looking at, maybe some older higher CapEx sales as well as the Bridgestone roll off and roll on to cash rent?

Speaker 3

Yes. Dave, the Bridgestone lease obviously will convert to cash in 2018 here. That straight line rent will decline. Again, it's about $4,000,000 a quarter in Q2 and Q3. The dispositions will be dilutive to FFO as we've noted in the release.

But from a cash flow perspective, not really impacting any of that. And so that should be positive again from a net cash flow basis going forward.

Speaker 6

Okay. That's helpful. And maybe for Ed or Ted, I think the year end occupancy guidance is right below 93% at the midpoint. Do you feel that there's still room to push occupancy here in the cycle over the next couple of years? Or are we getting to that point of kind of a frictional vacancy rate within the portfolio?

Just curious on your thought on that.

Speaker 2

Yes. I think it's fair to consider equilibrium in the current environment to around ninety three point five percent. And obviously, us placing in service the 131,000 square foot warehouse in Greensboro that's unleased has an impact on where we may be by the end of the year.

Speaker 6

Okay. That's helpful. And then just given the strength of the office markets where you are, any thoughts on moving forward with more speculative development on the office side like you've done on the industrial like you talked about? And talk about any activity that you might have on the industrial building you just mentioned. So sorry, two more.

Speaker 2

Sure. So on just the spec development, we did announce in yesterday's release Virginia Springs 1, which is 34% pre leased building. So there's obviously a spec component to that. Prior to that, we had announced seven fifty one Corporate Center in Raleigh, again about a third pre leased. And then before that, we had announced Centigrene 5000 Centigrene that was a pure spec building.

So I think we've done it in a very cadence manner and we'll continue to look at those opportunities. And we look across how much do we have that's build to suit 100% pre leased versus how much back do we want to take on. We look at it not just by market but in the aggregate across the portfolio. I think the cadence in which we've done that would be a fair way to consider how we would continue to do it in the future. The second part of your question with regard to the building we're referencing is Enterprise 5.

Could be confusing because we also recently announced Enterprise 4. They're both about the same size, about 130,000 square feet. Enterprise four, we announced 63% pre leased. Enterprise 5, which we started a year before we started spec. And it's still, as I mentioned, unleased.

But we feel very good about it. In Enterprise Park, have 660,000 square feet that's 96.7% occupied. And in Greensboro, we have 2,400,000 square feet, that's 95.8%. And the market itself is 114,000,000 square feet, that's 95.5% occupied. So when you look across whether it's ours in the park or in the market or the market as a whole, the occupancy is 95 plus percent.

So we just haven't met the right customer yet and the total investment is only $7,600,000 So we're not losing any sleep over that one yet.

Speaker 6

Makes sense. All right. Thanks guys.

Speaker 2

Thanks Dave.

Speaker 0

Our next question is a follow-up question coming from the line of Manny Korchman with Citi. Please go ahead.

Speaker 4

Hey guys, just a follow-up. The operating expense savings in 2Q, can you sort of discuss what they were and how they differ from the ones in 1Q? And I was under the impression they are sort of more deferred in nature and will actually be recognized in 3Q or 4Q. So maybe just some details on that.

Speaker 3

Yes, Manny, it's Mark. What I'd say is obviously we the second quarter is milder weather, so our utility numbers were a little modest on a comparative basis. We had some property tax savings that we were able to get through the property tax appeal process. So I would say those were the primary drivers of maybe the decline. And what we're cautious about is we did have some repair and maintenance expanding that we think will shift into the third and fourth quarters.

So we do anticipate again moderating of that same store NOI number as you go into Q3 and Q4. We're coming off of two quarters of five plus percent growth in cash NOI and you see what we did to the guidance. So yes, we do anticipate a combination of a little higher OpEx and then some of the impact of the vacancies impacting those numbers. Thanks, Mark. Sure.

Speaker 0

Our next question is a follow-up question coming from the line of Jamie Feldman with Bank of America Merrill Lynch. Please go ahead.

Speaker 5

Thanks. I'm just curious to hear your latest thoughts on how much you may need to raise the dividend based on the developments in the pipeline and cash flow growth?

Speaker 3

So Jamie, as you know, we kind of make a periodic evaluation of the dividend. We've got a lot of good things happening here with respect to putting, as you noted, the developments in service and the cash flow improving over time. So I do think the CAD numbers and certainly the free cash flow will strengthen over time. We'll get in and make that decision and discuss it with the Board obviously and make some evaluation, but it's a little early for that. We're just coming off a 3.5% increase that we made in 2016.

So I think we'll get to that, but I wouldn't tell you what that is right now.

Speaker 5

Okay. Thanks for the color. Sure.

Speaker 0

There are no further questions on the phone lines at

Speaker 2

this time. I'll turn the conference back to you. Thank you everyone for dialing in. Thank you for the questions. As always, if you have any follow-up questions, don't hesitate to give us a call.

Thank you.

Speaker 0

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